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http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis INTERNATIONAL BANKING ACT: 1978 . 4111111411.11110.1* Collection: Paul A. Volcker Papers Call Number: MC279 Box 28 Preferred Citation: International Banking Act, 1978; Paul A. Volcker Papers, Box 28; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c195 and https://fraser.stlouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) muddaprinceton.edu http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Got,o AW:40, mil FEDERAL RESERVE press release RAL Ttf.5°- March 20, 1980 For immediate release The Federal Reserve Board today adopted final regulations to implement certain provisions of the International Banking Act of 1978. Pursuant to the Act the Board's regulations placed reserve requirements and interest rate limitations on U.S. branches and agencies of foreign banks whose parent banks have total worldwide consolidated bank assets in excess of $1 billion. At the same time, the Board implemented provisions of the IBA that grant branches and agencies of such foreign banks access to Federal Reserve services, and permit them to borrow from the Federal Reserve Banks. The regulations will become effective on September 4, 1980, with a two year phase-in period after the effective date for reserve requirements. This is consistent with the reserve requirement phase-in for non-member banks joining the Federal Reserve System. The final regulations follow consideration of comment received on proposed regulations published in July 1979. The rules affecting reserve requirements for branches and agencies of foreign banks amend the Board's Regulation D (Reserves of Member Banks). The provisions imposing interest rate ceilings amend Regulation 0 (Interest on Deposits). The Board also amended Regulation D and Regulation K (International Banking Operations) to conform in certain respects the reserve requirements of Edge and Agreement Corporations to those applicable to the branches and agencies of foreign banks. In general, but with numerous special provisions, the Board's regulations: 1. Apply all the provisions of Regulation D to U.S. branches and agencies of foreign banks. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis (num?) -22. Treat credit balances at banking offices of foreign banks as deposits subject to the same interest rate limitations and to the same reserve requirements as apply to member banks, with the applicable reserve ratio determined by the maturity of the balance. 3. Subject net borrowings of the agencies and branches from their foreign bank and its foreign offices to the same reserve ratios that apply to similar Eurodollar borrowings of member banks, after deducting a capital equivalency allowance. 4. Establish a system of statewide aggregation of reservable liabilities for purposes of computing reserve requirements. This differs from the proposed rule, which would have included an additional tier of national aggregation. 5. Permit a branch or agency maintaining a required reserve balance with a Reserve Bank to be eligible to borrow at the discount window of that Bank. 6. Make Federal Reserve services (including check collection, currency and coin supply, securities safekeeping and wire transfer services) available to the branches and agencies on the effective date of the final regulations, through the Reserve Bank for the District in which the foreign branch or agency is located. 7. Apply all the provisions of Regulation Q to the branches and agencies. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis The final regulations are attached. - 0 - • TITLE 12 -- BANKS AND BANKING CHAPTER II -- FEDERAL RESERVE SYSTEM SUBCHAPTER A -- BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Regulations A, D, K, and Q] (Docket No. R-0238) Part 201 -- Extensions of Credit by Federal Reserve Banks Part 204 -- Reserves of Member Banks Part 211 -- International Banking Operations Part 217 -- Interest on Deposits Reserve Requirements, Interest Rate Limitations on Deposits, and Advances of Federal Reserve Credit for U. S. Branches and Agencies of Foreign Banks; Reserve Requirements of Edge Corporations AGENCY: Board of Governors of the Federal Reserve System. ACTION: Final rules. SUMMARY: Section 7 of the International Banking Act of 1978 ("IBA") (12 U.S.C. § 3105) imposes Federal reserve requirements and deposit interest rate limitations on Federal branches and agencies of parent foreign banks with total worldwide consolidated bank assets in excess of $1 billion and authorizes the Board to impose such requirements on State branches and agencies of parent foreign banks with total worldwide consolidated bank assets in excess of $1 billion. In order to implement the provisions of the IBA, the Board of Governors has amended Regulation D (Reserves of Member Banks) and Regulation Q (Interest on Deposits) to apply Federal reserve requirements and interest rate limitations currently applicable to member banks to such branches and agencies. Modifications to these regulations have been made to reflect certain operational and structural differences between branches and agencies and member banks. Reserve requirements will be phased-in for branches and agencies over a two-year period. Reserve requirements will be computed by aggregating the deposits of a foreign bank's branches and agencies operating in the same State. However, deposits of branches and agencies located in the same State but in different Federal Reserve Districts will not be aggregated. Regulation Q is being applied to Federal branches and agencies and State uninsured branches and agencies of foreign parent banks with total worldwide consolidated bank assets in excess of $1 billion. Under section 18(g) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(g)), all insured State branches and those insured Federal branches whose parents do not have total worldwide consolidated bank assets in excess of $1 billion will be subject to deposit interest rate limitations (12 CFR Part 329). http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 In addition, the IBA authorizes the Federal Reserve Banks to provide access to Federal Reserve credit, clearing, and settlement facilities to branches and agencies to the same extent as to member banks, subject to limitations, restrictions or regulations promulgated by the Board. Under the Board's action, branches and agencies subject to reserve requirements will be granted access to Federal Reserve services and credit in each Federal Reserve District in which they operate. Regulation A (Extensions of Credit by Federal Reserve Banks) has been amended to facilitate branch and agency borrowing from the Federal Reserve discount window. The Board also has determined to apply to offices of Edge Corporations the same general rules with respect to maintenance of reserves, aggregation of deposits, and access to Federal Reserve services that are applicable to branches and agencies. The Board believes that its actions to implement the provisions of the IBA will facilitate the conduct of monetary policy and will promote vigorous and fair competition between branches and agencies and domestic depository institutions to the fullest extent possible. EFFECTIVE DATE: September 4, 1980. On that date, branch and agency reserve requirements will commence based upon deposits held during the seven-day computation period ending on Wednesday, August 27, 1980. FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General Counsel (202/452-3625), Paul S. Pilecki, Attorney (202/452-3281), James S. Keller, Attorney (202/452-3582), or Sydney J. Key, Economist (202/4523697), Board of Governors of the Federal Reserve System, Washington, D. C. 20551. SUPPLEMENTARY INFORMATION: On July 23, 1979, the Board requested public comment (44 Fed. 212a. 44876) on a proposal to apply Federal reserve requirements and deposit interest rate limitations to U. S. branches and agencies of foreign banks ("branches and agencies") with total worldwide consolidated bank assets in excess of $1 billion pursuant to section 7(a) of the International Banking Act of 1978 ("IBA") (12 U.S.C. § 3105). The IBA imposes Federal reserve requirements and deposit interest rate limitations on Federal branches and agencies of such foreign banks. The IBA authorizes the Board, after consultation and in cooperation with State bank supervisory authorities, to apply the reserve requirements and deposit interest rate limitations made applicable to Federal branchv and agencies to State branches or agencies of such foreign banks.—I The period for public comment expired on November 23, 1979. 1/ Federal Reserve staff undertook extensive consultations with each of the State bank supervisory authorities that have responsibility for State branches or agencies of foreign banks. On March 16, 1979, the Board submitted a report to Congress, as required by the IBA, concerning the steps taken to consult with state bank supervisory authorities. Additional consultations with State supervisory authorities on the Board's proposal have taken place. A copy of the report is available from the Board's Office of Public Affairs (202/452-3215). http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 3 After consideration of more than 40 comments received from the public (primarily from foreign banking institutions), the Board has adopted the proposal substantially as published, but with certain modifications as discussed below. The primary objectives of the IBA are to facilitate the implementation of monetary policy and to promote competitive equality among depository institutions. To further these purposes, the Board of Governors has amended its regulations concerning extensions of credit by Reserve Banks (Regulation A; 12 CFR Part 201), reserves of member banks (Regulation D; 12 CFR Part 204), and interest on deposits (Regulation Q; 12 CFR Part 217) to apply these provisions to U. S. branches and agencies of foreign banks. The Board also has determined the manner in which branches and agencies may have access to Federal Reserve services. Application of Regulation D The scope of the activities and the balance sheet structure of branches and agencies suggest that they compete primarily with domestic money center banks, most of which are members of the Federal Reserve System. In order to facilitate the implementation of monetary policy and to promote competitive equality, the Board, after consideration of the character of business conducted by branches and agencies, has determined to apply the provisions of Regulation D (12 CFR Part 204) to branches and agencies, effective September 4, 1980, so that they generally will b /computing and maintaining reserves in the same manner as member banks.-I Regulation D has been modified to reflect certain operational and structural differences between member banks and branches and agencies. Under Regulation D, required reserves are computed on the basis of daily average net deposit balances during a seven-day period ending each Wednesday (the "computation period"). Required reserves are satisfied by the maintenance of balances at a Federal Reserve Bank during the seven-day period that begins the second Thursday following the end of the computation period (the "maintenance period") and by the average daily U. S. currency and coin held during the computation period. Current Federal reserve requirement ratios are listed in Table 1. 2/ The Federal section imposed http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Board has been advised by its Legal Division that, in its view, reserve requirements imposed on branches and agencies under 7 of the IBA (12 U.S.C. § 3105) preempt reserve requirements on these institutions pursuant to State law. - 4 Table 1 Federal Reserve Requirement Ratios Type of deposit and deposit interval in millions of dollars Ratios (per cent) in effect March 1, 1980 Net demand $0-2 Over Over Over Over $2-10 $10-100 $100-400 $400 Savings 7 9-1/2 11-3/4 12-3/4 16-1/4 3 Time*-By initial maturity 30- 179 days - $0-S - over $5 180 days to 4 years 4 years or more Marginal reserve requirement (on managed liabilities in excess of the institution's managed liabilities base) * 3 6 2-1/2 1 8 A supplementary reserve requirement of 2 per cent is applied to time deposits of $100,000 or more. Aggregation for Reserve Requirement Calculation. The Board has determined to adopt a procedure of statewide aggregation for purposes of calculating reserve requirements for branches and agencies. Under this procedure, reserve requirements will be computed by aggregating the deposits of a foreign bank's branches and agencies operating in the same State. However, deposits of branches and agencies located in the same State but in different Federal Reserve Districts will not be aggregated. This represents a simplification of the Board's July 23 proposal, which contemplated that deposits at all branches and agencies of a foreign bank and of its foreign subsidiary banks would be aggregated nationally for purposes of calculating reserve requirements. The Board's determination to adopt a system of statewide aggregation is based principally on comments received indicating that national aggregation for calculating reserves would be complex and costly and on estimates suggesting that it would have had very little effect on the reserves required of branches and agencies. