On June 11, 2019, the Committee submitted a comment letter to the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation on two recent proposals pertaining to foreign banking organizations (“FBOs”): (1) a Federal Reserve (the “Fed”) proposal that seeks to tailor the application of enhanced prudential standards to the U.S. operations of FBOs; and (2) a joint proposal by the Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency pertaining to the application of capital and liquidity rules to U.S. operations of FBOs.
The Committee has previously commented on key issues pertaining to FBOs’ requirements and their multi-front implications for the competitiveness and the stability of the U.S. financial system.
The Committee’s letter welcomed efforts to tailor enhanced prudential standards and capital and liquidity requirements on the basis of size and risk indicators, but it raised several concerns with the proposals. First, the proposals may result in disparate treatment of FBO’s intermediate holding companies (“IHCs”) as compared to U.S. bank holding companies (“BHCs”), because IHCs are subject to additional regulatory requirements for the activities of affiliated branches and agencies. The Committee explains why such disparate treatment could negatively impact both FBOs and U.S. banks and why the Committee supports the equal treatment of IHCs and U.S. BHCs. Second, the proposals treat short-term wholesale funding received by the U.S. operations of an FBO from non-U.S. affiliated entities the same as short-term wholesale funding received from third parties. The Committee explains why it believes that short-term wholesale funding received from a foreign parent is more stable than short-term wholesale funding received from an unaffiliated entity. Third, the Committee is concerned about the Fed’s request for comment regarding imposing standardized liquidity requirements on FBOs’ U.S. branches and agencies. Such requirements could result in higher liquidity requirements for FBOs’ U.S. branches and agencies, which could increase the cost of borrowing in the United States. The Committee explains why it believes that liquidity requirements should not be imposed on FBOs’ U.S. branches and agencies, so long as an FBO’s parent bank is subject to appropriate liquidity requirements in their home jurisdiction.
The Committee’s letter can be found here.