u.s. banking system and foreign banking organization
TRANSCRIPT
Office of the Comptroller of the Currency Exam Process
U.S.BankingSystemandForeignBankingOrganization
SupervisoryStructure
December14,2017
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1. InternationalBankingSupervisionOverview
2. FederalBranchSupervision
3. SupervisoryTools
Agenda
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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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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
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LegalFrameworkRiegle-NealInterstateBankingandBranchingEfficiencyAct,1994.
• EssentiallycreatednationaltreatmentforFBOsininterstatebankingandbranching
Gramm-Leach-BlileyAct(GLBA),1999
• Removedbarriersbetweenthebanking,securities,andinsuranceindustries– AuthorizedFinancialHoldingCompanies(FHC)
Dodd-FrankWallStreetReformandConsumerProtectionAct(DFA),2010
• FocusesonstrengtheningthefinancialstabilityoftheU.S.andincludes:– HeightenedsupervisoryexpectationsforFBOs>$50billionintotalU.S.
assets– Includesenhancedprudentialstandardsforlargebankingorganizations
§ Section165EnhancedPrudentialStandards(EPS)forFBOsfinalizedinFebruary2014
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Pre-DFAApproachtoFBOs
• FBOsallowedtostructureU.S.operationsinamannerthattheyfindmostefficientwithappropriaterestrictions
• RelianceonhomecountrysupervisionoftheFBOsworldwideoperations
• RelianceonstateandfederalfunctionalregulatorstosupervisetherelevantentitiesoperatedbyFBOsintheU.S.
• SignificantrelianceontheparentbanktosupportitsU.S.operations
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• CertainFBOsrequiredtoestablishanintermediateholdingcompany(IHC)
• Enhancedrisk-basedcapitalandleveragerequirements
• Enhancedliquidityrequirements
• Enhancedriskmanagementandriskcommitteerequirements
• Stresstestrequirements
• RequiresenhancedprudentialstandardstoincreaseinstringencybasedonthesizeandcomplexityoftheFBO– RulesgenerallyapplytoFBOswithaU.S.bankingpresenceandtotal
globalconsolidatedassetsgreaterthan$50billion– StandardsincreaseinstringencyforFBOswithcombinedU.S.assets
greaterthan$50billionduetotheincreasedrisktheymayposetotheU.S.financialsystem
Post-DFA– Section165(RegulationYY)EnhancedPrudentialStandardsforFBOs
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Beganin1995asaresultofBankofCreditandCommerceInternational(BCCI)• CoversallforeignbanksoperatingintheU.S.
FocusisonunderstandingtheheadofficeanditsabilitytosupportU.S.operations• HomeCountryFinancialSystem• AccountingAnalysis• InstitutionalOverview• StrengthofSupportAssessment(SOSA)andSOSArating
Communicationofresultstoheadofficemanagementandhomecountrysupervisor
InteragencyFBOSupervisionProgram
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FBOsaredifferent:managementfromadifferentcountry—maylackknowledgeofU.S.customs,culture,laws®ulations.
HostCountryvs.HomeCountrySupervisor– Sharedcommunications.
RoleofHostCountry• EvaluatetheoverallabilityofFBOtosupportitsU.S.operations• Maintainanunderstandingofglobalriskmanagementand
controlsystemsasappliedtoU.S.operations• ProvideaccesstoinformationconcerningU.S.operationsof
FBOs• Exchangeinformationwithhomesupervisorandcoordinate
whensupervisoryfollow-upisnecessary
UniqueFactorsinFBOSupervision
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Waysinwhichinformationisshared:• Adhocmeetings/conversations• Bilateralmeetings/discussions• Supervisorycolleges• Participationinexaminations• AnnualsummaryofconditionletterincludingSOSArating• Sharingofexaminationreports
InformationSharingArrangements• Inplacewithbanksupervisorsinmanyjurisdictionsglobally• Maynotberequiredlegally—andusuallyhasnolegaleffect—
butgenerallyservestoexpeditetheprocess
CommunicationsandCoordinationwithHomeCountrySupervisors
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1. InternationalBankingSupervision
2. FederalBranchSupervision
3. SupervisoryTools
Agenda
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ForeignOwnedSubsidiariesandBranchesForeignOwnedBankingSubsidiaries
• Separatelegalentity
• LocalBoardofDirectorsandPresident
• Separatecapital
• Traditionalbankfundingsources
• FDICinsured
• FDICisresolution/receiver
• FileCallReportForm031or041
• RatedusingCAMELS
Branches
• Notstandaloneentities
• DependentonHeadOfficeBoardorCommittee;LocalGeneralManager
• Capitalequivalencydeposit(CED)
• Primarilyheadofficefunding
• Nodepositinsurance
• OCCisresolutionauthority
• FileCallReportForm002
• RatedusingROCA
SubjecttoOCC’ssupervision-by-riskphilosophy.
