Overview of Foreign Bank Supervision in the United States

Transcription

1 Overview of Foreign Bank Supervision in the United States November 27, 2012 U.S. Regulatory/Compliance Orientation IIB & CSBS Kwayne Jennings Division of Banking Supervision and Regulation International Banking Organizations Board of Governors of the Federal Reserve System

2 The Federal Reserve Act of 1913 An Act To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. 2

3 Legal Framework for Foreign Banking Organization ( FBO ) Supervision International Banking Act, 1978 Substantially equalized treatment ( national treatment ) of U.S. operations of foreign and U.S. banks Foreign Bank Supervision Enhancement Act, 1991 Established and expanded oversight role of the Federal Reserve including power to approve and terminate U.S. operations of FBOs Gramm-Leach-Bliley Act, 1999 Removed barriers between the banking, securities, and insurance industries Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010 Focused on strengthening the financial stability of the U.S. includes requirement for enhanced prudential standards 3

4 Legal Vehicles Available to FBOs to Create a Presence in the United States Representative Office May not book loans or deposits Branch / Agency Licensed by States or OCC. Most common structure. Not separately capitalized, but may be subject to asset pledge Generally, an agency cannot accept deposits from U.S. residents or U.S. citizens A Branch can accept deposits >$250,000: FDIC-insured branches can accept retail deposits (i.e., less than $250,000) Business: Wholesale Trade finance; Corporate; Cap. Mkts. International Banking Facility ( IBF ) Offshore banking vehicle within a branch or agency with a separate set of accounting books U.S. Bank Subsidiary U.S. Bank Holding Company (Includes Financial Holding Companies) Edge or Agreement Corporation Nonbanking companies, e.g., broker-dealer, commercial finance subsidiary, etc. 4

5 Comprehensive Consolidated Supervision (CCS) Under FBSEA: Prior to a foreign bank establishing a new office in the U.S. the Federal Reserve Board must consider whether the applicant is subject to CCS by the appropriate authorities in its home country CCS applies to branches, agencies, and subsidiary banks of the FBO in the U.S. Similar standard endorsed by the Basel Committee 5

6 Comprehensive Consolidated Supervision (CCS) - 2 Five CCS factors considered by the Board of Governors: Ensures that the bank has adequate procedures for monitoring and controlling worldwide activities Obtains information on the condition of the bank and its subsidiaries and offices outside home country (examinations, audit reports, etc.) Obtains information on dealings between the bank and its affiliates, both domestic and foreign Receives from the bank financial reports that are fully consolidated, or the equivalent Evaluates prudential standards, such as capital adequacy, on a worldwide basis 6

7 U.S. Bank Supervisors: Who Supervises What Federal Reserve Bank Holding Companies ( BHCs ), includes Financial Holding Companies State-licensed branches & agencies Representative Offices Edge Act & Agreement Corporations State member banks Nonbanks Thrift Holding Companies* The FRS is the consolidated supervisor for foreign banking organizations and BHCs in the U.S. States State-licensed branches & agencies State member and nonmember banks OCC Federally licensed branches and agencies National banks Federally chartered thrifts* FDIC State nonmember banks Insured state licensed branches & agencies State chartered Thrifts *Formerly supervised by the Office of Thrift Supervision which sunset as an independent agency 7/21/2011 7

8 Supervisory Coordination U.S. bank supervisory framework is a multi-pronged system Requires significant coordination among multiple federal and state agencies Multiple foreign bank supervisors Commercial Banks Rely on primary supervisors (FDIC, OCC) Joint and alternate examinations of state member banks Branches & agencies Joint and alternate examinations of state licensed branches & agencies Rely on OCC for federal branches Nonbanks Rely on functional supervisors to the extent possible (SEC, state insurance supervisors, CFTC, etc.) 8

9 Federal Reserve Supervision Structure Board of Governors, Washington, DC Policy development Program development & oversight 12 Federal Reserve Banks Program execution A delegated function Bank relationship Responsible Reserve Bank manages overall relationship for multi-office cross district operations Examination responsibilities Examining Reserve Bank examines entities within its district In 2011 over 3,700 staff system-wide dedicated to banking supervision and regulation Increased multi-disciplinary effort Economists Payment systems 9

10 Federal Reserve as Consolidated Supervisor Evaluates the overall ability of FBO to support its U.S. operations Maintains an understanding of global risk management and control systems as applied to U.S. operations Needs to have full access to information concerning U.S. operations of FBOs Exchanges information with home country supervisor and coordinates when supervisory follow-up is necessary 10

11 FBO Supervision Program Interagency program (federal and state) All foreign banks with a banking presence in U.S. Coordinated oversight of U.S. operations (including branches, agencies, BHCs, commercial banks, nonbank subsidiaries, representative offices, etc.) Comprised of three major components: Home Country and Parent Bank Analysis Analysis of Home Country Financial System Strength of Support Assessment (SOSA) Risk-focused supervision of the U.S. operations of FBOs Communication of results and follow-up 11

12 Rating System for U.S. Operations ROCA Risk Management, Operations, Compliance, and Asset Quality Applies to individual FBO branches and agencies A combined ROCA Rating is assigned for all (i.e., the totality) of the U.S. branches and agencies of an FBO RFI (D) Risk management, Financial condition, Impact of nonbanks, Depository institutions Applies to BHCs/FHCs CAMELS Capital adequacy, Asset quality, Management, Earnings, Liquidity, Sensitivity to market risks Applies to commercial banks Combined U.S. Operations Rating Encompasses all U.S. operations 12

13 Home Country and Parent Analysis Analysis of Home Country Financial System Prepared for each country with FBOs in the U.S. Home country operating environment Financial reporting practices Quality of supervision, including record of bank support Transfer risk Strength of Support Assessment (SOSA) Assessment of the capacity and willingness to support U.S. operations Factors include financial condition, structure and governance, funding, and home country factors Ranked on 1 (best) to 3 (worst) scale; updated dynamically A driver of the U.S. supervisory strategy for an FBO 13

14 Communicating Results Summary of the Condition of U.S. Operations Communicates in writing the results of the supervisory cycle Combined U.S. Operations Rating Combined ROCA Rating Corrective actions taken or to be taken The SOSA ranking Sent to Head Office Management, Senior U.S. management, and Home Country Supervisor 14

15 FBOs in the United States As of September 30, FBOs from 51 countries Total 3 rd party U.S. assets: $5.2 trillion $2.9 trillion banking; $ 2.2 trillion nonbanking 52 U.S. commercial bank subsidiaries with $1.1 trillion assets Top five FBO countries have $3.88 trillion (75% of total) UK, Switzerland, Canada, France, Germany FBO asset growth down significantly since crisis Significant (30%) shrinkage of nonbank assets Banking assets down 10% 15

16 Branches and Agencies 3 rd Party Assets ($ Million) 16

17 U.S. Banking Subsidiaries of FBOs 3 rd Party Assets ($ Million) 17

18 U.S. Banking Organizations by Entity Type Bank Holding Companies Number of BHCs: 4,688 Total Assets $17.7 trillion Commercial Banks Number of commercial banks 6,166 Number of State member banks: 833 Number of National banks: 1,272 Number of State nonmember banks: 4,061 18

19 Additional Information on FBO Supervision Program SR Letter Enhancements to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations SR letter 08-9, Consolidated Supervision of Bank Holding Companies and the Combined U.S. Operations of Foreign Banking Organizations 19