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February 20, 2014

U.S. rules show limits of global bank resolution

“Daniel Tarullo has delivered a hard lesson about the limits of global banking supervision. The Federal Reserve on Feb. 18 confirmed that European lenders will need separate capital for their American operations, which could hike their funding costs and limit their ability to compete. Banking will become less global as a result.”

“The new rules are a genuine irritant for European banks, and blindsiding the European authorities has put Brussels’ noses out of joint. German, UK and French lenders will face limits on their ability to transfer U.S. capital from New York to buttress weaker parts of their banking empires. Higher funding costs from less efficient balance sheets will hurt Barclays, Credit Suisse, Deutsche Bank and UBS: Deutsche could face as much as a 1 billion euro hit to annual pretax profit, Morgan Stanley reckons.”

“Yet it could have been worse. Lenders with less than $50 billion in U.S. assets will be exempt – probably exempting Societe Generale and Credit Agricole. Deposits held by HSBC and BNP Paribas in their American retail operations mean that their funding costs won’t rise as much. And non-U.S. banks have been given a year longer to set up a stateside subsidiary, and until 2018 to meet a minimum gross equity-to-assets ratio of 4 percent.



Read full Reuters article by Dominic Elliott here.


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