Banksupervisorycycleandactivities:
• Afull-scope,on-siteexamination,willoccuratleastonceduringeach12-month period.TheOCCmayextendthisrequirementto18months if:– Thebankhastotalassetsoflessthan$500million– Thebankiswellcapitalizedasdefinedin12CFR6– Atitsmostrecentexamination,RiskManagementwasrated1or2,and
theCompositeratingwasa1or2.– OtherfactorsspecifiedintheBankSupervisionProcessComptroller’s
Handbook
• Quarterlyoffsitemonitoring
• Targetsandfollow-up(ifnecessary)
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ForeignOwnedSubsidiariesandBranches
OCCExamTeams:• Evaluatetheoverallintegrityandeffectivenessofriskmanagementsystems.
• Communicatefindingstolocalmanagement.Forfederalbranches,alsocommunicatewithheadofficeandhomeregulators.
• Assessregulations,policies,andproceduresthatapplytonationalbanks.
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ForeignOwnedSubsidiariesandBranches
RatingSystem
R:RiskManagementO:OperationalControls
C:ComplianceA:AssetQuality
• AppliestoindividualFBObranchesandagencies
• 1-5scale
• AppendixFofthe“BankSupervisionProcess”Comptroller’sHandbook:https://occ.gov/publications/publications-by-type/comptrollers-handbook/banksupervisionprocess.pdf
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RiskManagement• Determinetheextentthatriskmanagementsystemsare
adequateto:
– Controlriskexposuresthatresultfrombranchactivities
– EnsureeffectiveoversightbyHOandbranchmanagementofbranchactivities
§ Includes3rd partyrelationshipssuchasITservicingandoutsourcingarrangements
§ DeterminecompliancewithriskmanagementandcapitalstresstestingrequirementsoftheFBOEnhancedPrudentialStandardsrules
§ ConclusiononBSA/AMLriskmanagementsystems§ Conclusiononcreditadministrationsystems
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OperationalControls
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• Assesstheeffectivenessof:– Internalcontrols,includingaccountingandfinancialcontrols– Internalandexternalauditfunction– Informationtechnology
Compliance
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• Assesscompliancewith:– Safetyandsoundnessregulationsapplicabletothebranchactivities–BSA/AMLrequirements–Consumerregulations,ifthebranchoffersproductsgovernedbyconsumerlaws–Regulatoryreporting–CEDrequirements
AssetQuality
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• Ratingisbasedonthelevelofproblemsassets–AllloandocumentationandanalysesshouldbeinEnglish–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)
Credit InterestRateLiquidity PriceOperationalComplianceStrategicReputation
RiskAssessmentSystemCommunicatesthequantity ofrisk,thequality ofriskmanagement,thelevelofsupervisoryconcern(measuredasaggregate risk),andthedirection ofriskforeightriskcategories.
• QuantityofRisk:Reflectsthelevelofriskassumedinthecourseofdoingbusiness.
• QualityofRiskManagement:Assesseswhetherthebank’sriskmanagementsystemsarecapableofidentifying,measuring,monitoringandcontrollingthatamountofrisk.
• AggregateRisk:Assessthecurrentriskprofile.
