Foreign Banks Knock Fed’s ‘Too-Big-To-Fail’ Plans

A number of banks based outside of the United States have been raising opposition to proposals by the Federal Reserve to bring “too-big-to-fail” rules into force. The non-U.S. banks have said that the rules would be unfair to the U.S. units of those very banks.

The banks include HSBC Holdings and Deutsche Bank, Bloomberg Business reported Thursday (March 10). The rules would mandate that an extra layer of debt be made “available to be wiped out in a crisis,” which would complement securities that would also absorb losses. That debt would be sold to parent companies and not third-party investors. Those additions to capital structure were disclosed in draft rules that were made public in the fall of last year.

Yet, the banks mentioned above contend that the playing field is not level due to the fact that domestic lenders operating in the U.S. are not beholden to the same rules. There have been a number of lobbying groups looking to give voice to their dissatisfaction over those rules, and they also state that the rules would not prevent contagion.

In one statement, the Institute of International Bankers said: “In our view, the proposed rules would impose excessive costs” on the affected banks’ U.S. units and “lead to competitive disparities and unfair treatment in international banking without commensurate benefits to resolvability or U.S. financial stability.”

The overarching theme here, according to the newswire, is to ensure that the biggest global lenders can be systematically wound down and recapitalized if need be. That would help protect taxpayers. And, in the United States, the rules would extend to not just the biggest players in the U.S., going beyond JPMorgan and others, but would also extend to those banks that are defined to be “globally systemically important,” or G-SIBs, the newswire said.