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3?^E0TIV2 JUKE- 8, 1327.
REGULATION K. SERIES OF 1927.
(Superseding Regulation K of 1924)
BANKING CORPORATIONS ATTTffnPTft-RT) TO DO FOREIGN BANKING BUSINESS UNDER THE TERMS OF
SECTION 25(a) OF THE FEDERAL RESERVE ACT
SECTION I. ORGANIZATION
Any number of natural persons, not leas in any case than fivd, may form
a Corporation* under the provisions of section 25(a) for the purpose of engaging
in international or foreign "bankingtit"other international or foreign financial
operations or in banking of other financial operations in a dependency or insular
possession of the United States either directly or through the agency, ownership*
#
or control of local institutions in foreign countries or in such dependencies or
insular possessions.
SECTION II. ARTICLES OF ASSOCIATION
.
Any persons desiring to organize a corporation for any of the purposes
defined in section 25(a) shall enter into articles of association (see F. R. B.
Form 151 which is suggested as a satisfactory form of articles of association)
which shall specify in general terms the objects for which the Corporation is
formed, and may contain any other provisions not inconsistent with law which the
Corporation may see fit to adopt for the regulation of its business and the conduct of its affairs.
The articles of association shall be signed by each person
intending to participate in the organization of the Corporation and when signed
shall be forwarded to the Federal Reserve Board in whose office they shall be filed.
•Whenever these regulations refer to a corporation spelled with a capital C, they
relate to a corporation organized under section 25(a) of the Federal reserve act.
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SECTIOU III. OB&mZAIIOI:! CERTIFICATE
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All of the persons signing the articles of association shall under their
hands make an organization certificate on F. R. B. Form 152, which is rnde a part
of this regulation, and which shall state specifically:
First.
Second.
Third.
The *name assumed by the Corporation.
The place or places where its operations are to he carried on.
The place in tho United States There its home office is to "be
located.
Fourth.
The amount of its capital stock and tho number of shares into
which it shall bo divided.
Fifth.
Tho namos and places of business or residences of persons exe-
cuting the organization certificate and the number of shares to which each
has subscribed.
Sixth.
The fact that the certificate is made to enable the persons sub-
scribing the same and all other persons, firms, companies, and corporations
who or which may thereafter subscribe to or purchase shares of the capital
stock of such Corporation - to avail themselves of the advantages of this sep^*
tion.
The persons signing the organization certificate shall acknowledge the
execution thereof before a judge of some court of record or notary public who shal*.
certify thereto under the seal of such court or notary.
Thereafter the certifi-
cate shall be forwarded to the Federal Reserve Board to be filed in its office#
SECTION IV. TITLE
Inasmuch as the name of the Corporation is subject to the approval of
the Federal Reserve Board, a preliminary application for that approval should be
filed with the Federal Reserve Board on F. R. B, Form 150, which is made a part of
this regulation.
This application should state merely that the organization of a
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Corr>orati on under the proposed name is contemplated and m y request the approval""'
of that name and its reservation for a period of 30 days.
No Corporation which is-
sues it own bonds, debentures, or other such obligations mill be permitted to have
the word "bank" as a part of its title.
Bo Corporation which has the word "Fed-
eral" in its title will be permitted also to have the word "bank" as a part of its
title.
So far as possible the title of the Corporation should indicate the nature
or reason of the business contemplated and should in no case resemble the name of
any other corporation to the extent that it might result in misleading or deceiving the public as to its identity, purpose, connections, or affiliations.
SECTION V. A P H f r r f f nw n m f ^ y c E BUSINESS
After the articles of association and organization certificate have been
made and filed ?ith the Federal Reserve Board, and after they have been approved
by the Federal Reserve Board and a preliminary permit to begin business has been
issued by the Federal Reserve Board, the association shall become and be a body
corporate, but none of its powers except such as are incidental and preliminary to
its organization shall be exercised until it has been formally authorized by the
Federal Reserve Board by a final permit generally to commence "business.
