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Federal Reserve Bank
of

Dallas

ROBERT D. McTEER, JR.
DALLAS, TEXAS

PRESIDENT
AND CHIEF EXECUTIVE OFFICER

75265-5906

September 28, 1998

Notice 98-88

TO:

The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Interim Rule and Request for
Public Comment on a Proposal to Expand
the Examination Frequency Cycle
DETAILS
The Board of Governors of the Federal Reserve System, along with the Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation, has issued an
interim rule and request for public comment on a proposal to expand the examination frequency
cycle for certain financial institutions.
Implementation of this ruling will make U.S. branches and agencies of foreign banks
(with total assets of $250 million or less) eligible for an 18-month examination cycle rather than
a 12-month cycle. The 18-month examination cycle applies to institutions that meet the qualify­
ing criteria set out in the interim rule, which became effective August 28, 1998.
The Board must receive comments by October 27, 1998. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, DC 20551. All comments should refer to Docket
No. R-1012.
ATTACHMENT
A copy of the agencies’ notice as it appears on pages 46117-22, Vol. 63, No. 167, of
the Federal Register dated August 28, 1998, is attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

-2-

MORE INFORMATION
For more information, please contact Dick Burda at (713) 652-1503. For additional
copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254.
Sincerely yours,

Friday
August 28, 1998

Part V
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 4

Federal Reserve System
12 CFR Part 211

Federal Deposit Insurance
Corporation
12 CFR Part 347
Extended Examination Cycle for U.S.
Branches and Agencies of Foreign
Banks; Final Rule

46117

46 1 1 8

Federal Register/Vol. 63, No. 167/Friday, August 28, 1998/Rules and Regulations

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 4
[Docket No. 98-11]
RIN 1557-AB60

FEDERAL RESERVE SYSTEM
12 CFR Part 211
[Regulation K; Docket No. R-1012]

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 347
RIN 3064-AC15

Extended Examination Cycle for U.S.
Branches and Agencies of Foreign
Banks

Office of the Com ptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Interim rule w ith request for
comment.
AGENCIES:

The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the Agencies) are issuing
this joint interim rule w ith request for
com m ent to im plem ent the provisions
related to an extended exam ination
cycle for U.S. branches and agencies of
foreign banks set out in section 2214 of
the Economic Growth and Regulatory
Paperwork Reduction Act of 1996
(EGRPRA). U nited States branches and
agencies of foreign banks w ith total
assets of $250 m illion or less are eligible
to be considered for the 18-month
exam ination cycle if they m eet the
qualifying criteria set out in this interim
rule. The interim rule reduces the
regulatory burden associated w ith more
frequent on-site exam inations for certain
sm all U.S. branches and agencies of
foreign banks.
DATES: This interim rule is effective
August 28,1998. Comments m ust be
received by October 27,1998.
ADDRESSES: Comments should be
directed to: OCC: Com m unications
Division, Office of the Comptroller of
the Currency, 250 E Street SW.,
W ashington, DC 20219, Attention:
Docket No. 98-11. Comments w ill be
available for public inspection and
photocopying at the same location.
SUMMARY:

Comments may also be sent by facsimile
transm ission to (202) 874-5274 or by
electronic m ail to
regs.comments@occ.treas.gov.
Board: Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., W ashington,
DC 20551, and refer to Docket No. R 1012. Comments addressed to Ms.
Johnson may also be delivered to the
Board’s mail room betw een 8:45 a.m.
and 5:15 p.m., and to the security
control room outside of those hours.
Both the m ail room and the security
control room are accessible from the
courtyard entrance on 20th Street
between Constitution Avenue and C
Street, NW. Comments may be
inspected in room M P-500 betw een
9:00 a.m. and 5:00 p.m., except as
provided in Section 261.14 of the
Board’s Rules Regarding the Availability
of Information.
FDIC: Robert E. Feldm an, Executive
Secretary, Attention: Comments/OES,
Federal Deposit Insurance Corporation,
550 17th Street, NW., W ashington, DC
20429. Comments may be h and
delivered to the guard station at the rear
of the 550 17th Street Building (located
on F Street) on business days betw een
7:00 a.m. and 5:00 p.m. (Fax num ber
(202) 898-3838; Internet address:
comments@fdic.gov) Comments may be
inspected and photocopied in the FDIC
Public Information Center, Room 100,
801 17th Street, NW., W ashington, DC
betw een 9:00 a.m. and 4:30 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:

