US Agencies (OCC, FED, and FDIC) proposed a regulatory framework for foreign banks operating in the U.S. that would more closely match the rules for foreign banks with the risks they pose to the U.S. financial system. As part of this framework, the Agencies proposed three regulations, the comment period for all of which expires on June 21, 2019. FED also proposed revisions to the impacted reporting forms and instructions, including FR 2052a, FR Y-7, FR Y-7Q, FR Y-9C, FR Y-14A/Q/M, and FR Y-15. Also published were the presentations on regulatory framework and resolution plan requirements, which feature charts showing the proposed requirements for each risk category and a list of firms projected to be included in each category.

The US Agencies have proposed the following three rules as part of the regulatory framework for foreign banks:

  • One of the rules, which the FED proposed, would establish categories that would be used to tailor the stringency of enhanced prudential standards based on the risk profile of a foreign banking organization’s operations in the United States. This proposal also would amend certain enhanced prudential standards, including standards related to liquidity, risk management, stress testing, and single-counterparty credit limits, and would make corresponding changes to the relevant reporting forms. FED has also proposed revisions to these impacted reporting forms.
  • The second rule, which the OCC, FED, and FDIC have jointly proposed, would determine the application of regulatory capital requirements to certain U.S. intermediate holding companies of foreign banking organizations and their depository institution subsidiaries and the application of standardized liquidity requirements with respect to certain U.S. operations of large foreign banking organizations and certain of their depository institution subsidiaries, each according to risk-based categories. 
  • The third rule, which FED and FDIC have jointly proposed, would amend and restate the jointly issued regulation implementing the resolution planning requirements of section 165(d) of the Dodd-Frank Act. The proposal is intended to reflect improvements identified since the Rule was finalized in November 2011 and to address amendments to the Dodd-Frank Act made by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act). The proposed amendments to the Rule include a FED proposal to establish risk-based categories for determining the application of the resolution planning requirement to certain U.S. and foreign banking organizations, consistent with section 401 of EGRRCP Act, and a proposal by the agencies to extend the default resolution plan filing cycle, allow for more focused resolution plan submissions, and improve certain aspects of the Rule. This proposed rule modifies resolution plan requirements for both domestic and foreign banks.

While the framework is substantively the same for both domestic and foreign banks, the resulting impact may be different. For example, currently, foreign banks operating in the United States tend to rely on less stable short-term wholesale funding and can be complex, which present heightened risks. If a bank is engaged in these higher-risk activities, the framework would result in more stringent regulations. FED estimates that the framework would, at this time, increase required liquid assets by 0.5% to 4% and decrease required capital by roughly 0.5 % for foreign banks with USD 100 billion or more in U.S. assets. Among others, FED is requesting comment on whether it should apply new liquidity requirements to the branches of foreign banks. The branches of foreign banks are currently subject to internal liquidity stress tests, but are not subject to standardized liquidity requirements. The proposal asks for comment on whether such standardized liquidity requirements should be imposed and on several different approaches for doing so.

 

Related Links

Comment Due Date: June 21, 2019

Keywords: Americas, US, Banking, IHCs, Foreign Banks, Regulatory Capital, Liquidity Risk, Stress Testing, Resolution Planning, SCCL, Dodd-Frank Act, EGRRCP Act, Basel III, Reporting, US Agencies

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