Fed eyes enhanced capital requirements A Federal Reserve governor called for higher bank capital requirements as a way of curbing risks in the financial system, adding to the pressure for new restrictions on the biggest lenders. Daniel Tarullo, who oversees regulation for the Fed, said on Friday that international rules requiring banks to hold a minimum amount of equity capital against their assets "may have been set too low." As the Financial Times reported earlier this week, Fed officials are considering going further. Mr Tarullo said he might use US rules "to set a higher leverage ratio for the largest firms." In a speech in Washington, Mr Tarullo also floated a new idea of additional capital requirements above and beyond the levels agreed by international regulators in the Basel III deal. The speech by Mr Tarullo comes amid a surge of enthusiasm in Washington to go further in imposing new restrictions on the biggest banks such as JPMorgan Chase, Bank of America and Citigroup, even as the industry is struggling to adapt to existing post-crisis rules. He said one possible route was to require "higher levels of capital for large firms unless their liquidity position is substantially stronger than minimum requirements." That would allow banks that fund themselves with liquid instruments to avoid injecting more capital into their business. "Where a firm has little need of short-term funding to maintain its ongoing business, it is less susceptible to runs," Mr Tarullo said. Where, on the other hand, a firm is significantly dependent on such funding, it may need considerable common equity capital to convince market actors that it is indeed solvent. Banks complain that ever-higher capital requirements are dampening profits and could constrain lending. Industry executives also note that they are awash with liquidity and have moved far away from the reliance on short-term wholesale funding that proved fatal for some companies during the financial crisis. But short-term wholesale funding remains a major concern for Mr Tarullo as he believes banks could gravitate back to flighty forms of funding when markets heat up again. He said it was "the area in which the most work is needed" and it would do the "public a fundamental disservice were we to declare victory without tackling the structural weaknesses of short-term wholesale funding markets." Mr Tarullo said there was appeal to a proposal to enforce "universal margining," which would demand a minimum amount of collateral for every transaction in repo markets. Work on that proposal is going on at the Financial Stability Board, a collection of international regulators. One of the most advanced proposals is a requirement to force banks to hold a minimum amount of long-term unsecured debt that could be converted to equity when a bank gets into trouble. Mr Tarullo said there was a "clear need" for that.