Foreign Banks:

Opportunities Exist to Enhance Supervision Program as Implementation Proceeds

GGD-97-80: Published: May 9, 1997. Publicly Released: May 9, 1997.

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Pursuant to a congressional request, GAO provided information on the oversight of the U.S. operations of foreign banking organizations (FBO), focusing on the: (1) FBO program; and (2) banking supervisors' progress in implementing this program.

GAO noted that: (1) the FBO Program focuses on integrating into supervisory procedures a common understanding of a given FBO in its entirety, including policies and practices in the FBO's home country as well as the overall condition of the FBO's combined U.S. operations; (2) the program calls for coordinated development and common use of five new products; (3) GAO refers to two of these as "the country reports"; (4) one country report is to provide information about the financial system and the supervisory and governmental policies in the FBO's home country, and the other is to provide information about significant accounting policies and practices in the home country; (5) a third product, the Strength-of-Support Assessment (SOSA), which is to be based on the country reports and other financial data, is to provide analysis and a ranking to reflect the U.S. supervisors' judgment about the FBO's ability to provide its U.S. operations necessary financial and managerial support; (6) a fourth product, the Summary of Condition and Combined Rating, is designed to provide FBO management and U.S. supervisors with an overall assessment of the FBO's U.S. operations; (7) the last new supervisory product, an annual comprehensive examination plan, is intended to better coordinate examinations of U.S. offices of FBOs with multiple U.S. banking operations and/or significant U.S. nonbanking operations; (8) in GAO's review of the FBO Program, GAO found that banking supervisors had made progress in implementing the program and had begun to realize benefits from it; (9) however, GAO also identified areas where improvements could be made; (10) supervisors identified some broad benefits of the program, particularly increased communication and cooperation among supervisors and improved access to information about FBOs and their home countries; (11) at the same time, comments of supervisory officials and staff indicated some skepticism about how useful the information from the SOSA reports will be in improving FBO supervision; (12) however, they also said that the various Federal Reserve Banks are developing different formats and strategies for integrating the information into the supervisory process; and (13) in addition, GAO identified a number of weaknesses in SOSA and country reports that could limit the program's effectiveness, including inconsistent, incomplete, or outdated information.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On June 3, 1998, the Federal Reserve released SR 98-13. The SR Letter was on the subject of "Enhancements to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations". The SR Letter described a number of changes to the Federal Reserve's FBO Supervision Program which, when taken together, were designed to enhance interagency communication and collaboration, alleviate the burden on foreign banks, streamline the Federal Reserve's internal operations, and improve the communication of supervisory findings to home country supervisors. Two items specifically addressed by the SR Letter were the development and use of information in the SOSA and country reports.

    Recommendation: As FRS continues its implementation of the FBO Program, the Board of Governors of the Federal Reserve should identify best practices for using the information in the SOSA and country reports to improve supervision and enforcement, and disseminate these best practices to all Federal Reserve Banks.

    Agency Affected: Federal Reserve System: Board of Governors

  2. Status: Closed - Implemented

    Comments: On June 3, 1998, the Federal Reserve released SR 98-13. The SR Letter was on the subject of "Enhancements to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations". The SR Letter described a number of changes to the Federal Reserve's FBO Supervision Program which, when taken together, were designed to enhance interagency communication and collaboration, alleviate the burden on foreign banks, streamline the Federal Reserve's internal operations, and improve the communication of supervisory findings to home country supervisors. Two items specifically addressed by the SR Letter were the development and use of information in the SOSA and country reports.

    Recommendation: As FRS continues its implementation of the FBO Program, the Board of Governors of the Federal Reserve should monitor the report process to help ensure that SOSA and country reports are consistent, complete, and timely, and that the SOSA rankings are consistent with the ranking system criteria.

    Agency Affected: Federal Reserve System: Board of Governors

 

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