Fears that new rules may push banks out of US

Tim Wallace
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EUROPEAN banks fear incoming US capital requirements could drive their costs up to unsustainable levels and force them to leave the country, industry sources said yesterday.

New proposals on capital and leverage limits for foreign banks are likely to be unveiled at the end of this week.

Federal Reserve governor Daniel Tarullo last month warned they could be far tougher than those imposed on domestic US banks.

“We need to adjust the regulatory requirements for foreign banks in response to changes in the nature of their activities in the US,” Tarullo said.

“The modified regime should counteract the risks posed to US financial stability by the activities of foreign banking organisations, as manifested in the years leading up to, and through, the financial crisis. Special attention must be paid to the risk of runs associated with significant reliance on short-term funding.”

He noted the US has 23 foreign banks with over $50bn (£31bn) of capital, including Swiss giants UBS and Credit Suisse, British bank Barclays, German institution Deutsche bank and Canada’s Toronto-Dominion Bank. Industry sources said tough new rules could make it impossible to compete in the US.

“No foreign bank will support these proposals – if they do come in, it would simply become nonsensical to operate there,” one told City A.M.

It comes after the European Banking Federation warned UK and EU regulations were being implemented more quickly than US capital requirements, giving US banks an unfair competitive advantage.

And the Sunday Times yesterday reported the European Commission is considering retaliatory measures if the US does impose tough capital requirements on EU banks operating in the US.