STATE OF NEW YORK BANKING DEPARTMENT ONE STATE STREET NEW YORK, NY Date: July 16, 2007

2 New York State Banking Department The Department  Established in 1851  Oldest bank regulatory agency in the U.S.  Primary regulator for state-licensed and state-chartered financial entities  Assets of regulated institutions total nearly $1.3 trillion

3 The Department (con’t)  Employs over 500 full-time employees  Approximately 70  % of staff are bank examiners or specialists  Offices: Main office at One State Street, NY, NY Syracuse, New York Albany, New York Website:

4 Supervision & Examination of FBOs Risk-Focused Examination & Supervision  Employ a risk-focused examination  Examination concentrates on areas that pose the greatest risks to the institution Examination Cycle  14 months for the majority of branches and agencies  Continuous supervision for larger, more complex NY offices

5 Examination Ratings ROCA Ratings – for foreign branches  Risk Management, Operational Controls, Compliance, Asset Quality  Components rated on a scale of 1 to 5, with 1 being the strongest and 5 the weakest  Composite rating- also on a scale of 1 to 5

6 Asset Quality  Evaluation of Asset Quality  Assess the effectiveness of credit risk mgt  Determine the ability of the institution to pay liabilities and claims in liquidation  Assess assets & off-balance sheet exposure as of examination date

7  Credit File  Original, secondary, and tertiary sources of repayment;  Purpose and underwriting of the credit relative to its purpose, terms & structure;  Overall financial condition and resources of borrower; and,  Credit history of borrower.

8  Regulatory Classifications  Special Mention (SM) - potential weaknesses Financial factors Non-financial factors  Substandard (S/S) – well-defined weaknesses Current or expected unprofitable operations Inadequate debt service coverage Inadequate liquidity Repayment may depend on collateral

9  Regulatory Classifications (con’t)  Doubtful (D) – S/S credit plus collection or repayment in full highly questionable or improbable. Borrowers are usually in default Lack adequate liquidity or capital Lack resources to remain an operating entity

10  Regulatory Classifications (Con’t)  Loss – Uncollectible; continuance as bankable assets is not warranted. Borrowers are often in bankruptcy Formally suspended debt repayments Ceased normal business operations

11 Risk Assessment  Credit Risk  Quantity of Credit Risk Underwriting factors Credit quality factors  Quality of Credit Risk Mgt Policies, Processes, Credit Granting Credit Monitoring, Personnel

12 Risk Assessment (con’t)  Credit Risk Evaluation Process Consider the following:  Borrower’s current & expected financial condition  Borrower’s history of servicing debt  Collateral pledged  Qualitative factors

13 Risk Assessment (con’t)  Examining Risk Rating Process  Whether risk ratings are accurate & timely  Effectiveness of system  Credit Review – verification of loan ratings by independent third party

14 Risk Assessment (con’t)  Internal Audit – should test integrity of risk rating data and review documentation  Risk Focused Examination Process Steps:  Understanding the institution/information gathering  Assessing institutional risk

15 Risk Assessment (con’t)  Risk Focused Examination Process (con’t)  Planning/scheduling supervisory work  Defining examination activities  Performing On-Site examination and reporting findings  Conducting ongoing off-site supervision

16 We hope our presentation has provided you with some invaluable knowledge and that you would benefit from it.

17 References  Supervision Manuals Federal Reserve Board  Federal Financial Institutions Examinations Council  Risk Management Association

18 Foreign and Wholesale Division Approximately 100 institutions maintaining a branch or agency with assets in excess of $1.1 trillion dollars 40 banks maintain representative offices and a number of foreign owned subsidiary institutions

19 Foreign and Wholesale Division Different countries have different types of regulation NYSBD relies on FRB SOSA ratings and analysis of the home country supervision system Joint supervision arrangement with FRB

20 Foreign and Wholesale Division The license to open an agency, branch or representative office is issued by NYSBD Asset pledge  $2 million for the smallest branches and agencies  $100 million for the largest banks Liquidity or asset maintenance in special circumstances

21 Foreign and Wholesale Division US relies on regular on site examinations Examination teams organized by global regions  Field staff  Portfolio managers  Central Point of contact (CPC) Alternate year or joint examinations with FRB

22 Foreign and Wholesale Division Risk focused examinations ROCA components Increase importance and emphasis on BSA, AML, OFAC, Patriot Act, etc

23 Foreign and Wholesale Division Increased cooperation and communication with other regulators:  “Tri-state group” : New York, Connecticut and New Jersey  Conference of State Bank Supervisors (CSBS)

24 Foreign and Wholesale Division Increased cooperation and communication with other regulators (Con’t):  International liaison  Information sharing agreements with other supervisors  Communication from the branch or agency in New York

25 Foreign and Wholesale Division Multiplicity of regulators, banking, securities, insurance in the US  Gramm Leach Bliley  Financial Holding Company (FHC) status