The tailored regulatory rules for US banking organizations will provide significant capital and liquidity relief to non-US GSIBs. Going forward, these banks will be in a better position to focus on growth and Financial Resource Management.
Concurrent with this release, the Federal Reserve finalized the tailored rules for liquidity, capital and resolution planning requirements for US banking organizations. Collectively, these rules implement changes required by statute under the Economic Growth, Regulatory Relief and Consumer Protection Act.
While the revised framework largely maintains the majority of regulatory requirements for the 8 largest, most complex and interconnected US banking organizations (the US GSIBs), the tailored rules provide significant relief to non-US GSIBs, including foreign banks. Going forward, many of these institutions will have excess capital that can potentially be redeployed or distributed to investors and excess liquidity that can potentially be allocated to higher yielding assets with associated benefits to net interest margin. The framework also provides significant headroom for smaller and less complex banking organizations to pursue organic and inorganic growth. We anticipate renewed interest in pursuing thoughtful M&A opportunities to benefit from scale advantages, when and where valuations are appropriate. Operational requirements for stress testing, reporting and resolution planning have also been scaled down considerably.
In immediate response to these final rules, banks should conduct (or refresh, since rules remain largely unchanged from proposals) an impact assessment of their institution’s regulatory requirements. Given these changes, we believe all banks should formulate or re-evaluate their overall Financial Resource Management strategy within the new regulatory framework, given the regime is likely to be stable for some time.