Federal Reserve Board Gov. Daniel Tarullo gave a glimpse of what significant policy changes U.S. regulators are considering for the supervision of large foreign banking organizations in a speech at Yale University's Law School.
"Regulators have been working behind the scenes to draft new rules required under the Dodd-Frank Act to improve its supervision of foreign banking organizations and address the risks such firms took in the lead-up to the crisis," writes American Banker's Donna Borak.
During his speech, Tarullo outlined three changes to how the foreign banking organization should be regulated in the future. First, he believes foreign banks should establish a first-tier intermediate company that encompasses all its U.S. bank and nonbank subsidiaries. Second, he called for requirements such as those under Dodd-Frank - annual stress testing, risk management and single counterparty credit limits -- to apply to such firms. Finally, regulators are considering implementing liquidity standards for firms that are consistent with requirements that bank holding companies must adopt once the Basel Committee on Banking Supervision reaches an agreement.
"We should chart a middle course, not moving to a fully territorial model of foreign bank regulation, but instead making targeted adjustments to address the risks I have identified," said Tarullo.
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