FRB: Consumer Affairs Letter CA 03 - 6 - Compliance Examinations of Multi-District SMBS

This letter establishes System policy for coordinating consumer compliance supervision of state member banks (SMBs) in bank and financial holding companies that have SMBs in multiple districts ("multi-district holding companies"). It also establishes policy for consumer compliance supervision of SMBs with branches (or other operations) in multiple districts ("multi-district SMBs"). It is the purpose of this policy to assure, to the extent possible, that the consumer compliance supervision program for these entities is carried out efficiently and effectively, that the appropriate level of consistency is maintained from district to district, that the various parties within the System understand their roles in the consumer compliance supervision of multi-district institutions, and that consistent communications are maintained with these SMBs and holding companies.

      This policy is being established with the recognition that the System's prudential supervision program has in place a set of policies and practices relating to multi-district institutions. As a general matter, this consumer compliance supervision policy is intended to be implemented in a manner that is consistent with the policies already established for prudential supervision relating to the duties and responsibilities of the Responsible Reserve Bank (RRB), the Local Reserve Bank (LRB), and the Central Points of Contact (CPC) to the extent possible and appropriate.1 In particular, the relevant and applicable portions of the guidance in SR 97-24, 93-48, 89-25 and 78-464 should be taken into account in implementing this policy to the extent appropriate.¹ In the interests of clarity and consistency, however, this letter contains some specifics that augment the guidance in those letters.

      In implementing these policies, the RRB for a multi-district holding company or SMB, as applicable, will assume a coordinating role for the consumer compliance supervision of the SMBs in the holding company or the individual SMB. To accomplish this, each RRB should designate a single individual to have responsibility for coordinating the consumer compliance supervision of the relevant entity or entities. This person will coordinate with a designated counterpart at each LRB. The designated individual will also coordinate and communicate, as necessary and appropriate, with the prudential CPC for the holding company or bank, if one has been designated. In particular, the designated individual will keep the prudential CPC apprised of any problems or supervisory issues that will or should be communicated to the organization's management or board of directors.

Consumer Compliance Supervision of SMBs in a Multi-District Holding Company

Responsible Reserve Bank
      In general, it is the responsibility of the RRB for a holding company to ensure that an overall consumer compliance supervisory plan for the SMBs in the holding company is in place. The RRB should ensure that the plan provides that examination frequency mandates are met, that systemic issues are addressed consistently across examinations, and that adequate resources are provided to accomplish the supervisory plan. In addition, the RRB will be responsible for conducting the examinations of any SMBs headquartered in its district, and for coordinating any necessary reviews of centralized operations affecting all, or a number, of the SMBs in the holding company.

Local Reserve Bank

      In general, the LRB will be responsible for the direct supervision of the SMBs headquartered in its district. This includes such matters regarding conducting examinations in accordance with System policies and the overall consumer compliance supervisory plan for the multi-district holding company. It also includes establishing the scope of examinations in consonance with System policy and the overall supervisory plan, conducting monitoring activities and follow-up supervisory activities, as necessary, and assigning the rating for the examination. It will also be the responsibility of the LRB to communicate with the RRB on a timely basis about problems or supervisory issues that arise during examinations. It is understood that the RRB, in the exercise of its coordinating role, may wish to discuss the examination scope, findings, and rating for SMBs in other districts with the LRBs prior to issuance of a final examination report, particularly with respect to SMBs of significant asset size or when the findings and ratings are adverse. The circumstances under which such advance discussions will take place should be established by the relevant Reserve Banks.

Consumer Compliance Supervision of Multi-District SMBs

      The RRB for a particular SMB is responsible for all aspects of consumer compliance supervision of the SMB. This includes such matters as establishing the scope of the examination; coordinating with each LRB regarding what resources each will supply for the examination and when they will be needed; conducting the examination, monitoring activities and supervisory follow-up; writing the examination report; and assigning the ratings. The RRB will assign state and multi-state area ratings, as well as the overall rating, for the bank's CRA evaluation even if the SMB has branches or operations in other districts that are examined by the LRBs in those other districts. The RRB for a particular SMB should, however, consult with any LRB that conducted CRA examinations of branches, operations or assessment areas in districts outside the district in which the SMB has its headquarters in reaching its conclusion concerning ratings.

      The RRB will also determine which out-of-district branches, operations or assessment areas will be reviewed as part of a CRA evaluation and will communicate the timing and resource needs for the examination sufficiently in advance to enable the LRBs in the district where they are located to assign resources to conduct the evaluations, as needed. Furthermore, it is expected that the LRBs will supply the needed resources to participate fully in the SMB's consumer compliance and CRA examinations with respect to the branches, operations, or assessment areas of that SMB in its district, as mutually agreed with the RRB. It is expected that the RRB will supply the resources to examine out-of-district branches, operations and assessment areas if the LRB in the relevant district is unable to supply those resources when needed.

Communication with the SMB or Holding Company

      Communications with these holding companies and SMBs should be streamlined to the extent possible consistent with the needs of the RBs to supervise the entities that are their responsibility. In general, the Reserve Bank responsible for the supervision of a particular SMB will be expected to communicate with that bank regarding all consumer compliance supervisory matters through its consumer compliance EIC or management. Communications with a holding company, when necessary, should be coordinated by the RRB. A LRB in a multi-state holding company situation should keep the RRB apprised of any significant communications with its SMB and should coordinate any communications with the holding company through the RRB. In particular, communications regarding significant findings or risk factors, or regarding supervisory concerns and follow-up actions should also be coordinated with the prudential CPC. Should a holding company's management express a strong preference for a single communication channel relating to all of its SMBs, the RRB should coordinate establishing the desired system.

      The attached matrix lays out the policy's expectations for the RRB and the LRB with respect to both multi-district holding companies and multi-district SMBs in a comprehensive manner. The matrix is intended to be an implementation guide for all parties. Questions about this policy may be directed to your district's consumer compliance review examiner at (202) 452-3946.

¹ For purposes of this letter, the Responsible Reserve Bank for a multi-district holding company is the Reserve Bank for the district in which the holding company is headquartered. A Local Reserve Bank in the case of a multi-district holding company is a Reserve Bank for a district other than the holding company's headquarters district in which a SMB or other operation owned by the holding company is headquartered. For a multi-district SMB, the RRB is the Reserve Bank in the district in which the SMB has its headquarters, and a LRB is a Reserve Bank whose district contains branches or other operations of a SMB headquartered in another district. Return to text