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federal reserve
Ba n k
DALLAS, TE X A S
of
Dallas
75222
Circular No. 83-85
July 8, 1983
BANKERS’ ACCEPTANCES
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has taken two
final actions and issued a new proposal for comment in connection with bankers'
acceptances. The first action involves an amendment to Regulation D, Reserve
Requirements of Depository Institutions, to require reserves on all outstanding
ineligible bankers’ acceptances that are not held in the portfolio of the creating
bank.
In a second action, the Board defined the institutions to whom the
limitations of Section 13 of the Federal Reserve Act are applicable when
participations in eligible bankers’ acceptances are conveyed to others.
In addition, the Board issued for public comment a clarification of the
meaning of the term participations in bankers’ acceptances for the purposes of the
prescribed limitations. Comments on the proposed definitions are requested by
August 5, 1983.
Attached are copies of the Board’s press release and the material
submitted for publication in the Federal Register.
Questions regarding the
material contained in this circular should be directed to Michael J. Broker of the
Legal Department, Extension 6228.
Additional copies of this circular will be furnished upon request to the
Public Affairs Department, Extension 6289.
Sincerely yours,
William H. Wallace
First Vice President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
Banks and others are encouraged to use the follow ing incom in g WATS numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.
FEDERAL RESERVE press release
For immediate release
June 21, 1983
The Federal Reserve Board took two final actions and issued a
new proposal for comment in eonnection with bankers' acceptances.
One of
the final actions was an amendment to Regulation D, dealing with the
reservability of ineligible acceptances.
The other final action and the
draft regulation issued for comment related to bankers' acceptances under
the Bank Export Services Act (BESA).
Adoption of the final rules follows consideration of comment received
on proposals published in February.
Regulation D now applies reserve requirements to ineligible^/ acceptances
only when
the treating institution itself discounts and sells
the acceptance.Under
the amendment to Regulation D adopted in final form by the Board:
—
An ineligible bankers' acceptance not held in portfolio by the creating bank
will be treated as a reservable deposit regardless of whether the depository
institution that created the ineligible bankers' adceptande, or another,
subsequently discounts and sells it.
The Board took this action in order to prevent the use of so called "agented"
acceptance arrangements with third parties from being used as a device to avoid
reserve requirements.
The Bank Export Services Act raised the limits on the aggregate
amount
of eligible^/
bankers' acceptances that may be granted
by an individual
member bank from 50 percent of the bank's capital stock and surplus (100
percent with the permission of the Board) to 150 pertent of the bank's
/ "Eligible" bankers' acceptances are not subject to Federal reserve
requirements.
They must meet criteria in Section 13 of the Federal Reserve
Act including requirements that the adceptance (1) grows out of a trade trans
action involving exporting, importing or domestic shipment of goods or storage
of readily marketable staples and (2) has a maturity of less than six months.
"Ineligible" acceptances are those not meeting these requirements.
capital (200 percent with the permission of the Board).
The Act also applied
these limits to U.S. branches and agencies of foreign banks where the parent
bank has, or is controlled by a Company or companies with over $1 billion con
solidated bank assets worldwide. These limits do not apply to non-member banks.
The BESA also provided that any portion of an eligible bankers'
acceptance created by a member bank or by a U.S. branch or agency of a foreign
bank covered by the BESA that is sold through a participation agreement to
another covered^/ bank should not be included in the calculation of the
creating banks' limits on bankers' acceptances.
Instead, the amount
of the participation in the acceptance is to be applied to the limitations
applicable to the covered bank that purchases the participation.
The BESA
also provided that eligible bankers' acceptances, growing out of
domestic transactions, are not to exceed 50 percent of the aggregate of
all acceptances authorized for a Coverec bank.
In the other final rule issued today, the Board Clarified that:
—
Eligible acceptances Created by covered banks and sold through participations
to non-covered banks (including Edge and Agreement corporations) are
subject to the quantitative limitations of the selling covered banks; and
—
Eligible acceptances Created by non-Covered banks (including Edges) sold
through participation agreements to covered banks are included in the
quantitative limitations applicable to the purchasing covered banks.
—
The parent of U.S. offices of foreign banks is defined as the institution
that owns the U.S. branch or agency "most directly" and the capital of the
parent is defined in accordance with procedures currently used for
reporting to the Board on FY Y7.
—
The 50 percent limitation on eligible acceptances growing out of domestic
transactions is applied to the maximum permissible amount of eligible
acceptances that a covered bank could create, not just of outstandings.
V
"Covered banks" — those subject in BESA to quantitative limits on
eligible acceptances — are member banks and U.S. branches and agencies
of foreign banks whose parent foreign bank has or is Controlled by a
foreign company that has worldwide consolidated bank assets of $1 billion
or more.
All other institutions — "non-Covered" banks — are not subject
to BESA quantitative limit on eligible acceptances.
In addition to these final rules, the Board issued for comment
a proposed definition of participations in acceptances that would be eligible
for the BESA acceptance limitations covered in the final rule just issued.
Under this proposal, such a participation would
minimum
have to
requirements, which are consistent with the Act
meet certain
and thelegislative
history; including:
1.
A written agreement between the bank acquiring the participation
(junior bank) and the accepting bank conveying the participation
(senior bank) under which the junior bank acquires the senior bank's
claim against the account party, to the extent of the participation,
that is enforceable in the event that the account party fails to
perform in accordance with the terms of the acceptance;
and
2.
The agreement between the junior and senior bank provides that the
senior bank obtains a claim against the junior bank, to the extent
of the participation, that is enforceable in the event the account
party fails to perform in accordance with the terms of the acceptance.
The Board requested comment by August
The Board's notices are attached.
Attachments
5, 1983.
-
5
-
F E D E R A L R E S E R V E SY STEM
REGULATION D
12 C F R Part
[Docket No.
204
R-0451]
RE S E R V E R E Q U I R E M E N T S OF D E P O S I T O R Y I N S T I T U T I O N S
I neligible Bankers'
Acceptances
AGENCY:
Board of G o v e r n o r s of the F e d eral R e s erve System.
ACTION:
Fin al
rule.
SUMMARY:
The
Board
has
amended
R e g u l a t i o n D — Re serve
R e q u i r e m e n t s of D e p o s i t o r y I n s t i t u t i o n s (12 C F R Part 2 0 4 ) — to
a p ply re serve r e q u i r e m e n t s to bankers' a c c e p t a n c e s ("BAs") that
do not meet the c r i teria of se c t i o n 13 of the Fe d e r a l R e serve
Act ("inelig ib le BAs") reg a r d l e s s of wh e t h e r the in st rument is
d i s c o u n t e d and res ol d b y the d e p o s i t o r y i n s t i t u t i o n that
created it.
Previously, an ine l i g i b l e a c c e p t a n c e was r e g arded
as r e s e r v a b l e o n l y if the i n s t i t u t i o n that created it al so
di s c o u n t e d and resold it.
The p u r p o s e of this a. ^ndment is to
p r e vent the a v o i d a n c e of rese rv e r e q u i r e m e n t s t h i ough the use
of third p a r t i e s that woul d d i s c o u n t and resel l an ineligible
a c c e p t a n c e created b y a d e p o s i t o r y in st itution.
E F F E C T I V E DATE:
Ju ne 20,
1983.
FOR F U R T H E R
INFORMATION
CONTA CT :
Gi l b e r t
T.
Schwartz,
A s s o c i a t e G e n e r a l C o u nsel (2 02 /452-3625); or Rober t G. Ballen,
A t t o r n e y (202/452-3265), L e g a l Division, Bo ard of G o v e r n o r s of
the F e deral R e s erve System, W ashington, D.C. 20551.
S U P P L E M E N T A R Y INF OR MA TI ON :
S e c t i o n 19(a)
of
the F e d eral
Reserve Act a u t h o r i z e s the B o ard to d e t e r m i n e what types of
o b l i g a t i o n s are r e s e rvable d e p o s i t s
(12 U SC § 461(a)).
In
addition, s e ction 19(a) g r ants the Bo ar d a u t h o r i t y to p r e s c r i b e
r e g u lations
necessary
to
prevent
e v a sions
of
r e s erve
requirements.
Agented
i neligible
BAs.
Regulation D previously
re g a r d e d an i n e l igible BA as a r e s e rvable l i a b i l i t y o n l y if it
was created, discounted,
and sold by the same d e p o s i t o r y
ins titut ion.
Some
b a nks
have
re c e n t l y
entered
into
a r r a n g e m e n t s w ith br o k e r s and o t her third p a r t i e s that p r o v i d e
for the c r e a t i o n of an ine l i g i b l e BA b y the b a n k and the
subsequent d i s c o u n t and re sale by the third party.
Since the
bank c r e a t i n g the BA did not d i s c o u n t and res el l the
ac ce ptance, it p r e v i o u s l y was not r e q uired to m a i n t a i n res er ve s
against the BA.
Similarly, if the third p a r t y that d i s c o u n t e d
and res ol d the BA p u r s u a n t to such an a r r a n g e m e n t was a
d e p o s i t o r y institution, it w o uld not be su bject to reser ve
r e q u i r e m e n t s on the t r a n s a c t i o n since it did not crea t e the BA.
The Bo ard's p r o p o s a l .
The Bo ar d b e l i e v e d th es e
arrangements
serve onl y as a d e v i c e to avoid
reserve
r equi r e m e n t s
under
R e g u l a t i o n D.
