NEW BANK RULES TOUGHER THAN NEEDED, DEALERS SAY U.S. and U.K. bank regulators are asking banks to set aside more reserves than is necessary to cushion them against the risks posed by the interest rate and currency swap transactions they carry, swap dealers said. After viewing proposed guidelines released jointly today by the Bank of England and the Federal Reserve Board, dealers said that in effect, regulators are asking them to set aside reserves twice for the same risk. Market participants will have 60 days to respond to the proposals. Adoption of stiffer capital requirements is especially significant in the eurobond markets, which saw new issue volume of about 183 billion dlrs in 1986 according to figures compiled by Euromoney magazine. While no firm figures exist, dealers in eurobonds estimate that 80 pct of all new issues are involved in some swap arrangement. Separately, the ISDA estimates that about 300 billion dlrs worth of swap transactions are outstanding. Kenneth McCormick, co-chairman of the International Swap Dealers Association (ISDA) and President of Kleinwort Benson Cross Financing Inc, said that the Association has no comment and will study the proposals. "What they are proposing is really double counting," Patrick de Saint-Aignan, managing director of swaps for Morgan Stanley and Co, said. Instead, he argues, banks should either be required to hold a percentage of the face value -- say one pct per year to maturity -- or to hold a percentage of the cost of replacing the contract in the event of a counterparty default. "The potential risk factors are very large relative to what we had expected," said a director at one U.K. merchant bank. "What they are really doing is asking you to capitalize now -- to borrow money now -- to cushion you against risk you might have 10 years from now," he added.(Adds title first paragraph). Dealers also said they believe that banks not covered by the agreement, such as those based in Japan, will have a competitive advantage because they will not have to pass the costs on to customers. Indeed, regulators are apparently also concerned about the exclusion of other countries from the new requirements. Federal Reserve Board Governor Martha Seger, following approval of the proposed guidelines by the Fed, said she is concerned that Japan was not involved in the U.K.-U.S. effort to draft new capital rules. Dealers said they were somewhat relieved to see that bank regulators recognized the concept of netting, that is, offsetting the amounts receiveable from and payable to a single counterparty against each other. The paper said that regulatory authorities "recognize that such arrangements (netting) may in certain circumstances reduce credit risk." Furthermore, the paper said, if a netting agreement could be reached that would withstand legal tests, it might be willing to reduce capital requirements accordingly. But dealers said they fear regulators may insist on an airtight netting agreement that is impossible to design. "One problem is that there has never been a major default in the swaps market. So we don't know if any of the swap arrangements will really stand up in court," said one bank official.