of working with foreign supervisors at both bilateral and multilateral levels. through regular contact, we track changes to foreign bank regulatory and supervisory systems and seek to understand how these systems affect the banking institutions we supervise. this is especially important in the european union, where u. s. banking organizations have substantial operations. as of september 30, 2003, thirty - four u. s. banking organizations operated in the european union with aggregate eu assets of more than $ 747 billion. as of december 31, 2003, sixty - eight eu banking organizations maintained active banking operations in the united states, with total third - party banking assets in their u. s. offices of $ 937 billion. as these figures suggest, institutions from the united states and the eu are major participants in each other ’ s markets. the dialogue as an additional forum for monitoring eu regulatory developments as the eu seeks increasingly to harmonize financial services rules across its internal market, the regulatory role of the european commission has grown correspondingly. in this environment, the dialogue complements the federal reserve ’ s ongoing relationships and discussions with eu national regulators. the dialogue, moreover, fills a role not presently served by any one of those ongoing relationships and discussions. as the market for financial services becomes increasingly integrated, the interests of banking, securities, and insurance regulators correspondingly are becoming more common and intertwined. the dialogue provides a forum for discussion of issues in each of these areas. the regulatory discussions benefit from this sharing of different substantive perspectives. for this reason, too, the dialogue is an efficient forum for information exchange, which has great utility for supervisors of large complex financial services organizations. global companies operate across many countries and must adapt their business and strategy to local regulatory and supervisory requirements. it is now generally accepted in the u. s. and internationally that a foreign firm that conducts business in a local market should receive national treatment, that is, the foreign firm should be treated no less favorably than a domestic firm operating in like circumstances. the united states adopted a specific policy of national treatment for foreign banks operating in this country with the enactment of the international banking act of 1978. as we have previously testified, implementing a policy of national treatment can be challenging. although large financial services companies operate in a globalized world, each is based in a specific country whose economic regulation or supervisory approach will differ from those in other countries. the challenge of providing national treatment arises as we seek to adapt our own regulatory system to a foreign banking organization that operates under a different legal

provide input on issues to be taken into account in verifying equivalence. the group sent questionnaires to home country supervisors of financial organizations having operations in the eu, inquiring about the measures those supervisors take to ensure that the entities they supervise are subject to consolidated supervision at the top - tier level. the federal reserve and the office of the comptroller of the currency prepared a joint response on supervision of u. s. banking organizations with eu operations. we understand that the ec ’ s guidance is expected to be issued in the summer. member state lead regulators are expected to rely on the european commission ’ s guidance in verifying equivalent supervision with respect to individual institutions. we anticipate that the european commission will keep us informed of member states ’ progress in this regard during the dialogue and also will alert us to the existence of and procedures for addressing any disparities in member states ’ approaches. we fully expect that u. s. banking organizations will be found to meet the supervision standard of the directive. another topic of discussion relating to banks has been the status of work on revisions to the basel capital accord ( basel ii ). the discussions within the dialogue have not focused on technical issues that have been under consideration within the basel committee on banking supervision ( basel committee ), but rather have addressed the scope of application and implementation and timing concerns. specifically, the dialogue has served as a useful venue for both the eu representatives and the federal reserve participants to gain a better understanding of the implementation procedures that are anticipated to be applicable in each jurisdiction. staff has been able to ask questions about the eu legislative process, and to explain in detail how the u. s. regulatory process functions. understanding the requirements and limitations of each others ’ legislative and regulatory processes has helped both sides achieve, in my view, a better sense of the implementation challenges we all face and of the commitment to see the process through. with regard to the scope of application of the proposed new accord, the federal reserve representatives were able to provide information for the eu participants about the reasons the u. s. banking agencies proposed to require only a core set of banks to apply the advanced approaches for both credit risk and operational risk. as you know, one of the primary drivers behind this decision was the u. s. banking agencies ’ collective view that complex, sophisticated organizations should be using the most advanced risk measurement and management practices available and those techniques and practices are recognized in the basel ii advanced approaches. the u. s. agencies also proposed