Accor di ng ly ,
the
Board
p r o p o s e d to am end R e g u l a t i o n D such that the c r e a t i o n of an
ineli gi bl e BA that is o u t s t a n d i n g re sults in a r e s e r v a b l e
d e p osit rega r d l e s s of w h e t h e r the d e p o s i t o r y i n s t i t u t i o n that
creates
the
BA
subsequently
discounts
and
sells
it.
48 F.R. 5750 (Feb. 8, 1983).
The Bo ar d s p e c i f i c a l l y r e q u ested
comment on w h e t h e r re serve r e q u i r e m e n t s should be a p p l i e d o nly
to ag e n t e d BA t r a n s a c t i o n s and h o w such ag e n t e d a r r a n g e m e n t s
could be identified.
The Bo ar d als o p r o p o s e d that the
am e ndment a p p l y to o u t s t a n d i n g inel i g i b l e BAs that we re c r e a t e d
after the a n n o u n c e m e n t of the p r o p o s e d amendment.
D i s c u s s i o n of c o m m e n t s . The Bo ard re ceived a to tal of
24 comments.
T h i r t e e n of the com m e n t e r s favo re d the Boa d's
proposal,
ten com m e n t e r s o p p o s e d
the proposal,
and one
com m e n t e r e x p r e s s e d no opinion.
The p r i n c i p a l r e ason these
c o m m e n t e r s c i ted for s u p p o r t i n g the p r o p o s a l was the need to
e l i m i n a t e a "loophole" t h r ough w h i c h rese rv e r e q u i r e m e n t s could
be avoided.
C o m m e n t e r s o p posed to the p r o p o s a l ga ve the fo ll owing
re as on s for their op po sition:
a g ented in el igible BAs of fer a
fle xi ble
and
cost
e f f e c t i v e me ans
by which depository
i nsti t u t i o n s can r e s pond to the short term cre di t needs of
their cus t o m e r s (such as small bu si nesses) and c o m p e t e wi th the
c o m m e r c i a l p a p e r ma rket and w i t h f o r eign b a n k s
in the
i nter n a t i o n a l market; i n e l igible a g e nted BAs do not t h r e a t e n
the safe t y and soundness of d e p o s i t o r y i n s t i tutions b e c a u s e of
the a p p l i c a b i l i t y of l e n ding limits; the p r o p o s a l will not
e n h ance m o n e t a r y p o l i c y o bjectives; and a g e nted i n e l i g i b l e BAs
a f ford
the
depository
institution
cr e a t i n g
the
BA
an
o p p o r t u n i t y for fee income w ith no fund in g risk to the
ins titution.
Fo ur of the c o m m e n t e r s s u g gested that if the pro p o s a l
is adopted, it should not a p p l y to all i n e l igible BAs, but o n l y
to c e r t a i n a g e n t e d i n e l igible BAs.
However,
non e of the
co m m e n t e r s ind i c a t e d h o w an ine l i g i b l e BA t r a n s a c t i o n subj ec t
to the p r o p o s a l co ul d be i d e n t i f i e d from an ineligible BA
t r a n s a c t i o n not
su bject
to the pr op osal.
Indeed,
two
c o m m enters in favor of the p r o p o s a l s p e c i f i c a l l y rec o g n i z e d
that w h e re the dis c o u n t e r or seller of a BA was d i f f e r e n t from
the d e p o s i t o r y i n s t itution that created the BA, the Bo ar d wo ul d
be un abl e to d e t e r m i n e w h e t h e r the d i s c o u n t i n g and sale
o c c urred p u r s u a n t to a p r e a r r a n g e d a g e nted BA tr ansaction.
Finally, five c o m m e n t e r s sta te d that app l y i n g a final
rule
to o u t s t a n d i n g
in el igible
BAs
cr eated
af te r
the
a n n o u n c e m e n t of the Boar d' s p r o p o s a l was i n e q u itable b e c a u s e
d e p o s i t o r y i n s t itutions could not d i s c o n t i n u e the p r a c t i c e of
a g ented in el igible BAs on such short not ic e and im po si ng
rese rv e r e q u i r e m e n t s on such a g e n t e d in el igible BAs w o uld ha ve
a rip pl e eff ec t on the d e p o s i t o r y i nstitution's b u s i n e s s b e y o n d
the a g e nted in el igible BAs it h a d out st an di ng .
A f t e r c o n s i d e r a t i o n of the issues rai se d b y the
commenters, the Board has d e t e r m i n e d to am end R e g u l a t i o n D such
that an o u t s t a n d i n g ineligible BA wo uld be t r eated as a
res e r v a b l e l i a b i l i t y r e g a rdless of wh ether the d e p o s i t o r y
i n s t i t u t i o n that crea te d
the
i n e l igible BA s u b s e q u e n t l y
d i s c ounts and sells it.
Reserve requ i r e m e n t s w o uld not a p ply
to an ineligible BA that the cr e a t i n g i n s t i t u t i o n itself
d i s counts and ho lds since,
un de r curre nt practic es ,
such
a c c e p t a n c e s are not re ga rded as a c c e p t a n c e s outst an di ng .
A p p l i c a t i o n of rese rv e r e q u i r e m e n t s to i n e l igible BAs
that the cr e a t i n g ban k does not a lso di s c o u n t and sell will, as
the
comm e n t e r s assert, raise the cost
of
this type of
financing.
However,
since
agented
BAs
are
essentially
identical to other ineligible BA trans a c t i o n s that are su bject
to reser ve re quirements, the Boar d h as d e t e r m i n e d that a g e n t e d
in el igib le BAs should also be subj ec t to rese rv e requir em en ts .
In b o t h tr an sa ctions, the cr e a t i n g ban k has the same o b l i g a t i o n
to p a y the h o l d e r the
face am ount of the
in st rument at
maturity.
The ac c o u n t p a r t y (borrower) ha s the same o b l i g a t i o n
to p a y the c r e ating ba nk at maturity, and the b e n e f i c i a r y of
the draft ha s rec e i v e d funds as soo n as the
BA is d i s c o u n t e d
(by the cr e a t i n g b a n k in the n o n a g e n t e d case
and by the th ird
p a r t y in the a g e n t e d case).
The third party, not a p a r t i c i p a n t
in the n o n a g e n t e d tr ansaction, g e n e r a l l y has e x c h a n g e d ass et s
(cash for the BA) b y res e l l i n g the BA in the s e c o n d a r y mar ke t
and has m e r e l y a c c o m m o d a t e d the c r e a t i n g ban k (most l i k e l y for
a fee) in p r o v i d i n g p r o c e e d s from the sale of the BA to the
b e n e f i c i a r y of the draft.
A ccordingly, the o n l y p u r p o s e of
s tructuring the t r a n s a c t i o n as an a g e n t e d BA a p p ears to be to
avoi d rese rv e re qu ir em en ts .
Si nce i neligible a c c e p t a n c e s are r e g a r d e d as close
subs t i t u t e s to ba nk CDs by inve st or s and since the com m e r c i a l
a c t i vities that can be fi na nced by in el igible a c c e p t a n c e s are
v i r t u a l l y i n d i s t i n g u i s h a b l e from thos e fin an ce d b y b a n k CDs, if
a g e nted ineligible a c c e p t a n c e s we re not reservable, co ntrol
over b an k m a n a g e d liab i l i t i e s and cre di t m a y well be loosened.
A g e n t e d i neligible BAs are not a ri sk less source of
fee income for the d e p o s i t o r y i n s t i t u t i o n cr e a t i n g the BA as
suggested b y some of the comment er s.
By creating a BA, the
c r e ating b a n k incurs an o b l i g a t i o n to pa y the h o l d e r the amo un t
of the BA at m a t u r i t y and ac q u i r e s a c o r r e s p o n d i n g cl ai m
ag ai nst the a c c ount party.
Thus, the cr eating ba nk as sumes the
risk of d e f ault of the account party.
Further, there is no
F eder al
l i m i t a t i o n on the a g g r e g a t e
amoun t
of
ag ented
i neli gi ble BAs a d e p o s i t o r y i n s t i t u t i o n ma y create.
The a m e n dment makes r e s e r v a b l e all inel i g i b l e BAs
o u t s t a n d i n g (that are not h e l d in p o r t f o l i o by the creating
bank), r e g a r d l e s s of w h e t h e r the thir d p a r t y d i s c o u n t and sale
o c c u r r e d p u r s u a n t to a p r e a r r a n g e d a g e nted BA transac ti on .
No
c o m mente r
indi ca te d
how
ag ented
arrangements
coul d
be
identified.
The Bo ar d b e l i e v e s that wh er e the d i s c o u n t e r or
seller of a BA is d i f f e r e n t fro m the d e p o s i t o r y i n s t i t u t i o n
that cr e a t e d the BA, it will in m a n y cases be difficult, if not
impossible, to d e t e r m i n e w h e t h e r the d i s c o u n t i n g and sale of
the BA has o c c u r r e d p u r s u a n t to a p r e a r r a n g e d a g e n t e d BA
tra ns ac ti on .
Indeed, it is u n l i k e l y that a ba nk wo uld crea te a
BA and not be indi r e c t l y or d i r e c t l y involved in some wa y wi th
its s u b s equent disco u n t or resale.
The Board b e l i e v e s that go od ca use exists to make this
a m e n dment e f f e c t i v e im mediately.
Suc h an a c t i o n will m i n i m i z e
any marke t d i s t o r t i o n s that w o uld li kely result
if the
a me n d m e n t did not a p ply to i n e l i g i b l e BAs issued for a p e r i o d
of time af te r a d o p t i o n of the final rule.
