Full text of District Notices (Federal Reserve Bank of Dallas) : Regulation K -- International Banking Operations, Circular No. 83-104

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federal

Reserve Ba nk

DALLAS, T E X A S

of

Dallas

75222

Circular No. 83-104
August 31, 1983
REGULATION K
INTERNATIONAL BANKING OPERATIONS
(Revised Pamphlet)
TO ALL MEMBER BANKS,
BANK HOLDING COMPANIES,
EDGE AND AGREEMENT CORPORATIONS,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve
System has issued a revised pamphlet incorporating all
amendments to Regulation K as of July 8, 1983.
Please insert the enclosed Regulation K pamphlet
in Volume 2 of your Regulations Binder and destroy the
pamphlet dated June 14, 1979 and the slip sheet dated March
1982.
Questions regarding Regulation K may be directed
to David W. Dixon of the Holding Company Supervision
D epartm ent, Extension 6182.
Additional copies of this circular will be fur­
nished upon request to the Public Affairs D epartment,
Extension 6289.
Sincerely yours,

William H. Wallace
First Vice President
Enclosure
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 following incoming W A TS 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. For Telex calls, please use 79-1688.

Board of Governors of the Federal Reserve System

Regulation K
International Banking Operations
12 CFR 211; as amended effective July 8, 1983

Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the
Federal Reserve District in which the inquiry arises.
August 1983

Contents

Page

Page
Subpart A—International Operations
of United States Banking
Organizations
Section 211.1—Authority, purpose, and
scope........................................................ 1
(a) A uthority........................................ 1
(b) Purpose and scope.......................... 1
Section 211.2—D efinitions........................ 1
Section 211.3—Foreign branches of
member b a n k s ........................................ 2
(a) Establishment of foreign branches . 2
(b) Further powers of foreign branches 2
(c) Other permissible activities. . . . . . . 3
(d) Reserves.......................................... 3
Section 211.4— Edge and agreement
corporations............................................ 3
(a) O rganization.................................. 3
(b) Nature and ownership of shares . . . 3
(c) Branches.......................................... 4
(d) Reserve requirements and interest
rate limitations................................ 4
(e) Permissible activities in the United
States .............................................. 4
( 0 Agreement corporations................ 6
Section 211.5—Investments in other
organizations.......................................... 6
(a) General policy................................ 6
(b) Investment limitations .................. 6
(c) Investment procedures.................. 7
(d) Listed activities.............................. 8
(e) Debts previously contracted.......... 8
Section 211.6—Lending limits and capital
requirements............................................ 9
(a) Acceptances of Edge corporations . 9
(b) Liabilities of one p e rso n ................ 9
(c) Loans to foreign b a n k s .................. 9
(d) Capitalization ................................ 9
Section 211.7—Supervision and reporting . 10
(a) Supervision...................................... 10
(b) Examinations.................................. 10
(c) Reports............................................ 10
(d) Filing procedures............................ 10
(e) Transition........................................ 10

Subpart B—Foreign Banking
Organizations
Section 211.21—Authority, purpose, and
scope........................................................ 11
(a) A uthority........................................ 11
(b) Purpose and scope.......................... 11
Section 211.22—Interstate banking
operations of foreign banking
organizations.......... ............................... 11
(a) Definitions...................................... 11
(b) Determination of home s t a t e ........ 11
(c) Change of home s ta te .................... 12
(d) Bank mergers.................................. 12
(e) Attribution of home s ta te .............. 12
Section 211.23—Nonbanking activities of
foreign banking organizations................ 13
(a) Definitions...................................... 13
(b) Qualifying foreign banking
organizations.................................. 13
(c) Determining assets, revenues and
net incom e...................................... 13
(d) Loss of eligibility for exemptions .. 14
(e) Specific determination of eligibility
for nonqualifying foreign banking
organizations.................................. 14
(f) Permissible activities and
investm ents.................................... 14
(g) Exemptions under section 4(c) (9)
of the Bank Holding Company Act 15
(h) Reports............................................ 15
Subpart C—Export Trading
Companies
Section 211.31—Authority, purpose and
scope........................................................ 16
(a) A uthority........................................ 16
(b) Purpose and scope.......................... 16
Section 211.32—Definitions...................... 16
(a) Export trading company................ 16
(b) Bank, company, and subsidiary . . . 16
Section 211.33—Investments and
extensions of credit ................................ 16
(a) Amount of investments.................. 16
(b) Extensions of credit........................ 16
Section 211.34— Procedures for filing and
processing notices .................................. 17

Contents
Page
(a) Filing notice.................................... 17
(b) Time period for Board action........ 17
Statutory Provisions
Federal Reserve Act
Section 2 5 ................................................ 19
Section 2 5 ( a ) .......................................... 21

Page
Bank Holding Company Act
Section 2 ( h ) ............................................28
Section 4 (c)(9 ), (13),and (14) .............28
Bank Export Services Act section 205 . . . . 31
International Banking Act
Section 3(a), (g), and(h) ..................... 31
Section 5 ..................................................32

Regulation K
International Banking Operations
12 C F R 211; as amended effective July 8, 1983

SUBPART A—INTERNATIONAL
OPERATIONS OF UNITED STATES
BANKING ORGANIZATIONS

SECTION 211.1—Authority, Purpose,
and Scope
(a) Authority. This part* is issued by the
Board of Governors of the Federal Reserve
System (“Board” ) under the authority of the
Federal Reserve Act (12 USC 221 et seq.)
(“FRA” ); the Bank Holding Company Act
of 1956 (12 USC 1841 et seq.) ( “BHCA” );
and the International Banking Act of 1978
(92 Stat. 607) (“IBA” ).
(b) Purpose and scope. This part is in further­
ance of the purposes of the FRA, the BHCA,
and the IBA. It applies to corporations orga­
nized under section 25(a) of the FRA (12
USC 611-631), “Edge Corporations”; to cor­
porations having an agreement or undertaking
with the Board under section 25 of the FRA
(12 USC 601-604(a)), “Agreement Corpora­
tions”; to member banks with respect to their
foreign branches and investments in foreign
banks under section 25 of the FRA (12 USC
601-604(a)); 1 and to bank holding compa­
nies with respect to the exemption from the
nonbanking prohibitions of the BHCA afford­
ed by section 4(c) (13) of the BHCA (12
USC 1843 (c) (13)).

SECTION 211.2—Definitions
For the purposes of this part:
(a) An “affiliate” of an organization means
any company of which the organization is a
direct or indirect subsidiary, any other direct
or indirect subsidiary of that company, and
* The words “this part,” as used herein, mean Regula­
tion K (C ode o f Federal Regulations, title 12, chapter II,
part 211).
1 Section 25 o f the FRA , which refers to national bank­
ing associations, also applies to state member banks of the
Federal Reserve System by virtue of section 9 o f the FR A
(12 USC 321).

any direct or indirect subsidiary of the
organization.
(b) “Capital and surplus” means paid-in and
unimpaired capital and surplus, and includes
undivided profits but does not include the pro­
ceeds of capital notes or debentures.
(c) “Directly or indirectly ” when used in ref­
erence to activities or investments of an orga­
nization means activities or investments of the
organization or of any subsidiary of the
organization.
(d) An Edge corporation is “engaged in
banking” if it is ordinarily engaged in the
business of accepting deposits in the United
States from nonaffiliated persons.
(e) “Engaged in business in the United
States” means maintaining and operating an
office (other than a representative office) or
subsidiary in the United States.
(f) “Foreign” or “foreign country” refers to
one or more foreign nations, and includes the
overseas territories, dependencies, and insular
possessions of those nations and of the United
States, and the Commonwealth of Puerto
Rico.
(g) “Foreign bank” means an organization
that: is organized under the laws of a foreign
country; engages in the business of banking; is
recognized as a bank by the bank supervisory
or monetary authority of the country of its
organization or principal banking operations;
receives deposits to a substantial extent in the
regular course of its business; and has the
power to accept demand deposits.
(h) “Foreign branch” means an office of an
institution which is located outside the coun­
try under the laws of which the institution is
organized, at which a banking or financing
business is conducted.
(i) “Investment” means the ownership or
control of shares, including binding commit­
ments to acquire shares, and other contribu­
tions to the capital accounts of an orga1

§ 211.2

nization, including the holding of an
organization’s subordinated debt when
shares of stock of the organization are also
held directly or indirectly by an investor.
(j) “Investor” means an Edge corporation,
agreement corporation, bank holding compa­
ny, or member bank.
(k) “Joint venture” is an organization 20 per­
cent or more of the voting stock of which is
held directly or indirectly by an investor or by
an affiliate of the investor but which is not a
subsidiary of the investor.
(/) “Listed activities” means the activities
specified in section 211.5(d).
(m) “Organization” means a corporation,
government, partnership, association, or any
other legal or commercial entity.
(n) “Person” means an individual or an
organization.
(o) “Portfolio investment” means an invest­
ment in an organization other than a subsidi­
ary or joint venture.
(p) “Subsidiary” means an organization
more than 50 percent of the voting stock of
which is held directly or indirectly by the in­
vestor, or which is otherwise controlled or ca­
pable of being controlled by the investor or an
affiliate of the investor.

SECTION 211.3—Foreign Branches of
Member Banks
(a) Establishment o f foreign branches. A
member bank may establish a foreign branch
with prior approval of the Board. Unless oth­
erwise advised by the Board: (1) a member
bank that has branches in two or more foreign
countries may establish initial branches in ad­
ditional foreign countries after 60 days’ notice
to the Board; and (2) without prior approval
or prior notice, a member bank may establish
additional branches in any foreign country in
which it operates one or more branches. Au­
thority to establish branches through prior ap­
proval or prior notice shall expire one year
from the earliest date on which it could have
been exercised, unless extended by the Board.
A member bank shall inform the Board with2

Regulation K
in 30 days of the opening, closing or reloca­
tion of a branch and the address of a new or
relocated foreign branch.
(b) Further powers o f foreign branches. In ad­
dition to its general banking powers, and to
the extent consistent with its charter, a foreign
branch of a member bank may engage in the
following activities so far as usual in connec­
tion with the business of banking in the coun­
try where it transacts business:
(1) guarantee customers’ debts or other­
wise agree for their benefit to make pay­
ments on the occurrence of readily ascer­
tainable events2 if the guarantee or
agreement specifies a maximum monetary
liability; but except to the extent that the
member bank is fully secured, it may not
have liabilities outstanding for any person
on account of such guarantees or agree­
ments which when aggregated with other
obligations of the same person exceed the
limit contained in section 5200 of the Re­
vised Statutes (12 USC 84);
(2) accept drafts or bills of exchange
drawn upon it; however, such acceptances
that are of the type described in paragraph
7 of section 13 of the FRA (12 USC 372)
shall be subject to the amount limitations
provided therein and such acceptances that
are of the type described in paragraph 12 of
section 13 of the FRA shall be subject to
the amount limitations provided therein;
(3) invest in (i) the securities of the cen­
tral bank, clearing houses, governmental
entities, and government-sponsored devel­
opment banks of the country in which the
foreign branch is located, (ii) other debt se­
curities eligible to meet local reserve or
similar requirements, and (iii) shares of
professional societies, schools, and the like
necessary to the business of the branch;
however, the branch’s total investments un­
der this provision (exclusive of securities
held as required by the law of that country
or as authorized under section 5136 of the
Revised Statutes (12 USC 24)) shall not
exceed 1 percent of its total deposits on the
2 "R eadily ascertainable events” include, but are not lim­
ited to events such as nonpaym ent o f taxes, rentals, cus­
toms duties, o r costs o f transport and loss or nonconfor­
mance o f shipping documents.

Regulation K
preceding year-end call report date (or on
the date of acquisition in the case of a newly
established branch that has not so
reported);
(4) underwrite, distribute, buy, and sell
obligations of the national government of
the country in which the branch is located,
obligations of an agency or instrumentality
of the national government, and obligations
of a municipality or other local or regional
governmental entity of the country; howev­
er, no member bank may hold, or be under
commitment with respect to, obligations of
the government or governmental entities of
a country as a result of underwriting, deal­
ing, or purchasing for the bank’s own ac­
count an aggregate amount exceeding 10
percent of the member bank’s capital and
surplus;
(5) take liens or other encumbrances on
foreign real estate in connection with its ex­
tensions of credit, whether or not of first
priority and whether or not the real estate is
improved or has been appraised, and with­
out regard to maturity or amount limita­
tions or amortization requirements of sec­
tion 24 of the FRA (12 USC 371);
(6) extend credit up to $100,000 or its
equivalent to an officer of the bank residing
in the country in which the foreign branch
is located to finance the acquisition or con­
struction of living quarters to be used as the
officer’s residence abroad, provided any
such credit extension is reported promptly
to the branch’s home office; however, when
necessary to meet local housing costs, such
amount may be exceeded with the specific
prior approval of the member bank’s board
of directors;
(7) act as insurance agent or broker;
(8) pay to an employee of the branch, as
part of an employee benefit program, a
greater rate of interest than that paid to
other depositors of the branch; and
(9) engage in repurchase arrangements in­
volving commodities and securities that are
the functional equivalent of extensions of
credit.
(c) Other permissible activities. A member
bank that is of the opinion that activities other
than those specified in this section are usual in

§211.4
connection with the transaction of the busi­
ness of banking in the places where its branch­
es transact business may apply to the Board
for permission to engage in such activities.
(d) Reserves. Reserves shall be maintained
against foreign branch deposits when required
by part 204 of this chapter (Regulation D).

