On February 18th, the Board of Governors of the Federal Reserve System (Federal Reserve) voted unanimously to approve a final rule (Final Rule) implementing the enhanced prudential standards contained in Section 165 of the Dodd-Frank Act. This Client Alert discusses the Final Rule as it applies to non-U.S. banks that are “foreign banking organizations” under the Federal Reserve’s regulations (FBOs).
As expected, the Final Rule breaks sharply from the Federal Reserve’s historical treatment of FBOs by requiring those FBOs with $50 billion or more in total global consolidated assets and $50 billion or more in total U.S. non-branch/agency assets (non-branch assets) to form an intermediate holding company (IHC) for virtually all of their U.S. non-branch/agency operations.
The Final Rule is substantially similar to the rule as proposed, with certain important exceptions:
- The U.S. non-branch asset threshold for the IHC is $50 billion, not $10 billion;
- FBOs that are required to form IHCs are given one additional year, until July 1, 2016, to move substantially all of their U.S. non-branch/agency assets under the IHC;
- IHCs are not required to comply with the Final Rule’s mandatory leverage ratio, and for those IHCs subject to it, the mandatory supplementary leverage ratio, until January 1, 2018;
- IHCs that would be Basel III “Advanced Approaches” banking organizations are not required to calculate their capital ratios under the Advanced Approaches;
- The U.S. branch/agency liquidity buffer is reduced from 30 days to 14 days; and
- The Final Rule does not contain provisions implementing Section 165’s single counterparty credit limits and Section 166’s early remediation requirements; implementation of these provisions is delayed.
U.S. bank holding companies (BHC) that have $50 billion or more in total consolidated assets and are controlled by FBOs, however, must generally comply with the Final Rule’s requirements for domestic BHCs beginning on January 1, 2015.
I. Foreign Bank Distinctions
Broadly speaking, the Final Rule divides the universe of FBOs with total global consolidated assets of $50 billion or more into three groups:
- those with total U.S. non-branch assets of $50 billion or more (IHC FBOs);
- those with combined U.S. assets of $50 billion or more but total U.S. non-branch assets of less than $50 billion; and
- those with combined U.S. assets of less than $50 billion.
The Final Rule then imposes different requirements based on these distinctions, as represented in the tables below:
Because the Final Rule imposes the most onerous requirements on IHC FBOs, we discuss these requirements in the greatest detail.
II. IHC Requirements
A. Formation and Required Holdings
An FBO that, as of June 30, 2015, has total consolidated U.S. non-branch assets of $50 billion or more must create or designate an existing subsidiary as its IHC by July 1, 2016. Also by that date, it must transfer to the IHC — which will be the FBO’s top-tier U.S. subsidiary — its entire ownership interest in:
- any BHC subsidiary not designated as the IHC,
- any insured depository institution (IDI) subsidiary, and
- all subsidiaries holding at least 90 percent of the IHC FBO’s U.S. non-branch assets owned outside such BHC and IDI subsidiaries, measured as of June 30, 2015.
By July 1, 2017, the IHC FBO must hold its entire ownership interest in all U.S. subsidiaries other than 2(h)(2) companies and DPC branch subsidiaries through the IHC. It is generally not permissible for an FBO to hold a partial interest in a U.S. subsidiary directly.
Like the proposal, the Final Rule permits some flexibility in the IHC’s corporate form — e.g., the IHC can be an LLC — but the IHC must be organized under U.S. federal, state or District of Columbia law, and it must be governed by a board of directors or managers that operates in a manner equivalent to a board of directors of a company chartered under U.S. law.
Within 30 days of establishing the IHC or designating an existing subsidiary as the IHC, the IHC FBO must provide notice to the Federal Reserve that includes a description of the IHC, a certification that the IHC meets the requirements of the Final Rule, and any other information that the Federal Reserve deems appropriate. IHCs will be subject to Federal Reserve reporting, examination, and inspection requirements, just like a U.S. BHC.
