WASHINGTON - The Federal Reserve Board on Wednesday approved final rules placing all 300 foreign banks with banking operations in the United States under its direct supervision.
The action was taken to prevent another scandal like BCCI, in which a foreign bank involved in illegal activities obtained secret control of two U.S. banks.
The final rules adopted Wednesday are similar to the interim rules passed by the board in April. The final version, however, broadened and clarified some definitions - particularly that of a representative office - and refined procedures for processing applications.
Under the regulation, every foreign branch in the country faces an annual examination by the Fed. And foreign banks seeking Fed approval for new branches in the United States must prove they are closely regulated by their home countries.
Banks must also provide "adequate assurances" that they can provide all necessary information - including confidential information - to bank regulators.
The new rule roughly doubles the number of banks subject to supervision by the Fed, which has already increased staff significantly. The Federal Reserve Bank of New York, for example, has added 200 new employees.
"It is important to remember that not all of the added burden rests solely on the banking industry," said Fed Governor John P. Laware at Wednesday's board meeting.
Backed by Regulators
The regulations were mandated by the Foreign Bank Supervision Enhancement Act of 1991, a law the Fed backed.
The Fed Board has received 14 applications from foreign banks that want to enter the country since the interim rules were passed this spring. It has not reached a final decision on any one of them. Critics say the agency is deliberately holding up the approval process.
Fed officials cite extensive background checks and difficulty in confirming adequate regulation in banks' home countries as reasons for the delay.