SECTION 211.4— Edge and Agreement
Corporations
(a) Organization. (1) A proposed Edge cor­
poration shall become a body corporate
when the Board issues a preliminary permit
approving its proposed name, articles of as­
sociation, and organization certificate. The
name shall include “international,” “for­
eign,” “overseas,” or some similar word,
but may not resemble the name of another
organization to an extent that might mis­
lead or deceive the public. The factors that
will be considered by the Board in acting on
a proposal to organize an Edge corporation
include:
(i) the financial condition and history of
the applicant;
(ii) the general character of its
management;
(iii) the convenience and needs of the
community to be served with respect to
international banking and financing serv­
ices; and
(iv) the effects of the proposal on com­
petition. The Board will publish in the
Federal Register notice of any such pro­
posal and will give interested persons an
opportunity to express their views on the
proposal.
(2) After the Board issues a preliminary
permit, the Edge corporation may elect offi­
cers and otherwise complete its organiza­
tion, invest in obligations of the United
States government, and maintain deposits
with banks, but it may not exercise any oth­
er powers until the Board has issued a final
permit to commence business. No amend­
ment to the articles of association shall be­
come effective until approved by the Board.
(b) Nature and ownership o f shares. (1)
Shares of stock in an Edge corporation may
3

§211.4
not include no-par value shares and shall be
issued and transferred only on its books and
in compliance with section 25(a) of the
FRA. The share certificates of an Edge cor­
poration shall (i) name and describe each
class of shares indicating their character
and any unusual attributes such as pre­
ferred status or lack of voting rights and
(ii) conspicuously set forth the substance of
(A ) limitations upon the rights of owner­
ship and transfer of shares imposed by sec­
tion 25(a) of the FRA, and (B) rules that
the Edge corporation shall prescribe in its
bylaws to ensure compliance with this para­
graph. Any change in status of a sharehold­
er that causes a violation of section 25 (a) of
the FRA shall be reported to the Board as
soon as possible, and the Edge corporation
shall take such action as the Board may
direct.
(2) One or more foreign or domestic insti­
tutions referred to in section 3(f) of the
IBA may apply for the Board’s prior ap­
proval to acquire a majority of the shares of
the capital stock of an Edge corporation. In
acting on an application by a foreign insti­
tution that is not subject to the IBA or the
BHCA, the Board will impose any condi­
tions that are necessary to prevent undue
concentration of resources, decreased or
unfair competition, conflicts of interest, or
unsound banking practices in the United
States. The aggregate amount invested in
Edge corporations by a foreign institution
shall not exceed 10 percent of the foreign
institution’s capital and surplus.
(c) Branches. (1) An Edge corporation may
establish branches in the United States 45
days after the Edge corporation has given
notice to its Reserve Bank, which is to in­
clude a copy of the notice of the proposal
published in a newspaper of general circula­
tion in the communities to be served by the
branch, unless the Edge corporation is noti­
fied to the contrary within that time. The
newspaper notice shall be placed in the clas­
sified advertising legal notices section of the
newspaper and may appear no more than
90 calendar days prior to submission of no­
tice of the proposal to the Reserve Bank.
The newspaper notice must provide an op­

Regulation K
portunity for the public to give written
comment on the proposal to the appropri­
ate Federal Reserve Bank for at least 30
days after the date of publication. The fac­
tors considered in acting upon a proposal to
establish a branch are those enumerated in
section 211.4(a)(1).
(2) An Edge corporation may establish
branches abroad in accordance with the
procedures in section 211.3(a).
(d) Reserve requirements and interest rate
limitations. The deposits of an Edge corpora­
tion are subject to parts 204 and 217 of this
chapter (Regulations D and Q) in the same
manner and to the same extent as if the Edge
corporation were a member bank.
(e) Permissible activities in the United States.
An Edge corporation may engage in activities
in the United States that are permitted by the
sixth paragraph of section 25(a) of the FRA
and in such other activities as the Board
determines are incidental to international or
foreign business. The following activities
will ordinarily be considered incidental to
an Edge corporation’s international or foreign
business:
(1) Deposits from foreign governments
and persons. An Edge corporation may re­
ceive in the United States demand, savings,
and time deposits (including negotiable cer­
tificates of deposits) from foreign govern­
ments and their agencies and instrumentali­
ties, persons conducting business principal­
ly at their offices or establishments abroad,
and individuals residing abroad.
(2) Deposits from other persons. An Edge
corporation may receive in the United
States demand, savings, and time deposits
(including negotiable certificates of depos­
it) if such deposits:
(i) are to be transmitted abroad;
(ii) consist of collateral or funds to be
used for payment of obligations to the
Edge corporation;
(iii) consist of the proceeds of collec­
tions abroad that are to be used to pay
for exported or imported goods or for
other costs of exporting or importing or
that are to be periodically transferred to
the depositor’s account at another finan­
cial institution;

Regulation K
(iv) consist of the proceeds of extensions
of credit by the Edge corporation; or
(v) represent compensation to the Edge
corporation for extensions of credit or
services to the customer.
(3) Use of funds in the United States.
Funds of an Edge corporation not currently
employed in its international or foreign
business, if held or invested in the United
States, shall be in the form of cash, deposits
with banks, and money market instruments
such as bankers’ acceptances, obligations of
or fully guaranteed by federal, state, and lo­
cal governments and their instrumentalities,
repurchase agreements, federal funds sold,
and commercial paper.
(4) General activities. Subject to the limi­
tations of section 25(a) of the FRA and
section 211.6 of this part, an Edge corpora­
tion may engage in the following activities
to the extent consistent with sound banking
practices:
(i) issue obligations to domestic offices
of other banks (including purchases of
federal funds) or to the United States or
any of its agencies;
(ii) incur indebtedness from a transfer
of direct obligations of, or obligations
that are fully guaranteed as to principal
and interest by, the United States or any
agency thereof that the Edge corporation
is obligated to repurchase;
(iii) issue long-term subordinated debt
that does not qualify as a “deposit” un­
der part 204 of this chapter (Regulation
D);
(iv) finance the following: (A ) con­
tracts, projects, or activities performed
substantially abroad; (B) the importa­
tion into or exportation from the United
States of goods, whether direct or
through brokers or other intermediaries;
(C) the domestic shipment or temporary
storage of goods being imported or ex­
ported (or accumulated for export); and
(D ) the assembly or repackaging of
goods imported or to be exported;
(v) finance the costs of production of
goods and services for which export or­
ders have been received or which are
identifiable as being directly for export;
(vi) assume or acquire participations in

§211.4
extensions of credit, or acquire obliga­
tions arising from transactions the Edge
corporation could have financed;
(vii) guarantee a customer’s debts or
otherwise agree for the customer’s benefit
to make payments on the occurrence of
readily ascertainable events,3 if the guar­
antee or agreement specifies the maxi­
mum monetary liability thereunder and
is related to a type of transaction de­
scribed in paragraphs (4)(iv) and (4)
(v) of this section;
(viii) receive checks, bills, drafts, ac­
ceptances, notes, bonds, coupons, and
other securities for collection abroad, and
collect such instruments in the United
States for a customer abroad;
(ix) hold securities in safekeeping for, or
buy and sell securities upon the order and
for the account and risk of a person;
(x) act as paying agent for securities is­
sued by foreign governments or other en­
tities organized under foreign law;
(xi) act as trustee, registrar, conversion
agent, or paying agent with respect to
any class of securities issued to finance
foreign activities and distributed solely
outside the United States;
(xii) make private placements of partici­
pations in its investments and extensions
of credit; however, except to the extent
permissible for member banks under sec­
tion 5136 of the Revised Statutes (12
USC 24), no Edge corporation may oth­
erwise engage in the business of selling
or distributing securities in the United
States;
(xiii) buy and sell spot and forward for­
eign exchange;
(xiv) act as investment or financial ad­
viser by providing portfolio investment
advice and portfolio management with
respect to securities, other financial in­
struments, real property interests and
other investment assets,3a provided such

3 “ Readily ascertainable events” include, but are not lim­
ited to, events such as nonpayment of taxes, rentals, cus­
toms duties, or costs of transport and loss or nonconfor­
mance of shipping documents.
3a F or purposes of this section, management of an invest­
ment portfolio does not include operational management of
real property, industrial and commercial assets.

5

§211.4
services for U.S. persons shall be with re­
spect to foreign assets only; and
(xv) provide general economic informa­
tion and advice, general economic statis­
tical forecasting services and industry
studies, provided such services for U.S.
persons shall be with respect to foreign
economies and industries only.
(5) Other permissible activities. An Edge
corporation that is of the opinion that other
activities in the United States would be inci­
dental to its international or foreign busi­
ness may apply to the board for such a
determination.
(f) Agreement corporations. With the prior
approval of the Board, a member bank or
bank holding company may invest in a feder­
ally or state-chartered corporation that has
entered into an agreement or undertaking
with the Board that it will not exercise any
power that is impermissible for an Edge cor­
poration under this part.

SECTION 211.5— Investments in Other
Organizations
(a) General policy. Activities of investors
abroad, whether conducted directly or indi­
rectly, shall be confined to those of a banking
or financial nature and those that are neces­
sary to carry on such activities. In doing so,
investors shall at all times act in accordance
with high standards of banking or financial
prudence, having due regard for diversifica­
tion of risks, suitable liquidity, and adequacy
of capital. Subject to these considerations and
the other provisions of this section, it is the
Board’s policy to allow activities abroad to be
organized and operated as best meets corpo­
rate policies.
(b) Investment limitations. (1) An investor,
in accordance with the investment proce­
dures described in paragraph (c) of this
section, may directly or indirectly:
(i) invest in a subsidiary that engages
solely in listed activities or in such other
activities as the Board has determind in
the circumstances of a particular case are
permissible;
6

Regulation K
(ii) invest in a joint venture provided
that, unless otherwise permitted by the
Board not more than 10 percent of the
joint venture’s consolidated assets or rev­
enues shall be attributable to activities
that would not be permissible for a
subsidiary;
(iii) make portfolio investments (includ­
ing securities held in trading or dealing
accounts) in an organization if the total
direct and indirect portfolio investments
in organizations engaged in activities that
are not permissible for joint ventures
does not at any time exceed 100 percent
of the investor’s capital and surplus.4
(2) A member bank’s direct investments
under section 25 of the FRA shall be limit­
ed to foreign banks and to foreign organiza­
tions formed for the sole purpose of either
holding shares of a foreign bank or per­
forming nominee, fiduciary, or other bank­
ing services incidental to the activities of a
foreign branch or foreign bank affiliate of
the member bank.
(3) A subsidiary (other than a member
bank or an Edge corporation) may estab­
lish a foreign branch with prior approval of
the Board. Unless otherwise advised by the
Board: (i) a subsidiary (other than a mem­
ber bank or an Edge corporation) whose
affiliates have offices (other than represent­
ative offices) in two or more foreign coun­
tries may establish initial branches in addi­
tional foreign countries after 60 days’ notice
to the Board; (ii) a foreign bank subsidiary
may, without prior approval or prior no­
tice, establish additional branches in any
country in which it operates one or more
offices (other than representative offices);
and (iii) without prior approval or prior
notice, any subsidiary (other than a foreign
bank, member bank, or Edge corporation)
may establish additional branches in any
foreign country in which any affiliate oper­
ates one or more offices (other than repre­
sentative offices). Authority to establish
branches through prior approval or prior
notice shall expire one year from the earli­
est date on which that authority could have
4 F o r this purpose, a direct subsidiary o f a member bank
is deemed to be an investor.

Regulation K
been exercised, unless extended by the
Board. An investor shall inform the Board
within 30 days of the opening, closing, or
relocation of a branch and the address of a
new or relocated foreign branch.
(4) In computing the amount that may be
invested in any organization under this sec­
tion there shall be included any unpaid
amount for which the investor is liable and
any investments by affiliates.
(5) An investor shall dispose of an invest­
ment promptly (unless the Board autho­
rizes retention) if:
(i) the organization invested in (A ) en­
gages in the business of underwriting,
selling or distributing securities in the
United States; (B) engages in the general
business of buying or selling goods,
wares, merchandise, or commodities in
the United States; or (C) transacts busi­
ness in the United States that is not inci­
dental to its international or foreign
business;
(ii) in the case of a subsidiary, it engages
in an activity other than that which the
Board has determined to be permissible;
or in the case of joint venture, it engages
in an impermissible activity beyond that
described in paragraph (b) (1) (ii) of this
section; or
(iii) after notice and opportunity for
hearing, the investor is advised by the
Board that its investment is inappropri­
ate under the FRA, the BHCA, or this
part.
(c) Investment procedures. 5 Direct and indi­
rect investments shall be made in accordance
with the general consent, notice, or specific
consent procedures contained in this section.
The Board may at any time, upon notice, sus­
pend the general consent and notification pro­
cedures with respect to any investor or with
respect to the acquisition of shares of compa­
nies engaged in particular kinds of activities.
An investor must receive prior specific con-

§211.5
sent of the Board for investment in its first
subsidiary, its first joint venture, and its first
portfolio investment unless an affiliate has
made such investments. Authority to make in­
vestments under prior notice or prior consent
shall expire one year from the earliest date on
which it could have been exercised unless ex­
tended by the Board.
(1)
General consent. The Board grants its
general consent for the following:
(i) any investment in a joint venture or
subsidiary, and any portfolio investment,
if: (A ) the organization is not engaged in
business in the United States; and (B)
the total amount invested does not ex­
ceed the lesser of (1) $2 million or (2) 5
percent of the investor’s capital and sur­
plus in the case of a member bank, bank
holding company, or Edge corporation
engaged in banking, or 25 percent of the
investor’s capital and surplus in the case
of an Edge corporation not engaged in
banking;
(ii) any additional investment in an or­
ganization in any calendar year so long
as (A) the investment does not cause the
organization to be a direct or indirect
subsidiary or joint venture of the inves­
tor; (B) the total amount invested in that
calendar year does not exceed 10 percent
of investor’s capital and surplus; and,
(C) the total amount invested under part
211 in the current calendar year does not
exceed cash dividends reinvested pursu­
ant to paragraph (iii) below plus the
greater of (1) 10 percent of the investor’s
direct and indirect historical co st6 in
such organization, or (2) 50 percent of
the investor’s direct and indirect histori­
cal cost in that organization less any
amounts invested in that organization
during the previous four calendar years

6 The “historical cost” of an investment consists o f the
actual am ounts paid for shares or otherwise contributed to
the capital accounts, as measured in dollars at the exchange
rate in effect at the time each investment was made. It does
not include subordinated debt or unpaid commitments to
invest even though these may be considered investments for
other purposes of this part. For investments acquired indi­
5
W hen necessary, the general consent and prior notifica­ rectly as a result of acquiring a subsidiary, the historical
cost to the investor is measured as of the date o f acquisition
tion provisions o f this section constitute the Board’s ap­
of the subsidiary; at the net asset value o f the equity interest
proval under the eighth paragraph of section 2 5 (a) o f the
in the case of subsidiaries and joint ventures, and in the
FR A for investments in excess o f the limitations therein
case o f portfolio investments, at the book carrying value.
based on capital and surplus.

