(Updates with Bernanke comments on bank capital surcharge starting in seventh paragraph.)
June 22 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said a default by Greece would have little impact on U.S. banks, which aren’t “significantly exposed” to European nations struggling to meet debt payments.
“We have asked the banks to essentially do stress tests and ask, looking at all their positions, all their hedges, what would the effect on their capital be if -- if Greece defaulted,” Bernanke said to reporters today at a press conference after a meeting of the Federal Open Market Committee. “The answer is that the effects are very small.”
Bernanke and Fed Governor Daniel Tarullo have led sweeping changes in the central bank’s approach to supervision, establishing the Large Institution Supervision Coordinating Committee. The multi-disciplinary group focuses on the biggest banks and draws on dozens of Fed economists, examiners, and computer modelers to identify risks in the financial system.
Bernanke said the Fed has also kept “a close eye” on money-market mutual funds, which hold dollar liabilities issued by European banks to fund their holdings of dollar assets.
“With very few exceptions, the money-market mutual funds don’t have much direct exposure to the three peripheral countries which are currently dealing with debt problems,” Bernanke said.
“They do have very substantial exposure to European banks in the so-called core countries, Germany, France,” he said.
Bernanke will travel to Basel, Switzerland to discuss bank regulations with supervisors around the world this weekend.
Regulators are considering how much extra capital the largest global banks should hold as a surcharge for the risks they pose to the overall financial system.
It’s “also appropriate to have additional capital requirements for the largest and most systemically important institutions,” Bernanke said at the press conference. “Because their failure would have very deleterious effects on the financial system, we need to take extra steps to make sure that they will be very unlikely to fail.”
The Basel Committee on Banking Supervision is considering extra capital requirements of as much as 3.5 percentage points that the largest banks may face if they grow bigger, according to two people familiar with the talks, Bloomberg News reported June 17.
Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion, one person said. The largest banks may face a 3 percentage point levy at their current sizes, the person said. Banks would be subject to a sliding scale depending on their size.
“In choosing the amount of capital, we will certainly be trying to weigh off and balance, on the one hand, the need for extra safety of systemically important firms against the impacts on” lending, Bernanke said.
--Editors: James Tyson, Christopher Wellisz
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