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F ederal
reserve
Ba n k
DALLAS, TEXAS
of
Dallas
75222
C irc u la r No. 79-201
December 10, 1979
REGULATION K— IN TE R N A TIO N A L BANKING OPERATIONS
Notice of Proposed Rulem aking Relating to
Interstate Banking Restrictions for Foreign Banks
TO A L L MEMBER BANKS,
BANK HOLDING COMPANIES
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE D IS T R IC T:
T h e Board of G overnors of the Federal Reserve System has issued
proposed amendments to its Regulation K w hich would lim it the interstate banking
a c tivities of fo reig n banks in the United States. T h is proposal would implement
the provisions of the International Banking A ct of 1978 w hich re s tric ts the estab
lishment of branches and s u b sid iary banks by a foreig n bank outside its "home
state". In this same action, the Board issued a proposed in terp retatio n to
Section 2 1 1 .2 (b ) of the proposed am endments, w hich defines "agency" for the
purposes of Regulation K.
Enclosed is a copy of the Board's press release announcing the proposal
and the notices as published in the FederaI R e g is te r. A ny comments or view s
should be submitted in w ritin g to Theodore E. A llis o n , S e c re ta ry , Board of
G overnors of the Federal Reserve System, W ashington, D .C . 20551 and should
be received by Jan uary U, 1980. A ll m aterial submitted concerning the proposed
amendments should include docket num ber R -0258 and comments re g a rd in g the
proposed in terp re tatio n should reference docket num ber R -0259.
A n y questions on the proposed amendments or in terp retatio n should
be d irected to M s. S h e rry C o n ley, Senior A tto rn e y , of our Holding Company
S upervisio n Departm ent, E x t. 6182.
S in ce re ly y o u rs ,
Robert H . Boykin
F irs t V ic e President
Enclosure
Banks and others are encouraged to use the fo llo w in g incom ing WATS num bers in c o n ta c tin g th is 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.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
62902
Federal Register / Vol. 44, No. 213 / Thursday, November 1 1979 / Proposed Rules
,
FEDERAL RESERVE SYSTEM
12 CFR Part 211
[Reg. K; Docket No. R-0259]
International Banking Operation;
Interstate Banking Restrictions For
Foreign Banks
AGENCY: Board
of Governors of the
Federal Reserve System.
a c tio n : Proposed interpretation.
SUMMARY: The Board of Governors of
the Federal Reserve System has issued
an interpretation of section 211.2(b) of
its proposed amendments to the Board's
Regulation K (12 CFR § 211), which
defines “agency” for the purposes of
Regulation K.
d a te : Comments must be received by
January 4,1980.
ADDRESS: Comments, which should refer
to Docket No. R-0259, may be mailed to
Theodore E. Allison, Secretary, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, Northwest Washington, D.C.
20551, or delivered to Room B-2223
between 8:45 ajn. and 5:15 p.m.
Comments received may be inspected at
Room B-1122 between 8:45 a.m. and 5:15
p.m., except as provided in section
261.6(a) of the Board's Rules Regarding
Availability of Information (12 CFR
5 261.6(a)).
FOR FURTHER INFORMATION CONTACT:
C.
Keefe Hurley, Jr., Senior Counsel (202/
452-3269), or }ames S. Keller, Attorney
(202/452-3582), Legal Division, Board of
Governors of the Federal Reserve
System.
s u p p le m e n ta ry in fo r m a tio n : Section
5(a) of the International Banking Act of
1978 (12 U.S.C. 3101 et seq.) (“IBA”)
provides that, with the exception of
grandfathered offices, no foreign bank
may directly or indirectly establish and
operate either a Federal or a State
branch outside its “home State” unless
the foreign bank enters into an
agreement or undertaking with the
Board to accept only such deposits at
the out-of-home State branch as would
be permissible for an Edge Corporation.
Under the Edge Act (12 U.S.C. 611 et
seq.). Edge Corporations may only
receive deposits in the U.S. 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.” In
addition to the requirement of an
agreement to restrict deposit-taking, a
Federal branch or agency may be
established or operated outside) a
foreign bank's home State only if the
operation of such an office is expressly
permitted by the receiving State, while a
State branch, agency or commercial
lending company may be established
outside a foreign bank's home State only
if it is approved by the bank regulatory
authority of the. receiving State.