OCC: M artha Clarke, Senior Attorney,
International Activities (202/874-0680);
or H oward Blacker, Senior International
Advisor, International Banking &
Finance (202/874-4730).
Board: Norah M. Barger, Assistant
Director (202/452-2402), or Joseph J.
Sciortino, Supervisory Financial
A nalyst (202/452—
2294), Division of
Banking Supervision and Regulation; or
Sandra Richardson, Managing Senior
Counsel (202/452-6406) or Jonathan D.
Stoloff, Senior Attorney (202/452-3269),
Legal Division.
FDIC: Karen Walter, Chief,
International, Division of Supervision
(202/898-3540); or Mark Mellon,
Counsel, Regulation and Legislation
Section, Legal Division (202/898-3854).
SUPPLEMENTARY INFORMATION:

Background
The International Banking Act of 1978
(the IBA),1 as am ended by the Foreign
Bank Supervision Enhancem ent Act of
1Pub. L. 95-369, 92 Stat. 607.

1991,2 subjected U.S. branches and
agencies of foreign banks to a 12-month
exam ination cycle. Section 2214 of the
Economic Growth and Regulatory
Paperw ork Reduction Act of 1996
(EGRPRA)3 am ended the IBA to provide
that U.S. branches and agencies of
foreign banks shall be subject to on-site
exam ination as frequently as a national
or state bank w ould be by its
appropriate federal banking agency.
In general, national and state banks
m ust be exam ined every 12 months.
However, section 111 of the Federal
Deposit Insurance Corporation
Im provem ent Act of 19914 authorized
an 18-month exam ination cycle for
certain national and state banks w ith a
composite rating of 1 u nder the Uniform
Financial Institutions Rating System
(UFIRS) and total assets of $100 m illion
or less. Section 306 of the Riegle
Com m unity Development and
Regulatory Im provem ent Act of 19945
expanded the availability of the 18m onth exam ination cycle to certain
national and state banks w ith a
composite rating of 1 under UFIRS and
total assets of $250 m illion or less, as
well as to certain national and state
banks w ith a com posite rating of 2
under UFIRS and total assets of $100
m illion or less. Section 2221 of
EGRPRA 6 provided that anytime after
Septem ber 23, 1996, U.S. bank
supervisory agencies could extend the
18-month exam ination frequency cycle
to certain national and state banks w ith
a composite rating of 2 and total assets
of $250 m illion or less. Effective April
2,1998, the Agencies issued a final rule
that extended the exam ination cycle to
18 m onths for certain national and state
banks that satisfy the requirements of
section 2221 of EGRPRA.7 To be eligible
for the extended cycle, the national or
state bank must:
(a) Have total assets of $250 m illion
or less;
(b) Be rated a composite 2 or better
under the UFIRS;
(c) Be well capitalized;
(d) Be well managed;
(e) Not be subject to a formal
enforcement action; and
(f) Not have experienced a change of
control during the preceding 12-month
period in w hich a full-scope, on-site
exam ination w ould have been required
but for the extended cycle.
2Pub. L. 102-242,105 Stat. 2286.
3Pub. L. 104-208, 110 Stat. 3009 (section 2214 is
codified at 12 U.S.C. 3105(c)(1)).
4Pub. L. 102-242,105 Stat. 2236 (section 111 is
codified at 12 U.S.C. 1820(d)).
5Pub. L. 103-325, 108 Stat. 2160.
6 Section 2221 is codified at 12 U.S.C.
1820(d)(10).
7 63 FR 16377 (April 2,1998).

