Related Organizations

Chain Banking Organizations

OCC identifies and supervises banks that are part of a chain banking organization by assessing the condition of the banking group as a whole in addition to the safety and soundness of each national bank member. The lead national bank is usually the largest national bank (total assets as of the previous year-end) in the chain banking organization or the national bank in which management or shared functions are centralized. A lead national bank should be designated even if the actual lead bank is a state-chartered bank.

From a supervisory standpoint, chain banking organizations are very similar in character to multibank holding companies. Linking several banks or holding companies into a chain concentrates banking resources in a manner that may be vulnerable to common risks. Mutually shared risks that can arise in chain banking relationships may result from poor loan participation practices, common deficiencies in policies on such matters as lending and investments, domineering or absentee ownership, or insider abuses and other self-serving practices. Detection and correction of these problems largely depend upon an assessment of the entire chain banking organization that is often complicated when the chain is composed of institutions subject to different federal or state regulatory agencies. Additionally, unlike multibank holding companies, chain banking organizations do not have to report financial information on a consolidated basis, making supervisory monitoring more challenging.

The supervisory objectives of a chain banking organization review are to:

• Determine the financial condition of the consolidated group.

• Identify systemic risk issues by evaluating the effectiveness of the group’s plans, policies, procedures, systems, and controls, if centralized.

• Evaluate the impact of the consolidated group on the condition and operations of the individual national banks.

• Determine compliance with laws governing transactions with affiliates.

The supervisory office of the lead national bank in a chain banking organization is responsible for developing a supervisory strategy for the chain banking organization in accordance with the supervisory cycle of the lead national bank (12 or 18 months). Such strategy should be risk-based and tailored to each chain banking organization on such factors as:

• The size, complexity, and sophistication of the chain bank organization, including how centralized its operations are.

• The managerial style and nature of control or influence being exerted over individual banks in the chain.

• The amount of interdependence among the individual institutions in the group. Particular attention should be paid to the volume and frequency of interbank transactions such as loan participations or sales, loans to insiders and their related interests, bank holding company or bank stock loans, correspondent or interbank transfers, contractual obligations for services, and purchases or sales of securities or other assets.

• The size, historical performance, nature and extent of problems, and overall condition of individual institutions in the group.

The supervisory office should determine the scope of the review in a manner that will effectively and efficiently carry out the supervisory objectives for chain banking organization reviews. Activities conducted may be part of specific on-site activities, periodic monitoring, or a combination of the two.

The supervisory office will coordinate, as appropriate, the examinations of national banks in the chain and the sharing of information with other OCC supervisory offices and regulatory agencies. When supervisory responsibility is shared with other regulatory agencies, examiners should coordinate with other regulators as discussed in the "Bank Supervision Process" booklet of the Comptroller’s Handbook

The supervisory office is responsible for documenting in Examiner View a summary analysis of the chain banking organization review as a "significant event" for the lead national bank of the chain. The summary analysis is intended to provide meaningful information about the chain banking group that is not provided in the reports of examination (ROE) on individual banks within the group. The analysis should identify any significant risks to the banks in the group and include a brief description of the financial condition of the consolidated group. The analysis also may address, as appropriate and consistent with the scope of the review, each CAMELS area, the audit and other risk management programs (if centralized), future plans and strategies, litigation, intercompany transactions, and necessary follow-up for the lead national bank and affiliated national banks.

The supervisory office also is responsible for maintaining in Examiner View core knowledge information documenting the chain bank relationship. These records contain the name of any individual (or group of individuals acting in concert) who owns or controls two or more banks or financial institutions in a chain banking organization. These records also may include information concerning the lead bank and each chain bank member, such as the name and location, charter number, supervisory agency, date of last chain bank review, date of next scheduled chain bank review, and the composite CAMELS ratings from the most recent examination.

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