FBSEA also mandated uniform standards for foreign banks establishing operations in the United States. Applications for Foreign Bank Entry

FBSEA increased the Federal Reserve’s supervisory and regulatory power over foreign banks by requiring Federal Reserve approval for all foreign banks seeking to establish U.S. offices, whether licensed by state or federal authorities. Taiwan accounted for the most—7 of the 45 applications. In its decisions approving the applications for branches and agencies and subsidiary banks, the Federal Reserve found that the foreign banks had met the standards required under FBSEA and its implementing regulations. A review of the orders indicated that the Federal Reserve examined the home country supervision of the applicant bank in every representative office case, but a determination that the applicant bank or its parent foreign bank were subject to comprehensive consolidated supervision was not always made. 1.) The act gave the Federal Reserve the responsibility for ensuring that branches and agencies of foreign banks are examined every 12 months and gave it the power to examine representative offices. Examination Results Indicate Most Foreign Branches and Agencies Have Been Rated Satisfactory

Examinations by federal and state supervisors are intended to determine the safety and soundness of foreign branches and agencies. Although the Federal Reserve had authority to initiate enforcement actions against foreign banks and their U.S. branches and agencies under the IBA and the Federal Deposit Insurance Act, FBSEA enhanced its enforcement powers. Between 1993 and 1995, federal banking supervisors issued 40 formal enforcement actions against foreign banks operating in the United States.In the most serious case, the Federal Reserve, in conjunction with FDIC, the New York State Banking Department, and several other state bank supervisors, used its termination authority to order Daiwa Bank to cease its U.S. banking operations. Neither OCC nor FDIC issued any civil money penalties during this time. We did not attempt to subjectively evaluate the Federal Reserve’s decisions on foreign bank applications.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Federal Reserve's implementation of the Foreign Bank Supervision Enhancement Act, focusing on: (1) the Reserve's examination process and process for approving foreign bank applications for U.S. entry and expansion; and (2) enforcement actions that the Federal Reserve has taken since 1993.

What GAO Found

GAO found that: (1) the act established minimum standards for foreign bank entry and expansion into the United States, strengthened federal bank supervision and regulation, and required that the Federal Reserve approve foreign banks' applications for acquiring bank subsidaries; (2) although the Federal Reserve approved 45 applications after determining that the applicant banks met the act's standards, Federal Reserve staff believed that the application process was too lengthy; (3) new guidelines, established in 1993, reduced application processing times; (4) between 1993 and 1995, the Federal Reserve met its mandate to coordinate with the other federal and state bank supervisors to examine foreign branches and agencies once every 12 months; (5) the Federal Reserve also examined over half of the representative offices of foreign banks operating in the United States even though it did not establish a time frame for such examinations; (6) the foreign banks examined were generally in satisfactory condition and only 3 percent of the foreign branches and agencies received low safety and soundness ratings in 1995; and (7) of the 40 formal enforcement actions the Federal Reserve issued against U.S. foreign banks between 1993 and 1995, 6 required voluntary terminations of deposit insurance, 4 required the use of civil money penalty authority, and one foreign bank was ordered to terminate its U.S. banking operations.