The Federal Reserve has finalized with few revisions a sweeping rule proposed in 2012 for foreign banking organizations (FBOs) doing business in the U.S. Finalized in concert with two of the systemic standards for the largest U.S. BHCs, the FBO requirements dramatically alter the regulatory framework for FBOs with U.S. non-branch assets over $50 billion, requiring also significant changes from branches and agencies designed among other things to prevent a repeat of huge draws from FBOs through the FRB’s discount window and emergency-liquidity facilities. Large FBOs must restructure their U.S. operations into intermediate holding companies (IHCs) that puts them under consolidated, direct FRB supervision to prevent some of the restructuring done after passage of Dodd-Frank in hopes of circumventing tough new U.S. rules. Imposition of U.S. leverage standards has been delayed to comply with the 2018 deadline in the final Basel III leverage standards, although the final rule leaves unsaid how FBOs that trigger designation as a global systemically-important bank (G-SIB) will be required to meet still tougher U.S.-specific leverage rules once these are finalized. Much in the rule was strongly protested by FBOs, as well as some global regulators who argued that the new standards undermine global efforts to craft harmonious prudential rules and integrated G-SIB resolution frameworks. The FRB countered that its rules are consistent in its view with global standards and, should it force smaller FBO operations in the U.S. this would reduce their “systemic footprint” and thus accomplish the central bank’s supervisory objectives.
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