Nearly four-and-a-half years later, this unintended national treatment violation was corrected in statute – a belated, but laudable outcome, to be sure.

While this development is most welcome, there are other aspects of the Dodd-Frank FBO regulatory regime that warrant further, thoughtful consideration by policymakers and, where appropriate, recalibration. Certain of these aspects raise far more serious national treatment issues, while others implicate key principles of international comity and fundamental questions regarding the extraterritorial reach of U.S. law. In either case, the need for reconsideration and recalibration is very real. Otherwise, the cumulative weight of the Dodd-Frank edifice will strongly incentivize FBOs to reassess their U.S. strategies and consider to what degree they should pull back from the provision of financial services in the U.S. – and indeed, in at least a few cases, whether they want to have a U.S. footprint at all.

In thinking about these potential policy implications, it is helpful to bear in mind the aggregate size of that footprint: FBOs currently hold more than $5.5 trillion in assets in the U. S. Twenty-five percent of all commercial and industrial loans made in this country are made through FBOs’ U.S. banking operations to manufacturers and other firms with significant numbers of employees. Four of the top ten agricultural lenders are foreign bank owned, and FBOs employ more than 200,000 individuals in the U.S. Given the significant contributions that FBOs make to the U.S. economy, a policy that inappropriately stifles foreign bank participation in the U.S. financial system is not, in America’s national interest.

One specific area ripe for reconsideration from a national treatment perspective involves the application of enhanced prudential standards (EPS) to foreign banks under section 165 of Dodd-Frank. As described in the statute itself, section 165 was meant to cover only those “large, interconnected financial institutions” that could pose a risk to the financial stability of the U.S. Congress legislated a $50 billion “total consolidated asset” threshold for the application of the section 165 EPS. Although silent on its geographic scope, this provision has been interpreted as requiring the application of the EPS to U.S.-headquartered and foreign banking organizations alike on the basis of their global assets. This approach has produced anomalous results.

It is a peculiar sort of “national treatment” which imposes section 165 EPS requirements on more than three times as many FBOs as U.S.-headquartered bank holding companies (BHCs) – 112 FBOs versus less than 30 U.S. BHCs – even taking into account the varying degrees to which those standards are applied to FBOs. One struggles, for example, to understand the “risk to U.S. financial stability” rationale for requiring the submission of resolution plans pursuant to section 165(d), even if “tailored” in their application, by FBOs whose U.S. operations, measured by assets, are smaller than those of many U.S. community banks. This is especially true when one considers that in almost all cases these operations are limited to uninsured branches and are subject to federal and state statutory “ring fencing” requirements intended to preserve assets available to satisfy the claims of local third party creditors. The Institute of International Bankers (IIB) has argued, from the outset, that national treatment requires that the $50 billion threshold be based on U.S., not global assets, so that FBOs that are “large globally, but small locally” would not be captured by requirements designed solely for firms whose failure could pose a risk to U.S. financial stability.

Further, the Fed-imposed requirement that certain foreign banks with substantial U.S. operations form intermediate holding companies or IHCs, irrespective of whether they own a U.S. bank subsidiary, raises important national treatment questions. Like U.S. bank holding companies, IHCs will be subject to the Fed’s risk-based and leverage capital, liquidity and stress test requirements. However, whereas U.S. bank holding companies are permitted to take into account their global consolidated operations in meeting these requirements, IHCs will be limited to their U.S. resources without regard to potential sources of support from the parent FBO or other affiliates.

Compounding these national treatment concerns, the Fed’s approach to IHCs raises broader questions, which have not gone unnoticed by policy makers. For example, SEC Commissioner Dan Gallagher has expressed concern regarding the “profound impact on the SEC regulated subsidiaries of large foreign banks,” that could result from the imposition of a “bank-based view of capital” on certain FBO U.S. broker-dealer operations. Commissioner Gallagher warned that this approach “will have a direct impact on the liquidity available to those operations” the net effect of which will be a reduction in the amount of liquidity in the securities markets more broadly.

And, indeed, the ink was hardly dry on the final section 165 regulations for FBOs when some large foreign banks started rethinking their U.S. strategies and taking steps to shrink their U.S. bank and broker-dealer balance sheets, by, for example, reducing their repo and securities lending businesses. Ironically, a section of Dodd-Frank intended to protect the financial stability of the U.S. threatens to have the opposite effect by pushing these businesses into the less regulated “shadow banking” sector. Notably, the migration of financial activities towards the shadow banking system was cited by the Treasury Department’s Office of Financial Research as one of three specific risks that had risen over the past year in its year-end 2014 report to Congress on threats to the financial stability of the U.S.

Policymakers should also reconsider the extraterritorial application of the Volcker Rule, which has raised significant international comity concerns among European and other foreign policymakers. To be sure, consistent with national treatment principles, the Volcker Rule prohibitions on proprietary trading and investment in private equity and hedge funds apply to FBOs doing business in the U.S., just as it applies to domestic firms. Congress, however, intended to limit the extraterritorial reach of Volcker by providing FBOs with an exemption from the Rule’s restrictions on proprietary trading and fund activities when such activities are authorized under applicable non-U.S. law “solely outside of the United States” – the so-called SOTUS exemption. For all practical purposes, however, ongoing interpretive uncertainties have rendered the SOTUS exemption largely unworkable.

In addition, FBOs are struggling with how the Volcker Rule’s prohibitions on proprietary trading and fund investments might apply extraterritorially to funds that do not touch the U.S. and are operating legally under home country law and, as such, are excluded from the definition of “covered funds” under the Rule. This is especially frustrating as FBOs compete in their home countries with financial services providers that, by virtue of not having a U.S. presence, are not subject to the Volcker Rule. Thankfully, the Fed recently announced that it would extend the conformance period for these funds until July 2017. Hopefully, solutions to these and other difficult issues will emerge, but uncertainty and competitive inequities vis-à-vis home country providers not subject to the Volcker Rule remain for many FBOs, causing them to re-think their U.S. strategy.

Cross-border swap regulation under Title VII of Dodd-Frank also raises significant extraterritorial and comity issues. Of particular note, CFTC Staff Advisory 13-69 posits the view that a non-U.S. swap dealer must comply with CFTC transaction-level requirements when entering into a swap with another non-U.S. person if the swap is “arranged, negotiated or executed” by personnel or agents of the non-U.S. swap dealer located in the U.S. This “conduct-based” approach raises a number of troubling issues for many foreign firms, including the very significant challenges presented by developing systems and processes that would be necessary to comply with such a requirement and the very real prospect of encountering conflicts between U.S. law and foreign law in circumstances where foreign law has the stronger claim to regulating swap activities between non-U.S. swap participants. The incentives to address these challenges by eliminating any U.S. contacts – read U.S. jobs – in connection with these ordinary course transaction are clear.

More broadly, such a conduct-based approach risks the fragmentation of liquidity pools, as already has been seen to some extent with respect to U.S. and non-U.S. trading platforms. While the substantive questions remain unresolved, the CFTC’s extension through Sept. 30, 2015 of the no-action relief previously provided on this subject, and its earlier solicitation of public comment on the questions raised by this approach, are welcome indicators of progress.

As we approach the five-year anniversary of Dodd-Frank, it’s time for Congress, the Administration and the regulatory agencies to make some sensible fixes to the Act and the way it is being implemented. Foreign banks have had a significant presence in the United States since the 19th century and look forward to continuing to play an important role in the U.S. economy and financial markets. To that end, their ability to contribute to U.S job creation and economic growth must not be frustrated by unnecessary and counter-productive legislative and regulatory hurdles that run counter to the principles of national treatment and international comity.