Notably, the Final Rule retains the Bank Holding Company Act (BHC Act) definition of “subsidiary,” including those companies over which a FBO may be said to exercise a “controlling influence.” In addition, under the BHC Act definition, any company other than a section 2(h)(2) company and DPC branch subsidiary in which an FBO owns 25% or more of any class of voting securities, even if the other 75% is held by a third party, must be moved to the IHC.
B. Alternative Organizational Structures
The Final Rule contemplates alternative organizational structures for IHCs, but in limited circumstances. An IHC FBO may request Federal Reserve approval, in writing, to establish or designate multiple IHCs, use an alternative organizational structure to hold the IHC FBO’s combined U.S. operations, and not to transfer its ownership interests in certain subsidiaries — such as BHC-Act “controlled” subsidiaries that are not in fact controlled — to the IHC.
In making a determination on whether to permit alternative structures, the Federal Reserve will consider whether applicable law would prohibit the IHC FBO’s ownership or control of the subsidiaries through an IHC or whether circumstances otherwise warrant an exception based on the IHC FBO’s individual circumstances.
The written request to use an alternative organizational structure must be submitted 180 days before the IHC FBO must comply with the IHC requirement and must include a description of why the request should be granted and any other information the Federal Reserve may require. The Federal Reserve stated that it does not expect to permit an alternative structure where the purpose or primary effect of the alternate structure is to reduce the impact of the Federal Reserve’s regulatory capital rules or other prudential requirements.
In permitting an alternative organizational structure, the Federal Reserve may apply conditions that it deems appropriate, including requiring compliance with additional enhanced prudential standards or imposing supervisory agreements. For example, the Federal Reserve stated that it expects to require passivity commitments or other supervisory agreements to limit transactions between the IHC and any U.S. subsidiaries that remain outside of the IHC.
In addition, if the Federal Reserve permits multiple IHCs, and an IHC does not have $50 billion or more in total consolidated assets, that IHC is still required to comply with the Final Rule’s IHC requirements.
C. Formal Implementation Plan
In contrast to the proposed rule, the Final Rule includes a requirement for a formal IHC implementation plan.
An FBO that has $50 billion or more in total U.S. non-branch assets at June 30, 2014 must submit an implementation plan to the Federal Reserve by January 1, 2015. The Federal Reserve may accelerate or extend this due date. An FBO may seek to reduce its total consolidated U.S. non-branch assets to below $50 billion as a means of avoiding the IHC requirement, but this approach must be outlined in the plan. The Federal Reserve will evaluate all implementation plans, including those expressing the intent to reduce assets, for reasonableness and achievability.
The implementation plan must include the following information:
- A list of all U.S. subsidiaries controlled by the IHC FBO, the IHC FBO’s ownership interest in them, and an organizational chart;
- The name and asset size for each section 2(h)(2) company and DPC branch subsidiary, and a description of why the subsidiary qualifies as a section 2(h)(2) company or DPC branch subsidiary;
- The name and asset size for each subsidiary for which the IHC FBO expects to request an exemption from the IHC transfer requirement, and an explanation of the request;
- A projected timeline for the transfer;
- Quarterly pro forma IHC financial statements for the period from December 31, 2015 to January 1, 2018;
- A projected timeline for, and description of, all planned capital actions or strategies for capital accretion that will facilitate the IHC’s compliance with the Final Rule’s risk-based capital and leverage requirements;
- A description of the risk-management practices of the IHC FBO’s combined U.S. operations and a description of how the IHC FBO will come into compliance with the Final Rule’s risk management requirements; and
- A description of the current liquidity stress testing practices of the FBO’s U.S. operations and a description of how the IHC FBO will come into compliance with the Final Rule’s liquidity requirements.
An FBO that seeks to comply with the Final Rule by reducing U.S. non-branch assets to below $50 billion must outline the process for doing so and any other information the Federal Reserve determines is appropriate instead of the information set forth above.
