STATE OF NEW YORKBANKING DEPARTMENT

ONE STATE STREETNEW YORK, NY 10004-1417

Date: July 16, 2007

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New York State Banking Department

The DepartmentEstablished in 1851Oldest bank regulatory agency in the U.S.Primary regulator for state-licensed and

state-chartered financial entitiesAssets of regulated institutions total nearly

$1.3 trillion

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The Department (con’t)

Employs over 500 full-time employees Approximately 70 % of staff are bank examiners or specialists Offices:

Main office at One State Street, NY, NY Syracuse, New YorkAlbany, New York

Website: http://www.banking.state.ny.us

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Supervision & Examination of FBOs

Risk-Focused Examination & SupervisionEmploy a risk-focused examinationExamination concentrates on areas that

pose the greatest risks to the institutionExamination Cycle14 months for the majority of branches

and agenciesContinuous supervision for larger, more

complex NY offices

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Examination Ratings

ROCA Ratings – for foreign branchesRisk Management, Operational Controls,

Compliance, Asset QualityComponents rated on a scale of 1 to 5,

with 1 being the strongest and 5 the weakest

Composite rating- also on a scale of 1 to 5

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Asset Quality Evaluation of Asset Quality

Assess the effectiveness of credit risk mgt

Determine the ability of the institution to pay liabilities and claims in liquidation

Assess assets & off-balance sheet exposure as of examination date

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Credit File

Original, secondary, and tertiary sources of repayment;

Purpose and underwriting of the credit relative to its purpose, terms & structure;

Overall financial condition and resources of borrower; and,

Credit history of borrower.

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Regulatory Classifications

Special Mention (SM) - potential weaknesses • Financial factors• Non-financial factors

Substandard (S/S) – well-defined weaknesses• Current or expected unprofitable operations• Inadequate debt service coverage• Inadequate liquidity• Repayment may depend on collateral

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Regulatory Classifications (con’t)

Doubtful (D) – S/S credit plus collection or repayment in full highly questionable or improbable.

• Borrowers are usually in default• Lack adequate liquidity or capital• Lack resources to remain an operating

entity

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Regulatory Classifications (Con’t)

Loss – Uncollectible; continuance as bankable assets is not warranted.

• Borrowers are often in bankruptcy• Formally suspended debt repayments• Ceased normal business operations

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Risk Assessment

Credit Risk Quantity of Credit Risk• Underwriting factors• Credit quality factors

Quality of Credit Risk Mgt• Policies, Processes, Credit Granting

• Credit Monitoring, Personnel

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Risk Assessment (con’t)

Credit Risk Evaluation Process

Consider the following:Borrower’s current & expected financial

conditionBorrower’s history of servicing debtCollateral pledgedQualitative factors

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Risk Assessment (con’t)

Examining Risk Rating Process Whether risk ratings are accurate & timelyEffectiveness of system

Credit Review – verification of loan ratings by independent third party

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Risk Assessment (con’t)

Internal Audit – should test integrity of risk rating data and review documentation

Risk Focused Examination Process

Steps: Understanding the institution/information

gatheringAssessing institutional risk

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Risk Assessment (con’t)

Risk Focused Examination Process (con’t)

Planning/scheduling supervisory workDefining examination activitiesPerforming On-Site examination and

reporting findingsConducting ongoing off-site supervision

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We hope our presentation has provided

you with some invaluable knowledge

and that you would benefit from it.

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References

Supervision ManualsFederal Reserve Boardhttp://www.federalreserve.gov

Federal Financial Institutions Examinations Councilhttp://www.ffiec.gov

Risk Management Associationhttp://www.rmahq.org

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Foreign and Wholesale Division

• Approximately 100 institutions maintaining a branch or agency with assets in excess of $1.1 trillion dollars

• 40 banks maintain representative offices and a number of foreign owned subsidiary institutions

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Foreign and Wholesale Division

• Different countries have different types of regulation

• NYSBD relies on FRB SOSA ratings and analysis of the home country supervision system

• Joint supervision arrangement with FRB

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Foreign and Wholesale Division

• The license to open an agency, branch or representative office is issued by NYSBD

• Asset pledge$2 million for the smallest branches and agencies$100 million for the largest banks

• Liquidity or asset maintenance in special circumstances

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Foreign and Wholesale Division

US relies on regular on site examinations

• Examination teams organized by global regionsField staffPortfolio managersCentral Point of contact (CPC)

• Alternate year or joint examinations with FRB

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Foreign and Wholesale Division

• Risk focused examinations

• ROCA components

• Increase importance and emphasis on BSA, AML, OFAC, Patriot Act, etc

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Foreign and Wholesale Division

Increased cooperation and communication

with other regulators:

“Tri-state group” : New York, Connecticut and New Jersey

Conference of State Bank Supervisors (CSBS)

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Foreign and Wholesale Division

Increased cooperation and communicationwith other regulators (Con’t):

International liaison

Information sharing agreements with other supervisors

Communication from the branch or agency in New York

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Foreign and Wholesale Division

Multiplicity of regulators, banking, securities,

insurance in the US

Gramm Leach Bliley

Financial Holding Company (FHC) status