|BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
|DIVISION OF BANKING
SUPERVISION AND REGULATION
|SR 01-1 (SUP)
January 5, 2001
The Federal Reserve has had a longstanding practice of applying its capital adequacy standards to the top tier U.S. bank holding company (BHC) owned by a foreign banking organization. The Federal Reserve is modifying this practice in light of provisions in the Gramm-Leach-Bliley Act that permit a foreign bank to be a financial holding company (FHC).
In cases in which the Board has determined that a foreign bank operating a U.S. branch, agency, or commercial lending company is well-capitalized and well-managed under standards that are comparable to those of U.S. banks controlled by FHCs, the presumption will be that the foreign bank has sufficient financial strength and resources to support its banking activities in the United States. Thus, as a general matter, a U.S. BHC that is owned and controlled by a foreign bank that is an FHC that the Board has determined to be well-capitalized and well-managed will not be required to comply with the Board's capital adequacy guidelines.
Relying on the capital strength of the consolidated banking organization, as well as requiring all subsidiary banks to meet appropriate capital and management standards, is consistent with the Federal Reserve's supervisory assessment process for domestic bank holding companies. The Federal Reserve retains its supervisory authority to require any bank holding company, including a U.S. BHC owned and controlled by a foreign bank that meets the FHC standards, to maintain higher capital levels where such levels are appropriate to ensure that its U.S. activities are operated in a safe and sound manner. This authority may be exercised as part of ongoing supervision or through the application process.
Reserve Banks are asked to distribute this SR letter to bank holding companies owned by foreign banking organizations in their districts. If you have questions on the application of the capital guidelines, please contact Norah Barger, Deputy Associate Director, at 202/452-2402 or Barbara Bouchard, Assistant Director, at 202/452-3072.
SR letters | 2001