Deutsche Bank avoids US capital rules Deutsche Bank has ditched its American bank holding company to avoid new regulations that would have forced it to pour billions of dollars of additional capital into the US. Under the restructuring disclosed in its annual report this week, Germany's biggest bank has followed the lead of Barclays by shifting assets once held in its American bank holding company into a new vehicle. IN European Companies The move is designed to dodge a provision in Dodd-Frank, the US financial reform law, which forces new capital standards on the US bank holding company subsidiaries of foreign banks. The Federal Reserve had previously allowed foreign banks to hold little or no capital in their US operations, agreeing with the companies that it makes more sense to consider their capital levels at the group level. Deutsche's main US presence is a leveraged investment bank while it remains adequately capitalised overall. Other regulators and lawmakers have disagreed with the Fed and successfully changed the rules during the Dodd-Frank overhaul two years ago, arguing the safety of the US financial system would be increased if capital levels at US subsidiaries match those of domestic banks. Deutsche's US bank holding company, named Taunus after a German mountain range, has drawn particular ire from the Federal Deposit Insurance Corporation for maintaining a negative capital ratio. As of the end of last year, according to official data, Taunus had a ratio of tier one common equity capital to risk-weighted assets of -6.1 per cent. JPMorgan Chase had a 10.2 per cent capital ratio by the same benchmark. "When an institution becomes stressed, long experience has shown that foreign banks and their regulators are reluctant to send capital abroad to support US operations," said Sheila Bair, former chairman of the FDIC and now an adviser at the Pew Charitable Trusts. The only capital that matters is that which is here in the US and can be accessed. That is the real issue that needs to be addressed. The change in structure is targeted at the capital rule. It does not allow Deutsche, Barclays or other groups to avoid other potentially costly aspects of the US financial regulatory reforms such as the Volcker Rule, which prohibits proprietary trading. As a "financial holding company" Deutsche remains regulated by the Fed and can still access Fed funding if necessary. Holding nearly $355bn in assets at year end, the US subsidiary was the eighth largest US bank holding company by assets. It is expected to be designated a systemically important financial institution by US regulators, which will lead to heightened supervision and more stringent capital requirements. "We have always had and will continue to have appropriate capital levels in all our US regulated entities," said Deutsche. This action - which does not diminish any of our regulatory oversight - allows us to streamline our organisational structure, strengthening an already strong institution. Barclays was the first to restructure its US operations in 2010. Overseas lenders including HSBC and Royal Bank of Scotland have flagged specifically the capital rule as an issue in their regulatory filings. Other banks may follow Barclays and Deutsche while other banks are considering various different structures to reduce the impact of Dodd-Frank, according to banks and their advisers. Seth Waugh, Deutsche's outgoing head of North America, told the Financial Times last month that the bank was working on its capital issue, "dealing with it in a concerted way - internally and with regulators."