Board of Governors of the Federal Reserve System

The Federal Reserve tailors its regulatory requirements for and supervision of foreign banking organizations (FBOs) to account for the size, complexity, risk profile and financial activities of their U.S. operations. In the supervision and regulation of FBOs, the Federal Reserve gives due regard to the principle of national treatment and equality of competitive opportunity.

Large Foreign Banking Organizations

Large foreign banking organizations (Large FBOs) are FBOs with combined U.S. assets of $100 billion or more. With respect to regulation, Large FBOs are subject to prudential requirements set forth in the Board’s regulations, including Regulation YY. See Key Regulations for more information. The enhanced prudential standards in Regulation YY include liquidity standards and requirements for overall risk management of the combined U.S. operations of a Large FBO. In addition, Regulation YY requires FBOs with U.S. non-branch assets of $50 billion or more to form a U.S. intermediate holding company (IHC) and tailors capital, liquidity, and risk-management requirements to that IHC based on its risk profile.

With respect to supervision, the Federal Reserve utilizes the consolidated supervision framework set forth in SR Letter 12-17 / CA Letter 12-14 for Large FBOs. This framework focuses on enhancing the resiliency of the U.S. operations of a Large FBO, and reducing the impact of failure of those U.S. operations. Each Large FBO is expected to ensure that the combined U.S. operations and its core business lines can survive under a broad range of internal or external stresses. This requires financial resilience by maintaining sufficient capital and liquidity, and operational resilience by maintaining effective corporate governance and risk management. Each Large FBO is also expected to engage in effective resolution planning that addresses the complexity and interconnectivity of the FBO’s operations.

The Federal Reserve’s supervisory activities for Large FBOs include horizontal examinations, firm-specific examinations, and continuous monitoring. This supervisory work is focused on capital, liquidity, resolution planning, and governance and control practices, and is tailored on an annual basis to reflect the risk profile of these institutions.

In assigning a supervisory rating to the combined U.S. operations, the Board assigns a composite rating based on a holistic assessment of the U.S. operations, and takes into account ratings assigned to the U.S. intermediate holding company (IHC), branches, and other legal entities. The IHC is rated using the large financial institution (LFI) rating system. The LFI rating system is composed of the following three components, (1) Capital Planning and Positions (2) Liquidity Risk Management and Positions and (3) Governance and Controls. See SR 19-3/CA 19-2, “Large Financial Institution (LFI) Rating System,” for more information. Branches are rated using the ROCA rating system, which has four components: risk management, operational controls, compliance and asset quality. See SR 00-14 (SUP), “Enhancements to the Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations,” for more information.

Less Complex Foreign Banking Organizations

Less complex foreign banking organizations (Less Complex FBOs) are FBOs with combined U.S. assets of $100 billion or less. These FBOs mostly operate in the United States through branches and agencies and have relatively small non-branch activities.

The Federal Reserve’s supervisory program for branches and agencies is conducted through firm-specific examinations, and is focused on risk management, operational controls, compliance, and asset quality. The examination frequency of branches and agencies is tailored to reflect their size and level of supervisory concern. While branches and agencies are generally examined once every year, those branches and agencies with less than $3 billion in total assets may be eligible for an 18-month on-site examination cycle if they have previously received satisfactory ratings and fulfill a few other criteria. See SR 18-7 “Updates to the Expanded Examination Cycle for Certain State Member Banks and U.S. Branches and Agencies of Foreign Banking Organizations,” for more information.

All prudentially supervised U.S. offices of Less Complex FBOs receive a rating, including branches and agencies, bank holding companies, commercial banks and certain representative offices. See Supervisory Ratings for more information. Less Complex FBOs with more than one banking office also receive a combined U.S. operations rating, based on a holistic assessment of the U.S. operations, taking into account the rating assigned to any prudentially supervised entity and an assessment of other U.S. offices.

Key Regulations