Banking and Finance Law Daily FDIC board approves proposed tailoring of regulations for foreign banks
Tuesday, April 16, 2019

FDIC board approves proposed tailoring of regulations for foreign banks

By John M. Pachkowski, J.D.

The FDIC Board approves proposals to tailor certain capital and resolution planning requirements for foreign banks.

At its latest open meeting, the Federal Deposit Insurance Corporation’s board of directors approved two regulatory proposals that would tailor the regulation of foreign banking organizations (FBOs).

Tailored capital and liquidity. The first proposal would determine the application of regulatory capital requirements to certain U.S. intermediate holding companies of FBOs and their depository institution subsidiaries according to risk-based categories. The proposal also would establish standardized liquidity requirements with respect to certain U.S. operations of large FBOs and certain of their depository institution subsidiaries, based on the risk profile of the combined U.S. operations of the FBO.

In October 2018, the FDIC, along with the Office of the Comptroller of the Currency and Federal Reserve Board, approved a regulatory proposal that would to tailor the application of the agencies’ capital and liquidity rules to large U.S. banking organizations based on risk, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act(EGRRCPA) (see Banking and Finance Law Daily, Oct. 31, 2018).

The latest proposal approved by the FDIC board would maintain parity in the application of capital and liquidity requirements to both domestic and foreign banking organizations and generally aligns with the framework set forth in the agencies’ domestic tailoring proposed rulemaking, with modifications to address the manner in which foreign banking organizations operate in the United States.

It should be noted that the Fed had approved the FBO capital and liquidity tailoring proposal at its April 8, 2019 open meeting (see Banking and Finance Law Daily, April 8, 2019).

Following the meeting, FDIC Chairman Jelena McWilliams released a statementsaying, "it is essential that we periodically assess our regulations to ensure they are appropriate for the risk profile and complexity of affected institutions." She further noted, "While the proposal would more finely tailor application of the existing capital framework, all of the affected institutions would continue to be subject to robust capital requirements. With respect to liquidity, the proposal recognizes that strong liquidity buffers are critical for large foreign banking organizations. However, liquidity standards can be better tailored among the affected institutions."

On the other hand, FDIC board member Martin Gruenberg, who opposed the agencies’ 2018 domestic bank tailoring proposal, also voiced his opposition for the FBO tailoring proposal. In a statement, he noted the proposal would "weaken a central post-crisis prudential protection for the financial system."

Resolution planning. The second proposal approved by the FDIC board would amend provisions of the FDIC’s resolution planning regulation codified at 12 CFR Part 381.

Specifically, the proposal would permit the Fed to exercise its authority granted by EGRRCPA to identify the firms with $100 billion or more but less than $250 billion in total consolidated assets that will continue to have a resolution planning requirement. The proposal would also tailor plan content requirements to reflect the varying degrees of systemic risk posed by different types of firms; specify new plan submissions schedules; and make other improvements to procedural aspects of the FDIC’s resolution planning regulations.

The Fed had previously approved the proposal at its April 8, 2019, open meeting (see Banking and Finance Law Daily, April 8, 2019).

Commenting on this proposal, McWilliams noted "the proposal ensures rigorous resolution planning will continue at the largest, most complex firms; meaningfully tailors the rule for firms still subject to the rule that do not pose the same systemic risk as the largest institutions; and exempts a number of smaller, simpler firms that have less than the statutory $250 billion in total consolidated assets."

As with the FBO capital and liquidity tailoring proposal, Gruenberg also voiced opposition to the resolution planning proposal. In a statement, he noted that, although the proposal would implement provisions of EGRRCPA, it would also "weaken significantly" the resolution plan framework that has been developed by the Dodd-Frank Act.

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