(a) Conduct of
examinations.
(1) Examination of branches, agencies, commercial
lending companies, and affiliates. The Board may examine—
(i) any branch or agency
of a foreign bank;
(ii) any commercial
lending company or bank controlled by one or more foreign banks or
one or more foreign companies that control a foreign bank; and
(iii) any other office or affiliate
of a foreign bank conducting business in any state.
(2) Examination
of representative offices. The Board may examine any representative
office in the manner and with the frequency it deems appropriate.
(b) Coordination
of examinations. To the extent possible, the Board shall coordinate
its examinations of the U.S. offices and U.S. affiliates of a foreign
bank with the licensing authority and, in the case of an insured branch,
the Federal Deposit Insurance Corporation (FDIC), including through
simultaneous examinations of such U.S. offices and U.S. affiliates
of a foreign bank.
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(c) Frequency of on-site
examination.
(1) General. Each branch or agency of a foreign
bank shall be examined on-site at least once during each 12-month
period (beginning on the date the most recent examination of the office
ended) by—
(i) the
Board;
(ii) the FDIC, if the
branch of the foreign bank accepts or maintains 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 for certain small institutions.
(i) Mandatory standards. The Board may conduct
a full-scope, on-site examination 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 less than $3 billion;
(B) has received a composite ROCA supervisory
rating (which rates risk management, operational controls, compliance,
and asset quality) of 1 or 2 at its most recent examination;
(C) satisfies the requirement of either the
following paragraph (c)(2)(i)(C)(1) or (2):
(1)
the foreign bank’s most 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 maintained on a daily basis, over the past three quarters,
eligible assets in an amount not less than 108 percent of the preceding
quarter’s average third-party liabilities (determined consistent with
applicable federal and state law) and sufficient liquidity is currently
available to meet 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 which a full-scope, on-site
examination would have been required but for this section.
(ii) Discretionary
standards. In determining whether a branch or agency of a foreign
bank that meets the standards of paragraph (c)(2)(i) of this section
should not be eligible for an 18-month examination cycle pursuant
to this paragraph (c)(2), the Board may consider additional factors,
including whether—
(A)
any of the individual components 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 when reviewed in the context of the foreign
bank’s entire U.S. operations otherwise necessitate an annual examination;
and
(D) the condition of the foreign
bank gives rise to such a need.
(iii) (A) Except as provided in paragraph
(c)(2)(iii)(B) of this section, from December 2, 2020 through December
31, 2021, for purposes of determining eligibility for the extended
examination cycle described in paragraph (c)(2) of this section, the
total assets of a branch or agency shall be determined based on the
lesser of:
(1) the total assets of the branch
or agency as of December 31, 2019; and
(2) the total assets of the branch or agency as of the end
of the most recent calendar quarter.
(B) The relief provided under paragraph (c)(2)(iii)(A)
of this section does not apply to a branch or agency if the Board
determines that permitting the branch or agency to determine its assets
in accordance with that paragraph would not be commensurate with the
risk profile of the branch or agency. When making this determination,
the Board will consider all relevant factors, including the extent
of asset growth of the branch or agency since December 31, 2019; the
causes of such growth, including whether growth occurred as a result
of mergers or acquisitions; whether such growth is likely to be temporary
or permanent; whether the branch or agency has become involved in
any additional activities since December 31, 2019; the asset size
of any parent companies; and the type of assets held by the branch
or agency. In making a determination pursuant to this paragraph (c)(2)(iii)(B),
the Board will apply notice and response procedures in the same manner
and to the same extent as the notice and response procedures in 12
CFR 263.202.
(3) Authority
to conduct more frequent examinations. 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.
