Impact of U.S. Regulatory Reform on Global Banks: Key Perspectives on the Major Areas

February 12, 2013 | Federal Reserve Bank of New York

Overview This event was an invitation-only, full-day seminar on the impact of U.S. regulatory reform on international banks with operations in the United States. The participants included over 100 senior representatives from foreign banks with significant U.S. operations and U.S. banks with significant cross-border operations. Many of the topics discussed at the seminar are discussed in more detail in the latest edition of Regulation of Foreign Banks & Affiliates in the United States, which is published by the Center for Transnational Legal Studies.
Introduction
10:15am-10:30am
Introductory Remarks
  • Ernest T. Patrikis, Partner, White & Case; President, Center for Transnational Legal Studies
  • Randall D. Guynn, Partner and Head of the Financial Institutions Group, Davis Polk & Wardwell; Editor, 7th edition, Regulation of Foreign Banks & Affiliates in the United States (forthcoming 2013); Co-editor (with Ralph Reisner and Mark Plotkin), 6th edition (2012).
Welcoming Remarks
10:30am-10:45am

New York City as a Global Financial Center

  • William C. Dudley, President, Federal Reserve Bank of New York
Enhanced Prudential Standards
10:45am-11:45am

The Dodd-Frank Act subjects foreign banks to enhanced prudential standards if they are treated as bank holding companies and have $50 billion or more in worldwide assets. The Federal Reserve would require them to establish intermediate holding companies for their US bank and nonbank subsidiaries. IHCs would be subject to US capital and liquidity requirements. US branches would also be subject to certain enhanced standards. Does the Federal Reserve's proposal signal a new "territorialist" approach to US regulation? Will the US branch requirements amount to de facto subsidiarization? Will the proposal "trap" capital and liquidity in the US? Will this all result in retaliation by host-country regulators on US banking operations abroad? Will it result in a more coherent corporate governance and compliance model for US operations of foreign banks? How will this approach affect the FDIC's new resolution authority?

Moderator

  • Ernest T. Patrikis, Partner, White & Case; President, Center for Transnational Legal Studies

Panelists

  • Mark E. Van Der Weide, Deputy Director for Policy, Division of Banking Supervision and Regulation, Federal Reserve Board
  • Derek M. Bush, Partner, Cleary Gottlieb Steen & Hamilton
  • Bradley K. Sabel, Partner, Shearman & Sterling
  • William J. Sweet, Jr., Partner, Skadden, Arps, Slate, Meagher & Flom
  • Michael M. Wiseman, Partner, Sullivan & Cromwell

Materials PDF

The Volcker Rule
11:45am-12:45pm

The Volcker Rule imposes severe restrictions on proprietary trading and investments in and certain relationships with hedge funds and private equity funds. What is the line between proprietary trading, market making, asset/liability management and risk management? What constitutes a covered fund? How does Super 23A work? What is the potential extraterritorial impact of the Volcker Rule on the non-U.S. activities of international banks? What are the limits of the "solely outside the United States" exemption?

Moderator

  • Margaret E. Tahyar, Partner, Davis Polk & Wardwell

Panelists

  • Christopher M. Paridon, Counsel, Legal Division, Federal Reserve Board
  • Paul L. Lee, Partner, Debevoise & Plimpton
  • Sarah A. Miller, CEO, Institute of International Bankers
  • Charles K. Whitehead, Professor, Cornell Law School

Materials PDF

Lunch
12:45pm-1:30pm

Keynote Speaker PDF

Swaps and the Swaps Pushout Rule
1:30pm-2:30pm

Title VII of the Dodd-Frank Act imposes a new regulatory framework on the over-the-counter swaps activities of international banks. Section 716 of that Title, commonly known as the swap pushout rule, requires any institution that has access to the Federal Reserve's Discount Window or benefits from FDIC deposit insurance to push its swaps activities into a separately capitalized affiliate. What is a swap dealer or a major swap participant? What are the mandatory clearing requirements, the bilateral margin requirements and position limits? What is the potential extraterritorial impact of Title VII on the non-U.S. operations of global banks? Will the limited exemption from the swap pushout rule for insured depository institutions be extended to the uninsured U.S. branches of foreign banks? Is it possible for a foreign bank to continue engaging in swaps activities through a U.S. or non-U.S. branch that agrees to forego access to the Discount Window?

