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June 19, 2013

The Fed Takes Aim at Foreign Banks

Senior officials from Germany, France, Japan and the European Commission have expressed deep concern to Federal Reserve Chairman Ben Bernanke about the Fed’s proposed new regulatory regime for foreign banks under Section 165 of the Dodd-Frank Act. Their concerns are likely to be raised in meetings of the Group of 20 finance ministers, and they deserve to be.

No one questions enhanced prudential requirements for firms—domestic and foreign—that could pose a risk to the financial stability of the United States. But the Fed would apply regulatory requirements to foreign banks that, contrary to congressional direction, are discriminatory and overly broad.

For example, the Fed proposes to require over two dozen foreign banks to move their U.S. broker-dealer and other nonbranch operations under separately capitalized, intermediate holding companies that would be subject to U.S. bank capital requirements, liquidity buffers and single counterparty credit limits. No other major financial center that I am aware of imposes a similar requirement about intermediate holding companies on U.S. and other foreign banks operating within its jurisdiction.

Foreign bank-owned broker-dealer subsidiaries already are subject to SEC capital requirements, as are U.S. broker-dealers. The Fed wants an extra layer of bank capital and liquidity requirements at the intermediate holding company level, though many of the holding companies would not have any insured banking operations in the U.S.”

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Read full Wall Street Journal article here

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