The most important improvements at a glance
- Capital requirements: The US Federal Reserve (Fed) has lifted the 3 % leverage ratio requirement (a minimum ratio of Tier 1 capital to non-risk-weighted assets); this ratio is merely retained, without specification of a threshold, as one possible factor among others for determining capital and management comparability of foreign banks and US banks. The numerical capital criteria left for awarding financial holding company status are thus the risk-based capital ratios of at least 10 % for total capital and 6% for Tier 1 capital.
- Management requirements: To assess branch business in the United States the Fed now uses a composite rating instead of the previous minimum ratings for each individual US branch of a foreign bank. Also, instead of stipulating that home-country supervisors rate a bank’s global management as at least “satisfactory”, it now merely requires that they approve the bank’s expanded activities in the United States that financial holding company status involves. This makes clear that this requirement is not to be interpreted extraterritorially.
- The Fed will, in principle, continue to impose the capital and management requirements also on third-party banks with US branches where these are “controlled”, within the meaning of the term under US banking law, by a foreign bank seeking financial holding company status. However, exceptions are now possible in the case of strategic minority shareholdings of foreign banks.
- In the event of failure to meet these requirements, the Fed is now required to consult home-country supervisors before corrective measures can be agreed with the bank concerned.
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