Recent changes in US regulation of large foreign banking organizations

Author:Larry D. Wall
Position:Research Department, Federal Reserve Bank of Atlanta, Atlanta, Georgia, USA
Pages:318-332
SUMMARY

Purpose This paper aims to highlight some of the more important changes in US prudential regulation and their implications for the operation of large foreign banking organizations (FBOs) in the USA. Design/methodology/approach This paper begins with a summary of the regulatory status of FBOs prior to the crisis. It then discusses developments during the US financial crisis of... (see full summary)

 
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Recent changes in US regulation
of large foreign banking
organizations
Larry D. Wall
Research Department, Federal Reserve Bank of Atlanta,
Atlanta, Georgia, USA
Abstract
Purpose This paper aims to highlight some of the more important changes in US prudential regulation
and their implications for the operation of large foreign banking organizations (FBOs) in the USA.
Design/methodology/approach This paper begins with a summary of the regulatory status of FBOs
prior to the crisis. It then discusses developments during the US nancial crisis of 2007-2009 that motivated
stricter US prudential regulation. The third part discusses some major post-crisis changes in prudential
regulation. Finally, the paper considers two areas where important changes in US rules could not be applied in
a straightforward manner to FBOs: non-bank nancial subsidiaries and branches and agencies.
Findings Most of the regulatory changes will enhance US nancial stability, albeit in some cases at the
cost of weakening FBOs consolidated risk management. However, a few of the regulatory changes have given
foreign branches and agencies a signicant competitive advantage in US money markets.
Originality/value The paper provides an integrated analysis of both the why and the what of changes in
US regulation with some discussion of the economic consequences.
Keywords Prudential regulation, Foreign banking organizations, Intermediate holding company,
Money markets
Paper type Technical paper
1. Introduction
The USA adopted a variety of changes in prudential regulation after the crisis. These
regulatory changes have targeted the types of nancial rms that received extraordinary
assistance during the 2007-2009 crisis and/or that pose increased risk of causing a future
crisis. Among these targeted rms are many of the US branches and subsidiaries of large
foreign banking organizations (FBOs). Thus, it is not surprising that the US operations of
many FBOs have been substantially affected by post-crisis regulatory changes.
The purpose of this paper is to highlight some of the more important changes in US
prudential regulation and their implications for the operation of large FBOs in the USA[1].
The focus of the paper will be on the new regulations applicable to the domestic and foreign
banking organizations that are most important to US nancial stability. In many cases, US
regulations targeted at domestic banking organizations are applied in a straightforward way
to FBOs. However, some of the post-crisis changes in regulation cannot be applied in a direct
way to FBOs’ branches, agencies and systemically important non-bank subsidiaries. US
regulators have responded to this problem in some cases by forcing FBOs into costly
restructuring operations that would make US regulation applicable and, in other cases, by
forgoing application of the changes to FBO operations.
The remainder of the paper is organized as follows. The next section summarizes the
pre-crisis regulatory regime for FBO branches and subsidiaries. The third section reviews
developments during and immediately after the crisis, including the extraordinary support
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
JFRC
25,3
318
Journalof Financial Regulation
andCompliance
Vol.25 No. 3, 2017
pp.318-332
©Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-02-2017-0018

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