Fed may force foreign banks in US to boost capital

NEW YORK — US units of foreign lenders may be required to comply with tougher capital rules that some banks sought to skirt, three people with knowledge of the discussions said.

The Federal Reserve, drafting standards for the nation’s largest banks, may force non-US firms to house all of their businesses within a US holding company, said the people, who requested anonymity because the rules have not been finalized. That means local units would have to meet minimum capital standards, regardless of their parents’ resources.

Deutsche Bank and London-based Barclays have changed their US status to discard the holding-company structure. The regulators’ plans could force foreign banks to inject capital into their US units and limit their ability to move funds across borders, said Luigi De Ghenghi, a New York lawyer.


‘‘Fragmenting capital along regional lines will impose real costs on doing cross-border banking,’’ said De Ghenghi. ‘‘Global banks will risk ending up with overcapitalized units all around the world.”

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The Fed provided $538 billion in emergency loans to the US units of European banks during the financial crisis, almost as much as it supplied to US firms. That increased political pressure on lawmakers and regulators to tighten the rules for all.

The 2010 Dodd-Frank Act closed the capital exemption for foreign bank holding companies. Some non-US lenders then altered their legal structures to remain outside the scope of local capital rules.

Deutsche Bank, Germany’s biggest lender, estimated in 2010 that it might need to inject almost $20 billion into its US unit to comply with the same rules as domestic banks, The Wall Street Journal reported last year. The division, Taunus Corp., dropped its status as a bank holding company in February.

Barclays, Britain’s second-biggest bank, said in February 2011 that it deregistered Barclays Group US as a bank holding company, partly to sidestep the capital requirements.


Spokesmen for the Fed and the banks declined to comment on the potential rule change.

Forcing foreign lenders to put US assets under bank holding companies would subject them to US-specific leverage requirements, in addition to global capital rules that dictate how much capital banks need based on the riskiness of their assets.

Lenders headquartered in the United States are subject to an additional leverage cap based on total assets, rather than on those weighted by risk. Leverage is a measure of a bank’s debt in relation to shareholder equity.

The Institute of International Bankers, a New York lobby that represents 100 foreign lenders in the United States, has warned “one size fits all” rules can be harmful.