US Federal Reserve tightens rules on international banks

The US central bank has adopted new regulations on international financial groups that could force some to set aside billions of dollars in capital.

The Federal Reserve’s rules announced on Tuesday will affect large European banking firms such as Deutsche Bank AG, Credit Suisse Group AG, UBS AG, Barclays PLC and others with operations in the US.

“As the financial crisis demonstrated, the sudden failure or near failure of large financial institutions can have destabilising effects on the financial system and harm the broader economy,” Fed chairwoman Janet Yellen said.

“And, as the crisis also highlighted, the traditional framework for supervising and regulating major financial institutions and assessing risks contained material weaknesses. The final rule addresses these sources of vulnerability.”

The regulations will require foreign banks to meet the requirements on capital, debt levels and annual “stress tests’’.

Foreign banking organisations with US non-branch assets of more than $50 billion will be required to establish an US intermediate holding company over their subsidiaries, the Fed said.

The holding companies will be subject to the same risk-based and leverage capital standards applicable to US bank holding companies, including regular capital plans and stress tests.

The Wall Street Journal reported that Deutsche Bank’s US unit at times has operated with virtually zero capital, and would need an additional $7 billion under the new regulations.

“Now that the rules have been finalized, we will study them carefully and comply fully,” a Deutsche Bank spokeswoman said.

“As was the case with the initial proposal and now with the final rules, we are confident that our US franchise will continue to thrive.” The new rules have been resisted by the European Union.

“We will not be able to accept discriminatory measures which would have the effect of treating European banks worse than US ones,” said Michel Barnier, European commissioner for the internal market.