Deutsche, HSBC fight Fed’s ‘unfair’ too-big-to-fail plans

Bloomberg

Foreign banks including HSBC Holdings Plc and Deutsche Bank AG are pushing back against the Federal Reserve’s proposals on implementing rules designed to end too-big-to-fail, saying they are burdensome and unfair to the US units of the world’s biggest lenders.
Under the Fed’s proposals, US units of foreign banks affected would need an extra layer of debt available to be wiped out in a crisis, on top of securities qualifying as total loss-absorbing capacity, or TLAC. Both layers of debt deemed “readily available for bail-in” would have to be sold to the parent companies, rather than third-party investors, according to the draft rules, which were released for comment October 30.
The rules are unfair because similar-sized domestic US lenders aren’t subject to the same requirements, banks and lobby groups including Banco Santander SA and the Institute of International Bankers say in their comments.
In addition, the requirement to push losses up to parents runs counter to resolution plans designed to stop contagion.
“In our view, the proposed rules would impose excessive costs” on the affected banks’ US units and “lead to competitive disparities and unfair treatment in international banking without commensurate benefits to resolvability or US financial stability,” the IIB said in its response to the Fed’s proposals.
The Fed is implementing rules agreed by the Financial Stability Board that aim to ensure the world’s 30 biggest lenders can be wound down and recapitalised in an orderly way: without taxpayer bailouts, without interrupting “critical functions,” and without posing a risk to financial stability. The importance of the U.S. market to the biggest global banks means the fallout from U.S. rule-making has an impact far beyond that country’s borders.
The Fed’s proposals affect not only domestic giants like JPMorgan Chase & Co. or Wells Fargo & Co., but also the US units of globally systemically important banks, or G-SIBs. On top of selling TLAC-eligible debt to their parents, they would also have to issue long-term debt that was contractually subordinated to all of their third-party liabilities and included a trigger allowing the Fed to cancel it or convert it into equity.
Those requirements are “onerous” and put the firms affected “at a significant competitive disadvantage compared with comparably sized non-G-SIB US bank holding companies,” the IIB said.