US Fed plans to tighten the leash on foreign banks

US Fed

The 2010 Dodd-Frank broad overhaul of the U.S. Financial landscape put an end to that policy, after the Fed was forced to extend hundreds of billions of dollars in emergency loans to overseas banks in the financial crisis.


Deutsche Bank, Germany's flagship lender, is among those to be heavily affected after it overhauled its U.S. subsidiary Taunus to avoid having to inject billions of dollars of capital to meet Dodd-Frank financial reforms.

This year, Deutsche gave up bank holding company status for Taunus Corp, which has about $90 billion of risk-weighted assets, but will now have to put the unit back into a holding company. It could need to inject about $15 billion into Taunus as a result, analysts at Espirito Santo said.

And the UK's Barclays has restructured part of its U.S. operations and may have to shift funds around to meet stricter requirements for parts of its business, though it is likely to be less affected than Deutsche.

The Fed must impose tougher capital and other requirements on big banks, including foreign banks with substantial operations in the U.S., as part of its responsibilities under the Dodd-Frank law.

Regulators have put out draft rules for U.S. banks but had not yet addressed new requirements for foreign banks. The Fed's move is part of a growing trend whereby national regulators apply stricter rules, and which markets fear could lead to a series of tit-for-tat responses.

Britain, for example, has been approving new subsidiaries but looks unfavorably at applications for new branches over which they have far less influence.

But Fed officials said they believe that the risk is manageable and that they communicated with foreign regulators as they formulated the proposal.

Industry groups now have until the end of March to submit comments on the proposal. Regulators will then begin enforcing the rules - which are for banks with total global assets of $50 billion or more - in July 2015.

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