Alert December 26, 2012

FRB Seeks Comment on Enhanced Prudential Standards for Foreign Banking Organizations and Foreign Nonbank Financial Companies Subject to FRB Supervision

The FRB is requesting comment on a proposed rule (the “Proposal”) to implement the enhanced prudential standards that it is required to establish under Section 165 of the Dodd-Frank Act and the early remediation requirements it is required to establish pursuant to Section 166 of the Dodd-Frank Act.  The Proposal would apply to foreign banking organizations (an “FBO”), which generally include foreign banks with a presence in the U.S. as a result of operating a branch, agency or commercial lending company subsidiary in the U.S. or controlling a bank in the U.S. and any company of which such a foreign bank is a subsidiary.  The Proposal would also generally apply to foreign nonbank financial companies designated by the Financial Stability Oversight Council (“FSOC”) as being subject to FRB supervision; however, the FRB has stated that it expects that it would tailor the enhanced prudential standards to individual foreign nonbank financial companies, as necessary, upon designation by the FSOC.  Most aspects of the Proposal would only apply to FBOs with global consolidated assets of $50 billion or more, but certain aspects of the proposal will apply to FBOs and foreign savings and loan holding companies that reach a $10 billion asset threshold.  The proposed enhanced prudential standards include risk based capital and leverage requirements, liquidity standards, risk management and risk committee requirements, single counterparty credit limits, stress test requirements, and a requirement that certain FBOs establish an intermediate holding company through which to conduct certain U.S. operations.  The prudential standards become more stringent as an FBO’s asset size and scope of U.S. operations increase.  Comments are due on the Proposal by March 31, 2013.  A chart, prepared by Goodwin Procter, that presents a high level summary of the Proposal and illustrates how the Proposal’s prudential requirements would apply to various types of FBO’s depending on asset size and U.S. footprint is available by clicking here.