Mizuho Mericas 1251 Ave Ue of the Americas New York, NY 10020 T: +1 212 282 3000
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Mizuho mericas 1251 Ave ue of the Americas New York, NY 10020 T: +1 212 282 3000 June 21 2019 By Electronic Mail Board of Governors of the Federal Reserve System 20th Street and Constitution Avenue NW Washington DC 20551 Federal Deposit Insurance Corporation 550 17th Street NW Washington DC 20429 Office of the Comptroller of the Currency 250 E Street SW Washington DC 20219 Re: Prudential Standards for Large Foreign Banking Organizations; Revisions to Proposed Prudential Standards for Large Domestic Bank Holding Companies and Savings and Loan Holding Companies. Federal Reserve Docket No. R-1658 and RIN 7100-AF45; Changes to Applicability Thresholds for Regulatory Capital Requirements of Certain U.S. Subsidiaries of Foreign Banking Organizations and Application of Liquidity Requirements to Foreign Banking Organizations Certain U.S. Depository Institution Holding Companies and Certain Depository Institution Subsidiaries. Federal Reserve Docket No. R-1628B and RIN 7100-AF21 OCC Docket No. OCC-2019-0009 and RIN 1557-AE63 FDIC RIN 3064-AE96 Mizuho Financial Group Inc. (“MHFG”) Mizuho Bank Ltd. (“MHBK”) and Mizuho Americas LLC (“MAL ” collectively with MHFG and MHBK “Mizuho”) appreciate the opportunity to submit this letter concerning (1) the notice of proposed rulemaking issued by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) regarding proposed changes to the enhanced prudential standards (“EPS”) for large foreign banking organizations (“FBOs”) and (2) the joint notice of proposed rulemaking issued by the Office of the Comptroller of the Currency (the “OCC”) Federal Reserve and the Federal Deposit Insurance Corporation (the “FDIC” and collectively with the Federal Reserve and the OCC the “Agencies“) regarding proposed changes to the applicability thresholds for certain regulatory capital and liquidity requirements.1 1 “Prudential Standards for Large Foreign Banking Organizations; Revisions to Proposed Prudential Standards for Large Domestic Bank Holding Companies and Savings and Loan Holding Companies ” 84 Fed. Reg. 21988 (May 15 2019) (the “EPS Proposal”); “Changes to Applicability Thresholds for Regulatory Capital Requirements for Certain U.S. Subsidiaries of Foreign Banking Organizations and Application of Liquidity Requirements to Foreign Banking Organizations Certain U.S. Depository Institution Holding Companies and Certain Depository Institution MHFG is an FBO and a bank holding company (“BHC”) headquartered in Japan and the parent organization of MHBK a foreign bank chartered in Japan. MAL a direct subsidiary of MHBK is a U.S. BHC. MAL’s subsidiaries include all but two of MHFG’s U.S. subsidiaries including but not limited to Mizuho Bank (USA) a state member bank (“BKUSA”) Mizuho Securities USA LLC (“MSUSA”) a U.S. registered securities broker-dealer and Mizuho Capital Markets LLC (“MCM”) a U.S. registered swap dealer. As of March 31 2019 MHFG had combined U.S. assets of approximately $181 billion across its U.S. Branch network and U.S. subsidiary entities.*2 MHFG has less than $50 billion in U.S. non-branch assets and therefore is not subject to the U.S. intermediate holding company (“IHC”) requirement. MHBK and MAL and its subsidiaries together employ over 2 500 persons in their U.S. offices. MHBK’s activities are focused primarily on investment grade U.S. corporate lending and treasury activities while MAL’s activities generally consist of corporate lending (through BKUSA) debt and equity underwriting fixed income equity and debt sales and trading (through MSUSA) and interest rate and foreign exchange derivatives (through MCM). Mizuho has worked with the Institute of International Bankers (the “IIB”) the Japanese Bankers Association (“JBA”) the Institute of International Finance (“IIF”) and their respective member banks and legal counsel in developing these organizations’ comments on the Proposals including separate IIB letters addressing the Proposals more generally and the question of whether the Agencies should apply liquidity requirements to the U.S. branches and agencies of FBOs. The IIB JBA and IIF comment letters discuss many of Mizuho’s concerns and Mizuho supports the comments observations and recommendations provided therein. We urge the Agencies to give serious consideration to the issues discussed and recommendations included in the IIB JBA and IIF letters. In this letter we emphasize certain issues that are particularly significant for MHFG’s U.S. operations (“MUSO”). At the outset we would like to express our support of the Agencies’ efforts to tailor prudential standards for FBOs based on the size and risk of their U.S. footprints and their goal of making the regulatory framework for FBOs simpler more efficient