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December 17, 2012

Fed proposes tougher capital rules for foreign banks

The Federal Reserve said Friday it would press big foreign banks operating in the United States to keep far more money in their reserves to reduce risks to the financial system, a move that could have broad effects on the banking landscape.

The plan essentially would pull foreign banks in line with their American competitors by forcing them to adhere to many of the same standards. Many foreign firms have been lending aggressively in the United States but setting aside far less to cover losses.”

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Advocates of the proposal contend that foreign banks, if they collapsed, would pose too great a threat to the stability of the nation’s financial system and should be subject to the same supervision that American institutions face. After all, five of the largest investment firms in the United States are based outside the country.

“Treating all of the systemically significant banks similarly is the appropriate way to do all regulation,” said Dennis Kelleher, president and chief executive of Better Markets, a financial reform advocacy organization. “The rules are going to make financial crisis and taxpayer bailouts much less likely.””

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Read full Washington Post article here

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