WASHINGTON — Federal Reserve Board Chairman Ben Bernanke signaled Wednesday that the U.S. did not intend to follow the lead of Europeans by calling for large banks to quickly raise more capital.
At a press conference following a two-day Federal Open Market Committee meeting, Bernanke was asked about European plans to require their largest institutions to hold 9% Tier 1 core capital by mid-2012. That is a much faster timeline than the Basel III accord, which would require banks to hold roughly 7% common equity capital by 2019 (not including an additional capital surcharge on the largest banks).
But Bernanke noted that the Europeans are quantifying capital in different ways under their rescue plan announced last week.
"I'm not sure that the 9% Europeans are talking about is really comparable to the capital requirements that we will be imposing on U.S. banks," Bernanke told reporters.
U.S. banks had been concerned after the European Banking Authority made its announcement, fearful it would effectively advance the Basel III timeline. U.S. institutions have also argued repeatedly that such tough capital requirements will only crimp lending, doing little to help stimulate the economic recovery and potentially put them at a disadvantage to foreign competitors.
During the press conference, Bernanke tried to put some of those fears to rest.
"There's a number of questions of comparability," Bernanke said. "For example, the composition of their capital is not, as far as I understand, purely common equity. I don't know what the risk weights are being applied to the assets."
Despite the current pressure facing European leaders to get their financial house in order, Bernanke did stress those countries who have agreed to Basel III will have to ensure their banks meet those standards over time.
Meanwhile, he said, the U.S. remains intent on implementing the agreement.
"We are committed to and in the process of implementing Basel III which has a basic requirement, including a buffer of 7% and then additional surcharges for the largest institutions," said Bernanke. "We think that's an appropriate framework."
International regulators have proposed a capital surcharge on systemically important institutions of between 1% to 2.5%.
In addressing concerns about Europe in light of brokerage firm MF Global Inc.'s decision to file for bankruptcy earlier this week, the Fed chairman said that so far it appears to be an "idiosyncratic case."
"We are monitoring the possible impacts on funding markets and elsewhere and so far we have not seen significant impact on financial stability," said Bernanke.
Turning to the sovereign debt crisis, Bernanke did not offer any new assessments, but noted that the Fed along with other key policymakers continue to monitor for any potential stress on the U.S.' financial stability.
"We look at our own financial institutions and try to assess the exposures and linkages between our institutions and those in Europe," said Bernanke. "We've been doing that on a consistent basis."
The Fed chairman has previously testified that U.S.' banks exposure to debt-ridden countries such as Greece, Ireland and Portugal has been "quite minimal" so far.
