Fed Mulls Rule Forcing Foreign Banks To House Assets Within US Holding Companies In Effort To Contain Risk
Created: Wednesday, 28 November 2012 07:50
This will inhibit cross-border banking and global banks will run the risk of overcapitalizing units all of the world because regulators are reluctant to allow capital to return to the US once it is moved to a foreign jurisdiction.
The potential rules stem from the Fed’s loans of more than $538 billion of emergency funding to US units of European banks during the financial crisis.
The Dodd-Frank Act ended the capital exemption for bank holding companies, causing some foreign lenders to change their legal structures to remain outside US capital rules.
Forcing foreign banks to place US assets under bank holding companies would also make them subject to US-specific leverage requirements in addition to the Basel III reserve requirements.
The limit on leverage may force US trading units of foreign banks to raise more capital. Across-the-board regulations like the one being considered by the Fed could cause foreign banks to pull out of the US.
Foreign banks make 25% of all US commercial and industrial bank loans. Withdrawal from the US market could harm lending
, an effect that could spill over into the economy.
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