Fed's regulatory alignment is logical but complicated

Author: John Crabb | Published: 12 Apr 2019

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 concern...