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -5 Under Regulation D, as amended, a foreign bank's branches and agencies operating in the same State will submit an aggregated report of deposits to, and maintain reserves with, the Federal Reserve Bank in whose District they operate. However, a foreign bank's branches and agencies operating in the same State but in different Federal Reserve Districts will report deposits and maintain reserves separately with their respective Reserve Banks. For example, if a foreign bank has a branch in Philadelphia and a branch in Pittsburgh, the former would submit reports to, and maintain reserves with, the Federal Reserve Bank of Philadelphia. Pittsburgh, however, is located in the Cleveland Federal Reserve District, and a branch located in that city would report deposits to, and maintain reserves with, the Pittsburgh Branch of the Federal Reserve Bank of Cleveland. Under the Board's action, in reporting deposits for purposes of calculating reserve requirements, U. S. branches and agencies will exclude transactions with other U. S. branches and agencies of the same foreign bank. In other words, balances due to U. S. branches and agencies, wherever located, of the same foreign bank will not be treated as deposits due to banks, and balances due from U. S. branches and agencies, wherever located, of the same foreign bank will not be deductible from gross demand deposits as balances due from other banks. The Board's action with regard to basic reserve requirements for branches and agencies does not affect procedures currently in place for the marginal reserve requirement program imposed on October 6, 1979 (12 CFR 204.5(f)(2); 44 Fed. aa. 60071), which is intended as a temporary measure. Under that program, all reports on total managed liabilities of U.S. branches and agencies of the same "family" must be filed on a nationally consolidated basis by one office (the reporting office) at the Federal Reserve Bank of the District in which that office is located. The reporting office also is required to maintain the marginal reserves of the "family" in a reserve account at the Reserve Bank to which it reports. Under the marginal reserve program, "family" will continue to refer to the U. S. branches and agencies of a foreign bank and of its majority-owned foreign banking subsidiaries. Credit Balances Most States that permit the establishment of agencies provide that credit balances may be maintained for agency customers only in connection with the exercise of other lawful banking powers. Commentators stated that credit balances should not be reservable, since they do not serve the same purposes as deposits and they may not be used for ordinary transactions purposes. Credit balances arise primarily from crediting proceeds of loans extended by the agencies, from collections of foreign trade related paper, and from compensating balance requirements for agency services. There are, however, close parallels between credit balances at agencies and deposits at Edge Corporations, which http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 6 are subject by statute to member bank reserve requirements and interest rate limitations. Moreover, if credit balances were maintained at a member bank, they would be regarded as reservable deposits. The Board has determined that credit balances at agencies should be regarded as "deposits" for purposes of interest rate limitations and reserve requirements. The maturity of credit balances will determine the applicable reserve ratios and interest rate limitations, consistent with the treatment of deposits at member banks and Edge Corporations. Credit balances with a minimum maturity of 30 days or more, as specified in the agency's agreement with its customer, will be subject to time deposit reserve ratios and to the applicable time depositinterest rate ceilings under Regulation Q. Credit balances with shorter maturities will be treated as demand deposits, and the prohibition against payment of interest on demand deposits will be applied to such funds. Officers' Checks The Board believes that it is appropriate to treat officers' checks issued by or drawn by branches and agencies as demand deposits, since officers' checks of member banks are regarded as demand deposits. Accordingly, the Board has amended section 204.1(g) of Regulation D (12 CFR 204.1(g)) to treat officers' checks issued by a branch or agency, including those drawn as agent for its foreign bank (including its foreign offices), as demand deposits for reserve requirement purposes. Branches and agencies will be required to conform their accounting practices with respect to officers' checks to those required of member banks under Regulation D. Eurodollar Borrowings Since 1969,deposits in the form of borrowings by domestic offices of member banks from foreign banks, foreign national governments, certain international organizations, and the bank's own foreign branches have been subject to Eurodollar reserve requirements. (See S 204.5(c) and (d) of Regulation D (12 CFR 204.5(c) and (d).) The applicable basic Eurodollar reserve ratio has been as high as 20 per cent, but has been zero since August 24, 1978. (Eurodollar borrowings have been subject to marginal reserve requirements since October 6, 1979.) To provide treatment comparable to that of member banks, Eurodollar borrowings of branches and agencies will be subject to the same reserve ratios that apply to Eurodollar borrowings of member banks. Net borrowings by a branch or agency from its foreign bank (including its foreign offices), except to the extent of the capital equivalency allowance described below, will be reservable at the Eurodollar reserve ratio even if the funds borrowed represent the proceeds of commercial paper issued in the United States by the foreign bank. Funds raised in the United States by a branch or agency directly, however, http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 416, 7 will be subject to basic domestic reserve requirements unless raised in a form specifically exempted by Regulation D, such as interbank borrowings or repurchase agreements on United States government or agency securities. Much of the funding for branches and agencies is provided by advances from their foreign banks. Since a branch or an agency is part of its foreign bank's corporate entity, it has no separate capital account in the domestic banking sense. However, a portion of advances from the foreign bank serves purposes similar to that of capital of domestic banks, which is not subject to reserve requirements. Consequently, the Board has provided that, in determining reserve requirements, a branch or agency will be permitted to deduct a capital equivalency allowance equal to 8 per cent of certain assets from the net advances from its foreign bank (including its foreign offices). However, the capital equivalency allowance that may be deducted may not exceed net advances. The asset base to which the 8 per cent figure will be applied will be total branch or agency assets less United States coin and currency, cash items in process of collection and unposted debits, balances due from domestic banks and other foreign banks, balances due from foreign central banks, and net balances due from its foreign bank and the foreign bank's United States and foreign offices. Balances held at the Federal Reserve will not be deducted from total assets in computing the asset base for the 8 per cent capital equivalency allowance. This capital equivalency allowance should contribute both to competitive equity and to the safety and soundness of branches and agencies. The capital equivalency allowance for basic reserve requirements differs from that used in connection with the managed liabilities program. However, if the marginal reserve program is in effect on September 4, 1980, the effective date, the capital equivalency allowance for managed liabilities will be eliminated. Asset Sales A domestic bank can fund its operations from deposits or borrowings in the money markets or from affiliates. It can also obtain funds by selling a portion of its assets. In each instance, the domestic bank obtains additional funds to lend in its banking business. Funds obtained by a member bank from the sale of domestic assets (such as loans to U. S. residents) to its foreign branches are subject to Eurodollar reserve requirements (§ 204.5(d) of Regulation D; 12 CFR 204.5(d)). In order to provide similar treatment for branches and agencies, the Board has determined that the proceeds of the sale of any domestic asset by a branch or agency to its foreign bank (including its non-U. S. offices) or foreign parent bank holding company will be subject to Eurodollar reserve requirements. However, domestic assets that are required to be sold for Federal or State supervisory purposes will not be subject to Eurodollar reserve requirements. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 8 Regulation Q Regulation Q (12 CFR Part 217) prescribes rules governing the payment of interest on deposits, including limitations on the rates of interest that may be paid by member banks on time and savings deposits. Regulation Q also includes provisions that (1) prohibit the payment of interest on deposits that are payable on demand or that have a maturity of less than 30 days; (2) specify the terms and conditions under which member banks may pay savings and time deposits before maturity; and (3) prescribe rules governing the advertisement of interest paid on deposits. The Federal Deposit Insurance Corporation has established substantially similar regulations (12 CFR Part 329) that apply to nonmember banks. Effective September 4, 1980, the Board is applying Regulation Q to the following offices of parent foreign banks having total worldwide consolidated bank assets in excess of $1 billion: insured and uninsured Federal branches, uninsured State branches, and Federal and State agencies. Under section 18(g) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(g)), Part 329 will apply to all insured State branches and to insured Federal branches of foreign banks with total worldwide consolidated bank assets of $1 billion or less. Access to Federal Reserve Services The IBA states that, subject to restrictions, limitations, and regulations of the Board, each Federal Reserve Bank may provide services to a branch or agency in the same manner and to the same extent as to a member bank if such branch or agency is maintaining Federal reserves. The IBA also states that, in providing services to a branch or agency, each Federal Reserve Bank shall give due regard to account balances being maintained with it by the branch or agency and the proportion of the assets of such branch or agency being held as reserves (12 U.S.C. § 347d). Under the Board's procedure of statewide aggregation for calculating reserve requirements for branches and agencies, reserve accounts will be maintained at Federal Reserve Banks in each District in which a foreign bank operates. Federal Reserve services will be made available to branches and agencies locally through the Reserve Banks with which they maintain accounts. The Board believes that access to Federal Reserve services on a local basis is appropriate in order to further the IBA's goal of promoting competitive equality between branches and agencies and domestic depository institutions. Federal Reserve services will be available to branches and agencies beginning September 4, 1980, the effective date of the reserve requirement regulation. As authorized by the IBA, Federal Reserve Banks may require branches and agencies to maintain a level of clearing balances consistent with the level of services being provided. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 06 - 9 - A branch or agency may make mutually agreeable arrangements with the Reserve Bank at which it maintains an account to hold a portion of its reserve balance in a nontransactional account that would be available to State or Federal supervisory authorities pursuant to various asset pledge requirements. Such an account could not be used for clearing purposes and could not be used to meet any clearing balance requirement established by a Reserve Bank. Access to discount window In accord with the IBA's policy of national treatment, extensions of credit from the Federal Reserve discount window generally will be made available to branches and agencies under the same policies applicable to domestic money center banks, their primary competitors. However, these policies will be modified somewhat in recognition of the operational and structural differences between branches and agencies and domestic money center banks. A branch or agency will be expected to draw upon other reasonable sources of funds, including its foreign bank and domestic and foreign money markets, before turning to the discount window for short-term adjustment credit. Moreover, adjustment credit will not normally be available to a branch or agency if it were funding or intended to fund other related institutions, foreign or domestic. As is the case with money center banks, a branch or agency will not normally be eligible for the Seasonal Borrowing Program. Emergency credit will be extended to a branch or agency only with prior Board approval. The appropriateness of borrowing by a branch or agency will be determined by the needs of the individual office. Each branch or agency will be permitted to borrow from the Reserve Bank of the District in which the branch or agency is located. However, Reserve Bank lending to all U. S. offices of a foreign bank will be coordinated and monitored on a nationwide basis to assure compliance with the policies for borrowing from the Federal Reserve. Implementation of reserve requirements The Board recognizes that substantial revisions in the accounting procedures of branches and agencies may be required as a result of its action. On September 4, 1980, branch and agency basic reserve requirements will commence based on deposits held during the seven-day computation period ending on Wednesday, August 27, 1980. Federal branches and agencies will pt be subject to basic reserve requirements until September 4, 1980.