The rules establish a framework that sorts banks with USD 100 billion or more in total assets into four different categories based on factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure.
According to the Federal Reserve, the new mandate simplifies things by applying liquidity standards to a foreign bank’s US intermediate holding company (IHC) based on the risk profile of the IHC, rather than on the combined US operations of the foreign bank.
Under rules established in the Dodd-Frank Act, foreign banks which meet a certain asset threshold (greater than US 50 billion) in the US perform a majority of their business through IHCs. These companies are subject to stress testing and regulatory scrutiny.
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