Bank of England Banking Act report for 1991/92 Banking Act 1987
Annual report under the Banking Act for 1991/92
This report on the exercise afthe Banks/unctions under the Banking Act 1987 during the year to 29 February /992 is presemed 10 the Chancellor of the Exchequer, and by him to Parliament, pursuant to section 1(3) of the Act. !Cl Bank of England 1992 ISSN 0308·5279
Primed in England by Grt~MW<'YS Contents
Introduction 5
I Market developments 6
Overview 6 Bank lending 7 Bank earnings 8 Costs 9 Bad debts and provisioning 10 Capital and risk asset ratios 11 International developments 12 Glossary 15
II Policy developments 17
i-Changes implemented in United Kingdom Capital adequacy 17 Large exposures 17 Loan transfers 17 Work of other bodies 17
ii-Implementation in progress 18 The Second Banking Co-ordination Directive 18 Money laundering 18 Consolidated supervision 19
Hi-Areas under discussion 19 Mortgage-backed securities 19 Investment Services Directive 19 Market risks 19 Large Exposures Directive 20 Deposit Protection 21 Netting 21
iv-Liaison with other supervisors 21 Domestic 21 The Basic Committee on Banking Supervision 21 EC Supervisory bodies 21 EC Governors' Sub-Committee 23
v- The GATT 21
III Operational supervision 24
The authorised population 24 Supervision and enforcement 24 Discount houses 27 IV Organisation and staffing of Banking Supervision Division 29 Slaff, trai ni ng and visits 29 informat ion systems 30
Appendices I Banking Supervision Division organogram 31 2 Current supervisory notices 32 3 Geographical representation 34 4 Au thori sed institutions 36
Annex Annual report by the Board of Banking Supervision 41 Introduction
1991 saw th e continuation of very difficult domestic conditions for banks and their customers, accompanied by a marked increase in adverse public comment directed at the large banks. The most prominent event of the year-the closure of Bank of Credit and Commerce International (BCCI)---was, however, unrelated to this market background. It followed the Bank's receipt of a report from Price Waterhouse commissioned under Section 41 of the Banking Act. Infonnatioll contai ned in this report made it necessary. in order to protect the interests of existing and potential depositors with BCCI, to freeze BCCl's assets by closing the institution.
The closure was a co-ordinated worldwide operation by banking supervi sors. On 5 July, the Bank obtained a Court order for the appointment of prov isional liquidators in relation 10 BCCI SA. the Lu xembourg-incorpormed bank. Similar action was taken in Luxembourg, and also in Grand Cayman in respect of BCC! Overseas. At the same time or shortly afterwards, supervisors in a number of other jurisdictions where BCC! had subsidiaries or agencies also moved to shut down those operations. An emergency unit. staffed from the Bank and several overseas banking supervisory authorities. was established al the Bank in order to co-ordinate action. The necessary steps were taken without major disturbance to financial markets or to international payments systems.
Depositors in sterling with UK offices of BCC! SA may be able to claim compensation payments under the Deposit Protect ion Scheme established under the Banking Act 1987 (the temlS of the scheme are described in more detail on page 22). The hearing of the Bank's petition for a winding-up order against BCCI SA was adjourned by the Court on three separate occasions, which delayed activation of the Scheme. A winding-up order was eventually made on 14 January 1992. and paymenls to depositors began to be made on 16 April.
After the closure of BCCI, the Chancellor of the Exchequer and the Governor appointed the Ri ght Honourable Lord Justice Bingham to conduct an independent inquiry into the supervision of BCCI. Its tenns of reference are 'to enquire into the su pervision of BCC! under the Banking Acts; to consider whether the action taken by all the UK authorities was appropriate and timely; and to make recommendations'. The Bank has co-operated fully with th e Inquiry. The Governor and other Bank officials also gave evidence about BCC! to the Treasury and Civil Service Committee. which conducted its own examination of events. In addition. the Bank has discussed the impli cations of BCC I for international
5 supervision in a nu mber of fora, including the Basle Committee. the EC Banking Advisory Committee, and the EC Governors' Ban king Supervisory Sub-committee. The conclusions of the Bingham Inqu iry and of these other studies will be covered in next year 's re port under the Banking Act.
The fo ll owing sections of this repo rt review market developments during the year (Pan I), major policy initiatives taken (Part 11 ). supervisory operations (Part Ill). and the organisation and staffing of the Division (Part IV).
Part I Market developments Overview
With the UK economy remaining in recession throughout 1991 , profi tabil ity at UK banks was again severely depressed. High levels of provisioning agai nst domestic bad debts were the principal (aewf beh ind the drop in profits. The record charges to provisions obscured a generally robust underlying performance. main ly reflecting successful cost management combi ned with some improvement in lending margins and an inc rease in income from fees and charges.
During the year. strains became evident in banks' relations with customers. many of whom were under pressure fro m the extended recession. The actions taken by banks to repair thei r revenues contributed to the adverse feeling. Banks were accused of colluding to withhold the full benefit of the fall in interest rates fro m small business borrowers, and of making these and other customers pay for the banks' lending mistakes. A closer investigation of the facts by the Bank of England and the Treasury during the summer revealed th at the vast majo ri ty of small businesses had. at that point, seen at least 3% of the 3'/1% fall in base rates in preceding months. At the same time. it was clear that banks were slowly moving towards wider average margins, while an intention to recover a greater proport ion of costs th rough fees and other charges was also in evidence. The OFf subsequently indicated that there was no evidence of collusion or a cartel.
In response to pressure from consumers and the govern ment, banks took steps to improve the openness and consistency of the ir dealings with customers. The major lenders drew up volu ntary codes of conduct govern ing their charging and other pol icies towards small businesses. In addition, trade bodies incl uding the BB A reached agreement with consumer representatives on a fin al version of a code of good practice
6 covering dealings with personal customers. The code came into effect in March 1992.
The criticism directed at banks last year has highlighted the difficult task they face in competing successfully on the quality and cost of their products while at the same time pricing those products (whether loans, deposits. or services) so as to e nsure that they attract and retai n external investment. Competition will continue to act as a restraint on margins and tariffs. but it has also eroded banks' ability to cross-subsidise their costs from other sources (such as interest free deposits). It is therefore likely. if banks arc to attract the capital which will all ow them to develop their business. that the trend to more explicit and systematic levying of charges will continue, although the industry has recognised the need for beller commu ni cation with the customers who pay those charges.
Whilst the diversity of their operations helped the larger institutions to weather the impact of bad debts, some smaller banks were more vuln erable owing to the particular concentration of thei r business. The bad debt problems Cha rt I UK banks: lending to UK residents experienced by a few small banks in late 1990 and early 1991 were well publicised and contributed duri ng the year to a growing nervousness in the money and banking markets ------""".,...,.-"'IIUK~ --- Compony ...... towards th e s mall bank sector. This sentiment was ~ ...... f",_ ...""'F<"""'" exacerbated by the closure of BCC! in July. As a result, some small banks saw a withdrawal of virtually all local authority and public-sector corporations' deposits on maturity. At the -" " same time, larger banks an d overseas banks began to re appraise thei r exposure to the small institutions. - / _ w Many small banks, by virtue of a diversified deposit base or reliance o n funding sources other than money market - " deposits. were unaffected by the adverse sentiment. The , experience of those which were affected varied in severity. They adopted a range of responses, including restricting new lending, disposi ng of assets. and searching for new partners • .. ,,---- or owners, A few decided on an orderly wind down of their Table I business. Throughout the period. the Bank urgcd small UK banks: lending to UK residents '·) AnnoW JfOWIIo rlO~. rOf ye., to ~nd.Febnaary (pt. «no) institutions to review their funding needs closely. and on the
198718 19~ 1~ 199011 199112 whole. the sector managed the adverse reaction of the money und"'110 \1K ruidtn" 22.0 28.0 11.0 10.0 3.4 markets successfull y. ", ... /t,do: uM;ns">'h~COf1t(H>I1ys«'or- /9.0 JJ.O 16.0 /0.0 -42 U,..!ms""Mpn'CMI.«..,. no 14.0 /J.O 7.0 4.7 u."jjns '0 ,M n",,·I>o1tk linol.dol ,«10' 21.0 21.0 19.0 /J.O 11.0 Bank lending (' ) l.oM~ odv_ 0« 7 muted. Some larger companies took advantage of periods of buoyancy in the equity and capital markets in the first half of the year to raise funding outside the banking sector. Mounting Chart 2 bad debts, however, also made banks more cautious in their Ilank lending by sector to UK residents attitude to new propositions, with some consequent tightening of lending criteria. Overall, only lending to the non-bank fi nancial sector maintain ed the growth rate seen in the previous year. Bank lending to the company sector was F,...,...,. l'l9l "'''', .... ''' ,lw<, or """""""" 'Io<~qr«';-, 1< .... <1.0 ...... i. bnoel",) stagnant, while lending to the personal sector grew by less than 5%. Continuing depression in the housing market was reflected in the third successive annual decline in net advances by banks for house purchase (Chart 3). !5 ( 16) Bank earnings The modest growth in lending volumes limited increases in net interest income at the large UK banks (Table 11 ). This effect was compounded by the loss of income on the sharply increased volume of non-perfonning loans, on which interest was no longer received. These factors masked the impact of some more encouraging developments in underlying perfonnance, notably improvement in lending margins in the Chart 3 face of less aggressive lending competition. In the retail Loans for house purchase market. interest rates charged to customers fell less rapidly than market rates generally, allowing banks 10 improve the returns on their mortgage and other personal lending books; t boil""" while in the large corporate sector, new loans generally -. retained the higher margins seen in the laner part of 1990. Most banks also felt it appropriate to review more intensively the terms on which they lent to medium-sized and small - w businesses, and gradual progress to wider average margins in this market was seen. On the liabilities side, the large banks were able to increase - . the proportion of theiT deposits taken from retail rather than wholesale depostitors. This mainly reflected the rise in the personal savings ratio, which, combined with slow growth in __1l1 ,""-- _ • bank assets (and hence need for funding) enabled banks to ,~, • " reduce their reliance on the more expensive wholesale funding I') 1",,1""'"1_'_ .....odo ...... o4_... sources. Less intense competition for retai l funds also allowed the interest rates paid on some banking products, notably interest-bearing current accounts, to fall more rapidly Tahle 11 than interest rates in generaL However, the further erosion of Large 8ritish banks: sources of income interest-free deposits, the continuing migration of deposits £ b,II""" 1981 1988 19S9 1990 1991 from low to high interest accounts, and the declining Ne"n,... " 11.06 11-32 1l.92 IJ.91 IU5 NOlI ,.1... " 6.02 1.02 8.44 8.95 IIU2 'endowment effect' from remaining interest-free deposits as Totllllntome 17.08 19.14 22.36- 22.92 M.87 market rates fell, all continued to have a dampening effect on Non·mIU~" i""()ItI~ at P""nI"fi< of 100a/'""""", 3$.J 36. 