Foreign banks covered by US capital rules
Foreign banks with operations in the US will now have the same type of capital requirements as domestic bank holding companies.
The provision in the Collins amendment will impact stand alone capital rules in the jurisdiction of the parent company and includes complicated tax issues.
"In some jurisdictions, stand alone capital calculations at the parent level will mean that if investments in the US bank holding companies are converted into an equity type security to meet this new provision, there could be a deduction from the holding company's stand alone calculations," said Anthony Ragozino of UBS Securities during an IFLR web seminar.
The seminar, held in association with Morrison & Foerster last month, was called 'The impact of US regulatory reforms on foreign banks and issuers'.
Ragozino warned that any such conversion to equity securities as proposed by the Collins amendment could result in tax withholding requirements on any distributions made by the bank holding company to the non-US parent.
In the 10 years prior to the Bill, foreign banks with US operations had been using an interpretive letter from the Federal Reserve Board. It exempted the US intermediate bank holding company from the US capital adequacy guidelines provided that the ultimate foreign parent company was deemed well capitalised and well managed by its home country standards.