In addition, the
B oar d' s p r i o r F e b r u a r y a n n o u n c e m e n t p r o p o s i n g the ame n d m e n t put
d e p o s i t o r y i n s t i tutions on n o t i c e that the ame n d m e n t wo uld
app ly to o u t s t a n d i n g i n e l i g i b l e BAs c r e ated af te r a d o p t i o n of
the final rule.
However, in vie w of the concerns raise d by the
c ommenters r e g a r d i n g a p p l y i n g this a m e n d m e n t to o u t s t a n d i n g
in el igible BAs c r e ated af ter the a n n o u n c e m e n t of the Board 's
p r o p o s a l on F e b r u a r y 1, 1983, but b e f o r e final a d o p t i o n of the
rule, the Bo ard ha s d e t e r m i n e d not to a p p l y this am e n d m e n t
retroactively.
The impact of this p r o p o s a l on small en tities has b e e n
c o n s i d e r e d in a c c o r d a n c e w i t h s e c tion 604 of the R e g u l a t o r y
F l e x i b i l i t y A ct (Pub. L. 96-354; 5 USC § 604).
S e c t i o n 411 of
the G a r n-St G e r m a i n D e p o s i t o r y I n s t i t u t i o n s Act of 1982
(Pub. L. 97-320; 96 Stat. 1520) p r o v i d e s for an e x e m p t i o n from
re serve r e q u i r e m e n t s for the first $2.1 m i l l i o n in res e r v a b l e
l iabilities at all d e p o s i t o r y insti tu ti on s.
The Bo ard b e l i e v e s
that its a c t i o n w o uld not add a ny reser ve r e q u i r e m e n t b u r d e n to
small
depository
insti t u t i o n s
that
hav e
zero
rese rv e
r e q u i r e m e n t s as a result of s e c tion 411 of the Ga r n - S t G e r m a i n
Act.
In addition,
small e n t ities t y p i c a l l y do not issue
in el igibl e BAs.
No new r e c o r d k e e p i n g or r e p orting r e q u i rements
will be imposed as a result of this action.
List of S u b jects
in 12 C F R Part
204
Banks, banking;
Currency;
Penalties; R e p o r t i n g Requi re me nt s.
Feder al
Reserve
System;
Pu r s u a n t to its a u t h o r i t y under s e c tion 19(a) of the
Federal R e s erve Ac t
(12 US C § 461(a)),
the Boar d ame nd s
s ection 204.2 of R e g u l a t i o n D (12 C F R Part 204), eff e c t i v e
June 20, 1983, b y ad ding a new s u b p a r a g r a p h (a)(l)(viii) and b y
revising (c)(l)(ii) and (f)(l)(v) as follows:
S E C T I O N 204.2 —
*
(a)(1)
*
*
*
*
DEFINITIONS
*
*
*
(viii)
any l i a b i l i t y of a d e p o s i t o r y i n s t i t u t i o n
that ari se s from the c r e a t i o n af te r June 20, 1983, of a
bankers' a c c e p t a n c e that is not of the type d e s c r i b e d in
p a r a g r a p h 7 of se ction 13 of the Fe d e r a l R e serve Ac t (12 U.S.C.
372) excep t any such l i a b i l i t y h e l d for the ac count of an
enti t y specified in § 2 0 4 . 2 ( a )(1)(v i i )(A ) ; or
*
(c)(1)
*
*
*
*
*
*
*
(ii)
bo rr owings,
r e g a rdless
of
maturity,
r e p r e s e n t e d by a p r o m i s s o r y note,
an a c k n o w l e d g e m e n t of
advance,
or
simi la r
obligation
described
in
secti on 2 0 4 . 2 ( a )(1)(v i i ) that is issued to, or a n y bankers'
a c c e p t a n c e of the d e p o s i t o r y i n s t i t u t i o n h e l d by, a ny o f fice
loca te d o u t s i d e the U n i t e d Stat e s of a n o t h e r d e p o s i t o r y
i n s t i t u t i o n or Edge or a g r e e m e n t c o r p o r a t i o n o r g a n i z e d unde r
the laws of the U n i t e d States, to an y offi c e loca te d o u t s i d e
the U n i t e d States of a forei gn bank, or to i n s t i t u t i o n s w h ose
time de p o s i t s are exempt fr om in te re st rate l i m i t a t i o n s un de r
section 217.3(g) of R e g u l a t i o n Q (12 C FR 21 7.3(g)); and
*
(f )(l)
note,
an
*
*
*
*
*
*
*
(v)
a time d e p o s i t r e p r e s e n t e d b y a p r o m i s s o r y
a c k n o w l e d g e m e n t of advance, or a simi la r o b l i g a t i o n
-
10
-
d e s c r i b e d in se ction 2 0 4 . 2 ( a )(1)(v i i ) that is issued to, or any
bankers' a c c e p t a n c e of the d e p o s i t o r y i n s t i tution h e l d by, a ny
office locat ed o u t s i d e the U n i t e d Sta te s of a n o ther d e p o s i t o r y
i n s t i t u t i o n or Edge or a g r e e m e n t c o r p o r a t i o n o r g a n i z e d under
the laws of the U n i t e d States, to a ny of fice locat ed ou tside
the U n i t e d Sta te s of a fore ig n bank, or to i n s t i tutions wh ose
time dep o s i t s are exe mp t from int er es t rate l imitations under
secti on 217.3(g) of R e g u l a t i o n Q (12 C F R 217.3(g)).
*
*
*
*
*
By o r der of the B o ard of Governo rs ,
June
20,
1983.
(signed) William W. Wiles
W i l l i a m W. W i les
S e c r e t a r y of the Bo ar d
-
11
-
F E D E R A L RE SERVE SYST E M
[12 C F R Part 250]
[Docket No.
R- 0453]
MISCELLANEOUS INTERPRETATIONS
AGENCY:
Boa rd of G o v e r n o r s of the Feder al
ACTION:
Final
Reser ve System.
rule.
SUMMARY:
The Board has c l a r i f i e d the me a n i n g of the seven th
p a r a g r a p h of se ction 13 of the Federal Rese rv e Ac t as am ended
by the Bank Expor t Services Ac t
(Title II of Pub. L.
9 7 - 2 9 0 ) ( " B E S A " ).
This c l a r i f i c a t i o n covers the tre atment of
(1) p a r t i c i p a t i o n s in BAs that are cr eated by i nstitutions
subject to the li mitations of the BES A and sold to i n s t i tutions
not subject to such limitations, (2) p a r t i c i p a t i o n s in BAs that
are created b y ins titutions not subj ec t to the l i m i t a t i o n s of
the B E S A and sold to i n s t i tutions subject to such limitations,
(3) the l i m i t a t i o n on BAs g r o w i n g out of d o m e s t i c tr an sa ctions,
and (4) the dollar e q u i v a l e n t of the pa id up capi ta l and
surplus of the fore ig n ba nk p a r e n t of U. S. b r a n c h e s and
ag e n c i e s subject to the limi t a t i o n s of the BESA.
E F F E C T I V E DATE:
J u l y 20,
1983.
FOR FURTHER
I N F O R M A T I O N CONTACT:
Gi l b e r t
T.
Schwartz,
A s s o c i a t e Ge n e r a l Coun se l (202/452-3625), or Ro bert G. Ballen,
A t t o r n e y (202/452-3265), Lega l Division, Board of G o v e r n o r s of
the F e d eral R e s e r v e System, W a s h ington, D.C. 20551.
S U P P L E M E N T A R Y INFO RM AT IO N:
The BESA.
S e c t i o n 207 of the B ESA
p r o v i d e s that a m e mber b ank or a F e deral or State b r a n c h or
a g e n c y in the U n i t e d St ates w h ose p a r e n t fo reign b ank has, or
is c o n t r o l l e d b y a f o r eign c o m p a n y or c o m p anies that have, mo re
than $1 b i l l i o n in total w o r l d w i d e c o n s o l i d a t e d ban k assets,
may create e l i gible bankers'
acceptances
("BAs")iV in the
a g g r e g a t e up to 150 per cent of its p a i d up and u n i m p a i r e d
capital stock and surpl us ("capital") and, w i t h the p e r m i s s i o n
of the Board, up to 200 p er cent of its ca pital (12 U.S.C.
§ 372).
S e c tion 207
also
prohibits
thes e
insti t u t i o n s
("covered banks") from c r e a t i n g e l i gible BAs for an y one p e r s o n
in the a g g r e g a t e in excess of 10 per cent of the in s t i t u t i o n ' s
i/
A n e l i g i b l e BA is a BA that meets the c r i t e r i a of the
s e v enth p a r a g r a p h of s e c t i o n 13 of the Fe d e r a l R e s e r v e Act (12
U.S.C. § 372).
-
12
-
capital.
E l i g i b l e BAs g r o w i n g out of d o m e s t i c t r a n s a c t i o n s m ay
not exceed 50 per cent of the a g g r e g a t e of all a c c e p t a n c e s
a u t h o r i z e d for a c o v e r e d bank.
S e c t i o n 207 of the B E S A als o p r o v i d e s that any p o r t i o n
of an e l i g i b l e BA cr eated b y a c o v ered ban k that is co nveyed
t h rough a p a r t i c i p a t i o n to an o t h e r co vered ba nk shall not be
includ ed in the c a l c u l a t i o n of the indiv id ua l cr e a t i n g ba nk's
BA limits.
However, the amo un t of the p a r t i c i p a t i o n i_s to be
a p p lied to the BA limits a p p l i c a b l e to the co vered bank
re c e i v i n g the par t i c i p a t i o n .
For p u r p o s e s of d e t e r m i n i n g the BA limits a p p l i c a b l e
to U. S. b r a n c h e s and ag e n c i e s of fore ig n banks, the stat ut e
p r o v i d e s that a b r a n c h ' s or age n c y ' s capi ta l
is to be
c a l c u l a t e d as the do llar e q u i v a l e n t of the ca pital of the
p a r e n t f o r eign ban k as d e t e r m i n e d by the F e d eral Reserve.
The Bo ard's p r o p o s e d
interpretation.
The
Board
p r o p o s e d for p u b l i c co mment in F e b r u a r y a c l a r i f i c a t i o n of the
m e a n i n g of the s e v e n t h p a r a g r a p h of s e c tion 13 of the Federal
Reserve Act, as a m ended by se ction 207 of the BESA.
48
F.R. 5570 (Feb. 7, 1983).
U n der the proposal, an eli g i b l e BA
created b y a c o vered
b a n k that is c o n v e y e d t h r o u g h a
parti ipati on to an i n s t i t u t i o n that is not subj ec t to the
l i m i t ations of B E S A w o u l d c o n t i n u e to be in cluded in the
limi t a t i o n s a p p l i c a b l e to the cr e a t i n g co v e r e d bank.
The Bo ar d
p r o p o s e d that since Edge Co rp or ations, like c o v e r e d banks, are
subje ct to se p a r a t e per c u s t o m e r and a g g r e g a t e BA limits, an
e l i g i b l e BA c r e a t e d b y a c o v e r e d b a n k that is c o n v e y e d t h r o u g h
a p a r t i c i p a t i o n to an E dge C o r p o r a t i o n w o uld be included in the
c a l c u l a t i o n of the limits a p p l i c a b l e to the Edge C o r p o r a t i o n
and not in the c a l c u l a t i o n of the limits a p p l i c a b l e to the
c r e a t i n g c o v e r e d bank.
In addition, un der the pro po sa l, a
p a r t i c i p a t i o n co n v e y e d to a co v e r e d b a n k from an i n s t i t u t i o n
not co v e r e d b y the l i m i t a t i o n s of the B ESA w o u l d be in cl ud ed in
the c a l c u l a t i o n of the li mits a p p l i c a b l e to the r e c e i v i n g
co v e r e d bank.
As to the a p p l i c a t i o n of the B ESA l i m i t a t i o n s to U.S.
b r a n c h e s and ag e n c i e s of f o r eign banks, the B o ard p r o p o s e d that
the p a r e n t of a U.S. b r a n c h or a g e n c y of a f o r eign b a n k be the
same as for r e s erve r e q u i r e m e n t pur po se s; that is the b a n k
e n t i t y that owns the b r a n c h or a g e n c y mos t di re ctly.
The
p r o c e d u r e s c u r r e n t l y use d for p u r p o s e s of r e p o r t i n g to the
Board on the A n n u a l Report of F o r e i g n Ba n k i n g O r ganizations,
F o r m F.R. Y-7, w e r e p r o p o s e d to be used in the c a l c u l a t i o n of
the BA limits a p p l i c a b l e to U.S. b r a n c h e s and ag e n c i e s of
foreign banks.
(The F.R. Y - 7 g e n e r a l l y re q u i r e s fi na ncial
st a t emen ts p r e p a r e d
in a c c o r d a n c e w ith local
accounting
p r a c t i c e s and an e x p l a n a t i o n of the a c c o u n t i n g t e r m i n o l o g y and
-
13
-
the ma jor fea tu re s of the a c c o u n t i n g st an dards.)
Conversions
to the d o l l a r equ i v a l e n t of the w o r l d w i d e c a p ital of the
foreign b a n k w o uld be ma de p e r i o dically.
Finally,
the Bo ard p r o p o s e d that the 50 per cent
li m i t a t i o n on el i g i b l e BAs
that g row out of d o m e s t i c
t r a n s a c t i o n s a p p l y to the m a x i m u m p e r m i s s i b l e amo un t of
el i gible BAs (150 to 200 per cent of capital) that a co vered
bank could issue, rega r d l e s s of the b a n k ' s amo un t of e l i gible
BAs outstanding.
D i s c u s s i o n of co mm ents.
The Bo ar d re ceived a total of
29 comments.
Comments we re recei v e d from 14 d e p o s i t o r y
institutions,
11 Re serve Banks,
the In s t i t u t e of F o r e i g n
Bankers,
the A m e r i c a n B a n kers As sociation,
the C a l i f o r n i a
Bankers A ssociation, and the Bankers' A s s o c i a t i o n for F o r e i g n
Trade.
The
com m e n t e r s
generally
s u p p orted
the
Board 's
proposals.
T e n c o m m e n t e r s s u g g e s t e d that an el i g i b l e BA c r e ated
b y a co v e r e d b a n k that is c o n v e y e d t h r o u g h a p a r t i c i p a t i o n to
an i n s t i t u t i o n not subj ec t to the l i m i tations of the BES A
sho ul d not be in cluded in the c a l c u l a t i o n of the limits of the
cr e a t i n g co v e r e d bank.
T h e s e c o m m e n t e r s a r g u e d that the
Board's p r o p o ^1 to in clude su ch BAs in the c r e a t i n g co v e r e d
b a n k ' s BA limi :s was not in a c c o r d w i t h the p u r p o s e of the B E S A
to p r o v i d e sm aller b a nks w i t h mor e f l e x i b i l i t y in p r o v i d i n g
a c c e p t a n c e f i n a ncing and r e s t r i c t e d o t h e r w i s e d e s i r a b l e ef forts
of c o v e r e d b a n k s to use p a r t i c i p a t i o n s in BAs to d i v e r s i f y risk.
After
c o n s i d e r a t i o n of
the comments,
the Bo ard
c o n t i n u e s to b e l i e v e that the B E S A p e r m i t s a co v e r e d b a n k to
e x c lude an e l i g i b l e BA it h as c r e a t e d from its BA limits if the
BA is c o n v e y e d th r o u g h a p a r t i c i p a t i o n o n l y to a n other co v e r e d
b a n k . 2/
Th is ensures that the total am ount of eli g i b l e BAs
that m a y be c r e ated b y all c o v e r e d ba nks does not e x c e e d the
limits e s t a b l i s h e d by C o n g r e s s — 150 or 200 per cent of the
capital of all co v e r e d b a n k s . 3/
To c o n c l u d e o t h e r w i s e
2/
Spe cif ic al ly , se c t i o n 207 of the B E S A states that, "with
r esp ec t to an i n s t i t u t i o n w h i c h issues an accept an ce ,
the
l i m i t a t i o n s c o n t a i n e d in this p a r a g r a p h shall not a p p l y to that
p o r t i o n of an a c c e p t a n c e w h i c h is iss ue d b y such i n s t i t u t i o n
and w h i c h is co v e r e d b y a p a r t i c i p a t i o n a g r e e m e n t sold to
an o t h e r i n s t i t u t i o n " (emphasis added).
The ter m " institution"
is d e f i n e d in the s e c t i o n as [a]ny m e m b e r b a n k a nd a ny Federal
or St at e b r a n c h or a g e n c y of a fo reign b a n k subject to re serve
r e q u i r e m e n t s under s e c t i o n 7 of the I n t e r n a t i o n a l B a n k i n g A ct
of 1978."
1/
12 U.S.C.
§§ 3 7 2 (7)(A ) , (B),
(C),
and ( F ) .
-
14
-
wo uld permit c o v ered ba nks to c r eate el igible BAs w i t hout limit
by se lling p a r t i c i p a t i o n s to i n s t i tutions not c o v ered by the
Act.
In addition, this p r o m o t e s the C o n g r e s s i o n a l intent, at
least wi th resp ec t to c o v e r e d banks, to "place all banks,
f oreign and domestic, on an equal fo oting and under the same
legal r e q u i r e m e n t s . " l /
To co n c l u d e o t h e r w i s e wo uld p r o v i d e
an a d v a n t a g e to fore ig n ba nks b y p e r m i t t i n g c o v ered bank s to
c o n v e y p a r t i c i p a t i o n s to fo reign b a nks w i t hout limit wh il e
c o n v e y a n c e of p a r t i c i p a t i o n s to d o m e s t i c cove re d b a n k s w o uld be
limi te d to 150 or 200 per cent of the ca pital of the recipient
domestic
bank.
Finally,
this
provision
ensu re s
that
p a r t i c i p a t i o n s in el i g i b l e a c c e p t a n c e s are not used as a devi c e
for a v o i d a n c e of rese rv e r equirements.
To c o n c l u d e o t h e r w i s e
w o uld p e rmit c o v e r e d b a nks to av oi d reser ve requ i r e m e n t s by
c r e ating an u n l i m i t e d amo un t of r e s e r v e - f r e e o b l i g a t i o n s by
c o n v e y i n g p a r t i c i p a t i o n s in e l i g i b l e BAs to i n s t i tutions not
c o vered b y the Act.
In this regard, the B o ard also has d e t e r m i n e d that an
eli g i b l e BA c r e a t e d b y a c o v e r e d b ank that is co n v e y e d t h r ough
a p a r t i c i p a t i o n to an Ed ge or A g r e e m e n t C o r p o r a t i o n sho ul d
co n t i n u e to be in cl ud ed in the c a l c u l a t i o n of the c r e ating
c o v ered b a n k ' s BA limits,
ev en t h ough Edg e and A g r e e m e n t
C o r p o r a t i o n s are subj ec t to se p a r a t e a g g r e g a t e and per c u s tomer
BA limits.
First, Edc ^ and A g r e e m e n t C o r p o r a t i o n s are not
s p e c i f i c a l l y in cluded w i t h i n the BES A d e f i n i t i o n of a co vered
bank.
