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F e d er a l R e se r ve Ba DALLAS, TEXAS n k o f D alla s 75222 C ir c u la r No. 75-137 September 11, 1975 American Revolution Bicentennial FOREIGN ACTIVITIES OF MEMBER BANKS AMENDMENTS TO REGULATION M REVISED INTERPRETATION OF REGULATION O TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e B oard of G o v e r n o r s of th e F e d e r a l R e s e r v e System h a s am e n d e d its R eg u latio n M, " F o re i g n A c tiv ities of National B a n k s , " r e g a r d i n g (a) e x t e n s i o n s of c r e d i t to e x e c u t i v e offic ers of fo r e ig n b r a n c h e s a n d (b) i n s u r a n c e a g e n c y an d b r o k e r a g e a c tiv itie s of fo r e ig n b r a n c h e s . In c o nn e ction with th is am e n d m e n t th e B oard h a s a ls o r e v i s e d a n i n t e r p r e t a t i o n c o n c e r n i n g loans to e x e c u t i v e o ffic ers of fo r e ig n b r a n c h e s . In su b m ittin g th e am e n d m e n ts an d r e v i s e d i n t e r p r e t a t i o n for p u b lic a tio n in th e FED ERAL REGISTER, th e Board of G o v e r n o r s m ade th e following statem ent: On M arch 27, 1975, a p ro p o s a l r e g a r d i n g a m e n d m e n ts to § 2 1 3 .3(b) was p u b l i s h e d in th e FEDERAL REGISTER (40 F . R . 13524) . I n t e r e s t e d p e r s o n s w e r e g i v e n until May 9, 1975, to su bm it w r i t t e n co m m en ts , s u g g e s t i o n s , or o b je c tio n s . T h e B o ard h as r e v ie w e d all com m ents r e c e i v e d a n d h as d e c i d e d to a d o p t th e following a m e n d m e n ts . T h e f i r s t am e n d m e n t c o n c e r n s th e am ount of c r e d i t w h ich a fo r e ig n b r a n c h of a m em b er b a n k may e x te n d to a n e x e c u t i v e officer of th e b r a n c h in o r d e r to fin a n c e th e a c q u i s i t i o n o r c o n s t r u c t io n of living q u a r t e r s to be u s e d a s h is r e s i d e n c e a b r o a d , p r o v i d e d e a c h s u c h c r e d i t e x t e n s i o n is p ro m p t l y r e p o r t e d to its home office. T h e o ri g i n a l a m e n d m e n t p r o p o s e d by th e B oard w ould h a v e in c r e a s e d th e loan limit to $100,000 a n d d i d not p r o v i d e for a n y c i r c u m s t a n c e s u n d e r w h ich t h a t limit could b e e x c e e d e d . Most comments r e c e i v e d from com m ercial b a n k s in r e s p o n s e to th e B o a r d 's p ro p o s a l p o in te d o ut t h a t in m any c o u n t r i e s th e $100,000 f i g u r e would be in a d e q u a t e . A l th o u g h th e sp ec ific d o l lar limit has th e a d v a n t a g e of u n ifo rm ity , th e B oard w a s c o n c e r n e d th at th e p u r p o s e of th e r e g u la t io n m igh t be f r u s t r a t e d by the w ide v a r i a t i o n s in h o u s in g co s ts from one c o u n t r y to t h e n e x t . T h e r e f o r e , in view of th e comments r e c e i v e d , th e B oard h a s a d o p te d a n a m e n d m e n t w h ic h p r o v i d e s m o re fle x ib ility to th e fo r e ig n b r a n c h e s in e x t e n d in g c r e d i t to t h e i r e x e c u t i v e o ff ic e rs . U n d e r the a m e n d m e n t th e p ro p o s e d $100,000 limit is r e t a i n e d , b u t it may be e x c e e d e d , w ith t h e p r i o r sp ec ific a p p r o v a l of th e p a r e n t b a n k ' s b o a r d of d i r e c t o r s , in o r d e r to c o m p e n sa te for th e d i s p a r i t y of h o u s i n g c o s ts am ong c o u n t r i e s . T h e p r o c e d u r e s co n ta in e d in the a m e n d m e n t a r e s im ila r to th o s e of Section 22(g) of th e F ed eral R e s e r v e A c t, 12 U . S . C . 3 7 5 ( a ) . This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - In c o n ne ctio n with th is a m e n d m e n t, the Board is r e v i s i n g P u b lis h e d I n t e r p r e t a ti o n S5620, 12 CFR 215.103 in o r d e r to (1) r e fle c t th e new am en dm en t to R egu lation M a n d (2) c o r r e c t the r e f e r e n c e s to Section 213.4(f) to re ad " 2 1 3 .3 (b ) T h e s e c o n d a m e n d m e n t to R eg ulatio n M allow s fo reig n b r a n c h e s of m em ber b a n k s to e n g a g e in i n s u r a n c e a g e n c y a n d b r o k e r a g e a c tiv itie s w h e r e s u c h a c tiv itie s a r e u s u al in c o n n e ctio n with th e t r a n s a c t i o n of the b u s i n e s s of b a n k ing in th e plac e w h e r e the fo r e ig n b r a n c h t r a n s a c t s its b u s i n e s s . T h e Board h a s r e c e i v e d s e v e r a l com m ents s u p p o r t i n g the p r o p o s e d a m e n d m e n t. No com m ents h a v e b e e n re c e i v e d o p p o s in g ad o p tio n of the a m e n d m e n t. T h e a m e n d m ent h as t h u s b e e n a d op te d w ith o ut a n y c h a n g e s . In c o n s i d e r a t i o n of th e com m ents r e c e i v e d a n d p u r s u a n t to Section 25 of the F ed eral R e s e r v e Act (76 S ta t. 388; 12 U . S . C . 