Federal Register/Vol. 63, No. 167/Friday, August 28, 1998/Rules and Regulations
federal and state law) in an am ount not
less than 108 percent of the preceding
quarter’s average third party liabilities
and sufficient liquidity is currently
available to m eet its obligations to third
parties;
(d) Not be subject to a formal
enforcement action or order by the
Board, FDIC or OCC; and
(e) Not have experienced a change in
control during the preceding 12-month
period in w hich a full-scope, on-site
exam ination w ould have been required
but for the extended cycle.
Each agency retains the authority to
examine a U.S. branch or agency of a
foreign bank as frequently as the agency
deems necessary. Factors that the
Agencies w ill consider w hen deciding
w hether m ore frequent exam inations are
necessary include, but are not lim ited
to, whether: (a) Any of the individual
com ponents of the ROCA rating of the
U.S. office is rated 3 or worse; (b) the
results of any off-site supervision
indicate a deterioration in the condition
of the office; (c) the size, relative
im portance, and role of a particular
office w hen reviewed in the context of
the foreign bank’s entire U.S. operations
otherwise necessitates an annual
exam ination (including, for example,
w hether the office generates a
significant level of assets that are
booked elsewhere); and (d) the
Description of the Interim Rule
condition of the foreign bank itself gives
U nder this interim rule, a U.S. branch rise to such a need. In general, the
Agencies w ill make their determ ination
or agency of a foreign bank is eligible to
w hether to apply the 18-month
be considered for an 18-month
exam ination cycle if the office meets the exam ination cycle to a particular U.S.
branch or agency based on the overall
criteria listed below and if there are no
risk assessm ent for that office, as w ell as
other factors that cause the appropriate
the factors noted herein.
federal banking agency to examine the
Section 2214 of EGRPRA directs that
branch or agency more frequently. To
the U.S. branches and agencies of
qualify for an 18-month exam ination
foreign banks should be subject to on­
cycle, the U.S. branch or agency of a
site exam inations as often as U.S. banks.
foreign bank must:
The criteria for determ ining eligibility of
(a) Have total assets of $250 m illion
U.S. offices of a foreign bank for an
or less;
expanded exam ination cycle differ in
(b) Have received a composite ROCA
supervisory rating of 1 or 2 at its most
certain respects from the criteria
applicable to U.S. banks for this
recent exam ination;8
(c) Satisfy the requirem ents of either
purpose. These differences are
the following paragraph (1) or (2):
necessary to adjust for the obvious
(1) The foreign bank’s m ost recently
structural differences that exist betw een
reported capital adequacy position
U.S. banks and U.S. offices of foreign
consists of, or is equivalent to, Tier 1
banks (e.g., the U.S. offices of foreign
and risk-based capital ratios of at least
banks often constitute only a small part
6 percent and 10 percent, respectively,
of foreign banks’ w orldw ide operations
on a consolidated basis; or
and the role of the Agencies w ith regard
(2) The branch or agency has
to the U.S. offices is lim ited to that of
m aintained on a daily basis over the
host country supervisor), as well as the
past three quarters, eligible assets
supervisory im plications that flow from
(determined consistent w ith applicable
these basic structural differences.
The Agencies w ill use a num ber of
8 The supervisory rating system for U.S. branches criteria as a proxy for the well-managed
and agencies of foreign banks is referred to as
criterion applicable to U.S. banks,
ROCA. The four components of ROCA are: risk
including the ROCA com ponent and
management, operational controls, compliance, and
composite ratings, the existence of any
asset quality.
In view of the changes to the
exam ination frequency of national and
state banks, the Agencies are issuing an
interim rule that sim ilarly extends the
exam ination cycle for certain U.S.
branches and agencies of foreign banks.
Accordingly, U.S. branches and
agencies of foreign banks w ith total
assets of $250 m illion or less may be
considered for an 18-month
exam ination cycle provided that they
m eet the eligibility criteria described in
this interim rule. The Agencies are
seeking com m ent on any aspect of this
rule.
The Agencies believe that an
extended exam ination cycle for eligible
U.S. offices of foreign banks w ill perm it
the Agencies to focus their resources on
those offices that present the most
imm ediate supervisory concern, w hile
concom itantly reducing the regulatory
burden on sm aller offices that do not
pose a sim ilar level of supervisory
concern. The Agencies w ill continue to
use off-site supervision techniques,
including the subm ission of regulatory
reports, to m onitor the condition and
any changes in the risk profile of offices
scheduled to be exam ined on the
extended 18-month cycle. Each agency
retains authority to examine the offices
of a foreign bank as frequently as the
agency deems necessary.

