The Foreign Bank Supervision Enhancement Act of 1991 (FBSEA) increased the Federal Reserve’s supervisory responsibility and authority over the U.S. operations of foreign banking organizations and eliminated gaps in the supervision and regulation of foreign banking organizations. The FBSEA amended the IBA to require foreign banks to obtain Federal Re­serve approval before establishing branches, agencies, or commercial lend­ing company subsidiaries in the United States. An application by a foreign bank to establish such offices or subsidiaries generally may be approved only if the Board determines that the foreign bank and any foreign bank parents engage in banking business outside the United States and are sub­ject to comprehensive supervision or regulation on a consolidated basis by their home country supervisors. The Board may also take into account other factors, such as whether the home country supervisor has consented to the proposed new office or subsidiary, the financial and managerial resources of the foreign bank, the condition of any existing U.S. offices, the bank’s compliance with U.S. law, the extent of access by the Federal Reserve to information on the foreign bank from the bank and its home country supervisor, and whether both the foreign bank and its home country supervisor have taken actions to combat money laundering. The Board’s prior approval is also required before a foreign bank may establish a representative office and, in approving the establishment of such an of­fice, the Board takes the above-mentioned standards into account to the extent deemed appropriate.

The FBSEA also increased the responsibility and the authority of the Federal Reserve to regularly examine the U.S. operations of foreign banks. Under the FBSEA, all branches and agencies of foreign banks must be examined on-site at least once every twelve months, although this period may be extended to eighteen months if the branch or agency meets certain criteria. Supervisory actions resulting from examinations may be taken by the Federal Reserve alone or with other agencies. Representative offices are also subject to examination by the Federal Reserve.

The Federal Reserve coordinates the supervisory program for the U.S. operations of foreign banking organizations with the other federal and state banking agencies. Since a foreign banking organization may have both federally and state-chartered offices in the United States, the Federal Reserve plays a key role in assessing the condition of the organization’s entire U.S. operations and the foreign banking organization’s ability to support its U.S. operations. In carrying out their supervisory responsibilities, the Federal Reserve and other U.S. supervisors rely on two supervisory tools: SOSA rankings and ROCA ratings. SOSA (the Strength of Support Assessment) is the examiners’ assessment of a foreign bank’s ability to provide support for its U.S. operations. The ROCA rating is an assessment of the organization’s U.S. activities in terms of its risk management, operational controls, compliance, and asset quality.

Under the Bank Holding Company Act and the IBA, the Federal Reserve is also responsible for approving, reviewing, and monitoring the U.S. nonbanking activities of foreign banking organizations that have a branch, agency, commercial lending company, or subsidiary bank in the United States. In addition, such foreign banks must obtain Federal Reserve approval to acquire more than 5 percent of the shares of a U.S. bank or bank holding company.

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