Before the Federal Reserve Board will issue its final permit to commence
business, the president or cashier, together rrith at least three of the directors,
mast certify (a») that each director elected is a citizen of the United States;
(b) that a majority of the shares of stock is owned by citizens of the United
States, by corporations the controlling interest in which is owned by citizens of
the United States, chartered under the laws of the United States, or by firms or
companies the controlling interest in which is owned by citigens of the United
States; and (c) that of the authorized capital stock specified in the articles of
association at least 2 5 per cent has been paid in in cash and that each shareholder
has individually paid in in cash at least 25 per cent of his stock subscription.
Thereafter the cashier shall certify to the payment of the remaining installments
as and when each is paid in, in accordance with law.
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SECTION VI. CAPITAL STOCK
Uo Corporation may "be organized under the terms of section 25(a) with
a capital stock of less than $2,000,000.
The par value of each share of stock
shall be specified in the articles of association, and no Corporation will be permitted to issue stock of no par value.
If there is more than one class of stock,
the name and amount of each class and the obligations, rights, and privileges attaching thereto shall be set forth fully in the articles of association.
Each
class of stock shall be so named as to indicate to the investor as nearly as possible what is its character and to "out him on notice of any unusual attributes.
SECTION VII. TRANSFERS 07 STOCK
Section 25(a) provides in part t h a t —
A majority of the shares of the caoital stock of any such corporation shall at all times be held and owned by the citizens of the United
States, by corporations the controlling interest in which is owned by
citizens of the United States, chartered under the laws of the United
States or of a State of the United States, or by firms or companies the
controlling interest in irhich is owned by citizens of the United States.
In order to insure compliance at all times ?ith the requirements of this
provision after the organization of the Corporation, shares of stock shall be issuable and transferable only on the books of the Corporation.
Every application
for the issue or transfer of stock shall be accompanied by an affidavit of the
party to whom it is desired to issue or transfer stock, or by his or its duly authorized agent, s t a t i n g —
In the case of an individual*—(a)
Whether he is or is not a citizen of
the United States and, if a citizen of the United States, whether he is a naturalborn citizen or a citizen by naturalization, and if naturalized, whether hp regains for any purpose in the allegiance of any foreign •over-ign or State; (b)
-hether there is or is not any arrangement under which he is to hold the shares or
any of the shares which he desires to have issued or transferred to him, in trust
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for or in any way under the control of any foreign State or any foreigner, foreign
corporation, or any corporation under foreign control; and if so, the nature there
of.
In the case of a corporation.—(a)
Whether such corporation is or is
not chartered under the laws of the United States or of a State of the United
States.
If it is not, no farther declaration is necessary, tut if it is, it must
also be stated (b) whether the controlling interest in such corporation is or ie
not owned by citizens of the United States, and (c) whether there is or is not any
arrangement under which such corporation will hold the shares or any of the shares
if issudd or transferred to such corporation in trust for or in any way under the
control of any foreign State or any foreigner or foreign corporation or any corporation under foreign control; and if so, the nature thereof*
In the cftBp of a firm or company.«--(a)
Whether the controlling interest
in such firm or company is or is not owned by citizens of the United States; and,
if so, (b) whether there is or is not any arrangement under which such firm or
company will hold the shares or any of the shares if issued or transferred to such
firm or company in trust for or in any way under the control of any foreign State
or any foreigner or foreign corporation or any corporation under foreign control;
and if so, the nature thereof*
The Board of directors of the Corporation, whether acting directly or
through an agent, may, before making any issuo or transfer of stock, require such
farther evidence as in their discretion they, may think necessary in order to determine whether or not the issue or transfer of the stock would result in a violation
of the law*
No issue gr transfer of stock which vrould cause 50 per cent or more
of the total amount of stock issued or outstanding to be held contrary to the provisions of the lasr or these regulations shall be made upon the books of the Corporation.
The decision of the board of directors in each case shall be final and
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conclusive and not subject to any question by any person, firm, or corporation on
any ground whatsoever.
If at any time by reason of the fact that the holder of any shares of t
Corporation ceases to be a citizen of the United States, or, in the opinion of thn
joard of directors, becomes subject to the control of any foreign State or foreigner or foreign corporation or corporation under foreign control, 50 per cent or more
of the total amount of capital stock issued or outstanding is hold contrary to the
provisions of the law or these regulations, the board of directors may, Then
apprised of that fact, forthwith serve on the holder of the shares in question a
notice in writing requiring such holder within t*7o months to transfer such shares
to a citizen of the Unitod States, or to a firm, company, or corporation approved
by the board of directors as an eligible stockholder.
When such notice lias been
given by the board of directors the shares of stock so held shall coaso to confcr
any vote until they have been transferred as required above and if on the expiration of two months aftor such notice the shares shall not have been so transferred, the shares shall be forfeited to the Corporation.
The board of directors shall prescribe in the by-laws of the Corporation
appropriate regulations for the registration of the shares of stock in accordancc
• ith the terms of the law and these regulations.
The by-laws must also provide
that the certificates of stock issued by the Corporation shall contain provisions
sufficient to put the holder on notice of the terms of the law and the regulations
of the Federal Reserve Board defining the limitations upon the rights if transfer.
SECTION VIII. OPERATIONS IK THE UNITED STATES
No Corporation shall carry on any part of its business in the United
States except such as shall be incidental to its international or foreign business.
Agencies may bo established in the United States r?ith the approval of the Federal
Reserve Board for specific purposes, but not gonorally to carry on the business
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of tho Corporation.
SECTION IX. INVESTMENTS IN THE STOCK 0?
nCRPORATTOTTS
It is contemplated by the law that a Corporation shall conduct its business abroad either directly or indirectly through the ownership or control of corporations, and it is accordingly provided that vith tho consent of the Federal Reserve Board a Corporation may invest
other
ship, of any/corporation organized—
in
the stock, or other certificates of
owner-"
(a)
Under the provisions of section 25(a) of the Federal reserve act;
(b)
Under the laws of any foreign country or a colony or dependency
thereof;
(c)
Under the laws of any State, dependency, or insular possession of
the United States;
provided, first, that such other corporation is not engaged in the general business
of buying or selling goods, wares, merchandise, or commodities in the United
States; and second, that it is not transacting any business in the United States
except such as is incidental to its international or foreign business.
Except with the approval of the Federal Reserve Board, no Corporation
shall invest an amount in excess of 15 per cent of its capital and surplus in the
stock of any corporation engaged in the business of banking, or an amount in excess
of 10 per cent of its capital and surplus in the stock of any other kind of corporation.
No Corporation shall purchase any stock in any other corporation organized under the terms of section 25(a) or under tho la?s of any State, which is in
substantial competition therewith, or which holds stock or certificates of ownership in corporations which are in substantial competition with the purchasing Corporation.
This restriction, however, does not apply to corporations organized un-
der foreign laws.
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3ZCTI0H X. EHAffCHES
Ho Corporation shall establish any branches except with the approval
of tl*e Federal Reserve Board, and in no case shall any branch be established in
the United States.
SECTION XI. ISSUE OF DEBENTURES. 50EDS M P PROMISSORY ITOTES
A Corporation is not required by law or by this regulation to make application *o or obtain the approval of the Federal Reserve Board before making an issue of its debentures, bonds, notes or other obligations, but corporations issuing their debentures, bonds, notes or other obligations must comply wit& the rules,
regulations and conditions hereinafter set forth.
(a)
General Conditions.
All debentures, bonds, notes or other such ob-
ligations issued by a corporation (except notes payable to banks or bankers within
one year) shall:
(l)
Be payable only in gold coin of the United States of the standard
of weight and fineness existing at the time of issue;
(3)
Be payable not more than twenty years after the date of issue;
(3)
Be secured by collateral which shall:
(a) Consist of lawful money of the United States and/or securities, notes, drafts, bills of cxchangc, acceptances, including bankers' acceptances, and other evidences of indebtedness and/or shares of stock in which the corporation
is authorized by law to invest its funds;
(b) Have an aggregate market value equal at all times to not
less than one hundred and ten per cent of the aggregate
principal (amount of the obligations issued or to be issued
against such securities; and
(c) Be transferred and delivered free of any prior lien, charge
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or encumbrance thereon of any kind, whatsoever, to a financially responsible bank or trust company, which is a member
of the Federal Reserve System, as Trustee under a Trust Indenture executed by the Corporation as security for the obligations of the Corporation issued or to be issued thereunder,
which trust Indenture shall prescribe the general form of
such obligations and shall require that every such obligation
shall be authenticated by the certificate of the Trustee
noted thereon.
(b)
Requirements after issuance.
Within ten days after the issuance of
any such debentures, bonds, notes or other obligations (other than promisspry notes
payable to banks or bankers within one year) the Corporation issuing the same
shall file with the Federal Reserve Board:
A.
A statement verified by the affidavit of its President or a Vice
President and its Treasurer, Cashier or Comptroller setting forth:
(1) That the requirements of this regulation in respect of the issue
of debentures, bonds, notes or other obligations have been*complied
with in all respects.
(2)
The aggregate amount of the debentures, bonds, notes or obliga-
tions issued under the Trust Indenture and the net price received,
by tlie Corporation therefor.
(3) The various items of the collateral security pledged under the
Trust Indenture and the market value, at the time of the issue of
such obligations, of each and every item thereof.
(4) The financial condition of the Corporation and, in detail, all its
assets and liabilities (fixed and contingent) as of the day immediately following such issue.
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B.
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A copy of the Trust Indenture pura:ir::t to which such obligations of
the Corporation zero issued, certified as corrcct "by the Trustee therein named.
C.
A certificate of the Trustee under such Trust Indenture setting
forth:
(1)
That it has accepted the trust created by such Trust Indenture and
is acting as Trustee thereunder;
(2)
The securities and/or cash which have been delivered to it and
which it holds as Trustee under the Trust Indenture;
(3)
D.
The name and address of the Counsel for the Trustee.
The latest published balance sheet of the Corporation, certified as
correct by the President or a Vice President and by the Treasurer, an Assistant
Treasurer, the Cashier or Assistant Cashier or the Comptroller of the Corporation.
B.
An opinion of the Counsel for the Trustee under the Trust Indenture
to the effect that:
(1)
The Trust Indenture has been validly executed in pursuance of due
corporate action.
(2)
That all necessary legal formalities have been complied with to
moko such obligations, when executed by the Corporation and authenticated by the Trustee, valid and enforcible obligations of the Corporation entitled to the benefits afforded by the Trust Indenture;
(3)
That the transfers executed to the Trustee of the collateral se-
curity held by it under the Trust Indenture are in appropriate and
sufficient form.
F.
Copies of all prospectuses and other literature issued by the Cor-
poration or its officers or bankers describing or affecting such issue.
In case there shall be any substitution of or change in the securities
at any time held under any such Trust Indenture securing an issue of debentures,
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toads, notes or other obligations the Corporation, cach time it makes a report to
the Federal Reserve Board pursuant to the provisions of Section XVI, shall file
with the Federal Reserve Board a statement, verified toy the affidavit of the President or a Vice President and the Treasurer, Cashier or Comptroller of the Corporation
A.
Giving the details of such substitution or change, and
B.
Certifying that at the time of such substitution or change the ad-
ditional collateral transferred to the Trustee under the Trust Indenture had a
market value at least equal to the market value of the collateral security released from the lien of such Trust Indenture.
