Foreign Banking Organization (FBO) Supervision and Regulation

The Federal Reserve tailors its regulatory requirements for and supervision of foreign banking organizations (FBOs) to account for the size, complexity, risk profile and financial activities of their U.S. operations. In the supervision and regulation of FBOs, the Federal Reserve gives due regard to the principle of national treatment and equality of competitive opportunity.

Large Foreign Banking Organizations

Large foreign banking organizations (Large FBOs) are FBOs with combined U.S. assets of $50 billion or more. With respect to regulation, Large FBOs are subject to prudential requirements set forth in the Board’s regulations, including Regulation YY. See Key Regulations for more information. The enhanced prudential standards in Regulation YY include liquidity standards and requirements for overall risk management of the combined U.S. operations of a Large FBO. In addition, Regulation YY requires Large FBOs with U.S. non-branch assets of $50 billion or more to form a U.S. intermediate holding company (IHC) and imposes enhanced capital, liquidity, risk-management, and stress-testing requirements on that IHC.

With respect to supervision, the Federal Reserve utilizes the consolidated supervision framework set forth in SR Letter 12-17 / CA Letter 12-14 for Large FBOs. This framework focuses on enhancing the resiliency of the U.S. operations of a Large FBO, and reducing the impact of failure of those U.S. operations. Each Large FBO is expected to ensure that the combined U.S. operations and its core business lines can survive under a broad range of internal or external stresses. This requires financial resilience by maintaining sufficient capital and liquidity, and operational resilience by maintaining effective corporate governance and risk management. Each Large FBO is also expected to engage in effective resolution planning that addresses the complexity and interconnectivity of the FBO’s operations.

The Federal Reserve's supervisory activities for Large FBOs include horizontal examinations, firm-specific examinations, and continuous monitoring. This supervisory work is focused on capital, liquidity, resolution planning, and governance and control practices, and is tailored on an annual basis to reflect the risk profile of these institutions.

In assigning a supervisory rating to the combined U.S. operations, the Board assigns a composite rating based on a holistic assessment of the U.S. operations, and takes into account ratings assigned to the U.S. intermediate holding company (IHC), branches, and other legal entities. The IHC is rated using the large financial institution (LFI) rating system. The LFI rating system is composed of the following three components, (1) Capital Planning and Positions (2) Liquidity Risk Management and Positions and (3) Governance and Controls. See SR Letter 19-3 / CA Letter 19-2, "Large Financial Institution (LFI) Rating System," for more information. Branches are rated using the ROCA rating system, which has four components: risk management, operational controls, compliance and asset quality. See SR Letter 00-14 (SUP), "Enhancements to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations," for more information.

Less Complex Foreign Banking Organizations

Less complex foreign banking organizations (Less Complex FBOs) are FBOs with combined U.S. assets of $50 billion or less. These FBOs mostly operate in the United States through branches and agencies and have relatively small non-branch activities.

The Federal Reserve's supervisory program for branches and agencies is conducted through firm-specific examinations, and is focused on risk management, operational controls, compliance, and asset quality. The examination frequency of branches and agencies is tailored to reflect their size and level of supervisory concern. While branches and agencies are generally examined once every year, those branches and agencies with less than $3 billion in total assets may be eligible for an 18-month on-site examination cycle if they have previously received satisfactory ratings and fulfill a few other criteria. See SR Letter 18-7, "Updates to the Expanded Examination Cycle for Certain State Member Banks and U.S. Branches and Agencies of Foreign Banking Organizations," for more information.

All prudentially supervised U.S. offices of Less Complex FBOs receive a rating, including branches and agencies, bank holding companies, commercial banks and certain representative offices. See Supervisory Ratings for more information. Less Complex FBOs with more than one banking office also receive a combined U.S. operations rating, based on a holistic assessment of the U.S. operations, taking into account the rating assigned to any prudentially supervised entity and an assessment of other U.S. offices.

Key Regulations

Regulation K International Banking Operations (FBOs)
Regulation YY Enhanced Prudential Standards (for FBOs with global consolidated assets of $50 billion or more)
Regulation H Membership of State Banking Institutions in the Federal Reserve System (for FBOs with state member banks)
Regulation Q Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks (for FBOs with BHC, IHC, and/or state member bank subsidiaries)
Regulation W Transactions between Member Banks and Their Affiliates (for FBOs with branches and agencies or banks that are members of the Federal Reserve System)
Regulation Y Bank Holding Companies and Change in Bank Control (for FBOs with BHC subsidiaries)
Regulation QQ Requires large, systemically significant bank holding companies and nonbank financial companies to submit annual resolution plans (for FBOs with global consolidated assets of $50 billion or more)
Regulation WW Liquidity Risk Measurement Standards (for IHCs that are BHCs)
 

Policy Letters

Supervisory Ratings

Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion

Large Financial Institution (LFI) Rating System

Elimination of the Strength of Support Assessment (SOSA) for all Foreign Banking Organizations subject to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations

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

Revised Examination Guidelines for Representative Offices of Foreign Banks

Supervisory Framework

Updates to the Expanded Examination Cycle for Certain State Member Banks and U.S. Branches and Agencies of Foreign Banking Organizations

Consolidated Supervision Framework for Large Financial Institutions

Consolidated Supervision of Bank Holding Companies and the Combined U.S. Operations of Foreign Banking Organizations

Capital Planning and Positions (for IHCs)

Federal Reserve Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms

Federal Reserve Supervisory Assessment of Capital Planning and Positions for LISCC Firms and Large and Complex Firms

Risk Transfer Considerations When Assessing Capital Adequacy – Supplemental Guidance on Consolidated Supervision Framework for Large Financial Institutions (SR letter 12-17/CA letter 12-14)

Supervisory Guidance on Stress Testing for Banking Organizations with More Than $10 Billion in Total Consolidated Assets

Guidance on Model Risk Management

Liquidity Risk Management and Positions (for U.S. Operations)

Interagency Frequently Asked Questions on Implementation of the Liquidity Coverage Ratio (LCR) Rule

Interagency Guidance on Funds Transfer Pricing Related to Funding and Contingent Liquidity Risks

Supervisory Guidance on Stress Testing for Banking Organizations with More Than $10 Billion in Total Consolidated Assets

Interagency Policy Statement on Funding and Liquidity Risk Management

Interagency Advisory on the Use of the Federal Reserve's Primary Credit Program in Effective Liquidity Management

Governance and Controls (for U.S. Operations)

Supervisory Guidance for Assessing Risk Management at Supervised Institutions with Total Consolidated Assets Less than $50 Billion

Supplemental Policy Statement on the Internal Audit Function and Its Outsourcing

Consolidated Supervision Framework for Large Financial Institutions

Compliance Risk Management Programs and Oversight at Large Banking Organizations with Complex Compliance Profiles

Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies

Additional Resources

Manual References

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Last Update: November 20, 2019