Risk-Based Capital Rule Seen Helping Foreign Bank Letter of Credit Business

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Risk-Based Capital Rule Seen Helping Foreign Bank Letter of Credit Business

WASHINGTON -- A proposed Federal Reserve regulation on capital requirements could drive issuers of industrial development bonds to foreign banks for standby letters of credit, industry analysts said this week.

In January, the Fed proposed a regulation to require U.S. banks to adjust their capital levels according to asset risk. The risk-based standard would supplement the Fed's capital adequacy rule, which requires all banks to maintain a 6% capital-to-assets ratio. The comment period for the proposal ended two weeks ago.

Because the proposal would attach a high degree of risk to standby letters, …