Second, if an e l i g i b l e BA cr e a t e d b y a c o vered b ank that
is c o n v e y e d t h r o u g h a p a r t i c i p a t i o n to an Edge or A g r e e m e n t
C o r p o r a t i o n is e x c l u d e d from the c a l c u l a t i o n of the c r e ating
covered b a n k ' s BA limits, it w o u l d seem to follow, as suggested
b y se veral of the co mm enters, that an el igible BA c r e ated b y a
covered ba nk that is c o n v e y e d t h r o u g h a p a r t i c i p a t i o n to ot he r
i n s t i tutions that are not c o v e r e d ba nks un de r BES A but are
o t h e r w i s e su bject to ot he r BA limit s should als o be e x c luded
from the c a l c u l a t i o n of the c r e a t i n g co vered b a n k ' s B A limits.
This wo u ld ex pand the e x c e p t i o n to state non m e m b e r d e p o s i t o r y
i nstitutions subje ct to BA limi ts p u r s u a n t to state law,
c e r t a i n U. S. b r a n c h e s and a g e n c i e s of foreign b a n k s w h o s e
fore ig n ban k p a r e n t ha s less than $1 b i l l i o n in total w o r l d w i d e
—/
128 C o n g . Rec. H 4 647 (daily ed. J u l y 27, 1982) (remarks
of Rep. B a r n a r d ); 128 C o n g . R e c . H8 461 (daily e d . O c t o b e r 1,
1982) (remarks of Rep. B a r n a r d ).
c o n s o l i d a t e d ba nk as se ts,^/ and pe r h a p s ot her i nstitutions
such as forei gn ba nks or d o m e s t i c non m e m b e r b a n k s that
v o l u n t a r i l y ad opt a p p r o p r i a t e BA limits.
Such a resul t could
u n d e r m i n e the BA l i m i tations e s t a b l i s h e d by Congress and
p r o v i d e a device for a v o i d a n c e of rese rv e r e q u i r e m e n t s as
d i s c u s s e d above.
Finally, there is no ev i d e n c e to sugge st that
Edge or A g r e e m e n t C o r p o r a t i o n s are h a v i n g d i f f i c u l t y cr eating
their own B A s . 5/
The BAs of these in stitutions g e n e r a l l y are
m a r k e t a b l e on the st r e n g t h of the name of their b a n k parent.
Thus, special treatment of Ed ge or A g r e e m e n t C o r p o r a t i o n s in
this reg ar d wo ul d not ap pear to fu rther s i g n i f i c a n t l y the
acc es s of these i n s t i tutions to a c c e p t a n c e financing, w h ich was
a p r i m a r y p u r p o s e of BESA.
Eight of the twe lv e comm e n t e r s that s p e c i f i c a l l y
c o m m ented up on the Bo ard's p r o p o s a l r e g arding the a p p l i c a t i o n
of the B E S A limits to U. S. b r a n c h e s and a g e ncies sup p o r t e d the
Board 's p r o p o s a l in its ent ir et y.
However, two c o m m e n t e r s
sugg ested a l t e r n a t i v e s to the Bo ard's p r o p o s e d a p p r o a c h of
c a l c u l a t i n g the fore ig n b ank c a p ital by u s ing the same
p r o c e d u r e s as are c u r r e n t l y used for p u r p o s e s of rep o r t i n g to
the
Bo ard
on
the A n n u a l
Re port
of
Foreign
Ba n k i n g
Organizations, F o r m F.R. Y-7.
(The F.R. Y-7 g e n e r a l l y re qu ir es
fin an ci al sta t e m e n t s p r e p a r e d in a c c o r d a n c e wi th local
£/
F e d eral b r a n c h e s and a g e n c i e s of fo reign b a nks wh ose
p a r e n t has less tha n $1 b i l l i o n in total w o r l d w i d e c o n s o l i d a t e d
bank assets are subj ec t to the BA limi t a t i o n s of B E S A pu r s u a n t
to an i n t e r p r e t a t i o n of the C o m p t r o l l e r of the C u r r e n c y (12 C F R
§ 28.101(5)).
State b r a n c h e s and ag e n c i e s of foreign b a nks
w h ose p a rent has less than $1 b i l l i o n in total w o r l d w i d e
c o n s o l i d a t e d ba nk as sets m ay be subj ec t to c o m p a r a b l e limits
under state law.
6/
In this regard, an e l i g i b l e BA that is c r e ated b y an Ed ge
or A g r e e m e n t C o r p o r a t i o n is not included in the BA l imitations
a p p l i c a b l e to the Ed ge or A g r e e m e n t C o r p o r a t i o n if (1) the BA
r e p r e s e n t s the in t e r n a t i o n a l s h i pment of goods, and (2) the
Edg e or A g r e e m e n t C o r p o r a t i o n is fu ll y c o v ered by p r i m a r y
o b l i g a t i o n s to r e i m burse it that are als o g u a r a n t e e d b y a n o ther
b a n k or the Edg e or A g r e e m e n t C o r p o r a t i o n ha s
sold a
p a r t i c i p a t i o n to a n o t h e r bank.
(12 C.F.R. § 211.6(a)).
U n der
the B o a rd's pr op osal,
such a p a r t i c i p a t i o n r e c eived b y a
c o v e r e d b a n k w o uld be in cluded in the c a l c u l a t i o n of the
c o v e r e d b a n k ' s BA limits.
A g u a r a n t e e issued b y a c o v e r e d ban k
al so w o uld be in cl uded in the c a l c u l a t i o n of the BA lim it s of
the co v e r e d bank.
a c c o u n t i n g p r a c t i c e s and an e x p l a n a t i o n of the a c c o u n t i n g
t e r m i n o l o g y and the ma jor fea tu re s of the a c c o u n t i n g sta nd ar ds
used in the p r e p a r a t i o n of the fin an ci al stat em en ts ).
One
com m e n t e r sug g e s t e d that the Board reference its d e t e r m i n a t i o n s
as to what c o n s t i t u t e s m e mber ba nk capi ta l and s p e c i f i c a l l y
advise f o reign b a nks as to w h i c h accounts may be used for
p u r p o s e s of
the capit al
ca lc ulation.
Another
com m e n t e r
su g g este d that the B o a rd's c a p ital c o m p u t a t i o n in clude all
those items of capi ta l and surpl us that any fore ig n b ank wo uld
be p e r m i t t e d
to incl ud e
for p u r p o s e s of lendi ng
limit
c o m p u t a t i o n s in its hom e country.
A f ter c o n s i d e r a t i o n of the comments, the Bo ard has
d e t e r m i n e d to ad op t its p r o p o s e d a p p r o a c h of c a l c u l a t i n g
foreign ban k capital us ing the same p r o c e d u r e s as are c u r r e n t l y
used for p u r p o s e s of rep o r t i n g to the Bo ard on the F.R. Y-7.
The Boar d b e l i e v e s the first a l t e r n a t i v e of s pecifying the
a c c ounts to be in cl uded is too inflexible and c o m p l i c a t e d in
view of the d i f f e r e n c e s in the t r e atment of capit al among
count ri es .
The secon d a l t e r n a t i v e of us ing the same d e f i n i t i o n
that applies to the d e t e r m i n a t i o n of local lendi ng limits is
si milar to the a p p r o a c h p r o p o s e d b y the Bo ar d in that the y b o t h
re c o g n i z e the v a r i ations in the treatment of capit al am on g
countries.
In vie w of the e x p e r i e n c e the Bo ar d ha s ha d in
d e t e r m i n i n g the capi ta l of fo reign p a r e n
b a n k s b a sed upon the
F.R. Y-7 approach, the Boar d d e t e r m i n e d :o adopt the p r o p o s e d
approach.
T h r e e c o m m e n t e r s d i s a g r e e d wi th the p r o p o s e d mann er in
w h i c h the ef fect of fore ig n e x c h a n g e rate fluct u a t i o n s wo ul d be
tak en into ac c o u n t in the c a l c u l a t i o n of the w o r l d w i d e capit al
of the p a r e n t fo reign bank.
W h i l e th es e c o m m e n t e r s ind ic at ed
that th ey a p p r e c i a t e d the B o ard's c o ncern w i t h the p r o b l e m of
f o r eign e x c h a n g e fluct ua ti on s, th es e com m e n t e r s p r e f e r r e d a
rule (such as q u a r t e r l y c o n v e r s i o n to dollars) rat he r than the
fl ex ib le c a s e - b y - c a s e a p p r o a c h p r o p o s e d b y the Board.
To
a c c o m m o d a t e the c o n cerns of these commenters, the Bo ar d ha s
d e t e r m i n e d that suc h c o n v e r s i o n s to the d o l l a r e q u i v a l e n t of
the w o r l d w i d e c a p ital of the f o r eign b ank be ma de p eriodically,
but in no event less f r e q u e n t l y than quarter ly .
T wo c o m m e n t e r s ind i c a t e d that it m a y be d i f f i c u l t to
d e t e r m i n e the c o m p l i a n c e of U.S. b r a n c h e s and ag e n c i e s of the
same fo reign b a n k w h ere the b r a n c h e s and ag e n c i e s are locat ed
in mo re th an one state.
(The B E S A re qu ires that the BA
a c t i v i t y of all b r a n c h e s and ag e n c i e s of the same foreign ba nk
be ag gregated.)
