International Banking:

U.S. Banking Supervision and International Supervisory Principles

NSIAD-86-93: Published: Jul 25, 1986. Publicly Released: Jul 25, 1986.

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GAO identified the extent to which the U.S. bank regulatory agencies' regulations, policies, and procedures are consistent with the Basle Committee's principles. The Committee, which consists of the United States and 11 other countries, agrees on principles designed to ensure adequate supervision of international banking.

GAO found that the banking supervision principles that federal bank regulatory agencies use are consistent with the Basle Committee's principles in many respects. Although the Committee is concerned with the decreasing capital positions of banks, consolidated bank supervision and country and foreign exchange risk, U.S. banking laws and regulations adequately address those issues. The main difference between the U.S. banking agencies' policies and procedures and the Committee's principles is the limited attention that the federal and state agencies give to identifying how adequately foreign countries' home banks supervise their applications for U.S. offices. Although adequate banking supervision could be critical to the safety and soundness of the banks' U.S. offices, some state banking agencies frequently fail to contact foreign supervisors when considering the applications. Less familiarity with the Committee's activities and with foreign bank supervision could account for the limited attention that state agencies give to foreign bank supervision. In addition, most state agencies fail to ask the Federal Reserve, which has representation on the Committee, to supply them with the information it gathers on the foreign banks when they consider U.S. office applications.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to Treasury, the Office of the Comptroller of the Currency (OCC) implemented written procedures to address part one of this recommendation in March 1988. In April 1987, it forwarded a joint letter with FDIC addressing two other recommendations.

    Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation (FDIC) should: (1) ensure that their agencies evaluate the adequacy of foreign bank supervision and consider economic conditions in the home country when a foreign bank applies to establish a U.S. banking office and encourage state banking agencies to do the same; (2) encourage state banking agencies to notify foreign parent supervisory agencies when they receive foreign bank applications to establish U.S. banking offices; and (3) arrange to periodically brief state banking officials about the activities of the Basle Committee.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

  2. Status: Closed - Implemented

    Comments: According to Treasury, FDIC will issue instructions to its staff to ensure that issues are addressed in the application record. The instructions will be contained in a manual addressing applications. FDIC has been assessing foreign supervision as part of the application process for U.S. branches. In April 1987, FDIC sent a letter to 16 state banking commissioners addressing the recommendations.

    Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation (FDIC) should: (1) ensure that their agencies evaluate the adequacy of foreign bank supervision and consider economic conditions in the home country when a foreign bank applies to establish a U.S. banking office and encourage state banking agencies to do the same; (2) encourage state banking agencies to notify foreign parent supervisory agencies when they receive foreign bank applications to establish U.S. banking offices; and (3) arrange to periodically brief state banking officials about the activities of the Basle Committee.

    Agency Affected: Federal Deposit Insurance Corporation

  3. Status: Closed - Not Implemented

    Comments: The Federal Reserve believes that a written evaluation of foreign supervisory systems is unnecessary, since existing knowledge is sufficient to address this issue. Committing it to writing would not be an efficient use of its resources. The Federal Reserve sent the Annual Report of the Basle Committee to the Conference of State Bank Supervisors and offered to discuss the work of the Committee.

    Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation (FDIC) should: (1) ensure that their agencies evaluate the adequacy of foreign bank supervision and consider economic conditions in the home country when a foreign bank applies to establish a U.S. banking office and encourage state banking agencies to do the same; (2) encourage state banking agencies to notify foreign parent supervisory agencies when they receive foreign bank applications to establish U.S. banking offices; and (3) arrange to periodically brief state banking officials about the activities of the Basle Committee.

    Agency Affected: Federal Reserve System: Board of Governors

  4. Status: Closed - Implemented

    Comments: Although the Federal Reserve stated that it is against the establishment of a central repository, it also stated that: (1) it is expanding the existing collection of information; (2) it is ready to share its information with other banking agencies; and (3) it will continue to emphasize the availability of its information in contracts with state banking agencies.

    Recommendation: The Chairman of the Board of Governors of the Federal Reserve Board should establish a central repository of information on foreign bank supervision and make known the availability of this information to other banking agencies to use when they receive applications to establish U.S. offices.

    Agency Affected: Federal Reserve System: Board of Governors

 

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