Moderator

  • Gary E. Kalbaugh, Director and Assistant General Counsel, ING Financial Markets; Member of the Board, Center for Transnational Legal Studies

Panelists

  • Kevin F. Barnard, Co-Head, Financial Services Practice, Arnold & Porter
  • Barbara R. Mendelson, Partner, Morrison & Foerster
  • Annette L. Nazareth, Partner, Davis Polk & Wardwell
  • Edward J. Rosen, Partner, Cleary Gottlieb Steen & Hamilton

Materials PDF

Ending "Too Big to Fail"
2:30pm-3:30pm

The FDIC and the Bank of England recently issued a joint paper endorsing the use of top-down, singlepoint- of-entry "bail-in" strategies as a way to end "too big to fail". To facilitate the resolution of a US systemically significant financial institution with global operations, or G-SIFI, by the FDIC, Paul Tucker, Deputy Governor of the Bank of England, said that the UK would not ring-fence the UK operations of a US G-SIFI. Meanwhile the UK Financial Services Authority has issued a statement to the effect that if UK depositors continue to be discriminated against under US depositor preference rules, it will require US banks to subsidiarize their UK branches. At the same time, the Federal Reserve would require foreign banks to establish intermediate holding companies for US bank and nonbank subsidiaries, and subject these IHCs and the US branches of foreign banks to enhanced standards, though not full subsidiarization. Does the FDIC/BofE joint paper signal a new era of cross-border cooperation in the resolution of G-SIFIs? Will other countries commit not to ring-fence local operations to facilitate crossborder resolutions? Will the US? Do the proposed actions by the FSA and the Federal Reserve signal a "new territorialism"? Will the top-down strategies really end "too big to fail"? Will the big banks instead be broken up? Is there a solution to the US discriminatory depositor preference rules?

Moderator

  • John C. Dugan, Partner, Covington & Burling

Panelists

  • Thomas C. Baxter, Jr., General Counsel, Federal Reserve Bank of New York
  • James R. Wigand, Director, Office of Complex Financial Institutions, FDIC
  • H. Rodgin Cohen, Senior Chairman, Sullivan & Cromwell
  • Michael H. Krimminger, Partner, Cleary Gottlieb Steen & Hamilton

Materials PDF

Enhanced Capital and Liquidity
3:45am-4:45pm

As implemented in the United States, Basel III will require U.S. banks and bank holding companies to hold substantially more capital and be substantially more liquid than ever before. The Federal Reserve has proposed to require foreign banks to establish intermediate holding companies to hold all of their US bank and nonbank subsidiaries and to subject these IHCs to US capital and liquidity requirements. To ensure that single-point-of-entry resolution strategies are feasible for US G-SIFIs, the Federal Reserve is also considering new minimum long-term debt requirements at the BHC level to supplement consolidated capital requirements. How will capital equivalency of foreign banks be determined in this new environment? What if the Basel process breaks down? Who will the new minimum long-term debt requirements apply to? How much will they be? What will count?

Moderator

  • Achilles M. Perry, General Counsel (US), Canadian Imperial Bank of Commerce; Member of the Board, Center for Transnational Legal Studies

Panelists

  • Anna Lee Hewko, Assistant Director, Division of Banking Supervision and Regulation, Federal Reserve Board
  • Luigi L. De Ghenghi, Partner, Davis Polk & Wardwell
  • Adam M. Gilbert, Managing Director, JP Morgan Chase & Co.
  • Mark J. Welshimer, Partner, Sullivan & Cromwell

Materials PDF

Concluding Remarks

Remarks by Randall D. Guynn, Partner and Head of the Financial Institutions Group, Davis Polk & Wardwell; Editor, 7th edition, Regulation of Foreign Banks & Affiliates in the United States (forthcoming 2013); Co-editor (with Ralph Reisner and Mark Plotkin), 6th edition (2012).