Why some foreign banks might fail new round of stress tests
By John Heltman
A number of foreign banking powers will soon face a day of reckoning under a more advanced version of the Federal Reserve’s stress test regime. This June, consolidated U.S. operations of foreign banks, known as intermediate holding companies, or IHCs, will undertake their first full examination under the Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Tests for the first time. IHCs participated in the stress tests last year, but this year their results will actually be published. …Banks typically face both technical and financial challenges in complying with CCAR, but Karen Shaw Petrou, managing partner at Federal Financial Analytics, said that part of the reason IHCs face a particularly uphill battle is because of the inherently dichotomous nature of their supervisory structure. “Very simply, their parent company is not a U.S. company, and the parent company is subject to both very different laws and often a totally different cultural expectation of how to run a really big bank,” Petrou said. “That’s the whole rationale for IHCs. To put the biggest U.S. operations under a U.S.-specific governance structure solves for some of the problem … but the fact remains that these are subsidiaries of foreign banks, and foreign banks are different.”