Federal Reserve governor Daniel Tarullo on Wednesday outlined stricter capital and liquidity rules for foreign banks operating in the United States, a plan that would force them to adhere to the same standards as U.S. institutions.
Policymakers grew alarmed during the financial crisis about the risks foreign banks posed as they borrowed heavily from the Fed’s discount window, the primary tool for providing cash to banks facing liquidity problems. At the time, foreign firms were exempt from U.S. requirements that banks keep a certain amount of assets in reserve to cover potential losses, provided their parent companies were well capitalized.
The Dodd-Frank financial law ended that exemption and called on the Fed to write tougher capital rules for all banks doing business in the United States. The central bank last year released proposed rules for U.S. banks but had yet to unveil its plans for their foreign counterparts until now.