D. Capital Requirements
Increasing the amount of capital that FBOs are required to hold in the United States, particularly with respect to sizeable broker-dealer operations, is one of the principal goals of the Final Rule. It does so by treating IHCs in the same manner as U.S. BHCs. Like U.S. BHCs, an IHC is required to be a source of strength only to insured depository institution subsidiaries, not broker-dealer or other nonbank subsidiaries.
1. Applicable Capital Ratios
IHCs will generally be required to comply with the same Basel III risk-based capital and leverage requirements applicable to U.S. BHCs, including:
- a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%;
- a minimum ratio of Tier 1 capital to risk-weighted assets of 6%;
- a minimum ratio of total capital to risk-weighted assets of 8%;
- a minimum Tier 1 leverage ratio of 4%;
- subject to applicable transition periods, a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets; and
- for those IHCs that have $250 billion or more in total consolidated assets or $10 billion or more in total foreign country exposure, a 3% minimum supplementary Tier 1 leverage ratio that includes off-balance sheet exposures in addition to total assets.
Although the risk-based capital requirements are effective on January 1, 2016, the Final Rule generally defers applying the leverage and supplementary leverage ratios to IHCs until January 1, 2018. U.S. BHCs owned by FBOs, however, must maintain compliance with all Federal Reserve capital requirements beginning on January 1, 2015.
In addition, an IHC is not required to comply with the Basel III Advanced Approaches capital rules even if it satisfies the conditions to the use of the Advanced Approaches. The Final rule’s adopting release (Adopting Release) notes, however, that IHCs that meet the Advanced Approaches thresholds will be subject to other requirements, including:
- restrictions on distributions and discretionary bonus payments associated with the countercyclical capital buffer;
- the supplementary leverage ratio that takes into account off-balance sheet exposures; and
- the requirement to include accumulated other comprehensive income in regulatory capital.
2. Capital Plans
IHCs must comply with the Federal Reserve’s capital plan rule, which applies to U.S. BHCs with total consolidated assets of $50 billion or more, other than BHCs that are relying on Federal Reserve Supervisory Letter SR 01-01. As a result, an IHC will be required to submit an annual capital plan to the Federal Reserve that demonstrates the IHC’s ability to maintain capital above the Board’s minimum risk-based capital ratios under both baseline and stressed conditions over a nine-quarter planning horizon. An IHC formed by July 1, 2016 will be required to submit its first capital plan in January 2017.
3. Stress Testing
An IHC is also required to comply with the Federal Reserve’s supervisory and company-run stress test requirements in the same manner as a U.S. BHC with $50 billion or more in total consolidated assets. An IHC required to be established by July 1, 2016 must comply with the stress test requirements beginning on October 1, 2017.
E. Risk Management and Governance Requirements
The Final Rule maintains the proposed rule’s prescriptive governance framework for IHCs. An IHC must establish and maintain a risk committee that is a committee of the board of directors (or equivalent body) of the IHC. The risk committee is charged with overseeing the IHC’s risk management framework.
The risk committee must meet at least quarterly and must fully document and maintain records of its proceedings, including risk-management decisions. It must have at least one member with experience in identifying, assessing, and managing risk exposures of large, complex financial firms and at least one independent member. To be independent, the member must not be an officer or employee of the FBO or its affiliates and have not been an officer or employee of the FBO or its affiliates during the previous three years, and not be a member of the immediate family of a person who is, or has been within the last three years, an executive officer of the FBO or its affiliates.
F. Liquidity Requirements
An IHC must comply with detailed liquidity risk-management requirements, conduct liquidity stress tests, and hold a liquidity buffer.
