Between 1972 and 1990 the presence of foreign banks in the United States increased rapidly—from 105 offices and subsidiary banks with $95 billion in assets in 1972 (measured in 1995 dollars) to 737 offices and subsidiary banks with $933 billion in assets (measured in 1995 dollars) at the end of 1990. Since then their number has fallen and growth in the volume of their assets has slowed. At the end of 1995, there were 656 foreign bank offices and foreign-owned subsidiary banks with $974 billion in assets in the United States. Including an additional 247 representative offices, 371 foreign banks had a presence in the United States. Branches and agencies are the most common organizational forms—accounting for about 78 percent of foreign bank assets at the end of 1995. (See table 1.) Foreign-owned U.S. bank subsidiaries held over 21 percent of foreign bank assets. Commercial lending companies and Edge Act/Agreement Corporations accounted for less than 1 percent of foreign bank assets, and representative offices held no banking assets. U.S. branches and agencies are legal and operational extensions of their parent foreign banks and as such have no capital of their own. They may conduct a wide range of banking activities, including lending, money market services, trade financing, and other activities related to the service of foreign and U.S. clients. They can also access the U.S. payments system through the Federal Reserve and obtain other Federal Reserve services. Branches and agencies of foreign banks may be either state-licensed and therefore regulated and supervised by the respective state banking department, or federally licensed and regulated and supervised by the Office of the Comptroller of the Currency (OCC). As of December 1995, 473 branches and agencies were state-licensed and 72 were federally licensed. In addition, 41 of the branches were insured by the Federal Deposit Insurance Corporation (FDIC) and thus subject to additional supervision by FDIC. U.S. bank subsidiaries of foreign banks are U.S.-chartered banks that have all the powers of U.S.-owned banks. They are insured by FDIC and are subject to all the rules and regulations governing U.S.-owned banks. Their assets and liabilities are separate from those of their parent foreign banks, and they must maintain their own capital in accordance with U.S. laws and regulations. They may be either state or federally chartered. Branches and agencies of foreign banks were first subject to federal regulation with passage of the International Banking Act of 1978 (IBA). Adopting a policy of national treatment, IBA sought to allow foreign banks with branches and agencies to operate in the United States on an equal basis with U.S. banking organizations. Foreign banks were to receive neither significant advantages nor incur significant disadvantages. The act also gave the Federal Reserve responsibility for overseeing the combined U.S. operations of foreign banks. Although IBA substantially equalized the treatment of the U.S. operations of foreign and U.S. banks, it did not require prior federal review of foreign bank entry into the U.S. market nor did it permit a federal role in the termination of a state-licensed branch or agency. Cases of fraud and other criminal activity by some foreign banks in the 1980s and early 1990s convinced the Federal Reserve and Congress that both state and federal supervisors needed to increase the attention they paid to foreign banks operating in the United States. In particular, Federal Reserve officials believed that prior federal review of foreign bank entry and expansion in the U.S. market was necessary. They also believed that a federal role in terminating a state-licensed branch or agency for unsafe and unsound banking practices was desirable. In December 1991, Congress passed FBSEA. This act, which amended IBA, increased federal supervision of all foreign bank operations, giving the Federal Reserve authority to examine all foreign bank offices in the United States. FBSEA also mandated uniform standards for foreign banks establishing operations in the United States. Finally, it prohibited U.S. branches of foreign banks from obtaining deposit insurance and gave federal supervisors greater enforcement authority over the U.S. operations of foreign banks. FBSEA also directed the Federal Reserve to levy examination fees on foreign banks with a U.S. branch, agency, or representative office. However, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 imposed a 3-year moratorium on this provision. 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. This requirement was designed to give the Federal Reserve, as the agency responsible for overall supervision of foreign banks in the United States, a role in determining whether such institutions may establish a U.S. banking presence. FBSEA established uniform standards for foreign banks entering the United States, requiring them to meet financial, managerial, and operational standards similar to those of U.S. banking organizations. The act made the Federal Reserve responsible for ensuring that these standards are met. Under FBSEA, foreign banks must meet two standards in order to establish a branch or an agency, or to acquire ownership or control of a commercial lending company. First, the Federal Reserve must determine that the foreign bank