The Federal Reserve Board of Governors recently voted unanimously to approve proposed guidelines that would subject foreign banks operating in America to much of the same regulation as American firms.
The proposed rules would hinder efforts similar to those by Deutsche Bank and Barclays to avoid tougher U.S. regulation by restructuring, according to The Wall Street Journal.
Industry experts expect significant pushback by foreign banks, including efforts to persuade foreign governments to condemn the proposal.
“The proposal is directly responsive to the vulnerabilities in foreign bank activities observed during and after the financial crisis,” Daniel Tarullo, the governor of the Fed, said, The Wall Street Journal reports.
More than 100 foreign banks with at least $50 billion in total assets would be subject to the proposed regulations, though the strictest financial rules would apply only to 23 banks with at least $50 billion in U.S. assets.
Foreign banks with at least $10 billion in U.S. assets will have to hold their U.S. units in a single bank-holding structure in order to ensure that they comply with new requirements under the 2010 Dodd-Frank Act.
Sally Miller, the CEO of the Institute of International Bankers, said that the proposal is “overly broad and could prompt foreign banks to pull bank from the U.S. market, hurting our economy and financial markets,” adding that the Fed should address foreign financial institutions that pose a threat to U.S. financial stability on an individual basis, according to The Wall Street Journal.
Fed officials expressed concern regarding foreign banks’ reliance on short-term funding sources, which may be unavailable in times of financial downturn. During the recent financial collapse, foreign banks ran to the Fed for emergency assistance.
Deutsche Bank and Barclays attempted to restructure in 2010 to eliminate units of their investment banking business from the bank-holding firms subject to heightened supervision by the Fed.
“We are reviewing the proposed rules and, based on earlier Federal Reserve Board comments, we are confident that we have options that will allow us to implement the new regulations in the prescribed timeframe,” Barclays said, The Wall Street Journal reports.
Foreign firms operating in the U.S. would also be subject to the same increased capital requirements that their American counterparts are required to meet. Foreign institutions would also be required to conduct annual “stress tests” used to assess the financial stability and resilience of banks operating in the U.S.
Beth Knickerbocker, the vice president and senior counsel of the American Bankers Association, said that U.S. banks are concerned that foreign regulators could retaliate against U.S. regulations by adopting similar domestic measures that would increase the cost of doing business.