U.S. bank bonds are taking a beating as investors become more concerned that the sector will be dragged down by Europe's debt crisis. The cost of credit default swaps for Bank of America increased this week. CDS spreads also widened for Citigroup, Morgan Stanley and Goldman Sachs.
Daniel Tarullo, a Federal Reserve governor, said the central bank has a "goal of congruence" between its work as mandated by the Dodd-Frank Act and international standards by the Basel Committee on Banking Supervision. A source said Fed officials are drafting rules for major banks that will be aligned with Basel III. Ernest Patrikis, a former general counsel at the Federal Reserve Bank of New York, said "there will be a sigh of relief" among bankers that the Fed is adhering to the Basel framework.
Governments worldwide are questioning recent downgrades to sovereign-debt ratings, but regulations make it increasingly difficult for startup credit rating agencies to break into the market. New agencies urged regulators and other policymakers in Europe and the U.S. to open the sector to increased competition.
As part of Basel III efforts, the China Banking Regulatory Commission published draft capital requirements for financial institutions. Chinese banks would be subjected to a minimum capital-adequacy ratio of 10.5% or 11.5%, depending on whether they are systemically important.
A survey of economists and strategists shows that the European Central Bank likely spent less to reduce yields on Italian and Spanish bonds than it did in May 2010 when it entered the market to buoy Greece. Experts said the ECB needs to make sure it is doing what is necessary to calm markets. "The ECB needs to make sure it does enough to prove it has the stomach for the fight," said John Davies, a fixed-income strategist at WestLB. "No doubt it would have been shock and awe on Monday, but probably less on the following days."