46119

formal enforcement action or order
issued by an agency, and the other
discretionary standards described
above. W ith regard to the wellcapitalized criterion applicable to U.S.
banks for these purposes, the Agencies
w ill take into account the foreign b ank’s
capital adequacy ratios, as w ell as, in
appropriate circum stances, w hether the
U.S. offices of the foreign bank have
sufficient eligible assets and liquidity to
m eet their obligations to third parties.
The Agencies believe that evaluating the
U.S. branches and agencies of foreign
banks on the basis of the criteria
described above for purposes of
determ ining eligibility for an expanded
exam ination cycle is consistent w ith the
requirem ents of section 2214 of
EGRPRA.
Effective Date of Interim Rule
The Agencies find good cause for
issuing this interim rule w ithout prior
notice and the opportunity for
comment, as w ell as for dispensing w ith
the 30-day delayed effective date
ordinarily prescribed by the
A dm inistrative Procedure Act (APA), 5
U.S.C. 551 et seq. The interim rule
confers a benefit on certain small U.S.
branches and agencies of foreign banks
by reducing the regulatory burden
associated w ith more frequent on-site
examinations. Conversely, this interim
rule does not increase the frequency of
exam inations or otherwise increase the
regulatory burden for any U.S. branch or
agency of a foreign bank. Such
institutions, therefore, are not adversely
affected by the interim rule. U nder these
circum stances, the Agencies conclude
that prior notice and com m ent
procedures are unnecessary and w ould
be contrary to the public interest. 5
U.S.C. 553(b)(B).
In addition, the Agencies have
determ ined that this interim rule relates
to exam ination schedules, w hich are a
m atter of internal agency procedure
rather th an a rule of substantive effect
on bank activities and authority. See
Donovan v. W ollaston A lloys, Inc., 695
F.2d 1, 9 (1st Cir. 1982). Determining
w hen a regulated institution is to be
exam ined is based, in part, on exam iner
availability, the A gencies’ need to plan
exam iner tim e in advance, and other
issues relevant to the internal operations
of the Agencies. Therefore, this interim
rule is exem pt from the APA’s public
notice requirem ent. 5 U.S.C.
553(b)(3)(A).
Regulatory F lexibility A ct
An initial regulatory flexibility
analysis u n d er the Regulatory
Flexibility Act is only required
w henever an agency is required to

46120

Federal Register/Vol. 63, No. 167/Friday, August 28, 1998/Rules and Regulations

publish a general notice of proposed
rulem aking for any proposed rule. 5
U.S.C. 603. As noted previously, the
Agencies have determ ined that this
proposed rulem aking is exem pt from the
requirem ents of the APA. Accordingly,
an initial regulatory flexibility analysis
is not required.
Even if the Act w ere to apply, the
interim rule w ill not have a significant
economic im pact on a substantial
num ber of small entities. The interim
rule w ill reduce regulatory b urden on
eligible U.S. branches and agencies of
foreign banks w ith assets of $250
m illion or less. In addition, those
entities that are not eligible for the
exem ption from the statutorily
prescribed 12-month exam ination cycle
w ill not be adversely affected by the
interim rule.