-1 At that time, branches and agencies will be required 3/ Under § 7 of the IBA, a Federal branch or agency accepting deposits would be required to maintain Federal reserves in the same manner as a member bank. However, since State branches and agencies will not be subject to basic reserve requirements until September 4, 1980, the Board is waiving basic reserve requirements for Federal branches and agencies until that date. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 10 - to report data necessary for the administration of reserve requirements, including data for the categories listed in Table 2. Data for these categories are required to be maintained on a daily basis for each computation period and filed with the appropriate Federal Reserve Bank once each week. These data and filing requirements are similar to those of member banks. Current Board policy permits nonmember banks that become member banks to assume their reserve requirements gradually over a two-year period. The Board has determined that it is appropriate to phase-in reserve requirements for branches and agencies over a similar two-year period. Therefore, reserve requirements will be applied to these institutions on a graduated basis over a 24-month period in accordance with the following schedule: Succeeding 3-month periods following application of basic reserve requirements 1 2 3 4 5 6 7 8 9 Percentage of reserve requirement to be maintained September 4-December 3, 1980 December 4, 1980-March 4, 1981 March 5-June 3, 1981 June 4-September 2, 1981 September 3-December 2, 1981 December 3,1981-March 3, 1982 March 4-June 2, 1982 June 3-September 1, 1982 September 2, 1982 forward 0 5 15 25 40 55 75 95 100 For purposes of the phase-in of reserve requirements, marginal reserve requirements on managed liabilities will not be taken into account, since a branch or agency already is required to maintain such reserves. Table 2 Reporting Categories for Branches and Agencies for Reserve Requirement Purposes* 1. Demand deposits due to banks. 2. Demand deposits due to the U. S. Government. 3. Other demand deposits (including officers' checks). 4. Demand deposits due from banks. 5. Cash items in process of collection. 6. Savings deposits. 7. Time deposits with original maturities of 30 to 179 days. "Deposits" includes credit balances. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 11- 8. Time deposits with original maturities of 180 days but less than 4 years. 9. Time deposits with original maturities of 4 years or more. 10. U. S. currency and coin owned and held. 11. Time deposits of $100,000 or more. 12. Borrowings from foreign banks, foreign national governments, and international institutions. 13. Gross claims on the foreign bank (including its offices located outside the States of the United States and the District of Columbia). 14. Gross liabilities to the foreign bank (including its offices located outside the States of the United States and the District of Columbia). 15. Assets sold by a branch or agency to its foreign bank (including its offices located outside the States of the United States and the District of Columbia) or its foreign parent bank holding company. 16. Assets sold by the branch or agency to nonbanking affiliates. 17. Funds received from the sale of ineligible bankers acceptances that have remaining maturities of less than 30 days. 18. Funds received from the sale of ineligible bankers acceptances that have remaining maturities of 30 days or more but less than 180 days. 19. Funds received from the sale of ineligible bankers acceptances that have remaining maturities of 180 days or more but less than 4 years. 20. Funds received from the sale of ineligible bankers acceptances that have remaining maturities of 4 years or more. 21. Total assets less United States coin and currency, cash items in process of collection and unposted debits, balances due from domestic banks and other foreign banks, balances due from foreign central banks and net balances due from the foreign bank and the foreign bank's U. S. and foreign offices. AI -12- Edge Corporations Under section 25(a) of the Federal Reserve Act (12 U.S.C. § 615), Edge Corporations are required to maintain reserves in such amounts as the Board may prescribe for member banks. In addition, Congress has expressed the view in the IBA that Edge Corporations should have powers sufficiently broad to enable them to compete effectively with foreign-owned banking institutions in the United States and abroad. The Board has amended Regulations D and K in order to treat Edge Corporations and their branches for reserve purposes in generally the same manner as the agencies and branches of foreign banks. Under the Board's action, any two or more offices of an Edge Corporation operating in the same State will submit aggregated reports of deposits to, and maintain reserves with, the Federal Reserve Bank in whose District they operate. However, Edge Corporation offices located in the same State but in different Federal Reserve Districts will report deposits and maintain reserves separately with their Reserve Banks. In reporting deposits for purposes of calculating reserve requirements, Edge Corporation offices will exclude transactions with other offices of the same Edge Corporation. Federal Reserve services will be made available to Edge Corporation offices through the Reserve Banks with which they maintain their accounts. The Federal Reserve discount window, however, is unavailable to Edge Corporations. If a foreign bank established an Edge Corpration, as permitted for the first time by the IBA, the deposits of the offices of the Edge Corporation would not be aggregated with those of the branches and agencies of that foreign bank for purposes of calculating reserve requirements. This treatment parallels the treatment of Edge Corporations owned by domestic banks, since, at present, deposits of Edge Corporations owned by U. S. banks are not aggregated with those of their parent bank for purposes of calculating reserve requirements. The capital equivalency allowance, however, will not be available to Edge Corporations. These actions are taken pursuant to the Board's authority under section 7 of the International Banking Act of 1978 (12 U.S.C. § 3105), section 13 of the Federal Reserve Act (12 U.S.C. § 347d), section 19 of the Federal Reserve Act (12 U.S.C. §§ 371a, 371b, 461 et .mg.), and section 25(a) of the Federal Reserve Act (12 U.S.C. §§ 611 et Img.). Effective September 4, 1980, Regulation A (12 CFR Part 201), Regulation D (12 CFR Part 204), Regulation K (12 CFR Part 211), and Regulation Q (12 CFR Part 217) are amended as follows: 1. Section 201.1 of Regulation A (12 CFR 201.1) is amended to read as follows: http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Alb - 13 - § 201.1 AUTHORITY AND SCOPE This Part is issued under the authority of section 13 (12 U.S.C. §§ 343 et ,seq.) and other provisions of the Federal Reserve Act and relates to extensions of credit by Federal Reserve Banks. Except as may be otherwise provided, this Part shall be applicable to United States branches and agencies of foreign banks subject to reserve requirements under 12 CFR Part 204 in the same manner and to the same extent as to member banks. 2. Regulation D (12 CFR Part 204) is amended by adding a new section 204.0 as follows: § 204.0 AUTHORITY AND SCOPE (a) This Part is issued under the authority of section 19 (12 U.S.C. §§ 461 et2ta.) and other provisions of the Federal Reserve Act and of section 7 of the International Banking Act of 1978 (12 U.S.C. § 3105). (b) This Part relates to the reserves that member banks are required to maintain against deposits. A foreign bank's branch or agency located in the States of the United States or the District of Columbia is required to comply with the provisions of this Part in the same manner and to the same extent as if the branch or agency were a member bank, except as may be otherwise provided by the Board, if (i) its parent foreign bank has total worldwide consolidated bank assets in excess of $1 billion; (ii) its parent foreign bank is controll ed by a foreign company which owns or controls foreign banks that in the aggregate have total worldwide consolidated bank assets in excess of $1 billion; or (iii) its parent foreign bank is controlled by a group of foreign companies that own or control foreign banks that in the aggregate have total worldwide consolidated bank assets in excess of $1 billion. (c) The provisions of this Part do not apply to any deposit that is payable only at an office located outside the States of the United States and the District of Columbia. 3. Section 204.1 of Regulation D (12 CFR 204.1) is amended to read as follows: § 204.1 DEFINITIONS (b) Time deposits. *** "Time deposits" does not include the liability of a United States branch or agency of a foreign bank to another United States branch or agency of the same foreign bank, or the liability of a United States office of an Edge Corporation to another United States office of the same Edge Corporat ion. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 14 - (g) Gross demand deposits. *** "Gross demand deposits" also includes officers' checks issued by or drawn by a United States branch or agency of a foreign bank, including checks drawn as agent for or on behalf of its foreign bank or offices thereof located outside the States of the United States and the District of Columbia. "Gross demand deposits" does not include the liability of a United States branch or agency to another United States branch or agency of the same foreign bank, or the liability of a United States office of an Edge Corporation to another United States office of the same Edge Corporation. (k) Credit balances. For purposes of this Part, the term "deposits" also includes the credit balances of a United States branch or agency of a foreign bank. (1) Foreign hank. "Foreign bank" means any bank organized under the laws of any country other than the United States (including its States and the District of Columbia), or organized under the laws of Puerto Rico, Guam, American Samoa, the Virgin Islands, or a territory or possession of the United States. 4. Section 204.2 of Regulation D (12 CFR 204.2) is revised to read as follows: 204.2 COMPUTATION OF RESERVES (b) Deductions allowed in computing reserves. In determining the reserve balances required under the terms of this Part, the amounts of balances subject to immediate withdrawal due from other banks, including such amounts due from United States branches and agencies of foreign banks, and cash items in process of collection as defined in S 204.1(h) may be deducted from the amount of gross demand deposits. However, United States branches and agencies of a foreign bank may not deduct balances due from another United States branch or agency of the same foreign bank, and United States offices of an Edge Corporation may not deduct balances due from another United States office of the same Edge Corporation. Balances "due from other banks" do not include balances due from Federal Reserve Banks, or balances (payable in dollars or otherwise) due from banking offices located ?Wide the States of the United States and the District of Columbia.--f http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 15 - 5. Section 204.3 of Regulation D (12 CFR 204.3) is amended to read as follows: § 204.3 DEFICIENCIES IN RESERVES (e) United States branches and agencies of foreign banks. A foreign bank's United States branches and agencies operating within the same State and within the same Federal Reserve District shall prepare and file a Report of Deposits on an aggregated basis, shall maintain required reserves with the Federal Reserve Bank of their District, and shall be assessed penalties in accordance with the provisions of paragraphs (a) through (d) of this section. (f) Edge Corporations. An Edge Corporation's offices operating within the same State and within the same Federal Reserve District shall prepare and file a Report of Deposits on an aggregated basis, shall maintain required reserves with the Federal Reserve Bank of their District, and shall be assessed penalties in accordance with the provisions of paragraphs (a) through (d) of this section. 