By Pete Schroeder
WASHINGTON, March 7 (Reuters) - Foreign banks have beenexcluded from a key provision relaxing oversight of small andmid-sized lenders under a modified version of a U.S. Senate billthat aims to ease rules introduced following the 2007-2009global financial crisis.
The amended version of the bill, released on Wednesday,includes a new section that explicitly preserves the FederalReserve's ability to strictly regulate the U.S. operations oflarge foreign banks like Deutsche Bank DBKGn.DE and BancoSantander SAN.MC alongside the country's largest institutions.
The last-minute change will likely fuel discontent amongforeign banks operating in the United States, which have longcomplained they are not given equal treatment to their domesticpeers in regulatory matters.
The Senate is currently considering the bipartisan bill,authored by Senate Banking Committee Chairman Mike Crapo, thatwould mark the first rewrite of the 2010 Dodd-Frank Act. It isexpected to be passed by the Senate this week.
The new language aims to assuage worries among Democraticlawmakers that massive foreign banks could benefit from aprovision of the bill intended to benefit smaller banks.
The provision would raise the level at which banks areconsidered systemically risky and subject to stricter oversightto $250 billion from $50 billion.
Some lawmakers were concerned that the language would allowforeign banks with more than $250 billion in global assets toseek relief because their onshore U.S. assets may fall belowthat threshold.
They said it may prompt foreign banks to pressure the Fed,which applies the legislation on a day-to-day basis, to go easyon them or even expose the regulator to legal challenges againststricter oversight.
The amended bill says the higher threshold should not applyto any foreign banking organizations with global assets above$100 billion or limit the Fed's ability to regulate those banksas it has in the past.
Other changes include provisions that seek to boost companycapital raising as well as several protections for borrowers ofstudent loans.
Some of the new provisions, such as the capital formationchanges, aim to appease lawmakers in the House ofRepresentatives, who still need to approve the bill for it tobecome law.