District Circular Letters

November 13, 2000

BANKING SUPERVISION AND REGULATION:
ENHANCEMENTS TO THE
STRENGTH OF SUPPORT ASSESSMENT

To State Member Banks, Bank
Holding Companies, U.S. Branches,
And Agencies of Foreign Banks,
And Others Concerned,
in the Twelfth Federal Reserve District

Federal Reserve Board Updates Strength of Support Assessment (SOSA) Rankings and Process (SR 00-14)

The Interagency Program for Supervising the U.S. Operations of Foreign Banking Organizations (the FBO Supervision Program), which was established in March 1995, applies to all foreign banking organizations with a banking presence in the United States. This presence can take the form of branches, agencies, Edge and Agreement corporations, commercial lending companies, and subsidiary banks. After more than five years of experience with the FBO Supervision Program, the Federal Reserve, in cooperation with the other federal and state banking authorities involved in supervising the U.S. operations of foreign banks, is taking a number of steps to enhance the program. These steps include updating and streamlining the Strength of Support Assessment (SOSA) process, informing FBOs and home country supervisors of foreign banks' SOSA rankings, and creating a new combined assessment rating for all of an FBO's U.S. branches, agencies, and commercial lending companies (i.e., a combined ROCA rating).1

The principal changes to the FBO Supervision Program relate to the SOSA process. SOSA rankings, which reflect an assessment of an FBO's ability to provide financial, liquidity, and management support to its U.S. operations, have been found by U.S. supervisors to be an effective and reliable tool in supervising the U.S. activities of foreign banks. These rankings are also used in connection with other U.S. regulatory matters requiring a supervisory view of a foreign banking organization.

For these reasons, the Federal Reserve and other U.S. bank supervisory agencies have agreed to begin informing both the FBO's senior management and its home country supervisor of the foreign bank's SOSA ranking. This step should strengthen communications with bank management, as well as enhance information sharing, collaboration, and coordination between host (U.S.) and home country authorities in the supervision of multinational banking organizations. Providing SOSA rankings to home country supervisors will complement existing host-to-home country information sharing arrangements. Since 1995, U.S. supervisors have been communicating to home country authorities a composite rating that reflects a combined assessment of an FBO's banking and nonbanking activities in the United States (i.e., the Combined U.S. Operations Rating). Such host-to-home communications are important in helping home country supervisors carry out effective comprehensive and consolidated supervision of multinational banking organizations.

Copies

Copies of the Board's notice (SR 00-14) are available from our Corporate Services Department. To request copies to be sent by mail, please call (415) 974-2060. To request copies to be sent by fax, please call (415) 974-3333, and specify document number 4215.

All circulars and documents are available on the Internet through the Federal Reserve Bank of San Francisco's Internet site, at http://www.frbsf.org/banking/bsr/regletters/.

Additional Information

For additional information about the updated SOSA rating procedures, please contact our Banking Supervision and Regulation Department, at (415) 974-2940.

FEDERAL RESERVE BANK OF SAN FRANCISCO