Subsection (a) also prohibits a foreign
bank from acquiring directly or
indirectly an interest in a bank located
outside of the foreign bank’s home State
if the acquisition would be prohibited
under section 3(d) of the Bank Holding
Company Act (“BHCA") if the foreign
bank were a bank holding company
whose State of principal banking
operations was the foreign bank’s home
State.
Subsection 5(b) grandfathers for
purposes of the interstate banking
restrictions, any branch, agency, bank or
commercial lending company subsidiary
that commenced operation or for which
an application to commence business
had been filed on or before July 27,1978.
Subsection 5(c) provides that the home
State of a foreign bank that has any
combination of branches, agencies,
subsidiary lending companies, or
subsidiary banks, in more than one
State, is whichever State is chosen by
the foreign bank (or by the Board in the
event the foreign bank does not make a
choice).
California offices. Section 1(b) of the
IBA defines “agency” as an office that
maintains credit balances but at which
“deposits may not be accepted from
citizens or residents of the United
States,” while it defines “branch” as any
office “at which deposits are received.”
While offices of foreign banks in
California have generally been
prohibited from accepting deposits by a
requirement of State law that such
offices obtain Federal deposit insurance
(an office of a foreign bank could not
obtain such insurance before the
passage of the IBA), California law does
permit officers of foreign banks, with
approval of the Banking Department, to
accept deposits from any person that
resides, is domiciled and maintains its
principal place of business in a foreign
country. Therefore, according to a literal
reading of the IBA, a California office of
a foreigh bank that accepts deposits
from certain foreign sources (e.g., a U.S.
citizen residing abroad) is a branch
rather than an agency. If die Board were
to determine such an office, established
or applied for prior to Jiily 27,1978, to be
a branch rather than an agency, then it
would be grandfathered as a branch.
Accordingly, a foreign bank in this
situation could elect a State other than
California a s its home State, obtain
deposit insurance, and convert its
California office to a full domestic
deposit-taking facility. If, however, the
Board were to determine Bdch an office
to be an "agency,” then it would be
grandfathered as such and could not
expand its deposit-taking capabilities
(unless the foreign bank selected
California as its home State). The
proposed interpretation indicates that,
for purposes of section 5 of the IBA, the
Board w ill regard offices of foreign
banks that accept foreign source
deposits, but not domestic deposits, as
agencies rather than branches. Both the
legislative history of section 5 of the IBA
and the purposes of that section support
such an interpretation. Furthermore,
funds that may be received by these
California offices are the type that Edge
Corporations and, therefore, branches
established and operated outside of a
foreign bank's home State may receive.
Treating these offices as agencies
appears to be consistent with their
method o f operation and with the
purpose o f section 5 of the IBA.
Pursuant to its authority under the
International Banking Act of 1978 (12
U.S.C. 3101 et seq.), the Board has issued
the following interpretation of its
proposed amendments to section
211.2(b) of its Regulation K:
S 211.113 G randfather status of certain
agencies fo r purposes of the
International Banking Act restrictions
on interstate banking operations.
The Board has considered the
question of whether a foreign bank's
California office that may accept
deposits from certain foreign sources
(e.g., a United States citizen residing
abroad) is a branch or an agency for the
purposes of the grandfather provisions
of the International Banking Act of 1978
(12 U.S.C. 3103(b)). The question has
arisen as a result of the definitions in
the International Banking Act of
“branch" and "agency,” and the limited
deposit-taking capabilities of certain
California offices of foreign banks.
The International Banking A ct defines
“agency” as “any office . . . at which
deposits may not be accepted from
citizens or residents of the United
States,” and defines “branch” as “any
of f i ce. . . of a foreign b a n k . . . at which
deposits are received” (12 U.S.C. 3101
(1) and (3]). Offices of foreign banks in
California prior to the International
Banking Act were generally prohibited
from accepting deposits by the
requirement of State law that such
Federal Register / Vol. 44, No. 218 / Thonday, November 1, TO79 / Propoeed Rules
offices obtain Federal deposit insurance
(Cal. Fin. Code 8 1796]; antil the passage
of the International Banking Act an
office of a foreign bank could not obtain
such insurance. California law, however,
permits offices of foreign banks, with
the approval of the Banking Department,
to accept deposits from any person that
resides, is domiciled, and maintains its
principal place of business in a foreign
country (Cal. Fin. Code § 1756.2). Thus,
under a literal reading of the definitions
of "branch” and “agency” contained in
the International Banking Act, a foreign
bank’s California office that accepts
deposits from certain foreign sources
(e.g., a U.S. citizen residing abroad], is a
branch rather than an agency.