7

§211.5
(excluding dividends reinvested pursuant
to paragraph (iii) below); or
(iii) any additional investment in an or­
ganization in an amount equal to cash
dividends received from that organiza­
tion during the preceding 12 calendar
months so long as such investment does
not cause the organization to be a direct
or indirect subsidiary or joint venture of
the investor; or
(iv) any investment that is acquired
from an affiliate at net asset value.
(2) Prior notification. An investment in a
subsidiary or joint venture that does not
qualify under the general consent procedure
may be made after the investor has given 45
days’ prior written notice to the Board un­
less the Board waives such period because it
finds immediate action is required by the
circumstances presented, if the total
amount to be invested does not exceed 10
percent of the investor’s capital and sur­
plus. The notification period shall com­
mence at the time the notice is accepted.
The Board may, during the notification pe­
riod, disapprove the investment, suspend
the period, or require that an application be
filed by the investor for the Board’s specific
consent.
(3) Specific consent. Any investment that
does not qualify for either the general-consent or the prior-notification procedure
shall not be consummated without the spe­
cific consent of the Board.
(d) Listed activities. The Board has deter­
mined that the following activities are usual in
connection with the transaction of banking or
other financial operations abroad:
(1) commercial banking;
(2) financing, including commercial fi­
nancing, consumer financing, mortgage
banking, and factoring;
(3) leasing real or personal property if the
lease serves as the functional equivalent of
an extension of credit to the lessee of the
property;
(4) acting as fiduciary;
(5) underwriting credit life insurance and
credit accident and health insurance related
to extensions of credit by the investor or its
affiliates;
8

Regulation K
(6) performing services for other direct or
indirect operations of a United States bank­
ing organization, including representative
functions, sale of long term debt, name sav­
ing, and holding assets acquired to prevent
loss on a debt previously contracted in good
faith;
(7) holding the premises of a branch of an
Edge corporation or member bank or the
premises of a direct or indirect subsidiary;
(8) providing investment, financial or eco­
nomic advisory services;
(9) general insurance brokerage;
(10) data processing;
(11) managing a mutual fund if the fund’s
shares are not sold or distributed in the
United States or to United States residents
and the fund does not exercise managerial
control over the firms in which it invests;
(12) performing management consulting
services provided that such services when
rendered with respect to the United States
market shall be restricted to the initial
entry;
(13) underwriting, distributing, and deal­
ing in debt and equity securities outside the
United States, provided that no underwrit­
ing commitment by a subsidiary of an in­
vestor for shares of an issuer may exceed $2
million or represent 20 percent of the capi­
tal and surplus or voting stock of an issuer
unless the underwriter is covered by bind­
ing commitments from subunderwriters or
other purchasers;
(14) engaging in other activities that the
Board has determined by regulation or or­
der are closely related to banking under sec­
tion 4 (c)(8 ) of the BHCA.
An investor that is of the opinion that other
activities are usual in connection with the
transaction of the business of banking or other
financial operations abroad and are consistent
with the FRA or the BHCA may apply to the
Board for such a determination.
(e) Debts previously contracted. Shares of
stock or other evidences of ownership ac­
quired to prevent a loss upon a debt previous­
ly contracted in good faith shall not be subject
to the limitations or procedures of this sec­
tion; however, the shares or evidences of own­
ership shall be disposed of promptly, but in no

Regulation K
event later than two years after their acquisi­
tion unless the Board authorizes retention for
a longer period.

SECTION 211.6— Lending Limits and
Capital Requirements
(a) Acceptances o f Edge corporations. An
Edge corporation shall be and remain fully se­
cured for (i) all acceptances outstanding in
excess of twice its capital and surplus; and (ii)
all acceptances outstanding for any one per­
son in excess of 10 percent of its capital and
surplus. These limitations shall not apply (i)
if the excess represents the international ship­
ment of goods and the Edge corporation is
fully covered by primary obligations to reim­
burse it that are also guaranteed by banks or
bankers, or (ii) if the Edge corporation is cov­
ered by participation agreements from other
banks.
(b) Liabilities o f one person. (1) Except as
the Board may otherwise specify:
(i) the liabilities of any person to an
Edge corporation engaged in banking
and to its direct or indirect subsidiaries
shall not exceed 10 percent of the Edge
corporation’s capital and surplus;
(ii) the total liabilities of any person to a
majority-owned foreign bank or Edge
corporation subsidiary of a member
bank, and to majority-owned subsidiaries
of such foreign bank or Edge corporation
when combined with liabilities of the
same person to the member bank and its
majority-owned subsidiaries, shall not ex­
ceed the member bank’s limitation on
loans to one person.
(2) “Liabilities” includes: ineligible ac­
ceptances outstanding; obligations for mon­
ey borrowed; investments in another orga­
nization (valued at original cost) except
where that organization is a direct or indi­
rect subsidiary; unsecured obligations re­
sulting from the issuance of guarantees or
similar agreements; underwiting commit­
ments to an issuer of securities; in the case
of a partnership or firm, obligations of its
members, in the case of a corporation, obli­
gations incurred for its benefit by other cor­

§ 211.6

porations that it controls; and in the case of
a foreign government, the liabilities of its
departments or agencies deriving their cur­
rent funds principally from general tax
revenues.
(3) The limitations of this paragraph do
not apply to:
(i) deposits of banks and federal funds
purchased;
(ii) bills or drafts drawn in good faith
against actual goods and on which two or
more parties are liable;
(iii) any acceptance that has not ma­
tured and is not held by the acceptor;
(iv) obligations to the extent secured by
cash collateral; or
(v) obligations to the extent supported
by the full faith and credit of the follow­
ing: (A) the United States or any of its
departments, agencies, establishments, or
wholly owned corporations (including
obligations to the extent insured against
foreign political and credit risks by the
Export-Import Bank of the United States
or the Foreign Credit Insurance As­
sociation), the International Bank for
Reconstruction and Development, the
International Finance Corporation, the
International Development Association,
the Inter-American Development Bank,
or the Asian Development Bank; (B)
any organization if at least 25 percent of
such an obligation or of the total credit is
also supported by the full faith and credit
of, or participated in by any institution
designated in paragraph (b) (3) (v) (A)
of this section in such manner that de­
fault to the lender will necessarily include
default to that entity. The total liabilities
of such person shall at no time exceed
100 percent of the capital and surplus
of the lender or the parent Edge
corporation.
(c) Loans to foreign banks. A member bank
that holds directly or indirectly shares in a
foreign bank may make loans to that foreign
bank without regard to section 23A of the
FRA.
(d) Capitalization. An Edge corporation
shall at all times be capitalized in an amount
9

§ 211.6

that is adequate in relation to the scope and
character of its activities. In the case of an
Edge corporation engaged in banking, its cap­
ital and surplus shall be not less than 7 per­
cent of risk assets. For this purpose, subordi­
nated capital notes or debentures, in an
amount not to exceed 50 percent of non-debt
capital, may be included for determining capi­
tal adequacy in the same manner as for a
member bank; risk assets shall be deemed to
be all assets on a consolidated basis other than
cash, amounts due from banking institutions
in the United States, United States govern­
ment securities, and federal funds sold.

SECTION 211.7—Supervision and
Reporting
(a) Supervision. (1) Investors shall supervise
and administer their foreign branches and
subsidiaries in such a manner as to ensure
that their operations conform to high stan­
dards of banking and financial prudence.
Effective systems of records, controls, and
reports shall be maintained to keep man­
agement informed of their activities and
condition. Such systems should provide, in
particular, information on risk assets, li­
quidity management, and operations of
controls and conformance to management
policies. Reports on risk assets should be
sufficient to permit an appraisal of credit
quality and assessment of exposure to loss,
and for this purpose provide full informa­
tion on the condition of material borrowers.
Reports on the operations of controls
should include the internal and external au­
dits of the branch or subsidiary.
(2) Investors shall maintain sufficient in­
formation with respect to joint ventures to
keep informed of their activities and condi­
tion. Such information shall include audits
and other reports on financial performance,
risk exposure, management policies, and
operations of controls. Complete informa­
tion shall be maintained on all transactions
with the joint venture by the investor and
its affiliates.
(3) The reports and information specified
in paragraphs (1) and (2) shall be made
10

Regulation K
available to examiners of the appropriate
bank supervisory agencies.
(b) Examinations. Examiners appointed by
the Board shall examine each Edge corpora­
tion once a year. An Edge corporation shall
make available to examiners sufficient infor­
mation to assess its condition and operations
and the condition and activities of any organi­
zation whose shares it holds.
(c) Reports. (1) Each Edge corporation
shall make at least two reports of condition
annually to the Board at such times and in
such form as the Board may prescribe. The
Board may require that statements of con­
dition or other reports be published or
made available for public inspection.
(2) Edge corporations, member banks, and
bank holding companies shall file such re­
ports on their foreign operations as the
Board may require.
(3) A member bank, Edge corporation or
a bank holding company shall report within
30 days any acquisition or disposition of
shares in a manner prescribed by the Board.
(d) Filing procedures. Unless otherwise di­
rected by the Board, applications, notifica­
tions, and reports required by this part shall
be filed with the Federal Reserve Bank of the
district in which the parent bank or bank
holding company is located, or if none, the
Federal Reserve Bank of the district in which
the applying or reporting institution is locat­
ed. Instructions and forms for such applica­
tions, notifications and reports are available
from the Federal Reserve Bank.
(e) Transition. (1) Transactions that have
been consummated or activities engaged in
pursuant to the Board’s general or specific
consent prior to June 8, 1979, may be re­
tained or continued. Conditions imposed or
undertakings in connection with such in­
vestments that are inconsistent with this
part shall be superseded by this part.
(2) Extensions of credit in excess of the
limitations of section 211.6(b) that were
outstanding on June 8, 1979, may remain
outstanding until the date of maturity.
(3) Edge corporations whose accounts or
investments do not conform to sections
211.6(d) or 211.5(b) of this part on June

Regulation K
14, 1979, shall conform such accounts and
investments by June 14, 1981.

SUBPART B—FOREIGN BANKING
ORGANIZATIONS

SECTION 211.21—Authority, Purpose,
and Scope
(a) Authority. This subpart is issued by the
Board of Governors of the Federal Reserve
System (“Board” ) under the authority of the
Bank Holding Company Act of 1956 (12
USC 1841 et seq.) (“BHCA” ); and the Inter­
national Banking Act of 1978 (92 Stat. 607)
( “IBA”).
(b) Purpose and Scope. This subpart is in fur­
therance of the purposes of the BHCA and
the IBA. It applies to foreign banks and for­
eign banking organizations with respect to the
limitations on interstate banking under sec­
tion 5 of the IBA (12 USC 3103); and to for­
eign banks and foreign bank holding compa­
nies with respect to the exemptions from the
nonbanking prohibitions of the BHCA and
the IBA afforded by sections 2(h) and
4 (c)(9 ) of the BHCA (12 USC 1841(h) and
1843(c)(9)).

