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Basel banking rules should stand firm on capital: U.S. official

WASHINGTON (Reuters) - Global banking regulators would make a grave mistake if they eased capital rules for the world's largest lenders, a senior U.S. banking official said on Wednesday.

The head of the Basel Committee on Banking Supervision said last month that he did not intend coming rules to demand higher capital.

A requirement that banks issue more capital - such as common stock - is one way to build an industry cushion against market swings.

Tom Hoenig, the vice chairman of the Federal Deposit Insurance Corporation, said higher capital levels may be needed to protect banks from a repeat of turmoil like that seen during the 2008 financial crisis.


"The Basel Committee should not promise that there will be no significant increase in industry capital levels," he said at the Risk USA Conference in New York.

How to right-size capital rules has become a contentious question for banking regulators, with European Union officials warning that those standards could needlessly crimp credit.

EU officials have threatened not to apply the new bank capital rules if they lead to big hikes in capital requirements, fearing it could lead to banks restricting the flow of lending.

Also on Wednesday, EU regulators said they were certain that the Basel Committee will indeed ease the impact of new bank capital rules. [L8N1DA5SA]

Euro zone banks like Deutsche Bank <DBKGn.DE>, which is already facing questions over its capital, are likely to be hit hardest unless changes are made.

The Basel Committee meets in Chile on Nov. 28-29 to finalize the rules, which set curbs on models used by some banks to determine capital buffers after regulators found huge variations in calculations.

(Reporting by Patrick Rucker; Editing by Paul Simao)