2012-12-21-奥纬咨询-Fed_Proposes_Major_Shift_in_Regulation_of_Foreign_Banks_8页_197kb

FED Proposes Major Shift in Regulation of Foreign Banks

Core Content

On December 14, 2012, the Federal Reserve proposed a significant regulatory shift affecting the operations of foreign banking organizations (FBOs) in the United States. The proposal, previewed by Fed Governor Richard Clarida (not Tarullo as previously stated), aims to bring foreign banks under a more stringent regulatory framework, aligning them with domestic banks in terms of capital, leverage, and liquidity requirements.

Main Requirements

The proposal introduces two key requirements for FBOs with substantial US operations:

1. Formation of an Intermediate Holding Company (IHC):

   • Required for FBOs with more than $10 billion in US assets (excluding agencies and branches).
   • The IHC must hold all US operations on a consolidated basis.
   • FBOs with over $50 billion in global assets must form an IHC, which will be subject to US prudential regulations, including:
     • Risk-based capital and leverage requirements
     • Annual liquidity stress test
     • Capital plan rule and CCAR stress testing
     • 30-day liquidity buffer
     • Mandatory early remediation actions

2. Regulatory Oversight:

   • US agencies and branches are not included in the IHC but are subject to liquidity requirements, such as:
     • 14-day liquidity buffer in the US branch network
   • FBOs must participate in home country stress testing and report results to the Fed.
   • Single counterparty credit limits are imposed, with a cap of 25% of FBO/IHC capital and surplus (lower for entities with over $500 billion in assets).

Rationale Behind the Proposal

The Fed argues that the proposal is a response to:

• The increasing role of foreign banks in the US financial system
• Uncertainty in resolving global banking institutions without harming the broader financial system
• The use of US operations as a net source of group funding, particularly through short-term wholesale borrowing

The goal is to reduce systemic risk by aligning foreign banks with US banks in terms of regulatory standards and providing a single point of entry for the Orderly Liquidation Authority.

Key Objectives

• Provide a coherent regulatory platform for the Fed to supervise FBOs
• Enhance oversight of US dollar wholesale funding markets
• Avoid ad hoc restrictions on cross-border and intragroup flows during stress
• Facilitate orderly resolution of foreign banks' US operations
• Align US and non-US banking groups under similar capital and liquidity rules

Risks and Costs

The proposal introduces several economic and operational costs for affected FBOs:

Economic Costs

• Higher capital requirements reduce returns on equity
• Loss of group-level diversification, hedging, and netting benefits
• Increased liquidity demands and lower-yielding assets
• Constraints on capital distribution to shareholders

Operational Costs

• Need for independent risk management and compliance infrastructure
• Adaptation to US-specific standards (e.g., SSFA for securitizations)
• Development of US-compliant tools and model approvals from the Fed

Structural Changes

• Formation of new legal entities (IHCs)
• Restructuring of transaction booking, trade flows, and intra-group funding
• Realignment of centralized management structures

Implications for Affected Institutions

The proposal will have profound effects on foreign banks operating in the US:

• Larger and more complex FBOs will face similar requirements to US bank holding companies
• Strategic decisions will be necessary, including:
  • Reducing US assets
  • Exiting or restructuring certain operations
  • Relocating or relocating capital
• Public comment and regulatory engagement are crucial to shape the final rule

Suggested Agenda for FBOs

1. Actively Participate in Public Comment

   • Argue for a more nuanced approach that accounts for differences in risk profiles and systemic importance

2. Assess the Implications of the Rule

   • Review US operations and understand how the rule affects capital, leverage, and liquidity
   • Evaluate US-specific risk-weighted asset calculations and CCAR stress test requirements

3. Incorporate the Rule into Strategic Planning

   • Consider pro forma impacts on investment and cost-cutting decisions
   • Evaluate options such as asset reduction, exit, restructuring, or relocation

Debate and Outlook

• The proposal is seen as a surprise in the implementation of the Dodd-Frank Act, as it breaks from the tradition of relying on home country supervision
• It is likely to face criticism from foreign banks and policymakers in other jurisdictions
• However, the Fed emphasizes its commitment to modernizing US financial regulations and reducing systemic risk

Conclusion

The Fed's proposal marks a fundamental shift in the regulatory approach to foreign banks, introducing new compliance and operational burdens. While it aims to enhance financial stability and oversight, it also poses significant challenges for affected institutions, requiring strategic, structural, and financial adjustments. The debate over this proposal is expected to be intense and long-lasting, as stakeholders weigh the benefits of enhanced regulation against the costs and potential unintended consequences.