SECTION 211.22— Interstate Banking
Operations of Foreign Banking
Organizations
(a) Definitions. The definitions of section
211.2 in subpart A apply to this section sub­
ject to the following:
(1) “Agency” means any office or any
place of business of a foreign bank located
in any state of the United States or the Dis­
trict of Columbia at which credit balances
are maintained, checks are paid, or money
is lent, but at which deposits may not be
accepted from a citizen or resident of the
United States. Obligations shall not be con­
sidered credit balances unless they:
(i) are incidental to, or arise out of the
exercise of other lawful banking powers;

§ 211.22

(ii) are to serve a specific purpose; (iii)
are not solicited from the general public;
(iv) are not used to pay routine operat­
ing expenses in the United States such as
salaries, rent, or taxes; (v) are with­
drawn within a reasonable period of time
after the specific purpose for which they
were placed has been accomplished; and
(vi) are drawn upon in a manner reason­
able in relation to the size and nature of
the account.
(2) “Banking subsidiary, ” with respect to
a specified foreign bank, means a bank that
is a subsidiary as the terms “bank” and
“subsidiary” are defined in section 2 of the
BHCA (12 USC 1841).
( 3 ) “Commercial lending company ” means
any organization, other than a bank or an
organization operating under section 25 of
the FRA, organized under the laws of any
state of the United States or the District of
Columbia, that maintains credit balances as
may be maintained by an agency and en­
gages in the business of making commercial
loans.
(4) “Domestic branch ” means any office or
any place of business of a foreign bank lo­
cated in any state of the United States or
the District of Columbia that may accept
domestic deposits and deposits that are in­
cidental to or for the purpose of carrying
out transactions in foreign countries.
(5) “Foreign Bank, ” for purposes of this
section, is an organization that is organized
under the laws of a foreign country and that
engages in the business of banking.
(b) Determination o f home state.
(1) A foreign bank selecting its home state
shall do so by filing with the Board a decla­
ration of home state within 180 days of the
effective date of this subpart. In the absence
of such selection, the Board shall designate
a foreign bank’s home state. Within one
year after the home state of a foreign bank
has been determined, unless the Board au­
thorizes a longer period:
(i) the foreign bank shall close domestic
branches whose activities are not permis­
sible under section 5(b) of the IBA, con­
vert such domestic branches to agencies,
or enter into an agreement with the
11

§ 211.22

Board regarding the deposits of such
branches as prescribed in section 5(a) of
the IBA; and
(ii) the foreign bank shall divest voting
shares of interests in, or assets of banks
that are not permissible under section
5(b) of the IBA.
(2) A foreign bank that currently does not
operate a domestic branch or banking sub­
sidiary shall not be required to select a
home state and shall not have its home state
designated by the Board.
(3) A foreign bank (except a foreign bank
to which paragraph (b)(5 ) of this section
applies) that has any combination of do­
mestic branches, banking subsidiaries,
agencies, or commercial lending company
subsidiaries that, before July 27, 1978, were
established or applied for in more than one
state may select its home state only from
those states in which the foreign bank has
continuously operated such offices.
(4) A foreign bank that established or ap­
plied for one domestic branch or one bank­
ing subsidiary before July 27, 1978, and
that was not otherwise engaged in banking
in the United States on that date, shall have
as its home state the state in which such
domestic branch or banking subsidiary is
located.
(5) A foreign bank that before July 27,
1978, had no domestic branches or banking
subsidiaries or had only agencies or com­
mercial lending companies, and, after that
date, has established or establishes any do­
mestic branch or banking subsidiary shall
have as its home state that state in which its
initial domestic branch or banking subsidi­
ary is located.
(c) Change o f home state. A foreign bank
may change its home state once if:
(1) 30 days’ prior notification of the pro­
posed change is filed with the Board; and
(2) domestic branches established and in­
vestments in banks required in reliance on
its original home state selection are con­
formed to those that would have been per­
missible had the new home state been se­
lected as its home state originally.
(d) Bank mergers. (1) A foreign bank with
one or more banking subsidiaries that se­
12

Regulation K
lects as its home state a state other than
that in which a banking subsidiary is locat­
ed, and that proposes to acquire through its
subsidiary bank all or substantially all of
the assets of a bank larger than its subsidi­
ary bank (in terms of deposits) located out­
side the foreign bank’s home state shall give
60 days’ notification to the Board prior to
consummation of the proposed transaction.
(2) If, after receiving the notification, the
Board makes a preliminary determination
within that period that the proposed acqui­
sition would be inconsistent with the for­
eign bank’s home state selection, the foreign
bank shall:
(i) redesignate as its home state the state
in which its subsidiary bank is located; or
(ii) show cause why in the facts and cir­
cumstances of its case its home state
should not be redesignated (the foreign
bank’s submission may include a request
for a hearing).
(3) On the basis of information available,
the Board shall:
(i) direct that the foreign bank redesig­
nate as its home state the state in which
its subsidiary bank is located; or
(ii) take no action with respect to the
foreign bank’s home state.
(4) Factors to be considered by the Board
in making its preliminary and final determi­
nations include the size of the proposed ac­
quisition relative to the foreign bank’s other
operations in the United States and the abil­
ity of the foreign bank to change its home
state.
(e) Attribution o f home state. (1) A foreign
bank or organization and the other foreign
banks or organizations over which it exer­
cises actual control shall be regarded as one
foreign bank and shall be entitled to one
home state.
(2) Actual control shall be conclusively
presumed to exist in the case of a bank or
organization that owns or controls a major­
ity of the voting shares of another bank or
organization.
(3) Where it appears to the Board that a
foreign bank or organization exercises actu­
al control over the management or policies

Regulation K
of another foreign bank or organization, the
Board may inform the parties that a prelim­
inary determination of control has been
made on the basis of the facts summarized
in the communication. In the event of a pre­
liminary determination of control by the
Board, the parties shall within 30 days (or
such longer period as may be permitted by
the Board):
(i) indicate to the Board a willingness to
terminate the control relationship; or
(ii) set forth such facts and circum­
stances as may support the contention
that actual control does not exist (and
may request a hearing to contest the
Board’s preliminary determination); or
(iii) accede to the Board’s preliminary
determination, in which event the parties
shall be regarded as one foreign bank and
shall be entitled to one home state.

SECTION 211.23—Nonbanking
Activities of Foreign Banking
Organizations
(a) Definitions. The definitions of section
211.2 in subpart A apply to this section sub­
ject to the following:
(1) “Directly or indirectly” when used in
reference to activities or investments of a
foreign banking organization means activi­
ties or investments of the foreign banking
organization or of any subsidiary of the for­
eign banking organization.
(2) “Foreign banking organization ” means
a foreign bank (as defined in section
1(b)(7) of the IBA) that operates a
branch, agency, or commercial lending
company subsidiary in the United States or
that controls a bank in the United States;
and a company of which such foreign bank
is a subsidiary.
(3) “Subsidiary” means any organization
25 percent or more of whose voting shares
is directly or indirectly owned, controlled
or held with power to vote by a foreign
banking organization, or which is otherwise
controlled or capable of being controlled by
a foreign banking organization.

§211.23
(b) Qualifying foreign banking organizations.
Unless specifically made eligible for the ex­
emptions by the Board, a foreign banking or­
ganization shall qualify for the exemptions af­
forded by this section only if, disregarding its
United States banking, more than half of its
worldwide business is banking; and more than
half of its banking business is outside the
United States. In order to qualify, a foreign
banking organization shall:
(1) meet at least two of the following
requirements:
(i) banking assets held outside the Unit­
ed States1 exceed total worldwide non­
banking assets;
(ii) revenues derived from the business
of banking outside the United States ex­
ceed total revenues derived from its
worldwide nonbanking business;
(iii) net income derived from the busi­
ness of banking outside the United States
exceeds total net income derived from its
worldwide nonbanking business; and
(2) meet at least two of the following
requirements:
(i) banking assets held outside the Unit­
ed States exceed banking assets held in
the United States;
(ii) revenues derived from the business
of banking outside the United States ex­
ceed revenues derived from the business
of banking in the United States;
(iii) net income derived from the busi­
ness of banking outside the United States
exceeds net income derived from the
business of banking in the United States.
(c) Determining assets, revenues, and net in­
come. (1) For purposes of paragraph (b), the
total assets, revenues, and net income of an
organization may be determined on a con­
solidated or combined basis. Assets, reve­
nues and net income of companies in which
the foreign banking organization owns 50
percent or more of the voting shares shall
be included when determining total assets,
1 N one of the direct or indirect assets, revenues, or net
income o f a United States subsidiary bank, branch, agency,
commercial lending company, or other company engaged
in the business of banking in the U nited States shall be
considered held or derived from the business of banking
“ outside the U nited States.”

13

§211.23
revenues, and net income. The foreign
banking organization may include assets,
revenues, and net income of companies in
which it owns 25 percent or more of the
voting shares if all such companies within
the organization are included;
(2) Assets devoted to, or revenues or net
income derived from, activities listed in sec­
tion 211.5(d) of this part shall be consid­
ered banking assets, or revenues or net in­
come derived from the banking business,
when conducted within the foreign banking
organization by a foreign bank or its
subsidiaries.
(d) Loss o f eligibility fo r exemptions. A for­
eign banking organization that qualified under
paragraph (b) of this section or an organiza­
tion that qualified as a “foreign bank holding
company” under section 225.4(g) of Regula­
tion Y (12 CFR 225.4(g) (1980)) 2 shall
cease to be eligible for the exemptions of this
section if it fails to meet the requirements of
paragraph (b) for two consecutive years as
reflected in its annual reports (F.R. Y-7) filed
with the Board. A foreign banking organiza­
tion that ceases to be eligible for the exemp­
tions may continue to engage in activities or
retain investments commenced or acquired
prior to the end of the first fiscal year for
which its annual report reflects nonconfor­
mance with paragraph (b). Activities com­
menced or investments made after that date
shall be terminated or divested within three
months of the filing of the second annual re­
port unless the Board grants consent to con­
tinue the activity or retain the investment un­
der paragraph (e).
(e) Specific determination o f eligibility fo r
nonqualifying foreign banking organizations.
A foreign banking organization that does not
qualify under paragraph (b) for the exemp­
tions afforded by this section, or that has lost
its eligibility for the exemptions under para­
graph (d), may apply to the Board for a spe­
cific determination of eligibility for the exemp­
tions. A foreign banking organization may
2 “ ‘[F ]oreign bank holding com pany’ means a bank
holding company organized under the laws o f a foreign
country, more than half o f whose consolidated assets are
located or consolidated revenues derived, outside the U nit­
ed States” (12 C FR 2 2 5 .4 (g )(iii) (1980)).

14

Regulation K
apply for a specific determination prior to the
time it ceases to be eligible for the exemptions
afforded by this section. In determining
whether eligibility for the exemptions would
be consistent with the purposes of the BHCA
and in the public interest, the Board shall con­
sider the history and the financial and mana­
gerial resources of the organization; the
amount of its business in the United States;
the amount, type and location of its nonbank­
ing activities; and whether eligibility of the
foreign banking organization would result in
undue concentration of resources, decreased
or unfair competition, conflicts of interests, or
unsound banking practices. Such determina­
tion shall be subject to any conditions and
limitations imposed by the Board.
(f) Permissible activities and investments. A
foreign banking organization that qualifies un­
der paragraph (b) may:
(1) Engage in activities of any kind outside
the United States;
(2) Engage directly in activities in the
United States that are incidental to its ac­
tivities outside the United States;
(3) Own or control voting shares of any
company that is not engaged, directly or in­
directly, in any activities in the United
States other than those that are incidental
to the international or foreign business of
such company:
(4) Own or control voting shares of any
company in a fiduciary capacity under cir­
cumstances that would entitle such share­
holding to an exemption under section
4 (c)(4 ) of the BHCA if the shares were
held or acquired by a bank;
(5) Own or control voting shares of a for­
eign company that is engaged directly or
indirectly in business in the United States
other than that which is incidental to its
international or foreign business, subject to
the following limitations:
(i) more than 50 percent of the foreign
company’s consolidated assets shall be
located, and consolidated revenues de­
rived from, outside the United States;
(ii) the foreign company shall not en­
gage directly, nor own or control more
than 5 percent of the voting shares of a
company that engages, in the business

Regulation K
of underwriting, selling, or distributing
securities in the United States except
to the extent permitted bank holding
companies;
(iii) if the foreign company is a subsidi­
ary of the foreign banking organization,
its direct or indirect activities in the Unit­
ed States shall be subject to the following
limitations:
(A ) the foreign company’s activities
in the United States shall be the same
kind of activities or related to the ac­
tivities engaged in directly or indirectly
by the foreign company abroad as
measured by the “establishment” cate­
gories of the Standard Industrial Clas­
sification (SIC) (an activity in the
United States shall be considered relat­
ed to an activity outside the United
States if it consists of supply, distribu­
tion or sales in furtherance of the
activity);
(B) the foreign company may engage
in activities in the United States that
consist of banking or financial opera­
tions, or types of activities permitted
by regulation or order under section
4 (c)(8) of the BHCA, only with the
prior approval of the Board. Activities
within Division H (Finance, Insur­
ance, and Real Estate) of the SIC shall
be considered banking or financial op­
erations for this purpose, with the
exception of acting as operators of
nonresidential buildings (SIC 6512),
operators of apartment buildings (SIC
6513), operators of dwellings other
than apartment buildings (SIC 6514),
and operators of residential mobile
home sites (SIC 6515); and operating
title abstract offices (SIC 6541). In ad­
dition, the following activities shall be
considered banking or financial opera­
tions and may be engaged in only with
the approval of the Board under sub­
section (g): computer and data proc­
essing services (SIC 7372, 7374 and
7379); management consulting (SIC
7392); certain rental and leasing activ­
ities (SIC 7394, 7512, 7513 and 7519);
accounting, auditing and bookkeeping
services (SIC 8931); and arrangement

§211.23
of passenger
4722).

transportation

(SIC

(g) Exemptions under section 4(c)(9) o f the
BHCA. A foreign organization that is of the
opinion that other activities or investments
may, in particular circumstances, meet the
conditions for an exemption under section
4 (c)(9 ) of the BHCA may apply to the
Board for such a determination by submitting
to the Reserve Bank of the District in which
its banking operations in the United States are
principally conducted a letter setting forth the
basis for that opinion.
(h) Reports.
(1) The foreign banking organization shall
inform the Board through the organiza­
tion’s Reserve Bank within 30 days after
the close of each quarter of all shares of
companies engaged, directly or indirectly,
in activities in the United States that were
acquired during such quarter under the au­
thority of this section. The foreign banking
organization shall also report any direct ac­
tivities in the United States commenced
during such quarter by a foreign subsidiary
of the foreign banking organization. This
information shall (unless previously fur­
nished) include a brief description of the
nature and scope of each company’s busi­
ness in the United States, including the 4­
digit SIC numbers of the activities in which
the company engages. Such information
shall also include the 4-digit SIC numbers
of the direct parent of any U.S. company
acquired, together with a statement of total
assets and revenues of the direct parent.
(2) If any required information is un­
known and not reasonably available to the
foreign banking organization, either be­
cause obtaining it would involve unreason­
able effort or expense or because it rests pe­
culiarly within the knowledge of a company
that is not controlled by the organization,
the organization shall (i) give such infor­
mation on the subject as it possesses or can
reasonably acquire together with the sourc­
es thereof; and (ii) include a statement ei­
ther showing that unreasonable effort or ex­
pense would be involved or indicating that
the company whose shares were acquired is
not controlled by the organization and stat15

§211.23
ing the result of a request for information.

