Draft Regs Could Affect Non-U.S. Banks With Small U.S. Insurance Operations

Federal banking regulators are developing new capital standards for non-U.S. banking organizations that could affect non-U.S. banks with modest U.S. insurance underwriting operations, but not non-U.S. banks with large U.S. insurance underwriting operations.

The Office of the Comptroller of the Currency, the Federal Reserve System and the Federal Deposit Insurance Corp. mention insurance companies and other nonbanks in a set of draft capital standards regulations that’s set to appear Wednesday in the Federal Register.

(Related: Academics Wary of FSOC’s New Systemic Risk Plan)

The U.S. operations of non-U.S. banking organizations provide many benefits for the U.S. economy, but regulators want to make sure they understand those organizations’ activities, off-balance sheet exposure and relationships with other players in the U.S. economy, officials say in the “preamble,” or introduction, to the proposed regulations.

The proposed regulations would make the reporting, capital and liquidity rules for the non-U.S. organizations more like the rules for domestic organizations.

Under the proposed regulations, regulators would count nonbank assets, such as insurance assets, when applying the new rules to a “covered depository institution holding company” with a non-U.S. owner, and deciding what standards the company had to meet.

But regulators would not try to apply the proposed rules to a a covered depository institution if the covered depository institution was an insurance company.

The proposed definition of covered depository institution also excludes a U.S. financial holding company with a non-U.S. owner, if the U.S. company holds 25% or more of total consolidated assets in subsidiaries that are insurance underwriting companies.

The proposed regulations imply that a Chinese bank, European bank or other non-U.S. bank with modest insurance underwriting operations in the U.S. could end up having to comply with the proposed standards, but that banking regulators would leave a U.S. bank with non-U.S. owners that had a large insurance underwriting operation in the care of state insurance regulators.

Resources

A preliminary version of the draft regulations is available here. non-U.S. The regulations would apply to nonbank activities, such as insurance sales a

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