3 37.7 39.1 41.9 the interest margin (Table Ill). Non-interest income was a source of strength for most of the large banks. It continued to increase strongly both in absolute 8 terms and as a proportion of total income (Table If). Better collection of fees and commissions was a major reason for the gains, al though some institutions also increased their tariffs. For several banks, sales of life assurance products proved a Table III va luable counterweight to depressed earnings from core Four largest ba nks: interest margins (') Pcrcenl2¥-S 1987 1988 1989 1990 1991 banking bu siness. During th e year, there were further Domestic 5.0 4.7 4.3 4.0 instances of links being establi shed between banks and li fe IntemallorW 1.8 1.8 1.9 2.1 O~ ...II 3.6 3.4 3.3 3.3 assurance businesses; almost all the major UK banks have (0) N" ..t< .... *-"~ ...... """""'=. c"=-=-. ______now diversifi ed into this area, either through joint ventures, wholly-owned subsidiaries, or tied agency agreements. The value of the banks' customer networks has been demonstrated by the gradual increase banks have reponed seeing in the numbers of customers who choose to buy insurance products through their bank. In the money markets, treasury operations at large retail and merchant banks enjoyed a particul arly strong year as interest rates declined. Merchant ba nk s, and merchant banking subsidiaries, also received a welcome boost to earnings in the first half of the year from inc reased activity in the UK securities market follo wi ng the ending of the Gulf war. However. the sha rp drop in merger. acquisition. and asset-disposal activit y in 199 1 was reflected in reduced income from corporate advisory busi ness. Costs 1991 saw the reversal of the upward trend seen since 1985 in Table IV the larger banks' cost-income ratios. With income growth Large British banks: costs outstripping the rise in costs, this ratio stood at 66.7% at the £ billi"". 198} 1 ~88 1989 "off .~ 7.56 "'"8.92 ""9.26 end of 1991, compared with 68% a year carlier (Table IV). Prtmisu .nd <: The result of these restructuring measures in 1991 was some quite sharp reductions in employee numbers. wh ich kept staff costs relatively nat over the year. A major factor behind the overall ri se in costs was a 14% increase in equi pment expenses, dri ven by the continuing heavy investment in infonnation technology undertaken by most of the banks. and associated higher depreciation charges. These investment programmes, undertaken with a view to longer-term cost 9 sav ings (in particular on staff) and productivity gains, are now nearing completion. Bad debts and provisioning The overall perfommnces of large UK banks were dominated by the charges made for bad and doubtful debts. Ex.periences differed between individual institutions, but, on average, provisioning against bad debts continued to rise through 1991 Tabll'V even compared with the high rate seen in the second half of Large nrHish banks: domestic bad debt pro,·isions 1990. and dl:lrges ( b,ll, ,,,,. 1981 19~~ 1989 As in the previous year, problem loans were heavily S t oo:: ~ or J""'C, tlC "" ~" ", ..,, .I '''''' "" prov""ons (.) 2.2 2.1 concentrated in the United Kingdom. Small and medium U U ..M As J """"""~ r of "''''11~ "'1'"8 ",., " " sized companies were especially vulnerable in a year of record (.l , ",~« ' 0 00111,"" 0 C As last year's report noted, there are various factors which may have contributed in some degree 10 the rapid and sizable increases in bad debt charges. The further rises in provisions over the past year were primarily a reflection of the continuing economic downturn-the seriousness of which was largely unpredicted. However, the unprecedented levels of problem domestic debts do raise questions about the adequacy of the lending criteria observed by banks in the last decade. A number of lenders-encouraged by the Bank-have recognised that there are lessons to be learned, and have taken action to improve their staff training and credit sanctioning procedures. Problem debts were also a factor in the merchant banks' performance in 199 1. Although in aggregate the sector 's commercial banking exposure remains modest, the difficult economic climate continued to dull the perfonnance of many of those houses which retain significant banking books. In response, the sector continued to shift towards arranging rather than advancing loans. Among the smaller institutions, consumer credit and mortgage lenders saw rising arrears as the recession left some customers unable to service their debts, while companies in volved in property lending continued to be affected by the deterioration of their market. The experience of the smaller niche players and other specialist lenders was mixed. The response of small institutions to difficulties has by and large been similar to that 10 of the larger bank s, and has in cluded reviews of credit assessment procedures, tigh tening of lending criteria where Table VI appropriate. and some cost rat ionalisation. Thro ughout the Large British banks: earnings year, the Bank has urged institu tions to improve information £ billions systems to enable them to identify problem debts at the earliest p~'Cer.IaI!..... Ikt/~' 1987 ,,,. ,,,. ,.., possible stage . Trading proIiu before bad detu 6,02 " 7.72 n' """ Pre.w. profiu 0,7) ..).67 ,." 2.81 ..'M 1'0$1 ..... ",Qfill '00 H. 0>, '" '" In addition to addressi ng weaknesses in credit assessment P~·1oU mu", o~ ,quit! ' .00 27.50 HO 11.70 7.26 PdJI·tlU m"", Oft ~uiry 0.'" /7.(j() "0 '.M practices, many banks are also focussing on the adequacy of 1I,'"m on lot~1 "',," 0.11 1.51 0./9 0" 0.14 "" the information obtained from borrowers as a basis for makin g Table VII lending decision s. A number of the biggest company failures Large British banks: sources of IICW capital ") in 1990 and 1991, associated with over-gearing and obscure £ bill;"". 1987 19H8 1989 1990 1991 financial reporting, have contributed to a widespread feeling Rel.inccl earning. ·0,&\ 2.74 ·0.S7 0.52 .0.24 !'ctpclualclcbl 0,09 0.01 0,93 0.10 that more information on corporate borrowers would be of Term , uoordin.lcd dcb! 0,44 I.S6 (UI 0.18 Ll9 Sh...,issuos 1.% 1. 33 0.33 0,23 0.51 benefit to creditors and investors alike. Moves have been Total 1.85 5.114 0.80 1J1.l 1.46 made by accounting regulators to improve the usefulness of company accounts, and in a speech in April 1992 to the Inst itu te of Chartered Accountants, the Governor expressed strong support for the refomlS being proposed by the Financial Reporting Council and its subsidiary bodies. There have also been signs in the pasl year that bilateral lending relationships are return ing 10 favo ur after the prevalence of 'transactions banking' in the late I 980s. Such relationships are recognised to have some advantages for both borrowers and lenders. one of which tends to be a fu ll e r a nd more timely flow of infonnation. Capital and risk asset ratios As in 1990, UK bad de bt levels and associated heavy provisioning had a severe impact on both the pre-tax profits Chart 4 and the retained earnings of the large banks (Tables VI and Large British banks' retained earnings VII ). Fcw of these institutions felt able to increase their dividend, but several nevertheless ended up drawing on reserves to meet the full cost of the dividend payment. The sector as a whole was unable 10 generate positive retentions (Chart 4). Several ban ks raised funds fro m capital issues during 1991 (Table VU), New issues included one ri ghts issue of ordinary shares and two preference share issues. There were also several issues of subordina!ed debt, including one in ECUs. With minimal growth in risk asselS, and after some benefit from exchange rate movements, the overall result was a rise in the large banks' combined ri sk asset ratio o ve r the year (Table [X). At 9.7% it is well in excess of the 8% minimum required by the Basle Accord and EC Directives. Last year's report touched on the concerns Iha! were being voiced Iha! the supply of credit by UK banks to credit wonhy borrowers was being constrained by shortages of bank capital. During 199 1, it was recogni sed that the principal factor beh ind 11 the slowdowll in bank lending was lack of demand, but doubts began to be expressed regarding the ability of banks to meet increased demand for finance during the recovery while at the same time continuing to observe minimum capital adequacy ratios. The Bank conducted its own examination in 1991 into this and other questions relating to the interaction of the financial and real economies. Looking at the major UK banks, the study concluded that the headroom of existing excess capital above the target ratios set by the banking supervisors. together with the potential for some banks to issue more Tier 2 capital, made these concerns premature at this stage. It recognised, however, that many banks will regard it as prudent to operate with capital levels in excess of the level required by supervisors, particularly given the uncertain outlook on further Table VIII loan loss provisions. large British banks: capital constituents COn\'Ofgc nc~ ha", (I) ( b,lltOn, 1987 1988 1989 ,.., There is, on the other hand, an increasing focus amongst all Ti ~ . I "'" Sh"",I>oI In the United Kingdom, securitisations of assets originated by UK-incorporated banks have to date mostly involved mortgage loans, although there have been one or two sales by banks of car hire-purchase receivables for securitisation. In the latter part of 1990, certain banks began to express interest in securitising their credit card receivables. Owing to the nature of such receivables, however, the securitisation techniques proposed were rather different from mortgage-securitisation Table IX large British banks: capital ratios (.1 structures. The banks concerned took part in detailed (b,n""" 1987 1988 1989",c-''O';-'C'';,.., discussions with the Bank of England, fo llowing which the T_I a»<:1S 345,) )92.8 46P 411.1 476.8"" Bank published additional guidelines covering securitisation of W.ip.~a. ..1S 268.3 31H 317.1 174.9 ~ , "'. . AdJu,1ed c~p'\lI1 twe Ib, 26,1 31 6 34.1 15.5 such 'revolving' credits (see page 17 ). Risk _ roUo (ptrcc"') 9.1 10.0 9.2 9.2 .. , (a) 00 .... _ ...,...,_, from 19" .... ,apitoI_;.ad.... """ "0I1ow1", _""",r__ .... "'p.ur ...... _ ...... _""""' .... ""'_.-. (0, TouI "","'{from TobI. Vfll) ..' ..... d 12 debts in their banking operati ons overseas, most notably in the Un ited Slates. Typically, the problem loans were property related. On the other hand, a number of banks felt able 10 release Table X provisions set aside in previous years against problem country Large 8ritish banks: country provisioning [billiOft$ (end.~ ...) debt fo llowing reassessment of the prospects for some debtor ",,,"mla:!s lit ilo/la 198.LJ~83 countries (mainly Latin American). At the same time. some TouJ ....15 .} Many foreign banks in the United Kingdom in turn ex perienced increased UK-related credit losses. concentrated in the corporate sector. This, together with pressure on Chart 5 domestic earni ngs and (in some countries) on capital adequacy Geographical representation of overseas ratios. led to a general reassessment of strategies in the United institutions Kingdom. The resu lt was some refocussing of activities by Au __ .l N • ., ZoIMd ~,~ fo reign banks away from involvement in UK corporate lending Miotdl.e... ~ ~ and low margin business suc h as int erbank lending. A Ead.-...y 1'192:.