FBOs tailoring proposals: EBF, JBA and CBA comments letters

COMMENTS LETTERSiii

BRUSSELS, 25 June 2019 – The European Banking Federation, together with the Japanese Bankers Association and the Canadian Bankers Association, has written to the U.S. authorities, including the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, on the tailoring of Enhanced Prudential Standards for Foreign Banking Organizations and on the proposed changes to the applicability thresholds for certain regulatory requirements related to capital and liquidity that were aiming to match rules for foreign banks with the risks they pose to the U.S. financial system.

The proposals are known as the ‘FBOs tailoring proposals’.

The EBF welcomes efforts to tailor U.S. regulations and improve the efficiency of the FBO regulatory regime by the U.S. federal banking Agencies (FRB, FDIC and OCC). Among other things, we welcome the introduction of an entry-level category of intermediate holding company (IHC) consistent with the U.S. Treasury Report on Banking and Credit Unions from June 2017.

However, EBF member banks are concerned that certain elements of the FBO tailoring proposals could increase the risk of global fragmentation and that others may create a competitive disadvantage for the U.S. operations of FBOs in comparison to U.S. Bank Holding Companies (BHCs) of similar size, which could have a negative impact on U.S. economic growth. One key contributing factor is that, while nominally using the same framework of risk-based indicators (RBIs) as that of domestic banks, the classification of FBOs’ U.S. operations in fact places more of them in the more severe categories than it does comparable U.S. BHCs. Of course, some of the proposed changes may indeed provide welcome relief to certain FBOs.

Moreover, the EBF and its member banks have significant concerns about potential application of standardized liquidity requirements on the U.S. branches of FBOs. Doing so would pose a serious risk of increasing global fragmentation and duplicative regulation by ring fencing additional liquidity buffers at the U.S.-branch level, since these branches are legally part of the home legal entity and covered by home-country liquidity regulation. The EU’s rules sufficiently mitigate any risk of liquidity shortages for the U.S. branches of EU banks and, consequently, we urge the Agencies to consider deference to the home-country supervisor, rather than taking action that would further fragment the global financial system.

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