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Federal Reserve Bank
OF DALLAS
ROBERT

D. M C T E E R , J R .

P R E S ID E N T
AND

C H IE F

E X E C U T IV E

O F F IC E R

January 27, 1993

DALLAS, TEXAS 7 5 2 2 2

Notice 93-13
TO:

The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Proposed Amendment to Regulation K
(International Banking Operations)
DETAILS

The Federal Reserve Board has issued for public comment a proposed
amendment to Regulation K (International Banking Operations) to implement
Section 202(a) of the Foreign Bank Supervision Act of 1991.
Section 202(a) provides in part that, after December 19, 1992, a
state-licensed branch or agency of a foreign bank may not engage in any type
of activity that is not permissible for a federal branch unless
1)

the Board has determined that such activity is consistent with
sound banking practice, and

2)

in the case of a state-licensed insured branch, the Federal
Deposit Insurance Corporation has determined that the activity
would pose no significant risk to the deposit insurance fund.

The proposed amendment would set forth the application procedures
that state-licensed branches and agencies would be required to follow to
request the B o a r d ’s permission to engage in, or continue to engage in, an
activity that is not permissible for a federal branch.
In addition, the
proposed amendment would establish the requirements for divestiture and
cessation plans.
The Board must receive comments by
be addressed to William W. Wiles, Secretary,
Reserve System, 20th Street and Constitution
20551. All comments should refer to Docket

March 5, 1993.
Comments should
Board of Governors of the Federal
Avenue, N.W., Washington, D.C.
No. R-0793.

ATTACHMENT
A copy of the Bo a r d ’s notice as it appears on pages 513-15, Vol. 58,
No. 3, of the Federal Register dated January 6, 1993, is attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas:
Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162,
Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

- 2 -

MORE INFORMATION
For more information, please contact Ann Worthy at (214) 922-6156.
For additional copies of this B a n k ’s notice, please contact the Public Affairs
Department at (214) 922-5254.
Sincerely yours,

J&.

