US pitches for new intl regulatory standards for banking firms

Last Updated: Friday, September 4, 2009 - 20:35

Washington: Pitching for a revamped global
regulatory framework, the US has suggested a slew of stringent
capital and liquidity standards for banking firms worldwide
aimed at ensuring a stable financial system.

Among the proposals are higher capital requirements for
banking firms that pose a threat to the financial stability,
increased emphasis on high quality forms of capital and strict
liquidity standard.
"A comprehensive agreement on new international capital
and liquidity standards should be reached by December 31,
2010 and should be implemented in national jurisdictions by
December 31, 2012," the US Treasury Department said in a
statement on Thursday.

Grappling with one of the worst ever financial crises in
decades, many developed and developing countries are looking
to introduce more stringent norms especially for the financial
sector.

Also, it is widely believed that lax regulations was one
of the prime reasons for the raging turmoil.

"Going forward, global banking firms must be made subject
to stronger regulatory, capital and liquidity standards that
are as uniform as possible across countries," the Treasury
said.
"Capital requirements for all banking firms should be
increased, and those for financial firms that could pose a
threat to overall financial stability should be higher than
those for other banking firms," the statement noted.

Further, the Treasury has said capital requirements
should be designed to protect the stability of the financial
system rather than just that of individual banking firms.

According to the statement, stricter capital and
liquidity requirements for the banking system should not be
allowed to result in the "re-emergence of an under-regulated
non-bank financial sector that poses a threat to financial
stability".

The ongoing global financial turmoil has its roots in the
US sub-prime crisis, which turned worse after the fall of the
then mighty Wall Street firm Lehman Brothers last September.

Moreover, the Treasury said the existing regulatory
framework failed to prevent the build-up of risk in the
financial system.

"Major financial institutions around the world had
reserves and capital buffers that were too low, used excessive
amounts of leverage to finance their operations, and relied
too much on unstable, short-term funding sources," it added.

Bureau Report



First Published: Friday, September 4, 2009 - 20:35

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