With respect to liquidity risk management, the FBO’s risk committee for its combined U.S. operations or a designated subcommittee must:
- Approve at least annually the acceptable level of liquidity risk for the combined U.S. operations, with concurrence from the FBO’s board of directors or enterprise-wide risk committee;
- Receive and review information provided by the senior management of the combined U.S. operations at least semi-annually to determine whether the combined U.S. operations are operating in accordance with the established liquidity risk tolerance; and
- Approve the required contingency funding plan for the combined U.S operations at least annually and approve any material revisions to the contingency funding plan prior to the implementation of such revisions.
In addition, the Final Rule requires the FBO to establish a review function that is independent of the management functions that execute funding for the combined U.S. operations to evaluate liquidity risk management.
In terms of managing liquidity risk, cash-flow projections for the combined U.S. operations must be produced that project cash flows over, at a minimum, short- and long-term time horizons. The short-term projections must be updated daily, and the longer-term projections should be updated at least monthly. A contingency funding plan must be produced for the combined U.S. operations that is commensurate with the operations’ capital structure, risk profile, complexity, activities, size and established liquidity risk tolerance, and this plan must be updated annually. The contingency funding plan must also be tested periodically to assess the plan’s reliability during liquidity stress events. The FBO must also establish limits on liquidity risks for the combined U.S. operations, including procedures for monitoring assets pledged as collateral and intraday risk exposure.
With respect to liquidity stress tests, they must be conducted monthly, and must separately assess the effects of liquidity stress scenarios on the IHC, the combined U.S. operations, and any branches or agencies of the FBO considered in the aggregate. The tests must include, at a minimum: (i) a scenario reflecting adverse market conditions; (ii) a scenario reflecting an idiosyncratic stress event for the U.S. branches and agencies and the IHC; and (iii) a scenario reflecting combined market and idiosyncratic stresses.
Each stress test conducted must include an overnight planning horizon, a 30-day planning horizon, a 90-day planning horizon, a one-year planning horizon, and any other planning horizons that are relevant to the liquidity risk profile of the combined U.S. operations, the U.S. branches and agencies, and the IHC. The FBO must use the results of the stress test over the 30-day planning horizon to calculate the size of its liquidity buffers.
Finally, the FBO must calculate and maintain a liquidity buffer for its IHC. The liquidity buffer must be sufficient to meet the projected net stressed cash-flow need of the IHC over the 30-day planning horizon of the required liquidity stress test.
III. Non-IHC Requirements for FBOs with $50 Billion or More in Combined U.S. Assets
In addition to the IHC requirement for FBOs with $50 billion or more in total U.S. non-branch assets, the Final Rule imposes heightened prudential standards for FBOs with $50 billion or more in combined U.S. assets — that is, both IHC FBOs and FBOs whose branch or agency network and U.S subsidiaries (other than 2(h)(2) companies) give them $50 billion or more in U.S. assets even if they are not required to form an IHC (together, $50 billion U.S. FBOs).
1. Capital Requirements
A $50 billion U.S. FBO must certify to the Federal Reserve that it meets consolidated home-country capital adequacy standards consistent with Basel III, including all minimum risk-based capital ratios, any minimum leverage ratio, and all applicable capital buffer restrictions. If Basel III has not been adopted in its home country, the FBO must demonstrate that it would nonetheless meet or exceed consistent capital standards at a consolidated level. If such an FBO does not comply with required minimum capital adequacy standards, the Federal Reserve may impose “requirements, conditions, or restrictions” on the FBO’s U.S. operations. The Federal Reserve must provide prior notice to an FBO, and must allow the FBO to submit a request for reconsideration, before taking such actions.
2. Capital Stress Testing
FBOs with combined U.S. assets of at least $50 billion that operate a U.S. branch or agency are subject to capital stress testing requirements at the home country level. If the FBO has $50 billion or more in total U.S. non-branch assets and operates a U.S. branch or agency, it will be required to perform capital stress tests for both its IHC and at the home country level, irrespective of the amount of assets housed in that U.S. branch or agency.
