Randal Quarles, U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision, discussed the need to examine post-crisis reforms.  Focusing on post-crisis regulations that impact foreign banking organizations operating in the U.S., he noted that regulations should be reviewed to ensure not only efficacy, but also efficiency and transparency.  Quarles noted that the Federal Reserve Board will consider additional tailoring and flexibility in light of the impact of regulations on foreign banking organizations.  He highlighted two key regulatory examples: enhanced prudential standards and the Volcker Rule.  With respect to enhanced prudential standards, Vice Chairman Quarles noted that the Federal Reserve Board has been sensitive to the unique features of non-U.S. financial institutions operating in the United States, noting specific circumstances where the Federal Reserve Board has exercised flexibility to accommodate these differences, including allowing the global risk committee to serve as the risk committee for U.S. operations and recognizing that effective home country stress testing regimes can take many forms.  Further, Quarles noted that the Federal Reserve Board has retained flexibility in the implementation of the intermediate holding company requirement, and just recently approved an application for a foreign banking organization to establish a second intermediate holding company.  Vice Chairman Quarles also discussed perceived shortcomings with the Volcker Rule, stating that while the premise is simple, the regulation itself is very complex and “not working well.” Vice Chairman Quarles stated that the Federal Reserve Board is actively working with the other Volcker Rule regulatory agencies to find ways to simplify and streamline the Volcker Rule, particularly for institutions that do not have large trading operations, and that the agencies are working on a proposal for public comment that would make “material changes” to the regulation.  Specific areas of focus include making definitions of key terms such as “proprietary trading” and “covered fund” as well as the exemption for market-making and the so-called “RENT’D” test  as simple and clear as possible.  With respect to the Volcker Rule’s impact on non-U.S. financial institutions operating in the United States, Vice Chairman Quarles noted that the agencies are considering changes to the complexity of the exemptions available to foreign banking organizations for trading and engaging in covered fund activities solely outside the United States and the Volcker Rule compliance regime.  He also stated that he would expect the enforcement action stay that the agencies granted to foreign funds that are organized outside of the U.S. and offered solely to foreign investors last summer to be extended.

View full text of Vice Chairman Quarles’s remarks.