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February 19, 2014

To Regulate Foreign Banks in the U.S., ‘Trust, but Verify’

“The Federal Reserve is expected to finalize capital rules for “foreign bank organizations” on Tuesday, and it has reignited questions about whether the United States is being unduly harsh to European banks here.

“Absolutely not. 

“In fact, not only have foreign banks not been required to be sufficiently capitalized to sustain unexpected losses, but also they have been even less capitalized than banks with headquarters in the United States. This means that European banks have been in a position to play regulatory arbitrage and book some of their riskier transactions in the United States. Financial lobbies, such as the Global Financial Markets Association, have been decrying the Federal Reserve rules, and like a weary Greek chorus, repeating their mantra that regulation will cause some foreign banks to leave the United States.

“Given the financial weakness of many large systemically important European banks, coupled with accusations of money laundering and terrorism financing, as well as the Libor and foreign exchange scandals, I would like to know when they are leaving and where. If they really do leave, then auf wiedersehen, bon voyage, and vaya con Dios!”

***

Read full NY Times article here

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