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Federal R eserve Bank OF DALLAS WILLIAM H. WALLACE DALLAS. TEXAS 75222 FIRST VICE PRESIDENT AND CHIEF OPERATING OFFICER May 16, 1988 Circular 88-33 TO: The Chief Executive Officer of all member banks, bank holding companies and others concerned in the Eleventh Federal Reserve District SUBJECT Slip sheet with amendments to Regulation K — International Banking Operations DETAILS The Board of Governors of the Federal Reserve System has published an amendment in slip-sheet form to Regulation K, effective April 1988. The new slip sheet should be inserted in Volume 2 of your Regulations Binders. ATTACHMENTS Attached is slip sheet to Regulation K. MORE INFORMATION For more information, please contact Dean A. Pankonien at (214) 651-6228. Sincerely yours, For addition al copies of any circular please c ontact the Public A ffairs D ep artm en t at (214) 6 5 1 -6 2 8 9 . Banks and others are encouraged to use the follow ing incom ing W A T S num bers in contacting this Bank (800) 4 4 2 -7 1 4 0 (in trastate) and (800) 5 2 7 -9 2 0 0 (interstate). 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 Amendment to Regulation K International Banking Operations April 1988* 1. Effective July 8, 1986, the first sentence o f section 211.5(c)(2) is amended by deleting the clause “i f the total am ount to be invested does not exceed 10 percent o f the investor's capital and surplus”. 2. Effective February 24, 1988, section 211.5(f) (which was added effective August 19, 1987) is amended to read as follows: (0 Investments made through debt-forequity conversions. (1) Definitions. For purposes of this paragraph: (i) “eligible country” means a coun try that, since 1980, has restructured its sovereign debt held by foreign cred itors, and any other country the Board deems to be eligible; (ii) “equity” includes common stock holder’s equity and minority interests in consolidated subsidiaries, less goodwill; (iii) “investment” has the meaning set forth in section 211.2(i) of this regula tion and, for purposes of the invest ment procedures of this paragraph only, shall include loans or other ex tensions of credit by the bank holding company or its affiliates to a company acquired pursuant to this paragraph; (iv) “loans and extensions of credit” means all direct and indirect advances of funds to a person made on the basis of any obligation of that person to re pay the funds. (2) Permissible investments. In addition to investments that may be made under other provisions of this section, a bank holding company may make the follow ing investments through the conversion • A com plete R egulation K , as am ended effective F e b ru ary 24, 1988, consists o f— • th e p am p h let d ated O cto b e r 1985 (see inside cover) and • this slip sheet. of sovereign debt obligations of an eligi ble country, either through direct ex change of the debt obligations for the in vestment or by a payment for the debt in local currency, the proceeds of which are used to purchase the investment. (i) Public-section companies. A bank holding company may acquire up to and including 100 percent of the shares of (or other ownership interests in) any foreign company located in an eli gible country if the shares are acquired from the government of the eligible country or from its agencies or instrumentalities. (ii) Private-sector companies. A bank holding company may acquire up to and including 40 percent of the shares, including voting shares, of (or other ownership interests in) any other for eign company located in an eligible country subject to the following conditions: (A ) a bank holding company may acquire more than 25 percent of the voting shares of the foreign compa ny only if another shareholder or control group of shareholders unaffi liated with the bank holding compa ny holds a larger block of voting shares of the company; (B) the bank holding company and its affiliates may not lend or other wise extend credit to the foreign company in amounts greater than 50 percent of the total loans and exten sion of credit to the foreign compa ny; and (C) the bank holding company’s representation on the board of direc tors or on management committees of the foreign company may be no more than proportional to its share holding in the foreign company. (3) Investments by bank subsidiary o f bank holding company. Upon applica1 Regulation K tion, the Board may permit an invest ment to be made pursuant to this para graph through an insured bank subsidi ary of the bank holding company where the bank holding company demonstrates that such ownership is necessary due to special circumstances such as the require ments of local law. In granting its con sent, the Board may impose such condi tions as it deems necessary or appropriate to prevent adverse effects, including pro hibiting loans from the bank to the com pany in which the investment is made. (4) Divestiture. (i) Time limits fo r divestiture. The bank holding company shall divest the shares of or other ownership interests in any company acquired pursuant to this paragraph (unless the retention of the shares or other ownership interest is otherwise permissible at the time re quired for divestiture) within two years of the date on which the bank holding company is permitted to repa triate in full the investment in the for eign company, but in any event within 15 years of the date of acquisition. (ii) Report to Board. The bank hold ing company shall report to the Board on its plans for divesting an investment made under this paragraph no later than 10 years after the date the invest ment is made if the investment may be held for longer than 10 years and shall report to the Board again two years prior to the final date for divestiture, in a manner to be prescribed by the Board. (iii) Other conditions requiring divesti ture. All investments made pursuant to this paragraph shall be subject to para graphs ( b ) ( 3 ) ( i) ( A ) and (B) of this section requiring prompt divestiture (unless the Board upon application au thorizes retention) if the company in vested in engages in impermissible business in the United State. (5) Investment procedures. (i) General consent. Subject to the other limitations of this paragraph, the Board grants its general consent for in vestments made under this paragraph 2 if the total amount invested does not exceed the greater of $15 million o r.l percent of the equity of the investor, (ii) All other investment shall be made in accordance with the proce dures of paragraph (c) of this section requiring prior notice or specific consent. (6) Conditions. (i) Name. Any company acquired pursuant to this paragraph shall not bear a name similar to the name of the acquiring bank holding company or any of its affiliates. (ii) Confidentiality. Neither the bank holding company nor its affiliates shall provide to any company acquired pur suant to this paragraph any confiden tial business information or other in formation concerning customers that are engaged in the same or related lines of business as the company.
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