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US, Europe Clash on Banking Reforms

G-20 agreement on capital requirements likely to remain elusive

By Rob Quinn, Newser Staff

Posted Sep 23, 2009 4:16 AM CDT

(Newser) – The US and Europe are moving further apart on plans for post-financial crisis banking reform ahead of this week's G-20 summit, the Wall Street Journal reports. Both sides agree that banks should be required to keep more capital on hand to cushion them from crises, even at the cost of constraining economic growth. But the French and Germans argue that the US is proposing measures that will force European banks to raise much more capital than American institutions.

Treasury Secretary Timothy Geithner's plan—dismissed by French bank Societe Generale as "crude and simple"—would require European banks to adopt a cap on how much they can borrow in relation to their own capital, as US ones do. The Europeans say that would require their banks to boost their capital by much more than their recently government-subsidized American counterparts will have to. They argue that existing international accords on capital requirements should be beefed up instead.

[Images (2)]

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German Chancellor Angela Merkel and French president Nicolas Sarkozy gesture during a news conference in Berlin last month. (AP Photo/Gero Breloer)

The headquarters of Germany's biggest bank, Deutsche Bank, dominates the skyline in Frankfurt, Germany. (AP Photo/Michael Probst, File)

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It's enormously difficult. Different countries have their own agendas. - John Hawke Jr.,
a former US comptroller of the currency

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US, Europe Clash on Banking Reforms