Deutsche Bank, Barclays and 11 other foreign banks have spent several billion dollars in the past three years complying with a new Federal Reserve rule that will trap capital in the U.S. and boost costs.
Bloomberg News reports that legal, technology and other compliance expenses totaled from $100m to as much as $500m at some of the biggest firms affected, according to five people with direct knowledge of the matter. They provided the data on the condition their companies’ individual costs wouldn’t be disclosed.
The rule, which takes effect July 1, requires foreign banks whose U.S. assets exceed $50bn to create umbrella legal structures for their local operations and take part in the Fed’s annual stress tests. The 10 largest banks affected had average operating expenses of $32bn last year, and a $500m tab would increase that by less than 2%. Still, three of the firms reported losses last year, and the added costs will make it more difficult to cope with challenges including the U.K. vote to leave the European Union as well as Europe’s lagging economy, negative interest rates and legacy bad loans.
“That’s a lot of money for each bank, particularly in the current environment when they’re having difficulty making money,” said Karen Shaw Petrou, a managing partner at Washington-based research firm Federal Financial Analytics. “Banks have been spending lots more on compliance in recent years as regulations pile up on them. This takes money away from other tasks like entering new businesses.”
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