Such statement shall be accompanied by an acknowledgment by the Trustee
under the Trust Indenture that there has been delivered to it and that it holds as
such Trustee the additional collateral specified iv. such statement.
The Federal Reserve Board reserves the right to moke public whenever it
believes it to be necessary in the public interest any documents filed with it under this subsection.
(c)
Advertisements.
Bo circular, prospectus, letter, advertisement or
other statement published or issued in a n y form or manner by a corporation shall
contain any matter to indicate that any issue of debentures, bonds, notes or other
obligations by such corporation or the collateral securing same has in a n y Tray received the approval of the Federal Resesve Board or that the collateral securing
came has been appraised or approved in any way by the Federal Reserve Board.
This
requirement will be strictly enforced in order that there may be no possibility of
the public obtaining the impression that the Federal Reserve Board has approved in
a n y way any such issue of debentures, bonds, notes or other such obligations or
the collateral securing same.
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SECTION XII, SALE OF SECURITIES WITH GUARANTY OR IITDCRSEIIBTT
Whenever a corporation sella, discounts or negotiates with its indorsement or guaranty any securities, notes, drafts, "bills of exchange, acceptances,
"bankers1 acceptances or other evidence of indebtedness it shall enter on its "books
a proper record thereof, describing in detail each such evidence of indebtedness
a© sold, discounted or negotiated, the amount thereof, the parties thereto, the
maturity thereof, and the nature of the corporation's liability thereon*
Every
financial statement of the corporation submitted to the Federal Reserve Board or
made public in any way shall show the aggregate amount of all such liabilities out**
standing as of the date on which such statement
purports to show the financial
condition of the corporation.
SECTION XIII. ACCEPTANCES
Kinds.—Any Corporation may accept (1) drafts and bills of exchange
drawn upon it which grow out of transactions involving the importation or exportation of goods, and (2) drafts and bills of exchange which are drawn by banks or
bankers located in foreign countries or dependencies or insular possessions of the
United States for the purpose of furnishing dollar exchange as required by the
usages of trade in such countries, dependencies, and possessions, provided, however, that, no Corporation shall exercise its po™er to accept drafts or bills of
exchange if at the time such drafts or bills are presented for acceptance it has
outstanding any debentures, bonds, notes, or other such obligations issued by it.
Maturity.—-No Corporation shall accept any draft or bill of exchange
which grows out of a transaction involving the importation or exportation of goods
with a maturity in excess of six months, or shall accept any draft or bill of exchange drawn for the purpose of furnishing dollar exchange with a maturity in excess of three months.
Limitations(l)
Individual drawers:
Ho acceptances shall be made for
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the account of any one draper in an amount a{VTo..&tin.': at any tine in excess of 10
per cent of the subscribed capital and surplus of the Corporation, unless the trans
action be folly secured or represents an exportation or importation of commodities
and is guaranteed by a bank or banker of undoubted solvency#
(2) Aggregates;
Whenever the aggregate of acceptances outstanding: at any time (a) exceeds the
amount of the subscribed capital and surplus, 50 per cent of all the acceptances
in excess of the amount shall be Ailly secured; or (b) exceeds twice the amount of
the subscribed capital and surplus, all the acceptances outstanding in excess of
such amount shall be fully secured.
(The Corporation shall elect whichever
requirement (a) or (b) calls for the smaller amount of secured acceptances,)
In
no event shall any Corporation have outstanding at any one time acceptances drawn
for the purpose of furnishing dollar exchange in an amount aggregating more than
50 per cent of its subscribed capital and surplus.
Reserves^--Against all acceptances outstanding which mature in 30 days
or less a reserve of at least 15 per cent shall be maintained, and against all acceptances outstanding which nature in more than 30 days a reserve of at least 3
per cent shall be maintained.