Federal Register / Vol. 58, No. 3 / Wednesday, January 6, 1993 / Proposed Rules________ 513
engage in an activity that is not
permissible for a federal branch,
pursuant to statute, regulation or order
or interpretation issued by the
Comptroller of the Currency (OCC),
shall file an application for permission
to conduct or to continue conducting
such activity with the Board.
Contents of Application
Section 211.29(b) of the proposed
regulation provides that the application
shall be in letter form and shall contain
certain information, including among
other things, a description of the activity
in which the branch or agency desires
to engage or in which it is already
engaged, the foreign bank’s financial
condition, the assets and liabilities of
the branch or agency, the projected
FOR FURTHER INFORMATION CONTACT:
effect of the proposed activity on the
Kathleen M. O’Day, Associate General
financial condition of the foreign bank
Counsel (202/452-3786), Ann E.
and the branch or agency, and in the
FEDERAL RESERVE SYSTEM
Misback, Senior Attorney (202/452case of an application by a state3788), Margaret E. Miniter, Attorney
12CFR Part 211
licensed insured branch, a statement of
(202/452-3900), John W. Rogers,
why the proposed activity will pose no
[Regulation K; Docket No. R-0793]
Attorney (202/452-2798), Legal
significant risk to the deposit insurance
Division: Michael G. Martinson,
fund.
international Banking O perations
Assistant Director (202/452-3640),
In view of the fact that section 202(h)
Division of Banking Supervision and
AGENCY: B o a r d o f Governors of the
of the Act became effective on December
Regulation, Board of Governors of the
Federal Reserve System.
19,1992, a foreign bank with a state
Federal Reserve System. For the hearing branch or agency that currently is
ACTION: Proposed rule.
impaired only, Telecommunication
conducting an activity that is
SUMMARY: The Board is proposing an
Device for the Deaf (TDD), Dorothea
determined to be impermissible for a
amendment to part 211 of its regulations Thompson (202/452-3544), Board of
federal branch will not be able to obtain
concerning the permissible activities of Governors of the Federal Reserve
the Board’s permission to continue the
state-licensed branches and agencies of
System, 20th and C Street, NW.,
activity prior to that effective date. In
foreign banks. Section 202(a) of the
Washington, DC 20551.
such cases, the Board may permit any
Federal Deposit Insurance Corporation
SUPPLEMENTARY INFORMATION: Section
such branch or agency to continue to
Improvement Act of 1991 provides that
202 of the Act amended section 7 of the conduct the activity in question (at
after December 19,1992, a state-licensed IBA by adding several new subsections
existing levels) until such time as the
branch or agency of a foreign bank may
concerning the establishment and
Board acts on its application. The Board
not engage in any activity that is not
termination of foreign bank branches in expects any foreign bank engaged in an
permissible for a federal branch of a
impermissible activity in a statethe United States. New subsection 7(h)
foreign bank unless the Board has
of the IBA provides that after December licensed branch or agency to file the
determined that the activity is
required application promptly.
19,1992, a state branch or state agency
consistent with sound banking practice, may not engage in any type of activity
The Board and the FDIC nave
and in the case of an insured branch, the that is not permissible for a federal
consulted concerning the type of
Federal Deposit Insurance Corporation
branch unless the Federal Reserve Board information that each agency will need
(FD3C) has determined that the activity
in order to make an informed judgment,
has determined that such activity is
would pose no significant risk to the
consistent with sound banking practice; and have agreed on a common list of
deposit insurance fund. This proposed
information in order that applicants will
and. in the case of an insured branch,
amendment to Regulation K sets forth
need to prepare only one application
the FDIC has determined that the
the application procedures that statewhich, in the case of insured branches,
activity would pose.no significant risk
licensed branches and agencies of
to the deposit insurance fund. 12 U.S.C. may be submitted to both agencies. It is
foreign banks will be required to follow
contemplated that the Board and the
3105(h)(1).
in order to request the Board’s
FDIC will review such applications
In order to implement this provision,
permission to engage in or continue to
simultaneously. Moreover, the Board
the Board is proposing to amend
engage in an activity that is not
and the FDIC have attempted to balance
Regulation K (12 CFR part 211)
permissible for a federal branch of a
their need for information on which to
concerning international banking
foreign bank and the requirements of
base their decisions with the cost to the
operations by adding a new section to
divestiture and cessation plans. Insured Subpart B entitled “Applications by
applicant of gathering, organizing and
branches are also required to seek the
submitting an application.
State-Licensed Branches and Agencies
approval of the FDIC to engage in or to
The Board is particularly interested in
to Conduct Activities Not Permissible
continue to engage in such an activity.
receiving comments concerning the
for Federal Branches." This proposed
OATES: Comments must be received by
new section provides that a foreign bank amount and type of information
requested pursuant to § 211.29(b) of the
March 5, 1993.
operating a state-licensed branch or
proposed regulation. Comment is also
agency in the United States, which
ADDRESSES: Comments, which should
requested on whether there are certain
desires to engage in or continue to
refer to Docket No. R-0793, may be
mailed to the Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551, to the attention of Mr.
William W. Wiles, Secretary. Comments
addressed to the attention to Mr. Wiles
may be delivered to the Board’s
mailroom between the 8:45 am and 5:15
pm, and to the security control room
outside of those hours. Both the
mailroom and the security control room
are accessible from the courtyard
entrance on 20th Street between
Constitution Avenue and C Street, NW.
Comments may be inspected in room B1122 between 9 am and 5 pm, except as
provided in § 261.8 of the Board’s Rules
Regarding the Availability of
Information, 12 CFR 261.8.

