The Federal Reserve Board has approved a final rule intended to strengthen the supervision and regulation of large bank holding companies and subject foreign banks doing business in the U.S. to the same standards.

The rule establishes enhanced prudential standards for the liquidity, risk management, and capital of those institutions, with an eye towards increase the resiliency of their operations. It also requires foreign banking organizations with a significant U.S. presence to establish an intermediate holding company over its U.S. subsidiaries. The final rule makes good on a mandate of the Dodd-Frank Act.

For U.S. bank holding companies with total consolidated assets of $50 billion or more, the rule requires them to comply with enhanced risk-management and liquidity risk-management standards, conduct liquidity stress tests, and hold a buffer of highly liquid assets sufficient to endure a a 30-day credit crisis. The rule also requires publicly traded U.S. bank holding companies with total consolidated assets of $10 billion or more to establish enterprise-wide risk committees.

The final rule will not apply to nonbank financial companies designated by the Financial Stability Oversight Council for Federal Reserve supervision. Prudential standards for these institutions will come through a forthcoming order or rule.

For foreign financial institutions, the final rule recognizes that “the U.S. operations of foreign banking organizations have become more complex, interconnected, and concentrated in recent years.” Foreign banking organizations with U.S. non-branch assets of $50 billion or more must establish a U.S. intermediate holding company over their U.S. subsidiaries. It will be subject to the same risk-based and leverage capital standards applicable to U.S. bank holding companies. The intermediate holding companies also will be subject to Federal Reserve rules requiring regular capital plans and stress tests.

Like U.S. bank holding companies with assets of $50 billion or more, a foreign banking organization with that same level of combined U.S. assets will be required to establish a risk committee and employ a chief risk officer. They too will be required to meet enhanced liquidity risk-management standards, conduct liquidity stress tests, and hold a buffer of highly liquid assets based on projected funding needs during a 30-day stress event. Foreign banking organizations with total consolidated assets of $50 billion or more, but combined U.S. assets of less than $50 billion, are also subject to enhanced prudential standards, but ones that are substantially less rigorous than their larger peers.

The final rule implements stress testing requirements for foreign banking organizations with total consolidated assets of more than $10 billion and risk committee requirements for foreign banking organizations that meet the asset threshold and are publicly traded.

U.S. bank holding companies subject to the rule will need to comply by Jan. 1, 2015.

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