A Federal Reserve Board plan to farm out supervision of foreign banks could simplify and speed up exams and applications, banking and legal sources close to the Fed said.

But they added it could take some time to implement the plan, which calls for regional Federal Reserve banks to take on foreign bank supervision in their districts. The proposal may also prove burdensome, at least in the initial stages, for both the Fed districts and foreign banks.

Fed officials were unavailable for comment.

District Supervision

First reported earlier this month in International Banking Regulator, a Washington affiliate of American Banker, the Fed proposal would assign supervision of European banks to the New York Fed, Asian banks to the San Francisco Fed, Latin American banks to Atlanta, and Canadian banks to Chicago.

It is not clear what district bank would supervise Middle Eastern and African banks.

The idea is to allow individual Federal Reserve banks to develop expertise in regulating foreign banks. The hope is that this would expedite the application process for foreign banks in each region.

Set of Rankings

In addition, the Fed would set up a country and parent bank-rating system with four categories.

Category A would be the highest rating, and would entail minimum supervision. Category B would trigger a certain level of regulatory scrutiny. Category C would call for tougher supervision and examination.

Category D, or unsatisfactory, would require a foreign bank to maintain a certain level of loan-loss reserves locally and a set level of good assets that could be used to pay off local creditors in the event of a liquidation.

Sources say the Fed remains divided over assigning jurisdiction for some banks, especially Japanese banks.

|A Lot of Work'

"It may mean a lot of work for the San Francisco Fed," said one New York-based lawyer who specializes in assisting foreign banks with applications.

"There are a lot of Asian banks coming in, and we expect more will arrive," he added.

A Washington-based lawyer said, "Jurisdiction might be split. It's inconceivable that in cases like some Japanese banks with assets concentrated in New York the New York Fed would not retain some sort of role."

The Fed has significantly expanded its supervision of foreign banks since the Foreign Bank Supervision Enhancement Act was passed at the end of 1991.

The act made the Fed the primary regulator for foreign banks in the United States and required all foreign banks applying to do business here to prove they are subject to comprehensive and consolidated supervision on a worldwide basis.

Not Tied to Consolidation

Sources said the proposals are separate from a broader plan to merge the U.S. regulatory agencies into a single institution.

"You're mainly talking about trying to coordinate day-to-day regulation of foreign institutions and helping regulators become more familiar with the institutions they deal with," one source said.

"This will enable the Fed to develop more expertise on the foot-soldier level."

Some Concern

Nonetheless, some foreign bankers expressed concern that adoption of decentralized supervision could make life for foreign banks still more difficult.

"It all depends on how knowledgeable the local district bank is and what type of personnel would be available to conduct examinations," said one foreign banker who declined to be identified.

"Instead of simplifying regulation, this could add to the problem we've had before of too many agencies and no consistent approach."

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