514

Federal Register / Vol. 58, No. 3 / Wednesday, January 6, 1993 / Proposed Rules

classes of activities that, even though
not permitted for federal branches,
nonetheless are consistent with sound
banking practices, and whether a more
limited prior written notice rather than
a letter application could be utilized in
connection with these types of
activities. With respect to the activities
described in the preceding sentence,
comrnenters are requested to describe
the activity in detail and to explain why
its conduct by a state-licensed branch or
agency would be consistent with sound
banking practice.
In addition, the Board requests
comment concerning whether the
conduct by a state-licensed branch or
agency of activities permitted by the
OCC pursuant to informal
interpretation, opinion or advice rather
than by formal interpretation or opinion
should require the filing of an
application. In this regard, the Board
will initiate consultations with the GCG
on any questions of whether a particular
activity is or is not permissible for a
federal branch. The Board also seeks
comment on potential coordination
between applications to the Board and
the FDIC as a way to make this process
as efficient as possible.
Finally, the Board requests comment
on whether an application should be
required when a foreign bank wishes to
convert a federally-licensed branch or
agency to a state-licensed branch or
agency. When the Board approved the
final amendments to Regulation K
concerning establishment of branches
and agencies, the Board decided that an
application would not be required when
a foreign bank wished to convert from
a state license to a federal license,
because it would be converting from a
less restrictive to a more restrictive
regime. In light of the statutory
provision limiting state office powers to
those of a federal branch unless the
Board and, in the case of an insured
branch, the FDIC approve the activities,
the Board is requesting comment on
whether it is necessary to require an
application when a foreign bank seeks
to convert from a federal to a state
license.

List of Subjects in 12 CFR Part 211
(3) If a risk is not de minimis, the
actual or proposed procedures to control
Exports, Federal Reserve System,
and minimize such risk.
Foreign banking, Holding companies,
Investments, Reporting and
Each of these factors shall be evaluated
in light of the financial condition of the recordkeeping requirements.
foreign bank in general and the branch
For the reasons outlined above, the
or agency in particular and the volume
Board is proposing to amend 12 CFR
of the proposed activity. The Board may part 211 as set forth below:
also determine that a particular activity,
PART 211— INTERNATIONAL
after consideration of the above factors
BANKING OPERATIONS
and subject to any conditions or limits
imposed by the Board, may be
1, The authority citation for part 211
conducted by any state-licensed branch continues to read as follows:
or agency without further application to
Authority; Federal Reserve Act (12
the Board.
U.S.C. 221 et seq ); Bank Holding
Divestiture or Cessation
Company Act of 1956, as amended (12
U.S.C. 1841 et seq.}; the International
In the event that a state branch or
Banking Act of 1978, (Pub. L. 95-369; 92
agency is required to cease conducting
Stat. 607; 12 U.S.C. 3101 et seq.); the
an activity pursuant to the proposed
Bank Export Services Act (Title II, Pub.
regulation, § 211.29(e) of the proposed
L. 97-290, 96 Stat. 1235); the
regulation sets forth the guidelines that
International Lending Supervision Act
must be followed to divest or cease the
(Title IX, Pub. L. 96181, 97 Stat. 1153,
impermissible activity. Generally, this
12 U.S.C. 3801 et seq.); and the Export
section provides that the state branch or
Trading Company Act Amendments of
agency shall submit a written plan of
1988 (Title 01, Pub. L. 100-418,102 Stat
divestiture or cessation within 60 days
1334 (1988)).
of
2. Part 211 is amended by revising §
(1) Being notified by the Board or the
211.29 to subpart B to read as follows:
FDIC that an application to continue to
conduct the activity has been denied;
§ 211.29 Applications by state-licensed
(2) The effective date of the regulation branches and agencies to conduct activities
not permissible for federal branches.
in the event that the foreign bank elects
(a) Scope. Any state-licensed branch
not to apply for permission to continue
or agency that desires to engage in or
to conduct the activity; and
continue to engage, after December 19,
(3) Any change in statute, regulation,
order or OCC interpretation that renders 1992, in any type of activity that is not
permissible for a federal branch,
the activity impermissible.
pursuant to statute, regulation or order
Divestiture or cessation shall be
or interpretation issued by the
completed within one year, or sooner if Comptroller, shall file a prior written
the Board so directs. The Board requests application for permission to conduct
comment on whether this period of time such activity with the Board pursuant to
should be longer or shorter.
this section.
(b) Content o f application. An
Application Not Required in Certain
application submitted pursuant to
Instances.
paragraph (a) of this section shall be in
The Board has determined that an
letter form and shall contain the
application under this section normally following information:
shall not be required where an activity
(1) A brief description of the activity,
is permissible to a federal branch, but
including the manner in which it will
the OCC imposes a quantitative
be conducted and an estimate of the
restriction on the conduct of such
expected dollar value;
activity by the federal branch. As
(2) A discussion by management of its
described in further detail above, the
analysis regarding the impact of the
Standards to be Examined
Board is requesting comment on
proposed activity on the applicant’s
Section 211.29(c) sets forth the
whether there are any other classes of
earnings, capital adequacy, and general
standards that the Board will examine
activities for which more limited prior
condition, and on the balance sheet,
in order to determine whether a
notice would suffice.
earnings and condition of the branch or
particular practice in consistent with
agency, including a copy, if available, of
Regulatory Flexibility Act
sound banking practice. These factors
any feasibility study, management plan,
are:
Pursuant to section 605(b) of the
financial projections, business plan, or
(1) What types of risks, if any, the
Regulatory Flexibility Act (Pub. L. 96similar document concerning the
activity poses to the foreign banking
354, 5 U.S.C. 601 et seq.), it is certified
conduct of the activity;
organization;
that the proposed rule w m ld not have
(3) A current statement of the
(2) If the activity poses any such risks, a significant impact on a substantial
applicant’s assets, liabilities, and
the magnitude of each risk; and
number of small entities.
capital;

