A Proposal for Rebalancing US Supervision of Foreign Banking Organizations

The Board of Governors of the Federal Reserve System (“Board”) appears ready to propose rules to implement enhanced prudential capital and other standards for foreign banking organizations with banking operations in the United States (“FBOs”). Board Governor Daniel K. Tarullo, in a recent speech given to the Yale School of Management Leaders Forum, presaged a proposal designed to achieve a rebalanced approach to FBO supervision. That is, one that would recognize both the benefits that FBOs bring to the US economy and the risks that their increased presence may pose to the financial stability of the United States.

The result appears to be an approach that would extend the principle of national treatment to include not only the US branches and agencies of an FBO, but its US subsidiary banks and US nonbank subsidiaries as well. That would be achieved by a “more territorial” ring-fencing of all US subsidiary banks and nonbank subsidiaries and the required regulatory capital to maintain those subsidiaries. The Board has made clear that the process of extending to FBOs the enhanced capital, liquidity and other prudential standards required by the Dodd-Frank Act for systemically important banking organizations has been difficult. If adopted, this rebalancing proposal would mark the end of that difficult process and the now year-long gap since proposing such standards for US banking organizations. FBOs should expect a proposed rulemaking shortly with implementation of final rules not far behind.

In anticipation of a proposed rulemaking, we offer this Client Alert to provide you with insight on Governor Tarullo’s proposal and the thinking behind it. We are available to address any questions you may have on the proposal.

Please see full alert below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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