Foreign banks bracing for tough U.S. Fed capital rules

Sun Feb 16, 2014 8:07am EST
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By Douwe Miedema

WASHINGTON (Reuters) - Overseas banks look set to win only minor concessions when the Federal Reserve signs off on new capital rules next week, as they become increasingly resigned to the fact that the cost of doing business in the United States will go up.

The Fed, whose board of governors meets on Tuesday, will require overseas banks to hold as much capital in the United States as their local rivals.

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 if they need to rescue one of their banks.

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.

Fed Governor Daniel Tarullo, in charge of financial regulation, has given little sign the Fed will relent, however, and the financial industry expects no wholesale change from when the proposed rule came out in December 2012.

"(He) certainly does not suggest that they're moving toward greater leniency, at least for the largest institutions," said Greg Lyons, a partner working on banking regulation at law firm Debevoise & Plimpton in New York.

The Fed declined to comment.

Europe and the United States have squabbled over how to apply their rules to overseas banking units, and the Fed's plan, as well as its tougher reading of globally agreed capital rules, have widened the rift.   Continued...

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst