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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