Ac co rdingly, the B o ard ha s d e t e r m i n e d that
ea ch fo reign b a n k is to be r e s p o n s i b l e for c o o r d i n a t i n g the BA
a c t i v i t y of its U.S. b r a n c h e s and a g e ncies
(includ in g the
a g g r e g a t i o n of such ac tivity) and e s t a b l i s h p r o c e d u r e s that
ens ure that e x a miners will be able
the B E S A limits.
to d e t e r m i n e
c o m p l i a n c e with
W i t h resp ec t to the l i m i t a t i o n on el i g i b l e BAs growing
out of d o m e s t i c tr an sa ctions,
all eight c o m m e n t e r s that
c o m m e n t e d s p e c i f i c a l l y on this asp ec t of the pr o p o s a l su pp orted
the Board's p r o p o s a l that this 50 per cent l i m i t a t i o n a p p l y to
the m a x i m u m p e r m i s s i b l e a m ount of e l i gible BAs (150 or 200
per cent of capital),
reg a r d l e s s of the b a nk's am ount of
el i g i b l e a c c e p t a n c e s ou ts tanding.
Ac co rd ingly, the Bo ard has
adopted its p r o posal wi th re gard to the B E S A l i m i t a t i o n on
eligible BAs g r o w i n g out of d o m e s t i c tr an sa ctions.
The impact of this pr o p o s a l on small entities has b e e n
con s i d e r e d in a c c o r d a n c e w i t h s e c tion 604 of the R e g u l a t o r y
F l e x i b i l i t y Act (Pub. L. 96-354; 5 U.S.C. § 604).
The Bo ard's
c l a r i f i c a t i o n will p r o v i d e small me mber ba nks that are cover ed
b y the BESA l i m i tations wit h increased f l e x i b i l i t y wit h rega rd
to the usage of el ig ib le BAs.
No new r e c o r d k e e p i n g or
r e p o rting requi r e m e n t s will be imposed as a res ul t of this
action.
List of S u b jects
in 12 C F R Part
250
F e deral Reserve System.
Pursuant to its a u t h o r i t y under the s e v e n t h p a r a g r a p h
of s e c tion 13 of the F e d eral R e s erve Ac t (12 U.S.C. § 372), the
Board of G o v e r n o r s amends
12 C F R Part 2 5 0 — M i s c e l l a n e o u s
Interpretation s,
eff e c t i v e J u l y 20, 1983, by addi ng a ne w
section 250.164 to read as follows:
S E C T I O N 250.164 —
BANKERS'
ACCEPTANCES
(a)
S e ction 207 of the Ba nk Ex port Se r v i c e s
(Title II of Pub. L. 97-290) ("BESA") rai se d the lim it s on the
a g g r e g a t e amount of el i g i b l e bankers' a c c e p t a n c e s ("BAs") that
ma y be c r e ated by an in di vidual m e mber ban k from 50 per cent
(or 100 per cent w i t h the p e r m i s s i o n of the Board) of its pai d
up and u n i m p a i r e d capi ta l stock and su rplus ("capital") to 150
per cent (or 200 per cent w i t h the p e r m i s s i o n of the Board) of
its capital.
S e c tion 207 a l s o p r o h i b i t s a m e m b e r b a n k from
c r e ating el i g i b l e BAs for a ny one p e r s o n in the
a g g r e g a t e in
excess of 10 per cent of the insti t u t i o n ' s capital.
This
se c tion of the B ESA applies the same limits a p p l i c a b l e to
member b a nks to U. S. b r a n c h e s and agencies of f o r eign b a nks
that are subject to reserve r e q u i r e m e n t s unde r se ction 7 of the
I n t e r n ational B a n king Act of 1978 (12 U.S.C. 3105).
The Bo ard
is c l a r i f y i n g the p r o p e r m e a n i n g of the s e v e n t h p a r a g r a p h of
section 13 of the Federal Re s e r v e Act, as am e n d e d
b y the BESA.
Act
-
18
-
(b)(1)
This s e c tion of the BES A p r o v i d e s that any
p o r t i o n of an eli g i b l e BA cr e a t e d b y an inst i t u t i o n subject to
the BA l i m i tations c o n t a i n e d th erein ("covered bank") that is
c o n v e y e d t h r o u g h a p a r t i c i p a t i o n to an other c o v ered ba nk shall
not be included in the c a l c u l a t i o n of the cr e a t i n g bank ' s BA
limits.
The amo un t of the p a r t i c i p a t i o n is to be a p p lied to
the c a l c u l a t i o n of the BA limits a p p l i c a b l e to the cover ed ban k
r ec e i v i n g the pa r t i c i p a t i o n .
A l t h o u g h a c o v ered ba nk that has
r eac he d its 150 or 200 per cent limit can co n t i n u e to cre at e
e l i gible a c c e p t a n c e s by c o n v e y i n g p a r t i c i p a t i o n s to other
c o v ered banks, Congress ha s in effe ct im posed an a g g regate
limit on the el igible a c c e p t a n c e s that may be c r e ated b y all
covered b a nks equal to the sum of 150 or 200 per cent of the
ca pi ta l of all c o v e r e d banks.
(2)
The B o ard has c l a r i f i e d that under the stat ut e an
e l i g i b l e BA c r e ated by a co v e r e d b ank that is co nveyed through
a p a r t i c i p a t i o n to an i n s t i t u t i o n that is not subj ec t to the
limi t a t i o n s of this s e c tion of the BES A co n t i n u e s to be
in cl uded in the c a l c u l a t i o n of the limits a p p l i c a b l e to the
c r e a t i n g co v e r e d bank.
This will en sure that the total amoun t
of e l i gible BAs that m ay be cr e a t e d b y co vered b a n k s does not
exceed the limi t a t i o n s e s t a b l i s h e d b y Congress.
In addition,
this ensures that p a r t i c i p a t i o n s in acce p t a n c e s are not used as
a d e v i c e for the a v o i d a n c e of re serve re qu ir em en ts .
Fine ly,
this p r o m o t e s the C o n g r e s s i o n a l intent, wi th resp ec t to cover ed
banks, that foreign and d o m e s t i c b a n k s be on an equal fo oting
and under the same legal re qu ir ements.
(3)
In addition,
the am ount of a p a r t i c i p a t i o n
r e c eived b y a c o v ered ban k from an inst i t u t i o n not co vered by
the limi t a t i o n s of the Act is to be in cl ud ed in the c a l c u l a t i o n
of the limits a p p l i c a b l e to the c o v ered ba nk r e c e iving the
partic i p a t i o n .
This result is b a s e d upo n the language of the
statute w h i c h includes w i t h i n a co vered b a n k ' s limits on
e l i g i b l e BAs o u t s t a n d i n g the amo un t of p a r t i c i p a t i o n s r e c eived
by the c o v e r e d bank.
This p r o v i s i o n refle ct s C o n g r e s s i o n a l
intent that a c o vered ba nk not be o b l i g a t e d on e l i gible
bankers' acceptanc es , and p a r t i c i p a t i o n s therein, for an amount
in excess of 150 or 200 per cent of the in s t i t u t i o n ' s capital.
(c)
The
statut e
al so
provides
that
el ig ible
a c c e p t a n c e s g r o w i n g out of d o m e s t i c t r a n s a c t i o n s are not to
ex ceed 50 per cent of the a g g r e g a t e of all e l i g i b l e a c c e ptances
a u t h o r i z e d for c o v ered banks.
The Boa rd has cl a r i f i e d that
this 50 per cent l i m i t a t i o n is a p p l i c a b l e to the m a x i m u m
p e r m i s s i b l e amount of e l i g i b l e BAs (150 or 200 pe r cent of
capital),
r e g a rdless of the b a n k ' s
amo un t
of
el ig ible
ac c e p t a n c e s outstanding.
The s t a t u t o r y language p r ior to the
B E S A a m e n d m e n t made clear that covered b a nks co ul d issue
e l i gible a c c e p t a n c e s gr o w i n g out of d o m estic t r a n s a c t i o n s up to
50 per cent of the amo un t of the total p e r m i s s i b l e e l i gible
a c c e p t a n c e s the bank coul d issue.
The legi s l a t i v e h i s t o r y of
the B ESA indicates no intent to c h ange this d o m e s t i c a c c e p t a n c e
limitation.
(d)
The sta tute al so p r o v i d e s that for the p u r p o s e
the l i m i t a t i o n s app l i c a b l e to U. S. b r a n c h e s and age n c i e s of
foreign banks, a b r a n c h ' s or ag e n c y ' s capit al is to be
c a l c u l a t e d as the d o llar e q u i v a l e n t of the ca pital stock and
surplus of the pa rent fo reign ba nk as d e t e r m i n e d b y the Board.
The Board has c l a r i f i e d that for p u r p o s e s of c a l c u l a t i n g the BA
limits a p p l i c a b l e to U. S. b r a n c h e s and agencies of fore ig n
banks, the ident i t y of the p a r e n t fore ig n b a n k is g e n e r a l l y the
same as for reser ve r e q u i r e m e n t pu rp oses; that is, the ba nk
e n t i t y that owns the b r a n c h or a g e n c y most dire ct ly .
The Board
has al so c l a r i f i e d that the p r o c e d u r e s c u r r e n t l y used for
p u r p o s e s of r e p o rting to the Bo ar d on the Annu a l Rep or t of
F o r e i g n Ba n k i n g Or ganizations, Fo rm F.R. Y-7, are als o to be
used in the c a l c u l a t i o n of the a c c e p t a n c e limits a p p l i c a b l e to
U. S. b r a n c h e s and a g e ncies of fore ig n banks.
(The F.R. Y-7
g e n e r a l l y re qu ires fin an ci al s t a t e m e n t s p r e p a r e d in a c c o r d a n c e
w i t h local a c c o u n t i n g p r a c t i c e s and an e x p l a n a t i o n of the
a c c o u n t i n g t e r m i n o l o g y and the ma jor feature s of the a c c o u n t i n g
sta ndard s
used
in
the
preparation
of
the
fin an ci al
statem en ts .)
