International Effective date April 2009 Section 7000.0 The international sections focus on the exami- • For foreign governments and foreign political nation of risks and activities associated with entities, see section 3000.1, ‘‘Deposit international lending, financing instruments, and Accounts.’’ international banking. In addition to the sections • For international borrowed funds, see sec- that follow, information on the international tion 3010.1, ‘‘Borrowed Funds.’’ aspects of cash accounts, nostro accounts, for- • For foreign investments and foreign banking eign collections, investments, and borrowed organizations, see section 4050.1, ‘‘Bank- funds can be found in the applicable domestic Related Organizations.’’ sections: Additional information on international activi- • For foreign-currency cash accounts, see sec- ties can be found in the Bank Holding Company tion 2000.1, ‘‘Cash Accounts.’’ Supervision Manual, Trading and Capital- • For due from foreign banks–demand (nostro Markets Activities Manual, FFIEC Bank accounts) and foreign collections (cash letters, Secrecy Act Anti-Money Laundering Examina- return items), see section 2010.1, ‘‘Due from tion Manual, and FFIEC Information Technol- Banks.’’ ogy (IT) Examination Handbook. • For foreign investments, see section 2020.1, ‘‘Investment Securities and End-User Activities.’’ Commercial Bank Examination Manual April 2009 Page 1 International—Examination Overview and Strategy Effective date May 2005 Section 7000.1 Generally, the basic procedures used for the commitment to extend credit provided that cer- examination and verification of international tain collateral and documentary conditions exist. operations are the same as those used for other Foreign-exchange trading activities are similar domestic bank functions. However, some proce- to money-trading operations conducted at domes- dures are modified for different types of bank tic funding desks. Foreign-exchange positions assets and liabilities and contingent accounts, as are similar to commodity inventories carried at well as for separate laws and regulations that book value that are exposed to fluctuating mar- may be applicable. Documentation and account- ket prices. Separate international sections in this ing procedures for international operations may manual relate to these functions. also differ from those used in the domestic IBF activities are to be reviewed during the banking areas, but the same examination objec- examination of international operations. The tives apply. The examination process may also review of assets, internal controls, and operating include a review of international banking facili- procedures should be conducted using proce- ties (IBFs) and periodic visits to selected foreign dures similar to those used for offshore shell branches and subsidiaries to determine the safety branches. In addition, reports required to be and soundness of their operations and the filed by IBFs should be reviewed to ensure that adequacy of reporting procedures used by the they are prepared properly and filed in a head office or parent bank to monitor the foreign timely manner. office. Additional international banking activities, The increasingly global nature of economic such as direct lease financing, installment loans, activities has made international banking opera- real estate loans, real estate construction loans, tions more important to bank customers, import- ownership of bank premises and equipment, and ers and exporters of goods and services, and other real estate owned are to be examined domestic customers with overseas operations using the applicable procedures in section who require a source of international financial 2210.1, ‘‘Other Assets and Other Liabilities,’’ assistance. As service institutions, commercial and section 3020.1, ‘‘Assessment of Capital banks provide this assistance through global Adequacy.’’ International examinations will also networks of representative offices, branches, and require reference to other sections of this manual. affiliates, as well as through correspondent rela- Guidelines for using these other sections in tionships. These foreign networks also allow international examinations are provided below. banks to offer services outside their traditional market areas. Additionally, in 1981, the Board of Governors amended regulations to allow for the establishment of IBFs in the United States. WORKPAPERS The activities of these facilities are limited to accepting deposits from and extending credit to Workpapers should consist of written documen- foreign residents (including banks), other IBFs, tation of the examination procedures followed and the institution establishing the IBF. and of the conclusions reached during the ex- amination of international operations. The defi- Many domestic banking activities are also nition, purpose, quality standards, preparation, conducted internationally, including providing and organization of workpapers used in interna- cash and collection services, placing and taking tional examinations are the same as those dis- deposits, making investments, granting loans cussed in section 1030.1, ‘‘Workpapers.’’ and overdrafts, and borrowing. The international examiner will use the appropriate examination procedures for domestic operations when review- ing these activities. The examination procedures EXAMINATION STRATEGY for the international aspects of these and other activities are covered in the following interna- Careful planning and control are as important tional sections. in international examinations as they are in Similarly, other activities that are primarily domestic examinations. A number of the proce- international are similar to activities found in dures found in section 1000.1, ‘‘Examination the domestic banking area. For example, a Strategy and Risk-Focused Examinations,’’ also confirmed letter of credit represents a formal apply to international examinations. Commercial Bank Examination Manual May 2005 Page 1 7000.1 International—Examination Overview and Strategy When assigning work in the various exami- COMPUTER SERVICES nation areas, the examiner should consider the organization of the bank. For example, many During an examination that covers information banks have consolidated their foreign-exchange technology (IT) and electronic data processing trading and money market operations into a (EDP) services, provided either in-house or single division that is responsible for the externally, the examiner should review the con- bank’s global money market operations. Similar tents of the IT and EDP report of examination to situations may be encountered for other determine which sections may be applicable to international-related functions that are com- international operations. An IT-EDP examiner bined with domestic operations. Consequently, will generally perform the procedures in this the examination assignments should address section and should be consulted on matters those situations. applicable to international operations. In some examinations, the examiner may come across certain activities that are not addressed by any particular section of the international portion of this manual. In these ASSET AND LIABILITY instances, the examiner should extract the appro- MANAGEMENT priate objectives, examination procedures, and internal control questionnaires from the domes- Asset and liability management (see section tic sections of this manual. 4020.1) and interest-rate risk management (see section 4090.1) sections of the manual are The examiner must be certain that all types of completed by domestic examiners for the entire individual customer liabilities have been ana- bank, based, in part, on information prepared by lyzed on a consolidated basis, regardless of the examiners assigned to various international bank- office where they are booked. However, since ing activities. Whether applicable segments of the procedures for the collection and consolida- these sections will be completed during overseas tion of customer liabilities booked in overseas examinations depends on the type of overseas offices differ among banks, the examiner should examination conducted. determine whether the bank’s procedures are adequate. BANK-RELATED INTERNAL CONTROL ORGANIZATIONS The examiner should use section 1010.1, The domestic examiner assigned to bank-related ‘‘Internal Control and Audit Function, Over- organizations (see section 4050.1) obtains and sight, and Outsourcing,’’ in the domestic portion circulates lists and information to the interna- of this manual to evaluate the objectives of and tional examiner concerning bank-related organi- the work performed by internal and external zations involved in international activities. auditors for the bank’s international operations. Besides determining the legality of the relation- The internal control section sets forth general ships, the international examiner should verify criteria to be considered in evaluating the work the accuracy and completeness of the informa- of internal and external auditors. tion obtained. EXAMINATION PLANNING REVIEW OF REGULATORY REPORTS Examiners assigned to review the international activities of the bank should work closely with The domestic examiner assigned to review regu- commercial examiners, especially in those areas latory reports (see section 4150.1) circulates the in which international and domestic activities bank-prepared regulatory reports applicable to have a direct relationship. This cooperation international operations. The international includes the pre-examination analysis of