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Fed to tighten rules for foreign banks in US

Published on Dec 15, 2012 5:52 AM
 
The seal of the Federal Reserve. The Federal Reserve moved on Friday to place large foreign banks under the same regulatory regime it applies to domestic banks, aiming to reduce the risk of a foreign bank collapse hurting the United States financial system. -- PHOTO: AFP

WASHINGTON (AFP) - The Federal Reserve moved on Friday to place large foreign banks under the same regulatory regime it applies to domestic banks, aiming to reduce the risk of a foreign bank collapse hurting the United States (US) financial system.

Adding fresh local regulation to the banks on top of the Basel III capital rules, the largest foreign banks will have to set up US holding companies for their US operations, have limits set on their credit exposure, and meet local capital and liquidity rules for their US operations.

They will also be subject to Fed stress tests on their US operations, to make sure they have enough local buffer to withstand external shocks, whether from inside the US or outside.

The new rules, which if finalised will come into effect on July 1, 2015, follow the tighter regimes set for the largest US banks in the wake of the Wall Street financial crisis of 2008, which saw large undercapitalised banks and non-banks melt down and either close or require substantial rescues from the government.

 
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