-_-,-_M~_ common theme has been a stricter concentration on traditional or core prod ucts-frequently home-country related business. This consolidation has taken place against an international background of sharp contraction in cross-border banking activity, particularly interbank lending. At the same time, interest from overseas institutions in ,. establishing a London presence continued to be in evidence. In particul ar, a number of Japanese and other Far-Eastern banks established new branches during the year. There was a furt her reduction of US presences. however. continuing the " trend of recem years. In the case of some Scandinavian countries. Ihe difficulties of the domestic banking industry have been critical. and have led to state or central bank interve ntion. Some of the banks affected have branches or subsidiaries in London, The Bank has followed closely the measures taken by the home au thorities to assist the banks concerned and to strengthen Iheir banking systems. The concern amongst foreign-and UK-banks over the issue of swaps with local authorities has been to uched on in previous reports. In May 1991 the govemment an nounced it would not take any action in response 10 the House of Lords' judgement 13 declaring these transactions to be outside the powers of local authorities. A number of banks began legal proceedings against local authorities to secure restitution of payments made under their contracts. In an auempt to streamline proceedings half a dozen lead cases were identified for hearing in the spring of 1992: those scheduled for March and April were in the even! settled out of court. The Bank has been particularly concerned by the legal risk uncovered by this affair. Last year the Governor invited Lord Alexander to chair a Legal Ri sk Review Committee to examine areas of legal uncertainty that may affect financial markets in London, and to consider ways of addressing these. The Commiuee published a prelintinary report for consultation at the end of February 1992. 14 Glossary of terms for Part 1 Sources of dala: Audited financial statements for the large British banks: tables on capital ralios. lending to UK residents and mortgage lending are from Bank of England statistical retums. The tables relating to loan portfolios adopt the sectoral classifications used in the Bank of England Quarterly Bullelin and in the Central Statistical Office's Financial Statistics. Figures appearing in th is report for lending to UK residents may differ from those in other Bank of England publications. This is because certain large adjustments made in the final quarter of [99 1/92 (to exclude the notional principal amounts of some swaps which had been included by certain banks on their reported balance sheets) have been stripped out for the purposes of this report. Not all the columns in the tables balance, on account of rounding. L4lrge British banks Barclays, Lloyds, Midland and National Westminster together with Bank of Scotland, The Royal Bank of Scotland, Standard Chartered and the TSB. All data for these banks are consolidated. Calendar year-end information except for Bank of Scotland (1991 data for Bank of Scotland are based on interim figu res), The Royal Bank of Scotland (end-September) and the TSB (end-October). Four largest banks Barclays, Lloyds, Midland and National Westminster. Consortium banks Ins titutions majori ty-owned by two or more banks but none individually holding over 50% of the equity. Trading profits Profit before taxation and bad debt provisions (including the exceptional problem counrry charges in 1987 and 1989). Pre-tax profits Profit after bad debt provisions but before taxation. Post-lax profits Profit after taxation and before extraordinary items; includes amounts attributable to minority shareholders in subsidiary operat ions. Return on equity Percentage ratio of pre/post-tax profits to average shareholders' funds plus minority interests. Shareholders' fu nds defined as paid-up share capital and reserves. Return on total assets Percentage ratio of pre-tax profi ts to average total assets. Retained earnings Current year's post-tax profi ts after extraordinary items and distributions. Term subordinated debt Subordinated debt with a fixed maturi ty and satisfying the Bank of England's conditions for Tier 2 capital. Hybrid (debt/equity) capital Perpetual cumulative preferred shares. includ in g such shares redeemable at the option of the issuer and with the prior consent of the Bank, and such shares convertible into ordinary shares; and perpetual subordinated debt meeting the requirements for primary perpetual subordinated debt. 15 Primary perpetual debt Perpetual debt eligible for inclusion as primary capital under Bank of England rules. Qualifying criteria require that the debt can on ly be converted into equity, is available at all times IQ absorb losses, and provides for the deferment of interest payments in Cella!n circumstances. Weighted assets Total assets adjusted in accordance with the ri sk weightings as set out in the su pervisory notice, Measurement of Capital (as amended); for 1989, ImplememQrion of the Basle COli vergence Agreement in the United Kingdom (8SD/1988/3); and, for 1990 and 1991, !mplemelltatjOlI in the United Kingdom of the Solvency Ratio Directive (BSOIl990/3). Adjllsted cc/pilal base Total capital (Tier I and Tier 2) less; goodwill, connected lending of a capital nature, investments in subsidiaries and associates, and holdings of bank paper in excess of market dealing concession. Risk assel r(llio Percentage ratio of adjusted capital base to weighted assets. Tier I and Tier 2 capital As defined in the Bank's notice to institutions (BSD/1990f2) Implementation in the United Kingdom of the Directive 011 Own Funds of Credit Instil ut ions. Heodroom deduction Tier 2 capilal which cannot count lowards capital because of insufficient Tier I or upper Tier 2 on an inSlilUlion's books. Net interest income Gross inleresl income less interest paid on borrowings. Ot/ler income lncludes investment income. Interest margin Net interest income/average interest-earning assets. Endowment effect Net interest income earned by employing interest-free deposits. 16 Part 11 threefold: it proposes some amendments and refinements to ex isti ng policy (I) Amendment to the Bank·S notice /mpiemem(lti(m in /h r Uniud Kingdom ofrht Di~cril"r on OWIl FundS ofCrcJi//II$III"'iOltJ (BSDlI99O/1) i.<. 17 Directive prescribes the valuation rules and the format The Second Banking Co-ordination Directi ve is one of of individual and consolidated accounts that banks and the ce ntrepieces of the single market legislation in other financial institutions are required to follow. The fina ncial services, prescribing minimum standards for Regulations apply to accounting periods commencing the authorisalion and supervision of credit institutions on or after 23 December 1992. throughout the EC. Important changes which will follow from the implementation of the Directi ve in the To complement the requirements of these regulations, UK include new definitions of controllers and the the British Bankers' Associati on published in introduction of a minimu m level of capital for credit November a Statement of Recommended Practice institut ions of ECU 5 million (approximately (SO RP) on off-balance-sheet instruments and other £3.5 million). Credit institutions which are al ready commitments and contingent liabilities. This sets out authorised but do not have this amount of capital may an accounting framework for these types of continue to be authorised provided their level of capital transact ions and gives guidance on valuation, income does not fall be low the hi ghest level attained since recognition and disclosure aspects. Banks are December 1989 (when the Directive was adopted), and encouraged to apply its provisions to their accounts in provided also that the control of the institution does respec t of year-ends beginning on or after not change. 23 December 1992. the same date the Regulations come into force. The most signi ficant change introduced by th e Directive, however, will be that authorisation in one (b) Client money Member state entitles that insti tution, subject to the After a major rev iew, the Securities and In vestments agreement of the supervisor in that state (the 'home' Board introduced revised client money regulations state), to branch into and provide services in all other with effect from I January 1992. Three changes in Member states ('host' states). Certain no ti fication requirements will have to be met (and local laws laid particular have implications for banks. First, investment firms are now allowed to offer a facility down for the general good must be observed by the institution). Supervision of the institu tion and ils EC under which clients can choose at which bank their branches will be the responsibility of the supervisory money is held . The effect of this is that clients will be authority in the home state. Host sup ervisory exposed to loss arising from a bank default only if the authorities will be generally restricted to monitoring bank they have chosen is the defaulter. Before, they the liquidity of branches and ensuring that monetary were exposed to the default of any bank with which the policy regulations are obeyed. Imp lementing this investment firm may have placed client money. change in roles will involve close co-operation Second, firms are now required to disclose to their between EC supervisors; bilateral discussions have clients in writing if their money is to be held with a commenced between th e Bank and other EC bank belonging to the same group as the investment supervisors on the practical arrangements. firm. Third. it has been made explicit that the regulations do no t apply to banks and building Money laundering societies when holding clients' fu nds relating to their u own investment business activities. The EC Money Laundering Directive > was adopted in June 199 1; Member States are req uired to bring into force laws, regul ations and admi nistrative decisions (ii) Implementation in progress necessary to comply with the Di rective before I January 1993. The Second Banking Co-ordination Directive Work is in hand on drafting the legislation which will The Directive applies to all c redit an d financial bring th e provisions of the Second Banking institutions and covers requirements fo r customer Co-ordination Directive into force on 1 January 1993. identification; record keeping; examination of The Directive wil l be implemented-as regards the transactions; reporting of suspicions to and banking business done by banks-by means of co-operation with law enforcement authorities: and secondary legislation to the Banking Act 1987. systems of internal control and staff training. The (l) 91/308IEEC. 18 degree, if any, to which the banks' ex isting systems securities with a view to securing an amendment to the and controls will be affected will depend upon the SRD which wou ld explicitly recognise MBS as 50% ultimate form of UK implementation. A consullation weighted assets. The outcome of these discussions has paper is expected to be issued shonly by HM Treasury. been disappointing in that il has not been possible to Meanwhil e. the Bank continues to monitor the reach un animous agreement on the appropriate adequacy of banks' systems and controls in this area weighting for MBS. However, the Bank, in against the standards set ou t in the Guidance Notes conjunction with HM Treasury and participants in the issued by the Joint Money Laundering Working UK MBS market, has been conducting a detailed Group.U! review of the legal structure of MBS , with a view to establishing whether some issues would in fact qualify Consolidated Supervision as 50%-weighted assets under the current wording of The second EC Directive on the supervision of credit the SRD. institutions on a consolidated basis was adopted in April 1992 (replacing the 1983 directive on Investment Services Directive Consolidated Supervision (83/350/EEC). T he Council di scussions have continued on the draft Directive is scheduled for implementation by I January Investment Services DirectiveY' but negotiations are 1993. provi ng very difficult. The draft directive would establish common authorisation procedures for non Under the new directive, consolidated supervision will bank investment firms and a 'single passport' 10 do cover capi tal adequacy and large exposures to a single business either through branches or on a cross border counterparty. and will extend 10 banks' parenls and the services basis throughout the Community (paralleling fi nancial subsidiaries of parems where the