Banks slam Fed proposal for foreign lenders to lift US capital reserves
As part of its response to the global financial crisis, the US Federal Reserve has proposed requiring foreign banks to set up separate holding companies for their US operations and strengthen capital and liquidity standards.
In a letter to the Fed, the Australian Bankers' Association said some its members would be "significantly impacted" by the proposed changes, many of which were "unnecessary".
Australian banks were already tightly regulated and the local authorities were at the forefront of implementing more stringent global capital rules, it said, and the Fed's move would add needless costs. It urged the Fed to take a more "flexible" approach to banks from countries such as Australia that were globally recognised for regulating their banks well.
The plan threatened to "ultimately damage the US financial industry as some [foreign banks] review their operations in the US. The proposals do not appear to give recognition to countries such as Australia that already have strong prudential regimes," said the letter from Tony Burke, the ABA's director of industry policy and strategy.
"It is important that there continues to be international co-ordination with respect to regulation, and the proposed rule diverts from the long-standing approach of consolidated supervision by home-country regulators."
Among the big Australian banks, NAB owns the US lender Great Western Bank, with assets of more than $US9 billion and close to 200 outlets in the US Midwest. Macquarie Group has also been aggressively expanding its presence in US investment banking since the financial crisis.
Echoing criticism from European interests, the ABA called for co-ordination between countries in implementing bank regulation. It said there was a "long-standing" approach of home country regulators supervising their banks, and the US move could cause other nations to develop their own set of rules.
"If the proposals are implemented in their current form, it may well lead to other countries developing their own frameworks, leading to diverging regulatory frameworks, global inconsistency and an unwieldy cross-border regulatory regime across the globe," the letter said.
The Fed's proposed rules will apply to all banks that have a US presence with global assets of $US50 billion or more, with more stringent rules imposed on those with US assets of $US50 billion or more. The Commonwealth Bank, ANZ and Westpac each have offices in New York as part of institutional banks.
Frequently Asked Questions about this Article…
The Federal Reserve has proposed that foreign banks with a US presence set up separate US holding companies and meet stronger capital and liquidity standards. The rule targets banks with global assets of US$50 billion or more, with even stricter requirements for those that also have US assets of US$50 billion or more.
The ABA says many Australian banks would be “significantly impacted” and that parts of the proposal are unnecessary because Australian banks are already tightly regulated. The ABA argues the change would add needless costs, undermine the long‑standing approach of home‑country consolidated supervision and could prompt banks to review their US operations.
The article mentions NAB (which owns US lender Great Western Bank), Macquarie Group (expanding in US investment banking), and the big four’s institutional presences — Commonwealth Bank, ANZ and Westpac — all of which have New York offices that could be affected by the Fed’s proposal.
Yes. The ABA warned the proposal could lead some foreign banks to review their operations in the US, and said that outcome could ultimately harm the US financial industry if lenders scale back or withdraw because of the new requirements.
The ABA and others fear the rule would weaken international coordination by diverting from the established practice of home‑country regulators supervising their banks. They warn it could encourage other countries to build their own differing frameworks, creating global inconsistency and a more unwieldy cross‑border regulatory regime.
NAB owns Great Western Bank, which has more than US$9 billion of assets and roughly 200 outlets in the US Midwest. Because it operates a significant US bank, NAB could face additional compliance and capital costs if the Fed’s rules are applied to its US operations.
Macquarie Group has been aggressively expanding its presence in US investment banking since the financial crisis, so the Fed’s proposed rules could affect its US investment banking operations and the way it structures those activities.
Investors should note that the Fed’s proposals could raise compliance and capital costs for banks with US operations, possibly prompting strategic changes or reviews of US businesses. Those outcomes could influence profitability and investor returns for banks like NAB, Macquarie, Commonwealth Bank, ANZ and Westpac — so staying informed as the rulemaking progresses is sensible.
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