The Federal Reserve Board on Friday proposed rules to strengthen the oversight of U.S. operations of foreign banks.
The proposal would require foreign banking organizations with a significant U.S. presence to create an intermediate holding company over their U.S. subsidiaries, which would help facilitate consistent and enhanced supervision and regulation of the U.S. operations of these foreign banks. Foreign banks would also be required to maintain stronger capital and liquidity positions in the United States, helping to increase the resiliency of their U.S. operations.
"The proposed rulemaking is another important step toward strengthening our regulatory framework to address the risks that large, interconnected financial institutions pose to U.S. financial stability," Federal Reserve Chairman Ben S. Bernanke said.
The proposal implements provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in a manner that addresses the risks associated with the increased complexity, interconnectedness, and concentration of the U.S. operations of foreign banking organizations.
"Applicable regulations have changed relatively little in the last decade, despite a significant and rapid transformation in the U.S. activities of foreign banks, many of which moved beyond their traditional lending activities to engage in substantial, and often complex, capital market activities," Governor Daniel K. Tarullo said. "The crisis revealed the resulting risks to U.S. financial stability."
The proposal generally applies to foreign banking organizations with a U.S. banking presence and total global consolidated assets of $50 billion or more. More stringent standards are proposed for foreign banking organizations with combined U.S. assets of $50 billion or more.
The Board proposed a number of measures, including:
The proposal also includes measures regarding capital stress tests, single-counterparty credit limits, overall risk management, and early remediation.
The Federal Reserve is proposing a substantial phase-in period to give foreign banking organizations time to adjust to the new rules. 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 Federal Reserve consulted with other members of the Financial Stability Oversight Council in developing the proposal. Comments from the public will be accepted through March 31, 2013.
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