• DirectionofRisk:Speakstotheprospectiveviewoftheriskprofile.
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RiskAssessmentSystemTheQualityofRiskManagementassesseshowwellrisksareidentified,measured,controlled,andmonitored.
• Strong:Qualifiedpersonnel,effectiveriskidentificationandanalysis,cleardesignationandappropriateseparationofresponsibilities,accurateandtimelyinformationflow,andestablishedmonitoringandfollow-upprocesses.
• Satisfactory:Overallriskmanagementpracticesaresatisfactoryrelativetotheinstitution'ssize,complexity,andriskprofile.
• Insufficient:Reflectsthepresenceofconcernsthatmayadverselyaffectabank’sconditionifnotcorrected.Theseconcernsprecludeasatisfactoryassessment,butdonotsupportafindingthatriskmanagementisweak.
• Weak:Riskmanagementpracticesarelessthansatisfactoryrelativetotheinstitution'ssize,complexity,andriskprofile.
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RiskAssessmentSystem• UsedinconjunctionwithROCAtoevaluateabank’sfinancialconditionandresilience.
• Includesinformationontheforeignbankingorganizationanditshomecountry’spolitical,economic,andbankingsectorenvironments.
• Allowsexaminerstoidentifyandtakeactiononemergingrisksinatimelymanner,beforesuchrisksmaterializeinabank’sfinancialperformance.
• Riskisdefinedas“thepotentialthateventswillhaveanadverseeffectonabank’scurrentorprojectedfinancialconditionandresilience.”
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RiskAssessmentSystem• EnablestheOCCtomeasureandassessexistingandemergingrisksinabank.
• DrivesOCC’sscopeofexaminationandsupervisorystrategy.
• HelpsthebankandtheOCCreachacommonunderstandingoftherisks,focusonthestrengthsandweaknessesofriskmanagement,andensurethatsupervisoryobjectivesareachieved.
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CapitalEquivalencyDeposit(CED)• Requiredbecausefederalbranchesand
agenciesarenotseparatelycapitalized
• FormofcapitalcushiontocovercostsofanyliquidationanddepositliabilitiesandmaintainedinadepositorybankintheU.S.
• TwotypesofCEDagreements:– AformalCEDagreement– ACED“letter-agreement”
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Due-ToandDue-FromHeadOfficeAccounts• Due-toHObalancereflectsborrowingfromHO
• Due-fromHObalancereflectslendingtoHO,posingcreditandtransferrisk
• Balancesnettedforreportingandexaminationpurposes– Fedbranchesoperateateithernetdue-from(NDF)ornetdue-to(NDT)positions– IBS– NYcloselymonitorsbranches’liquiditypositions– particularlythosewithNDF
positions
• ForbranchesintendingtooperateinNDFpositon,OCCexpectsthemtohaveNDFpolicycoveringthefollowing:– UniquerisksposedbyraisingfundsinU.S.tofundaffiliates,includingHO– Recognitionofbranch’sabilitytooperateinNDFpositiondependsonHO’s
financialstrengthandhomecountryconditions– NDFlimitsandappropriatemetricstomonitorNDFposition
• LimitNDFtodollaramountsorpercentofbalancesheet• DashboardofEarlyWarningIndicators(EWIs)• EWIstriggerdiscussionthatcanleadtoreducedNDFlimit
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NetDue-FromHeadOfficeAccounts
(cont.)
– IdentificationofscenariosandmonitoringvariablestomeasureandidentifyundueNDFexposures
– Appropriatelinkagetocontingencyfundingplan(CFP)andimplementationofliquiditystresstestensuringHOwouldhavesufficientunencumberedliquidassetstosupportbranchandeliminateNDFposition
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1. InternationalBankingSupervision
2. FederalBranchSupervision
3. SupervisoryTools
Agenda
MattersRequiringAttention• MattersRequiringAttention(MRA)describepracticesthat:
– Deviatefromsoundgovernance,internalcontrol,andriskmanagementprinciples,andhavethepotentialtoadverselyaffectthebank’scondition,includingitsfinancialperformanceorriskprofile,ifnotaddressed;or
– Resultinsubstantivenoncompliancewithlawsandregulations,enforcementactions,supervisoryguidance,orconditionsimposedinwritinginconnectionwiththeapprovalofanyapplicationorotherrequestbythebank.
