WASHINGTON — Despite assertions they got off relatively lightly in the Dodd-Frank Act, foreign banks operating in the U.S. are increasingly worried they will be targeted by some of the regulatory reform law's toughest provisions.

Under the law, institutions with global assets of more than $50 billion must submit so-called living wills to regulators detailing how they can be dismantled in a crisis, and are subject to "enhanced supervision" by the Federal Reserve Board.

U.S. banks are already objecting to the proposal, arguing that the $50 billion threshold is too low and would capture firms that do not pose a risk to the system. But foreign banks — particularly those with a small footprint in the country — are also worried because the designation is tied to global assets, not simply their U.S. operations. Under those parameters, roughly 100 foreign banks would be subject to the living will and enhanced supervision proposals, compared with just 35 domestic banks.

"It would subject them to a degree of reporting and need to prepare a plan for U.S. regulators that is really well beyond anything that was ever thought of for banks that do not, in a lot of cases, have very large and significant operations" here, said Kevin Barnard, a partner at Arnold & Porter LLP.

Thomas Pax, a partner at Clifford Chance in Washington, said a number of foreign banks have only one or two branches in the U.S. — a way to take advantage of the benefits available to U.S. bank holding companies — and many were unprepared for the possibility that they would be swept up into Dodd-Frank.

"For a lot of them, the reality of this has only just dawned on them," Pax said. "I think there are going to be a number of institutions that find there's just not a compelling business case" to keep those branches open.

Pax said it is also unclear how foreign banks would comply with the provisions. Would they have to file a resolution plan only for their U.S. operations, or for their entire global operations? If they faced higher capital requirements, for example, would those also be applied globally?

The Fed is required to consider a foreign bank's home country regulations when determining the extent to which it is subject to the new provisions. Pax and other observers said foreign banks will have to convince regulators that they are already following similar rules at home.

"Why should a foreign bank that has a small U.S. operation have to do a resolution plan here when it's just a branch of a foreign bank that has its own resolution plan?" said David Sahr, a partner at Mayer Brown.

Experts agreed that the designation for systemically important firms is complicated.

Even if a foreign bank didn't have $50 billion of assets in the U.S., it might still be a significant player, because it may be booking its assets outside the U.S.

"If you have a foreign bank or, for that matter, a nonbank financial holding company that may be a significant player in Europe or Asia or South America, but it has relatively modest U.S. banking operations, do they really pose any real risk or threat to financial stability of the United States?" Barnard said. "It's hard to say absolutely yes or absolutely no, but is the best way to approach that to look at it based primarily on global asset size?"

Fed officials have pledged to scale supervision to a bank's size and complexity, which may mean they are not too stringent on a foreign bank with small U.S. operations.

Foreign banks also have an advantage domestic ones do not: they have the option to minimize business in the U.S, which would free them of the new burdens.

"When you come right down to it, the advantage foreign banks have that U.S. banks don't have is their ability to off-shore their operations and stay out of Dodd-Frank altogether," said Charles Horn, a partner with Morrison & Foerster. "U.S. institutions don't really have that luxury."

But industry observers, including lawyers who represent foreign banks, say the decision to get out of the U.S. market is complicated. Maintaining an American office carries a certain amount of cachet, especially for banks that want to serve important U.S. clients.

A bank that chooses to leave the United States is often scaling back in the face of weakened financial condition, rather than an increasing regulatory burden, observers said.

Still, many foreign banks are exploring their options. "Just sort of picking something up and dropping it in another jurisdiction over a weekend is not easy to do," Barnard said. "But that being said … hopefully on the U.S. side, we don't take it for granted that the possibility of moving operations will never occur."

Other restrictions in Dodd-Frank may also be easier to face for foreign banks. Observers said it appears that the Volcker Rule, which would limit proprietary trading, would apply only to foreign banks' U.S. operations, whereas it would apply to domestic banks wherever they operate. Foreign firms could conceivably move those operations offshore to avoid the provision.

Though global regulators may yet decide to adopt a similar ban on such trading, "the indications so far seem to be that they're not disposed to do this the way that we did it," Barnard said.

Similarly, lawyers said foreign banks could avoid new rules regulating the over-the-counter derivatives market by simply moving those operations to offices in London, Frankfurt, Singapore or elsewhere. "Foreign organizations are acutely aware of these issues and they are actively looking at the overall structure of their operations to see whether or not they can lessen the Dodd-Frank compliance burdens," Horn said.

But those differential burdens could give a boost to foreign markets, some warned.

"Whether or not that's true of course remains to be seen, but you can see how some of the competitive pressures may encourage more people to push their activities offshore or, more specifically for foreign banks, to keep their activities offshore," Horn said.

To be sure, not everyone expects an exodus of banks out of the U.S.

"It could happen in one or a couple cases, but it's more like that they're just kind of live with the situation here, the same way that U.S. banks just have to live with it," Sahr said.

The rules have not been finalized, and others were optimistic that regulators understand the concerns of foreign banks and their importance to the U.S. system.

"I think in general up to this point, the way the U.S. regulatory system has tended to handle this in the past, has been not to create serious disincentives to doing business here to the major financial companies," Barnard said, "and hopefully that will continue."