The Final Rule requires such $50 billion U.S. FBOs to be subject to capital stress tests and meet any minimum capital stress test standards set by their home-country supervisory regime on a consolidated basis. The home country regime must include, at a minimum, requirements for governance and control of stress testing by management and the board of directors of the FBO, as well as annual supervisory capital stress tests or an annual evaluation and review of an internal capital adequacy stress test conducted by the FBO. The Adopting Release suggests that an FBO could satisfy its governance requirement by both maintaining oversight of stress-testing and having its board of directors and senior management use test results in decision-making.
In addition, these FBOs must provide certain quantitative and qualitative information regarding their stress testing to the Board by January 5 of each calendar year. Reportable information includes a description of the types of risks included in the stress test, the conditions or scenarios used in the stress test, a summary of the methodologies used in the stress test and an explanation of the most significant causes for any regulatory capital ratio changes. Such FBOs must also provide estimates of aggregate losses, net income before taxes, pro forma regulatory capital ratios required by home-country rules and other relevant capital ratios.
If a $50 billion U.S. FBO fails to comply with the Federal Reserve’s home-country stress test requirements, the FBO must, unless the Federal Reserve determines otherwise in writing, maintain “eligible assets” in its U.S. branches and agencies that are, on a daily basis, not less than 108% of the average value over each day of the previous calendar quarter of the “total liabilities” of its U.S. branches and agencies, and, if it has not established an IHC, conduct an annual stress test of its U.S. subsidiaries, or an enterprise-wide stress test approved by the Federal Reserve, to determine if it can absorb losses in the face of adverse economic conditions. The Federal Reserve may also require the U.S. branches and agencies of the FBO to maintain a liquidity buffer or be subject to intragroup funding restrictions.
Additional reporting requirements apply to $50 billion U.S. FBOs if their U.S. branches and agencies fund their non-U.S. offices and affiliates on a net basis, calculated as the average daily position over a stress test cycle for a given year. In addition to any information the Federal Reserve may request, FBOs in such a “net due” position must provide:
- a detailed description of stress test methodologies, including how losses, revenues, and changes in capital positions are estimated, and
- estimates of realized losses or gains on available-for-sale and held-to-maturity securities, trading and counterparty losses, if applicable; and loan losses in the aggregate and by material sub-portfolio by dollar amount and as a percentage of average portfolio balance.
The Adopting Release suggests that the Federal Reserve will maintain home-country stress testing information as confidential in accordance with current Federal Reserve practice. The Federal Reserve would also expect to accept home country stress testing metrics if they provide sufficiently comparable information, such that “these requirements should not conflict with the timing or content of the [FBO’s] home country stress-testing requirements.”
3. Risk Management and Governance Requirements
$50 billion U.S. FBOs that operate one or more branches or agencies are required to have a risk committee for their combined U.S. operations. This committee may be maintained either:
- As a committee of the FBO’s own board of directors, on a standalone basis, or as a joint committee with the FBO’s enterprise-wide risk committee; or
- As a committee of the board of directors of the IHC (if the FBO has established an IHC), on a standalone basis, or as a joint committee with the IHC risk committee.
In addition to the risk committee, $50 billion U.S. FBOs must appoint a U.S. Chief Risk Officer (U.S. CRO) with experience identifying, assessing, and managing risk exposures of large, complex financial firms. The U.S. CRO must be located in the U.S. and employed by the IHC (if there is one), a subsidiary, or a branch or agency of the FBO. The U.S. CRO is tasked with reporting directly and regularly providing information to the U.S. risk committee and the FBO’s global Chief Risk Officer regarding the nature of and changes to material risks undertaken by the FBO’s combined U.S. operations, including risk-management deficiencies and emerging risks, and how such risks relate to the global operations of the FBO.
The U.S. CRO also has substantial responsibilities with respect to liquidity risk management, including reviewing cash-flow projections, establishing liquidity risk limits, and overseeing liquidity stress testing procedures. Finally, the U.S. CRO is expected to receive compensation and other incentives consistent with providing an objective assessment of the risks taken by the combined U.S. operations of the FBO.