majority of the Second Banking Co-ordination Direct ive al ready the group's activities are financial in nature. Where agreed fo r banks). Many of its provisions would also banks belong to a group in which the majority of apply to banks' investment business. Lillle progress activities are not of a financial na!Ure, consolidation is has been made during the year on the key issues of nO I required. but superv isors will have the power to banks' access to stock exchanges, post-trade requi re banks to supply infonnation about the groups publication of securities transactions, and the extent to to which they belong. which trading in securities should be penniued outside the major exchanges in each country. The ma in issue in the UK concerns the position of regulated securities subsidiaries of banks, whose Market risks capital adequacy position is supervised under the Work on a capital adequacy framework for so-called Financial Services Act regime and not currently market risks (see box page 20) has continued both in included in consolidated supervision by the Bank. The the EC and in Basle. In January the Basle Supervisors' details of how the capital adequacy of such subsidiaries Committee held a meeting with the Technical should be treated for the purposes of consolidated Committee of the International Organisation of supervision will be set out in the Capital Adequacy Directive (CAD). If. as seems likely, implememation Securities Commissions (IOSCO) in Geneva which of the CAD is delayed until after I January 1993. an reviewed the product of several years' work in a interim arrangement will be put in place. number of sub-grou ps. The outcome was a preliminary consensus regarding the definition of (Hi) Areas under discussion permitted regulatory capital and on capital requirements against th e market ri sk aspects of Mortgage-backed securities investment activities undertaken by banks and Following the publication of its Notice implementing securities finns. Since then, work has continued with the Solvency Ratio Directive (SRD),Pl the Bank the objective of producing proposals in the form of continued to promote discussions in international fora consultation papers to be issued during the summer. on the appropriate risk weighting of mongage-backed Following the example of the Basle Accord. any policy (J) Money lau~dering guidance. notes for ba~k~ and building societies (De<:ember 1990). The Working Group was Chaired by the Bank and included ""p,,"scntullvCS of commerl:lal banks. bUIlding SOCIClles. and (he law enforcement authorities. (2) {mpltmelllarion ,'Mrll t VIII'led Ki"gdon, of/he Soll·ency RUlio Di,cc/h'e (BSD/I990/3). (3) Com(89) 629. 19 Market risks Banks face a number of different should be judged . For foreign kinds of risk. For most. credit risk exchange ri sk. work is under way to in the fonn of counterpany failure is bank s' activities which can be develop a methodology which the main clement, but other risks treated as trul y market risk and combines the attributes of simplicity need to be taken into account. The subjected to an appropriate capital and an acceptable measure of Basle Accord, although focussing requirement. This has come to be accuracy. The latter aim im plies a o n c redit risks, recognised the known as the ' tradi ng book' o f method which ideall y would take ex istence of 'market' risks banks. Inevitably, the line between some account of volatility between (principally interest rate risk, the trading book and the banking each currency pair. foreign exchange risk, and position book is a hard one to draw. The risk on equities). It ac knowledged approach adopted has been to treat The measurement of risk has to be that interest rate risk in particular as trading activities those complemented by a definition of required further study with a view instruments that are marked to acceptable capital. Negotiations to developing a satisfactory method market daily and are held for short have been difficult in this area, a of measurement and some tenn benefit. However. interest rate re fl ection of the importance appropriate system of control. and fore ign exchange risk typically attached to capital instruments and arise in many non-trading activities th e different instruments used by The latest work in Basle and the EC of banks, and it is with th is in mind banks and securities firms. In has sought to develop a framework that Basle is seeking to develop a panicuiar, the latter use shoner-term which appli es to both banks and broader framework applying to the subordinated debt as a means of securities houses. This has led to whole of banks' positions. adjusting the capital base to the complex and lengthy negotiations often rapid fluctuations in the size and has, ;nrer 1I1i1l. raised questions The next step has been to agree a of balance sheets. In contrast, aboUlthe appropriate regulations for method for measuring risks. For banks have been li mi ted to longer the two types of institutions. Some position risk. measurement will be term instruments in recognition of countries have sought to challenge based on the so-called 'building the risks that they run. the need for different regulations for bloc k' approach. This seeks to banks and securities firms, and d ivide the speci fi c (credit or Finall y, discussions in Brussels instead have proposed a common counterparty) risk on an instrument have take n in the issue of risk standard wh ich follows more from the general mark et risk and concentrations or large exposures closely the banking model. The assigns a capital requirement to which c an arise in investment United Kingdom has sought to each. The sum of the two building activities. Here again, different argue that banks and securities finns blocks is the overall capital practices and markets have made have important differences and as requirement. However, in Basle it the course of negotiations difficult. such merit different regu latory is envisaged that the adoption of the Much as with capital, the aim is to treatment. building block approach will not be develop a prudent system of control obligatory. Rather. it will provide a against the background of widely At present. both Basle and Brussels standard against which the ri gour differing structu res and techniques are seeking to identify that part of and acceptability of other methods in the various EC markets. agreed would result in minimum Slandards applyi ng to Services Directive. the des ire of many member intemalionally active banks and securities firms, wilh countries no t to prejudge the outcome of the national supervisory authorities having d iscretion to Bas le/lOSCO ta lks and the difficulty of reaching impose higher capital requirements. Simil a rl y, a agreement on some of the main issues. (See box for transition period is envisaged in order to allow firms to further detail ,) adjust to Ihe new requirements. Large Exposures Directive In the EC progress has been slow. despite extens ive S ince September of last year, the Council Working discussions throughout last year on the Capital Gro up has been meeting regularly to discuss the Adequacy Directive. This reflects a number of factors Commission 's propos al for a Large Exposures including the impasse reached on the Investment Directive,fI) The proposal, which bu ilds on the (J) Prupos(llforl' C",mdl [);rcClh'~ VII Mv,,;wr;"8 ""d CV'IIro/liM8 Lar8~ &posuru o/Credil/(ls/i'''';0I,S--(:OM(91) 68. 20 Commission's 1986 Recommendation and aims to off-balance-sheet sub-group of the Basle Committee on establish common limi ts for all banks on credit Banking Supervision. In April 1992, a technical paper exposures to individual customers (or groups of closely was distributed to banks and other interested parties related customers). is broadly in line with the Bank 's which set out th e issues and suggested what existing large exposures policy. amendments would need to be made 10 the Basle Accord to enable the recognition of a wider variety of Deposit Protection legally robust netting arrangements. The paper is The Commission Working Party on the Co-ordination inlended to provide a basis for infonnal discussions of Banking Legislation met a number of times in with the industry prior to the formulation of 199 1/92 to discuss what proposals the Commission recommendations by th e sub-group to the main should make regarding the provision of depos it committee. insurance in the EC. The Commission adopted a formal proposal for a deposit protection Directi ve on (iv) Liaison with other supervisors 6 May. Domestic The proposal provides for the establishment of a 'home Co-operation between the Bank and other UK country' system of deposit protection in the EC. The supervisors continues as described in previous reports. 1986 EC Recommendation on Deposit Guarantee Schemes is based around the 'host country' principle, The Basle Committee on Banking Supervision whereby schemes extend protection 10 deposits placed The Comntittee met four times during the year. In its in bank branches on their territory, including deposits in branches of credit institutions with their head office work it continued 10 mo nitor the progress of in another member sta te. A move to a 'home country' implementation in the G 10 countries of the 1988 Basle system would mean that where a credit institution Agreement and the impact of the Agreement. During headquartered in one EC member state-the 'home' th e year an amendment to the Agreement was state-has a branch in another member state, the published which relates to the inclusion of general deposits in that branch would be covered by the provisions in capital (described on page 17). protection scheme established in the home state and not A particular focus of the Committee has been the by any scheme established in the host territory. continuing work to extend the Agreement to cover market risks. A joint meeting of the Committee and This shift in responsibility for compensating depositors IOSCO was held in January 1992. The Committee is is seen as consistent with the allocation of supervisory also studying the implications of the collapse of BCCI responsibilities under the Second Banking fo r internalional supervision, in particular for the 1983 Co-ordination Directive. However, as is reflected in Basle Concordat on the supervision of banks' foreign the draft directive, any legislati on would have to ensure establishments. that depositors in all countries received a mini mum acceptable level of protection (as we ll as that they were A second joint meeting with insurance regulators was provided with infonnation on the compensation they held in December 199 1 at which the supervision of can claim). This implies a certain amount of financ ial conglomerates was th e mai n point of harmonisation be tween schemes in different EC discussion. countries which at the moment show wide variations in their terms and provisions. (The box on page 22 The seventh International Conference of Banking describes the terms of the existing UK scheme for bank Supervisors will take place in Cannes in October 1992. deposits in more detail). EC Supervisory bodies Netting The Banking Advisory Committee (BAC) and the Following the November 1990 report of the Basle Contact Group of EC Supervisory Authorities ('Groupe Committee on Interbank Netting Schemes, the de Contac!') have each held regular meetings during treatment of bil ateral and mul tilateral netti ng set out in the year to discuss practical and technical supervisory the 1988 Capital Accord has been reviewed by the matters. 