Section 5 of the IBA establishes
certain limitations on the expansion of
the domestic deposit-taking capabilities
of a foreign bank outside its home State.
It also grandfathers offices established
or applied for prior to July 27,1978, and
permits a foreign bank to select its home
State from among the States in which it
operated branches and agencies on the
grandfather date. If a foreign bank’s
office that was established or applied
for prior to June 27,1978, is a “branch”
as defined in the International Banking
Act, then it is grandfathered as a
branch. Accordingly, a foreigh bank
could designate a State other then
California as its home State and
subsequently convert its California
office to a full domestic deposit-taking
facility by obtaining Federal deposit
insurance. If, however, the office is
determined to be an "agency,” then it is
grandfathered as such and the foreign
bank may not expand its deposit-taking
capabilities in California without
declaring California its home State.
In the Board's view, it would be
inconsistent with the purposes and the
legislative history of the International
Banking Act to enable a foreign bank to
expand its domestic interstate deposittaking capabilities by grandfathering
these California offices as branches
because of their ability to receive
certain foreign source deposits. The
Board also notes that such deposits are
of the same type that may be received
by an Edge Corporation and, hence, in
accordance with section 5(a) of the
International Banking Act, by branches
established and operated outside a
foreign bank’s home State. It would be
inconsistent with the structure of the
interstate banking provisions of the
International Banking Act to grandfather
as full deposit-taking offices those
facilities whose activities have been
determined by Congress to be
appropriate for a foreign bank's out-of
home State branches.
A c c o r d in g , the Board, in
adnrinisterfeig the interotate banking
provisions of the IBA, regards as
agencies those offices o f foreign banks
that do not accept dom estic deposits but
that may accept deposits from any
person, that resides, is domiciled, and
maintains its principal place of business
in a foreign country.
Board of Governors of the Federal Reserve
System, October 29,1979.
Theodore E. Allison,
Secretary of the Board.
[FR Doc. 79-33833 F l d1 - 1 7 :&45 am]
ie 03-9
BILLING CODE 6210-01-M
12 CFR Part 211
[R eg . K; D o cket No. R -0 25 8 ]
International Banking Operations;
Interstate Banking Restrictions for
Foreign Banks
Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.
AGENCY:
The International Banking
Act of 1978 limits the expansion of the
interstate domestic deposit-taking
capabilities of foreign banks by
restricting the establishment of branches
and subsidiary banks by a foreign bank
outside of its “home State.” The
proposed amendments to Regulation K
(International Banking Operations]
implement these provisions of the
International Banking Act.
DATE: Comments must be received by
January 4 , 1980.
SUMMARY:
Comments, which should refer
to Docket No. R-0258, may be mailed to
Theodore E. Allison, Secretary, Board of
Governors of the Federal ReserVe
System, 20th Street and Constitution
Avenue, Northwest, Washington, D.C.
20551, or delivered to Room B-2223
between 8:45 a.m. and 5:15 p.m.
Comments received may be inspected at
Room B-1122 between 8:45 a.m. and 5:15
p.m., except as provided in section
281.6(a] of the Board's Rules Regarding
Availability of Information (12 CFR
§ 261.0(a)).
ADDRESS:
FOR FURTHER INFORMATION CONTACT:
C.
Keefe Hurley, Jr., Senior Counsel (202/
452-3269), or James S. Keller, Attorney
(202/452-3582), Legal Division, Board of
Governors of the Federal Reserve
System.