4. Liquidity Requirements
$50 billion U.S. FBOs that are not required to form IHCs must comply with similar liquidity requirements to those that are required to from IHCs, except that the requirements generally are focused on the combined U.S. operations and any branch/agency network. The liquidity buffer, however, only applies to the branch/agency network, and liquid assets must be held only for the first 14 days of the stressed 30-day scenario.
IV. Requirements for FBOs with Less Than $50 Billion in Combined U.S. Assets
FBOs with less than $50 billion in combined U.S. assets are subject to similar requirements with respect to home-country risk-based capital and leverage requirements as $50 billion U.S. FBOs, but the requirements with respect to liquidity and risk management requirements are less onerous.
With respect to liquidity, such FBOs must report to the Board on an annual basis the results of an internal liquidity stress test for either the consolidated operations of the FBO or its combined U.S. operations. The liquidity stress tests must be conducted consistently with the Basel Committee principles for liquidity risk management and must incorporate 30-day, 90-day, and one-year stress-test horizons. An FBO that does not comply with this requirement must limit the net aggregate amount owed by the FBO’s non-U.S. offices and its non-U.S. affiliates to the combined U.S. operations to 25 percent or less of the third party liabilities of its combined U.S. operations, on a daily basis.
With respect to risk management, such FBOs must annually certify to the Federal Reserve that they maintain a committee of their global board of directors, or as part of their enterprise-wide risk committee, that:
- Oversees the risk management policies of the combined U.S. operations of the FBO; and
- Includes at least one member having experience in identifying, assessing, and managing risk exposures of large, complex firms.
In addition, such FBOs must take appropriate measures to ensure that their combined U.S. operations implement the risk management policies overseen by the risk committee, and that their combined U.S. operations provide sufficient information to the risk committee to enable the risk committee to carry out its responsibilities.
If an FBO does not comply with these requirements, the Federal Reserve may impose “requirements, conditions, or restrictions” on the FBO’s U.S. operations. The Federal Reserve must provide prior notice to an FBO, and must allow the FBO to submit a request for reconsideration, before taking such actions.
V. Special Timing Rules for BHCs That Are FBO Subsidiaries
The Final Rule clarifies that, prior to the formation of the IHC, a U.S. BHC with total consolidated assets of $50 billion or more that is controlled by an FBO is subject to the domestic Section 165 rules beginning on January 1, 2015.
This means that such a U.S. BHC must comply with the Federal Reserve’s risk-based capital and leverage requirements until December 31, 2017, must comply with the Federal Reserve’ stress test requirements until September 30, 2017, and is subject to the Federal Reserve’s capital planning rule. It must also comply with the Final Rule’s liquidity and risk management requirements applicable to domestic BHCs with $50 billion or more in total consolidated assets beginning on January 1, 2015.
VI. Other Provisions
The Final Rule implements certain other requirements of Section 165 of Dodd-Frank, such as the required creation of a risk committee for all publicly traded FBOs that have $10 billion or more in global total consolidated assets, and the imposition of a 15-1 debt-to-equity limit for FBOs that the Financial Stability Oversight Council (FSOC) deems to be a “grave threat” to U.S. financial stability.
For such a momentous regulatory change in FBO practice, even the most supportive Governors seemed at times oddly ambivalent about the Final Rule, perhaps reflecting the concerns expressed by the international community on the IHC requirement. Governor Tarullo, for example, stated that, although he believed the Final Rule currently struck the right balance on competing policy issues, “that doesn’t mean it’s going to be the right balance indefinitely.” This sentiment was echoed, slightly more colloquially, by Governor Stein, who finished his comments on the enhanced standards by noting: “We’ll see how things shake out.”
