More than two dozen foreign banks with at least $50 billion of global assets would face stricter U.S. capital rules under a Federal Reserve plan that’s aimed at lowering risks to the financial system.
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 today to seek public comment on the plan for 90 days. It would take effect in July 2015.
Deutsche Bank AG, based in Frankfurt, and London-based Barclays Plc 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.
“The financial crisis exposed flaws in the pre-crisis structure for supervising and regulating both large U.S. banking organizations and the U.S. operations of large foreign banking organizations,” Fed Chairman Ben S. Bernanke said in a statement. The proposal is a step toward “strengthening our regulatory framework to address the risks that large, interconnected financial institutions pose to U.S. financial stability.”
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.
Foreign companies currently can choose whether to create U.S. bank holding companies. Those units were exempt from capital standards as long as their parent firms were well- capitalized. The 2010 Dodd-Frank financial-reform act removed that exemption. Non-U.S. lenders including Deutsche Bank and Barclays then altered their legal structures to remain outside the scope of local capital rules.