Seal of the Board of Governors of the Federal Reserve System BOARD OF GOVERNORS

WASHINGTON, D. C.  20551
SR 00-14 (SUP)
October 23, 2000


SUBJECT:   Enhancements to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations


                     The Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations (the FBO Supervision Program), which was established in March 1995, applies to all foreign banking organizations with a banking presence in the United States.  This presence can take the form of branches, agencies, Edge and Agreement corporations, commercial lending companies, and subsidiary banks.  After more than five years of experience with the FBO Supervision Program, the Federal Reserve, in cooperation and coordination with the other federal and state banking authorities involved in supervising the U.S. operations of foreign banks, is taking a number of steps to enhance the program.  These steps include updating and streamlining the Strength of Support Assessment (SOSA) process, informing FBOs and home country supervisors of foreign banks' SOSA rankings, and creating a new combined assessment rating for all of an FBO's U.S. branches, agencies, and commercial lending companies (i.e., a combined ROCA rating).1

                     The principal changes to the FBO Supervision Program relate to the SOSA process.  SOSA rankings, which reflect an assessment of an FBO's ability to provide financial, liquidity and management support to its U.S. operations, have been found by U.S. supervisors to be an effective and reliable tool in supervising the U.S. activities of foreign banks.  These rankings are also used in connection with other U.S. regulatory matters requiring a supervisory view of a foreign banking organization.

                     For these reasons, the Federal Reserve and other U.S. bank supervisory agencies have agreed to begin informing both the FBO's senior management and its home country supervisor of the foreign bank's SOSA ranking.  This step should strengthen communications with bank management, as well as enhance information-sharing, collaboration and coordination between host (U.S.) and home country authorities in the supervision of multinational banking organizations.  Providing SOSA rankings to home country supervisors will complement existing host-to-home country information-sharing arrangements.  Since 1995, U.S. supervisors have been providing to home country authorities a composite rating that reflects a combined assessment of an FBO's banking and nonbanking activities in the United States (i.e., the Combined U.S. Operations Rating).  Such host-to-home communications are important in helping home country supervisors carry out effective comprehensive, consolidated supervision of multinational banking organizations. 

                     The principal enhancements to the FBO Supervision Program are outlined briefly below; details concerning these steps are set forth in the attached policy guidelines, which supersede previous guidance issued by this Division in SR letters 95-22 and 98-13.  Reserve Banks will be provided with implementing procedures for carrying out these program enhancements in the near future.

FBO Supervision Program Enhancements

                     The principal enhancements to the FBO Supervision Program are as follows:

  • More Frequent Updates of SOSA Rankings
    The primary use of the SOSA, which is designed to reflect an FBO's ability to support its U.S. operations, is to provide input to the development and maintenance of a comprehensive supervisory strategy for the U.S. activities of a foreign bank.  To ensure that the U.S. operations' supervisory strategy remains current and relevant, it is essential that an FBO's SOSA ranking be updated whenever necessary to reflect significant new information bearing on the banking organization's overall strength-of-support capability.  While all FBOs will continue to be subject to, at a minimum, an annual SOSA review, an update should be performed whenever significant events occur that could have a material impact on an FBO's ability to maintain the safety and soundness of its U.S. operations.
  • Streamlining SOSA Rankings
    The five current SOSA ranking designations of "A" to "E" are being replaced by three designations of "1" to "3," with "1" representing the lowest degree of supervisory concern and "3" the highest degree of concern.  This change is being made because experience with the program has shown that FBOs with SOSA rankings of A and B generally have similar, positive or favorable characteristics, and thus have resulted in very similar supervisory strategies.  At the other end of the scale, FBOs with "D" and "E" rankings, while somewhat differentiated by the severity of their problems, also warrant generally similar remedial supervisory strategies.  These patterns have emerged even though supervisory strategies are individually tailored for all FBOs.  As a result, the number of SOSA rankings is being streamlined (i.e., reduced from five to three) to more closely align FBO assessments with the supervisory strategies for their U.S. operations.

    Until now, the SOSA process has allowed for the inclusion of an additional indicator (i.e., an asterisk) to flag certain significant developments that were not otherwise captured as part of the basic SOSA analytical factors, but which could have a material impact on an FBO's ability to support its U.S. activities.  These developments include a pending merger, an emerging and significant business line, or an operational control issue.  The changes to the SOSA process set forth in the attachment incorporate these additional considerations more directly in the SOSA factors, thus eliminating the need for the asterisk.