List o f Subjects

Paperwork Reduction A c t

Office of the Comptroller of the
Currency

In accordance w ith the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506),
the Agencies have determ ined that no
collections of inform ation pursuant to
the Paperw ork R eduction Act are
contained in this interim rule.
OCC Executive Order 12866 Statem ent
The OCC has determ ined that this
interim rule is not a significant
regulatory action u n d er Executive Order
12866.
OCC U nfunded M andates A ct o f 1995
Statem ent
Section 202 of the U nfunded
M andates Reform Act of 1995, Pub. L.
104-4, 109 Stat. 48 (March 22, 1995)
(U nfunded M andates Act), requires that
an agency prepare a budgetary im pact
statem ent before promulgating a rule
that includes a federal m andate that
may result in the expenditure by state,
local, and tribal governments, in the
aggregate, or by the private sector, of
$100 m illion or more in any one year.
If a budgetary im pact statem ent is
required, section 205 of the U nfunded
M andates Act also requires an agency to
identify and consider a reasonable
num ber of regulatory alternatives before
prom ulgating a rule. Because the OCC
has determ ined that this interim rule
w ill not result in expenditures by state,
local, and tribal governments, in the
aggregate, or by the private sector, of
m ore than $100 m illion in any one year,
the OCC has not prepared a budgetary
im pact statem ent or specifically
addressed the regulatory alternatives
considered. As discussed in the
preamble, this interim rule w ill have the
effect of reducing regulatory b urden on
certain institutions.

12 CFR Part 4
Banks, banking, Freedom of
information, Organization and functions
(Government agencies), Reporting and
recordkeeping requirements.
12 CFR Part 211
Exports, Federal Reserve System,
Foreign banking, Holding companies,
Investm ents, Reporting and
recordkeeping requirem ents.
12 CFR Part 347
Banks, banking, Bank deposit
insurance, Bank mergers, Credit,
Foreign banking, Foreign branches,
Foreign investments, Insured branches,
International lending, International
operations, Investments, Reporting and
recordkeeping requirem ents.

12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the joint
preamble, part 4 of chapter I of title 12
of the Code of Federal Regulations is
am ended as follows:
PART 4— ORGANIZATION AND
FUNCTIONS, AVAILABILITY AND
RELEASE OF INFORMATION,
CONTRACTING OUTREACH
PROGRAM

1. The authority citation for part 4 is
revised to read as follows:
Authority: 12 U.S.C. 93a. Subpart A also
issued under 5 U.S.C. 552; 12 U.S.C. 481,
1820(d), and 3105(c)(1). Subpart B also
issued under 5 U.S.C. 552; E.O. 12600 (3
CFR, 1987 Comp., p. 235). Subpart C also
issued un d er 5 U.S.C. 301, 552; 12 U.S.C.
481, 482, 1821(o), 1821(t); 18 U.S.C. 641,
1905, 1906; 31 U.S.C. 9701. Subpart D also
issued under 12 U.S.C. 1833e.

2. In Subpart A, the heading of § 4.6
is revised to read as follows:
§ 4.6 Frequency of examination of national
banks.

3. In Subpart A, a new § 4.7 is added
to read as follows:
§ 4.7 Frequency of examination of Federal
agencies and branches.

(a) General. The OCC examines
Federal agencies and Federal branches
(as these entities are defined in § 28.11
(h) and (i), respectively, of this chapter)
pursuant to the authority conferred by
12 U.S.C. 3105(c)(1)(C). Except as noted
in paragraph (b) of this section, the OCC
w ill conduct a full-scope, on-site
exam ination of every Federal branch
and agency at least once during each 12m onth period.

(b) 18-m onth rule fo r certain small
institutions—(1) M andatory standards.
The OCC may conduct a full-scope, on­
site exam ination at least once during
each 18-month period, rather than each
12-month period as provided in
paragraph (a) of this section, if the
Federal branch or AGENCY:
(1) Has total assets of $250 m illion or
less;
(ii) Has received a composite ROCA
supervisory rating (which rates risk
management, operational controls,
com pliance, and asset quality) of 1 or 2
at its m ost recent examination;
(iii) Satisfies the requirem ents of
either the following paragraph (b)(l)(iii)
(A) or (B):
(A) The foreign bank’s m ost 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
(B) The branch or agency has
m aintained on a daily basis, over the
past three quarters, eligible assets
(determ ined consistent w ith applicable
federal an d state law) in an am ount not
less th an 108 percent of the preceding
quarter’s average third party liabilities
and sufficient liquidity is currently
available to m eet obligations to third
parties;
(iv) Is not subject to a formal
enforcement action or order by the
Federal Reserve Board, the Federal
Deposit Insurance Corporation, or the
OCC; and
(v) Has not experienced a change in
control during the preceding 12-month
period in w hich a full-scope, on-site
exam ination w ould have been required
but for this section.
(2) Discretionary standards. In
determ ining w hether a Federal branch
or agency is eligible for an 18-month
exam ination cycle pursuant to this
paragraph (b), the OCC may consider
additional factors, including, but not
lim ited to, whether:
(i) A ny of the individual com ponents
of the ROCA rating of the Federal
branch or agency is rated “3” or worse;
(ii) The results of any off-site
supervision indicate a deterioration in
the condition of the Federal branch or
agency;
(iii) The size, relative im portance, and
role of a particular office w hen reviewed
in the context of the foreign b ank’s
entire U.S. operations otherwise
necessitate an annual examination; and
(iv) The condition of the foreign bank
gives rise to such a need.
(c) A uth ority to conduct m ore
frequent exam inations. N othing in
paragraph (a) or (b) of this section limits
the authority of the OCC to examine any

