Federal Reserve Governor Daniel Tarullo said regulators should impose higher requirements for capital and liquidity at banks that pose the greatest risk to the financial system, and should consider measures to link the two.
Deutsche Bank AG and other foreign banks with major U.S. operations say a Federal Reserve effort to force them to meet local capital standards puts them at greater risk of failure, and their regulators warn of reprisals.
Federal Reserve policy makers may shift discussion away from when to reduce monetary stimulus, given data showing the economy is weakening, according to Pacific Investment Management Co.’s Mohamed A. El-Erian.
The crash of 2008 spread almost instantly from country to country, highlighting the interconnectedness of the financial world and making it brutally clear that governments need to cooperate more closely on bank regulation. That effort is faltering, though, which is why the Federal Reserve’s proposal to change its approach to regulating the U.S. operations of foreign banks is justified.
Debate among Federal Reserve policy makers is shifting away from the timing of a reduction in bond buying to the need to extend record stimulus as inflation cools and 11.7 million Americans remain jobless.
The Treasury’s auction of $29 billion of seven-year notes attracted the highest demand this year as investors looked past a report on weekly jobless claims that pointed to an improving U.S. labor market.