604a), 12 CFR P a r t s 21 3 a n d 21 5 a r e am e n d e d a s s e t forth b elow . As th e s e a m e n d m e n ts a r e in te n d e d to re li e v e a r e s t r i c t i o n o r g r a n t a n ex e m p tio n , th e y sh all becom e effective im m ediately. T h e t e x t of th e p ro p o s e d a m e n d m e n ts to R egulation M was s e n t to you with o u r C i r c u l a r No. 75-47, d a te d A p ril 8, 1975. E n clo sed a r e c o p ie s of th e am e n d m e n ts a n d r e v i s e d i n t e r p r e t a t i o n . Any q u e s t i o n s r e g a r d i n g th e am e n d m e n ts to R eg u latio n M may be d i r e c t e d to th is B a n k 's R e g u latio n s D e p a r t m ent a n d th e r e v i s e d i n t e r p r e t a t i o n to th is B a n k 's Exam ination D e p artm en t. S in c e r e l y y o u r s , T . W. Plant F i r s t Vice P r e s i d e n t E n c l o s u r e s (2) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FOREIGN ACTIVITIES OF NATIONAL BANKS AMENDMENTS TO REGULATION Mf Effective August 25, 1975, Regulation M is amended by revising § 213.3(b) subparagraph (6), by substituting a semicolon for the period at the end of subparagraph (7), and by adding a new subparagraph (8). As amended § 213.3(b) reads as follows: SECTION 213.3 — FOREIGN BRANCHES * * * * * (b) Further powers of foreign branches. In addition to its other powers, a foreign branch may, subject to paragraph (c) of this section and § 213.6 and so far as usual in connection with the transaction of the business of banking in the places where it shall transact business: (6) Extend credit to an executive officer of the branch in an amount not to exceed $100,000 or its equivalent in order to finance the acquisition or construction of living quarters to be used as his residence abroad, provided each such credit ex tension is promptly reported to its home office; Provided, however, That, with the specific prior approval of the parent bank’s board of directors, such amount limitation may be exceeded when necessary to meet local housing costs. (7) Pay to any officer or employee of the branch a greater rate of interest on deposits than that paid to other depositors on similar deposits with the branch; (8) Act as insurance agent or broker. * * * * * t F o r this R egulation to be com plete as a m en d ed effective A ugust 25, 1975, re ta in : 1) P rin ted R egulation p a m p h le t c ontaining R egulation M da te d Ja n u a ry 7, 1971; 2 ) A m endm ents, effective M ay 22, 1975, to Section 2 1 3 .7 (a ) a n d 2 1 3 .7 (b ) ; and 3 ) T h is slip sheet. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM LOANS TO EXECUTIVE OFFICERS OF MEMBER BANKS INTERPRETATION OF REGULATION O Effective August 25, 1975, paragraphs (a) and (c) of Section 215.103 are amended to read as follows: SECTION 215.103— LOANS TO EXECU TIVE OFFICERS OF FOREIGN BRANCHES OF N A T IO N A L A N D S T A T E M E M B E R BANKS * * * * * (a) Section 22(g) of the Federal Reserve Act (12 U.S.C. 375a) provides, with certain excep tions, that “no executive officer of any member bank shall borrow from or otherwise become in debted to, any member bank of which he is an executive officer, and no member bank shall make any loan or extend credit in any other manner to any of its own executive officers * * Pur suant to the authority conferred by the ninth paragraph of section 25 of the Federal Reserve Act (12 U.S.C. 604a), which was added to that section by the Act of August 15, 1962 (Public Law 87-588), the Board of Governors in § 213.3(b) of this subchapter (Regulation M) has, subject to certain conditions, authorized foreign branches of national banks to make certain home loans to their executive officers. The question has arisen whether foreign branches of State member banks would violate section 22(g) by extending credit to their executive officers to the same extent and subject to the same conditions as foreign branches of national banks. A separate but related question is whether executive officers of foreign branches of national (and State member) banks may borrow from their respective branches as envisaged by § 213.3(b) of this subchapter. * * * * * (c) On the basis of the foregoing considerations, the Board of Governors is of the opinion that foreign branches of State member banks would not violate section 22(g) by extending credit to their executive officers subject to the same restric tions and conditions as apply to foreign branches of national banks under § 213.3(b) of this sub chapter. * * * « * * * *
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