The Federal Reserve's proposal to align the regulatory
standards imposed on non-US banks in the US with domestic banks
is generally seen as a logical next step in ensuring
competitive equality in the US banking system.
There are however concerns that the suggested two-tier
system could prove problematic and complicated for some, while
offering respite for others.
The two-tier system would see each foreign bank completing
two calculations, for size and risk-based indicators. One
considers its entire combined US operations and will determine
how its US operations are subject to US liquidity rules, single
counterparty credit limit rules and risk management rules. If
the foreign bank has an intermediate holding company (IHC), it
must repeat the first step and look at size and risk-based
indicators relating only to the IHC. This then dictates the
IHC's capital and stress testing category.
For Hugh Conroy, partner at Cleary Gottlieb, the biggest