FRB Vice Chair Urges Reconsideration of Capital and Liquidity Requirements for Foreign Banks Operating in U.S.

Board of Governors of the Federal Reserve System Vice Chair for Supervision Randal K. Quarles encouraged regulators to reconsider the capital and liquidity requirements for foreign banks operating in the United States. He also proposed a return to the pre-financial crisis regulatory goal of maximizing the flow of capital worldwide.

In an address at Harvard Law School, Mr. Quarles stated that the current U.S. approach to foreign banks, which prioritizes increasing the resiliency of their U.S. operations, should be reconsidered. He argued that the events of the last financial crisis, when foreign banks recovered through the combined efforts of the United States and their home country governments, created the current U.S. approach, which prioritizes ensuring that the United States has sufficient resources to address another such event. He stated that while most regulators seem to believe that intermediate holding company (“IHC”) and attendant requirements are appropriate, the regulation of the IHC could be modified without harming financial stability. He suggested that if the United States recalibrated its requirements, other jurisdictions would, too. This outcome, he argued, would increase the flow of capital, which should be the goal of regulators.

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