applicant (and any parent foreign bank) engages directly in the business of banking outside the United States and is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor. Second, the foreign bank must furnish to the Federal Reserve the information that the Federal Reserve requires in order to assess the application adequately. In addition to the two mandatory standards, the Federal Reserve also considers other factors. Among others, these include (1) whether the applicant’s home country authorities have consented to the establishment of the proposed office, (2) the applicant’s financial and managerial resources, including its capacity to engage in international banking, and (3) whether the applicant has provided adequate assurances that it will provide access to information sufficient to allow the Federal Reserve to determine its compliance with applicable U.S. laws. Before FBSEA, the states were responsible for licensing representative offices and, at the federal level, applicants only had to register their office with the U.S. Department of the Treasury. FBSEA gave the Federal Reserve authority to approve establishment of these offices as well. However, it did not require the Federal Reserve to apply the standards mandated to establish other banking offices to its decisions regarding applications for representative offices. The Federal Reserve is to take these standards into account in evaluating a foreign bank’s application to establish a representative office, but it can approve applications where the parent foreign bank does not meet all of the standards required to establish a branch or agency. Before FBSEA, foreign banks wishing to establish a branch or agency in the United States were required to obtain approval from the appropriate banking regulator—OCC—for federal branches and agencies, or the state regulator for state branches and agencies. Since FBSEA, a foreign bank must also receive approval from the Federal Reserve. To receive approval from the Federal Reserve, a foreign bank must submit an application to the reserve bank located in the district where it plans to establish an office or to its already designated “responsible” reserve bank. A copy of its OCC or state application and any additional information necessary for the Federal Reserve to determine that the bank meets the standards set out in FBSEA are to be included in the application. The application is not to be accepted (i.e., deemed informationally complete) until these criteria are met. Once the application is accepted for processing, it is reviewed by staff and submitted to the Board for action. Before March 1993, applications were reviewed solely by the reserve bank before they were accepted. If an application lacked information, the reserve bank requested the applicant bank to provide the information. After the reserve bank determined that it had all necessary information to process the application, it was accepted and forwarded to the Board for review and disposition. At this point the Board could request additional information. This process often resulted in delays and multiple requests for additional information. In March 1993, the Federal Reserve issued guidelines changing its procedures for processing applications to establish U.S. offices of foreign banks. The changes were intended to expedite processing and reduce the burden on applicants of responding to multiple requests for additional information. The guidelines require the reserve bank to send copies of the application to the Board within one business day of receiving an application. Both the reserve bank and Board staffs are then to simultaneously review the application to ensure that the information is complete. If additional information is needed, coordinated requests are to be made to the applicant bank before the application is accepted. The guidelines also established time limits for Federal Reserve staff to review applications and ask for additional information. The reserve bank and Board staffs are to review an application and request additional information from the applicant bank within 15 business days of receipt of the application by the reserve bank. The applicant bank then has 20 business days to respond to these requests. If the applicant bank does not respond within that time, the application would normally be returned due to insufficient information. If the applicant responds within the time limit, the reserve bank and Board staffs have an additional 10 business days either to accept the application as complete or to request additional information. If additional information is requested, the applicant bank similarly has 10 business days to respond. The Federal Reserve encourages all foreign bank applicants to meet with reserve bank and/or Board staffs before filing applications. These meetings are intended to identify relevant issues, apprise applicants of required information, and enable Federal Reserve staffs to obtain necessary information at an early stage of the process. Once the reserve bank and Board staffs determine that the application is complete and it is accepted, the Federal Reserve has an internal guideline of 60 days to analyze it, have background checks completed, and make inquiries to home country authorities. After these tasks are completed, the application is to be presented to the Board for action.