SUBPART C—EXPORT TRADING
COMPANIES

SECTION 211.31—Authority, Purpose,
and Scope
(a) Authority. This subpart is issued by the
Board of Governors of the Federal Reserve
System (“Board” ) under the authority of the
Bank Holding Company Act of 1956, as
amended (12 USC 1841 et seq.) (BHC Act),
and the Bank Export Services Act (title II,
Pub. L. 97-290, 96 Stat. 1235 (1982))
(BESA).
(b) Purpose and scope. This subpart is in fur­
therance of the purposes of the BHC Act and
the BESA, the latter statute being designed to
increase U.S. exports by encouraging invest­
ments and participation in export trading
companies by bank holding companies and
the specified investors. The provisions of this
subpart apply to: (1) bank holding companies
as defined in section 2 of the BHC Act (12
USC 1841(a)); (2) Edge and agreement cor­
porations, as described in section 211.1(b) of
this part, that are subsidiaries of bank holding
companies but are not subsidiaries of banks;
(3) bankers’ banks as described in section
4(c) (14) (F) (iii) of the BHC Act (12 USC
1843(c)(14) (F )(iii)); and (4) foreign bank­
ing organizations as defined in section
211.23(a)(2) of this part. These entities are
hereinafter referred to as “eligible investors.”

SECTION 211.32—Definitions
The definitions of section 211.2 in subpart A
apply to this subpart subject to the following:
(a) “Export trading company” means a com­
pany that is exclusively engaged in activities
related to international trade and, by engaging
in one or more export trade services, derives
more than one-half its revenues in each con­
secutive two-year period from the export of,
or from facilitating the export of, goods and
services produced in the United States by per­
sons other than the export trading company
16

Regulation K
or its subsidiaries. For purposes of this subsec­
tion, revenues shall include net sales revenues
from exporting, importing, or third-party
trade in goods by the export trading company
for its own account and gross revenues de­
rived from all other activities of the export
trading company.
(b) The terms “bank,” “company,” and
“subsidiary” have the same meanings as those
contained in section 2 of the BHC Act (12
USC 1841).

SECTION 211.33—Investments and
Extensions of Credit
(a) Amount o f investments. In accordance
with the procedures of section 211.34 of this
subpart, an eligible investor may invest no
more than 5 percent of its consolidated capital
and surplus in one or more export trading
companies, except that an Edge or agreement
corporation not engaged in banking may in­
vest as much as 25 percent of its consolidated
capital and surplus but no more than 5 per­
cent of the consolidated capital and surplus of
its parent bank holding company.
(b) Extensions o f credit.
(1) Amount. An eligible investor in an ex­
port trading company or companies may
extend credit directly or indirectly to the
export trading company or companies in a
total amount that at no time exceeds 10
percent of the investor’s consolidated capi­
tal and surplus.
(2) Terms. An eligible investor in an ex­
port trading company may not extend cred­
it directly or indirectly to the export trading
company or any of its customers or to any
other investor holding 10 percent or more
of the shares of the export trading company
on terms more favorable than those afford­
ed similar borrowers in similar circum­
stances, and such extensions of credit shall
not involve more than the normal risk of
repayment or present other unfavorable fea­
tures. For the purposes of this provision, an
investor in an export trading company in­
cludes any affiliate of the investor.
(3) Collateral
requirements.
Covered
transactions between a bank and an affiliat­

Regulation K
ed export trading company in which a bank
holding company has invested pursuant to
this subpart are subject to the collateral re­
quirements of section 23A of the Federal
Reserve Act (12 USC 371c), except where
a bank issues a letter of credit or advances
funds to an affiliated export trading compa­
ny solely to finance the purchase of goods
for which:
(i) the export trading company has a
bona fide contract for the subsequent sale
of the goods; and
(ii) the bank has a security interest in
the goods or in the proceeds from their
sale at least equal in value to the letter of
credit or the advance.

SECTION 211.34— Procedures for Filing
and Processing Notices
(a) Filing notice.
(1) Prior notice o f investment. An eligible
investor shall give the Board 60 days’ prior
written notice of any investment in an ex­
port trading company.
(2) Subsequent notice. An eligible investor
shall give the Board 60 days’ prior written
notice of changes in the activities of an ex­
port trading company that is a subsidiary of
the investor if the export trading company
expands its activities beyond those de­

§211.34
scribed in the initial notice to include: (i)
taking title to goods; (ii) product research
and design; (iii) product modification; or
(iv) activities not specifically covered by
the list of services contained in section
4 (c )(1 4 )(F )(ii) of the BHC Act. Such an
expansion of activities shall be regarded as a
proposed investment under this subpart.
(b) Time period fo r Board action.
(1) A proposed investment that has not
been disapproved by the Board may be
made 60 days after the Reserve Bank ac­
cepts the notice for processing. A proposed
investment may be made before the expira­
tion of the 60-day period if the Board noti­
fies the investor in writing of its intention
not to disapprove the investment.
(2) The Board may extend the 60-day pe­
riod for an additional 30 days if the Board
determines that the investor has not fur­
nished all necessary information or that any
material information furnished is substan­
tially inaccurate. The Board may disap­
prove an investment if the necessary infor­
mation is provided within a time insufficient
to allow the Board reasonably to consider
the information received.
(3) Within three days of a decision to dis­
approve an investment, the Board shall no­
tify the investor in writing and state the rea­
sons for the disapproval.

Statutory Provisions

FEDERAL RESERVE ACT
SECTION 25— Foreign Branches
1. Capital and Surplus Required to Exercise
Powers
Any national banking association possessing a
capital and surplus of $1,000,000 or more may
file application with the Board of Governors
of the Federal Reserve System for permission
to exercise, upon such conditions and under
such regulations as may be prescribed by the
said board, the following powers:
[12 USC 601. As amended by act o f Sept. 7, 1916 (39 Stat.
755), which completely revised this section, and by act of
July 1, 1966 (80 Stat. 241).]

2. Establishment o f Foreign Branches
First. To establish branches in foreign coun­
tries or dependencies or insular possessions of
the United States for the furtherance of the
foreign commerce of the United States, and to
act if required to do so as fiscal agents of the
United States.
[ 12 USC 601. As amended by act o f Sept. 7, 1916 (39 Stat.
755), which completely revised this section.]

3. Purchase o f Stock in Corporations Engaged
in Foreign Banking
Second. To invest an amount not exceeding in
the aggregate ten per centum of its paid-in
capital stock and surplus in the stock of one
or more banks or corporations chartered or
incorporated under the laws of the United
States or of any State thereof, and principally
engaged in international or foreign banking,
or banking in a dependency or insular posses­
sion of the United States either directly or
through the agency, ownership, or control of
local institutions in foreign countries, or in
such dependencies or insular possessions.
[12 USC 601. As added by act o f Sept. 7, 1916 (39 Stat.
755), which completely revised this section.]

4. Acquisition o f Ownership o f Foreign Banks
Third. To acquire and hold, directly or indi­
rectly, stock or other evidences of ownership
in one or more banks organized under the law
of a foreign country or a dependency or insu­
lar possession of the United States and not
engaged, directly or indirectly, in any activity
in the United States except as, in the judgment
of the Board of Governors of the Federal Re­
serve System, shall be incidental to the inter­
national or foreign business of such foreign
bank; and, notwithstanding the provisions of
section 23A of this Act, to make loans or ex­
tensions of credit to or for the account of such
bank in the manner and within the limits pre­
scribed by the Board by general or specific
regulation or ruling.
[12 USC 601. As added by act of July 1, 1966 (80 Stat.
241).]

5. Right o f National Banks to Invest in
Foreign Banking Corporations until January 1,
1921
Until January 1, 1921, any national banking
association, without regard to the amount of
its capital and surplus, may file application
with the Board of Governors of the Federal
Reserve System for permission, upon such
conditions and under such regulations as may
be prescribed by said board, to invest an
amount not exceeding in the aggregate 5 per
centum of its paid-in capital and surplus in
the stock of one or more corporations char­
tered or incorporated under the laws of the
United States or of any State thereof and, re­
gardless of its location, principally engaged in
such phases of international or foreign finan­
cial operations as may be necessary to facili­
tate the export of goods, wares, or merchan­
dise from the United States or any of its
dependencies or insular possessions to any
foreign country: Provided, however, That in no
event shall the total investments authorized
by this section by any one national bank ex­
ceed 10 per centum of its capital and surplus.
19

Statutory Provisions
[12 USC 601. As added by act o f Sept. 17, 1919 (41 Stat.
285). This paragraph, by its terms, is now obsolete.]

6. Application fo r Permission to Exercise
Powers
Such application shall specify the name and
capital of the banking association filing it, the
powers applied for, and the place or places
where the banking or financial operations pro­
posed are to be carried on. The Board of Gov­
ernors of the Federal Reserve System shall
have power to approve or to reject such appli­
cation in whole or in part if for any reason the
granting of such application is deemed inexpe­
dient, and shall also have power from time to
time to increase or decrease the number of
places where such banking operations may be
carried on.
[12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat.
755), which completely revised this section; and by act of
Sept. 17, 1919 (41 Stat. 286).]

Regulation K
tions as the said board may prescribe for the
place or places wherein such business is to be
conducted. If at any time the Board of Gover­
nors of the Federal Reserve System shall as­
certain that the regulations prescribed by it
are not being complied with, said board is
hereby authorized and empowered to institute
an investigation of the matter and to send for
persons and papers, subpoena witnesses, and
administer oaths in order to satisfy itself as to
the actual nature of the transactions referred
to. Should such investigation result in estab­
lishing the failure of the corporation in ques­
tion, or of the national bank or banks which
may be stockholders therein, to comply with
the regulations laid down by the said Board of
Governors of the Federal Reserve System,
such national banks may be required to dis­
pose of stock holdings in the said corporation
upon reasonable notice.
[ 12 USC 603. A dded by act o f Sept. 7, 1916 (39 Stat. 755),
which completely revised this section.]

7. Examinations and Reports o f Condition
Every national banking association operating
foreign branches shall be required to furnish
information concerning the conditions of such
branches to the Comptroller of the Currency
upon demand, and every member bank invest­
ing in the capital stock of banks or corpora­
tions described above shall be required to fur­
nish information concerning the condition of
such banks or corporations to the Board of
Governors of the Federal Reserve System
upon demand, and the Board of Governors of
the Federal Reserve System may order special
examinations of the said branches, banks, or
corporations at such time or times as it may
deem best.
[12 USC 602. As amended by act o f Sept. 7, 1916 (39 Stat.
755), which completely revised this section; and by act of
Sept. 17, 1919 (41 Stat. 286).]

8. Agreement to Restrict Operations
Before any national bank shall be permitted to
purchase stock in any such corporation the
said corporation shall enter into an agreement
or undertaking with the Board of Governors
of the Federal Reserve System to restrict its
operations or conduct its business in such
manner or under such limitations and restric20

9. Accounts o f Foreign Branches
Every national banking association operating
foreign branches shall conduct the accounts of
each foreign branch independently of the ac­
counts of other foreign branches established
by it and of its home office, and shall at the
end of each fiscal period transfer to its general
ledger the profit or loss accrued at each
branch as a separate item.
[12 USC 604. As amended by act of Sept. 7, 1916 (39 Stat.
755), which completely revised this section.]

10. Additional Banking Powers Authorized
Regulations issued by the Board of Governors
of the Federal Reserve System under this sec­
tion, in addition to regulating powers which a
foreign branch may exercise under other pro­
visions of law, may authorize such a foreign
branch, subject to such conditions and re­
quirements as such regulations may prescribe,
to exercise such further powers as may be usu­
al in connection with the transaction of the
business of banking in the places where such
foreign branch shall transact business. Such
regulations shall not authorize a foreign
branch to engage in the general business of
producing, distributing, buying or selling

Regulation K
goods, wares, or merchandise; nor, except to
such limited extent as the Board may deem to
be necessary with respect to securities issued
by any “foreign state” as defined in section
25(b) of this Act, shall such regulations au­
thorize a foreign branch to engage or partici­
pate, directly or indirectly, in the business
of underwriting, selling, or distributing
securities.
[12 USC 604a. As added by act o f Aug. 15, 1962 (76 Stat.
388).]

