NEW YORK – While there must be rules for internationally active banks, financial regulation need not be negotiated internationally, Federal Reserve Board Governor Daniel K. Tarullo testified before the Senate Tuesday.
“Although adopting a robust, common set of capital and liquidity rules for internationally active banks is critical, it is neither practical nor desirable to negotiate all details of financial regulation internationally,” Tarullo told the Senate Subcommittee on Security and International Trade and Finance, Committee on Banking, Housing, and Urban Affairs, according to prepared text of his remarks, which were released by the Fed. “It is important that the United States preserves the flexibility to adopt prudential regulations that work best within the U.S. financial and legal systems. Within a common set of agreed-upon global standards, each jurisdiction will want to tailor some of its rules and supervisory practice to national conditions and preferences. Along these lines, there have been recent discussions within the FSB on the possibility of formalizing consultations among member countries to examine how each member is using its own mix of instruments to achieve particular safety and soundness ends.”
Basel III initiatives on capital requirements “go beyond the package of measures that we expect to be completed by the fall,” he said. “These efforts include, among others, ideas for countercyclical capital buffers, contingent capital, and development of a metric for capital charges tied to systemic risk. Each of these ideas has considerable conceptual appeal, but some of the difficulties encountered in translating the ideas into practical rules mean that work on them is likely to continue into next year.”
