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 Foreign banks with sizable operations on Wall Street such as
Deutsche Bank and Barclays had pushed back hard against the plan
because it means they will need to transfer costly capital from
Europe.
The Fed, which oversees foreign banks, gave them a year longer to
meet the standards, and applied it to fewer banks than in a first
draft, but the rule was largely unchanged from when it was first
proposed in December 2012.
"The most important contribution we can make to the global financial
system is to ensure the stability of the U.S. financial system," Fed
Governor Dan Tarullo, in charge of financial regulation, said in a
speech at a board meeting at which the Fed unanimously adopted the
rule.
The reform is designed to address concerns that U.S. taxpayers will
need to foot the bill if European and Asian regulators treat U.S.
subsidiaries with low priority when rescuing one of their banks.
The largest foreign banks, with $50 billion or more in U.S. assets,
will need to set up an intermediate holding company subject to the
same capital, risk management and liquidity standards as U.S. banks,
the Fed said.
The Fed broke with its tradition of relying on regulators abroad in
overseeing foreign banks after the 2008 financial crisis, during
which it extended hundreds of billions of dollars in emergency loans
to overseas banks.
"(The rule reduces) the likelihood that a banking organization that
comes under stress in multiple jurisdictions will be required to
choose which of its operations to support," Fed staff said in a
document.
DISCRIMINATORY MEASURES
Europe has warned of tit-for-tat action, with European Union
financial services commissioner Michel Barnier saying in October
that the bloc would draw up similar measures if the Fed pushed ahead
with its plans.
"It's too early to give a detailed response," Barnier said in an
emailed statement. "In any case, we can certainly not accept
discriminatory measures that would treat European banks less
favorably than American banks."
The Fed estimated that between 15 and 20 foreign banks will need to
set up an intermediate holding company after the cutoff was raised
to $50 billion of assets in the United States, from $10 billion in
the proposed rule.
The Fed also gave foreign banks a year longer to meet the
requirement to set up the new structure, with the new deadline set
as July 1, 2016. Both changes had been widely expected in the
market.
The new structure gives banks less flexibility to move money around
than under the current rules, which let banks use capital legally
allocated in their home country.
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The Fed has taken a tougher stance than others on some of its bank
capital rules. It has, for instance, proposed a leverage ratio — a
hard cap on borrowing — of 6 percent of assets, well above the 3
percent global requirement.
Foreign banks acknowledged the slight softening of the rule, but
said they remained unhappy.
"We continue to have a fundamental disagreement with the Fed
about the appropriateness and necessity of applying an extra layer
of U.S. bank capital requirements," said Sally Miller, head of the
Institute of International Bankers.
The rule also subjects foreign banks with global assets of $10
billion or more to annual health checks known as stress tests that
rely on home-country standards. Only the largest banks will also
have to run U.S. stress tests.
All in all, some 100 foreign banks will be subject to all or part of
the rules, depending on their size. Many of the risk- management and
liquidity standards adopted by the Fed at the meeting are also valid
for U.S. banks.
The Fed will closely watch how banks change their strategy on
account of the new rules to avoid any risky activity popping up
elsewhere in the business, staff said during the board meeting.
Foreign banks will still be allowed to hold U.S. branches, which
unlike full U.S. subsidiaries are part of the parent company, and
are not subject to the rules. But most risky activities are not
allowed for branches.
"Certainly you're going to have the institutions analyze their
business strategy within the U.S. ...(but) you're not going to be
able to just shift assets wholesale from the (holding company) to a
branch," said Irena Gecas-McCarthy, a regulatory consultant at
Deloitte & Touche.
(Reporting by Douwe Miedema; editing by
Andrea Ricci, Jonathan Oatis and Jan Paschal)
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