US Fed plans to tighten the leash on foreign banks

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The U.S. Federal Reserve on Friday proposed to tighten the leash on foreign banks to protect taxpayers from having to bail them out.  (Reuters) The U.S. Federal Reserve on Friday proposed to tighten the leash on foreign banks to protect taxpayers from having to bail them out. (Reuters)
SummaryThe rules will likely make it more expensive for foreign banks to operate in America.

a holding company. It could need to inject about $15 billion into Taunus as a result, analysts at Espirito Santo said.

And the UK's Barclays has restructured part of its U.S. operations and may have to shift funds around to meet stricter requirements for parts of its business, though it is likely to be less affected than Deutsche.

The Fed must impose tougher capital and other requirements on big banks, including foreign banks with substantial operations in the U.S., as part of its responsibilities under the Dodd-Frank law.

Regulators have put out draft rules for U.S. banks but had not yet addressed new requirements for foreign banks. The Fed's move is part of a growing trend whereby national regulators apply stricter rules, and which markets fear could lead to a series of tit-for-tat responses.

Britain, for example, has been approving new subsidiaries but looks unfavorably at applications for new branches over which they have far less influence.

But Fed officials said they believe that the risk is manageable and that they communicated with foreign regulators as they formulated the proposal.

Industry groups now have until the end of March to submit comments on the proposal. Regulators will then begin enforcing the rules - which are for banks with total global assets of $50 billion or more - in July 2015.

Under the plan, foreign banks with U.S. assets of $50 billion or more would need to maintain a 30-day buffer of highly liquid assets, and conduct internal liquidity tests. Banks with fewer U.S. assets would only be required to report the results on the liquidity tests.

The proposed rules would also limit the credit exposure of a foreign bank to a single counterparty to 25 percent of regulatory capital. Banks would need to set up risk committees, and be subject to U.S. stress tests.

The Fed said approximately 107 foreign banking organizations would be subject to the proposal, and that it expected about 25 intermediate holding companies to be set up.

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