The Federal Reserve has proposed new rules that would strengthen federal government oversight of foreign banks' U.S. operations.
The proposal rules would require foreign banks that have a U.S. banking presence and total consolidated global assets of $50 billion or more to create an intermediate holding company for their U.S. subsidiaries and maintain stronger capital and liquidity positions in the U.S. The proposal also includes measures that involve capital stress tests, single-counter-party credit limits, overall risk management and early remediation. These requirements would help to facilitate consistent and enhanced supervision and regulation of the banks' U.S. operations and increase their resiliency, the Fed stated.
The new standards is expected to take effect July 1, 2015.
In a statement, Fed Chairman Ben Bernanke characterized the proposal as another important step toward strengthening the regulatory framework to address the risks that large interconnected financial institutions pose to U.S. financial stability.
"The presence of foreign banking organizations in the United States has served U.S. borrowers and brought competitive benefits to U.S. markets. Yet, the financial crisis exposed flaws in the precrisis structure for supervising and regulating both large U.S. banking organizations and the U.S. operations of large foreign banking organizations. Just as the domestic proposal addresses financial stability risks posed by large U.S. financial institutions, this proposal includes targeted changes to our regulatory approach aimed at addressing the risks posed by the U.S. operations of large foreign banks," Bernanke said.
Fed Governor Daniel Tarullo said in a separate statement that the proposal is consistent with and complementary to the Fed's other past and proposed measures to address the risks associated with large interconnected U.S.-based banks.
In a third statement, Fed Governor Jeremy Stein called the proposal a step in the right direction.
"While the proposal may lead foreign banks to change the way they organize some of their U.S. operations, ultimately these changes should make the banking system more resilient. In particular, the proposal is intended to address funding fragility by encouraging banks to lengthen the maturities of their dollar liabilities," Stein said.
Comments from the public will be accepted through April 30, 2013.
A group of trade associations that represents foreign banks already has submitted a letter requesting an additional 60 days to comment.
The group said the proposed rules present "potentially very profound implications for home-host country supervisory relationships" and should be extensively analyzed to assess whether they create an effective and cohesive framework and avoid unintended consequences.
Should the Fed keep a closer eye on the U.S. operations of foreign banks?
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