6. Section 204.5 of Regulation D (12 CFR 204.5) is amended to read as follows: § 204.5 RESERVE REQUIREMENTS (a) Reserve Percentages. * * * In determining the deposits of United States branches and agencies of foreign banks against which reserve balances are required to be maintained, the deposits of United States branches and agencies of a foreign bank shall be aggregated for all offices operating within the same State and within the same Federal Reserve District. In determining the deposits of United States offices of Edge Corporations against which reserve balances are required to be maintained, the deposits of United States offices of an Edge Corporation shall be aggregated for all offices operating within the same State and within the same Federal Reserve District. (d) Foreign branch transactions with parent bank. (1) Member banks. During each week of the four-week period beginning May 22, 1975, and during each week of each successive four-week ("maintenance") period, a member bank having one or more foreign branches shall maintain with the Reserve Bank of its District, as a reserve against its foreign branch deposits, a daily average balance equal to zero per cent of the daily average total of -- http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 16 - (i) net balances due from its domestic offices to such branches, and (ii) assets (including participations) held by such branches which were acquired from its domestic offices (other than assets representing credit extended to persons not residents of the United States), during the four-week computation period ending on the Wednesday fifteen days before the beginning of the maintenance period. (2) United States branches and agencies of foreign banks. During each reserve maintenance period, a United States branch or agency of a foreign bank shall maintain a reserve against its deposits equal to a daily average balance of zero per cent of the daily average total of -(i) net balances due to its foreign bank (including offices thereof located outside the States of the United States and the District of Columbia) after deducting an amount equal to 8 per cent of the United States branch's or agency's total assets less United States coin and currency, cash items in the process of collection and unposted debits, balances due from domestic banks and other foreign banks, balances due from foreign central banks, and net balances due from its foreign bank and its United States and non-United States offices however, the amount that may be deducted may not exceed net balances due to the foreign bank (including offices thereof located outside the States of the United States and the District of Columbia), and (ii) assets (including participations) held by its foreign bank (including offices of the foreign bank located outside the States of the United States and the District of Columbia or its parent holding company that were acquired from the United States branch or agency (other than assets required to be sold by Federal or State supervisory authorities or assets representilig icredit extended to persons not residents of the United States--/) during the computation period ending on the Wednesday eight days before the beginning of the maintenance period. Reserves that may be required against assets sold to nonbanking affiliates under § 204.1(f) of this section shall be maintained in accordance with § 204.5(a) of this section. (e) Foreign branch credit extended to United States residents. This paragraph does not apply to United States branches and agencies of foreign banks. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis * * * -17- 13/ A United States resident is: (a) Any individual residing (at the time the credit is extended) in any State of the United States or the District of Columbia; (b) any corporation, partnership, association or other entity organized therein ("domestic corporation"); and (c) any branch or office located therein of any other entity wherever organized. Credit extended to a foreign branch, office, subsidiary, affiliate or other foreign establishment ("foreign affiliate") controlled by one or more such domestic corporations will not be deemed to be credit extended to a United States resident if the proceeds will be used in its foreign business or that of other foreign affiliates of the controlling domestic corporation(s). 7. Section 211.4(d) of Regulation K (12 CFR 211.4(d)) is revised as follows: (d) Reserve requirements and interest rate limitations. The deposits of an Edge Corporation are subject to the reserve requirements of Part 204 (Regulation D) and the interest rate limitations of Part 217 (Regulation Q) in the same manner and to the same extent as if the Edge Corporation were a member bank, except as may be otherwise provided by the Board. 8. as follows: Section 217.0 of Regulation Q (12 CFR 217.0) is amended S 217.0 AUTHORITY AND SCOPE (c) Under authority of the provisions of section 7 of the International Banking Act of 1978 (12 U.S.C. S 3105), the provisions of this Part apply to a Federal branch or agency of a foreign bank and to a State uninsured branch or agency of a foreign bank in the same manner and to the same extent as if the branch or agency were a member bank, except as may be otherwise provided by the Board, if (i) its parent foreign bank has total worldwide consolidated bank assets in excess of $1 billion; (ii) its parent foreign bank is controlled by a foreign company which owns or controls foreign banks that in the aggregate have total worldwide consolidated bank assets in excess of $1 billion; or (iii) its parent foreign bank is controlled by a group of foreign companies that own or control foreign banks that in the aggregate have total worldwide consolidated bank assets in excess of $1 billion. (d) The provisions of this Part do not apply to any deposit that is payable only at an office located outside of the States of the United States and the District of Columbia of a member bank or of a foreign bank. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 1110•111.• - 18 - 9. Section 217.1 of Regulation Q (12 CFR 217.1) is amended by adding the following: 217.1 DEFINITIONS (i) Credit balances. For purposes of this Part, the term "deposits" also includes the credit balances of a United States branch or agency of a foreign bank. (j) Foreign bank. "Foreign bank" means any bank organized under the laws of any country other than the United States (including its States and the District of Columbia), or organized under the laws of Puerto Rico, Guam, American Samoa, the Virgin Islands, or a territory of the United States. By order of the Board of Governors, March 19, 1980. (signed) Griffith L. Garwood Griffith L. Garwood Deputy Secretary of the Board [SEAL] http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 11.SR. 10899 Ilinctg-fiftli Congos of thc Unita' tatc,s of 3ificrica AT TIIE SECOND SESSION Begun and held at the City of Washington on Thursday, the nineteenth day of January, one thousand nine hundred and seventy-eight http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 21n 21ct To provide for Federal regulation of participation by foreign banks in domestic financial markets. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SHORT TITLE; DEFINITIONS AND RULES OF CONSTRUCTION SECTION 1.(a) This Act may be cited as the "International Banking Act of 1978". (b) For the purposes of this Act— (1) "agency" means any office or any place of business of a foreign bank located in any State of the United States at which credit balances are maintained incidental to or arising out, of the exercise of banking powers, checks are paid, or money is lent but at which deposits may not be accepted from citizens or residents of the United States; (2) "Board" means the Board of Governors of the Federal Reserve System; (3) "branch" means any office or any place of business of a foreign bank located in any State of the United States at, which deposits are received; (4) "Comptroller" means the Comptroller of the Currency; (5) "Federal agency" means an agency of a foreign bank established and operating under sectioii4 of this Act.: (6) "Federal branch" means a branch of a foreign bank established and operating under section 4 of this Act; (7) "foreign bank" means any company organized under the. laws of a foreign country. a territory of the United States,Puerto Rico, Guam, American Samoa, or the Virgin Islands, which engages in the business of banking. or any subsidiary or affiliate, organized under such laws, of any such company. For the, pnrposes of this Act the term "foreign bank' includes, without limitation, foreign commercial banks, foreign merchant. banks and other foreign institutions that engafre. in banking 'activities usual in connection with the business of banking in the countries where such foreign institutions are. organized or operating; (8) "foreign country" means any country other than the United States, and includes any colony, dependency, or possession of any such country ; (9) "commercial lending company" means any institution, other than a bank or an organization operating under section 25 of the Federal Reserve Act, organized under the laws of any State of the United States, or the District. of Columbia which maintains credit balances incidental to or arising out of the exercise of banking powers and engages in the business of making commercial loans; (10) "State" means any State of the United States or the District of Columbia; (11) "State agency" means an agency of a foreign bank established and operating under the laws of any State; • H.R. 10899-2 (12) "State branch" means a branch of a foreign bank established and operating under the laws of any State; (13) the terms "bank","bank holding company","company", "control", and "subsidiary" have the same meanings assigned to those terms in the Bank Holding Company Act of 1956, and the terms "controlled" and "controlling" shall be construed consistently with the term "control" as defined in section 2 of the Bank Holding Company Act of 1956; and (14) "consolidated" means consolidated in accordance with generally accepted accounting principles in the United States consistently applied. DIRECTORS OF NATIONAL BANKS SEC. 2. Section 5146 of the Revised Statutes (12 U.S.C. 72) is amended by striking out the period at the end of the first sentence and adding the following new provision: ", except that in the case of an association which is a subsidiary or affiliate of a foreign bank, the Comptroller of the Currency may in his discretion waive the requirement of citizenship in the case of not more than a minority of the total number of directors.". EDGE ACT CORPORATIONS SEC. 3. (a) It is the purpose of this section to eliminate or modify provisions in section 25(a) of the Federal Reserve Act that (1) discriminate against foreign-owned banking institutions, (2) disadvantage or unnecessarily restrict or limit corporations organized under section 25(a) of the Federal Reserve Act in competing with foreignowned banking institutions in the Unite,d States or abroad or (3) impede the attainment of the Congressional purposes set forth in section 25(a) of the Federal Reserve Act as amended by subsection (b) of this section. In furtherance of such purpose, the Congress believes that the Board should review and revise its rules, regulations, and interpretations issued pursuant to section 25(a) of the, Federal Reserve Act to eliminate or modify any restrictions, conditions, or limitations not, required by section 25(a) of the Federal Reserve Act, as amended, that (1) discriminate against foreign-owned banking; institutions,(2) disadvantage or unnecessarily restrict or limit corporations organized under section 25(a) of the Federal Reserve Act, in competing with foreign-owned banking institutions in the United States or abroad, or (3) impede the attainment of the Congressional purposes set forth in section 25(a) of the Federal Reserve Act, as amended by subsection (b) of this section. Rules and regulations pursuant to this subsection and section 25(a) of the Federal Reserve Act shall be issued not later than 150 days after the date of enactment of this section and shall bc issued in final form and become effective not later than 120 days after they are first issued. (b) Section 25(a) of the Federal Reserve Act,is amended by adding after the first. paragraph (12 U.S.C. 611), the following new paragraph: "The Congress hereby declares that it is the purpose of this section to provide for the establishment of international banking and financial corporations operating under Federal supervision with powers sufficiently broad to enable them to compete effectively with similar foreign-owned institutions in the United States and abroad; to afford to the United States exporter and importer in particular, and to United http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. R. 10899-3 States commerce, industry, and agriculture in general, at, all times a ineans of financing international trade, especially United States exports; to foster the participation by regional and smaller banks throughout the United States m the provision of international banking and financing services to all segments of United States agriculture, commerce, and industry, and, in particular small business and farming concerns; to stimulate competition in the provision of international banking and financing services throughout.the United States; and, in conjunct ion with each of the preceding purposes, to facilitate and stimulate. the expoit of United States goods, wares, merchandise, commodities, and services to achieve a sound United States international trade position. Time Board of Governors of the Federal Reserve System shall issue rules and regulations under this section consistent with and in furtherance of the purposes described in the preceding sentence., and, in accordance t herewith, shall review and revise any such . rules and regulations at least once every five years,the first, such period commencing with the effective date of rules and regulations issued pursuant, to section 3(a) of the International Banking Act of 1978, in order to ensure that such purposes are being served in light of prevailing economic conditions and banking practices.". (c) The second sentence of the fourth paragraph of section 25(a) of the Federal Reserve Act (12 U.S.C. 614) is amended by striking out ", all of whom shall be citizens of the United States" after "to elect or appoint directors". (d) The, first sentence of the sixth paragraph of section 25(a) of the Federal Reserve Act (12 U.S.C. 615(a)) is amended by striking ", but in no event having liabilities outstanding- thereon at any one time exceeding ten times its capital stock and surplus"; and the first sentence of the twelfth paragraph of section 25(a) of the Federal Reserve Act (12 U.S.C. 618) is amended by inserting a. period after "and in section 25 of the Federal Reserve Act as amended",and by striking the remainder of the sentence. (e) The third sentence of the sixth paragraph of section 25(a) of the Federal Reserve Act (12 U.S.C. 615(a)) is amended by striking ", but, in no event less than ten per centum of its deposits" and inserting in lieu thereof "for member banks of the Federal Reserve System". (f) The thirteenth paragraph of section 25(a) of the Federal Reserve Act (12 U.S.C. 619) is deleted and the following paragraph is inserted in lieu thereof: "Except as otherwise provided