On December 14, 2012, the Board of Governors of the Federal Reserve System (FRB) released a 300-page proposed rule (the Proposal) under Sections 165 and 166 of the Dodd-Frank Act that would impose heightened prudential requirements, on the US operations of foreign banking organizations (FBOs) having global consolidated assets of $50 billion or more. Head offices of FBOs and smaller FBOs will also be affected by some aspects of the Proposal. Application of the proposed requirements would vary depending upon the FBO’s size, and upon the size and structure of the FBO’s US operations. An FBO with combined US assets of $10 billion or more would have to organize its US subsidiaries (but not its US branches and agencies) under a US intermediate holding company. The Proposal is lengthy, complex, often ambiguous, and likely to be controversial. It represents a significant departure from the longstanding approach to supervising the US operations of FBOs, and could lead many foreign banks to consider restructuring or curtailing their US operations, with potential adverse impacts on the US economy. The Proposal also raises a host of other policy concerns. This Update analyzes the Proposal and its potential impact, including implications for a year-old parallel proposal for large US banking organizations. Comments on the Proposal will be due by March 31, 2013.
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