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US Fed proposes new regulatory regime for foreign banks
[WASHINGTON] The US Federal Reserve on Monday proposed a new regulatory regime for foreign banks operating in the US that could make life easier for some banks, while tightening up rules for more risky foreign firms.
The proposal, which would affect major banks like UBS , Credit Suisse, Deutsche Bank and HSBC, comes amid a broader plan by the Fed to more closely tailor banking rules in line with firms' risk profiles.
The proposed changes, which are subject to industry feedback, would relax the capital and stress testing requirements for the subsidiaries of foreign banks, but impose stricter liquidity rules on foreign lenders that rely extensively on riskier activities like short-term funding.
The Fed also said it was soliciting input on imposing stricter liquidity requirements on foreign bank branches for the first time, although it stopped short of proposing new rules.
In addition, the central bank proposed relaxing the schedule for how frequently foreign banks must submit "living wills" detailing how they could be dissolved in the event of failure. The proposal would see foreign lenders submit plans every two to three years, instead of annually, depending on their size.
The proposal could reduce aggregate capital requirements for foreign banks by 0.5 per cent, in addition to lowering compliance costs associated with stress testing, the Fed estimated.
However, its proposed changes to the liquidity rules on foreign bank subsidiaries would see aggregate liquid asset levels rise 0.5 per cent to as much as 4 per cent, the Fed said.
Most foreign lenders currently hold enough liquid assets to satisfy the proposed changes, but depending on a bank's precise activity, some banks including UBS and Credit Suisse could see their overall costs rise, according to Fed officials.