Federal Reserve Board Proposes Rules to Enhance Regulation of US Operations of Large Foreign Banks | Practical Law

Federal Reserve Board Proposes Rules to Enhance Regulation of US Operations of Large Foreign Banks | Practical Law

The Federal Reserve Board issued a proposed rule that enhances regulation and supervision of US operations of foreign banks.

Federal Reserve Board Proposes Rules to Enhance Regulation of US Operations of Large Foreign Banks

by PLC Finance
Published on 20 Dec 2012 • USA (National/Federal)
The Federal Reserve Board issued a proposed rule that enhances regulation and supervision of US operations of foreign banks.
On December 14, 2012, the Federal Reserve Board issued a proposed rule that enhances regulation and supervision of US operations of large foreign banks. The proposed rule:
  • Requires all US banking and non-banking operations (except for US branches and agencies) of foreign banks that have total global consolidated assets of $50 billion or more to be placed under a top-tier US intermediate holding company (IHC). This requirement would not apply if the foreign banking organization has less than $10 billion in assets in the US (excluding any US branch or agency assets).
  • Subjects the IHCs to the same capital, liquidity and other prudential rules that are applicable to US bank holding companies (including single counterparty credit limits, risk management, stress testing and early remediation requirements). IHCs would also be subject to Federal Reserve Board oversight and regulatory reporting requirements comparable to those applicable to US bank holding companies. Large foreign banking organizations (with over $50 billion in global assets) not required to form an IHC would also be subject to many of the same enhanced prudential standards.
  • Applies liquidity, single counterparty credit limit and, in certain cases, asset maintenance requirements to US branches and agencies of foreign banks with global assets of $50 billion or more.
Foreign banking organizations with global consolidated assets of $50 billion or more on July 1, 2014 would be required to meet the new standards on July 1, 2015.
The proposed rule includes the following table on the scope of application for foreign banking organizations:
Global assets
US Assets
Summary of requirements that apply
> $10 billion and < $50 billion
n/a
  • Have a US risk committee. 
  • Meet home country stress test requirements that are broadly consistent with US requirements.
> $50 billion
< $50 billion
All of the above, plus: 
  • Meet home country capital standards that are broadly consistent with Basel standards.
  • Single‐counterparty credit limits.
  • Subject to an annual liquidity stress test requirement.
  • Subject to DFA section 166 early remediation requirements.
  • Subject to US intermediate holding company (IHC) requirements: 
    • Required to form US IHC if non‐branch US assets exceed $10 billion. All US IHCs are subject to US bank holding company capital requirements; and
    • US IHC with assets between $10 and $50 billion subject to Dodd-Frank stress testing rule (company‐run stress test).
> $50 billion
> $50 billion
All of the above, plus:
For background on how foreign banks are currently regulated in the US, see Practice Note, International Banking.