The New York State Banking Department is requiring poor- rated foreign bank branches to employ external auditors.

The rule, which took effect Thursday, forces state-chartered foreign bank branches with unsatisfactory exam scores to hire external auditors.

Also affected are foreign bank branches that receive a 3, 4, or 5-the three lowest scores on a 1-5 scale-on their operational controls exam, which is one of four components in the state's version of a Camels rating.

New York officials also may require any state-chartered bank with a 3, 4, or 5 rating to conduct internal audits.

The rule represents a partial retreat from new standards that former Banking Commissioner Neil D. Levin supported in 1996 after a trader at Daiwa Bank hid $1.1 billion of losses for 11 years. Mr. Levin had called for requiring internal and external audits for all foreign bank branches.

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