U.S. Fed issues tough final capital rule for foreign banks

Reuters - UK Focus

By Douwe Miedema

WASHINGTON, Feb 18 (Reuters) - The U.S. Federal Reserve onTuesday adopted the final version of tight new capital rules forforeign banks, giving them a year longer to meet the standardand applying it to fewer banks than in a first draft.

The reform is designed to address concerns that U.S.taxpayers will need to foot the bill if European and Asianregulators treat U.S. subsidiaries with low priority whenrescuing one of their banks.

The largest foreign banks, with $50 billion or more in U.S.assets, will need to set up an intermediate holding company andbe subject to the same capital, risk management and liquiditystandards as U.S. banks, the Fed staff said.

The Fed estimated that between 15 and 20 foreign banks wouldcome under the requirement, which was eased from when the rulewas first proposed in December 2012, when the cutoff was $10billion in U.S. assets.

Foreign banks with sizeable operations on Wall Street suchas Deutsche Bank (Xetra: DBK.DE - news) and Barclays (LSE: BARC.L - news) have pushedback hard against the plan because it means they will need totransfer costly capital from Europe.

"The most important contribution we can make to the globalfinancial system is to ensure the stability of the U.S.financial system," Fed Governor Dan Tarullo, in charge offinancial regulation, said in a speech.

Europe has warned of tit-for-tat action, with European Unionfinancial services commissioner Michel Barnier saying in Octoberthat the bloc would draw up similar measures if the Fed pushedahead with its plans.

The Fed's board voted to formally adopt the rule in a publicmeeting on Tuesday afternoon.

The Fed also gave foreign banks a year longer to meet therequirement to set up the new structure, with the new deadlineset as July 1, 2016. Both changes had been widely expected inthe market.

The new structure gives banks less flexibility to move moneyaround than under the current rules, which allow banks to usecapital legally allocated in their home country. In some cases,the U.S. rules are tougher than elsewhere.

The rule also subjects foreign banks with global assets of$10 billion or more to stress tests that rely on thehome-country stress tests standards, the Fed staff said.

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