The New York State Banking Department has tightened its supervision of foreign banks doing business in the Empire State, even as some banks claim that the regulatory pressure is tough enough already.
In June, the department began assigning foreign banks ratings for various performance indicators, such as risk management, operational controls, compliance, and asset quality. Banks will be graded on a one-to- five scale, with five being the weakest rating.
Although the state agency has always done regular exams of foreign banks, it previously did not have a rating system that would signal when an external audit was required.
"What this does is set up formal benchmarks that kick in when something has to be done," said a state banking regulator who, in keeping with department policy, requested that his name not be used.
According to the new guidelines, foreign branches and agencies with an overall rating of four or five and a separate rating of four or five for operational controls will be required to retain an independent external auditor subject to the department's approval.
The state agency regulates 196 foreign bank branches and agencies with assets of $544 billion, or more foreign banks than any other state regulator.
It said in a statement that the grading system is a direct response to problems at Daiwa Bank Ltd.'s New York branch and the Singapore branch of Barings Brothers PLC, a British investment bank. Both branches lost more than $1 billion as a result of unauthorized trading and poor controls.
The move to tighten supervision came as foreign bankers have begun voicing strong complaints about what they term excessive and unfair U.S. banking regulations.
In an unusual public criticism, a senior German banker recently described U.S. regulations as "complicated, costly, burdensome, intimidating, and extraterritorial."
Speaking at a conference last month in Frankfurt sponsored by the Washington-based Bankers Association for Foreign Trade, Ernst- Moritz Lipp, a member of the board of management at Dresdner Bank AG, said foreign banks also have to deal with three federal agencies and 50 state entities "who all lay claim to the same territory."
"These are not trivial issues," Mr. Lipp said. He added that the direct cost of (U.S.) regulations at Dresdner Bank's U.S. operations last year came to 5% of total operating costs.
U.S. regulations, he also said, are "distinctly unfriendly" to foreign banks.
"Foreign banks find it difficult to detect the subtleties in U.S. regulations, and we don't have the assurance that we are treated the same as U.S. banks," Mr. Lipp said.