US bankers support European peers in fighting Fed capital plan European banks fighting a Federal Reserve plan to impose tighter capital requirements on their US operations have won the backing of executives from JPMorgan Chase and other US banks. The US executives are working through Washington-based trade associations, including the Securities Industry and Financial Markets Association, to support their European rivals in opposing a Fed plan that would require lenders such as Deutsche Bank and Barclays to hold more capital in the US. "We believe that the proposed rule will exacerbate, not mitigate, financial stability risks and harm the global economy by leading to a fragmented global financial system," Simon Lewis, chief executive of GFMA, the US trade body's global parent, said on Thursday. At a meeting on the sidelines of the International Monetary Fund spring conference last week, top bankers from Europe, the US and Japan also expressed concern about the breakdown in common international bank rules, according to participants. One of the most prominent examples under debate is the Fed's proposal to force US subsidiaries of large foreign banks to hold more capital, though the meeting in Washington, held at the Canadian embassy, focused on the broader theme. "The industry is very nervous about any regulation that traps local capital and further Balkanises the system," said one person familiar with the informal meeting last Friday. Mark Carney, the incoming governor of the Bank of England, and Daniel Tarullo, the Fed governor in charge of regulation, attended the meeting with bankers including Gary Cohn, president of Goldman Sachs, and Matt Zames, co-chief operating officer of JPMorgan. Executives from UBS and HSBC and other policy makers were also present. However, senior executives from Bank of America, Citigroup and Morgan Stanley have told US officials that they support the moves to impose higher capital requirements on European banks in the US, even though they are concerned more broadly with the breakdown in regulatory harmony. Those executives have said the risk of retaliation is low given their significant operations were only in London, where they were adequately capitalised. There has long been annoyance over the fact that Deutsche was able to have negative capital in its US operations. The Fed is planning to require the US subsidiaries of large foreign banks to hold a minimum level of 7 per cent core capital to risk-weighted assets by 2015. The US central bank is concerned that it might have to bail out Deutsche during a crisis. By imposing specific capital rules, it makes a failure more remote. The proposal also requires inter-company lending between the parent and the subsidiary of a bank to be roughly matched in duration. At the moment, US affiliates often lend long-term to the parent and the parent funds them on a short-term basis. This duration mismatch might see funds draining from US subsidiaries to Europe in a crisis, US officials fear. The proposal has opened up a transatlantic rift as Michel Barnier, the EU commissioner in charge of financial services, warned this week that it posed a threat to harmonious global regulation and risked "a protectionist reaction." In a letter to the Financial Times on Thursday, Jonathan Faull, the head of the European Commission department handling financial regulation, wrote that the Fed's proposal "would lead to unfair competition. It would fragment a global market, and most importantly it would encourage a resurgence of national approaches to deal with international problems. The European Banking Federation has told the Fed that the reforms could be illegal. The EBF perceives a clear discrimination which is not in line with the principle of national treatment as enshrined in both US banking law . . . and WTO [World Trade Organisation] law.