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F ederal Reserve b a n k of Dallas DALLAS, TEXAS 75222 C i r c u l a r No. 75-154 O c to b e r 15, 1975 American Revolution Bicentennial INTERPRETATION OF REGULATIONS K AND Y C o m p u tatio n of A m oun t I n v e s t e d in F o r e i g n C o r p o r a t i o n s TO ALL BANKS, BANK HOLDING COMPANIES, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: On S e p t e m b e r 12, 1975, th e B o ard of G o v e r n o r s of t h e F e d e r a l R e s e r v e S y ste m i s s u e d a n i n t e r p r e t a t i o n of its R e g u la tio n K, " C o r p o r a t i o n s E n g a g e d in F o r e i g n B a n k in g a n d F i n a n c in g U n d e r th e F e d e r a l R e s e r v e A c t , " a n d R e g u la tio n Y, " B a n k Holding C o m p a n i e s , " r e g a r d i n g c o m p u ta tio n of t h e a m o u n t i n v e s t e d in f o r e ig n c o r p o r a t i o n s u n d e r g e n e r a l c o n s e n t p r o cedures. In s u b m it tin g t h e i n t e r p r e t a t i o n fo r p u b li c a t i o n in th e FEDERAL REGISTER, th e B oard m ade t h e follow ing sta te m e n t: U n d e r s e c tio n 2 1 1 .8 ( a ) of R e g u la tio n K, t h e B o a rd of G o v e r n o r s g r a n t s its g e n e r a l c o n s e n t fo r a c o r p o r a t i o n o r g a n i z e d u n d e r s e c ti o n 25(a) of t h e F e d e ra l R e s e r v e A ct (an "E d g e A c t C o r p o r a tio n " ) to i n v e s t , d i r e c t l y o r i n d i r e c t l y , in th e s h a r e s of f o r e i g n c o r p o r a t i o n s n o t d o in g b u s i n e s s in th e U n ited S ta te s ; b u t no i n v e s t m e n t t h e r e u n d e r s h a ll c a u s e a n E d g e A ct C o r p o r a tio n to h a v e i n v e s t e d m o re th a n $500,000 in t h e s h a r e s , o r to hold m o r e th a n 25 p e r c e n t o f th e v o tin g s h a r e s , of a n y f o r e i g n c o r p o r a t i o n . T h e B o ard of G o v e r n o r s h a s r u l e d t h a t in c o m p u tin g t h e $500,000 lim itation u n d e r t h e s e g e n e r a l c o n s e n t p r o c e d u r e s , a n E dge A ct C o r p o r a t i o n m u s t in c lu d e not o n ly a m o u n ts a c t u a l l y p a id in to t h e f o r e i g n c o r p o r a t io n fo r its s h a r e s b u t a l s o u n p a i d a m o u n ts on th e s h a r e s of t h e c o r p o r a t i o n fo r w h ic h t h e E d g e A ct C o r p o r a tio n will b e lia b le . If t h e total of s u c h a m o u n ts e x c e e d s $500,000, t h e E dge A ct C o r p o r a t i o n m u st a p p l y fo r th e B o a r d 's s p e c if ic c o n s e n t to m a k e s u c h in v e s t m e n t . T h i s i n t e r p r e t a t i o n a ls o a p p l i e s to th e f o r e ig n i n v e s tm e n ts of d o m e s tic b a n k h o ld in g c o m p a n ie s s i n c e , u n d e r R e g u la tio n Y , t h e c o n s e n t p r o c e d u r e s of R e g u lation K a ls o g o v e r n s u c h in v e s t m e n t s . P r i n t e d on t h e r e v e r s e of t h i s c i r c u l a r is a c o p y of t h e i n t e r p r e t a t i o n . I n q u i r i e s r e g a r d i n g t h is m a tte r s h o u ld b e d i r e c t e d to o u r R e g u la ti o n s D e p a r tm e n t. A d d itio n a l c o p ie s of t h i s i n t e r p r e t a t i o n will b e f u r n i s h e d u p o n r e q u e s t to th e S e c r e t a r y ' s Office of t h i s B a n k . Sincerely y o u rs, T. W. Plant First Vice President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM CORPORATIONS ENGAGED IN FOREIGN BANKING AND FINANCING UNDER THE FEDERAL RESERVE ACT BANK HOLDING COMPANIES INTERPRETATION OF REGULATIONS K AND Y §211.111 C O M P U T A T I O N O F A M O U N T §225.133 I N V E S T E D I N F O R E I G N C O R P O R A T IO N S U N D E R G E N E R A L CONSENT PROCEDURES (a) Under section 211.8(a) of Regulation K, the Board of Governors grants its general consent for a corporation organized under section 25(a) of the Federal Reserve Act (an “Edge Act Cor poration” ) to invest, directly or indirectly, in the shares of foreign corporations not doing business in the United States; but no investment thereunder shall cause an Edge Act Corporation to have in vested more than $500,000 in the shares, or to hold more than 25 percent of the voting shares, of any foreign corporation. Under § 22 5 .4 (f)(2 ) of Regulation Y, these general consent procedures also govern the foreign investments of domestic bank holding companies made pursuant to section 4 (c ) (13) of the Bank Holding Company Act of 1956, as amended. (b) In computing the $500,000 limitation under the general consent procedures, an Edge Act Cor poration or bank holding company must include not only amounts actually paid in for the shares of the foreign corporation but also any unpaid amounts on the shares of the foreign corporation for which the Edge Act Corporation or bank 9 /12/75 holding company will be liable. If the total of such amounts exceeds $500,000, then the Edge Act Corporation or bank holding company must apply for the Board’s prior specific consent to make such investment. (c) For example, an Edge Act Corporation plans to acquire a 20-percent interest in a pro posed foreign corporation by subscribing to 60,000 shares with a par value of $10 per share. Initially, the shares will be 50 percent paid in for an initial investment of $300,000; under the Articles of Association of the proposed corpora tion, the unpaid balance of $300,000 on the shares may be called at any time at the discretion of the corporation’s board of directors. It appears that some Edge Act Corporations have in this situa tion only included in their computation the $300,000 initially paid in to the foreign corpora tion, and would thus acquire the shares of the foreign corporation under the general consent procedures. The Board has determined that in this situation the total amount invested for purposes of the general consent procedures is $600,000, as the Edge Act Corporation must include in the computation its liability for the unpaid balance on the shares. The proposed investment in this situation would therefore require prior specific Board consent.
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