Forcing foreign lenders to put U.S. assets under bank holding companies would subject them to U.S.-specific leverage requirements, in addition to global capital rules agreed to by the Basel Committee on Banking Supervision.
Basel regulations dictate how much capital banks need based on the riskiness of their assets. Lenders headquartered in the U.S. are subject to an additional leverage cap based on total assets, rather than on those weighted by risk. Leverage is a measure of a bank’s debt in relation to shareholder equity.
While it would be easier for U.S. trading units of foreign banks to comply with the risk-based standard, the simple leverage limit could force them to raise more capital, according to one of the people.
The Institute of International Bankers, a New York-based lobbying group that represents 100 foreign lenders operating in the U.S., has warned regulators against blanket rules that would treat all firms the same, according to Chief Executive Officer Sarah “Sally” Miller.
“Based on the risk Bank X poses to the U.S. financial system, then they could ask that one for more capital, as Dodd- Frank stipulates,” Miller said. “But across-the-board, one- size-fits-all rules like this can be very harmful, discouraging foreign banks to be here. That could hurt lending, considering that 25 percent of all commercial and industrial bank loans in the U.S. are made by foreign firms.”