SUPPLEMENTARY INFORMATION: Section
5(a) of the International Banking Act of
1978 (12 U.S.C. 3101 et aeq.) ("IBA”)
provides that, with the exception of
grandfathered offices, ne foreign bank
may directly or indirectly establish and
operate either a Federal or a State
629B8
branch ontside its “home State” unless
the foreign bank enters into an
agreement or undertaking with the
Board to accept only such deposits at
the out-of-home State branch as would
be permissible for an Edge Corporation
(such agreement to be filed on a form
provided by the Board). Under the Edge
Act (12 U.&C. 611 mt aeq.\. Edge
Corporations may only receive deposits
in the U.S. an may be “incidental to or
for the purpose of carrying oat
transactions m foreign countries or
dependencies or insular possessions of
the United States.” In addition to the
requirement of an agreement to restrict
deposit-taking, a Federal branch or
agency may be established or operated
outside a foreign bank's home State only
if the-operation of such an office is
expressly permitted by the receiving
State, while a State branch, agency or
commercial lending company may be
established outside a foreign bank's
home State only if it is approved by the
bank regulatory authority of the
receiving State. Subsection (a) also
prohibits a foreign bank from acquiring
directly or indirectly an interest in a
bank located outside of the foreign
bank's home State if the acquisition
would be prohibited under section 3(d)
of the Bank Holding Company Act
(“BHCA”) if the foreign bank were a
bank holding company whose State of
principal banking operations was the
foreign bank’s home State.
Subsection 5(b) grandfathers for
purposes of the interstate banking
restrictions any branch, agency, bank or
commercial lending company subsidiary
that commenced operation or for which
an application to commence business
had been filed on or before July 27,1978.
Subsection 5(c] provides that the home
State of a foreign bank that has any
combination of branches, agencies,
subsidiary lending companies, or
subsidiary banks, in more than one
State, is whichever State is chosen by
the foreign bank (or by the Board in the
event the foreign bank does not make a
choice).
Several issues arise in connection
with the interstate restrictions of the
IBA that are not addressed in the
statute. The Board has attempted to
resolve these issues in a manner
consistent with the purposes of section 5
and its legislative history. There follows
a discussion of the issues unresolved by
section 5 and the Board’s proposed
responses.
Selection of Home State. Section 5(c)
is silent as to die appropriate home
State of a foreign bank that ekher has
one deposit-taking office in the United
States or is making its initial deposit-
62904
Federal Register / Vol. 44, No. 213 / Thursday, November 1 1979 / Proposed Rules
,
taking entry into the United States. The
statute also makes no distinction
between foreign banks with deposittaking offices (i.e. branches or
subsidiary banks) and foreign banks
that have have only non-deposit-taking
offices (i.e. agencies or commercial
lending company subsidiaries].
The legislative history of section 5
indicates Congress’ intent that the home
State of a foreign bank having no
deposit-taking operations in the United
States be the State in which that foreign
bank opens its initial deposit-taking
office. Conisitent with this expressed
intent, the Board proposes that: (1) a
foreign bank with no deposit-taking
offices in the U.S., even though it may
have offices in more than one State that
do not take deposits, is not required to
select a home State; and (2) the home
State of a foreign bank with one branch
or subsidiary bank, and no other offices,
in the United States is the State in which
that branch or subsidiary bank is
located.
The Board proposes that a foreign
bank with more than one office as of the
grandfather date, one of which accepts
domestic deposits, be required to select
a home State within 90 days after the
Board’s regulations on this matter
become final. In the event a foreign
bank fails to select a home State, the
Board proposes to exercice its authority
to determine a foreign bank's home
State. The Board proposes to use a test
analogous to that used in section 3(d) of
the BHCA for determining the home
State of a bank holding company (that
State in which the total deposits of all
its banking subsidiaries is largest] to
determine a foreign bank’s home State.
In applying this test to foreign banks, the
deposits as of the latest report of
condition would be determinative in the
Board’s designating a home State for a
foreign bank that fails to do so.
Change of Home State. No provision
in the IBA explicitly allows a foreign
bank to change its home State.
Nevertheless, it is clear from the
legislative history of this section that
Congress intended that the Board
provide by regulation “a suitable
procedure for registering with the
Federal Reserve the home State and for
changing it.” In this regard, the most
relevant consideration with respect to
the change of home State for any foreign
bank would be whether, and to what
extent, the foreign bank has made use of
its current home State to establish
additional deposit-taking offices. The
Board recognizes that the ability of a
foreign bank to change its home State
could, if unrestricted, afford a foreign
bank ■significant advantage over a
domestic bank. A domestic bank is, for
the most part, restricted to operating in
the State where it is organized and,
depending upon State law, may be
restricted to a particular city or county.
