The US Federal Reserve has proposed a new regulatory framework for foreign banks operating in the country.
The move is aimed to tightening rules for risky foreign lenders, while easing regulatory requirements for stable foreign firms.
The proposed changes encompass categorising foreign banks with $100bn or more in US assets based on multiple factors. It includes their asset size, cross-jurisdictional activity, nonbank assets, reliance on short-term wholesale funding, and off-balance sheet exposure.
If implemented, the regulations would relax capital and stress testing requirements for the foreign bank subsidiaries.
However, subsidiaries heavily dependent on short-term wholesale funding and risky assets will face more stringent rules.
According to the Federal Reserve, the changes will increase required liquid assets by 0.5 to 4%. Concurrently, capital requirements for foreign banks with more than $100bn assets will decrease by 0.5%.
Federal Reserve Board chair Jerome Powell said: “This proposal maintains the substantial resilience built up across the US financial system over the past decade, while at the same time making appropriate adjustments for firms that present less risk.”
The central bank developed the proposals with the Federal Deposit Insurance and the Office of the Comptroller of the Currency.
Currently, they are open for industry feedback till 21 June this year.
If implemented, the new Federal Reserve regulatory changes will affect HSBC, UBS, Credit Suisse and Deutsche Bank.