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27th March 2012

Fed to review foreign bank capital rules

Daniel Tarullo, the Federal Reserve governor in charge of regulation, told the Senate Banking Committee that the Federal Reserve will respond to moves by foreign banks such as Deutsche Bank to escape higher capital rules in the US. Under Dodd-Frank the rules requiring foreign banks to hold capital in the US only apply to bank holding companies.


Deutsche Bank and Barclays Bank both restructured ending their holding bank status to avoid holding the extra capital requirement in the US. Other non-US banks active in the US were reported to be considering similar moves. The Fed can point to recent events as a justification of the tightening move. Some Eurozone banks had difficulty in raising dollar funding during the early months of the Eurozone crisis last year at a time that various borrowing were becoming due for repayment. Many Eurozone banks sold US assets to raise dollar capital and reduce future dollar needs. They were helped later in the year when it became somewhat easier to raise funds again in the US.