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 Federal Reserve Governor Daniel Tarullo said the rules are necessary
to protect the U.S. financial system from another meltdown like the
2007-2009 crisis.
"Of course, a few foreign banks would prefer the old system under
which they held relatively little capital in their very extensive
U.S. operations," Tarullo said in a speech at a Harvard Law School
event in Armonk, New York.
"But that was neither safe for the financial system nor particularly
fair to their competitors — U.S. and foreign — that hold significant
amounts of capital here."
Tarullo said foreign regulators also have applied capital and
liquidity requirements to subsidiaries of U.S. banks in their
countries that differed from rules enforced by U.S. officials.
Before the financial crisis, U.S. regulators traditionally counted
on foreign supervisors to watch overseas banks operating here. But
after hundreds of foreign banks needed emergency loans from the Fed
during the meltdown, regulators changed tactics.
The Fed's new rules require foreign banks with sizeable U.S.
operations, such as Deutsche Bank <DBKGn.DE> and Barclays <BARC.L>,
to group their U.S. units under a single entity and meet tougher
requirements on their debt loads and the amount of easy-to-sell
assets they need in case of a credit crunch.
Regulators have estimated that 17 foreign banks would have to comply
with the new requirements, which were finalized in February.
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Foreign banks argued that the rules would deviate from globally
harmonized regulatory regimes and make the financial system less
stable. Some critics warned of a "Balkanization" of financial
regulation.
Tarullo said the Fed's decision allows the same rules to apply to
domestic and foreign banks operating here. He said U.S. units of
foreign banks needed tougher scrutiny because they relied on risky,
short-term funding before the crisis.
"The most important contribution the United States can make to
global financial stability is to ensure the stability of our own
financial system," he said.
(Reporting by Emily Stephenson; editing by Lisa Shumaker)
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