IIB Comment Letter on FRB's Proposed Regulations

The Institute of International Bankers ("IIB") submitted a comment letter regarding the Federal Reserve Board's proposed regulations implementing enhanced capital, liquidity and early remediation requirements for foreign banking organizations ("FBOs") under Section 165 andSection 166 of the Dodd-Frank Act.The IIB's letter lays out the following series of "fundamental concerns" regarding the proposed regulations:

• The potential implications for U.S. financial markets and the U.S. and global economic recovery do not appear to have been adequately studied, and the relative costs and benefits of the proposed regulations have not been explicitly analyzed or publicly addressed.

• The proposed regulations contravene Congress' specific directions regarding the Board's implementation of Section 165 and would have disproportionate effects on FBOs that do not present material risks to U.S. financial stability.

• The proposed regulations are inconsistent with international efforts to promote coordination and cooperation among home and host country supervisors, and incentivize the adoption of uncoordinated, protectionist measures in other jurisdictions.

• The proposed regulations would expand the extraterritorial effects of U.S. regulations on FBOs without deference to home country regulatory standards.

• By limiting the organizational flexibility of FBOs' U.S. operations, the proposed regulations would create disincentives for growth and barriers to entry or expansion into the United States.

The letter goes on to propose an alternative, "tailored" approach to implementing Section 165 standards with respect to FBOs. Under the IIB's proposed alternative, the Board would first apply heightened scrutiny to each FBO potentially subject to Section 165 and, after a risk-based evaluation, would then determine the appropriate degree, if any, that Section 165 standards would apply to the FBO. Additionally, the IIB's proposed alternative contemplates that the Board's evaluation of each institution, and subsequent determination of whether any Section 165 standards should apply to the institution, would occur "under a framework set out in Board regulations transparently developed through a public rulemaking process."

See: IIB Comment Letter. Questions on the letter and on Section 165 may be directed to Scott Cammarn or James Kong.