US group fighting plans for international banking 'buffer'

AN American banking group is urging Basel Committee negotiators working on new international capital standards to ditch part of their proposal.

The American Bankers Association opposes plans that require financial institutions to build up their reserves when the economy is going strong so that they can better handle eventual downturns.

The proposal for a "counter-cyclical buffer," being considered by banking regulators from 27 countries, duplicates existing regulatory powers, the ABA said.

The proposal would be difficult to implement, could lead to unintended consequences, and could "impose significant and unwarranted increases in the cost and permanent constraints on the supply of credit that would be a detriment to the broader economy," the group said.

The ABA voiced its concern in a letter to members of the Basel Committee, the group of central bank and regulatory officials negotiating the new capital standards.

The committee will meet today in the Swiss town of Basel to agree on tougher bank capital and liquidity standards. Leaders of the group of 20 countries are expected to adopt the new standards at a meeting in November.

The idea behind a "counter-cyclical capital buffer" is that it can prevent the overheating of the economy during boom times while allowing banks to build up capital so they are in a better position to lend when a slowing economy needs a jolt. As a basis for determining when more capital should be held, negotiators have proposed looking at whether there is excessive credit levels in the broader economy in relation to economic output.

The ABA argued the committee's approach could lead to a "one-size-fits-all" approach that punishes banks that take proper risk precautions.