Local banks resist US proposal

Australian banks are pushing back against an American plan to force lenders with a US presence to hold more capital, saying the move may cause some foreign banks to review their presence in the market.

As part of its response to the global financial crisis, the US Federal Reserve has proposed requiring foreign banks to set up separate holding companies for their US operations, and strengthen capital and liquidity standards.

In a letter to the Fed, the Australian Bankers' Association said some members would be "significantly impacted" by the proposed changes, many of which were "unnecessary". Australian banks were already tightly regulated and the local authorities were at the forefront of implementing more stringent global capital rules, it said, and the Fed's move would add needless costs.

It urged the Fed to take a more "flexible" approach to banks from countries such as Australia that were globally recognised for regulating their banks well.

The plan threatened to "damage the US financial industry as some [foreign banks] review their operations in the US," it said.

"The proposals do not appear to give recognition to countries such as Australia that already have strong prudential regimes," said the letter from Tony Burke, the ABA's director of industry policy and strategy.

"It is important that there continues to be international coordination with respect to regulation, and the Proposed Rule diverts from the long-standing approach of consolidated supervision by home-country regulators."

Among big Australian banks, NAB owns the US lender Great Western Bank, with assets of more than $US9 billion and close to 200 outlets in the US Midwest. Macquarie Group has also been aggressively expanding its presence in US investment banking since the global financial crisis.

The ABA has called for coordination between countries in implementing bank regulation.

It said there was a "long-standing" approach of home country regulators supervising their banks, and the US move could cause other nations to develop their own set of rules.