Tougher capital and liquidity rules for foreign banks operating in the United States will likely ratchet up requirements on banks worldwide, hampering growth and impacting bank structures, says Fitch Ratings.

In a new report, the rating agency says that proposals from the U.S. Federal Reserve Board for regulating foreign banks “could raise the bar for the largest global banks yet again and, if introduced in other jurisdictions, may hinder their growth.”

It notes that the Fed’s proposed rules to strengthen the oversight of U.S. operations of foreign banks, would force non-US. banks to establish a separate U.S. intermediate holding company, with more stringent capital and liquidity standards that are also applicable to U.S. bank holding companies. “The proposals are aimed in part at reducing the risk of de-stabilizing runs on U.S. dollar assets and the type of collapse in short-term funding that occurred during the global financial crisis,” it says.

However, the danger is this could push other regulators to follow suit with more stringent rules of their own. Fitch says that while plans to tighten capital and liquidity rules for foreign banks operating in the U.S. should be technically manageable for most foreign banks, “it is unlikely that national regulators elsewhere would be comfortable allowing capital and liquidity reallocation to the U.S. without reciprocal rules in their home jurisdictions.”

While the streaming of core capital into foreign subsidiaries should theoretically be neutral for consolidated capital ratios, “In practice we expect domestic regulators to object to the trapping of capital and liquidity overseas if it is to the detriment of resources available to support domestic activities. Therefore consolidated capital requirements could be effectively raised if the flow of capital among entities is restricted,” it says.

The impact of the new rules would be felt most by global trading and universal banks with large U.S. operations, it says, noting that this could affect how they operate. “We believe that a number of foreign banks would have to evaluate their operations in the U.S. and where they book transactions if the capital and liquidity requirements are increased,” it says.

“Depending on the final implementation and decisions by other regulators, this could result in a more extreme scenario with a material re-shuffling of activities across geographies, reducing the U.S.-based balance sheets of the foreign banks,” it adds.