in this section, a majority of the shares of the capital stock of any such corporal ion shall at all times be held and 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 of a State of the United St mites, or by firms or companies, the controlling interest in which is owned by citizens of the United States. Notwithstanding any other provisions of this section, one, or more foreign banks, institutions organized under the laws of foreign countries which own or control foreign banks, or banks organized under the laws of the United States, the States of the TTnited States, or the District, of Columbia, the controlling interests in which are owned by any such foreign banks or institutions, may, with the prior approval of the Board of Governors of the Federal Reserve System and upon such terms and conditions and subject to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe,own and bold 50 per centum or more of the shares of the capital stock of http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis • 11. R. 10899-4 any corporation organized under this section, and any such corporation shall be subject, to the same provisions of law as any other corporation organized under this section, and the terms 'controls' and 'controlling interest' shall be construed consistently with the definition of 'control' in section 2 of the Bank Holding Company Act of 1956. For the purposes of the preceding sentence of this paragraph the term 'foreign bank' shall have the meaning assigned to it in the International Banking Act of 1978.". (g) The Board shall report, to the Congress not later than 270 (lays after the date of enactment of this Act its recommendations with respect to permitting corporations organized or operating under srci ion 25 or 25(a) of the Federal Reserve Act, to become members of Federal Reserve Banks. (h) As part of its annual report pursuant to section 10 of the Federal Reserve Act, the Board shall include its assessment of the effects of the amendments made by this Act on the capitalization and activities of corporations organized or operating under section 25 or 25(a) of the Federal Reserve Act, and on commercial banks and the banking system. FEDERAL BRANCHES AND AGENCIES SEC. 4. (a) Except as provided in section 5, a foreign bank which engages directly in a banking business outside the United States may, with the approval of the Comptroller, establish one or more Federal branches or agencies in any State in which (1) it is not operating a branch or agency pursuant to State law and (2) the establishment of a branch or agency, as the case may be, by a foreign bank is not prohibited by State law. (b) In establishing and operating a Federal branch or agency, a foreign bank shall be subject to such rules, regulations, and orders as the Comptroller considers appropriate to carry out this section, which shall include provisions for service of process and maintenance of branch and agency accounts separate from those of the parent bank. Except as otherwise specifically provided in this Act or in rules, regulations, or orders adopted by the Comptroller under this section, operations of a foreign bank at a Federal branch or agency shall be conducted with the same rights and privileges as a national bank at the same location and shall be subject to all the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply under the National Bank Act to a national bank doing business at the same location, except that (1) the requirements of section 5240 of the Revised Statutes (12 U.S.C. 481) shall be met with respect to a Federal branch or agency if it is examined at least once in each calendar year: (2) any limitation or restriction based on the capital stock and surplus of a national bank shall be deemed to refer, as applied to a Federal branch or agency, to the dollar equivalent. of the capital stock and surplus of the foreign bank, and if the foreign bank has more than one Federal branch or agency the, business transacted by all such branches and agencies shall be aggregated in determining compliance with the limitation; (3) a Federal branch or agency shall not be required to become a member bank, as that term is defined in section 1 of the Federal Reserve Act; and (4) a Federal agency shall not be required to become an insured bank as that term is defined in section 3(h) of the Federal Deposit Insurance, Act. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. R. 10899-5 (c) In acting on any application to establish a Federal branch or agency, the Comptroller shall take into account the effects of the proposal on competition in the domestic and foreign commerce of the United States, the financial and managerial resources and future prospects of the applicant foreign bank and the branch or agency,and the convenience and needs of t he,community to be served. (d) Notwithstanding any other provision of this section, a foreign bank shall not receive deposits or exercise fiduciary powers at any Federal agency. A foreign bank may, however, maintain at, a, Federal • agency for the account. of others credit, balances incidental to, or arising out of,the exercise of its lawful powers. (e) No foreign bank may maintain both a Federal branch and a Federal agency in the same State. (f) Any branch or agency operated by a foreign bank in a State pursuant to State law and any commercial lending company controlled by a foreign bank may be converted into a Federal branch or agency with the approval of the Comptroller. In the event, of any conversion subsection all of the liabilities of such foreign bank pursuant to this subsection, branch or agency, or all of the liabilipreviously payable at the ties of the commercial lending company, shall thereafter be payable by such foreign bank at the bra nch or agency established under this subsection. (0.)(1) Upon the opening of a Federal branch or agency in any Stare and thereafter,a foreign bank,in addition to any deposit requirements imposed under section 6 of this Act, shall keep on deposit, in accordance with such rules and regulations as the Comptroller may prescribe, with a member .bank designated by such foreign bank, dollar deposits or investment, securities of the type that may be held by national banks for their own accounts pursuant. to. paragraph "Seventh" of section 5136 of the Revised Statutes, as amended, in an amount as hereinafter set forth. Such depository bank shall be located in the, State where such branch or agency is located and shall be approved by the Comptroller if it is a national bank and by the Board of Governors of the Federal Reserve System if it is a State Bank. (2) The, aggregate amount of deposited investment securities (cal. ciliated. on the basis of principal amount, or market value, whichever is lower) and dollar deposits for each branch or agency established and operating under this section shall be not less than the greater of (1) that, amount of capital (but not surplus) which would be required of a national bank being organized at this location, or (2) 5 per centmn of the total liabilities of such branch or agency, including acceptances, but excluding (A) accrued expenses, and (B) amounts due and other liabilitiest-to offices. branches, agencies, and subsidiaries of such foreign bank. The, Comptroller may require that the assets deposited pursuant to this subsection shall be maintained in such amounts as he may from time to time deem necessary or desirable, for the maintenance, of a sound financial-condition, the protection of depositors, and the, public interest., but such additional amount, shall in no event. be greater than would be required to conform to generally accepted banking practices as manifested by banks in -the area in which the branch or agency is located. (3) The deposit, shall be maintained with any such member bank pursuant to a deposit agreement in such form and containing such limitations and conditions as the Comptroller may prescribe. So long http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. 10899-6 as it continues business in the ordinary course such foreig however, be permitted to collect income on the securi n bank shall, SO deposited and from time to time examine and ties and funds exchange such securities. (4) Subject to such conditions and requirements as scribed by the Comptroller,each foreign bank shall hold may be prein each State in which it has a Federal branch or agency, assets of such in such amount as the Comptrollermay prescribe by genera types and l or specific regulation or ruling as necessary or desirable for the maint enance of a sound financial condition, the protection of depositors, credit ors and the public interest. In determining compliance with scribed asset requirements the Comptroller shall give any such precredit to (A) assets required to be maint ' ained pursuant to paragraphs of this subsection (B) reserves required to be maintained(1) and (2) section 7(a) of this Act, and (C) assets pledged, and pursuant to payable, to the Federal Deposit Insurance Corporatio surety bonds n to secure the payment of domestic deposits. The Comptroller may prescr ent asset requirements for branches or agencies in differ ibe differin order to ensure competitive equality of Federal branchesent States, cies ANith State branches and agencies and domestic banksand agenin those States. (h) A foreign bank with a Federal branch or agency any State may (1) with the prior approval of the Compt operating in lish and operate additional branches or agencies in the roller estabState such branch or agency is located on the same terms and conditin which ions and subject to the same limitations and restrictions as are applic the establishment of branches by a national bank if the princi able to of such national bank were located at the same place as pal office branch or agency in such State of such foreign bank and the initial the designation of its initial branch or agency to any other(2) change agency subject to the same limitations and restrictions as branch or ble to a change in the designation of the principal office are applicaof a national bank if such principal office were located at the same place as such initial branch or agency. (i) Authority to operate a Federal branch or agency shall terminate when the parent foreign bank voluntarily relinquishes it or when such parent foreign bank is dissolved or its authority or existe nce is otherwise terminated or canceled in the country of its organization . If (1) at any time the Comptroller is of the opinion or has reason able to believe that such foreign bank has violated or failed to compl cause y with any of the provisions othis section or any of the rules, regula tions, or orders of the Comptroller made pursuant to this sectio conservator is appointed for such foreign bank or a simila n, or (2) a is initiated in the foreign bank's country of organizationr proceeding troller shall have the power, after opportunity for hearin,g,the, Compthe foreign bank's authority to operate a Federal branc to revoke h or agency. The Comptroller may, in his discretion, deny such opport unity for hearing if ho determines such denial to be in the public intere Comptroller may restore any such authority upon due proof st. The of compliance with the provisions of this section and the rules, regula tions, or orders of the Comptroller made pursuant to this section. (j)(1) Whenever the Comptroller revokes a foreig authority to operate a Federal branch or agency or whenen bank's ver any creditor of any such foreign bank shall have obtained a judgm against it arising out of a transaction with a Federal branc ent h or agency in any court of record of the United States or any State of http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis If. It. 10899-7 the United States and .ma.de application, accompanied by a certificate from the clerk of the court stating that such judgment. has been rendered and has remained unpaid for the space of thirty days, or whenever the Comptroller shall become .satisfied that such foreig n bank is insolvent, he may, after due consideration of its affairs , in any such case, appoint a receiver who shall take possession of all the property and assets of such foreign bank in tlth United States exercise the same rights, privileges, powers, and authority and respect thereto as are now exercised by receivers of national with banks appointed by the Comptroller. (2) In any receivership proceeding ordered pursuant to this subsection (j), whenever there has been paid to each and every deposi and creditor of such foreign bank whose claim or claims shall tor been proved or allowed, the full amount of such claims arisin have of transactions had by them with any branch or agency of g out such foreign bank located in any State of the United States , except (A) claims that would not, represent an enforceable legal obliga against such branch or agency if such branch or agency were a tion separate legal entity, and (B) amounts due and other liabilities other to offices or branches or agencies of, and wholly owned (except for a nominal number of (lirectors' shares) subsidiaries of, such foreig n bank, and all expenses of the receivership, the Comptroller or the Federal Deposit Insurance Corporation, where. that Corpor has been appointed receiver of the foreign bank, shall turn ation over the remainder, if any, of the assets and proceeds of such foreig n bank to the head office Of such foreign bank, or to the duly appoin ted domiciliary liquidator or receiver of such foreign bank. INTERSTATE BANKING OPERATIONS SEC. 5: (a) Except as provided by subsection (b), (1) no foreign bank may directly or indirectly establish and operate a Federa branch outside of its home State unless (A) its operation is expres l sly permitted by the State in which it is to be operated, and (B) the foreign bank shall enter into