• ConcernsarecommunicatedtotheBoardwhendiscovered,andarenotdeferredpendingbankmanagement’seffortstoaddresstheconcern.
• FailuretoaddressanMRAcouldleadtoenforcementactions.
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MattersRequiringAttention
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• AnMRAaddressesdeficientpractices,includingalackofpractices,whichcouldadverselyaffectthebank’scondition.Thedeficientpracticesmaybeunsafeorunsound.
• Timelydetectionenablestheboardandmanagementtoaddressdeficientpracticesbeforetheyaffectthebank’scondition.
• TheOCCexpectsthebank’sboardofdirectorstoensuretimelyandeffectivecorrectionofthepracticesdescribedinanMRA.
• Examinerswillengageintimelyfollow-upactivities.
MattersRequiringAttention
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MRAsarewritteninthe“FiveC’s”formattofacilitatetimelyandeffectivecorrectiveactionbythebank’sboardandmanagement.
1. Descriptionoftheconcern(s).2. Identificationoftherootcause(s) oftheconcernand
contributingfactors.3. Descriptionofpotentialconsequence(s) oreffectsonthe
bankfrominaction.4. Descriptionofsupervisoryexpectationsforcorrective
action(s).5. Documentationofmanagement’scommitment(s) to
correctiveaction,andthetimeframe(s)andtheperson(s)responsibleforcorrectiveaction.
MattersRequiringAttentionMRAsarenot usedto
• Recommendbestpractices.
• Requireenhancementstobankpracticesthatalreadymeetacceptablestandards.
• ReportadverseconditionsunlesstheMRAincludesactionableitemstoaddressthepracticesthatcontributedtotheconditions,orrequiredtoremedythoseconditions.
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EnforcementActionsActionsusedtocorrectproblems,concerns,weaknesses,ordeficienciesnotedinanationalbank.
• InformalEnforcementActions– GiveabankmoreexplicitguidanceanddirectionthananROE– Requireawrittencommitmentfromthebank’sboardmembers– Examples:commitmentletters,memorandaofunderstanding,andapprovedsafetyandsoundnessplans
• FormalEnforcementActions– Usedwheninformalactionsareineffectiveininfluencingbankmanagementandboardmemberstocorrectidentifiedproblemsandconcernsinthebank’soperations
– Publicdocument– Examples:formalwrittenagreements,consentorders,ceaseanddesistorders,capitaldirectives,PCAdirectives,andsafetyandsoundnessorders,anddecisionstoplaceabankintoconservatorshiporreceivership
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EnforcementActions• Additionalenforcementtoolsareavailabletoaddressconcernswithfederalbranchesandagencies
• Weakhomecountrysupervisionandsupport,increasingcountryrisk,andweakinternalcontrolscandiminishFBO’sabilitytosupportitsU.S.operations
• OCCmayoptto“RingFence”U.S.operationsbyimposingcertainmeasuressuchas:–Assetmaintenancerequirements–Netdue-fromlimits–Minimumliquiditypositions–HigherCEDrequirements–Limitsonbalancesheetgrowthandrelatedpartytransactions
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RecoveryandResolutionPlanning
• Recoveryplanningshouldprovidearoadmapofactionsandthetriggersforthoseactions
• NeedtounderstandhowU.S.branchtiestoHOrecoveryandresolutionplan
• OCCistheResolutionAuthorityfortheU.S.operationsoffederalbranches– OCCdetermineswhoisthereceiver– FDICnotrequiredtobethereceiver
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InternationalBankingSupervision
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• VaughnFolks,DirectorAmericas,Australia,Africa,andMiddleEast– [email protected]– Office:(917)229-2471
• MarkShields,DirectorEuropeandAsia– [email protected]– Office:(917)344-4419