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U.S. Banking System and Foreign Banking · PDF fileOffice of the Comptroller of the Currency Exam Process U.S. Banking System and Foreign Banking Organization Supervisory Structure

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  • Office of the Comptroller of the Currency Exam Process

    U.S.BankingSystemandForeignBankingOrganization

    SupervisoryStructure

    December7,2016

  • 2

    1. InternationalBankingSupervisionOverview

    2. FederalBranchSupervision

    3. SupervisoryTools

    Agenda

  • 3

    Agenda

    1. InternationalBankingSupervisionOverview

    2. FederalBranchSupervision

    3. SupervisoryTools

  • LegalVehiclesAvailabletoFBOstoCreateaPresenceintheUnitedStates

    OCCSupervised

    FederalBranch OfficesofforeignbanksthatcanengageinacommercialbankingbusinessintheU.S.includingtheacceptanceofdomesticwholesaledeposits

    LimitedFederalBranch AfederalbranchthatacceptsonlythosedepositspermissibleforanEdgeActcorporationtoreceive

    FederalAgency OfficesofforeignbanksthatcanengageinacommercialbankingbusinessintheU.S.butcannotgenerallyacceptdomesticdepositsorexercisefiduciarypowers

    ForeignBankSubsidiary Companiesowned25%ormorebyabankholdingcompanyorforeignbank

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  • 5

    LegalFrameworkInternationalBankingAct,1978

    Substantiallyequalizedtreatment(nationaltreatment)ofU.S.operationsofforeignandU.S.banks

    Madefederallicense,issuedbyOCC,availableforforeignbanks,inadditiontotheexistingstatelicenseoption

    ForeignBankSupervisionEnhancementAct(FBSEA),1991

    ExpandedoversightroleoftheFederalReserveincludingpowertoapproveandterminateU.S.operationsofFBOs,includingfederalbranches/agencies

    ApprovalofFBOpresence applicationprocessandComprehensiveConsolidatedSupervision(CCS)determination

    Prohibitedforeignbranchesfromapplyingfordepositinsurance

  • 6

    LegalFrameworkRiegleNealInterstateBankingandBranchingEfficiencyAct,1994.

    EssentiallycreatednationaltreatmentforFBOsininterstatebankingandbranching

    GrammLeachBlileyAct(GLBA),1999

    Removedbarriersbetweenthebanking,securities,andinsuranceindustries AuthorizedFinancialHoldingCompanies(FHC)

    DoddFrankWallStreetReformandConsumerProtectionAct(DFA),2010

    FocusesonstrengtheningthefinancialstabilityoftheU.S.andincludes: HeightenedsupervisoryexpectationsforFBOs>$50billionintotalU.S.

    assets Includesenhancedprudentialstandardsforlargebankingorganizations

    Section165EnhancedPrudentialStandards(EPS)forFBOsfinalizedinFebruary2014

  • 7

    PreDFAApproachtoFBOs

    FBOsallowedtostructureU.S.operationsinamannerthattheyfindmostefficientwithappropriaterestrictions

    RelianceonhomecountrysupervisionoftheFBOsworldwideoperations

    RelianceonstateandfederalfunctionalregulatorstosupervisetherelevantentitiesoperatedbyFBOsintheU.S.

    SignificantrelianceontheparentbanktosupportitsU.S.operations

  • 8

    CertainFBOsrequiredtoestablishanintermediateholdingcompany(IHC)

    Enhancedriskbasedcapitalandleveragerequirements

    Enhancedliquidityrequirements

    Enhancedriskmanagementandriskcommitteerequirements

    Stresstestrequirements

    RequiresenhancedprudentialstandardstoincreaseinstringencybasedonthesizeandcomplexityoftheFBO RulesgenerallyapplytoFBOswithaU.S.bankingpresenceandtotal

    globalconsolidatedassetsgreaterthan$50billion StandardsincreaseinstringencyforFBOswithcombinedU.S.assets

    greaterthan$50billionduetotheincreasedrisktheymayposetotheU.S.financialsystem

    PostDFA Section165(RegulationYY)EnhancedPrudentialStandardsforFBOs

  • 9

    Beganin1995asaresultofBankofCreditandCommerceInternational(BCCI) CoversallforeignbanksoperatingintheU.S.

    FocusistounderstandtheheadofficeanditsabilitytosupportU.S.operations HomeCountryFinancialSystem AccountingAnalysis InstitutionalOverview StrengthofSupportAssessment(SOSA)andSOSAranking

    Communicationofresultstoheadofficemanagementandhomecountrysupervisor CombinedU.S.OperationsRating IndividualU.S.Entities

    TheFBOProgramiscurrentlybeingreviseddueto: Bettertransparency,timelyinformation,betteranalysisbyexternalparties;and FedsEnhancedPrudentialStandardsrequirementsforFBOs.

    InteragencyFBOSupervisionProgram

  • 10

    FBOsaredifferent:managementfromadifferentcountrymaylackknowledgeofU.S.customs,culture,laws&regulations.

