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February 12, 2014

Fed Seen Easing Capital Requirement for Small Foreign Banks

“The Federal Reserve plans to narrow the number of foreign banks that will have to consolidate their U.S. operations and hold more capital.”

“The central bank will raise the threshold to $50 billion of assets in the U.S. from $10 billion proposed in 2012 for firms that must have local holding companies, according to three people with knowledge of the decision. The change means about one-third of the two dozen companies originally affected won’t have to comply with harsher capital standards. A final version of the new rules governing foreign lenders is scheduled to be approved by the Fed next week and go into effect next year.”

“The revised holding-company requirement covers 17 lenders with headquarters outside the U.S., said one of the people, who asked not to be identified because the decision hasn’t been announced. The standard, which has been criticized by European regulators and banks, was designed to prevent a repeat of what happened during the 2008 crisis when the Fed provided $538 billion of emergency loans to U.S. units of European banks.”

“‘The holding company ring-fence provides crucial safeguards for the U.S. regulators,” said Deborah Bailey, a managing director of Deloitte LLP’s banking and securities regulatory practice in New York and a former deputy director of the Fed’s bank-supervision unit. “On the other hand, it will pose challenges for the foreign banks, many of whom have to set up these new structures and shift capital to the U.S.’”

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Read full Washington Post article here.

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