Related Organizations

Foreign Branches and Subsidiaries

On-site examinations of foreign branches and subsidiaries can be an important part of the supervisory program of a national bank. The need for on-site examination in a host country jurisdiction is driven by a number of factors, including the size of the branch or subsidiary operations, the types of activities in which the foreign branches and subsidiaries engage, the level of risk posed to the institution, and the ability off OCC examiners to obtain information and records directly from the parent bank. While on-site examinations sometimes may pose a problem because foreign directors, minority shareholders, or host country supervisors raise objections, many countries have eradicated previously identified barriers, such as secrecy provisions, that prevented on-site examinations. The international standard, as identified in the Basel Committee’s 1996 paper, "The Supervision of Cross-border Banking," is that "host supervisors should, within the limits of their laws, be willing to cooperate with any home supervisor that wishes to make an inspection." In some cases, the host supervisor may impose conditions on the on-site examination work, such as requiring that the host be allowed to participate in the examination with the OCC. All conditions should be reviewed and considered prior to the start of the on-site work. Examiners should contact IB&F when issues arise concerning the ability to conduct an on-site examination in a jurisdiction or when assistance in coordinating with or informing the host supervisor on OCC plans to conduct an examination is required.

In those countries where it appears that secrecy laws, overly restrictive host country conditions, or other prohibitions could hinder on-site examination work in the host jurisdiction, there are other mechanisms that may be used to ensure that sufficient information is obtained about the branch or subsidiary. These mechanisms may include a Memorandum of Understanding or other informal information-sharing agreement, or direct negotiation of on-site work with the host supervisors. PPM 5500-1(rev), "Communications with Foreign Bank Supervisors," dated August 2002, provides more detail about sharing information with foreign supervisors.

In addition to these efforts, reports filed by foreign branches and subsidiaries under Regulation K or reports to foreign banking supervisors can provide a basis for evaluating the bank’s investment. Regulation K requires that an effective system of records, controls, and reports be in place that keep the bank’s management informed of the activities and condition of its foreign branches and subsidiaries. The FRB is required to examine Edge Act corporations annually and to produce a report of their examination. Examiners should review these reports as part of the examination of the parent bank.

Previous: Parallel-Owned Banking Organizations Next: Other Related Organizations