Fed toughens rules for large foreign banks

Published on NewsOK Modified: February 18, 2014 at 5:12 pm •  Published: February 18, 2014
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WASHINGTON (AP) — The Federal Reserve will require the largest foreign banks operating in the United States to hold higher levels of capital reserves to protect against potential loan losses.

The stricter regulations the Fed adopted Tuesday are intended to prevent the types of threats that contributed to the 2008 financial crisis. The requirements are similar to those already adopted for big U.S. banks.

Fed Chair Janet Yellen, presiding at her first public meeting of the central bank's board, said the changes will "help address the sources of vulnerability" exposed by the crisis. The rules were adopted by a 5-0 vote.

Foreign banks had objected to the changes. They argued that the stricter rules would raise the cost of doing business in the United States and reduce the loans they could provide.

Sally Miller, CEO of the Institute of International Bankers in New York, said her organization was pleased that the Fed had made some adjustments to the rules. The adjustments include extending the date by which foreign banks must comply until July 2016, one year later than originally proposed. But she said her group still felt the rules were too onerous.

"We continue to have a fundamental disagreement with the Fed about the appropriateness and necessity of applying an extra layer of U.S. bank capital requirements," Miller said in a statement.

John Corston, a director at consulting firm Deloitte who specializes in regulatory and banking issues, noted that the Fed's rules were adopted with only minor revisions and had been expected. Corston said the requirements should "go a long way to address some of the issues that we faced during the crisis," which was triggered after investment bank Lehman Brothers collapsed.

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