1. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A AUDIT / TAX / ADVISORY U.S. Bank Examination Issues -- CSBS / IIB US Regulatory & Compliance Orientation July 16-17, 2007 New York, NY Hugh Kelly, Principal Bank Regulatory Advisory Services KPMG LLP

2. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 1 U.S. Financial Services Regulatory Risk Environment Regulatory risk is driven by constantly evolving laws, regulations and examination guidance Principal U.S. RegulatorsPrimary Regulatory ActivityKey Areas of Regulatory Focus Federal Reserve OCC FDIC OTS State Banking Departments Farm Credit Administration OFHEO Federal Housing Finance Board NCUA SEC NASD State Insurance Departments Examinations & Inspections Horizontal Risk Reviews Enforcement Actions:  Board Resolution  MOU  Written Agreements  Cease & Desist Order New Laws, Regulations, Agency Policies and Examination Procedures Reporting Requirements Corporate Licenses & Interpretations Board governance Enterprise-wide risk management (ERM) Internal Audit process Credit risk management & allowance for loan & lease losses (ALLL) adequacy Market risk and treasury risk management Operational risk management Capital adequacy - economic capital allocation (FRB SR 99-18), Basel II, CSE, FHC Vendor management / offshoring Business continuity planning Information Security and Privacy BSA / AML / Patriot Act / OFAC Consumer Compliance -- Fair Lending, HMDA, CRA) Reg. W (23a & b) Regulatory reporting

3. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 2 U.S. Bank Regulatory Agenda “Top Ten” 1.Risk Governance Board Oversight Enterprise Risk Management and Compliance Internal Audit Process 2.Credit Underwriting Sub-prime; Mortgage Banking; CRE, PE Funds Exposures; Credit Derivatives; Un-Allocated Loan Loss Reserves 3.Operational Risk Management 4.Basel II -- Model Validation and Governance 5.Vendor Risk Management Organization Off-shoring 6.Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) Compliance 7.Information Security / Privacy 8.Business Continuity / Disaster Recovery 9.Consumer Compliance 10.Reg. W (23a & b) -- Transactions with Affiliates

4. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 3 U.S. Bank Examinations – Key Aspects of Current Approach 1.Risk-Based Supervision Dynamic On-site exams Off-site analysis – regulatory reports Periodic “visits” – management interviews 2.Increased focus on the Bank’s formal Risk Assessment process, including: Safety & Soundness risks AML / BSA / OFAC compliance Consumer compliance 3.Leverage Internal Audit program 4.Concerned about home country consolidated supervision But also U.S. legal entity risk 5.Assume U.S. regulators have close communication and information-sharing arrangement with your home country regulators

5. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 4 U.S. Bank Examinations – How to be Proactive 1.Proactive approach to the examination process Substantive and frequent communications with your examination team and their bosses Identify a branch “point of contact” for all examination logistical issues and requests Keep records of all contacts with the examiners Maintain an Examination Issues Tracking Process 2.Consistently apply a “no surprises” doctrine with respect to the regulators Emerging problems New products, activities and strategies Change in key staff or management 3.Introduce visiting Head Office managers to the regulators 4.Keep up with changing U.S. regulatory developments and issues Industry meetings Fed / NY State / OCC works-shops 3rd party regulatory summaries (e.g., The Washington Report”) 5.Maintain current Policies and Procedures – “do not let them collect dust”

6. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 5 KPMG’s Knowledge and Thought Leadership The Washington Report -- This weekly federal regulatory and legislative newsletter provides updates on current issues impacting the U.S. financial services industry Basel Briefing – Aimed at risk management professionals, this 11 th edition of the Basel Briefing covers a range of topics relevant to Basel II preparations, from expected losses in operational risk to data reporting protocols for banks

7. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 6 KPMG’s Knowledge and Thought Leadership (cont’d) Frontiers in Finance -- KPMG’s Financial Services flagship global publication provides perspective and insight on critical issues facing global banking and insurance organizations The State of the Banking Industry: Banking and Investment Banking & Securities -- Quarterly reports provide a review of the issues and trends that have impacted the banking and investment banking and securities industries during the period just ended

8. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 7 Complimentary Publications Available Electronically from KPMG’s Regulatory Group Washington Report: A weekly update of legislative and regulatory events in Washington affecting financial institutions Compliance and Regulatory Focus: A monthly publication addressing developments in the broker/dealer and asset management industries Regulatory Practice Letters: Periodic analyses of significant regulatory actions of concern to financial institutions Legislative Practice Letters: In-depth explanations of major legislative initiatives impacting the financial services industry Send subscription requests to: fsregpubs@kpmg.com

9. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 8 KPMG U.S. Bank Regulatory Advisory Practice  KPMG’s Bank Regulatory Advisory Practice helps U.S. and foreign financial institutions address U.S. regulatory risk and compliance challenges as well as keep up with evolving regulatory requirements and expectations for:  Financial Soundness (Safety & Soundness) Issues  Supervisory Actions  Risk-based Capital, including Basel II and CSE rules  Enterprise Risk Management  Operational Risk, Credit Risk and Market Risk Management Issues  Risk and Control Assessment Processes  Regulatory Overlaps  Mock Regulatory Examinations  Compliance Process Reviews, Gap Analyses and Regulatory Inventories  Regulatory Reporting  Adequacy of Policies & Procedures  Training  Cross-Border Assistance  Charter and License Assistance

10. © 2007 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A 9 Contact Information Hugh C. Kelly Principal, Bank Regulatory Advisory Services 202.533.5200 hckelly@kpmg.com