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F ederal Reserve b a n k of Dallas

DALLAS, TEXAS

75222

C i r c u l a r No. 75-154
O c to b e r 15, 1975

American Revolution Bicentennial

INTERPRETATION OF REGULATIONS K AND Y
C o m p u tatio n of A m oun t I n v e s t e d in F o r e i g n C o r p o r a t i o n s

TO ALL BANKS, BANK HOLDING COMPANIES,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
On S e p t e m b e r 12, 1975, th e B o ard of G o v e r n o r s of t h e F e d e r a l R e s e r v e S y ste m
i s s u e d a n i n t e r p r e t a t i o n of its R e g u la tio n K, " C o r p o r a t i o n s E n g a g e d in F o r e i g n B a n k in g a n d
F i n a n c in g U n d e r th e F e d e r a l R e s e r v e A c t , " a n d R e g u la tio n Y, " B a n k Holding C o m p a n i e s , " r e ­
g a r d i n g c o m p u ta tio n of t h e a m o u n t i n v e s t e d in f o r e ig n c o r p o r a t i o n s u n d e r g e n e r a l c o n s e n t p r o ­
cedures.
In s u b m it tin g t h e i n t e r p r e t a t i o n fo r p u b li c a t i o n in th e FEDERAL REGISTER, th e B oard
m ade t h e follow ing sta te m e n t:
U n d e r s e c tio n 2 1 1 .8 ( a ) of R e g u la tio n K, t h e B o a rd of G o v e r n o r s g r a n t s its
g e n e r a l c o n s e n t fo r a c o r p o r a t i o n o r g a n i z e d u n d e r s e c ti o n 25(a) of t h e F e d e ra l
R e s e r v e A ct (an "E d g e A c t C o r p o r a tio n " ) to i n v e s t , d i r e c t l y o r i n d i r e c t l y , in th e
s h a r e s of f o r e i g n c o r p o r a t i o n s n o t d o in g b u s i n e s s in th e U n ited S ta te s ; b u t no i n ­
v e s t m e n t t h e r e u n d e r s h a ll c a u s e a n E d g e A ct C o r p o r a tio n to h a v e i n v e s t e d m o re
th a n $500,000 in t h e s h a r e s , o r to hold m o r e th a n 25 p e r c e n t o f th e v o tin g s h a r e s ,
of a n y f o r e i g n c o r p o r a t i o n . T h e B o ard of G o v e r n o r s h a s r u l e d t h a t in c o m p u tin g
t h e $500,000 lim itation u n d e r t h e s e g e n e r a l c o n s e n t p r o c e d u r e s , a n E dge A ct
C o r p o r a t i o n m u s t in c lu d e not o n ly a m o u n ts a c t u a l l y p a id in to t h e f o r e i g n c o r ­
p o r a t io n fo r its s h a r e s b u t a l s o u n p a i d a m o u n ts on th e s h a r e s of t h e c o r p o r a t i o n
fo r w h ic h t h e E d g e A ct C o r p o r a tio n will b e lia b le . If t h e total of s u c h a m o u n ts
e x c e e d s $500,000, t h e E dge A ct C o r p o r a t i o n m u st a p p l y fo r th e B o a r d 's s p e c if ic
c o n s e n t to m a k e s u c h in v e s t m e n t .
T h i s i n t e r p r e t a t i o n a ls o a p p l i e s to th e f o r e ig n i n v e s tm e n ts of d o m e s tic b a n k
h o ld in g c o m p a n ie s s i n c e , u n d e r R e g u la tio n Y , t h e c o n s e n t p r o c e d u r e s of R e g u ­
lation K a ls o g o v e r n s u c h in v e s t m e n t s .
P r i n t e d on t h e r e v e r s e of t h i s c i r c u l a r is a c o p y of t h e i n t e r p r e t a t i o n . I n q u i r i e s r e ­
g a r d i n g t h is m a tte r s h o u ld b e d i r e c t e d to o u r R e g u la ti o n s D e p a r tm e n t. A d d itio n a l c o p ie s of
t h i s i n t e r p r e t a t i o n will b e f u r n i s h e d u p o n r e q u e s t to th e S e c r e t a r y ' s Office of t h i s B a n k .

Sincerely y o u rs,
T. W. Plant
First Vice President

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

CORPORATIONS ENGAGED IN FOREIGN BANKING AND
FINANCING UNDER THE FEDERAL RESERVE ACT
BANK HOLDING COMPANIES
INTERPRETATION
OF REGULATIONS K AND Y
§211.111 C O M P U T A T I O N O F A M O U N T
§225.133 I N V E S T E D I N F O R E I G N C O R ­
P O R A T IO N S U N D E R G E N E R A L
CONSENT PROCEDURES
(a) Under section 211.8(a) of Regulation K,
the Board of Governors grants its general consent
for a corporation organized under section 25(a)
of the Federal Reserve Act (an “Edge Act Cor­
poration” ) to invest, directly or indirectly, in the
shares of foreign corporations not doing business
in the United States; but no investment thereunder
shall cause an Edge Act Corporation to have in­
vested more than $500,000 in the shares, or to
hold more than 25 percent of the voting shares, of
any foreign corporation. Under § 22 5 .4 (f)(2 ) of
Regulation Y, these general consent procedures
also govern the foreign investments of domestic
bank holding companies made pursuant to section
4 (c ) (13) of the Bank Holding Company Act of
1956, as amended.
(b) In computing the $500,000 limitation under
the general consent procedures, an Edge Act Cor­
poration or bank holding company must include
not only amounts actually paid in for the shares
of the foreign corporation but also any unpaid
amounts on the shares of the foreign corporation
for which the Edge Act Corporation or bank

9 /12/75

holding company will be liable. If the total of such
amounts exceeds $500,000, then the Edge Act
Corporation or bank holding company must apply
for the Board’s prior specific consent to make such
investment.
(c)
For example, an Edge Act Corporation
plans to acquire a 20-percent interest in a pro­
posed foreign corporation by subscribing to
60,000 shares with a par value of $10 per share.
Initially, the shares will be 50 percent paid in for
an initial investment of $300,000; under the
Articles of Association of the proposed corpora­
tion, the unpaid balance of $300,000 on the shares
may be called at any time at the discretion of the
corporation’s board of directors. It appears that
some Edge Act Corporations have in this situa­
tion only included in their computation the
$300,000 initially paid in to the foreign corpora­
tion, and would thus acquire the shares of the
foreign corporation under the general consent
procedures. The Board has determined that in this
situation the total amount invested for purposes
of the general consent procedures is $600,000, as
the Edge Act Corporation must include in the
computation its liability for the unpaid balance
on the shares. The proposed investment in this
situation would therefore require prior specific
Board consent.

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