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Some major foreign banks operating in the United States must hold more liquid assets as part of a reshuffle regulation proposed Monday by the Federal Reserve.
The post-crisis rule changes would reduce capital requirements and the frequency of stress tests for many institutions, but would also tighten the liquidity rules for a list of banks that may include Barclays, Credit Suisse and Deutsche Bank.
The plans are based on those published by the Fed last year for domestic banks, designed to regulate institutions in different ways depending on the risk they represent for the financial system.
While for domestic banks, the changes made were largely a relief from the post-crisis Dodd-Frank legislation, the result is more complex for foreign banks, some of them being likely to win while others risk losing.
Under the new rules, banks should hold different amounts of liquid assets depending on the size of their US subsidiaries and the degree of risk of their activities. Foreign banks operating in the United States tend to rely on less stable short-term wholesale financing, the Fed added, adding to their risk.
Liquid assets are those that are easy to sell to cover short-term cash needs.
The Fed will rank foreign banks in four levels according to their perceived degree of risk. For Barclays and Deutsche Bank, this could mean that they need to hold much more liquid assets than under the current regime, depending on how regulators handle their cross-border transactions. The central bank indicated that it did not yet have the data to decide on the level at which these banks would belong.
For the two large Swiss investment banks, UBS and Credit Suisse, the changes would imply that the amount of liquid assets that they must hold will be defined for the first time by the regulator, rather than by their own tests. internal resistance.
Overall, the Fed's liquid assets held by foreign banks will have to increase by up to 4%, or between $ 1 and $ 10 billion across the sector.
The new system should relieve Santander, the Spanish bank, which will no longer be subject to the rule that it must have enough cash to cover three weeks of operations; it will suffice to satisfy his own internal stress tests.
The Fed criticized an issue of particular concern to foreign banks, namely a proposal to extend liquidity rules to US branches of foreign banks, not just their US subsidiaries, which could significantly increase liquidity requirements. The Fed will present such a proposal for further consideration.
One of the Fed's governors, Lael Brainard, voted against the reform package to protest the inclusion of local branches. "I am disappointed that today's proposal does not address this important and unique vulnerability and therefore does not represent a balanced package," she said.
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In other proposed changes announced Monday, several foreign banks will now have to participate in regulatory stress tests every two years instead of every year. They include Santander, BNP Paribas and Société Générale.
And several major banks – foreign and domestic – will have to file a so-called living will only every three years, not both. In these resolution plans, a bank clearly explains how to proceed if the machine fails.
Randal Quarles, deputy chairman of the Fed responsible for supervising banks, said: "The proposals are aimed at increasing the efficiency of businesses without compromising the strong resilience of the financial sector."
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