21 Protection arrangements for bank deposits in the United Kingdom Statuto ry protection arrangements for deposits aggregated, wh ile joint accounts are divided placed with insti tutio ns authorised under UK equall y be tween the accou nt holders (and banking legislation were laid down by Parliament protection extended separately to each share). in the Banking Act 1979. The scheme now Special provisions apply in the treatment of trustee operates according 10 the provisions of the Banking accounts. Act 1987. mod ified in minor respects by subsequent statutory instruments. Funding and administration The scheme is funded by contributions from all Eligibility for protection authorised in stitutions. Each institution makes a The legislation provides for the maintenance of a one-off initial contribution at the time that it is standing fund, to be drawn on when institutions authorised. The resources available to the Fund can authorised under the Banking Act become insolvent be supplemented by the levy of 'further' or subject to adm inistration orders under the contributions at the end of the Board's financial Insolvency Act 1986. The fund provides a measure year (when necessary to restore the Fund) and of protection for sterling deposits in the UK offices 'special' contributions (which may be levied at any o f such institutions. No distinction is made time if payments from the Fund are likely to between protection fo r corporate or personal exhaust its cash resources before the end of a accounts and a de posit may be considered for fi nancial year). The Deposit Protection Board may protectio n regardless o f whether or no t the also borrow fu nds up to a maximum o f depositor is a UK resident. £125 million. Contributions are calculated with reference to an institution's sterling deposit base in Certain deposits are not eligible for any payment the United Kingdom (as defined for the scheme's from the Fund. Apart from all non-sterling purposes), subject to a lower limit on the initial deposi ts. these include secured deposits and contribution (£ I 0,000) and an upper limit on the deposits with an original term to maturity of more initial contributio n or further contributions than five years; and deposits placed by other (£300,000). An overall ceiling of 0.3% of the authorised institutions. by companies in the same sterling deposit base also applies to net payments group, or by directors, controllers and managers of made under all call s. The Fund's administrators the institution (or their close relatives). recently undertook an exercise to collect information on contributory institutions' deposit A depositor who is eligible for protection is entitled bases with a view to making a call for special to receive a payment equal to 75% of hi s/her contributions. A number of the larger institutions protected deposit. The protected deposit is defined made provisions in 19 9 1 against their likely as the bank's total liability to th e depositor in liability. respect of principal and accrued interest on sterling deposits made with the bank's UK offices. This The scheme is managed by the Deposit Protection may be reduced, however, by amounts which the Board, which includes. as ex-officio members, the depositor owes to the bank. The maximum amount Governor (Chainnan), Deputy Governor, and Chief of a protected deposit is £20,000; accordingly, the Cashier of the Bank of England. The Chainnan has max imum payment available to anyone depositor the power 10 appoint additional members, three of is £ 15.000. whom must be directors, controllers or managers of For the purposes of calculating protection contributory institutions. The Board is a separate payments, separate deposits in the same name are statutory body from the Bank of England. 22 The BAC once again commiss ioned a Community for EC banking supervisors of the introduction of the wide solvency observation exercise, to assess the single 'passport' arrangements under the EC Second impact of the requirements of the EC Own Funds and Banking Co-ordination Directi ve. The Committee of Solvency Ratio Directives on credit institutions in Governors has asked the Sub-Committee to review the Member States. The observation exercise in the implications of the closure of BCCf for international coming year will focus on compliance with the banking supervision in conj unction with the Basle prov isions of the Directives (due 10 be implemented in Supervisors' Committee. full in all member stales by the beginning of 1993), and wi ll monitor developments in the solvency position of The Sub-Committee has al so discussed the role of the the European banking system as a whole. European System of Central Banks in the area of o banking supervision and is keeping this maner under The Oroupe de Contact has been primarily involved in review. I, work on the practical implications of the implementation of the Second Banking Co-ordination (v) The GATT Directive. Other subjects di scussed include country The 8 th (Uruguay) Round of multilateral trade ri sk provisioning, investi gation and enforcement negotiations under the General Agreement on Tariffs powers, the control of banks by non-banking groups and Trade (GATT) aims, among other things, to create and internal controls and organi sation in the foreign disciplines in new areas of trade, including services, exchange area of banks. Mult ilateral rules governing trade in services are laid down in the draft General Agreement on Trade in EC Governors' Sub-Committee Services (GATS ). Special attention has been given to The EC Governors' Banking Supervisory drafting a set of commitments in financial services Sub-Committee, established in accordance with the which participants can elect to take on. The draft Delors report, met three times last year. includes a ' prudentia l carve out' confirming that prudential measures can be taken provided they arc not In March 1991 the Sub-Committee submitted to the used as a means of avoiding obl igati ons under the Commitlee of Governors a report on the EC agreement. There is also provision for the panels Commiss ion discussion paper ' Making Payments in which adjudicate on disputes under the Agreement to the Internal Market' which noted that central banks and include appropriate fin ancial services expert ise. supervisors have a range of interests in the field of retail payments. As a res ult of this report, the Negotiations under GATT re-opened following the Committee of Governors is represented on the EC failure to produce agreement at the Brussels Min isterial Commission's consultative group on retail payments. meeting in December 1990, and in January 1992 the During the year the Sub-Committee has taken forward Trade Negoti ations Committee endorsed a proposal for work on a report to the Committee of Governors on the a programme of limited work on a draft "Final Act'. supervision of conglomerates providing financial The negotiation of initial commitments in services are services and has addressed the pract ical implications one important element in this. 23 Part III institut ion became an exempt person by means of a statutory instrument (see below). In five cases Operational supervision instituti ons were obliged to surrender because of a change in the legal identity of the inst itution in its The authorised population country of incorporatio n: on these occasions reauthorisation occurred immediate ly. Four UK Authorisations incorporated institutions surrendered their authorisations on becoming branches of their overseas In the year to end-Febru ary 1992. twenty- fi ve parent s: authorisations were granted to the parent application s for authorisation were granted- six to institutions concerned. One institution hitherto U K-incorpora tcd institutions and nineteen to in corporated overseas became incorporated in the in stitutions incorporated overseas which wished to United Kingdom. open a branch in the United Kingdom. The level of authorisations was the highest si nce 1987. but some of In cases whe re an institution surrenders its the increase in activity was more apparent than real. It authorisati o n but retains deposits, the Bank's included five reauthorisations of foreign branches supervisory role cont inues until such time as all consequent upon a change in their legal identity at depositors are repaid, The Bank has the power, inter home, and another five surrenders and reauthorisations alia, to give directions to former authorised which were necessitated by inst itutions changing their institutions. However, no directions were given in country of incorporation (see below). 199 112. Table XI Revocations and restrictions New authorisations Sections 11 to 14 of the Banking Act provide the Bank. y ....o~nd. F"bN:uy 1986 1987 1988 In'" 1990 1991 1992 with wide powers to take formal action against an Au\hon»IIOOS 18 37 21 12 15 15 25 authorised insti tut ion if the Bank considers that the institution does not. or may not, fulfil any of the 5 18 institutions were authorised under the Banking Act minimum c rite ri a for authori sation set down in at the end of February 1992. 255 of these institutions Schedule 3 to the Act. In the year 1991/2, one were represented in the United Kingdom by branches institution had its authorisation revoked without notice of institutions incorporated overseas, and 263 were following the making of a winding-up order against incorporated in the United Kingdom. Of the the institution in the United Kingdom. One notice of UK- incorporated institutions. 78 were subsidiaries of intention to revoke was iss ued by the Bank under overseas companies and 8 were joint ventures section 13 of the Act. Four institutions had their involving overseas inst itutions. Institutions from 72 authorisations restricted by the Bank by the imposition nations have presences in the United Kingdom, of condition s 011 their businesses-in two cases although for 8 countries these are only representative restrictions were carried out urgently under section 14 offices . of the Act. Table XIII Table XII Number of authorised inst itutions Rcvocations and restrictiollS(o) Year '0 "nd·hbruary 1986 19117 1988 1989 1990 1991 1992 F..nd. F"bf\J"I)' ,,~ 1988 ,,,. '"'' R"VC-:llion aulhoriS.llon , , , , U K ·'~c:d "" ». 289 ""m "'" 01 Rwri<,ion ,horiwioo (bl , , , l""orpor>lc:d 0<11$"," '" 0' ... • • • Ihc Unllc:d K,n,dam '" '" "" R"vc-:atioo of restnoled '" '" ". '" '" '" '" aulhorisallOO (b) T~' '" '" '" '" '" "" '" (0.) 11Ietobl< _~ . doo ,.. "", 1ht_', IonaaI_ ot~_'" .. unruoo_ p ..... ln _~...... _...",dO:l _ _ dfeaWIIiJ. ... ~yar ..... ;.,.few 24 Administration orders and liquidations Administration orders,li{IUidation proceedings, Two institutions were put into liquidation in 199112, and authorisation under the Banking Act one as the result of the Bank exercising its powers When an institution is in difficulties. in addition 10 under Section 92. One ins titution was placed in consideri ng whether the Schedule 3 criteria are met. administration. and, in the case of one other institution, the Bank considers whether the interests of an administration order was lifted. depositors need to be protected by the Bank petitioning the courts for a windin g-up or When an admini stration order has been made in administration order. relation to an institution (or a provisional liquidator appointed), the institution may nevertheless remain The court has the power to make winding-up orders in respect of companies regardless of their place of authorised. The box opposite explains the Bank's incorporation. Under section 92 of the Act. the Bank powers in this area in more detail. may app ly for winding-up orders in relation to authori sed institutions. Reports commissioned under secti on 39 or 41 of the Act can be used to obtained Supervision and enforcement further information about the so lvency of an institution or the state of its business. and in some Statement of principles cases such reports will be used to provide evidence in support of a »Ctition presented by the Bank . As The following papers are added to the table in well as being wound-up on the petition of the Bank. paragraph 2.5 of the Statement of principals published authorised institutions may go into liquidation under in May 1988 under section 16 of the Act. the general provisions of the Insolvency Act 1986. Amendmen t to the Ba nk 's Noti ce In certain circumstances the courts may decide to 'Implementalion in the United Kingdom of the appoin t provis ional liquidators to take temporary Directi ve on Own Funds of Credit Institutions' control of the business and assets of an aUlhorised (BSO/199012) (BSOI I 9921 I). Issued January in stitution until such lime as the court decides 1992. whether it would be appropriate fo r a winding-up order to be made. While provisional liquidators are responsible for the runni ng of the institution it may (ii) Further Amendments 10 the Bank 's Notice 'Large so metimes be appropriate for the Banking Act exposures undertaken by institutions authorised authorisation of th e institution to be retained under the Banking Act 1987' (8S0 /1987/1) (although the Ban k has the powers to revoke the (BSO/199212). Issued February 1992. au thorisation or to impose restrictions). However. once a winding-u p order is made in the United (i ii) Amendme nts to the Bank's Not ice 'Loan Kin gdom against an authorised institution. or a transfers and securitisation' (BS0/1989/1) resol ution for its voluntary winding-up is passed in (BSO/1992/3). Issued April 1992. the United Kingdom. Section II (6) of the Banking Act requires the Bank 10 revoke the authorisation. Statutory instruments Where an inst itution incorporated outside the United In the year since end-February 1991 four statutory Kingdom is subject to cvents in foreign jurisdictions instruments have been made under the Act: which in th e Bank 's judgement correspond to winding-up orders or resolutions for voluntary 1991 No 1776: The Bal/king Act 1987 (Meaning of winding-up in the United Ki ngdom, the Bank has Deposit) Order 199/ discretion whether to revoke aUlhorisation. This Order amended the definition of deposit in section The Banks (Administration Proceedings) Order 1989 made the administration procedure a\'ailable in 5 of the Act to exclude any sum to which a person respect of authorised insti tu tions which are becomes entitl ed after a peliti on has been presented for companies incorpor-lted in the United Kingdom. A the winding up of an insti tution. petition for an administration order may be made by th e authorised inst itution or its directors, by a 1991 No 1684: Deposit Protection Board (In crease of credi tor or by th e Bank. Section I1 (8) of the Borrowing Limit) /991 Banking Act states that the Bank may revoke the authorisation of an in stitution if an adm inistration This Order prescribed a limit of £125 million for the order has been made in respect of that institution: borrowing power of the Deposit Protection Board however. revocation is nOt mandatory in thi s case. " contained in section 64(1) of the Banking Act 1987. conducted with the co-operation of the institution and The limit replaced the limit of £50 million prescribed do not involve the use of the Bank's statutory powers. by the Deposit Protection Board (Increase of They include both planning and follow-up visits. The Borrowing Li mit) (No 2) Order 1990. which was total number of meetings in this part of the supervisory revoked. process was 250. 1991 No 2168 The Bankillg Act 1987 (Exempt Bank officials regularly undertake visits to the head Transactions) (Amendmellt No 2) Reglllations 1991 offices of institutions overseas a nd overseas subsid iari es of UK-institutions. This year officials These Regu lations amended the Banking Act 1987 visited countries in Europe. the Far East, Middle Easl, (Exempt Transac tions) Regulations 1988. They and North America. 74 meetings were held at home replaced refere nces to 'the Council of The Stock and abroad with overseas supervisors. Exchange' with references to 'The Stock Exchange' (defin ed in regulation 1(2) to mean the International Investigalions into authorised institutions Stock Excllllnge of the United Kingdom and Republic of Ireland Limited) consequent on a change in the Section 39 of the Act gives the Bank powers to require constitution of The Stock Exchange. a bank to commi ss ion reports from reporting accountants to establish the adequacy of its systems 1991 No 2734 The Banking Act 1987 (Exempt Persons) and controls and the accuracy of its prudential returns. Order 1991 In addition to routine Section 39 reports, special reports may be commissioned if a specific area of Thi s Order added Keesler Federal Credit Union to the concern is identified. Section 39 also allows the Bank list in Schedule 2 to the Act of persons exempted from to require the institution, or other persons, to provide the restriction on the acceptance of deposits in respect documents and information to the Bank. of deposi ts made by members of US forces, members of the civilian component of US fo rces, and their In the year 199112,728 section 39 reports were camed out (4 14 of them on foreign branches), includin g dependents. special reports on four institu tions. Interviews, visits and prudentiaVstatisticai Section 41 of the Act empowers the Bank itself to returns commission reports from competent persons on 199 1/92 was a busy year with over three and a half authorised institutions where areas of concern have thousand mee ti ngs held. The most frequent-over been identified. Th is occurred four times in the year 2.000-were non-routine meetings held to discuss 1991/2. specific iss ues. The Bank's routine meetings are of two types: the prudential interview to discuss the Shareholder controllers of authorised institution' s performance: and the trilateral meeting institutions attended by the Bank, the inst it ution and its reporting The Banking Act provides that persons must notify the accoun tants where reports under section 39 of the Act Bank of their intention to take or increase a controlling produced by the reporting accountants are discussed. in terest in an authori sed institution. The Bank There were 462 prudenti al interviews with insti tutions assesses, inter alia. their fitness and propriety to incorporated in the Un ited Kingdom, 310 routine become shareholder-controllers at the proposed level. interviews with branches and 356 trilateral meetings. 45 notifications fo r new or increased control were These meetings were even ly spli t between those held received in 199 112, some on behalf of more than one on lIlSlltutlons own premises and those held at the person. I I notificat ions were withdrawn, 2 are stit! IQ Bank. be considered. and 32 were passed withoul objection by the Bank. The rev iew team system, whereby Bank staff together with seconded bankers and accountants visit the premises of authorised institutions to assess the quality Representative offices of overseas institutions of their lending and the adequacy of their systems and In the past year, 21 overseas institutions notified the controls, continues to operate. In addition, visits are Bank of their intention to establish representative conducted to review the foreign-exchange operations offices in the United Kingdom, and 8 institutions of institutions and assess the guidelines set by the Bank notified the Bank of their intention to change the name for foreign-exchange positions. These visit s are used by them in the United Kingdom. 26 The Bank continues to receive, and to in vesti gate, executed at a number of premises in the company of reports of institu tions which appear to have established the police. representative offices contrary to section 75 of the Act. Such investigations, in volving liaison with local pol ice During the year the Bank obtained injunctions in three forces and overseas regulators, invariably indicate that cases under section 93( 1) restrai ning further if establishment did take place it was either via a mail deposit-taking. In two of these cases the Bank also forwarding service or a short-term rental of office obtained orders freezing the assets of those involved accommodation facilities. Typically, the 'banks' and requiring them to di sclose details of their assets. purporting to be represented are fictitious, or are The Bank made one application for a section 48 incorporated where no control ex ists over registration repayment order against unauthorised deposil-lakers, of banking names or in centres which issue banking but the defendants proved to have insufficient assets to licences 1Il the absence of a banking meet their debts and proceedings were abandoned. authorisation/supervision regime. During the year, no The Bank petitioned under the provisions of section 92 prosecutions resulted from the Bank's investigation of for the compulsory winding-up of onc company which such reports. had accepted deposits without authorisation; pending the hearing of the petition. the court appointed a provisional liquidator. Banking names and descriptions Twenty-six au thorised institutions changed their Following prosec ution by the Bank. two former registered names during the year after giving notice to directors of a former authorised institution were the Bank under section 70 of the Act. No notices of convicted under section 94(3) of failing to provide the objection to the proposed name changes were issued. Bank with relevant information. A prosecution for offences under sections 39 of the 1979 Act and 35 of The Bank also dealt with 130 names submitted during the 1987 Act was abandoned on the death of the the year by unauthorised ins titut ions in order to defendant shortly before trial. A third prosecution. consider whether such names would be likely to breach commenced last year, has been committed for trial at the prohibition on banking names in section 67 of the the crown court. Act. The Bank indicated that 8 of the proposed names did appear to breach the prohibition. Discount houses During the year the Bank also became aware of, and It has been a difficult period for the discount houses pursued, a number of cases where names and and they have not been immune from a deterioration in descriptions were being used in a manner that appeared asset quality, particularly in those activities outside to breach the prohibitions in sections 67 and 69 of the their traditional money-market business. Act. Such cases were either regu larised without fonnal action being required or no physical presence of the There was one change in the number of discount enti ties in question or their representatives could be houses during the year, when one house surrendered its identified. authorisation in February 1992. The group concerned now has a sterling money-market relationship with the Bank through its gilt-edged market maker. As a result, Prohibition on unauthorised deposit-taking the Bank has a direct dealing relationship in the The number of new investigations of unauthorised sterling money market with seven discount houses deposit-taking increased sharply to 37 (26 in 1990/9 1), authorised under the Banking Act and two gilt-edged although a half dozen major cases, some commenced market makers. in earlier years, absorbed the bulk of the investigators' attention. The discount houses are supervised by the Wholesale Markets Supervis ion Division of the Bank. The Bank exercised its powers of investigation on 21 Supervisory arrangements are largely unchanged from occasions during the year. with an average of two those set out in the Bank's paper of October 1988 notices under section 42 of the Banking Act 1987 (Bank of Englalld Ope/'{/(ions in the sterlillg mOlley being served in each investigation. These powers market) although minor refinements continue to be require the person on whom a notice is served to made to accommodate new developments. In addition. provide relevant documents, information and answers the Bank now mon itors the position of the discount to the investigator's questions. In the course of one houses with respect to the terms of their exempti on in vestigati on, search warrants were obtained and from the full provisions of the EC Solvency Ratio 27 Directive. Over the past year, the Bank has paid management of liquidity and the systems and controls particularly close attention to credit issues. the necessary to avoid money laundering. 