On February 14, 2018, the U.S. Board of Governors of the Federal Reserve System issued a letter permitting Deutsche Bank AG to establish a second U.S. intermediate holding company to hold its asset management business pursuant to Regulation YY. This is the first time the Federal Reserve Board has used its authority under Regulation YY to permit a foreign banking organization to establish multiple IHCs. In approving Deutsche Bank's request, the Federal Reserve Board found that the regulatory goals of Regulation YY would still be met with the two-IHC structure in this instance, concluding that the two-IHC structure would help streamline the sale of Deutsche Bank's asset management business in the event of a global recovery or resolution scenario. Under Deutsche Bank's proposal, the second IHC would not engage in any activities and would not hold any assets, other than ownership interests in its U.S. asset management business. In the approval letter, the Federal Reserve Board noted that the second IHC would be treated as meeting or exceeding the $50 billion threshold for the purposes of Regulation YY and thus be subject to the requirements in subpart O of Regulation YY. Moreover the letter noted that while the Federal Reserve Board's expectations for the second IHC would be tailored to the IHC's specific risk profile and activities, it would still expect that the second IHC would fall under the Bank's U.S. risk management framework, including oversight by its U.S. Risk Committee and U.S. Chief Risk Officer. As a condition of the granting of the request, the Federal Reserve Board required Deutsche Bank to enter into a series of commitments. It will also require the second IHC to be subject to the liquidity coverage ratio requirements of Regulation WW and the total loss-absorbing capacity requirements for covered IHCs under Regulation YY. The second IHC will also be deemed an advanced-approaches Federal Reserve Board-regulated institution for the purposes of Regulation Q (and thus, for example, will be subject to the supplementary leverage ratio), but will not be required to calculate risk-weighted assets in accordance with subpart E of Regulation Q (internal ratings and advanced approaches), unless it elects to do so.
The full text of the Federal Reserve Board letter is available at: https://www.federalreserve.gov/supervisionreg/files/deutsche-bank-regyy-20180214.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