Reserves against acceptances must be in liquid as-
sets of any or all of the following kinds;
(1)
Cash; (2) balances with other
banks; (3) acceptances of other banks or bankers, and (4) obligations of the Government of the United States.
SECTION XIV. DEPOSITS
In the United States.—No Corporation shall receive in the United States
any deposits except such as are incidental to or for the purpose of carrying out
transactions in foreign countries or dependencies of the United States where the
Corporation has established agencies, branches, correspondents, or where it opers-.,
ates through the ownership or control of subsidiary corporations.
Deposits of
this character may be made by individuals, firms, banks, or other corporations,
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jhother foreign, or domestic, and may to time deposits or on demand.
Outside the United States.—Outside the United States a Corporation nay
receive deposits of any kind fron individuals, firms, banks, or other corporations,
provided, however, that if such corporation lias any of its bonds, debentures, or
other such obligations outstanding it may receive abroad only such deposits as
are incidental to the conduct of its exchange, discount, or loan operations.
Reserves.—Arainst all deposits received in the United States a reserve
of not less than 13 per cent must be maintained.
This reserve may consist of cash
in vault, a balance with the Federal reserve bank of the district in which the
head office of the Corporation is located, or a balance with any nenber bonk.
Against all deposits received abroad the Corporation shall maintain such reserves
as may be required by local lews and by the dictates of sound business judgment
and banking principles.
i
SEOTIOU XV. GEHERA1 LIMITATIOHS AMP RESTRICTIONS
Liabilities of one borrower.—The total liabilities to a Corporation of
any person, c o m a n y , firm, or corporation for money borrowed, including- in the
liabilities of a company or firm the liabilities of the several members thereof,
shall at no tine exceed 10 per cent of the amount of its subscribed capital and
surplus;
Provided, however, That the discount of bills of exchange drawn in good
faith against actually existing values'and the discount of commercial or business
paper actually owned by the person negotiating the same, snd the m r chase of readily marketable bonds, notes, and other investment securities offered for sale in
the open market, shall not be considered as money borrowed within the meaning of
this paragraph.
The liability of a customer on account of an acceptance made by
the Corporation for his account is not a liability for money borrowed within the
meaning of this paragraph unless and until he fails to place the Corporation in
funds to cover the payment of the acceptance at maturity or unless the Corporation
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itself holds the acceptance*
Aggregate liabilities of the Comoration.—The ar- rerate of the Corporation's liabilities outstanding on account of acceptances, average domestic and
foreign deposits, debentures, bonds, notes, guaranties, indorsements, and other
such obligations shall not exceed at any one time ten times the amount of the Corporation's subscribed capital and surplus.
In determining the amount of the lia-
bilities within the meaning of this paragraph, indorsements of bills of exc-iiange
having not more than six months to run, drawn and accepted by others than the
Corporation, shall not be included.
Operations abroad.--Except as otherwise provided in the law and tiiese
regulations, a Corporation nay exercise abroad not only the powers specifically
set forth in the law but also such incidental powers as may be usual in the determination of the Federal Reserve Board in connection with the transaction of the
business of banking or other financial operations in the countries in which it
shall transact business.
In the exercise of any of these powers abroad a Cor-
poration must be guided by the laws of the country in which it is operating and by
sound business Judgment and banking principles.
S35CTI01T XVI. REPORTS A1TD 3XAMI&1TI0FS
Reports.—Each Corporation shall make at least two reports annually to
the Federal Reserve Board at such times and in such form as it may require.
"flya^nations, — B a c h Corporation shall be examined at least once a year
by examiners appointed by the Federal Reserve Board.
The cost of examinations
shall be paid by the Corporation examined.
SECTION XVII. AMSIIDiffiNTS TO KSGTJLATIOFS
These regulations are subject to amencLvieiit by the Federal Reserve Board
from time to tine, provided, however, that no such amendment shall prejudice obligations undertaken in good faith under regulations in effect at the tine they
were assumed.
,
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