and more transparent. We believe however that certain changes to the Proposals are necessary in order for the foregoing purposes to be realized. The issues discussed below include both important policy points that we believe should be addressed to avoid adverse effects on competition and practical points that we believe should be addressed to better tailor the Proposals to the risks of a firm like MHFG and its U.S. operations. For example the most immediate practical impact to MHFG’s U.S. operations of the Proposals involves the proposed changes to the frequency and timing of FR 2052a reporting. If adopted as proposed a daily 2052a reporting standard would generate a significant additional burden that we believe exceeds the incremental benefits to the Agencies relative to a less frequent reporting requirement. In addition although not separately addressed in this letter we would like to emphasize our concurrence and support for the IIB’s letter regarding potential Subsidiaries ” 84 Fed. Reg. 24296 (May 24 2019) (the “Capital/Liquidity Proposal”). The preamble and text of the proposed rules are referred to collectively as the “Proposals.” 2 As calculated in accordance with the Federal Reserve Form FRY-7Q. branch liquidity requirements in particular our views that additional requirements applicable to the branch are not necessary but if the Agencies should move forward then due consideration should be given to the safety and soundness benefits of existing liquidity buffers and stress testing requirements and any additional liquidity requirements should be calibrated such that their impact not be inconsistent with such existing measures. 1. EXECU IVE SUMMARY • MUSO' ri k profile i not commen urate with it propo ed categorization . MUSO’s operations are focused primarily on traditional bank and bank holding company activities. The Proposal’s risk-based indicators however would lead to a framework that would be over-calibrated relative to MUSO’s complexity and interconnectedness. As a result the Proposals would subject MUSO and MAL to requirements applicable to U.S. BHCs many times their size in a manner that is not commensurate with their risk profile. We believe this result unreasonably hinders competitive markets and is not necessary to achieve the Proposals’ policy objectives. • EPS hould apply to IHC ba ed on IHC attribute , not FBO ' combined U.S. operation and hould be con i tent with the propo ed dome tic categorization framework. IHC EPS should be solely based on IHC attributes. Applying EPS to IHCs based on FBO attributes creates unwarranted “cliff’ effects that would inappropriately discourage FBOs from forming IHCs which in turn will hinder competitive markets and productive financial intermediation. This result also would be inconsistent with the Congressional mandate of national treatment and equality of competitive opportunity. • Affiliate tran action hould be excluded from the ri k-ba ed indicator . FBOs’ risk indicators typically are inflated by transactions with non-U.S. affiliates that do not contribute to the complexity or interconnectedness of an FBO’s U.S. operations. Thus these relationships should not serve as a trigger for more stringent prudential standards. Such transactions should be excluded from measures of cross-jurisdictional activity (“CJA”) nonbank assets (“NBA”) off-balance sheet exposure (“QBE”) and weighted short-term wholesale funding (“wSTWF”). This modification would go a long way to addressing the deleterious effects the Proposals would have on competition lending and growth. The changes also would be consistent with the principles of national treatment and equality of competitive opportunity. • The cope, frequency and timing of propo ed reporting form hould be refined. Given the significant burdens associated with FR 2052a reporting it would be incongruous to expand the scope of FBOs that would be subject to daily FR 2052a reporting beyond those currently subject to such requirement. As discussed below the Federal Reserve has established a $50 billion threshold for IHC formation the implication of which is that those FBOs with U.S. non-branch assets below such threshold are to be treated differently than FBOs with IHCs. Further under the Proposals Mizuho would be one of three FBOs not subject to the Federal Reserve’s Large Institution Supervision Coordinating Committee (“LISCC”) portfolio that would be subject to enhanced reporting requirements. In keeping with this it would be incompatible with the Agencies’ goal of reducing the stringency of rules applicable to FBOs that present less risk for the Agencies to impart new requirements on FBOs that have not been designated as LISCC firms. Similarly the proposed move to reporting the FR 2052a on a T+2 basis represents a significant burden relative to T+10 FR 2052a reporting that