Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
International Banking Facility
An International Banking Facility (IBF) is a set of asset
and liability accounts, segregated on the books and records
of the establishing entity, which reflect international
transactions. An IBF is established in accordance with the
terms of Federal Reserve Regulation D and after
appropriate notification to the Federal Reserve. The
establishing entity may be a U.S. depository institution, a
U.S. office of an Edge or Agreement Corporation, or a
U.S. branch or agency of a foreign bank pursuant to
Federal Reserve Regulations D and Q. An IBF is
permitted to hold only certain assets and liabilities. In
general, IBF accounts are limited to residents of foreign
countries, residents of Puerto Rico and U.S. territories and
possessions, other IBFs, and U.S. and non-U.S. offices of
the establishing entity. An IBF is an attractive tool for
banks because its deposits are not subject to reserve
requirements or deposit insurance premiums since they are
not FDIC insured, thus providing a lower cost of funds to
facilitate its international banking. Such funding may also
serve to diversify the bank’s liability mix and prove less
volatile to changes in interest rates. This may be the case
as foreign depositors often seek to mitigate country risk
within their home country by transferring or diversifying
their wealth into the U.S. market.
Parallel-owned Banking Organizations
A Parallel-Owned Banking Organization (PBO) exists
when a depository institution 1 in the U.S. and a foreign
bank 2 are controlled, either directly or indirectly, by an
individual, family, or group of persons 3 with close business
dealings or are otherwise acting in concert. PBOs do not
include structures in a recognized financial group, 4 which
1 References to “U.S. depository institution” are intended to be
synonymous with U.S. bank; and it represents all banks and
savings associations insured by the FDIC.
2 References to “foreign bank” include a holding company of the
foreign bank and any foreign or U.S. non-bank affiliates of the
foreign bank.
3 The term “persons” includes both business entities and natural
persons, which may or may not be U.S. citizens.
4 A “recognized financial group” means a structure in which a
bank is a subsidiary of another bank, or an entity that is
controlled by a company subject to the Bank Holding
Company Act (BHC Act) or the Savings and Loan Holding
Company Act (S&L HC Act). Such companies would be
subject to the application, notice and supervisory requirements
in the BHC Act or the S&L HC Act and not the procedures
described here. A BHC or a S&L HC, however, may be a
component of a PBO. This situation may arise when a bank
are entities that are subject to comprehensive consolidated
supervision via the Foreign Bank Organization (FBO)
Supervision Program established as a result of the Foreign
Bank Supervision Enhancement Act 5 (FBSEA).
PBOs are not included in the FBO Supervision Program
because they do not have a foreign bank or holding
company as the parent organization. PBOs, therefore,
create unique supervisory concerns. A portion of the
control of a PBO is located in foreign countries for which
U.S. bank regulatory agencies may or may not be able to
obtain sufficient, reliable information to accurately assess
the risk the PBOs pose on a “top down” organization-wide
basis. Therefore, this guidance addresses the lack of a
“group-wide” supervisory approach by:
• Providing a supervisory definition of presumed control
to identify a PBO,
• Clarifying that the entities that comprise a PBO may or
may not be affiliated,
• Explaining how to determine whether intra-company
transactions are subject to regulatory restrictions,
• Illustrating a complex PBO business structure,
• Describing the supervisory risks such relationships can
pose to the associated bank in the U.S., and
• Discussing the methodology for conducting a risk
assessment that analyzes a PBO on a “group-wide”
basis.
Supervisory Control Definition
Identifying a PBO is difficult because control, based on
common ownership, management, or decision-making
authority, often is not clear. A review of applicable
regulations and/or policies in the U.S. and abroad yielded
several differing definitions of control. The lack of a
globally-accepted and easily-understood definition of
control complicates the identification of PBOs.
In April 2002, the U.S. banking agencies adopted the Joint
Agency Statement on PBOs addressing inconsistencies in
the definition of control specifically for PBOs and to
facilitate their detection. It states, in part, that the U.S.
holding company or savings and loan holding company
controls the U.S. depository institution, and the holding
company, in turn, is controlled by a person or group of persons
who also controls a foreign bank.
5 The FBSEA was enacted in 1991 to improve the degree of
supervision of foreign banks operating in the U.S. As a result
of FBSEA, an Interagency Program for Supervising the U.S.
Operations of Foreign Banking Organizations (the FBO
Supervision Program) was established and applied to all FBOs
with a presence in the U.S.
International Banking (12-04) 11.1-22 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation