Fed toughens rules for large foreign banks


WASHINGTON (AP) — The Federal Reserve will require the
largest foreign banks operating in the United States to hold higher
levels of capital reserves to protect against potential loan losses.
stricter regulations the Fed adopted Tuesday are intended to prevent
the types of threats that contributed to the 2008 financial crisis. The
requirements are similar to those already adopted for big U.S. banks.
Chair Janet Yellen, presiding at her first public meeting of the
central bank’s board, said the changes will "help address the sources of
vulnerability" exposed by the crisis. The rules were adopted by a 5-0
Foreign banks had objected to the changes. They argued that
the stricter rules would raise the cost of doing business in the United
States and reduce the loans they could provide.
Sally Miller, CEO
of the Institute of International Bankers in New York, said her
organization was pleased that the Fed had made some adjustments to the
rules. The adjustments include extending the date by which foreign banks
must comply until July 2016, one year later than originally proposed.
But she said her group still felt the rules were too onerous.
continue to have a fundamental disagreement with the Fed about the
appropriateness and necessity of applying an extra layer of U.S. bank
capital requirements," Miller said in a statement.
John Corston, a
director at consulting firm Deloitte who specializes in regulatory and
banking issues, noted that the Fed’s rules were adopted with only minor
revisions and had been expected. Corston said the requirements should
"go a long way to address some of the issues that we faced during the
crisis," which was triggered after investment bank Lehman Brothers
The rules will require overseas banks with at least $50
billion in assets operating in the United States to set up a subsidiary
bank holding company in the United States that will be subject to the
same requirements in such areas as capital reserves and leverage as U.S.
bank holding companies.
The Fed was ordered to toughen its
regulations for large banks that could threaten the entire financial
system under the Dodd-Frank Act that Congress passed in 2010 in response
to the financial crisis.
Also Tuesday, Treasury Secretary Jacob
Lew urged officials in the Group of 20 major economies to follow the
lead of the United States in adopting tougher banking standards to
reduce the risk of another crisis.
"All of us in the G-20 have
more to do to reduce risk and build a level playing field across the
global financial system with common high quality standards that reflect a
race to the top," Lew said in a letter obtained by The Associated
Lew and Yellen will lead the U.S. delegation to the G-20
meeting this weekend in Sydney, Australia. Australia holds the chair of
the G-20 this year.
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