Accessible Version
Foreign banks’ asset reallocation in response to the introduction of the Intermediate Holding Company rule of 2016, Accessible Data
Figure 1. Description of the Intermediate Holding Company Structure
The implementation of the 2016 intermediate holding company (IHC) rule required foreign banking organizations (FBOs) operating with more than $50 billion total global consolidated assets and with $50 billion or more in U.S. non-branch assets to consolidate their non-branch activities – including their U.S. subsidiaries and U.S. broker-dealers – into holding companies, to be supervised by the Federal Reserve. The non-branch assets of FBOs that were required to be grouped into an IHC consisted of: the US funding vehicle; the US bank holding company; the US broker-dealer; US financial and commercial companies; and the US subsidiary and edge act subsidiary.
Source: Authors’ description; based on Davis Polk (2014)
Figure 2. Non-US regulated US branch assets before/after IHC rule
Figure 2 is a line chart titled “Non-US regulated US branch assets before/after IHC rule”. The x axis ranges from 01jan2015 to 01jan2018. The Y axis represents Log of total US branch assets and ranges from 12.8 to 13.4. The data is yearly. There are 2 variables charted on the plot. The first variable is labeled US branch assets-control; is designated by a blue solid line and ranges from 12.85 to 12.95. The second variable is labeled US branch assets – treatment; is designated by a dashed red line and ranges from 13.25 to 13.4. A solid vertical red line marks 01jan2016. Figure shows that foreign banking organizations (FBOs) that were required to form a new holding company to meet the IHC rule (our treatment group) have increased their less regulated U.S. branch assets.
Figure 3. Non-US regulated US branch over total US-based assets
Figure 3 is a line chart titled “Non-US regulated US branch over total US-based assets”. The x axis ranges from 01jan2015 to 01jan2018. The Y axis represents Non-US reg. US branch to total US-based assets and ranges from .2 to .45. The data is yearly. There are 2 variables charted on the plot. The first variable is labeled Non-US reg/total assets-ctrl; is designated by a blue solid line and ranges from .25 to .24. The second variable is labeled Non-US reg/total assets-treat; is designated by a dashed red line and ranges from .27 to .45. A solid vertical red line marks 01jan2016. Figure shows that foreign banking organizations (FBOs) that were required to form a new holding company to meet the IHC rule (our treatment group) have increased their less regulated U.S. branch assets.
Figure 4. US-regulated IHC assets before/after IHC rule
Figure 4 is a line chart titled “US-regulated IHC assets before/after IHC rule”. The x axis ranges from 01jan2015 to 01jan2018. The Y axis represents Log of total US-regulated assets and ranges from 13.6 to 14.2. The data is yearly. There are 2 variables charted on the plot. The first variable is labeled IHC assets-control; is designated by a blue solid line and ranges from 13.9 to 14.1. The second variable is labeled IHC assets-treatment; is designated by a dashed red line and ranges from 14.2 to 13.6. A solid vertical red line marks 01jan2016. Figure 4 shows that FBOs have reduced their US-regulated non-branch assets substantially relative to those banks which already had a holding company in place (our control group). The figure also shows that the reduction in FBO assets that would be subject to the IHC rule began in advance of the benchmark date in 2015, as affected FBOs not only shifted assets to branches, but also migrated assets abroad.
Figure 5. Non-US regulated US branch over US-regulated IHC assets
Figure 5 is a line chart titled “Non-US regulated US branch over US-regulated IHC assets”. The x axis ranges from 01jan2015 to 01jan2018. The Y axis represents Ratio of non-US reg branch to US reg IHC assets and ranges from .3 to .8. The data is yearly. There are 2 variables charted on the plot. The first variable is labeled Non-US reg/US-reg-ctrl; is designated by a blue solid line and ranges from .34 to .31. The second variable is labeled Non-US reg/US-reg-treat; is designated by a dashed red line and ranges from .39 to .8. A solid vertical red line marks 01jan2016. Figure 5 shows that as banks reduced their US-based assets primarily by cutting their IHC rule-affected non-branch assets, the ratio of less regulated branch assets to US-regulated non-branch assets shows a similar evolution as the ratio of branch to total US assets. Notably, the overall migration from IHC-subject assets to less regulated units (either their US-based branches and agencies or foreign entities) has continued for a long time period, past the end of our sample in 2018 Q1.