By: Michelle Patana
Dodd-Frank regulations created a stir among U.S banking institutions since they were unveiled two years ago. Foreign banks with operations inside the U.S. may have thought they would be able to bypass the provisions of the new reforms, but the Federal Reserve Board has expressed the unlikeliness that this will happen.
The Fed sent correspondence to large foreign banks with U.S. operations - such as Deutsche, Credit Suisse and Barclays - suggesting that they educate themselves on the Dodd-Frank regulations if they plan to continuing to do business on Wall Street. The agency said it will not provide foreign institutions that have an impact on U.S. markets a free pass or exemption from the new regulations, according to Fortune Magazine. The news source noted that given the heightened level of globalization and trading, it's also becoming difficult to discern foreign institutions from American ones. Further, several foreign banks have acquired the assets of U.S. companies, and vice versa.
As they both impact the economy and utilize the same banking strategies, the Fed said it makes sense to apply the same standards.
U.S. and foreign banks have symbiotic relationship
The Fed also noted that as the financial industry becomes more globalized, foreign and American banks now have a more interdependent relationship with each other, as evidenced by the $600 billion bailout of several foreign banks by the U.S. during the financial crisis, Fortune explains. Failing to bail out these institutions would have had a disastrous impact on the U.S. economy and foreign banks' ability to continue trading.
Despite these realities, foreign banks have sought out loopholes to avoid regulation by the Federal Reserve. Fed Governor Daniel Tarullo said these strategies would not be effective.
"We need to adjust the regulatory requirements for foreign banks in response to changes in the nature of their activities in the United States, the risks attendant to those changes, and instructions from Congress in new statutory provisions," said Tarullo, according to the news source. "The modified regime should counteract the risks posed to U.S. financial stability by the activities of foreign banking organizations, as manifested in the years leading up to, and through, the financial crisis."