BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C.  20551 DIVISION OF BANKING SUPERVISION AND REGULATION SR 93-26 (IB) May 18, 1993 TO THE OFFICER IN CHARGE OF SUPERVISION           AT EACH FEDERAL RESERVE BANK SUBJECT: Applicability of the Interagency Policy Statement on Documentation of Loans to Small and Medium-sized Businesses and Farms to the Activities of U.S. Branches and Agencies of Foreign Banks                         Enclosed is an interagency statement by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation regarding the applicability of the interagency policy statement on documentation of loans to small and medium-sized businesses and farms to the activities of U.S. branches and agencies of foreign banks.  Please forward this interagency statement to the appropriate officer of each state licensed uninsured branch and agency in your district.  The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation will be sending this statement to the federally licensed and insured U.S. branches and agencies of foreign banks.                         Questions concerning this interagency statement should be directed to Aparna Dubey on extension 5893 or Michael Martinson on extension 3640. Richard Spillenkothen Director Cross Reference:    Interagency Policy Statement on Documentation of Loans - 3/30/93 ENCLOSURE TRANSMITTED ELECTRONICALLY BELOW BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM OFFICE OF THE COMPTROLLER OF THE CURRENCY FEDERAL DEPOSIT INSURANCE CORPORATION May 14, 1993 TO THE MANAGERS OF U.S. BRANCHES OR AGENCIES OF FOREIGN BANKS SUBJECT: Applicability of the Interagency Policy Statement on Documentation of Loans to Small and Medium-sized Businesses and Farms to the Activities of U.S. Branches and Agencies of Foreign Banks                          On March 30, 1993, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision issued a policy statement on the documentation of loans to small-and medium-sized businesses and farms.  That policy is intended to eliminate unnecessary documentation on small and medium-sized business and farm loans for institutions that are highly-rated and that are well or adequately capitalized.   These institutions will be allowed to identify, within certain limits, an "exempt portion" of their small and medium-sized business and farm loan portfolios that will be evaluated solely on performance and will be exempt from examiner criticism of documentation.  The Interagency Joint Release and Policy Statement provide details of this program.  Copies of those documents are attached.                         The purpose of this supplementary issuance is to clarify the applicability of the March 30, 1993, interagency policy statement to the lending activities of U.S. branches and agencies of foreign banks.  In general, although most U.S. branches and agencies of foreign banks do not pursue lending to these customers, those that do lend to small and medium-sized businesses and farms will be permitted to do so under the same general guidelines detailed in the policy statement for domestic U.S. financial institutions.  Such lending, when undertaken, should conform to clearly defined policies from the branch or agency's head office which approve this activity and delineate its scope.  The size and scope of such lending should reflect appropriate consideration of the expertise of the foreign bank and its U.S. offices in lending to small and medium-sized businesses and farms in the United States.                         Because of differences between the structure and operations of domestic financial institutions and those of U.S. branches and agencies of foreign banks, the following supplementary considerations to the general interagency policy are appropriate: a branch or agency of a foreign bank is eligible for participation in the program if: the branch or agency was assigned a composite AIM rating of 1 or 2 at its most recent examination; and, the branch or agency, any other U.S. office of the parent foreign bank, and/or the parent foreign bank itself is not subject to any supervisory enforcement action with any federal or state bank regulatory authority; with the exception of insured branches, as detailed below, the limitations in the March 30,1993, policy statement that are based on an institution's total capital will be based on the consolidated total capital of the parent foreign bank; for insured branches, the above limits must be based on the excess of eligible assets over liabilities (12 CFR Ch. III, 346.20(a)) maintained at the individual branch.   for each foreign bank, the limitations established in the March 30, 1993, policy statement will apply to the aggregate of the loans granted pursuant to this policy by all U.S. branches and agencies of that bank; small and medium-sized businesses and farm loans eligible for inclusion in the program will be limited to those extended to U.S.-resident borrowers. All other requirements and limitations of the interagency policy statement will be applicable to the small and medium-sized business and farm lending of U.S. branches and agencies of foreign banks.                         Consistent with supervisory practice, these guidelines do not supersede any documentation requirements mandated by the licensing authority of the branch or agency. Susan F. Krause, Senior Deputy Comptroller for       Bank Supervision Policy, Office of the Comptroller       of the Currency Richard Spillenkothen Director, Division of Banking       Supervision and Regulation, Federal Reserve Board Stanley J. Poling, Director, Division of Supervision Federal Deposit       Insurance Corporation

SR letters | 1993