Financial Services Spotlight

Regulatory Relief for Foreign Banks in the Choice Act

Posted by Roy Andersen on Jun 9, 2017 12:00:00 AM

Just yesterday, the House of Representatives passed a version of a new banking bill (the “Choice Act”). The Choice Act makes scores of efforts to cut back on the regulatory regime created under Dodd-Frank Act. Many of the changes are of principal interest to domestic banks but the provisions dealing with regulatory relief will be of interest to foreign banks doing business in the U.S. 

Under the Choice Act, certain banks may elect to receive regulatory relief if they meet requirements based on capital. In general, in order to qualify for regulatory relief, a bank must have an average leverage ratio of 10% using tests established under the regulation. Under the previous version of the law, a bank also had to be “well managed” in order to qualify, but the version passed by the House has removed this requirement—even though the heading of the regulatory relief section of the law still refers to ‘strongly capitalized and well managed” banks.

Regulatory Relief will be available for foreign banks

In addition to applying to U.S. banks, this relief will be available to any company that is treated as a bank holding company under the International Banking Act—i.e., any foreign bank with a branch in the U.S. Foreign banks would have to send an election to their federal and state regulators containing the leverage ratio data. A federal regulator may dispute the data within 30 days and advise the bank of the specific reasons for the denial and the steps that the bank can take to meet the election requirements.

What Relief will apply?

If the election is granted, among other things, such banks will be exempt from:

  • any law or rule on capital or liquidity (the Basel III standards)
  • the “heightened prudential standards” applicable to larger institutions under section 165 of the Dodd-Frank Act including risk committees
  • any ability of an agency to prevent capital distributions
  • any activity or acquisition that might have been prohibited because it could affect the “stability” of the U.S. financial system
  • resolution plans
  • Stress tests

This law has a long way to go, but it has elements that are consistent with President Trump’s master plan for financial services reform. These changes alone would make a difference for foreign banks with U.S. operations.

About the Spotlight


The Financial Services Spotlight examines the regulatory and technology developments impacting banks, asset managers and other financial services providers—where challenges meet opportunities.

 

Meet the Authors


Roy C. Andersen, of counsel in Sullivan & Worcester's New York office, is a member of the Corporate Department. Mr. Andersen focuses on bank regulatory and compliance matters, including international banks and their branches and agencies in New York.

Joel Telpner, partner in the firm's New York office, is a seasoned advisor, strategist and problem solver. Mr. Telpner brings more than 30 years of legal experience in a career that includes time as an AmLaw 100 partner, the former U.S. general counsel of a global financial institution, and a venture capitalist. He is recognized for his ability to deftly manage complex financial transactions, especially those involving sophisticated structured finance and derivatives matters and has an extensive and unique combination of transactional and regulatory experience.

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