Federal Register/Vol. 63, No. 167/Friday, August 28, 1998/Rules and Regulations
Federal branch or agency as frequently
as the OCC deems necessary.
Dated: August 12, 1998.
Julie L. Williams,
A cting Comptroller o f the Currency.

Authority and Issuance
For reasons set forth in the joint
preamble, the Board am ends 12 CFR
Part 211 as set forth below:
PART 211— INTERNATIONAL
BANKING OPERATIONS
(REGULATION K)

1. The authority citation for part 211
continues to read as follows:
Authority: 12 U.S.C. 221 et seq., 1818,
1835a, 1841 et seq., 3101 et seq., and 3901
et seq.

Subpart B— Foreign Banking
Organizations

2. In Subpart B, § 211.26 is am ended
by revising paragraph (c) to read as
follows:
§ 211.26 Examination of offices and
affiliates of foreign banks.
*

*

*

*

*

(c) Frequency o f on-site
exam ination—(1) General. Each branch
or agency of a foreign bank shall be
exam ined on-site at least once during
each 12-month period (beginning on the
date the m ost recent exam ination of the
office ended) by:
(1) The Board;
(ii) The FDIC, if the branch of the
foreign bank accepts or m aintains
insured deposits;
(iii) The Comptroller, if the branch or
agency of the foreign bank is licensed by
the Comptroller; or
(iv) The state supervisor, if the office
of the foreign bank is licensed or
chartered by the state.
(2) 18-month cycle fo r certain sm all
institutions—(i) M andatory standards.
The Board m ay conduct a full-scope, on­
site exam ination at least once during
each 18-month period, rather than each
12-month period as required in
paragraph (c)(1) of this section, if the
branch or Agency:
(A) Has total assets of $250 m illion or
less;
(B) Has received a composite ROCA
supervisory rating (which rates risk
m anagement, operational controls,
com pliance, and asset quality) of 1 or 2
at its most recent examination;
(C) Satisfies the requirem ent of either
the following paragraph (c)(2)(i)(C) (2)
or (2):
(J) The foreign bank’s m ost 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
m aintained on a daily basis, over the
past three quarters, eligible assets
(determ ined consistent w ith applicable
federal and state law) in an am ount not
less than 108 percent of the preceding
quarter’s average third party liabilities
and sufficient liquidity is currently
available to m eet its obligations to third
parties;
(D) Is not subject to a formal
enforcement action or order by the
Board, FDIC, or OCC; and
(E) Has not experienced a change in
control during the preceding 12-month
period in w hich a full-scope, on-site
exam ination w ould have been required
but for this section.
(ii) Discretionary standards. In
determ ining w hether a branch or agency
of a foreign bank is eligible for an 18m onth exam ination cycle pursuant to
this paragraph (c)(2), the Board m ay
consider additional factors, including,
but not lim ited to whether:
(A) Any of the individual com ponents
of the ROCA supervisory rating of a
branch or agency of a foreign bank is
rated “ 3” or worse;
(B) The results of any off-site
surveillance indicate a deterioration in
the condition of the office;
(C) The size, relative importance, and
role of a particular office w hen review ed
in the context of the foreign b ank’s
entire U.S. operations otherwise
necessitate an annual examination; and
(D) The condition of the foreign bank
gives rise to such a need.
(3) A uth ority to conduct more
frequent exam inations. Nothing in
paragraphs (c) (1) and (2) of this section
limits the authority of the Board to
examine any U.S. branch or agency of a
foreign bank as frequently as it deems
necessary.

