Tuesday, April 09, 2019 1:00 am
Fed's plan keeps eye on big foreign banks
Jesse Hamilton | Bloomberg
The Federal Reserve is proposing a new approach for overseeing foreign banks such as Deutsche Bank, Barclays and Credit Suisse Group that's expected to require some of them to hold bigger stockpiles of easy-to-sell assets to guard against losses.
The Fed voted 4-1 on Monday to seek comment on its plan for a system that closely matches the overhauled domestic-bank framework proposed in October. The parallel regimes are part of an effort to tailor rules to exert more pressure on the riskiest banks. The approach creates a range of risk categories and assigns each large bank to the one that best fits its business model.
Depending on what final calculations the Fed lands on, several foreign lenders – including Deutsche Bank, Barclays, Credit Suisse, Mitsubishi UFJ Financial Group, Mizuho Financial Group and Toronto-Dominion Bank – could be slotted into the second tier, just below a group of U.S. banks with massive global footprints. A second-level designation would come with routine stress testing and the most stringent rules for capital. The banks would also be subjected to the same liquidity demands as the U.S. megabanks.
“Because the U.S. operations of most foreign banks tend to have a larger cross-border profile, greater capital markets activities and higher levels of short-term funding, they often present greater risk than a simpler, more traditional domestic bank,” Fed Chairman Jerome Powell said in a statement on the proposal.
The new system, which draws Credit Suisse and UBS into such liquidity rules for the first time, is being proposed in cooperation with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The Fed estimated it could boost overall liquidity demands by as much as 4 percent for foreign banks in the U.S.