Federal Register / Vol. 58, No. 3 / Wednesday, January 6, 1993 / Proposed Rules
(4) A current statement of the assets
and liabilities of the branch or agency;
(5) A copy of applicant’s most recent
audited financial statements;
(6) A resolution by the applicant’s
board of directors or, if a resolution is
not required pursuant to the applicant’s
organizational documents, evidence of
approval by senior management,
authorizing the conduct of such activity
and the filing of this application;
(7) In the case of an insured branch,
a statement by the applicant of whether
or not it is in compliance with §§ 346.19
and 346.20, Pledge of Assets and Asset
Maintenance, respectively, of 12 CFR
part 346;
(8) In the case of an insured branch,
a statement by the applicant that it has
complied with all requirements of the
Federal Deposit Insurance Corporation
concerning applications to conduct the
activity in question and the status of
such application, including a copy of
the FDIC’s disposition of such
application, if applicable;
(9) In the case of an insured branch,
a statement of why the activity will pose
no significant risk to the deposit
insurance fund; and
(10) Any other information that the
Reserve Bank deems appropriate.
(c) Factors to be considered in
determination.
(1) The Board may consider the
following factors in order to determine
whether a proposed activity is
consistent with sound banking practice:
(1) The types of risks, if any, the
activity poses to the foreign banking
organization;
(11) If the activity poses any such risks,
the magnitude of each risk; and
(iii) If a risk is not de minimis, the
actual or proposed procedures to control
and minimize such risk.
(2) Each of the factors set forth in
paragraph (c)(1) of this section, shall be
evaluated in light of the financial
condition of the foreign bank in general
and the branch or agency in particular
and the volume of the activity.
(d) Application procedures.
Applications pursuant to this section
shall be filed with the responsible
Reserve Bank for the foreign bank. An
application shall not be deemed
complete until it contains all the
information requested by the Reserve
Bank and has been accepted. Approval
of such an application may be
conditioned on the applicant’s
agreement to conduct the activity
subject to specific conditions or
limitations.
(e) Divestiture or Cessation.
(1) In the event that an applicant’s
application for permission to continue
to conduct an activity is not approved

by the Board or the FDIC, the applicant
shall submit a detailed written plan of
divestiture or cessation of the activity to
the responsible Reserve Bank within 60
days of the disapproval. The divestiture
or cessation plan shall describe in detail
the manner in which the applicant will
divest itself of or cease the activity in
question and shall include a projected
timetable describing how long the
divestiture or cessation is expected to
take. Divestitures or cessation shall be
complete within one year from the date
of the disapproval, or within such
shorter period of time as the Board shall
direct.
(2) In the event that a foreign bank
operating a state branch or agency
chooses not to apply to the Board for
permission to continue to conduct an
activity that is not permissible for a
federal branch or which is rendered
impermissible due to a subsequent
change in statute, regulation, order or
interpretation, the foreign bank shall
submit a written plan of divestiture or
cessation, in conformance with §
211.29(d)(1) of this part, within 60 days
of the effective date of this rule or of
such change in statute, regulation, order
or interpretation, respectively.
By order of the Board of Governors of the
Federal Reserve System, December 30.1992.
William W. Wiles,
Secretary of the Board.

[FR Doc. 93-163 Filed 1-5-93; 8:45 am]
BILUNG CODE 6210-01-F

515


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102