The U.S. Federal Reserve Board is seeking reforms to its regulatory framework that would see the capital and liquidity requirements for foreign banks more closely correspond with the risks they represent to the U.S. financial system.
The proposed framework (which was jointly developed by the Fed, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency) would sort foreign banks that have at least US$100 billion in U.S. assets into categories based on their projected risk to the financial system.
The sorting would be based on a variety of factors, including asset size, reliance on short-term wholesale funding, off-balance-sheet exposures and cross-border activity.
“This proposal maintains the substantial resilience built up across the U.S. financial system over the past decade, while at the same time making appropriate adjustments for firms that present less risk,” Jerome Powell, chair of the Fed, said in a statement.
The Fed estimates that, overall, the framework would increase liquid asset requirements by between 0.5% and 4%, while reducing banks’ capital requirements by about 0.5%.
“The proposal seeks to increase the efficiency of the firms without compromising the strong resiliency of the financial sector,” said Randal Quarles, vice chair for supervision at the Fed.
The Fed says it’s also seeking comment on whether to impose new liquidity requirements on the branches of foreign banks, which don’t currently face standardized liquidity requirements.
Comments on the proposals are due by June 21.