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Press Release
February 18, 2014

Opening Statement by Gov. Daniel K. Tarullo
The final rule before us today is another component of our ongoing effort under Section 165 of the DoddFrank Act to put in place a set of prudential standards for large banking organizations that become
progressively more stringent as the systemic importance of the regulated entity increases.
The liquidity risk and risk-management standards in the regulation will be added to the final resolution plan
and stress testing regulations that are already in place. In the coming months we will be considering final or
proposed rules covering other elements of this set of enhanced prudential standards--including risk-based
capital surcharges, a supplemental leverage ratio, minimum levels of long-term debt, and quantitative liquidity
The requirements applicable to foreign banking organizations with a large U.S. presence are an essential part
of regulatory reform in the aftermath of the financial crisis. Beginning in the mid-1990s, the profile of foreign
bank operations in the United States changed significantly. Foreign banks became more concentrated, more
interconnected, and increasingly reliant on the kind of less stable, short-term wholesale funding that proved
so volatile when financial stress developed. Many reoriented their operations toward borrowing large amounts
of U.S. dollars, often in demand elsewhere in the world, to provide to their parents abroad. Meanwhile, the
mix of FBO activities in the United States shifted decidedly toward capital markets, to the point that in recent
years the top 10 broker-dealers in the United States have included either four or five foreign-owned firms.
The consequences of these changes in foreign bank activities were seen dramatically during the crisis, when
the funding vulnerabilities of numerous foreign banks and the absence of adequate support from their parents
made them disproportionate users of the emergency facilities established by the Federal Reserve. Yet the
United States actually lags some other important financial jurisdictions in assuring that large domestic
operations of foreign banking organizations have enough capital and liquidity to help provide stability when
stress develops.
Just as Congress and the Federal Reserve in the past have adapted the regulatory system applicable to
foreign banking organizations in response to important changes in their activities, so today we must address
the risks to financial stability posed by the more recent changes I have noted. The proposed final rule before
us today would mitigate these risks in an appropriately modulated fashion. Staff recommends various
changes from the proposed rule. Many of these are responsive to suggestions made by commenters, and
would reduce compliance and other costs without detracting from the overall financial stability benefits the
rule will provide.
Finally, I would suggest that the objections raised by those who say this rule would undermine the gains that
come from global capital flows overlook or downplay some important points. First, those gains are most
endangered when financial activity contracts rapidly in periods of high stress, which underscores the
imperative of sound prudential policies. Second, as we have seen repeatedly, ad hoc ring-fencing becomes
more likely precisely in those periods of stress, when it is far more damaging to a vulnerable financial system
than a well-conceived set of generally applicable ex ante measures imposed in normal times. Third, the rule
before us walks a middle road between the vulnerabilities of the status quo and a complete subsidiarization

model by, for example, continuing to permit branching. In sum, I would say that the most important
contribution we can make to the global financial system is to ensure the stability of the U.S. financial system.

Last Update: December 14, 2016