The Federal Reserve has heard plenty from U.S. banks about what’s wrong with various proposed pieces of Dodd-Frank rulemaking. Now, according to Kate Davidson of Politico Pro (April 15), the Fed is “getting an earful from foreign banks and their regulators, too.”

She’s talking about the reaction to a Fed proposal for stricter capital and other requirements on foreign banks’ operations in the U.S. The foreign banks complain that “their American counterparts don’t face the same scrutiny abroad,” Davidson reports. U.S. banks, she adds, are generally also opposed, fearing retaliatory action by foreign regulators and a possible “financial services ‘trade war.’”

But in an interview with CNBC, Fed Governor Daniel Tarullo defended the proposed requirements as a response to the global nature of financial risk and the Fed’s role in shoring up foreign banks during the crisis of 2008-09. “The proposal for the foreign banking organizations is really an effort to respond to the financial vulnerabilities, which they could potentially pose for us and which in turn would pose vulnerabilities for the world,” Tarullo said.

“Reform advocates are urging the Fed to put strict rules in place, noting that during the 2008 financial crisis foreign banks received emergency funding from the Fed that was, in many cases, used to support the parent company rather than the U.S. operations,” Davidson writes.

“It’s pretty clear if you read the rule that the Fed feels it got burned in the financial crisis,” Marcus Stanley, policy director for Americans for Financial Reform, told Davidson. “It’s a means to the end of being sure that the capital which is backing up the commitments that the foreign bank is making U.S. depositors, U.S. taxpayers . . . and U.S. counterparties is actually backed up by capital that is going to be here in the United States as you need it.” “