The Federal Reserve Board is seeking public comment on proposed regulations designed to more closely match the rules for foreign banks with the risks they pose to the U.S. financial system.
The proposed changes would maintain the most stringent requirements for firms with the most risk, while reducing compliance requirements for firms with less risk. Specifically, foreign banks with $100 billion or more in U.S. assets would be required to follow increasingly more stringent requirements, based on a variety of factors. The factors include asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. These factors are designed to reflect banks’ complexity and risk to the financial system.
“This proposal maintains the substantial resilience built up across the U.S. financial system over the past decade, while at the same time making appropriate adjustments for firms that present less risk,” Fed Chair Jerome Powell said.
The framework is similar to what was proposed last year by the Fed Board for large domestic banks.
“The proposal seeks to increase the efficiency of the firms without compromising the strong resiliency of the financial sector,” Fed Vice Chair for Supervision Randal Quarles said.
The board estimates that the framework would increase required liquid assets by 0.5 to 4 percent and decrease required capital by roughly 0.5 percent for foreign banks with $100 billion or more in U.S. assets.
The Fed is also seeking comment on whether the Fed Board should apply new liquidity requirements to the branches of foreign banks. Currently, the branches of foreign banks are subject to internal liquidity stress tests. They are not subject to standardized liquidity requirements. The proposal seeks feedback on whether such standardized liquidity requirements should be imposed and on the different approaches for doing so.
The proposals were developed by the Fed along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Comments will be accepted through June 21.