Magazine article American Banker

Fed Rebuts Foreign Banks' Claim of New Rules' Bias

Magazine article American Banker

Fed Rebuts Foreign Banks' Claim of New Rules' Bias

Article excerpt


Federal Reserve Board Governor Laurence H. Meyer has rebutted claims that rules implementing the Gramm-Leach-Bliley Act put foreign banks at a competitive disadvantage.

In a polite yet firm letter to a European Commission official, Mr. Meyer challenged claims -- point by point -- that foreign banks seeking financial holding company charters are being held to a higher standard than U.S. banks.

The new reform law created financial holding companies as the vehicle for common ownership of a bank, a broker, and an insurer. The Fed's interim rule laying out the conditions for chartering a financial holding company was released Jan. 19. Though changes may still be made, it took effect March 11. To date, 155 financial holding companies have been formed; 13 by foreign banks.

Among the Europeans' main concerns is a provision requiring foreign banks to maintain Tier 1 capital equal to 3% of total assets. European bankers argue that such a leverage requirement is unfair to their banks, which tend to hold lower-risk assets than U.S. banks and therefore hold less capital.

But Mr. Meyer said U.S. banks are subject to a higher leverage ratio, 5%. The Fed also created an alternative: Foreign banks that cannot meet the standard may present other evidence that they have a strong capital base. Mr. Meyer said the Fed has already allowed two foreign banks to use this option to charter financial holding companies.

"This alternative process is not available to U.S. banks, and failure by a U.S. bank to meet the leverage ratio is an automatic disqualification," Mr. Meyer wrote.

The Gramm-Leach-Bliley Act requires the Fed to apply U.S.-style capital and management standards to foreign banks seeking to establish financial holding companies. In the letter, dated Monday but released Tuesday, Mr. …

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