46121

2.
Section 347.214 is added to subpart
B to read as follows:
§347.214 Examination of branches of
foreign banks.

(a) Frequency o f on-site exam ination.
Each branch or agency of a foreign bank
shall be exam ined on-site at least once
during each 12-month period (beginning
on the date the m ost recent exam ination
of the office ended) by:
(1) The Board of Governors of the
Federal Reserve System (Board);
(2) The FDIC, if the branch of the
foreign bank accepts or m aintains
insured deposits;
(3) The Office of the Comptroller of
the Currency (OCC), if the branch or
agency of the foreign bank is licensed by
the Comptroller; or
(4) The state supervisor, if the office
of the foreign bank is licensed or
chartered by the state.
(b) 18-m onth cycle fo r certain sm all
institutions—(1) M andatory standards.
The FDIC m ay conduct a full-scope, on­
site exam ination at least once during
each 18-month period, rather than each
12-month period as provided in
paragraph (a) of this section, if the
branch or Agency:
(1) Has total assets of $250 m illion or
less;
(ii) Has received a com posite ROCA
supervisory rating (which rates risk
management, operational controls,
com pliance, and asset quality) of 1 or 2
at its m ost recent examination;
(iii) Satisfies the requirem ent of either
the following paragraph (b)(l)(iii) (A) or
(B):
(A) The foreign bank’s m ost 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
(B) The branch or agency has
m aintained on a daily basis, over the
past three quarters, eligible assets
By order of the Board of Governors of the
(determ ined consistent w ith applicable
Federal Reserve System, A ugust 24,1998.
federal and state law) in an am ount not
Jennifer J. Johnson,
less than 108 percent of the preceding
Secretary o f the Board.
quarter’s average th ird party liabilities
Authority and Issuance
and sufficient liquidity is currently
available to m eet its obligations to third
For the reasons set forth in the joint
parties;
preamble, the Board of Directors of the
(iv) Is not subject to a formal
FDIC am ends part 347 of chapter III of
enforcement action or order by the
title 12 of the Code of Federal
Board, FDIC, or the OCC; and
Regulations as follows:
(v) Has not experienced a change in
control during the preceding 12-month
PART 347— INTERNATIONAL
period in w hich a full-scope, on-site
BANKING
exam ination w ould have been required
1.
The authority citation for part 347 b ut for this section.
continues to read as follows:
(2) D iscretionary standards. In
determ ining w hether a branch of a
Authority: 12 U.S.C. 1813, 1815, 1817,
foreign bank is eligible for an 18-month
1819, 1820, 1828, 3103, 3104, 3105, 3108;
Title IX, Pub. L. 98-181, 97 Stat. 1153.
exam ination cycle pursu an t to this

46122

Federal Register/Vol. 63, No. 167/Friday, August 28, 1998/Rules and Regulations

paragraph (b), the FDIC m ay consider
additional factors, including, but not
lim ited to, whether:
(i) Any of the individual com ponents
of the ROCA supervisory rating of a
branch of a foreign bank is rated “ 3” or
worse;
(ii) The results of any off-site
m onitoring indicate a deterioration in
the condition of the branch;
(iii) The size, relative im portance, and
role of a particular branch w hen

review ed in the context of the foreign
b ank’s entire U.S. operations otherwise
necessitate an annual examination; and
(iv) The condition of the parent
foreign bank gives rise to such a need.
(c)
A utho rity to conduct more
frequent exam inations. Nothing in
paragraphs (a) and (b) of this section
lim its the authority of the FDIC to
examine any U.S. branch or agency of a

foreign bank as frequently as it deems
necessary.
By order of the Board of Directors.
Dated at Washington, DC, this 7th day of
July, 1998.
Federal Deposit Insurance Corporation.
James D. LaPierre,
D eputy Executive Secretary.
[FR Doc. 98-23077 Filed 8 -2 7-9 8 ; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102