an agreement. or undert aking with the Board to receive only such deposits at the place of operation of such Federal branch as would be permissible for a corpor organized under section 25(a) of the. Federal Reserve Act. underation and regulations administered by the Board; (2) no foreig rules n bank may directly or indirectly establish and operate a State branch side of its home State unless (A) it is approved by the bank outregulatory authority of the State in which such branch is to be operated, and (B) the foreign bank shall enter into an agreement taking with the Board to receive only such deposits at theor underplace of operation of such State branch as would be permissible for corpoa ration organized under section 25(a) of the Federal under rules and regulations administered by the Board Reserve Act ; (3) no foreign bank may directly or indirectly establish and operat agency outside of its home State unless its operation e a Federal is expressly permitted by the State in which it is to be operated; bank may directly or indirectly establish and operate (4) no foreign or commercial lending company subsidiary outside of a State agency home State, unless its establishment and operation is approved by its the bank regulatory ,authority of the State in which it is to be. operat (5) no foreign bank may directly or indirectly acquire anyed; and voting shares of, interest in, or substantially all of the assets of a bank http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis H.IL 10899-8 located outside of its home State if such acquisition would be prohibited under section 3(d) of the Bank Holding Company Act, of 1956 if the foreign bank were a hank holding company- the operations of whose. banking subsidiaries were principally conducted in the, foreign bank's home State. Notwithstanding any other provisions of Federal or State law, deposits received by any Federal or State branch subject to the limitations of an agreement or undertaking imposed under this subsection shall not be subject to any requirement of mandatory insurance by the Federal Deposit Insurance Corporation. (b) Unless its authority to do so is lawfully revoked otherwise than pursuant to this section, a foreign bank, notwithstanding any restriction or limitation imposed under subsection (a) of this section, may establish and operate, outside its home State, any State branch, State agency, or bank or commercial lending company subsidiary which commenced lawful operation or for which an application to commence business had been lawfully filed with the appropriate, State or Federal authority, as the case may be, on or before, July 27, 1978. (c) For the purposes of this section, the home State of a foreign bank that has branches, agencies, subsidiary commercial lending companies, or subsidiary banks, or any combination thereof, in more than one State, is whichever of such States is so determined by election of the. foreign bank,or,in default of such election,by the Board. INSURANCE OF DEPOSITS SEC. 6. (a) No foreign bank may establish or operate a Federal branch which receives deposits of less than $100,000 unless the branch is an insured branch as defined in section 3(s) of the Federal Deposit Insurance Act, or unless the Comptroller determines by order or regulation that the branch is not engaged in domestic retail deposit activities requiring deposit insurance protection, taking account of the size and nature of depositors and deposit accounts. (b) After the date of enactment of this Act no foreign bank may establish a branch, and after one year following such (late no foreign bank may operate a branch, in any State in which the deposits of a bank organized and existing under the laws of that State would be required to be insured, unless the branch is an insured branch as defined in section 3(s) of the Federal Deposit Insurance Act, or unless the branch will not thereafter accept deposits of less than $100,000, or unless the Federal Deposit Insurance Corporation determines by order or regulation that, the branch is not engaged in domestic retail deposit ivities requiring deposit insurance protection, taking account of the size and nature of depositors and deposit accounts. (c)(1) The Federal Deposit Insurance Act (12 I.S.C. 1811-1832) is amended as set, forth hereinafter in this subsection, in which section mnnbers not, otherwise identified refer to sections of that, Act. (2) Section 3(h) is amended by inserting "(including a foreign bank having an insured branch)" immediately after "(h) The term 'insured bank' means any bank". (3) Section 3(j) is amended by inserting "or of a branch of a foreign bank" immediately before the period at the end thereof. (4) Section 3(m) is amended (A) by changing "(m) The" to read "(in)(1) Subject to the provisions of paragraph (2) of this subsection, the". and (B) by adding at the end thereof the following new paragraph: http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis • II. R. 10899-9 "(2) In the case of any deposit in a branch of a foreign bank, the ther'insured deposit' means an insured deposit as defined in paragraph (1) of this subsection which— "(A)is payable in the United States to— "(i) an individual who is a citizen or resident of the United States, "(ii) a partnership, corporation trust, or other legally cognizable entity created under the laws of the I Tnited States or any State and having its principal place of business within the United States or any State, or "(iii) an individual, partnership, corporation, trust, or other legally cognizable entity which is determined by the Board of Directors in accordance with its regulations to have such business or financial relationships in .the United States as to make the insurance of such deposit consistent with the purposes of this Act; and "(B) meets any other criteria prescribed by the Board of Directors by regulation as necessary or appropriate in its judgment to carry out the purposes of this Act or to facilitate the administration thereof.". (5) Section 3(q) is amended to read as follows: "(q) The term 'appropriate Federal banking agency' shall mean— "(1) the Comptroller of the Currency in the case of a national banking association, a District bank, or a Federal branch or agency of a foreign bank; "(2) the Board of Governors of the Federal Reserve System— "(A) in the case of a State member insured bank (except a District bank), "(B) in the case of any branch or agency of a foreign bank with respect to any provision of the Federal Reserve, Act which is made applicable under the International Banking Act of 1978, "(C) in the case of any foreign bank which does not operate an insured branch, "(I)) in the case of any agency or commercial lending company other than a Federal agency,and "(E) in the case of supervisory or regulatory proceedings arising from the authority given to the Board of Governors under section 7(c)(1) of the International Banking Act of 1978, including such proceedings under the Financial Institutions Supervisory Act,and "(3) the Federal Deposit Insurance Corporation in the case of a State nonmember insured Bank (except a District bank) or a foreign bank having an insured branch. Under the rule set forth in this subsection, more than one agency may be an appropriate Federal banking agency with respect to any given institution. For the purposes ofsubsections (b) through (n) of section 8 of this Act,the term 'insured bank'shall be deemed to include any uninsured branch or agency of a foreign bank or any commercial lending company owned or controlled by a foreign bank.". (6) Section 3 is amended by adding at the end thereof the following new subsections: "(r) The terms 'foreign bank' and 'Federal branch' shall be construed consistently with the usage of such terms in the International Banking Act of 1978. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. R. 10899-10 "(s) The term 'insured branch' means a branch of a foreign bank any deposits in which are insured in accordance with the provisions of this Act.". (7) Section 5 is amended (A) by changing "SF.c. 5." to read "SEc. 5. (a)" and (B) by adding at the end thereof the following new subsections: "(b) Subject to the provisions of this Act and to such terms and conditions as the Board of Directors may impose. any branch of a foreign bank, upon application by the bank to the Corporation, and examination by the Corporation of the branch, and approval by the Board of Directors, may become an insured branch. Before approving any such application, the Board of Directors shall give consideration to— "(1) the financial history and condition of the bank, "(2) the adequacy of its capital structure, "(3) its future earnings prospects, "(4) the general character of its management, including but not limited ''to the management of the branch proposed to be insured, "(5) the convenience and needs of the community to be served by the branch, "(() whether or not its corporate powers, insofar as they will be exercised through the proposed insured branch,are consistent with the purposes of this Act,and "(7) the probable adequacy and reliability of information supplied and to be supplied by the bank to the Corporation to enable it to carry out its functions under this Act. "(c)(1) Before any branch of a foreign bank becomes an insured branch,the bank shall deliver to the Corporation or as the Corporation may direct a surety bond, a pledge of assets, or both, in such amounts and of such types as the Corporation may require or approve, for the purpose set forth in paragraph (4) of this subsection. "(2) After any branch of a foreign bank becomes an insured branch, the bank shall maintain on deposit with the Corporation, or as the Corporation may direct,, surety bonds or assets or both,in such amounts and of such types as shall be determined from time to time in accordance with such regulations as the Board of Directors may prescribe. Such regulations may impose differing requirements on the basis of any factors which in the judgment of the Board of Directors are reasonably related to the purpose set forth in paragraph (4). "(3) The Corporation may require of any given bank larger deposits of bonds and assets than required under paragraph (2) of this subsection if, in the judgment of the. Corporation, the situation of that bank or any branch thereof is or becomes such that the deposits of bonds and assets otherwise required under this section would not adequately fulfill the purpose set forth in paragraph (4). The imposition of any such additional requirements may be without notice or opportunity for hearing. but the Corporation shall afford an opportunity to any such batik to apply for a reduction or removal of any such additional requirements so imposed. "(4) The purpose of the surety bonds and pledges of assets required under this subsection is to provide protection to the deposit insurance fund against the risks entailed in insuring the domestic deposits of a foreign bank whose activities, assets, and personnel are in large part outside the jurisdiction of the United States. In the implementation of its authority under this subsection, however, the Corporation shall endeavor to avoid imposing requirements on such banks which would http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. II. 10899-11 unnecessarily place them at a competitive disadvantage in relation to domestically incorporated banks. "(5) In the case of any failure or threatened failure of a foreign bank to comply with any requirement imposed under this subsection (c), the Corporation, in addition to all other administrative and judicial remedies, may apply to any United States district court, or United States court of any territory, within the jurisdiction of which any branch of the bank is located, for an injunction to compel such bank and any officer, employee, or agent thereof, or any other person having custody or control of any of its assets, to deliver to the Corporation such assets as may be necessary to meet such requirement, and to take any other action necessary to vest the Corporation with control of assets so delivered. If the court shall determine that there has been any such failure or threatened failure to comply with any such requirement, it shall be the duty of the court to issue such injunction. The propriety of the requirement may be litigated only as provided in chapter 7 of title 5 of the United States Code, and may not be made an issue in an action for an injunction under this paragraph.". (8) The first sentence of section 7(a)(1) is amended by inserting, "and each foreign bank having an insured branch which is not a Federal branch" immediately before "shall make to the Corporation". (9) The first sentence of section 7(a)(3) is amended (A) by inserting "and each foreign bank having an insured branch (other than a Federal branch)" immediately before "shall make to the Corporation" and (B) by inserting ", each foreign bank having an insured branch which is a Federal branch," immediately before "and each insured district". (10) Section 7(a) is amended by adding at the end thereof the following new paragraph: "(7) In respect of any report required or authorized to be supplied or published pursuant to this subsection or any other provision of law, the Board of Directors or the Comptroller of the Currency,as the case may be. may differentiate between domestic banks and foreign banks to such extent as, in their judgment, may be reasonably required to avoid hardship and can be done without substantial compromise of insurance risk or supervisory and regulatory effectiveness.". (11) Section 7(h) is amended (A) by changing "(4) A bank's assessment base" to read "(4)(A) Except as provided in subparagraph (B) of this paragraph, a bank's assessment baSe" and (B) by adding at the end thereof the following new subparagraph: "(B) In