  • Sharing of SOSA Rankings with the Foreign Banking Organization's Senior Management and Home Country Supervisor
    Given the role of SOSA rankings in supervising foreign banks' U.S. operations, going forward an FBO's SOSA ranking, and the rationale for the ranking, will be provided to the FBO's senior management and its home country supervisor.  As mentioned previously, this step should strengthen communications with the FBO's senior management and enhance information sharing, collaboration and coordination between host and home country authorities in the supervision of multinational banking organizations.  Procedures for advising each FBO and its home country supervisor of the FBO's SOSA ranking are described in the attached policy guidelines.
  • Assignment of a Combined ROCA Rating for Branches and Agencies
    U.S. bank supervisors will assign a "combined" ROCA rating for all of an FBO's U.S. branches, agencies, and commercial lending companies, in addition to ROCA ratings for the FBO's individual offices.  The combined assessment of the FBO's U.S. branch, agency, and commercial lending company operations will in turn be factored into the FBO's overall Combined U.S. Operations Rating, which will continue to be a single composite rating that reflects the U.S. supervisors' collective assessment of all operations (i.e., banking and nonbanking offices) of the FBO in the United States.
  • Inclusion of an Institutional Overview
    The SOSA will continue to be based on the factors originally established in the FBO Supervision Program.  However, the underlying analysis, which supports the SOSA, is being expanded to include an "Institutional Overview" of the FBO that documents critical factors such as structure, business strategy and operations, funding and liquidity, and governance.  With this change, the SOSA process for each FBO now will comprise two components:  (a) an Institutional Overview; and (b) a SOSA ranking.  Under the program, these components will continue to be supplemented by the background "Reviews of the Home Country Financial System" and "Home Country Accounting Practices."  In addition, the Reserve Bank or other supervisory agency that is responsible for preparing the SOSA for the FBO will also have the responsibility to prepare the Institutional Overview.
  • Modification of Period for Supervisory Input
    Comment periods for input from fellow U.S. supervisors on drafts of FBO supervision program documents will be independently determined by the authors of the documents based upon the magnitude of any issues being addressed.  However, in the case of an upgrade or downgrade of an FBO's SOSA, the author must designate a deadline for comments of no less than nine calendar days from the issuance of the notification of the proposed change in the SOSA.  This should provide sufficient time for all interested supervisory parties to consider and review the important issues involved in the SOSA determination.
  • Enhanced Supervisory Strategy Discussion
    The "Supervisory Strategy" section of the SOSA is being moved to the "Supervisory Plan."  Going forward, the latter will include a fully developed supervisory strategy that specifies clear objectives and well-defined examination and other review activities for the FBO's entire U.S. operations.
  • Applications and the SOSA Process
    FBOs entering the United States will be subject to the SOSA process from the date that they are approved to establish their first U.S. banking presence.  The application process for the first U.S. office should provide sufficient information about the FBO, including its system of home country supervision and accounting practices, to perform a SOSA review and determine an initial SOSA ranking.
  • Individual SOSA Documents
    Each FBO must have a discrete, individual document setting forth its SOSA ranking; multiple SOSAs should no longer be combined in a single document for a homogeneous group of FBOs.

                     These changes to the FBO Supervision Program, especially those related to SOSA rankings, have been discussed with the federal and state supervisory authorities participating in the program.  The Reserve Banks' continued strong support of federal and state efforts to supervise the U.S. operations of FBOs in a coordinated and consistent fashion that is risk-focused, burden-sensitive and cost-effective is essential to the success of the United States as a host country supervisor.

                     Reserve Bank staff should distribute this SR letter to the U.S. offices and the head offices of FBOs with operations in the United States, and to the local offices of all federal and state bank supervisory authorities in their district.

                     Questions about this SR letter may be directed to Stephen M. Hoffman, Jr., Deputy Associate Director, FBO/Global Bank Supervision, at 202/452-5271 or Joel D. Shapiro, Manager, FBO Supervision Section, at 202/452-2056.

Richard Spillenkothen

Attachment (107 KB PDF)

Cross References:   SR letters 97-24 and 97-25
Supersedes:   SR letters 95-22 and 98-13


1.   SOSA rankings and ROCA ratings are supervisory tools used by U.S. supervisors to carry out their responsibilities for overseeing the U.S. activities of foreign banks.  SOSA rankings reflect an assessment of a foreign bank's ability to provide support for its U.S. operations.  The ROCA system represents a rating of the risk management, operational controls, compliance and asset quality of an FBO's U.S. activities.  Return to text

SR letters | 2000