The Federal Reserve proposed rules last week that would require foreign banking organizations with significant U.S. operations to establish an intermediate holding company to allow U.S. regulators to more effectively oversee the operation.
“The proposed rule-making is another important step toward strengthening our regulatory framework to address the risks that large, interconnected financial institutions pose to U.S. financial stability,” Ben Bernanke, the chairman of the Fed, said.
The IHC would be subject to U.S. liquidity, capital and other Dodd-Frank prudential standards. Some large FBOs, including those with combined U.S. assets of $50 million or more, must also conduct monthly stress tests to be used to establish liquidity buffers.
Additionally, single counterparty credit limits would apply to the IHC and FBO, and the FBO would be required to prove daily compliance with the requirements through monthly reports to the Fed.
A publicly traded FBO with more than $10 billion in total global consolidated assets, as well as large FBOs, would be required to certify to the Fed every year that it maintains a risk committee to oversee the firm’s risk management practices.
The FBO’s intermediate company would be subject to stress testing rules under the 2010 Dodd-Frank Act. An IHC with total consolidated assets of more than $10 billion but less than $50 billion would have to perform annual company stress tests under guidelines established by the Fed for the operation’s size range.