Fed toughens rules for large foreign banks

 By Martin Crutsinger

AP Economics Writer
 
WASHINGTON (AP) — The Federal Reserve will require the largest foreign banks operating in the United States to hold higher levels of capital reserves to protect against potential loan losses.
 
The stricter regulations the Fed adopted Tuesday are intended to prevent the types of threats that contributed to the 2008 financial crisis. The requirements are similar to those already adopted for big U.S. banks.

Fed Chair Janet Yellen, presiding at her first public meeting of the central bank’s board, said the changes will “help address the sources of vulnerability” exposed by the crisis. The rules were adopted by a 5-0 vote.
Foreign banks had objected to the changes. They argued that the stricter rules would raise the cost of doing business in the United States and reduce the loans they could provide.

The adjustments include extending the date by which foreign banks must comply until July 2016, one year later than originally proposed. But she said her group still felt the rules were too onerous.

The rules will require overseas banks with at least $50 billion in assets operating in the United States to set up a subsidiary bank holding company in the United States that will be subject to the same requirements in such areas as capital reserves and leverage as U.S. bank holding companies.

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