US pitches for new intl regulatory standards for banking firms

Pitching for a revamped global regulatory framework, the US has suggested a slew of stringent capital and liquidity standards for banking firms worldwide aimed at ensuring a stable financial system.     

Among the proposals are higher capital requirements for banking firms that pose a threat to the financial stability, increased emphasis on high quality forms of capital and strict liquidity standard.     

"A comprehensive agreement on new international capital and liquidity standards should be reached by December 31, 2010 and should be implemented in national jurisdictions by December 31, 2012," the US Treasury Department said in a statement on Thursday.

Grappling with one of the worst ever financial crises in decades, many developed and developing countries are looking to introduce more stringent norms especially for the financial sector.     

Also, it is widely believed that lax regulations was one of the prime reasons for the raging turmoil.     

"Going forward, global banking firms must be made subject to stronger regulatory, capital and liquidity standards that are as uniform as possible across countries," the Treasury said.  

"Capital requirements for all banking firms should be increased, and those for financial firms that could pose a threat to overall financial stability should be higher than those for other banking firms," the statement noted.     

Further, the Treasury has said capital requirements should be designed to protect the stability of the financial system rather than just that of individual banking firms.     

According to the statement, stricter capital and liquidity requirements for the banking system should not be allowed to result in the "re-emergence of an under-regulated non-bank financial sector that poses a threat to financial stability".     

The ongoing global financial turmoil has its roots in the US sub-prime crisis, which turned worse after the fall of the then mighty Wall Street firm Lehman Brothers last September.     

Moreover, the Treasury said the existing regulatory framework failed to prevent the build-up of risk in the financial system.     

"Major financial institutions around the world had reserves and capital buffers that were too low, used excessive amounts of leverage to finance their operations, and relied too much on unstable, short-term funding sources," it added.