STATE OF NEW YORK BANKING DEPARTMENT ONE STATE STREET NEW YORK, NY 10004-1417

1. STATE OF NEW YORKBANKING DEPARTMENTONE STATE STREETNEW YORK, NY 10004-1417 Date: July 16, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

17. References • Supervision Manuals Federal Reserve Board http://www.federalreserve.gov • Federal Financial Institutions Examinations Council http://www.ffiec.gov • Risk Management Association http://www.rmahq.org

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

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

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

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

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

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

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

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