Deutsche Bank laid out plans to cut its U.S. unit’s assets by $100 billion, the Financial Times reported citing Stefan Krause, Deutsche Bank's chief financial officer. The lender will aim to slash its $400 billion balance sheet in the U.S. to about $300 billion. The assets reduction will not concern its $200 billion held in the U.S. branch, but it will deal only with its U.S. arm through reassigning some operations to Europe or Asia. To meet new capital and leverage requirements imposed by the American regulators, Deutsche Bank is set for restructuring and pulling back some of its divisions from the U.S. bank's franchise. This will allow the lender to evade the new restrictions.
The bank will also reduce a sizeable chunk of its repo business in the U.S.
Deutsche Bank’s decision to curtail its operations in the U.S. was caused by the Federal Reserve’s announcement of tough new rules for foreign banks on February 18. Under the new rules, large banks with $50 billion or more in U.S. assets will have to hike their own capital until 2016 as well as to change a leverage ratio. Since 2018, foreign banks will have to have a minimum leverage ratio – a measure of total equity to total assets – of 4%.Besides, foreign banks will need to set up intermediate holding companies. As a result of the reforms, foreign banks will follow the regulations similar to American financial institutions. The Fed’s policy is meant to secure the finance sector’s safety and to shield taxpayers from costly bailouts. At the same time, the policy heaped criticism from the finance sector. Banks say that holding more capital in the country might raise borrowing costs for banks and clients, thus slowing down the economy’s growth. The Fed’s reform will affect almost 100 foreign banks.