In order to afford a foreign bank some
flexibility in its operations without
causing competitive imbalance, the
Board proposes that a foreign bank be
permitted to change its home State only
once, and that such a change in home
State be conditioned upon the foreign
bank: (1) either closing branches opened
in reliance on its original home State
designation, converting the branches to
agencies or entering into an agreement
with the Board regarding deposit-taking
at such branches as prescribed in
section 5(a] of the IBA, and (2) divesting
any interests acquired in banks in
reliance upon its original home State
designation. This procedure would be
self-implementing in that it would
require notification to the Board but no
Board action (unless divestiture should
require a control determination under
section 2(g)(3) of the BHCA).
Out-of-home State mergers. Under
section 5(a) of the IBA and section 3(d)
of the BHCA, a foreign bank with a
subsidiary bank in one State (State X)
and a branch in another State (State Y),
that declares State Y as its home State
is prohibited from: (1) acquiring more
than 5 per cent of the shares of an
additional bank in State Y (by the
provisions of section 3(d) of die BHCA);
or (2) acquiring more that 5 per cent of
the shares of an additional bank in State
X (by the provisions of section 5(a)(5) of
the IBA). The Board is concerned that a
foreign bank might be able to acquire an
additional bank by m erger in State X
and at the same time continue to expand
its deposit-taking capabilities in State Y
by further branching.
The ability of a foreign bank to
expand its deposit-taking capabilities
significantly in more than one State
appears to contravene the intent of
section 5. Accordingly, the Board
proposes that a foreign bank with a
subsidiary bank (or banks) and
branches located in different States that
chooses as its home State a State other
than where its subsidiary bank is
located be required to give the Board 60
days’ notice prior to acquiring all or
substantially all of the assets of a bank
outside its home State. The Board would
then make a determination as to
whether the foreign bank should be
required to show cause as to why its
home State should not b&changed to the
State where it subsidiary bank is
located. Absent an adequate showing by
the foreign bank, the home State of the
foreign bank would be redesignated
upon consummation of the transaction.
Redesignation would require that the
foreign bank terminate any domestic
deposit-taking operations undertaken as
a result of its original home State
selection. In addition, the foreign bank
would be precluded from future
expansion of its domestic deposit-taking
capability in its original home State.
Such a procedure would enable the
Board to ensure that home State
selection is not used in a manner to
circumvent the domestic deposit
limitations of the IBA.
The factors to be considered by the
Board in making its preliminary and
final determinations would include: the
size of the proposed acquisition relative
to the foreign bank’s other operations in
the United States; the ability of the
foreign bank to change its home State;
and the existence of other potential
acquirers.
Credit balances. As discussed, the
interstate restrictions of the IBA were
designed to limit the future deposittaking capabilities of foreign banks.
Therefore, agencies and commercial
lending companies, which by law may
not receive deposits, are not affected by
the restrictions. Agencies do, however,
receive funds in the form of credit
balances, which have many of the
characteristics of deposits. While the
distinction between credit balances and
deposits is a narrow one, it is this
distinction that separates a branch from
an agency. Currently each State
determines the types of funds that may
be maintained in the form of credit
balances. Since these determinations
have been made, for the most part,
through the regulations or
administrative practices of the State
banking authorities rather than by
statute, there is variation from State to
State as to what constitutes a
permissible credit balance. The Board is
proposing, therefore, minimum criteria
by which an account, if it satisfies the
criteria, would be presumed to be a
credit balance. The Board believes that,
absent a workable Federal standard for
determining whether an account at an
office of a foreign bank is a credit
balance or a deposit, the interstate
banking restrictions of the IBA would be
difficult to enforce.
The criteria proposed by the Board
may be divided according to the sources
of funds placed as credit balances and
the uses of such accounts.
Sources. 1. Funds must be derived
from the exerise of other lawful banking
powers;
2. Funds must be placed in an account
to serve a specific purpose; and
3. Funds may not be solicited from the
general public.