SECTION 25(a)—Banking
Corporations Authorized to Do Foreign
Banking Business
1. Organization
Corporations to be organized for the purpose
of engaging in international or foreign bank­
ing or other international or foreign financial
operations, or in banking or other financial
operations in a dependency or insular posses­
sion of the United States, either directly or
through the agency, ownership, or control of
local institutions in foreign countries, or in
such dependencies or insular possessions as
provided by this section, and to act when re­
quired by the Secretary of the Treasury as fis­
cal agents of the United States, may be formed
by any number of natural persons, not less in
any case than five: Provided, That nothing in
this section shall be construed to deny the
right of the Secretary of the Treasury to use
any corporation organized under this section
as depositaries in Panama and the Panama
Canal Zone, or in the Philippine Islands and
other insular possessions and dependencies of
the United States.
The congress hereby declares that it is the
purpose of this section to provide for the es­
tablishment of international banking and fi­
nancial corporations operating under Federal
supervision with powers sufficiently broad to
enable them to compete effectively with simi­
lar foreign-owned institutions in the United
States and abroad; to afford to the United
States exporter and importer in particular,
and to United States commerce, industry, and
agriculture in general, at all times a means of
financing international trade, especially United

Statutory Provisions
States exports; to foster the participation by
regional and smaller banks throughout the
United States in the provision of international
banking and financing services to all segments
of United States agriculture, commerce, and
industry, and, in particular small business and
farming concerns; to stimulate competition in
the provision of international banking and fi­
nancing services, throughout the United
States; and, in conjunction with each of the
preceding purposes, to facilitate and stimulate
the export of United Stated goods, wares,
merchandise, commodities, and services to
achieve a sound United States international
trade position. The Board of Governors of the
Federal Reserve System shall issue rules and
regulations under this section consistent with
and in furtherance of the purposes described
in the preceding sentence, and, in accordance
therewith, shall review and revise any such
rules and regulations at least once every five
years, the first such period commencing with
the effective date of rules and regulations is­
sued pursuant to section 3(a) of the Interna­
tional Banking Act of 1978, in order to ensure
that such purposes are being served in light of
prevailing economic conditions and banking
practices.
[12 USC 611. As added by act of Dec. 24, 1919 (41 Stat.
378); and amended by act of Feb. 27, 1921 (41 Stat. 1145)
and Sept. 17, 1978 (92 Stat. 609). Presidential Proclam a­
tion No. 2695 o f July 4, 1946 (60 Stat. 1352; 12 USC 1394
note) recognizes the independence of the Philippine Is­
lands. Therefore, the words “in the Philippine Islands and”
have been om itted from the U.S. Code.]

2. Articles o f Association
Such persons shall enter into articles of associ­
ation which shall specify in general terms the
objects for which the association is formed
and may contain any other provisions not in­
consistent with law which the association may
see fit to adopt for the regulation of its busi­
ness and the conduct of its affairs.
[12 USC 612. As added by act of Dec. 24, 1919 (41 Stat.
378).]

3. Execution o f Articles o f Association;
Contents o f Organization Certificate
Such articles of association shall be signed by
all of the persons intending to participate in
21

Regulation K

Statutory Provisions
the organization of the corporation and,
thereafter, shall be forwarded to the Board of
Governors of the Federal Reserve System and
shall be filed and preserved in its office. The
persons signing the said articles of association
shall, under their hands, make an organiza­
tion certificate which shall specifically state:
First. The name assumed by such corpora­
tion, which shall be subject to the approval of
the Board of Governors of the Federal Re­
serve System.
Second. The place or places where its oper­
ations are to be carried on.
Third. The place in the United States where
its home office is to be located.
Fourth. The amount of its capital stock and
the number of shares into which the same
shall be divided.
Fifth. The names and places of business or
residence of the persons executing the certifi­
cate and the number of shares to which each
has subscribed.
Sixth. The fact that the certificate is made
to enable the persons subscribing the same,
and all other persons, firms, companies, and
corporations, who or which may thereafter
subscribe to or purchase shares of the capital
stock of such corporation, to avail themselves
of the advantages of this section.
[12 USC 613. As added by act o f Dec. 24, 1919 (41 Stat.
379).}

4. Filing Organization Certificate; Issuance o f
Permit
The persons signing the organization certifi­
cate shall duly acknowledge the execution
thereof before a judge of some court of record
or notary public, who shall certify thereto un­
der the seal of such court or notary, and
thereafter the certificate shall be forwarded to
the Board of Governors of the Federal Re­
serve System to be filed and preserved in its
office. Upon duly making and filing articles of
association and an organization certificate,
and after the Board of Governors of the Fed­
eral Reserve System has approved the same
and issued a permit to begin business, the as­
sociation shall become and be a body corpo­
rate, and as such and in the name designated
therein shall have power to adopt and use a
corporate seal, which may be changed at the
22

pleasure of its board of directors; to have suc­
cession for a period of twenty years unless
sooner dissolved by the act of the shareholders
owning two-thirds of the stock or by an Act of
Congress or unless its franchises become for­
feited by some violation of law; to make con­
tracts; to sue and be sued, complain, and de­
fend in any court of law or equity; to elect or
appoint directors; and, by its board of direc­
tors, to appoint such officers and employees as
may be deemed proper, define their authority
and duties, require bonds of them, and fix the
penalty thereof, dismiss such officers or em­
ployees, or any thereof, at pleasure and ap­
point others to fill their places; to prescribe,
by its board of directors, by-laws not incon­
sistent with law or with the regulations of the
Board of Governors of the Federal Reserve
System regulating the manner in which its
stock shall be transferred, its directors elected
or appointed, its officers and employees ap­
pointed, its property transferred, and the priv­
ileges granted to it by law exercised and
enjoyed.
[12 USC 614. As added by act of Dec. 24, 1919 (41 Stat.
379) and Sept. 17, 1978 (92 Stat. 609).]

5. Powers; Regulations o f Board o f Governors
o f the Federal Reserve System
Each corporation so organized shall have
power, under such rules and regulations as the
Board of Governors of the Federal Reserve
System may prescribe:
[12 USC 615. As added by act of Dec. 24, 1919 (41 Stat.
379).]

6. Banking Powers
(a) To purchase, sell, discount, and negoti­
ate, with or without its indorsement or guar­
anty, notes, drafts, checks, bills of exchange,
acceptances, including bankers’ acceptances,
cable transfers, and other evidences of indebt­
edness; to purchase and sell with or without
its indorsement or guaranty, securities, in­
cluding the obligations of the United States or
of any State thereof but not including shares
of stock in any corporation except as herein
provided; to accept bills or drafts drawn upon
it subject to such limitations and restrictions
as the Board of Governors of the Federal Re­

Regulation K
serve System may impose; to issue letters of
credit; to purchase and sell coin, bullion, and
exchange; to borrow and to lend money; to
issue debentures, bonds, and promissory notes
under such general conditions as to security
and such limitations as the Board of Gover­
nors of the Federal Reserve System may pre­
scribe; to receive deposits outside of the United
States and to receive only such deposits within
the United States as may be incidental to or
for the purpose of carrying out transactions in
foreign countries or dependencies or insular
possessions of the United States; and generally
to exercise such powers as are incidental to
the powers conferred by this Act or as may be
usual, in the determination of the Board of
Governors of the Federal Reserve System, in
connection with the transaction of the busi­
ness of banking or other financial operations
in the countries, colonies, dependencies, or
possessions in which it shall transact business
and not inconsistent with the powers specifi­
cally granted herein. Nothing contained in
this section shall be construed to prohibit the
Board of Governors of the Federal Reserve
System, under its power to prescribe rules and
regulations, from limiting the aggregate
amount of liabilities of any or all classes in­
curred by the corporation and outstanding at
any one time. Whenever a corporation orga­
nized under this section receives deposits in
the United States authorized by this section it
shall carry reserves in such amounts as the
Board of Governors of the Federal Reserve
System may prescribe for member banks of
the Federal Reserve System.
[12 USC 615. As added by act o f Dec. 24, 1919 (41 Stat.
379); and amended by act o f Sept. 17, 1978 (92 Stat.
609).]

7. Branches
(b) To establish and maintain for the trans­
action of its business branches or agencies in
foreign countries, their dependencies or colo­
nies, and in the dependencies or insular pos­
sessions of the United States, at such places as
may be approved by the Board of Governors
of the Federal Reserve System and under such
rules and regulations as it may prescribe, in­
cluding countries or dependencies not speci­
fied in the original organization certificate.

Statutory Provisions
[12 USC 615. As added by act of Dec. 24, 1919 (41 Stat.
379).]

8. Ownership o f Stock in Other Corporations
(c) With the consent of the Board of Gover­
nors of the Federal Reserve System to pur­
chase and hold stock or other certificates of
ownership in any other corporation organized
under the provisions of this section, or under
the laws of any foreign country or a colony or
dependency thereof, or under the laws of any
State, dependency, or insular possession of the
United States but not engaged in the general
business of buying or selling goods, wares,
merchandise or commodities in the United
States, and not transacting any business in the
United States except such as in the judgment
of the Board of Governors of the Federal Re­
serve System may be incidental to its interna­
tional or foreign business: Provided, however,
That, except with the approval of the Board of
Governors of the Federal Reserve System, no
corporation organized hereunder shall invest
in any one corporation an amount in excess of
10 per centum of its own capital and surplus,
except in a corporation engaged in the busi­
ness of banking, when 15 per centum of its
capital and surplus may be so invested: Pro­
vided further, That no corporation organized
hereunder shall purchase, own, or hold stock
or certificates of ownership in any other cor­
poration organized hereunder or under the
laws of any State which is in substantial com­
petition therewith, or which holds stock or
certificates of ownership in corporations
which are in substantial competition with the
purchasing corporation.
[12 USC 615. As added by act of Dec. 24, 1919 (41 Stat.
380).]

9. Purchase o f Stock to Prevent Loss on Debt
Previously Contracted
Nothing contained herein shall prevent corpo­
rations organized hereunder from purchasing
and holding stock in any corporation where
such purchase shall be necessary to prevent a
loss upon a debt previously contracted in good
faith; and stock so purchased or acquired in
corporations organized under this section
shall within six months from such purchase be
sold or disposed of at public or private sale
23

Regulation K

Statutory Provisions
unless the time to so dispose of same is ex­
tended by the Board of Governors of the Fed­
eral Reserve System.
[12 USC 615. As added by act o f Dec. 24, 1919 (41 Stat.
380).]

10. Restrictions on Business in United Sates
No corporation organized under this section
shall carry on any part of its business in the
United States except such as, in the judgment
of the Board of Governors of the Federal Re­
serve System, shall be incidental to its interna­
tional or foreign business: And provided fu r­
ther, That except such as is incidental and
preliminary to its organization no such corpo­
ration shall exercise any of the powers con­
ferred by this section until it has been duly
authorized by the Board of Governors of the
Federal Reserve System to commence busi­
ness as a corporation organized under the pro­
visions of this section.
[12 USC 616. As added by act o f Dec. 24, 1919 (41 Stat.
381).]

11. Corporation Trading in Commodities or
Attempting to Control Prices
No corporation organized under this section
shall engage in commerce or trade in com­
modities except as specifically provided in this
section, nor shall it either directly or indirect­
ly control or fix or attempt to control or fix
the price of an such commodities. The charter
of any corporation violating this provision
shall be subject to forfeiture in the manner
hereinafter provided in this section. It shall be
unlawful for any director, officer, agent, or
employee of any such corporation to use or to
conspire to use the credit; the funds, or the
power of the corporation to fix or control the
price of any such commodities, and any such
person violating this provision shall be liable
to a fine of not less than $1,000 and not ex­
ceeding $5,000 or imprisonment not less than
one year and not exceeding five years, or both,
in the discretion of the court.
[12 USC 617. As added by act o f Dec. 24, 1919 (41 Stat.
81).]

24

12. Capital Stock
No corporation shall be organized under the
provisions of this section with a capital stock
of less than $2,000,000, one-quarter of which
must be paid in before the corporation may be
authorized to begin business, and the remain­
der of the capital stock of such corporation
shall be paid in installments of at least 10 per
centum on the whole amount to which the
corporation shall be limited as frequently as
one installment at the end of each succeeding
two months from the time of the commence­
ment of it business operations until the whole
of the capital stock shall be paid in: Provided,
however, That whenever $2,000,000 of the
capital stock of any corporation is paid in the
remainder of the corporation’s capital stock
or any unpaid part of such remainder may,
with the consent of the Board of Governors of
the Federal Reserve System and subject to
such regulations and conditions as it may pre­
scribe, be paid in upon call from the board of
directors; such unpaid subscriptions, however,
to be included in the maximum of 10 per cen­
tum of the national bank’s capital and surplus
which a national bank is permitted under the
provisions of this Act to hold in stock of cor­
porations engaged in business of the kind de­
scribed in this section and in section 25 of the
Federal Reserve Act as amended. The capital
stock of any such corporation may be in­
creased at any time, with the approval of the
Board of Governors of the Federal Reserve
System, by a vote of two-thirds of its share­
holders or by unanimous consent in writing of
the shareholders without a meeting and with­
out a formal vote, but any such increase of
capital shall be fully paid in within ninety
days after such approval; and may be reduced
in like manner, provided that in no event shall
it be less than $2,000,000. No corporation, ex­
cept as herein provided, shall during the time
it shall continue its operations, withdraw or
permit to be withdrawn, either in the form of
dividends or otherwise, any portion of its cap­
ital. Any national banking association may in­
vest in the stock of any corporation organized
under the provisions of this section, but the
aggregate amount of stock held in all corpora­
tions engaged in business of the kind de­
scribed in this section and in section 25 of the

Regulation K
Federal Reserve Act as amended shall not ex­
ceed 10 per centum of the subscribing bank’s
capital and surplus.
[12 USC 618. As added by act o f Dec. 24, 1919 (41 Stat.
381); and amended by act o f June 14, 1921 (42 Stat. 28).]