28 Part IV Organisatio n and staffing of Banking Supervision Division Staff Staff numbers in Banking Supervision Division over the year 1991 /2 showed no material alteration from those of the past 3 years. For the year to end-February 1993 the budgeted Chart 6 number of staff, at some 193. is only marginally smaller than Stall' numbers in 8:lIIking Supervision Division the budgeted number in the year to February 1992. T he Division continues to value highly the work of it s inward secondees of whom 3 come from clearing banks, 5 from finns of chartered accountants and 2 from firms of solicitors. Nu,"b<'1 101;1 Training The Division 's extensive training programme has continued with staff attending external courses in accountancy, banking and legal issues. In addition to external training. members of the Division again attended various internal management and ski lls courses. New graduates participated additionally in a Bank-wide graduate training programme and joined other - " newcomers to the Di vision on an introductory course covering a number of supervisory topics. - . The Division continues to have staff on outward secondments in several overseas areas. Within the United Kingdom. two managers started secondments during the year. at a clearing and at a merchant bank. The Di vision welcomes the opportunity presented by secondme nt s to bro aden the experience of the staff concerned. Visits to Banking Supervision Division The number of visitors to the Division from institutions abroad Table XIV fell from 50 in the previous year to some 25. probably in part Allocation of Uanking Supervision Division stall' owing to travelling conditions associated with the Gulf War. Staff Institution, End-February "., These visitors are mostly on short-tenn visits to familiarise UK ~t.lil and mm:lw>t banb (0) "" "" "" UK bran 29 In addition to thi s activity, training programmes were held in the course of the year both in London and abroad for staff representing about a dozen overseas supervisory authorities. Further programmes are planned for the coming year. In addition to bilateral training and advice. the Bank continues to provide techni cal assistance under the auspices of such organisations as the IMF and World Bank. Information systems Development of the Di vision's Management Information System during the year concentrated on the provision of personal computing software tools for the analysis and graphical representation of statistical infonnation. A rev iew of the Bank's information technology strategy was completed at the end of 1991: the practical implication for the Division will be to move the existing systems to a technical platform which makes them easier to use and cheaper to run. The implementation will be undertaken in a project, expected 10 run throughout 1992 and for much of 1993. 30 Appendix 1 Banking Supervision Division organogram The Governors Board of Bankin g Supervision Brian Quinn Executive Director I R A Bames Assistant Director Head of Banking Supervision I I I I RH Farram D WGreen J Bartlett D J Reid Deputy Head T Deputy Head Depury Head Dep/f/y Head Policy/Legal United Killgdom Medium and Overseas ballb Overseas b(m/i:s retail allll merchant smaller UK North America " Rest of the WorM Ixmks institutions West Europe R J MacOonald D A Reeves REP Oiggory (l) MI'$ P D Jxbon(2) CMDB"d EAJamWl Mal1l1Ba Ma"agrr Ma""ger Managu M 01WgUI Group 6 Grqgp 11 Grm.p 15 Adminislra/"",. Group I ~ g2f.: A -B &. T·Z lRnmorl:. Japan SIaff 'mining !Agal I cleorus Fron ~r, Fm/and, P J Marr /-".umbo ~,g. J A Hoskins P J Marr R A Alien o M Sutbtrland Mal1l1~' Narway MU""J:er M"""Ba D EWII MtJllogu G,mop 7 G""'P 16 Rt"''''' Mrs P 0 Jao:kson Oro«p4 C·E PACSmoul AfghanisI"". TMm";S;I, Mw"gm $collish tJNJ M(JIlagu A ..sira/asia. C_' OI/ter UK clw,ers P W Filmer Group 12 &M,rm Eltra{H. R DChalmers Gcn~rtJl Policy. Mal1l1B~r USA Indian slIb,C"","""n,. Ma""gr' Foreign uclrl1nge Cl Thom"",n Graup8 /Had. T«h",~a/ M(JI1Qgu n J CCIcI ...d Sau/h Afri~a tnsislancr WO RSwinllCY GroupS Man(Jgrr M01UJ8tr Major UK Group 11 M J Fugglr Accoullloncy &: merdumr ban/<.< ~::':,c"""" AuSlria, M"TUJgtr sped~1 i ..u ~s, Group 9 Belgi"m. Ca,,,,d,,. O"'''pi7 Serrtruryo! M·S GrmulnY. Middl" EllS'. Board of 8(mki"8 Swilurl,,"d Cyprus. Supervision, [o R Dargie r"'k~y Secrttary of M(magtr K S Poolcy lkposlT P'ol (l)en M,M," o.u<")' W M Hr 3J Appendix 2 Current supervisory notices Tile following is a list of po/icy and practice notices issued by Banking Supervision Division which are currenrly ill force: Title Date of issue Foreign currency exposure April 1981 Measurement of liquidity July 1982 Connected lending; accounts: large exposures; fraudu lent invitations; floating charges (B5DI198311) April 1983 Foreign currency options April 1984 Note issuance facilities/revolving underwriting facilities (B5DI1985/2) April 1985 Statistical notice 10 monetary sector institutions (released in conjunction with previous paper) April 1985 Large ex posures in relation to mergers and acquisitions (85DI198611) February 1986 Subordinated loan capital (8SDII986/2) March 1986 Consolidated supervision (850/1986/3) March 1986 Statistical notice to monetary sector institutions (released in conjunction with previous paper) June 1986 Large exposures (8S0/1987/1) September 1987 Guidance note on accounting and other records and internal control systems and reporting accountants' reports thereon (8S01198712) September 1987 Guidance note on reporting accountants' reports on Bank of England returns used for prudential purposes (BS0I1987/3) October 1987 The Bank of England's relationship with auditors and reporting accountants (B5D/1987/4) December 1987 Large underwriting exposures (BSDII98711 .1) (to be read in conjunction with the large ex posures paper) February 1988 Advertising for deposits (BSO/ 19881 1) April 1988 Banking Act 1987 Section 16: Statement of principles May 1988 Supervisory treatment of ECU Treasury bills (8S0/198812) October 1988 Letter to authori sed institutions concerning money laundering January 1989 Loan transfers and securitisation (BSD/198911) February 1989 32 Consolidated supervision (BSO/1989/2) (amendment to the 1986 paper) March 1989 Further letter to authori sed institutions concerning money laundering November 1989 Letter to authori sed institutions concerning debt provisioning (the new matrix) January 1990 Large exposures (BSO/1990/1) (amendment to the 1986 paper) February 1990 Letter to authorised inst itutions concerning advertising of interest bearing accounts December 1990 Letter to authori sed institutions concerning guidance notes issued by the Joint Money Launderi ng Working Group December 1990 Code of conduct fo r the advertising of savings and deposit accounts and money-market accounts December 1990 Implementation in the United Kingdom of the directive on own funds of credit institutions (BSD/1990/2) December 1990 Implementation in the United Kingdom of the solvency ratio directive (B5DI1990/3) December 1990 Consolidated supervision (BSD/1990/4) (amendment to the 1986 paper) December 1990 Statistical notice to reporting banks on capital adequacy treatment of deferred tax assets December 1990 Implementation in the United Kingdom of the directive on own fu nds of credit institutions (BSD/1992/1) (amendment to the 1990 notice) January 1992 Large exposures (BSD/199212) (amendment to the 1987 paper) February 1992 Loan transfers and securitisation (BSD/1992/3) (amendments to the 1989 paper) April 1992 33 Appendix 3 Geographical representation of overseas institutions TIle following table shows the geographical origins and SUlIIIS off oreigll ;IIS1iluli01l$ represellted in the United Kingdom at end-February /992. Country of Branch UK incorporated Controlling Re presentative To,," owncr>hip of an subsidiary of an ( 15% or more) offices (2) overseas overseas stake in a bank. (I) Bank(l) Non-bank consorlium bank Afghanistan I Argentina I 2 Australia 8 7 15 Austria 4 I 5 Bahamas 2 2 Bahrain 2 2 5 Bangladesh I I 2 Belgium 5 6 Bemlllda I I 2 Brazil 4 5 9 Bulgaria I I Canada 6 3 9 China I 2 3 "''''Cyprus 2 2 4 CLechoslovukia I I Denmark 2 2 I 5 Ecuador 2 2 Egypt 2 2 Finland 3 I 2 6 France 14 7 10 31 Germany 15 2 2 i9 Ghana I Greece I 3 4 Hong Kong 4 2 7 Hungary I I India 6 6 Indonesia I 4 5 Iran 5 6 Iraq I I Ireland 7 3 I 11 Israel 2 2 3 7 Italy 14 3 27 44 Jamaica I I Japan 27 6 4 20 57 Jordan 2 Kenya I I Korea 7 2 7 16 Kuwait I 6 8 Lebanon 2 2 4 Libya I Lu;(cmoourg I 2 3 Malaysia 2 2 4 Mexico 4 2 7 Netherlands 5 3 8 New Zealand I I 2 Nigeria 2 4 6 Norway 2 I 4 Pakistan 4 4 Panama I Philippines 2 2 Poland I I Portugal 4 5 34 Country of Branch UK incorporated Controlling Representative Total o wnershi p or an subsidiary of an (1 5% o r more) offices (2) o verseas overseas stake in a bank ( I) Bank(l ) Non-bank consort ium bank Qatar Ro mania I Russia I Saudi Arabia 4 2 7 Singapore 4 4 South Africa 4 3 7 Spai n 7 9 17 Sri Lanka I I Sweden , 3 8 Switzerl an d 11 I 27 Taiwan I "3 4 Thailand 3 3 Turkey 2 7 IQ Ugand a I UAE 4 4 USA 27 12 6 3 10 58 Ve nczucla 2 2 Yugoslavia 7 8 Zambia Totals 2S5 67 11 11 18S S29 a/ ....hich (3) I') EC coontries(S) 7S 19 " 4 Other Europe 31 11 2 "34 78 North Ameri, a 33 6 3 10 67 b p"" 27 "6 4 2. 51 Australia & New Zealand 9 7 I 17 Other Asia 37 , 2. 62 Middle East 3 , 48 Other "18 I 26" 46 (I) In,ludes institut ions au thorised to , ondu' i banking business in the country of origin. (2) This covers only those representative offkes ind uded in the list publi shed at the end of January 1992. (3) Representing 8 in stitutions. (4) Representing 526 in stitutions. (5) Other than the United Kin gdom. 35 Appendix 4 List of institutions authorised at 29 February 1992 UK-incorpor.lted"l C;t ioorp Investment Bank Lld City MerchanlS Bank Lld ABC lnt~mational Bank plc City Tru~1 Lld ANZ Grindlays Sank plc Clive Discount Company Lld Abbey National plc C I ~ SrOlllers Lld Abb(,y National Tre;t>ul')' Services plc Clydesdalc BMk pit Adam & Company plc Clydesdalc Bank Fin~nce COl'plml tion Lld Afghan National Credit & Finance Lld Combined Capital Lld Airdrie Savings Bnnk Commercial Bank Trust plc Ailken Hum.: Snn); plc Commercial Bank of London plc AI; international Bank Lld Confederation Bank Lld Albaraka Inlernnlionul Bank Lld Consolidated Credits Bank Lld A l e~andcrs Discount plc Co-operlllive Bank plc Alliance Trust (Finance) Lld County NalWesl Lld Allied Trust Bank Lld Cout!s & Co Anglo·Romanian Bank Lld (l) Cranehealh Se<:urilies Lld Anglo Yugoslav B~nk Lld (l) Credilo [laliano International Lld Hen ry Ansbacher & Co Lld Credit Suissc Financial Products AS§emblies of God Pr0IlC'''y Trust Associates C~pital Corporat'on Lld DG Investment Bank l.td AvroTruS! Lld Daiwa Europe Bank pie Dalbeanie Finance Co Lld BNL In vestment Bank plc Darlington Merchant CredilS Lld Banco H, spaoo Americana Ltd Dartington & Co Ltd Bank Leumi (U K) plc Davenham Trust pie Bank of America International Ltd Deacon Hoare & Co Lld Bank of Boston Ltd Den norske Bank pie Bank of Cyprus (London) Ltd The Dorset. Somerset & W,IIS Investment Bank of SCOlland Soc,ety Lld Bank of Tokyo InternatIOnal Ltd Dryfield Finance Lld Bank of Wales plc Dunbar Bank plc Bankers Trust International plc Duncan Lawrie Lld Banque Beige Lld Banque de la MMiteITan.Ce (UK) Ltd Eccle$ Savings nnd Loans Lld Banque Nationnle de Pans plc &lington plc (in adminis!r.llion) The Saptist Union Corpor.ltion Ltd Enskilda Securilies-Skandinaviska Enskilda Lld Barclays Bank plc Equatorial Bank plc Barclays de Zoele Wedd Ltd Exeter Bank Lld Sardays Sank Trusl Company Lld Baring Brothers & Co Lld ABIBank(UK)Lld Bclmonl Bnnk Ltd Fa irmount Trust Lld Benchmark Bank plc Family Fi nance Lld B~neficial Bank plc FennoScandia Bank Lld Birmingham Capital Trust plc Finandal & General Bank pie Boston Safe Deposit and Trust Company (UK) Ltd James Fin lay Bank Lld BritiSh & Commonwea lth MUchant Bank plc (in adminis!r.ltion) First National Bank plc The British Bank of the Middle East First National Commercial Bank plc Briush Credil Trusl Lld The Firsl Personal Bank plc The British Linen Bank Lld Roben Fleming & Co Lld Bntish Ratlways Savtngs Company Lld Ford Credit plc Brown. Ship Icy & Co Lld Foreign & Colonial Management Ltd Bunge Finance Ltd Forward Trusl Lld Roben Fraser & Partners Lld CLF Munic'pal Mutual Bank plc Frizzell Banking Services Ltd Caledonian Bank plc Cater Alien Lld Chancery pie Gartmore Money Management Lid The Chant,es A,d Foundalion Mono:y Gerrard & Nalional Ltd Management Company Lld Girobank plc Chartered Trust plc Goldman Sa.chs Lld Chartered WestLB Lld Goode OUlTllnt Bank plc ChanerhOllSC Bank Lld Gr.lnviUe Trust Ltd Chase Inve,lment Bank Lld Gresham Trusl plc Che£tcrfield Street Trust Ltd Greyhound Bank plc Guinness M(lhon & Co Lld Cit,bank Tru~t Lld (1) Including partnerships fonncd under lhe law of any pa" of the United Kingdom. (2) Conso"ium banks, 36 HFC Bank plc The National Mortgage