US plan to increase foreign banks’ holdings could backfire

A US plan to force foreign banks to hold far more capital could sow discord among supervisors and lead to retaliation from abroad, EU financial services czar Michel Barnier said last night.

It was the second time in less than a week that EU misgivings about Washington’s aggressive stance in applying domestic rules on foreign banks became public.

“The (rule) would seem to represent a radical departure from the existing US policy on consolidated supervision of (foreign banks),” Barnier said in a letter to Federal Reserve chairman Ben Bernanke, dated Apr 18.