C o n v e r s i o n s to the d o l l a r e q u i v a l e n t of the
worldwide
ca pital of the
f o r eign ba nk
sh ould be made
per iodically, but in no even t less f r e q u e n t l y tha n quarter ly .
In this regard, the Bo ar d r e c o g n i z e s the nee d to be fl exible in
d e a l i n g w i t h the effect of fo r e i g n e x c hange rate f l u c t u a t i o n s
on the c a l c u l a t i o n of the w o r l d w i d e capi ta l of the p a r e n t
f ore ig n bank.
Ea ch fore ig n b a n k is to be r e s p o n s i b l e for
c o o r d i n a t i n g the BA a c t i v i t y of its U.S. b r a n c h e s and agenc i e s
(incl ud in g the a g g r e g a t i o n of suc h activity) and e s t a b l i s h i n g
p r o c e d u r e s that ens ur e that e x a m i n e r s will be able r e a d i l y to
d e t e r m i n e c o m p l i a n c e w ith the B E S A limits.
*
*
*
*
*
By o r der of the Bo ard of Go ve rn or s,
Ju ne
20,
1983.
(signed) William W. Wiles
W i l l i a m W. W i l e s
S e c r e t a r y of the B o a r d
of
F E D E R A L R E S ERVE S Y S T E M
[12 C F R Part
[Docket No.
MISCELLANEOUS
250]
R- 0474]
INTERPRETATIONS
AGENCY:
B o a r d of G o v e r n o r s of the Fede ra l R e s erve System.
ACTION:
P r o p o s e d rulem ak in g.
SUMMARY:
The Boar d is p r o p o s i n g to c l a r i f y the m e a n i n g of
p a r t i c i p a t i o n s in bankers' a c c e p t a n c e s for p u r p o s e s of the
bankers' a c c e p t a n c e l i m i t a t i o n s of the Bank Ex port Services Act.
DATES:
Co m m e n t s must be r e c eived by Augu s t
5,
1983.
ADDRESS:
I n t e r e s t e d pa r t i e s are in vited to submit w r i t t e n
data, views, or arg u m e n t s c o n c e r n i n g the p r o p o s e d rule to
W i l l i a m W. Wiles, Secretary, B o ard of G o v e r n o r s of the Fe d e r a l
Re s erve System, 20th Str ee t and C o n s t i t u t i o n Avenue, N. W. ,
Washington, D. C. 20551, or such c o m ments m ay be d e l i v e r e d to
room B-2223 b e t w e e n 8:45 a.m. and 5:15 p.m.
Co mm ents m a y be
inspected in room B-11 22 b e t w e e n 8:45 a.m. and 5:15 p.m.,
except as p r o v i d e d in s e c tion 261.6(a) of the B o a rd's Rules
Reg a r d i n g A v a i l a b i l i t y of I n f o r m a t i o n (12 C F R 261.6(a)).
F OR F U R T H E R
INFORMATION
CONTA CT :
Gilbert
T.
Schwartz,
A s s o c i a t e G e n e r a l C o u n s e l (2 02 /452-3625), or Rob er t G. Ballen,
A t t o r n e y (202/452-3265), L e g a l Division, B o ard of G o v e r n o r s of
the F e d eral Re s e r v e System, Washington, D. C.
20551.
S U P P L E M E N T A R Y INFOR MA TI ON :
S e c t i o n 207 of the Ba nk E x port
Services Act (Title II of Pub. L. 9 7 - 2 9 0 ) ( " B E S A " ) p r o v i d e s that
a m e m b e r b a n k or a F e d eral or St at e b r a n c h or a g e n c y in the
U n i t e d States w h ose p a r e n t forei gn b ank has, or is c o n t r o l l e d
b y a f o reign c o m p a n y or c o m p a n i e s that have, mo re th an $1
b i l l i o n in total w o r l d w i d e c o n s o l i a t e d ba nk assets, m a y cr eate
el i gible bankers' a c c e p t a n c e s ("BAs")i/ in the a g g r e g a t e up
to 150 per cent of its pai d up and u n i m p a i r e d capi ta l stock and
surplus and, w i t h the p e r m i s s i o n of the Board, up to 200 per
cent of its p a i d up and u n i m p a i r e d capital stock and
A/
An e l i g i b l e BA is a BA that meets the c r i t e r i a of the
s e v e n t h p a r a g r a p h of s e ction 13 of the F e d eral R e s e r v e Act (12
U.S.C. § 372).
surplus
("capital")
(12 U.S.C.
§ 372).
S e c t i o n 207 als o
p r o h i b i t s these i nstitutions from cr e a t i n g el i g i b l e BAs for any
one p e r s o n in the agg r e g a t e in exces s of 10 p e r c e n t of the
i nsti t u t i o n ' s capital.
E l i g i b l e BAs g r o wing out of do m e s t i c
t r a n s a c t i o n s are not to ex ceed 50 pe r c e n t of the a g g r e g a t e of
all el i g i b l e a c c e p t a n c e s a u t h o r i z e d for such an institution.
This secti on of the BE SA al so p r o v i d e s that a ny
p o r t i o n of an e l i gible BA c r e ated b y an i n s t i t u t i o n subj ec t to
the bankers'
a c c e p t a n c e limits c o n t ained t h e r e i n ("covered
bank") that is c o n veyed t h r o u g h a p a r t i c i p a t i o n to an other
covered b ank shall not be i n c luded in the c a l c u l a t i o n of the
cr e ating b a n k ' s B E S A limits.
However,
the amo un t of the
p a r t i c i p a t i o n jjs to be a p p lied to the BA limits a p p l i c a b l e to
the c o v ered bank r e c e i v i n g the pa r t i c i p a t i o n .
The l a n guage of the statute does not d e f i n e wha t
constitutes
such
a participation
for pur p o s e s
of
the
a p p l i c a b i l i t y of the B E S A li mi ta tions.
However, the st atute
does a u t h o r i z e the Fe deral Re s e r v e Bo ar d to furt he r d e fine any
of the terms us ed in s e c tion 207 of the B E S A (12 U.S.C.
§ 3 7 2 ( 7 ) (G)).
In addition, the l e g i s l a t i v e h i s t o r y of this
st at ut e in di cates that Co n g r e s s took no te of and e n c o u r a g e d a
th en o n g o i n g an a l y s i s by the F e d e r a l F i n a n c i a l I n s t i t u t i o n s
E x a m i n a t i o n Counc il ("Council") on p a r t i c i p a t i o n s in BAs and
r e q uired the C o uncil to report to the a p p r o p r i a t e c o n g r e s s i o n a l
commi tt ee s.
H. Rep. No. 97-924, 97t h Cong., 2nd Sess. 25
(1982).
In its report to C o n g r e s s of M a r c h 25, 1983, the
Counc il stat ed that it was not a d d r e s s i n g the m a t t e r of the
d e f i n i t i o n of a p a r t i c i p a t i o n in e l i gible BAs for p u r p o s e s of
d e t e r m i n i n g c o m p l i a n c e w i t h the B E S A limits b e c a u s e the st atute
s p e c i f i c a l l y g r a n t e d the B o ard the a u t h o r i t y to d e f i n e furt he r
any of the terms us ed in s e c t i o n 207.
The
Bo ar d
is p r o p o s i n g
for p u b l i c
c o m ment
a
c l a r i f i c a t i o n of the me a n i n g of p a r t i c i p a t i o n s in BAs for
p u r p o s e s of the B ESA limi ta ti on s.
The p r o p o s e d i n t e r p r e t a t i o n
d e s c r i b e s the m i n i m u m r e q u i r e m e n t s that such a p a r t i c i p a t i o n
wou ld h a v e to mee t if the e l i g i b l e BA (or p o r t i o n thereof) that
the p a r t i c i p a t i o n c o nveys is to be e x c l u d e d from the BA
l i m i t ations a p p l i c a b l e to the b a n k cre a t i n g the BA.
Commenters
m a y w ish to ad dress w h e t h e r the B o ard should impose a d d i t i o n a l
m i n i m u m r e q u i r e m e n t s upon such p a r t i c i p a t i o n s —
in a d d i t i o n to
c o m m e n t i n g on ot her a s p ects of the prop os al .
The impact of this p r o p o s a l on small e n t ities has b e e n
c o n s i d e r e d in a c c o r d a n c e w i t h se c t i o n 603 of the R e g u l a t o r y
F l e x i b i l i t y A ct (Pub. L. 96-354; 5 U.S.C. § 603).
The Bo ard's
p r o p o s a l wil l p r o v i d e small m e m b e r b a n k s that are c o v e r e d b y
the B E S A l i m i t a t i o n s w i t h i n c r e a s e d f l e x i b i l i t y w i t h reg ar d to
the usage of el i g i b l e BAs.
No n ew r e c o r d k e e p i n g or r e p o rting
r e q u i r e m e n t s will be impo se d as a result of this action.
Lis t of Su b j e c t s
Federal
in 12 C F R Part
250
R e s erve System.
