The Federal Reserve moved to subject two dozen foreign banks with at least $50 billion of global assets to stricter U.S. capital rules as it attempts to lower risks to the financial system.
The Barclays Plc logo hangs from the top of the company's headquarters in the Canary Wharf business district of in London, U.K.
The Fed proposed that most of the banks also be forced to comply with more-stringent liquidity rules and pass stress tests analyzing how they would fare in a severe economic downturn. The board voted yesterday to seek public comment on the plan for 90 days. It would take effect in July 2015.
Deutsche Bank AG (DBK), based in Frankfurt, and London-based Barclays Plc (BARC) would be among the institutions that would have to keep more easy-to-sell assets in the U.S. and face restrictions on distributing capital to parent companies. The Fed provided $538 billion of emergency loans to the U.S. units of European banks during the financial crisis, almost as much as it did to domestic firms. That increased political pressure on lawmakers and regulators to tighten rules for all lenders.
"This is a huge paradigm shift in U.S. regulation of foreign banks operating here," said Kim Olson, a principal at Deloitte & Touche LLP in New York and a former bank supervisor. "This means captive capital and liquidity in the local unit that U.S. regulators can go after during failure."
Lenders with more than $50 billion of global assets and more than $10 billion in the U.S. will be required to house their U.S. businesses, including securities trading, within regulated holding companies. The $10 billion threshold excludes the domestic assets that are connected to a U.S. branch of a bank. About 25 institutions would fall under this requirement, Fed staff said.
Those so-called intermediate holding companies would have to abide by capital rules that already apply to their U.S. counterparts. The new treatment may force foreign banks to inject capital into their U.S. units and limit their ability to move funds across borders.
The proposal is "overly broad and could prompt foreign banks to pull back from the U.S. market, hurting our economy and financial markets," Sally Miller, chief executive officer of the Institute of International Bankers, said in a statement. It would be more appropriate "to concentrate on the very small number of foreign banks whose U.S. operations could actually be considered to present risks to U.S. financial stability."
Source: Bloomberg | Yalman Onaran & Christine Harper