Cross-Border Supervisory Cooperation Issues and Challenges

How to Please Multiple Country Supervisors

Washington, DC June 7, 2006 Everett Schenk BNP Paribas, Head of North American Territory Corporate and Investment Banking Chairman, Institute of International Bankers

Agenda
BNP Paribas Globally and in the US Improved Cooperation Among Regulators Globally BNP Paribas Response Whats Next?

Leading European Bank with Global Reach, Financially Strong

Presence

in 85 countries on the 5 continents 130,000 people worldwide, including BNL

60% outside France 12% in the United States

Well-balanced business mix and profitability growing strongly (2005)

Net Banking Income (incl BNL)

CIB 27 % AMS 14 Asset Mgmt % IRFS
& Services 14 25 % % Intl Retail FRB & Financial Services Corp & Invest Banking 27 %

Market Cap @ 5/2/06 Net Banking Income (excl BNL) After-tax ROE (excl BNL) France Italy Rest of Europe USA Asia & Other 48% 17% 16% 13% 6%

70.6bn 21.5bn 20.2%

Net Banking Income by geography (incl BNL)

BNL 12 %
French

22 %
Retail
22 %*

BNL 12 %*

25 %*
* Retail Banking 59%

BNP Paribas platform in the US Consistent with Global Organization

12,250 Retail Staff
2 Brands

and
742 branches in the Western United States and Hawaii

7th biggest bank in the Western US

Retail Banking

Advisory & Capital Markets

Corporate and Asset Management Investment and Services Banking (CIB)

CooperNeff Advisory

Private Banking Miami

Presence in New York, Chicago, Dallas, Houston, San Francisco, Los Angeles

Insurance FAMLI Duerr

Asset Management FFTW

2,250 CIB Staff

Financing Activities

Securities Services

350 AMS Staff

Regulatory Environment of BNPPs US Platform

Financial

Holding Co

Incorporating all business lines under one regulatory umbrella

Home

Country Regulator Commission Bancaire (France) Primary US Regulators

Federal Reserve Bank of New York, Consolidated Supervisor FDIC State Banking Departments, primarily New York

Other

Significant Regulators

NY Stock Exchange SEC NASD

CBOT

NYMEX
BOX

Large

Complex Banking Organization (LCBO), subject to

Onsight regulatory supervision (6 permanent staff) Targeted, horizontal and peer review examinations

Agenda
BNP Paribas Globally and in the US Improved Cooperation Among Regulators Globally BNP Paribas Response Whats Next?

Improved Productivity of Home/Host Regulatory Relations

Home/Host Country Regulatory Relations have improved enormously over the past few years as bank management and regulators have made strides in improving communication, cooperation, transparency, and standardization of best practices.
Communication

Internal communication between a Home Office and its international network Externally - between Home Office and Home Country Regulator - between local regulated entities and their Host Country Regulators

Cooperation

High degree of cooperation between Host and Home Country regulators, facilitating

Increased efficiency for regulators and bank staff Improved quality of examination results Minimization of unnecessary cost and burden

Places a premium on comprehensive and regular internal communication between a Home Office and its foreign operations. Avoids inconsistent and varying guidance from Home/Host Regulators to the individual banking organization.

Improved Productivity of Home/Host Regulatory Relations

Transparency

Pro-active sharing of information with primary regulators to provide a complete understanding of business and control activities Globalization of businesses and reporting has improved information flow to all regulators

Standardization

of Best Practices

Promoting broader application of improved operations and controls through Benchmarking of Best Practices and Horizontal Peer Reviews by Regulators, when available. Contributing to enhanced understanding of local standards by Home Regulators

Agenda
BNP Paribas Globally and in the US Improved Cooperation Among Regulators Globally BNP Paribas Response Whats Next?

BNP Paribas Response to the New Regulatory Environment

Dedicated

North American Territory Functions established

U.S. Regulatory Relationship Oversight Committee Regulatory Relationship Officers covering all of Corporate and Investment Banking and Retail Banking for the U.S. Corporate Governance Committee and a process by which all Controls and Risk Indicators are reviewed
Evolution of U.S. Staff Interfacing with the Primary Regulators in the U.S. (Corporate and Investment Banking)

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45 40 35 30 25 20 15 10 5 0

39 32 21 17 6 0 Corporate Governance Compliance Legal Audit 23

2001 2006

BNP Paribas Response to the New Regulatory Environment

Dedicated

Global Functions

Establishment of a Head Office Regulatory Coordinator for all business lines Reinforcement of the Global Head of Compliance role in Paris Creation of a Globally Centralized Regulatory Relationship Function that oversees the 11 main international territories for action plans, regulatory communications and review of operational controls

Communication

Weekly meeting held between Regulator Relationship Officer and onsite Regulators for status updates Monthly meetings with the U.S. Regulatory Relationship Oversight Committee to discuss exams, findings and implementation. Participants include Legal, Compliance, Audit, external Counsel and Head Office Management Semi-Annual meetings between primary U.S. Regulators and BNP Paribas Management (local and global). Alternative meeting locations between New York and Paris Creation of a Global Regulatory Relationship Function allows BNP Paribas to communicate effectively to all International Regulators.
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BNP Paribas Response to the New Regulatory Environment

Addressing

Findings/Recommendations

Dedicated Internal staff to follow up and help resolve Regulatory and Internal Audit Findings Disciplined process for identification of aged or unresolved Findings are analyzed and escalated to Senior Management, Locally and Head Office

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Agenda
BNP Paribas Globally and in the US Improved Cooperation Among Regulators Globally BNP Paribas Response Whats Next?

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Whats Next
Develop

concrete methods of sharing responsibilities that will produce substantial savings

in aggregate supervisory man hours and in amount of management and employee time needed by banks to satisfy various home/host regulators.

Support

Chairman Bernankes recent call, which was in connection with Basel II implementation, for flexibility among supervisors to ensure appropriate standardization of requirements is combined with flexible accommodation of differing approaches by different institutions that achieve consistent results II Capital Standards Encourage the Accord Implementation Group to avoid duplication of validation requirements by home/host regulators

Basel

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Whats Next
Recommend

increased reliance on home country data and reporting and supervisory analysis
Unless specifically needed to satisfy host country safety and soundness responsibilities. Particularly essential in wholesale markets where the risks being measured are cross border and global in their effects.

Support

further coordination between home/host regulators regarding examinations and on-site oversight.
Proven efficiencies from joint exams currently conducted by multiple domestic regulators with the US Home/host regulators who share common standards should be especially well equipped to combine their efforts.

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How to Please Multiple Country Supervisors

Everett Schenk
BNP Paribas, Head of North American Territory Corporate and Investment Banking Chairman, Institute of International Bankers

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