Global Reach Seen For New U.S. Bank Law

The financial reform bill that's heading for a Senate vote next week doesn't stop at America's borders. Regulators tell eFinancialCareers News its mandates likely extend beyond Wall Street to affect the U.S. operations of foreign banks and the foreign operations of U.S. banks. Therefore, unlike various rules associated with TARP and other U.S. bank bailout measures, market pros cannot escape the law's reach by jumping to a European-owned institution.

A former top Federal Trade Commission official believes the bill, HR 4173, would apply to any foreign bank's operations incorporated in the U.S. - encompassing Deutsche Bank, UBS, Credit Suisse and Barclays' U.S. operations along with homegrown banks like Citigroup.

Text of the legislation states the Board of Governors of the Federal Reserve has authority over "financial companies," a definition that includes any "company incorporated in or organized in a country other than the United States that has significant operations in the United States."

"Broadly speaking, any bank under the Fed's jurisdiction (i.e. U.S. banks and U.S.-domiciled branches of foreign banks) is treated equally," says a U.S. bank regulator, speaking unofficially. "The distinction of where the bank is based should have no bearing on how they are regulated. They might experience an increase in 'regulatory burden,' since they are subject to U.S. rules and rules within their home countries. But that applies to all banks."

The final language appears to have no exemptions from new regulations for foreign banks with U.S. operations. There are only a few examples of specific actions related to foreign banks in the bill, such as a provision allowing either the CFTC or the SEC to "prohibit an entity domiciled in [a] foreign country from participating in United States in any swap or security-based swap activities."

The ex-FTC official is less sure the bill covers European operations of U.S. banks. Since most U.S. banks' foreign operations are directly owned and run by the U.S.-based firm, however, such operations would likely fall under its jurisdiction.