February 18, 2014 / 8:00 PM / 4 years ago

U.S. Fed issues tough final capital rule for foreign banks

WASHINGTON, Feb 18 (Reuters) - The U.S. Federal Reserve on Tuesday released the final version of tight new capital rules for foreign banks, giving them a year longer to meet the standard and applying it to fewer banks than in a first draft.

The reform is designed to address concerns that U.S. taxpayers will need to foot the bill if European and Asian regulators treat U.S. subsidiaries with low priority when rescuing one of their banks.

The largest foreign banks, with $50 billion or more in U.S. assets, will need to set up an intermediate holding company and be subject to the same capital, risk management and liquidity standards as U.S. banks, the Fed staff said.

The Fed estimated that between 15 and 20 foreign banks would fall under the requirement, which was eased from when the rule was first proposed in December 2012, when the cut-off was $10 billion in U.S. assets.

Foreign banks with sizeable operations on Wall Street such as Deutsche Bank and Barclays have pushed back hard against the plan because it means they will need to transfer costly capital from Europe.

“The most important contribution we can make to the global financial system is to ensure the stability of the U.S. financial system,” Fed Governor Dan Tarullo, in charge of financial regulation, said in a speech.

Europe has warned of tit-for-tat action, with European Union financial services commissioner Michel Barnier saying in October the bloc would draw up similar measures if the Fed pushed ahead with its plans.

The Fed’s board is due to formally adopt the rule in a public meeting starting at 3:15 p.m. (1815 GMT).

The Fed also gave foreign banks a year longer to meet the requirement to set up the new structure, with the new deadline being July 1, 2016. Both changes had been widely expected in the market.

The new structure gives banks less flexibility to move money around than under the current rules, which allow banks to use capital legally allocated in their home country. In some cases, the U.S. rules are tougher than elsewhere.

The rule also subjects foreign banks with global assets of $10 billion or more to stress tests that rely on the home-country stress tests standards, the Fed staff said.

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