P u r s u a n t to its a u t h o r i t y under the s e v e n t h p a r a g r a p h
of s e c t i o n 13 of the F e d eral R e serve Act (12 U.S.C. § 372), the
Boa rd
of
Governors
proposes
to
amend 12
CFR
Part 2 5 0 — M i s c e l l a n e o u s
I n t e r p r e t a t i o n s — b y ad ding
a
new
section 250. 16 5 to read as follows:
S E C T I O N 250. 16 5 —
BANKERS' A C C E P T A N C E S :
OF P A R T I C I P A T I O N S
DEFINITION
(a)(1)
S e c t i o n 207 of the Bank Ex port S e r vices Act
(Title II of Pub. L. 97-290) ("BESA") rais ed the limits on the
a g g r e g a t e a m o u n t of e l i g i b l e bankers' a c c e p t a n c e s ("BAs") that
m a y be c r e a t e d b y a m e m b e r b a n k from 50 per cent (or 100 per
cent w ith the p e r m i s s i o n of the Board) of its p a i d up and
u n i m p a i r e d capital stock and surpl us ("capital") to 150 pe r
cent (or 200 per cent wit h the p e r m i s s i o n of the Board) of its
capital.
S e c t i o n 207 a lso p r o h i b i t s a m e m b e r b a n k from
c r e a t i n g e l i g i b l e BAs for an y one p e r s o n in the a g g r e g a t e in
exce ss
of 10 p e r c e n t of the i n s t i t u t i o n ' s capital.
Eligible
BAs g r o w i n g out of d o m e s t i c t r a n s a c t i o n s are not to e x ceed 50
p e r c e n t of the a g g r e g a t e of all e l i g i b l e a c c e p t a n c e s a u t h o r i z e d
for a m e m b e r bank.
Thi s s e c t i o n of the B E S A a p p lies the same
limits
a p p l i c a b l e to m e mber b a n k s to U. S. b r a n c h e s
and
a g e ncies of
fo reign b a n k s
that are subj ec t
to reser ve
r e q u i r e m e n t s un der s e ction 7 of the I n t e r n a t i o n a l B a n k i n g Act
of 1978 (12 U.S.C. 3105).
(a)(2)
Th is s e c t i o n of the B E S A al so p r o v i d e s that
an y p o r t i o n of an e l i g i b l e BA c r e a t e d b y an i n s t i t u t i o n subj ec t
to the BA l i m i t a t i o n s c o n t a i n e d t h e r e i n (" covered bank") that
is c o n v e y e d t h r o u g h a p a r t i c i p a t i o n to a n o t h e r c o v e r e d ban k
shall not be i n c luded in the c a l c u l a t i o n of the c r e a t i n g b a n k ' s
limits.
The am ount of the p a r t i c i p a t i o n is subje ct to the BA
l i m i t a t i o n s a p p l i c a b l e to the c o v e r e d ba nk p u r c h a s i n g the
participation.
The langu a g e of the stat ut e do es not d e f i n e
wh at c o n s t i t u t e s suc h a p a r t i c i p a t i o n .
However, the s t a tute
do es a u t h o r i z e the B o ard to f u r ther d e f i n e an y of the terms
used in s e c t i o n 207.
Th e Bo ard
is c l a r i f y i n g the term
p a r t i c i p a t i o n for p u r p o s e s of the BA l i m i t a t i o n s of the BESA.
(b)
The l e g i s l a t i v e h i s t o r y of s e c tion 207 of the
BE SA i n d icates that C o n g r e s s i n t ended that the b a n k r e c eiving
the p a r t i c i p a t i o n ("junior ban k" ) be o b l i g a t e d to the c r e ating
ban k c o n v e y i n g the p a r t i c i p a t i o n ("senior bank") in the event
that the ac c o u n t p a r t y d e f a u l t s on its o b l i g a t i o n to pay, but
that the junior ba nk need not al so be o b l i g a t e d to p a y the
h o l d e r of the acce p t a n c e at the time the BA is p r e s e n t e d for
payme nt .
H. Rep. No. 97-629, 97th Cong., 2nd Sess. 15 (1982);
128 C o n g . Rec. H 4647 (daily e d . J u l y 27, 1982) (remarks b y
Rep. B a r n a r d ) ; and 128 C o n g . R e c . H 8462 (daily ed. O c t o b e r 1,
1982) (remarks b y Rep. Barnard).
The legi s l a t i v e h i s t o r y a lso
indi ca te s that C o n gress in te nded that eligi b l e BAs in w h i c h
p a r t i c i p a t i o n s ha d b e e n con v e y e d not be required to in di ca te
the name(s)
(or in terest(s)) of the junior bank(s) on the
a c c e p t a n c e in or de r for the BA to be exclu d e d from the B E S A
l imitations a p p l i c a b l e to the seni or bank.
128 C o n g . R e c . S
12237 (daily e d . September 24, 1982) (remarks of Senat o r s H e inz
and Garn); and 128 Cong. R e c . H 4647 (daily ed. J u l y 27, 1982)
(remarks of Rep. Barnard).
(c)(1)
In view of C o n g r e s s i o n a l intent wit h reg ar d to
what c o n s t i t u t e s a p a r t i c i p a t i o n in an e l i g i b l e BA, the Board
ha s d e t e r m i n e d that,
for p u r p o s e s of the BES A limits, a
participation
must
satisfy
the
fo ll owing
two
minimum
requirements:
1.
A w r i t t e n a g r e e m e n t en tered into
b e t w e e n the junior and senio r b a n k un de r
w h i c h the junior b a n k ac q u i r e s the senior
b a n k ’s c l a i m agai ns t the a c c ount p a r t y to
the
extent
of
the
amou nt
of
the
p a r t i c i p a t i o n that is e n f o r c e a b l e in the
event that the ac c o u n t p a r t y fails to
p e r f o r m in a c c o r d a n c e w i t h the terms of the
acc ep ta nc e.
The
agreement
between
the
s en io r ba nk and the ac c o u n t p a r t y must
indicate that the ri ghts that the senior
ban k
ac qu ires
under
the
agreement
are
a s s i g n a b l e b y the senior bank; and
2.
The a g r e e m e n t b e t w e e n the junior
and senior ba nk p r o v i d e s that the senior
ban k obtains a c l aim a g ainst the junior b a n k
to the ext en t of
the
amo un t
of
the
p a r t i c i p a t i o n that is e n f o r c e a b l e in the
event the ac count p a r t y fails to p e r f o r m in
a c c o r d a n c e w i t h the terms of the ac ce ptance.
(c)(2)
An eligi b l e BA that is c o n v e y e d t h r o u g h a
p a r t i c i p a t i o n that does not s a t i s f y these m i n i m u m r e q u i r e m e n t s
w o uld co n t i n u e to be in cl uded in the BA lim it s a p p l i c a b l e to
the senior bank.
Further, an e l i g i b l e BA co nveyed to a co vered
ban k t h rough a p a r t i c i p a t i o n that p r o v i d e d for a d d i t i o n a l
ri ghts and o b l i g a t i o n s am ong the p a r t i e s w o uld be exc l u d e d from
the B E S A l i m i t a t i o n s of the seni or ban k p r o v i d e d the m i n i m u m
re q u i r e m e n t s were satisfied.
(c)(3)
A p a r t i c i p a t i o n s t r u ctured p u r s u a n t to these
m i n i m u m r e q u i r e m e n t s w o uld be as follows:
U p o n the c o n v e y a n c e
of the partic i p a t i o n ,
the senior ban k retains its ent ir e
o b l i g a t i o n to p a y the h o l d e r of the BA at ma tu rity.
The senior
b a n k has a c l a i m against the junior ba nk to the exten t of the
am ount of the p a r t i c i p a t i o n that is e n f o r c e a b l e in the event
the account p a r t y fails to p e r f o r m in a c c o r d a n c e w i t h the terms
of the acceptance.
Similarly,
the
junior b a n k ha s a
c o r r e s p o n d i n g c l a i m a g a inst the a c c ount p a r t y to the exten t of
the amount of the p a r t i c i p a t i o n that is e n f o r c e a b l e in the
event the ac c o u n t p a r t y fails to p e r f o r m in a c c o r d a n c e w i t h the
terms of the accept an ce .
(d)
The Board s t r e s s e d that b o t h the junior b a nk's
c l aim on the a c c ount p a r t y and the senior b a nk's c l a i m on the
junior ban k involve risk.
Th er ef or e,
it is e s s ential that
these risks be a s s e s s e d b y the b a n k s in vo lv ed in a c c o r d a n c e
wit h h i g h credit standards.
The junior ban k sho ul d re view the
c r e d i t w o r t h i n e s s of ea ch ac c o u n t p a r t y on a c a s e - b y - c a s e b a s i s
b e f o r e it ac q u i r e s a p a r t i c i p a t i o n and the senior ba nk shoul d
revit i the c r e d i t w o r t h i n e s s of the junior bank.
The examiners
will
ensure
that
these
creditworthiness
revi ew s
are
a p p r o p r i a t e l y effected.
Similarly, the Bo ard h as d e t e r m i n e d
that it is a p p r o p r i a t e that the ac tual ass et s ac q u i r e d be
included for p u r p o s e s of a s s e s s i n g capi ta l a d e q u a c y and
d e t e r m i n i n g c o m p l i a n c e w i t h c a p ital gui de li ne s.
(e)
The
Board
believes
that
the se
minimum
r e q u i r e m e n t s r e f lect the n a ture of the r e l a t i o n s h i p s involved.
This t r e a t m e n t of p a r t i c i p a t i o n s in e l i gible BAs is a n a l ogous
to the tre a t m e n t of p a r t i c i p a t i o n s in the context of loans and
is c o n s i s t e n t w i t h safety and s o u n dness c o n s i d erations.
By order of the B o a r d of Go vernors,
Ju ne
20,
1983.
(signed) William W. Wiles
W i l l i a m W. W i l e s
S e c r e t a r y of the B o a r d
@FedFRASER