European Banks Parry U.S. Rules. Critics Says Moves Wouldn’t Strengthen Overall Health of Banks

From The Wall Street Journal
By Max Colchester and David Enrich. Eyk Henning contributed to this article.
February 10, 2014


LONDON—European banks are considering new ways to cushion the blow of U.S. financial-safety rules set to kick in as early as next year.

The moves are a reaction to planned Federal Reserve rules that will require the U.S. arms of foreign banks to be better capitalized and subject them to annual “stress tests.” European banks for years have run the operations on much thinner capital buffers than their American rivals.

Among the tactics under consideration, banks…   could shore up their U.S. subsidiaries by buying debt from them, according to people familiar with the banks’ strategies. Other banks are selling assets or considering moving businesses into legal structures outside the purview of U.S. regulators.

The ideas are triggering criticism from some banking experts who say they won’t strengthen the overall health of the banks and could draw unfavorable scrutiny from regulators, including the Fed, which is responsible for overseeing U.S. banks.

Such moves “shouldn’t be perceived as creating capital,” said Cornelius K. Hurley, director of the Boston University Center for Finance, Law & Policy. “I doubt the Fed will fall for this…approach, let alone the foreign banks’ home-country supervisors.”

Bank executives say the steps they are considering are legitimate ways of adhering to increasingly onerous regulations, while minimizing costs to shareholders. They note that any steps will need to win the support of regulators in both the U.S. and the banks’ home countries…


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