Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
banking agencies consider whether an individual, family,
or group of persons acting in concert “control 6 ” a
depository institution if the individual, family, or group of
persons controls 10 percent or more of any class of the
voting shares of the bank.
A supervisory definition of presumed control is derived
from applying the criteria in the April 2002 Joint Agency
Statement on PBOs to the ownership structure of a foreign
bank. Thus, if the individual, family, or group of persons
acting in concert controls 10 percent or more of any class
of the voting shares of both the U.S. bank and the foreign
bank, then the individual, family, or group of persons is
presumed to control both organizations. This approach
provides an objective standard for ascertaining if a PBO
relationship exists, which bank officials can rebut.
If the 10 percent or more stock ownership threshold is not
met, the presence of certain other characteristics may
nonetheless indicate that a PBO relationship exists. These
criteria may include situations where the individual, family,
or group of persons acting in concert:
• Constitutes a quorum or a significant presence on the
Board of Directors of both the U.S. depository
institution and the foreign bank;
• Controls, in any manner, the election of a majority of
the directors of both the U.S. depository institution
and the foreign bank;
• Constitutes a quorum or a significant portion of the
executive management of both the U.S. depository
institution and the foreign bank;
• Exercises a controlling influence over the policies
and/or management of both the U.S. depository
institution and the foreign bank;
• Engages in an unusually high level of reciprocal
correspondent banking activities or other transactions
or facilities between the U.S. depository institution
and the foreign bank;
• Requires the U.S. depository institution to adopt
particular/unique policies or strategies similar to those
of the foreign bank, such as common or joint
marketing campaigns, cross-selling of products,
sharing customer information, or linked web sites;
• Obtains financing to purchase the stock of either the
U.S. depository institution or the foreign bank from, or
arranged through, the foreign bank, especially if the
shares of the U.S. depository institution are collateral
for the stock-purchase loan;
• Names the U.S. depository institution in a similar
fashion to that of the foreign bank; or
6 A variety of presumptions and technical rules apply to
determinations of control.
• Presents any other factor(s) or attribute(s) that indicate
that a PBO relationship exists.
While any one of the subjective characteristics, by itself, is
unlikely to indicate that an individual, family, or group of
persons exert sufficient influence to control the U.S.
depository institution and the foreign bank, the presence of a
combination of them may indicate that a PBO relationship
does exist. For example, Mr. Jones owns 10 percent of a
U.S. bank holding company, which, in turn, wholly-owns a
U.S. depository institution. Separately, Mr. Jones
owns/controls 4 percent of a foreign bank. Mr. Jones also
either serves as a director or executive officer at both
institutions and/or serves on a committee that establishes
policy for both banks. This scenario strongly suggests that
Mr. Jones exerts a controlling influence over both
organizations even though he does not meet the 10 percent
stock ownership threshold.
However, the individual, family, or group of persons acting
in concert can rebut both the objective and subjective
criteria considered in reaching this conclusion. Therefore,
examiners must weigh each factor in relation to all of the
other available information in determining whether a PBO
relationship does or does not exist.
PBO versus Affiliate Relationships
A key issue with PBOs is that affiliation, either through
common ownership or management, often is not clear. The
preceding supervisory definition of presumed control is
provided for identifying a PBO for supervisory monitoring
purposes only. An individual, family, or group of persons
acting in concert may exercise sufficient control to meet
the supervisory definition of presumed control for
establishing that a PBO exists; but, not meet the criteria to
be considered affiliates, as specified in the Federal Reserve
Act (FRA).
Thus, the entities that comprise a PBO may or may not be
affiliates. In instances where a PBO relationship exists but
an affiliate relationship does not exist, the transactions
between the U.S. bank and the foreign bank would not be
subject to the FRA. However, non-affiliated PBOs can not
be disregarded because such relationships can pose the
same or greater risks than those from affiliated PBOs.
The FRA 7 provides a definition of control that serves as a
legal basis for determining if an affiliate relationship exists
between a U.S. bank and a foreign institution. Section
23A(1)(C) defines an affiliate of a U.S. bank to include any
company that is controlled directly or indirectly by
7 See 12 U.S.C.§§ 371c, 371c-1.
DSC Risk Management Manual of Examination Policies 11.1-23 International Banking (12-04)
Federal Deposit Insurance Corporation