Regardless of the future, it may certainly be said right now that the Final Rule’s IHC requirement stands in marked contrast to the Federal Reserve’s approach to foreign bank issues in the final Volcker Rule, where considerable attention was paid to the concerns on the foreign bank community about the reach of the proposed regulation.
It also remains difficult to see how the Final Rule’s IHC requirement comports with the Federal Reserve’s historical practice of national treatment, and although the Adopting Release argued that “U.S. banking organizations already operate in a number of overseas markets that apply local regulatory requirements to their local . . . subsidiaries,” the Federal Reserve was unable to cite a single jurisdiction that — at least for the time being — imposes a comparable IHC requirement.
Commenters on the FBO proposal warned of international retaliation if the IHC requirement was preserved in the Final Rule. It is to be hoped that, going forward, the progress that has been made with respect to international co-operation on the critical issues affecting global financial stability will continue notwithstanding the Federal Reserve’s “home-country-first” approach to foreign bank regulation.
APPENDIX — KEY DATES FOR THE FINAL FBO RULE
January 1, 2015
|June 30, 2015||
July 1, 2016
July 1, 2017
|October 1, 2017||
|January 1, 2018||
 Assets of so-called section 2(h)(2) commercial companies and subsidiaries of branches or agencies formed to hold debt-previously-contracted assets (DPC branch subsidiaries) are also excluded when calculating whether an FBO meets the $50 billion U.S. non-branch asset threshold.
 “Combined U.S. assets” are equal to the sum of (i) the consolidated assets of each top-tier U.S. subsidiary of the FBO, other than 2(h)(2) companies, and (ii) the total assets of each U.S. branch and U.S. agency of the FBO.
 The $50 billion non-branch asset threshold is calculated as an average of the four most recent quarter-end asset amounts. If an FBO is not an IHC FBO as of June 30, 2015, but passes the threshold thereafter, it must comply with the IHC requirement on the first day of the ninth quarter following the date that the threshold is crossed.
 Because the Federal Reserve’s capital plan rule requires companies subject to it to demonstrate that they can maintain a 5 percent Tier 1 common equity ratio under stressed conditions, the minimum Tier 1 common equity ratio is higher than 4.5% as a practical matter.
 The FBO must incorporate additional liquidity stress scenarios into its liquidity stress test as appropriate based on the financial condition, size, complexity, risk profile, scope of operations, or activities of the combined U.S. operations, the U.S. branches and agencies, and the IHC, as applicable.
 Estimates must also be provided of pre-provision net revenue, or revenue less expenses before adjusting for total loan loss provisions, and total loan-loss provisions, or the amount needed to make reserves adequate to absorb estimated credit losses based upon management’s evaluation of the loans and leases that the company has the intent and ability to hold for the foreseeable future or until maturity or payoff.
 “Eligible assets” generally include all U.S. branch or agency assets held in the United States, but exclude equity securities; assets classified as loss; accrued income on assets classified as loss, doubtful, substandard, or value impaired; amounts due from the FBO’s home office, other offices or affiliates outside the United States, including uncollected income thereon; the balance of any disallowed assets or asset categories; prepaid expenses and unamortized costs, furniture and fixtures and leasehold improvements; and any other assets the Federal Reserve determines should not qualify as an eligible assets.
“Total liabilities” of a FBO’s U.S. branches and agencies generally include all of their liabilities, including acceptances and other liabilities, but exclude reserves for possible loan losses and other contingencies, as well as amounts due to and other liabilities to other offices, agencies, branches and affiliates of the FBO, including unmet remitted profits.
 The Federal Reserve did note that the United Kingdom imposes local liquidity standards on the commercial banking and broker-dealer subsidiaries of non-U.K. banks operating in the United Kingdom. Such liquidity standards, of course, do not impose costly restructuring requirements on U.S. banks analogous to the IHC requirement.
The full and original memo was published by Gibson, Dunn & Crutcher LLP on February 24, 2014 and is available here.