Last week, the Federal Reserve Board (the “Board”) issued its long-awaited final enhanced prudential rule (Regulation YY) under Section 165 of the Dodd-Frank Act (the “Final Rule”) for bank holding companies and foreign banking organizations (“FBOs”) with global consolidated assets of $50 billion or more (“covered FBOs”). This brief overview focuses on the applicability of the Final Rule on FBOs. The Board expects that approximately 100 FBOs will be subject to enhanced prudential standards under the Final Rule. In addition, the Final Rule imposes stress testing on FBOs with total consolidated assets of $10 billion or more, and requires U.S. risk committees for FBOs with total consolidated assets of $10 billion that are publicly traded.
The Final Rule is responsive, in some respects, to objections raised by home-country regulators and foreign banking organizations to the rule proposed in December 2012 (the “Proposed Rule”). To some degree, consideration appears to have been given, as required by Section 165, to a more tailored application of the enhanced prudential requirements and differentiation among companies. In presenting the Final Rule to the Board for consideration, Governor Tarullo, a principal author of the Final Rule, characterized the Final Rule as taking the middle road between the vulnerabilities of the status quo and the subsidiarization of U.S. operations of foreign banks. Nonetheless, the overall approach of the Proposed Rule has been maintained, and the Board reserves its authority to impose additional prudential standards that it deems necessary to carry out its authority under Title I of the Dodd-Frank Act (and not just Section 165), and/or to take supervisory or enforcement action.
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