The Federal Reserve Bank is treating foreign banks the same as their US peers, a top policymaker said on Thursday, contrary to a published report that said the US central bank was keeping a closer eye on European banks struggling with the continent's debt crisis.
Fears about bank funding contributed to another dismal trading day for bank stocks in Europe after heavy losses in the last two weeks, with the main bank stocks index falling 6.7 per cent.
The Wall Street Journal said earlier that the Federal Reserve was asking for more information about whether European banks with US units had reliable access to the funds needed to operate in the United States.
William Dudley, the president of the Fed's New York regional bank, in response to the story in the Journal, said the US central bank was "always scrutinising banks" and that it treated US and European banks "exactly the same."
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"This is standard operating procedure, this is something that we do as a matter of course," Dudley told New Jersey business leaders on Thursday.
"It's really important to stress that we're not focusing on foreign banks any more than we're focusing on US banks. We treat foreign banks and US banks exactly the same."
The $2.5 trillion (Dh9.18 trillion) US money market funds industry — which supplies short-term dollar funding to banks — has retreated from the Eurozone in recent months, concerned that the continent's debt crisis is spiraling out of control.
That and the drying up of interbank lending has led to a trebling of dollar funding costs for Eurozone banks in the last month. One bank was forced to borrow dollars at the European Central Bank (ECB) on Wednesday.
A source familiar with the matter said the New York state Department of Financial Services, which is led by Benjamin Lawsky, is getting near daily updates from its examiners at US operations of foreign banks.
In a dramatic shift, the US branches of foreign banks became net borrowers of dollars from their overseas affiliates for the first time in a decade, Federal Reserve data released last week showed.
One person at a European bank said the crisis had heightened scrutiny on the US operations of Europe's banks, although this was a typical response by local regulators. On Wednesday, one Eurozone bank borrowed $500 million from the ECB at a rate much above those at which banks can get dollars in the open market. It was the first time since February 23 that a bank used the ECB facility.