Bank plc Habibsons Bank l.1d National Westminster Bank plc Hambros Bank Led NationsBank Europe Led Hampslllre Trust plc The Nikko Bank (UK) plc Thc Hardware Federation Finance Co Lld Noble Grossan Lld Harrods Bank l.1d Nomura Bank International pIe Harton Securities l.td Nordbanken UK l.td Havana International Bank Lld Nonhern Bank Lld 'The Heritable & Gcneral lnY1:stment Bank l.td Northern Bank Executor & Trustee Compan y l.1d Hill Samuel Bank l.td Norwich General Trust Led Hill Samuel Personal Finance l.td Nykredit Mortgage Bank plc C Hoarc& Co Julian Hodge BlIlk l.td Omega Trust Co ud Holdenllurst Securities plc HongkongBank London Led PaineWebber International Bank Led Humberclyde Finance Group Led Pooplts Bank Led Hungarian International Bank Led Plliladelpllia National Led Pointon York l.td 3. plc The Private Bank & Tru st Company Led 3i Group plc Propeny l...ending Bank plc I8J lntcrnationall.ld Provincial Bank plc Independent Trust and Finance l.td International Mexican Bank LedO) Ralh Investment Cornpany Led [ran Overseas Investment Bank l.tdO) R Raphael & Son s plc Italilll International Bank plc Rathbone Bros & Co Led Rea Brothers l.td Reliance Bank l.ld Jordan International Bank plcl2) Riggs A P Bank Lld Leopold Joseph & Sons Lld N M RoihschiLd & Sons Lld Roxburghe Bank Lld WB Bank (UK) Led Royal Bank of Canada Europe Ltd King & SlIaxson l.1d The Royal Bank of ScOtland plc KJeinwort Benson Lld Royal Trusl Bank Kleinwon Bcnson InvCSlment Management Led RoyScot Trust plc Korea Long Tenn Credit Bank International Ltd Sanwa International plc LTCBlnternational Lld Saudi International BankU) Lazard Brothers &; Co l.td (AL-Bank AI·Saudi AI _Alam i lid) Lloyds Bank plc Schroder Leasing Ltd Uoyds Bank (BLSA) Ltd J Henry Schroder Wagg &; Co l.td Uoyds Bowmaker l.td Swtiabank (U K) Ltd Uoyds Merchant Bank Led Swttish AmIcable Money M ~ nag ers l.ld Lloyds Private Banking Ltd Seccombe MarshalL &; Campion plc Lombard Bank ud Seeu,," Homes Ltd Lombard & Ulster Lld Sccurity Pacific Trust l.td Lombard North Central plc Singer &; Friedlander lid London ScottiSh Bank plc Smith & Williamson S ec urilie ~ London Trust Bank plc Soc;~tt Gtntrnle Merchant Bank plc Lordsvale Fi nance plc SouthM:a Mongage & In ve Stment Co lid Standard Chartered Bank McDonnell Douglas Bank Lld Standard Chartered Bank Africa plc McNeill Pearson l.ld Sterling Bank & Trust Lld Manchester Exchange and Investment Bank Lld Svenska Intcrnat;oMl plc W M Mann & Co (Investments) Lld Manufacturers Hanover Ltd TSB Bank plc Marks. and Spencer Financial Services Ltd TSB Bank Nonhern Ireland plc MaM: Westpac Ltd TSB Bank Scoliand plc Mathcson Bank Ltd Tokai Bank Europe Lld MatLock Bank l.td Turkish Bank (U K) l.td Meghraj Bank l.1d Tyndall &. Co Lld Mercury Provident plc Merrill l.ynch In.emational Bank lid UBAF Bank l.td(2) Thc Methodi st Chapel Aid Association lid UCB Bank plc Midland Bank plc ULCTrust Lld Midland Bank Finance COrpornt,OIl lid Ulster Bank Lld Midland Bank Trust Company lid Umb.ank plc Minorics Finance: Ltd UnIon Discount Comp3ny L.d MinsterTrust ud The United Bank of Kuwait pk(2) Samuel Montagu &. Co ud United Dominions Trust l.td Morgan G1'cnfell &; Co l.td Unity TnlS! Bank plc Moscow Narodny Bank Lld Mount Banking Corporalion Lld Wagon Finance Ltd Mutual Trust & Savings Ltd S G Warburg & Co l.td Mynshul Bank plc Western Trust & Savings lid Whiteaway J...aidlaw Bank Lld NHB Group Lld Wimbledon & South We st Finance plc NWS BANK plc Wintrust Securities Lld National Guardian Mortgage Corporation l.td Woodcllester Bank UK plc 37 Yamaichi Bank (UK) plc The Bank of lrelandl~ ) Yorblllre Bunk plc Bank of Montreall') HFYoung&CoLld 11Ie Bank of New YorkUJ Bank of New Zealand<') 1 Incorporated outside the United Kingdomll) The Bank of Nova ~ia($) Bank of Oman Ltd Bank of Seoul ABN AMRO Bank Nvt.) The Bank of Tokyo, Lt"') ABSA Bank Lld The Bank of Yokohama. Udl') AlB Capital Markets plcl' ) AlB Finance Ll,,4) Bank Saderat Iran Bank Scpah-lran ASLK·CGER BankH) Bank Tejllr.lt All,ed Bank of Pak i ~ t an Ltd Bankers Trust Companyl'l Alli ed Banking Corporallon Bankorp Ltd Allied Irish Bnnb plcl" Banque Arab<: et Intemationale d'1nve5lissement(4) An",rican E~press Bank LldlS) Banque BanOl"llbe(4) Anglo Irish Bank Corporation p1e(4) Banque Bru~e[[es Lambert SA<~) Arab African IntCmalional Bank Banque Fl"Iln~aise de rOrien!I') Arab Bank plc Bnnque Fr-Jn,aise du Commerce E~t~rieur'4J Ar'~b Banking Corpor'~ lIon BSC Banque tndosu~tl~J Arab National B,mk Banque Intemationale ~ Lu~embourg SAI4) The Ashikaga B~nk LldlS) Banque Nationnle de Pnri sl~) Au'tr-.JJia & New Zea land Aankin g Group Ltdl S) Banque l'nribas(4) Banque Wonns(4) RfG Bank AG(4) Bayerische Hypothcken-und W«hsel- Bank AG4) BSI-Barn:a del la Svizze1'3 ltaliana(S) Bnyerische Landesbank Girozentrale(4) Barn:a Cassa di Risparmio di Tonno SpA(4) Bayerische Vereinsbank AG4) Barn:a Commerc,ale lt al iana(4) Beirut Riyad Bank SAL Banca Nazionale de[[, Agricoltu1'3 SpAI 4) Belgolaise SAl') Banca NIll'onale dd Lavord') Berliner Bnnk AG4' Banca Popolare d, M'lanol4) Berliner Hnndels·und Frankfurter Bank(') Banca Popolare d, Novaral4) Bybl05 Bank SAL Banca Semn SNC Banco B'lbao-Vizcaya<° j CARIPLO-Cassa di Risparmio Banco Central Ho (3) Include .• panncrships Or other unincorporated assoc iations formed under the law of any member Slale of the European community other 1han the United Kingdom. (4) Non·UK EC institutions. (5) Non·EC OecD inst itutions. 38 Fideli!y Bank NAtS) The Norirochukin Bankm First Bank of Nigeria plc The Nonhem Trusl Companylll Firs! Commercial Bank Fi rs! Imerslate Bank of CaJi fornlam Oversea·Cbinesc: Ban!;:mg Corporatioo Lld 11te First Nauonal Bank of 8os10n1S) Overseu Trust Bank Ltd 11te Firsl Natiooal Bant ofChlcagolS) Overseas Union Bank Lld fleet Bank of Massachu!:ClIs. NA(s) Freroch Ban!;: of Southern Afric~ .... d Philippine Nauonal Bank The Fuji Bank. lIdls) Poslipankti lid'S) Gener:ale Bank(') Qatar National Bank SAQ Ghana Commercial Ban!;: S Giro«,nlrale und Bank der tlsterreichischen The R&I Bank of We$lern Australia Udl ) Sparkas!:Cn AGm Rabobank Nedcrland (Co6peratieve GOla Bank('1 Centrale Raiffei!:Cn .Boercnleenbank BAY'I Gulf International Bank BSC Rafidain Bank (provisiOllalliquidator appointed) Raiffeisen Zentralbank Ostcrreich AG!S) Habib Bank AG Zurich(S) Republic National Bank of New York!S1 Habib Bank Lld Rcscl"llc Bank of Australia(S) Hamburgische Landesbank GirQlentralc(.) The Ri g&S National Bank of Was hingl"n. I)('(s) Hanil Bank Riyad Bank Hams Trusl nnd Savings Bank(S) Royalllank ofCannda's) Hessische Landesbank-Girozentrale(.) The Hokkaido Takushoku Bank. Ltd(s) The Sanwa Bank. Ltd(s) The Hokuriku Bank Ltdl" Saudi American Bank The Hongkong and Shanghai Banking Corporation Ltd Scandinavian Bank (Skandinaviska Enskilda Blnken)"! The Industrial Bank of Japan. Lld''! Security Pacific National BanklS) Inlemationale Nederlanden Bank NVt.) Shanghai Commercial Bank Ltd 1lM: Investmenl Bank of Ireland Ltd(4) Shinhan Bank Ist;lulo Bancario San Paolo di Tonno SpA(.) 1lM: Siam Commercial Bank. Lld Socitt ~ ~ntral e( . ) Sonali Bank The Joyo Bank Lt"S) • State Bank of India Jyske Bankt.) State Bank of New South Wales Lt"'}) St ate Bank of South Australia/}I Kansallis·Osake.Panl;:kj(j) Stale Strut Bank and Trust Companym Korea Eloehange Ballk Siidwestdeutsche undcsbank Giroxc:mrale!·) Korea Firsl Bank 11te Sumi lomo Bank. L1d('J K=lietbank NVl4, TI>e Sumitomo Trust & BlUlking Co Udfs, The Kyowa Saitama Bank. Lt" }) Sven~ka Handclsbankenls) SwedBanktSI TI>e Long·Tenn Credil Bank of Japan. Lld'S) Swiu Ban k Corporation(S) Swiss Volksbank(S) Malayan Banking Berhad Syndicate Bank Manufacturers HanoverTrusl Company(S) Mellon Bank. NAI'i TC Ziraal Bank~si(S) Merchants Nalional Bank & Trusl Company of The Thai Farmers Bank Lld lndianapolistS) The Tokai Ban k, Ltdls, Middle East Bank Ltd The TOrolllo·Dominion Bank(s! The Mit subishi Bank. Lld(!) The Toyo Trust & Banking Company, L1d(l) The Milsubishi Trust and Banking COrpOration(!) Tiirkiye I ~ Bankasi AS(!) The MilSui Taiyo Kobe Bank, LtdlS) The M;l.Iui Trust & Banking Co Ltd(!) Uco Bank Monle dei Paschi di Siena(·) Ulster InvC$t"'e,,1 Bunk Ltdt.) Margan Guaranty Trust Company of New York(l) UntOIl Bank of Fill)and LtdI S) Multibanco Comermu SNC Union Bank of Nigeri a Ltd Union Bank of Switlerland") NBD Bank. NNS) United Bank Ltd National Australia Bank Lt(IIj) United Mi zrahi Bank Lld National Bank of Abu Dbabi Ullitcd Qverseu Bank National Bank ofCanadals) (Banque Unie pour les Pays d"Outre Mer)':') The National Bank of Dubai Lld Unitcd Overseas Bank Lld National Bank of Egypt Nauonal Ballk ofGrcece SAl.) Westdcutsche Landesbank G,rou:nlrale('j The National Bank of Kuwait SAK Westpac Bankmg CorporationlSi The National Commercial Bank Wirtschafu· und Privatbank(S) National Bank of Pakistan NationSBank of NonIl Carolina. NA(S) The Yuoda Trust & Bankmg Co. UdlJ) NcdPenn Bank Ltd TI>e Nippoo Credit Bank. Lto:Jlsl Z-Undcrbank Bank Austria AG 39 Changes to the list of authorised institutions The follow;"g cha1lges were made during the year 10 the list of authorised illSlill11iolls: Additions Banco di Siciha ( t ) Rd1cc\iog lechmcal reaulhori_13tions following a change in legal structure in haly. ... (2) Union Bank of Finland Lld changw its name to Unitas Bank Ltd. On {he same dale. Pohlo,smn,dcn Yhdyspaokki ay was 3ulhori_ICd and simultaneously changed its name 10 Union Bank of Fmland Ltd. (3) Supervised by Wholesale Markel _~ Supervision Division. 40 Annex Annual report by the Board of Banking Supervision Board of Banking Supervision Membership as at 29 February 1992 Chairmall: The Rt Hon Robin Leigh-Pemberton EA J George } ex-offido Brian Qui nn P N Gerrard A J Hardcastle Sir Peter Leslie N J Robson Lord Swaythling Harry Taylor This is the Board's report for the year to the end of under the Banking Act might be required arc reported February 1992. to the Board. as are institutions where the Division has concerns or sees potential concerns. The independent Membership members in these and other cases offered advice where they thought it right to do so. During the year The membership of the Board was unchanged the Board considered matters relating to a large throughout the year. Mr Robson and Mr Taylor were number of authorised institutions and covering a wide reappointed to the Board, each for a five-year term, range of circumstances. with effect from 4 November 1991. On one occasion during the year th e independent Meetings members of the Board g.!ve advice to the ex-officio members. which the latter chose not to follow. and the The Board met 16 times during the year, regularly each matter was reported to the Chancellor of the month and on other occasions to consider specific Exchequer. pursuant 10 section 2(5) of the Banking matters relating to particular institutions. Act 1987. The advice concerned the application of the confidentiality requirements of Pan V of the Act. General matters considered Bank of Credit and Commerce The Board maintained under review alt aspects of the International SA (BCCI) Bank's work relating to its responsibil ities under the Banking Act. The independent members gave advice On a number of occasions during the year the Board to the ex-officio members on matters of supervisory considered developments concerning the supervision policy and on the conduct of individual cases. of BCCI. as indeed it had done in previous years. Following receipt by the Bank of the report of an Reports on the work of the Banking Supervision investi gation into BCCI under section 4 I of the Divi sion are received each month, sett ing out matters Banking Act the Board was consulted about the action of general policy and matters relating to specific to be taken and endorsed the decision which led to the institutions. In particular, cases in which formal action closure of BCCI. 41 Other matters verifiCalion of interim profits. The Board discussed seven papers deal ing with specific sectors of the The Board advised on a number of policy issues. in banking industry and continued to review the staffin g particular the securi tisation of receivables and the arrangements for Banking Supervision Division. Secretary. by order of the Board 42