    HostCountryvs.HomeCountrySupervisor

    RoleofHostCountry EvaluatetheoverallabilityofFBOtosupportitsU.S.operations Maintainanunderstandingofglobalriskmanagementand

    controlsystemsasappliedtoU.S.operations ProvideaccesstoinformationconcerningU.S.operationsof

    FBOs Exchangeinformationwithhomesupervisorandcoordinate

    whensupervisoryfollowupisnecessary

    UniqueFactorsinFBOSupervision

  • 11

    Waysinwhichinformationisshared: Adhocmeetings/conversations Bilateralmeetings/discussions Supervisorycolleges Participationinexaminations AnnualsummaryofconditionletterincludingSOSAranking Sharingofexaminationreports

    InformationSharingArrangements Inplacewithbanksupervisorsinmanyjurisdictionsglobally Maynotberequiredlegallyandusuallyhasnolegaleffect

    butgenerallyservestoexpeditetheprocess

    CommunicationsandCoordinationwithHomeCountrySupervisors

  • 12

    1. InternationalBankingSupervision

    2. FederalBranchSupervision

    3. SupervisoryTools

    Agenda

  • 13

    ForeignOwnedSubsidiariesandBranchesForeignOwnedBankingSubsidiaries

    Separatelegalentity

    LocalBoardofDirectorsandPresident

    Separatecapital

    Traditionalbankfundingsources

    FDICinsured

    FDICisresolution/receiver

    FileCallReportForm031or041

    RatedusingCAMELS

    Branches

    Notstandaloneentities

    DependentonHeadOfficeBoardorCommittee;LocalGeneralManager

    Capitalequivalencydeposit(CED)

    Primarilyheadofficefunding

    Nodepositinsurance

    OCCisresolutionauthority

    FileCallReportForm002

    RatedusingROCA

  • SubjecttoOCCssupervisionbyriskphilosophy.

    Banksupervisorycycleandactivities:

    Afullscope,onsiteexamination,willoccuratleastonceduringeach12month period.TheOCCmayextendthisrequirementto18months if: Thebankhastotalassetsoflessthan$500million Thebankiswellcapitalizedasdefinedin12CFR6 Atitsmostrecentexamination,RiskManagementwasrated1or2,and

    theCompositeratingwasa1or2. OtherfactorsspecifiedintheBankSupervisionProcessComptrollers

    Handbook

    Quarterlyoffsitemonitoring

    Targetsandfollowup(ifnecessary)

    14

    ForeignOwnedSubsidiariesandBranches

  • Evaluatetheoverallintegrityandeffectivenessofriskmanagementsystems.

    Communicatefindingstolocalmanagement.Forfederalbranches,alsocommunicatewithheadofficeandhomeregulators.

    Subjecttothesamelaws,regulations,policiesandproceduresthatapplytonationalbanks.

    15

    ForeignOwnedSubsidiariesandBranches

  • RatingSystem

    R:RiskManagementO:OperationalControlsC:ComplianceA:AssetQuality

    AppliestoindividualFBObranchesandagencies

    15scale

    AppendixFoftheBankSupervisionProcessComptrollersHandbook:https://occ.gov/publications/publicationsbytype/comptrollershandbook/banksupervisionprocess.pdf

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  • RiskManagement Determinetheextentthatriskmanagementsystemsare

    adequateto:

    Controlriskexposuresthatresultfrombranchactivities

    EnsureeffectiveoversightbyHOandbranchmanagementofbranchactivities

    Includes3rd partyrelationshipssuchasITservicingandoutsourcingarrangements DeterminecompliancewithriskmanagementandcapitalstresstestingrequirementsoftheFBOEnhancedPrudentialStandardsrules ConclusiononBSA/AMLriskmanagementsystems Conclusiononcreditadministrationsystems

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  • OperationalControls

    18

    Assesstheeffectivenessof: Internalcontrols,includingaccountingandfinancialcontrols

    Internalandexternalauditfunction Informationtechnology

  • Compliance

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    Assesscompliancewith: Safetyandsoundnessregulationsapplicabletothebranchactivities

    BSA/AMLrequirementsConsumerregulations,ifthebranchoffersproductsgovernedbyconsumerlaws

    RegulatoryreportingCEDrequirements

  • AssetQuality

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    RatingisbasedonthelevelofproblemsassetsAllloandocumentationandanalysesshouldbeinEnglish

    Creditriskdefinitionsandregulatoryclassificationsapply

    NoALLLrequired LegallendinglimitisbasedonHOcapital

  • ROCARatingsforIBSPortfolio

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  • RiskAssessmentSystem

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    RISKCATEGORY

    AggregateRisk

    (High,Moderate,

    Low)

    QuantityofRisk

    (High,Moderate,Low)

    QualityofRiskManagement

    (Weak,Insufficient,Satisfactory,Strong)

    Direction

    (Increasing,Stable,

    Decreasing)

    CreditInterestRateLiquidityPriceOperationalComplianceStrategicReputation

  • RiskAssessmentSystemCommunicatesthequantity ofrisk,thequality ofriskmanagement,thelevelofsupervisoryconcern(measuredasaggregate risk),andthedirection ofriskforeightriskcategories.

    QuantityofRisk:Reflectsthelevelofriskassumedinthecourseofdoingbusiness.

    QualityofRiskManagement:Assesseswhetherthebanksriskmanagementsystemsarecapableofidentifying,measuring,monitoringandcontrollingthatamountofrisk.

    AggregateRisk:Assessthecurrentriskprofile.

    DirectionofRisk:Speakstotheprospectiveviewoftheriskprofile.

    23

  • RiskAssessmentSystemTheQualityofRiskManagementassesseshowwellrisksareidentified,measured,controlled,andmonitored.

    Strong:Qualifiedpersonnel,effectiveriskidentificationandanalysis,cleardesignationandappropriateseparationofresponsibilities,accurateandtimelyinformationflow,andestablishedmonitoringandfollowupprocesses.

    Satisfactory:Overallriskmanagementpracticesaresatisfactoryrelativetotheinstitution'ssize,complexity,andriskprofile.

    Insufficient:Reflectsthepresenceofconcernsthatmayadverselyaffectabanksconditionifnotcorrected.Theseconcernsprecludeasatisfactoryassessment,butdonotsupportafindingthatriskman