13. Citizenship o f Stockholders
Except as otherwise provided in this section, a
majority of the shares of the capital stock of
any such corporation shall at all times be held
and owned by citizens of the United States, by
corporations the controlling interest in which
is owned by citizens of the United States,
chartered under the laws of the United States
or of a State of the United States, or by firms
or companies, the controlling interest in
which is owned by citizens of the United
States. Notwithstanding any other provisions
of this section, one or more foreign banks, in­
stitutions organized under the laws of foreign
countries which own or control foreign banks,
or banks organized under the laws of the
United States, the States of the United States,
or the District of Columbia, the controlling
interests in which are owned by any such for­
eign banks or institutions, may, with the prior
approval of the Board of Governors of the
Federal Reserve System and upon such terms
and conditions and subject to such rules and
regulations as the Board of Governors of the
Federal Reserve System may prescribe, own
and hold 50 per centum or more of the shares
of the capital stock of any corporation orga­
nized under this section, and any such corpo­
ration shall be subject to the same provisions
of law as any other corporation organized un­
der this section, and the terms ‘controls’ and
‘controlling interest’ shall be construed consis­
tently with the definition of ‘control’ in sec­
tion 2 of the Bank Holding Company Act of
1956. For the purposes of the preceding sen­
tence of this paragraph the term ‘foreign
bank’ shall have the meaning assigned to it in
the International Banking Act of 1978.
[12 USC 619. As added by act o f Sept. 17, 1978 (92 Stat.
609).]

Statutory Provisions
14. Members o f Board o f Governors o f the
Federal Reserve System as Directors, Officers
or Stockholders
No member of the Board of Governors of the
Federal Reserve System shall be an officer or
director of any corporation organized under
the provisions of this section, or of any corpo­
ration engaged in similar business organized
under the laws of any State, nor hold stock in
any such corporation, and before entering
upon his duties as a member of the Board of
Governors of the Federal Reserve System he
shall certify under oath to the Secretary of the
Treasury that he has complied with this
requirement.
[12 USC 620. As added by act of Dec. 24, 1919 (41 Stat.
382).]

15. Shareholders’ Liability; Corporation Not
to Become Member o f Federal Reserve Bank
Shareholders in any corporation organized
under the provision of this section shall be lia­
ble for the amount of their unpaid stock sub­
scriptions. No such corporation shall become
a member of any Federal reserve bank.
[12 USC 621. As added by act of Dec. 24, 1919 (41 Stat.
382).]

16. Forfeiture o f Charterfo r Violation o f Law
Should any corporation organized hereunder
violate or fail to comply with any of the provi­
sions of this section, all of its rights, privileges,
and franchises derived herefrom may thereby
be forfeited. Before any such corporation shall
be declared dissolved, or its rights, privileges,
and franchises forfeited, any noncompliance
with, or violation of such laws shall, however,
be determined and adjudged by a court of the
United States of competent jurisdiction, in a
suit brought for that purpose in the district or
territory in which the home office of such cor­
poration is located, which suit shall be
brought by the United States at the insistence
of the Board of Governors for the Federal Re­
serve System or the Attorney General. Upon
adjudication of such noncompliance or viola­
tion, each director and officer who participat­
ed in, or assented to, the illegal act or acts,
shall be liable in his personal or individual ca­
pacity for all damages which the said corpora25

Regulation K

Statutory Provisions
tion shall have sustained in consequence
thereof. No dissolution shall take away or im­
pair any remedy against the corporation, its
stockholders, or officers for any liability or
penalty previously incurred.
[12 USC 622. As added by act o f Dec. 24, 1919 (41 Stat.
382).]

17. Voluntary Liquidation
Any such corporation may go into voluntary
liquidation and be closed by a vote of its
shareholders owning two-third of its stock.
[12 USC 623. As added by act o f Dec. 24, 1919 (41 Stat.
382.)]

18. Insolvency; Appointment o f Receiver
Whenever the Board of Governors of the Fed­
eral Reserve System shall become satisfied of
the insolvency of any such corporation, it may
appoint a receiver who shall take possession of
all the property and assets of the corporation
and exercise the same rights, privileges, pow­
ers, and authority with respect thereto as are
now exercised by receivers of national banks
appointed by the Comptroller of the Currency
of the United States: Provided, however, That
the assets of the corporation subject to the
laws of other countries or jurisdictions shall
be dealt with in accordance with the terms of
such laws.
[12 USC 624. As added by act o f Dec. 24, 1919 (41 Stat.
382.)]

19. Stockholders ’Meetings; Records; Reports;
Examinations
Every corporation organized under the provi­
sions of this section shall hold a meeting of its
stockholders annually upon a date fixed in its
bylaws, such meeting to be held at its home
office in the United States. Every such corpo­
ration shall keep at its home office books con­
taining the names of all stockholders thereof,
and the names and addresses of the members
of its board of directors, together with copies
of all reports made by it to the Board of Gov­
ernors of the Federal Reserve System. Every
such corporation shall make reports to the
Board of Governors of the Federal Reserve
System at such times and in such form as it
26

may require; and shall be subject to examina­
tion once a year and at such other times as
may be deemed necessary by the Board of
Governors of the Federal Reserve System by
examiners appointed by the Board of Gover­
nors of the Federal Reserve System, the cost
of such examinations, including the compen­
sation of the examiners, to be fixed by the
Board of Governors of the Federal Reserve
System and to be paid by the corporation
examined.
[12 USC 625. As added by act of Dec. 24, 1919 (41 Stat.
382).]

20. Dividends and Surplus Fund
The directors of any corporation organized
under the provisions of this section may, semi­
annually, declare a dividend of so much of the
net profits of the corporation as they shall
judge expedient; but each corporation shall,
before the declaration of a dividend, carry
one-tenth of its net profits of the preceding
half year to its surplus fund until the same
shall amount to 20 per centum of its capital
stock.
[12 u s e 626. As added by act of Dec. 24, 1919 (41 Stat.
383).]

21. Taxation
Any corporation organized under the provi­
sions of this section shall be subject to tax by
the State within which its home office is locat­
ed in the same manner and to the same extent
as other corporations organized under the
laws of that State which are transacting a sim­
ilar character of business. The shares of stock
in such corporation shall also be subject to tax
as the personal property of the owners or
holders thereof in the same manner and to the
same extent as the shares of stock in similar
State corporations.
[12 u s e 627. As added by act of Dec. 24, 1919 (41 Stat.
383).]

22. Extension o f Corporate Existence
Any corporation organized under the provi­
sions of this section may at any time within
the two years next previous to the date of the
expiration of its corporate existence, by a vote

Regulation K
of the shareholders owning two-thirds of its
stock, apply to the Board of Governors of the
Federal Reserve System for its approval to ex­
tend the period of its corporate existence for a
term of not more than twenty years, and upon
certified approval of the Board of Governors
of the Federal Reserve System such corpora­
tion shall have its corporate existence for such
extended period unless sooner dissolved by
the act of the shareholders owning two-thirds
of its stock, or by an Act of Congress or unless
its franchise becomes forfeited by some viola­
tion of law.
[12 USC 628. As added by act o f Dec. 24, 1919 (41 Stat.
383).]

23. Conversion o f State Corporation into
Federal Corporation
Any bank or banking institution, principally
engaged in foreign business, incorporated by
special law of any State or of the United States
or organized under the general laws of any
State or of the United States and having an
unimpaired capital sufficient to entitle it to be­
come a corporation under the provisions of
this section may, by the vote of the sharehold­
ers owning not less than two-thirds of the cap­
ital stock of such bank or banking association,
with the approval of the Board of Governors
of the Federal Reserve System, be converted
into a Federal corporation of the kind autho­
rized by this section with any name approved
by the Board of Governors of the Federal Re­
serve System: Provided, however, That said
conversion shall not be in contravention of the
State law. In such case the articles of associa­
tion and organization certificate may be exe­
cuted by a majority of the directors of the
bank or banking institution, and the certificate
shall declare that the owners of at least twothirds of the capital stock have authorized the
directors to make such certificate and to
change or convert the bank or banking institu­
tion into a Federal corporation. A majority of
the directors, after executing the articles of as­
sociation and the organization certificate shall
have power to execute all other papers and to
do whatever may be required to make its or­
ganization perfect and complete as a Federal
corporation. The shares of any such corpora­
tion may continue to be for the same amount

Statutory Provisions
each as they were before the conversion, and
the directors may continue to be directors of
the corporation until others are elected or ap­
pointed in accordance with the provisions of
this section. When the Board of Governors of
the Federal Reserve System has given to such
corporation a certificate that the provisions of
this section have been complied with, such
corporation and all its stockholders, officers,
and employees, shall have the same powers
and privileges, and shall be subject to the
same duties, liabilities, and regulations, in all
respects, as shall have been prescribed by this
section for corporations originally organized
hereunder.
[12 USC 629. As added by act of Dec. 24, 1919 (41 Stat.
383).]

24. Criminal Offenses o f Directors, Officers,
and Employees
Every officer, director, clerk, employee, or
agent of any corporation organized under this
section who embezzles, abstracts, or willfully
misapplies any of the moneys, funds, credits,
securities, evidences of indebtedness or assets
of any character of such corporation; or who,
without authority from the directors, issues or
puts forth any certificate of deposit, draws any
order or bill of exchange, makes any accept­
ance, assigns any note, bond, debenture, draft,
bill of exchange, mortgage, judgment, or de­
cree; or who makes any false entry in any
book, report, or statement of such corporation
with intent, in either case, to injure or defraud
such corporation or any other company, body
politic or corporate, or any individual person,
or to deceive any officer of such corporation,
the Board of Governors of the Federal
Reserve System, or any agent or examiner ap­
pointed to examine the affairs of any such cor­
poration; and every receiver of any such cor­
poration and every clerk or employee of such
receiver who shall embezzle, abstract, or will­
fully misapply or wrongfully convert to his
own use any moneys, funds, credits, or assets
of any character which may come into his
possession or under his control in the execu­
tion of his trust or the performance of the du­
ties of his employment; and every such receiv­
er or clerk or employee of such receiver who
shall, with intent to injure or defraud any per27

Statutory Provisions
son, body politic or corporate, or to deceive or
mislead the Board of Governors of the Feder­
al Reserve System, or any agent or examiner
appointed to examine the affairs of such re­
ceiver, shall make any false entry in any book,
report, or record of any matter connected
with the duties of such receiver; and every
person who with like intent aids or abets any
officer, director, clerk, employee, or agent of
any corporation organized under this section,
or receiver or clerk or employee of such re­
ceiver as aforesaid in any violation of this sec­
tion, shall upon conviction thereof be impris­
oned for not less than two years nor more
than ten years, and may also be fined not
more than $5,000, in the discretion of the
court.
[12 USC 630. As added by act o f Dec. 24, 1919 (41 Stat.
384).]

25. Representation that United States is Liable
fo r Obligations
Whoever being connected in any capacity
with any corporation organized under this
section represents in any way that the United
States is liable for the payment of any bond or
other obligation, or the interest thereon,
issued or incurred by any corporation orga­
nized hereunder, or that the United States in­
curs any liability in respect of any act or omis­
sion of the corporation, shall be punished by a
fine of not more than $10,000 and by impris­
onment for not more than five years.
[12 USC 631. As added by act o f Dec. 24, 1919 (41 Stat.
384).]

BANK HOLDING COMPANY ACT
OF 1956
SECTION 2 * * *
(h) * * *
(2) The prohibitions of section 4 of this
Act shall not apply to shares of any compa­
ny organized under the laws of a foreign
country (or to shares held by such compa­
ny in any company engaged in the same
general line of business as the investor com­
pany or in a business related to the business
28

Regulation K
of the investor company) that is principally
engaged in business outside the United
States if such shares are held or acquired by
a bank holding company organized under
the laws of a foreign country that is princi­
pally engaged in the banking business out­
side the United States, except that (1) such
exempt foreign company (A) may engage
in or hold shares of a company engaged in
the business of underwriting, selling or dis­
tributing securities in the United States
only to the extent that a bank holding com­
pany may do so under this Act and under
regulations or orders issued by the Board
under this Act, and (B) may engage in the
United States in any banking or financial
operations or types of activities permitted
under section 4 (c)(8 ) or in any order or
regulation issued by the Board under such
section only with the Board’s prior approv­
al under that section, and (2) no domestic
office or subsidiary of a bank holding com­
pany or subsidiary thereof holding shares of
such company may extend credit to a do­
mestic office or subsidiary of such exempt
company on terms more favorable than
those afforded similar borrowers in the
United States.
[12 USC 1 8 4 1 (h )(2 ). A s added by act of Sept. 17, 1978
(92 Stat. 623).]

