Seal of the Board of Governors of the Federal Reserve System
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

WASHINGTON, D. C.  20551

DIVISION OF BANKING
SUPERVISION AND REGULATION

SR 99-31 (SUP)
November 15, 1999

TO THE OFFICER IN CHARGE OF SUPERVISION
          AT EACH FEDERAL RESERVE BANK AND FOREIGN BANKING
          ORGANIZATIONS SUPERVISED BY THE FEDERAL RESERVE


SUBJECT: Extended Examination Cycle for U.S. Branches and Agencies of Foreign Banks

                     The Federal Reserve, together with the other federal banking agencies, recently issued a joint final rule making certain United States branches and agencies of foreign banks eligible for an 18-month examination cycle, provided they meet specific qualifying criteria and no other factors cause the relevant agency to conclude that more frequent examinations are appropriate.  The press release and Federal Register notice are attached.

                     The joint final rule continues with minor changes the joint interim rule implemented in August 1998 and is effective immediately.1  To be eligible for the extended examination cycle, a U.S. branch or agency of a foreign bank must:

  1. Have total assets of $250 million or less;
  2. Have a composite ROCA supervisory rating of 1 or 2 at its most recent examination;2
  3. Satisfy the requirements of either paragraph (1) or (2):
  4. (1) The foreign bank's most recently reported capital adequacy position consists of, or is equivalent to, tier 1 and total risk-based capital ratios of at least 6 percent and 10 percent, respectively, on a consolidated basis; or

    (2) The branch or agency has maintained, on a daily basis over the past three quarters, eligible assets in an amount not less than 108 percent of third party liabilities (determined consistent with applicable federal and state law) and sufficient liquidity is currently available to meet its obligations to third parties;

  5. Not be subject to a formal enforcement action or order by the Board, FDIC, or OCC; and
  6. Not have experienced a change in control during the preceding 12-month period in which a full-scope, on-site examination would have been required but for section 3105(c)(1)(C) of the International Banking Act.

                     Each federal banking agency retains the authority to examine a U.S. branch or agency of a foreign bank as frequently as the agency deems necessary.  Among other factors in determining examination frequency, the agency may consider whether any individual component of the ROCA rating is 3 or worse; any indications of a deterioration in condition based on off-site supervision; the size, relative importance, and role of a particular branch or agency within the context of the foreign bank's entire U.S. operations; and the condition of the foreign bank itself.

                     Reserve Banks are asked to send a copy of this letter to U.S. branches and agencies of foreign banks in their districts.  Questions pertaining to this joint final rule should be directed to Barbara Bouchard, Manager, at (202) 452-3072 or Jonathan Stoloff, Counsel, at (202) 452-3269.


Richard Spillenkothen
Director


Attachments

Superseded:  SR letter 98-22



Notes:

1.   With the issuance of this final rule, SR letter 98-22 on the interim rule is superseded.  Return to text

2.   The supervisory rating system for branches and agencies of foreign banks is referred to as ROCA.  The four components of ROCA are:  risk management, operational controls, compliance, and asset quality.  Return to text


SR letters | 1999