determining the assessment base and assessment base additions and deductions of a foreign bank having an insured branch, such adjustments shall be made as the Board of Directo may by regulation prescribe in order to provide equitable treatme rs nt for domestic and foreign banks.". (12) Section (7)(j)(1) is amended (A) by changing "(j)(1) Whenever" to read "(j)(1)(A) Except as provided in subparagraph (B) of this paragraph, whenever", and (B) by adding at the end thereof the following new subparagraph: NB) The Board of Directors may by regulation exempt from the reporting requirements of subparagraph (A) of this paragr aph any transaction in the stock of a foreign bank to the extent that the making of any such report would be prohibited by the laws of the domicile of the foreign bank in effect at, the time such bankcountry of makes its application under section 5(b) of this Act, or rendered impract icable by the customs and usages of such country, but the Board of Directors http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 11.E. 10899-12 shall weigh the existence of any such prohibition or impracticability in connection with its consideration of the factors enumerated in sections 5(b)(4) and 5(b)(7).". (13) Section 7(j)(2) is amended by changing "(2) Whenever" to read "(2)(A) Except as provided in subparagraph (B) of this paragraph, whenever" and by adding at the end thereof the following new subparagraphs: "(13) The requirements of subparagraph (A) of this paragraph shall not apply in the case of a loan secured by the stock of a foreign bank if the lending bank is a foreign bank under the laws of whose domicile the report otherwise required by subparagraph (A) would be prohibited. "(C) No foreign bank under the laws of whose domicile a report in compliance with subparagraph (A) of this paragraph would be prohibited in the case of a loan to acquire the stock of an insured bank which is not a foreign bank may make, acquire, or retain any such loan. Each report of condition filed under subsection (a). by any foreign bank to which this subparagraph applies shall contain either a statement of the amount of each loan made, retained, or acquired.by the foreign bank in violation of this subparagraph during the period from the date it became an insured bank or the date of its last report of condition, whichever is later, to the date of the report of condition, or a statement that no such loans were made and no such loans were outstanding during such period.". (14) The first sentence of section 8(a) is amended by inserting ", foreign bank having an insured branch which is a Federal branch, a foreign bank having an insured branch which is required to be insured under sect ion 6 (a) or (b) of the International Banking Act of 1978," immediately after "(except a national member bank". (15) Section 8 is amended by adding at the end thereof the following new subsection: "(r)(1) Except as otherwise specifically provided in this section, the provisions of this section shall be applied to foreign banks in accordance with this subsection. "(2) An act or practice outside the United States on the part of a foreign bank or any officer, director, employee, or agent therof may not constitute the basis for any action by any officer or agency of the United States under this section, unless— "(A) such officer or agency alleges a belief that such act or practice has been, is, or is likely to be a cause of or carried on in connection with or in furtherance of an act or practice within any one or more States which, in and of itself, would constitute an appropriate basis for action by a Federal officer or agency under this section; or "(B) the alleged act or practice is one which, if proven, would, in the jiidgment of the Board of Directors, adversely affect the insurance risk assumed by the Corporation. "(3) Tn any case in which any action or proceeding is brought pnrsuant to an allegation under paragraph (2) of this subsection for the suspension or removal of any officer, director, or other person associated with a. foreign bank. and such person fails to appear promptly as a party to such action or proceeding and to comply with any effective order or judgment therein, any failure by the foreign bank to secure his removal from any office he holds in such bank and from any flirt hir participation in its affairs shall, in and of itself, constitute grounds for termination of the insurance of the deposits in any branch of the bank. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. R.10899-13 "(4) Where the venue of any judicial or administrative proceeding under this section is to be determined by reference to the location of the home office of a bank,the venue of such a proceeding with respect to a foreign bank having one or more branches or agencies in not more than one judicial district or other relevant jurisdiction shall be within such jurisdiction. Where such a bank has branches or agencies in more than one such jurisdiction, the venue shall be in the jurisdiction within which the branch or branches or agency or agencies involved in the proceeding are located, and if there is more than one such jurisdiction, the venue shall be proper in any such jurisdiction in which the proceeding is brought or to which it may appropriately be transferred. "(5) Any service required or authorized to be made on a foreign bank may be made on any branch or agency located within any State, but if such service is in connection with an action or proceeding involving one or more branches or one or more agencies located in any State2 service shall be made on at least one branch or agency so in vol ved.'. (16)(A) The first sentence of section 10(b) is amended (i) by inserting "ally insured State branch of a foreign bank, any State branch of a foreign bank making application to become an insured bank," immediately after "(except a District bank)" and (ii) by inserting "or branch" before the comma after "any closed insured bank". (B) The second sentence of section 10(b) is amended by inserting “ , insured Federal branch of a foreign bank," between the words "national bank" and "or District bank". (C) The third sentence.of section 10(b) is amended by inserting ", and in the case of a foreign bank, a binding commitment by such bank to permit such examination to the extent determined by the Board of Directors to be necessary to carry out the purposes of this Act shall be required as a condition to the insurance of any deposits" immediately before the period at the end thereof. (17) Section 11(c) is amended by inserting ", insured Federal branch of a foreign bank," immediately before "or insured District bank,". (18) The first sentence of section 11(e) is amended by inserting "or any insured branch (other than a Federal branch) of a foreign bank"immediately before "shall have been closed". (19) The second sentence of section 11(e) is amended by changing "such insured State bank," to read "such insured State bank or insurea branch of a forei banks". (20) Section 11(f) is amended by inserting "or insured branch of a foreign bank"immediately before l'shall have been closed". (21) The first sentence of section 11(g) is amended by inserting ", insured branch of a foreign bank," immediately before "or District bank,". (22) The third sentence of section 11(g) is amended by changing "In the case of any closed insured bank," to read "In the case of any closed insured bank or closed insured branch of a foreign bank,". (23) Section 12(a) is amended by inserting ", branch of a foreign bank," immediately after"a closed national bank". (24) Section 13 is amended by adding at the end thereof the following new subsection: "(g) The powers conferred on the Board of Directors and the Corporation by this section to take action to reopen a closed insured bank or to avert the closing of an insured bank may be used with http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. R.10899-14 respect to an insured branch of a foreign bank if, in the judgmen t of the Board of Directors, the public interest in avoiding the of such branch substantially outweighs any additional risk closing of loss to the insurance fund which the exercise of such powers would entail.(20 Section 18(c) is amended by adding at the end thereof the. following new paragraph: "(11) The provisions of this subsection do not apply to any merger transact ion involving a foreign bank if no party to the transact ion is principally engaged in business in the ITnited States.". (26) Section 18(d) is amended by inserting the following new sentence immediately after the first sentence thereof: "No foreign bank may move any insured branch from one location to another without such consent.". (27) The first, sentence of section 18(g) is amended by inserting "and in insured branches of foreign banks" immediately after "in insured nonmember banks". (28) Section 18(j) is amended by addincr at the end thereof the following new sentence:'Ile provisions of thissubsection shall not apply to any foreign bank having an insured branch with respect to dealings bet veen such bank and any affiliate thereof.". (29) Section 21 is amended by adding at the end thereof the following new subsection: "(i) The provisions of this section shall not apply to any foreign bank except with respect to the transactions and records of any insured branch of such a bank.". (30) first sentence of section 25(a) is amended by inserting "insured branch of a foreign bank," immediately after "No insured bank,". AurrirolirrY OF FEDERAL RESERVE SYSTEM SEC, 7. (a)(1)(A) Except as provided in paragraph (2) of this subsection; subsections (a), (b),(c), (d), (f), (g), (i), (j), ), and the second sentence of subsection (e) of section 19 of the Federal Reserve Act shall apply to every Federal branch and Federal agency of a foreign bank in the same manner and to the same extent as if the Federal branch or Federal agency were a member bank as that term is defined in section 1 of the Federal Reserve Act; but the Board either by general or specific regulation or ruling may waive the minimum and maximum reserve ratios prescribed under section 19 of the Federal Reserve Act and may prescribe any ratio, not more than 22 per centum, for any obligation of any such Federal branch or Federal agency that the Board may deem reasonable and appropriate, taking into consideration the character of business conducted by such institutions and the need to maintain vigorous and fair competition between and among such institutions and member banks. The. Board may impose reserve requirements on Federal branches and Federal agencies in such graduated manner as it deems reasonable and appropriate. ('B) After consultation and in cooperation with the State bank supervisory authorities, the Board may make applicable to any State branch or State agency any requirement made applicable to, or which the Board has authority to impose upon,any Federal branch or agency under subparagraph (A)of this paragraph. (2) A branch or agency shall be subject to this subsection only if (A) its parent foreign bank has total worldwide consolidated bank assets in excess of $1,000,000,000; (B) its parent foreign bank is controlled by a foreign company which owns or controls foreign banks http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis IT. R. 10899-15 that in the n!rgregate have total worldwide consolidated bank assets in excess of $1,000,000,000; or (C) its parent foreign bank is controlled by a group of foreign companies that, own or control foreign banks that in the aggregate have total worldwide consolidated bank assets in excess of $1,000,000,000. (b) Section 13 of the Federal Reserve Act is amended by adding at the end thereof the following new paragraph: 'Subject to such restrictions, limitations, and regulations as may be imposed by the Board of -Governors of the Federal Reserve System, each Federal Reserve bank may receive deposits from, discount paper endorsed by, and make advances to any branch or agency of a. foreign bank in the same manner and to the same extent that it may exercise such powers with respect to a member bank if such branch or agency is maintaining reserves with such Reserve bank pursuant to section 'T of the International Banking Act of 1978. In exercising any such powers with respect to any such branch or agency, each Federal Reserve bank shall give due regard to account balances being maintained by such branch or agency with such Reserve bank and the proportion of the assets of such branch or agency being held as reserves under section 7 of the International Banking Act of 1978. For the purposes of this paragraph, the terms 'branch','agency', and 'foreign bank' shall have the same meanings assigned to them in section 1 of the International Banking Act of 1978.". (c)(1) The Board may make examinations of each branch or agency of a foreign bank, and of each commercial lending company or bank controlled by one or more foreign banks or by one or more foreign companies that control a foreign bank, the cost of which shall be assessed against and paid by such foreign bank or company, as the case may be. The Board shall, insofar as possible, use the reports of examinations made by the Comptroller, the Federal Deposit Insurance Corporation, or the appropriate State bank supervisory authority for the purposes of this subsection. (2) Each branch or agency of a foreign bank, other than a Federal branch or .agency, shall be subject to paragraph 20 and the provision requiring the reports of condition contained in paragraph 6 of section 9 of the Federal Reserve Act. (12 U.S.C. 335 and 324) to the same extent and in the same manner as if the branch or agency were a State member bank. In addition to any requirements imposed under section 4 of this Act, each Federal branch and agency shall be subject to. subparagraph (a) of section 11 of the Federal Reserve Act (12 U.S.C. 248(a)) and to paragraph 5 of section 21 of the Federal Reserve Act (12 U.S.C. 483) to the same extent and in the same manner as if it were a member bank. (d) On or before two years after enactment of this Act, the. Board after consultation with the appropriate State bank supervisory authorities shall report to the Committee on Banking. Finance and Urban Affairs of the United States House, of Representatives and the Committee on Banking. Housing. and Urban Affairs of the United States Senate its recommendations with respe-ct to the implementation of this Act, including any recommended requirements such as limitations on loans to affiliates or capital adeqnacy requirements which should be. imposed on foreign banks to carry out the purposes of this Act. Not later than one hundred and eighty days after the enactment of this Act, the Board shall report. to such Committees the steps which have been taken to consult, and cooperate with State bank supervisory authorities as required by subsection (a)(1)(B). http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis • IL R. 10899-16 NONBANKING ACTIVITIES SEc. 8. (a) Except as otherwise provided in this section (1) any foreign bank that maintains a branch or agency in a State, (2) any foreign bank or foreign company controlling. a foreign bank that controls a commercial lending company organized under State law, and (3) any company of which any foreign bank or company referred to in (1) and (2) is a subsidiary shall be subject to the provisions of the Bank Holding Company Act of 1956, and to sections 105 and 106 of the Bank Holding Company Act Amendments of 1970 in the same manner and to the same extent that hank holding companies are subject thereto, except that any such foreign bank or company shall not by reason of this subsection be deemed a bank holding company for purposes of section 3 of the Bank Holding Company Act of 1956. (1) Until December 31, 1985, a foreign bank or other company to which subsection (a) applies on the date of enactment of this Act may retain direct, or indirect ownership or control of any voting shares of any nonba,nking company in the United States that it, owned, controlled, or held with power to vote on the date of enactment of this Act or engage in any nonbanking activities in the, United States in which it, was engaged on such date. (c) After December 31, 1985, a foreign bank or other company to which subsection (a) applies on the date of enactment of this Act, may continue to engage in nonbanking activities in the TTnited States in which directly or through an affiliate it, was lawfully engaged on July 26, 1978 (or on a date subsequent to July 26. 1978, in the case of activities carried on as the result of the direct. or indirect acquisition, pursuant to a binding written contract entered into on or before July 26, 1978, of another company engaged in such activities at the time of acquisition), and may engage directly or through an affiliate in nonbanking activities in the United States which are covered by an application to engage in such activities which was filed on or before July 26, 1978: except that the Board by order, after opportunity for hearing, may terminate the authority conferred by this subsection (c) on any such foreign bank or company to engage directly or through an affiliate in any activity otherwise permitted by this subsection (c) if it determines having due. regard to the purposes of this Act and the Bank Holding Company Act of 1956,that such action is necessary to prevent, undue, concentration of resources. decreased or unfair competition. conflicts of interest., or unsound banking practices in the United States. Notwithstanding subsection )of this section. a foreign bank or company referred to in this subsection (c) may retain ownership or control of any voting shares (or, where necessary to prevent dilution of its voting interest, acquire additional voting shares) of any domesticallycontrolled affiliate covered in 1978 which engages in the business of underwriting, distributing, or otherwise buying or selling stocks. bonds, and other securities in the United States. Except in the case of affiliates described in the preceding sentence, nothing in this subsection (c) shall be construed to authorize any foreign bank or company referred 'to in this subsection (c), or any affiliate thereof, to engage in activities authorized by this subsection (c) through the acquisition, pursuant to a contract entered into after July 26. 1978, of any interest in or the assets of a going concern engaged in such activities. Any foreign bank or company that is authorized to engage in any activity pursuant, to this subsection (c) but, as a result of action of the Board, is required to terminate such activity may retain the ownership of con- http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 11. 1. 10899-17 trol of shares in any company carrying on such activity for a period of two years from the date on which its authority was so terminated by the Board. As used in this subsection, the term "affiliate" shall mean any company more than 5 per centum of whose voting shares is directly or indirectly owned or controlled or held with power to vote by the specified foreign bank or company, and the term "domestically-controlled affiliate covered in 1978" shall mean any affiliate the majority of whose voting shares is owned by a company or group of companies organized under the laws of the United States or any State thereof, if it has been under continuous domestic majority-controlling ownership since July 26, 1978, and if a foreign bank or group of foreign banks does not own or control,directly or indirectly,25 per centum or more of its voting shares. (d) Nothing in this section shall be construed to define a branch or agency of a foreign bank or a commercial lending company controlled by a foreign bank or foreign company that controls a foreign bank as a "bank" for the purposes of any provisions of the Bank Holding Company Act of 1956, or section 105 of the Bank I folding Company Act Amendments of 1970, except that any such branch, agency or commercial lending company subsidiary shall be deemed a "bank" or "banking subsidiary", as the case may be, for the purposes of applying the prohibitions of section 106 of the Bank Holding Company Act Amendments of 1970 and the exemptions provided in sections 4(c)(1), 4(c)(2), 4(c)(3), and 4(c)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c) (1), (2), (3), and (4)) to any foreign bank or other company to which subsection (a) applies. (e) Section 2(h) of the Bank Holding Company Act of 1956 is amended (1) by striking out "(h) The" and inserting in lieu thereof "(h)(1) Except as provided by paragraph (2). the", (2) by striking out the proviso, and (3) by inserting at the end thereof the following: "(2) The prohibitions of section 4 of this Act shall not apply to shares of any company organized under the laws of a foreign country (or to shares held by such company in any company engage,d in the same general line of business as the investor company or in a business related to the business of the investor company) that is principally engaged in business outside the United States if such shares are held or acquired by a bank holding company organized under the laws of a foreign country that is principally engaged in the banking business outside the United States, except that (1) such exempt foreign company (A) may engage in or hold shares of a company engaged in the business of underwriting,selling or distributing securities in the United States only to the extent that a bank holding company may do SO under this Act and under regulations or orders issued by the Board under this Act. and (B) may engage in the United States in any banking or financial operations or types of activities permitted under section 4(c)(8) or in any order or regulation issued by the Board under such section only with the Board's prior approval under that section, and (2) no domestic office or subsidiary of a bank holding company or subsidiary thereof holding shares of such company may extend credit to a domestic office or subsidiary of such exempt company on terms more favorable than those afforded similar borrowers in the united States.". STUDY OF FOREIGN TREATMENT 01, 'UNITED STATES BANKS SEC. 9.'rho Secretary of the Treasury, in conjunction with the Secretary of State, the Board, the Comptroller, and the Federal Deposit Insurance Corporation shall within 90 days after enactment of this http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 11. R. 10899-18 p bill commence a study of the extent to which banks organized under the laws of the United States or any State thereof are denied, whether by law or practice, national treatment in conducting banking operations in foreign countries, and the effects, if any, of such discrimination on United States exports to those countries. On or before one year after enactment of this section,the Secretary of the Treasury shall be required to report his findings, conclusions, and recommendations from such study to the Congress and describe the efforts undertaken by the United States to eliminate any foreign laws or practices that discriminate against banks organized under the laws of the United States or any State thereof, or that serve as a barrier to the financing of United States exports to any foreign country. REPRESENTATIVE OFFICES SEC. 10. (a) Any foreign bank that maintains an office other than a branch or agency in any State shall register with the Secretary of the Treasury in accordance with rules prescribed by him, within one hundred and eighty days after the date of enactment of this Act or the date on which the office is established, whichever is later. (b) This Act, does not authorize the establishment of any such office in any State in contravention of State law. CEASE-AND-DESIST ORDERS Sm. 11. Subsection (b) of section 8 of the Federal Deposit, Insurance Act (12 U.S.C. 1818(b)) is amended by adding at the end thereof the following new paragraph: "(4) This subsection and subsections (c), (d), (h), (i). (k), (1), (m), and (n) of this section shall apply to any foreign bank or company to which subsection (a) of section 8 of the Inte,rnational Banking Act of 1978 applies and to any subsidiary (other than a bank) of any such foreign bank or company in the same manner as they apply to a bank holding company and any subsidiary thereof (other than a bank) under subparagraph (3) of this subsection. For the purposes of this subparagraph, the term 'subsidiary' shall have the meaning assigned to it in section 2 of the Bank Holding Company Act of 1956.". AMENDMENT TO TIIE BANKING ACT OF 1933 SEC. 12. Section 21 of the Banking Act of 1933 (12 U.S.C. 378) is amended by striking clause (B) of paragraph (2) of subsection (a) thereof and inserting in lieu thereof the following: "(B) shall be permitted by the United States, any State, territory, or district to engage in such business and shall be subjected by the laws of the United States, or such State, territory, or district to examination and regulations or,". REGULATION AND ENFORCEMENT SEC. 13. (a) The Comptroller, the Board, and the Federal Deposit Insurance Corporation, are authorized and empowered to issue such rules, regulations, and orders as each of them may deem necessary in order to perform their respective duties and functions under this Act, and to administer and carry out the provisions and purposes of this Act and prevent evasions thereof. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis II. IL 10899-19 (b) In addition to any powers, remedies, or sanctions otherwise provided by law, compliance with the requirements imposed under this Act or any amendment made by this Act may be enforced under section 8 of the Federal Deposit Insurance Act by any appropriate Federal banking agency as defined in that Act. (c) In the case of any provision of the. Federal Reserve Act to which a foreign bank or branch thereof is subject. under this Act, and which is made applicable to nonmember insured banks by the Federal Deposit Insurance Act, whether by cross-reference to the Federal Reserve Act or by a provision in substantially the same terms in the Federal Deposit Insurance Act, the administration, interpretation, and enforcement of such provision, insofar as it relates to any foreign bank or branch thereof as to which the Board is an appropriate Federal banking agency, are vested in the Board, but where the making of any report to the Board or a Federal Reserve bank is required under any such provision, the Federal Deposit Insurance Corporation may require that a duplicate, of any such report be sent directly to it. This subsection shall not be construed to impair any power of the Federal Deposit Insurance Corporation to make regular or special examinations or to require special reports. REPORT ON MC FADDEN ACT SEc. 14. (a) The President, in consultation with the Attorney General, the Secretary of the Treasury, the Board, the Comptroller, and the Federal Deposit Insurance Corporation, shall transmit a report to the Congress containing his recommendations concerning the applicability of the McFadden Act to the present financial, banking, and economic environment, including an analysis of the effects of any proposed amendment to such Act on the structure of the banking industry and on the financial and economic environment in general. (b) The report required by subsection (a) shall be transmitted to the Congress not later than one year after the date of enactment of this Act. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Speaker of the House of Representatives. Vice President of the United States and President of the Senate.
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