The Federal Reserve moved to subject two dozen foreign banks with at least $50bn of global assets to stricter U.S. capital rules as it attempts to lower risks to the financial system.
Bloomberg reports that the Fed has proposed that most of the banks also be forced to comply with more-stringent liquidity rules and pass stress tests analyzing how they would fare in a severe economic downturn. The board voted yesterday to seek public comment on the plan for 90 days. It would take effect in July 2015.
Deutsche Bank and Barclays would be among the institutions that would have to keep more easy-to-sell assets in the U.S. and face restrictions on distributing capital to parent companies. The Fed provided $538bn of emergency loans to the U.S. units of European banks during the financial crisis, almost as much as it did to domestic firms. That increased political pressure on lawmakers and regulators to tighten rules for all lenders.
'This is a huge paradigm shift in U.S. regulation of foreign banks operating here', said Kim Olson, a principal at Deloitte & Touche LLP in New York and a former bank supervisor. 'This means captive capital and liquidity in the local unit that U.S. regulators can go after during failure'.
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