SECTION 4 * * *
(c) The prohibitions in this section shall not
apply to any bank holding company which is
(i) a labor, agricultural, or horticultural orga­
nization and which is exempt from taxation
under section 501 of the Internal Revenue
Code of 1954, or (ii) a company covered in
1970 more than 85 per centum of the voting
stock of which was collectively owned on June
30, 1968, and continuously thereafter, directly
or indirectly, by or for members of the same
family, or their spouses, who are lineal de­
scendants of common ancestors; and such
prohibitions shall not, with respect to any oth­
er bank holding company, apply to—
*

*

*

*

*

(9) shares held or activities conducted by
any company organized under the laws of a
foreign country the greater part of whose
business is conducted outside the United

Regulation K

Statutory Provisions

States, if the Board by regulation or order de­
termines that, under the circumstances and
subject to the conditions set forth in the regu­
lation or order, the exemption would not be
substantially at variance with the purposes of
this Act and would be in the public interest;
*

*

*

*

*

(13) shares of, or activities conducted by,
any company which does no business in the
United States except as an incident to its
international or foreign business, if the
Board by regulation or order determines
that, under the circumstances and subject
to the conditions set forth in the regulation
or order, the exemption would not be sub­
stantially at variance with the purposes of
this Act and would be in the public interest.
(14) shares of any company which is an
export trading company whose acquisition
(including each acquisition of shares) or
formation by a bank holding company has
not been disapproved by the Board pursu­
ant to this paragraph, except that such in­
vestments, whether direct or indirect, in
such shares shall not exceed 5 per centum
of the bank holding company’s consolidated
capital and surplus.
(A )(i) No bank holding company shall
invest in an export trading company
under this paragraph unless the Board
has been given sixty days’ prior written
notice of such proposed investment
and within such period has not issued
a notice disapproving the proposed in­
vestment or extending for up to anoth­
er thirty days the period during which
such disapproval may be issued.
(ii) The period for disapproval may
be extended for such additional thirtyday period only if the Board deter­
mines that a bank holding company
proposing to invest in an export trad­
ing company has not furnished all the
information required to be submitted
or that in the Board’s judgment any
material information submitted is sub­
stantially inaccurate.
(iii) The notice required to be filed by
a bank holding company shall contain
such relevant information as the Board

shall require by regulation or by specif­
ic request in connection with any par­
ticular notice.
(iv) The Board may disapprove any
proposed investment only if—
(I) such disapproval is necessary to
prevent unsafe or unsound banking
practices, undue concentration of re­
sources, decreased or unfair compe­
tition, or conflicts of interest;
(II) the Board finds that such in­
vestment would affect the financial
or managerial resources of a bank
holding company to an extent which
is likely to have a materially adverse
effect on the safety and soundness of
any subsidiary bank of such bank
holding company, or
(III) the bank holding company
fails to furnish the information re­
quired under clause (iii).
(v) Within three days after a decision
to disapprove an investment, the
Board shall notify the bank holding
company in writing of the disapproval
and shall provide a written statement
of the basis for the disapproval.
(vi) A proposed investment may be
made prior to the expiration of the dis­
approval period if the Board issues
written notice of its intent not to disap­
prove the investment.
(B )(i) The total amount of extensions of
credit by a bank holding company
which invests in an export trading
company, when combined with all
such extensions of credit by all the sub­
sidiaries of such bank holding compa­
ny, to an export trading company shall
not exceed at any one time 10 per cen­
tum of the bank holding company’s
consolidated capital and surplus. For
purposes of the preceding sentence, an
extension of credit shall not be deemed
to include any amount invested by a
bank holding company in the shares of
an export trading company.
(ii) No provision of any other Federal
law in effect on October 1, 1982, relat­
ing specifically to collateral require­
ments shall apply with respect to any
such extension of credit.
29

Statutory Provisions
(iii) No bank holding company or
subsidiary of such company which in­
vests in an export trading company
may extend credit to such export trad­
ing company or to customers of such
export trading company on terms
more favorable than those afforded
similar borrowers in similar circum­
stances, and such extension of credit
shall not involve more than the normal
risk of repayment or present other un­
favorable features.
(C) For purposes of this paragraph, an
export trading company—
(i) may engage in or hold shares of a
company engaged in the business of
underwriting, selling, or distributing
securities in the United States only to
the extent that any bank holding com­
pany which invests in such export
trading company may do so under ap­
plicable Federal and State banking
laws and regulations; and
(ii) may not engage in agricultural
production activities or in manufactur­
ing, except for such incidental product
modification including repackaging,
reassembling or extracting byproducts,
as is necessary to enable United States
goods or services to conform with re­
quirements of a foreign country and to
facilitate their sale in foreign countries.
(D ) A bank holding company which in­
vests in an export trading company may
be required, by the Board, to terminate
its investment or may be made subject to
such limitations or conditions as may be
imposed by the Board, if the Board deter­
mines that the export trading company
has taken positions in commodities or
commodity contracts, in securities, or in
foreign exchange, other than as may be
necessary in the course of the export
trading company’s business operations.
(E) Notwithstanding any other provi­
sion of law, an Edge Act corporation, or­
ganized under section 25(a) of the Fed­
eral Reserve Act (12 U.S.C. 611-631),
which is a subsidiary of a bank holding
company, or an agreement corporation,
operating subject to section 25 of the
Federal Reserve Act (12 U.S.C. 60130

Regulation K
604(a)), which is a subsidiary of a bank
holding company, may invest directly
and indirectly in the aggregate up to 5
per centum of its consolidated capital
and surplus (25 per centum in the case of
a corporation not engaged in banking) in
the voting stock or other evidences of
ownership in one or more export trading
companies.
(F) For purposes of this paragraph—
(i) the term “export trading compa­
ny” means a company which does
business under the laws of the United
States or any State, which is exclusive­
ly engaged in activities related to inter­
national trade, and which is organized
and operated principally for purposes
of exporting goods or services pro­
duced in the United States or for pur­
poses of facilitating the exportation of
goods or services produced in the
United States by unaffiliated persons
by providing one or more export trade
services.
(ii) the term “export trade services”
includes, but is not limited to, consult­
ing, international market research, ad­
vertising, marketing, insurance (other
than acting as principal, agent or bro­
ker in the sale of insurance on risks
resident or located, or activities per­
formed, in the United States, except
for insurance covering the transporta­
tion of cargo from any point of origin
in the United States to a point of final
destination outside the United States),
product research and design, legal as­
sistance, transportation, including
trade documentation and freight for­
warding, communication and process­
ing of foreign orders to and for export­
ers and foreign purchasers, warehous­
ing, foreign exchange, financing, and
taking title to goods, when provided in
order to facilitate the export of goods
or services produced in the United
States;
(iii) the term “bank holding compa­
ny” shall include a bank which (I) is
organized solely to do business with
other banks and their officers, direc­
tors, or employees; (II) is owned pri-

Regulation K
marily by the banks with which it does
business; and (III) does not do busi­
ness with the general public. No such
other bank, owning stock in a bank de­
scribed in this clause that invests in an
export trading company, shall extend
credit to an export trading company in
an amount exceeding at any one time
10 per centum of such other bank’s
capital and surplus; and
(iv) the term “extension of credit”
shall have the same meaning given
such term in the fourth paragraph of
section 23A of the Federal Reserve
Act.
[12 USC 1843(c). As amended by Acts o f July 1, 1966 (80
Stat. 238); Dec. 31, 1970 (84 Stat. 1763); Nov. 16, 1977
(91 Stat. 1389); Nov. 10, 1978 (92 Stat. 3671); and Oct. 8,
1982 (96 Stat. 1236).]

BANK EXPORT SERVICES ACT
SECTION 205
On or before two years after the date of the
enactment of this Act, the Federal Reserve
Board shall report to the Committee on Bank­
ing, Housing, and Urban Affairs of the Senate
and the Committee on Banking, Finance and
Urban Affairs of the House of Representatives
the Board’s recommendations with respect to
the implementation of this section, the
Board’s recommendations on any changes in
United States law to facilitate the financing of
United States exports, especially by small, medium-size, and minority business concerns,
and the Board’s recommendations on the ef­
fects of ownership of United States banks by
foreign banking organizations affiliated with
trading companies doing business in the Unit­
ed States.
[12 USC 1843 note. The date o f enactment referred to
above is O ctober 8, 1982.]

INTERNATIONAL BANKING ACT
OF 1978
SECTION 3
(a) It is the purpose of this section to elimi­
nate or modify provisions in section 25(a) of
the Federal Reserve Act that (1) discriminate
against foreign-owned banking institutions,

Statutory Provisions
(2) disadvantage or unnecessarily restrict or
limit corporations organized under section
25(a) of the Federal Reserve Act in compet­
ing with foreign-owned banking institutions in
the United States or abroad or (3) impede the
attainment of the Congressional purposes set
forth in section 25 (a) of the Federal Reserve
Act as amended by subsection (b) of this sec­
tion. In furtherance of such purpose, the Congrees believes that the Board should review
and revise its rules, regulations, and interpre­
tations issued pursuant to section 25(a) of the
Federal Reserve Act to eliminate or modify
any restrictions, conditions, or limitations not
required by section 25(a) of the Federal Re­
serve Act, as amended, that (1) discriminate
against foreign-owned banking institutions,
(2) disadvantage or unnecessarily restrict or
limit corporations organized under section
25(a) of the Federal Reserve Act in compet­
ing with foreign-owned banking institutions in
the United States or abroad, or (3) impede
the attainment of the Congressional purposes
set forth in section 25(a) of the Federal Re­
serve Act as amended by subsection (b) of
this section. Rules and regulations pursuant to
this subsection and section 25(a) of the Fed­
eral Reserve Act shall be issued not later than
150 days after the date of enactment of this
section and shall be issued in final form and
become effective not later than 120 days after
they are first issued.
*

*

*

*

*

(g) The Board shall report to the Congress
not later than 270 days after the date of enact­
ment of this Act its recommendations with re­
spect to permitting corporations organized or
operating under section 25 or 25(a) of the
Federal Reserve Act, to become members of
Federal Reserve Banks.
(h) As part of its annual report pursuant to
section 10 of the Federal Reserve Act, the
Board shall include its assessment of the ef­
fects of the amendments made by this Act on
the capitalization and activities of corpora­
tions organized or operating under section 25
or 25(a) of the Federal Reserve Act, and on
commercial banks and the banking system.
[12 USC 611a note. The date of enactment referred to
above is September 17, 1978.]

31

f
Statutory Provisions

( f

------------------------------------------------------------------------------------- -—

SECTION 5
(a) Except as provided by subsection (b),
(1) no foreign bank may directly or indirectly
establish and operate a Federal branch outside
of its home State unless (A ) its operation is
expressly permitted by the State in which it is
to be operated, and (B) the foreign bank shall
enter into an agreement or undertaking with
the Board to receive only such deposits at the
place of operation of such Federal branch as
would be permissible for a corporation orga­
nized under section 25(a) of the Federal Re­
serve Act under rules and regulations admin­
istered by the Board; (2) no foreign bank may
directly or indirectly establish and operate a
State branch outside of its home State unless
(A ) it is approved by the bank regulatory au­
thority of the State in which such branch is to
be operated, and (B) the foreign bank shall
enter into an agreement or undertaking with
the Board to receive only such deposits at the
place of operation of such State branch as
would be permissible for a corporation orga­
nized under section 25(a) of the Federal Re­
serve Act under rules and regulations admin­
istered by the Board; (3) no foreign bank may
directly or indirectly establish and operate a
Federal agency outside of its home State un­
less its operation is expressly permitted by the
State in which it is to be operated; (4) no
foreign bank may directly or indirectly estab­
lish and operate a State agency or commercial
lending company subsidiary outside of its
home State, unless its establishment and oper­
ation is approved by the bank regulatory au­
thority of the State in which it is to be operat­
ed; and (5) no foreign bank may directly or
indirectly acquire any voting shares of, inter­
est in, or substantially all of the assets of a

32

Regulation K

t-----------------------------------------------------------

bank located outside of its home State if such
acquisition would be prohibited under section
3(d) of the Bank Holding Company Act of
1956 if the foreign bank were a bank holding
company the operations of whose banking
subsidiaries were principally conducted in the
foreign bank’s home State. Notwithstanding
any other provisions of Federal or State law,
deposits received by any Federal or State
branch subject to the limitations of an agree­
ment or undertaking imposed under this sub­
section shall not be subject to any requirement
of mandatory insurance by the Federal De­
posit Insurance Corporation.
(b) Unless its authority to do so is lawfully
revoked otherwise than pursuant to this sec­
tion, a foreign bank, notwithstanding any re­
striction or limitation imposed under subsec­
tion (a) of this section, may establish and op­
erate, outside its home State, any State
branch, State agency, or bank or commercial
lending company subsidiary which com­
menced lawful operation lending company
subsidiary which commenced lawful opera­
tion or for which an application to commence
business had been lawfully filed with the ap­
propriate State or Federal authority, as the
case may be, on or before July 27, 1978.
(c) For the purposes of this section, the
home State of a foreign bank that has branch­
es, agencies, subsidiary commercial lending
companies, or subsidiary banks, or any combi­
nation thereof, in more than one State, is
whichever of such State is so determined by
election of the foreign bank, or, in default of
such election, by the Board.
[12 u s e 3103.]