District Circular Letters

December 3, 1999

EXTENDED EXAMINATION CYCLE
FOR U.S. BRANCHES AND AGENCIES
OF FOREIGN BANKS

To U.S. Branches and
Agencies of Foreign Banks in the
Twelfth Federal Reserve District

Updated Rule Extends the Examination Cycle for Some Branches and Agencies to 18 Months (4112)

The Federal Reserve, together with the other federal banking agencies, recently issued a joint final rule which will make some United States branches and agencies of foreign banks eligible for an 18-month examination cycle. These branches and agencies of foreign banks are eligible if they meet specific qualifying criteria and there is no reason for the relevant agency to conclude that more frequent examinations are appropriate. Each federal banking agency will retain the authority to examine a U.S. branch or agency of a foreign bank as frequently as the agency deems necessary. The ruling will implement section 2214 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996.

The joint final rule continues, with minor changes, the joint interim rule implemented in August 1998 and is effective immediately.

To be eligible for the extended examination cycle, a U.S. branch or agency of a foreign bank must:

• Have total assets of $250 million or less;
  
• Have a composite ROCA supervisory rating of 1 or 2 at its most recent examination;
  
• Satisfy the requirements of either paragraph (1) or (2):
  

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;
   

• Not be subject to a formal enforcement action or order by the Board, FDIC, or OCC; and
  
• 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.

• 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.

Copies

Copies of the Board's notice [SR 99-31 (SUP): November 15, 1999] are available from our Corporate Services Department. To request copies by mail, please call (415) 974-2748. To request copies to be sent by fax, please call (415) 974-3333, and specify document number 4112. Board notices are also available via the Federal Reserve Bank of San Francisco's Internet site.

Additional Information

For additional information regarding these matters, please contact our Banking Supervision and Regulation Department, at (415) 974-2911.

FEDERAL RESERVE BANK OF SAN FRANCISCO