Federal Register / Vol. 44, No. 213 / Thursday, November 1 1979 / Proposed Rulea
,
Uses. 1. Account* may sot be used to
pay operating expenses in the United
States such an salaries, rertt or taxes;
2. Funds must be withdrawn within a
reasonable period of time after the
specific purpose for which they were
placed in the account has been
accomplished; and
3. Draft usage must be reasonable in
relation to the size and nature of the
accounts.
These proposes minimum criteria are
generally consistent with standards that
have been applied by the Board as well
as by States through their statutes,
regulations and practices governing
credit balances.
Attribution of home State. Section 5 of
the IBA states that “no foreign bank
may directly or indirectly establish and
operate a Federal [or State] branch
outside of its home State.” Under
section 2(A)(2)(a) of the BHCA, a
company is considered to control a bank
or another company if the company
directly or indirectly has the power to
vote 25 per cent or more of any claBs of
voting shares of the bank or company.
The Board believes that, in
consideration of the differences between
banking in foreign countries and
banking in the United States, this
statutory test for determining control of
banks and companies should not be
imposed upon foreign organizations.
Rather, the Board proposes that the test
for what constitutes acting indirectly be
ownership or control of a majority of the
voting shares of a bank. While majority
ownership would be a conclusive
presumption of ownership or control, the
Board would reserve the right to
determine administratively whether the
ownership of less than a majority of the
voting shares constituted acting
indirectly. Under this proposal, the
Board would treat as one organization
entitled to one home State a foreign
bank or company and its majority
owned subsidiaries. Also treated as a
part of the same organization would be
those siftsidiaries that the Board
determines after notice and opportunity
for a hearing are arituaBy controlled by
the foreign organization.
Pursuant to tts authority under the
International Bariking Act of 1978 (12
U.S.C. 3101 et'seq.), the Board proposes
to amend Regulation^ fI2‘CFR Part 211)
as follows:
1. Section 211.1 ffe) wcnfid sbe revised
to read as follows:
§211.1
A uthority, purpose, and acopa.
(b) Purpose and scope. This Part is in
furtherance of the>purposes af the FRA,
the BHCA, and the IBA. ft applies to
corporations organized under section
25(a) of the FRA (12 U.S.C. flll-MI),
“Edge Corporations"; to corporations
having an agreem ents andertaking
with the Board under section 25 of the
FRA {12 &S.C. 601-4 0 4 (a )), “Agreement
Corporation”; to member banks with
respect to their foreign branches and
investments in foreign banks under
section 25 of the FRA (12 U.S.C. 601604(a));1to bank holding companies with
respect to the exemption from the
nonbanking prohibitions of the BHCA
afforded by section 4(c)(13) of the BHCA
(12 U.S.C. 1843(c)(13)); and to foreign
banks with respect to the limitations on
interstate banking under section 5 of the
IBA (12 U.S.C. 3103).
2.
Section 211.2 is amended by adding
definitions of the terms “Agency,”
"Banking subsidiary,” “Commercial
lending company,” and “Domestic
branch," and by adding a sentence at
the end of the definition of “Foreign
Bank.” Paragraph designations are
revised where appropriate to maintain
alphabetical arrangement of the terms.
As amended, the section reads as
follows:
§2 11.2
D efinitions.
For the purposes of this part:
(a) An “affiliate"***
(b) “Agency” means any office or any
place of business of a foreign bank
located in any State of the United States
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. An account will not be
considered a credit balance unless funds
placed in the account: (1) are derived
from the exercise of other lawful
banking powers; (2) are to serve a
specific purpose; (3) are not solicited
from the general public; (4) are not used
to pay operating expenses in the United
States such as salaries, rent or taxes; (5)
are withdrawn within a reasonable
period of time after the specific purpose
for which they were placed there has
been accomplished; and (6) are drawn
upon a manner reasonable in relation to
the size and nature of the account.
(c) “Banking subsidiary,” with respect
to a specified foreign bank, means a
United States bank that is a subsidiary
as those terms are defined in section 2
of the BHCA (12 U.S.C. 1841).
(d)-"Capltal and surplus’* "*
(ej “Commercial lending company”
means any institution, other than a bank
or an organization operating under
section 25 of the FRA, organized under
the laws of any State of die United
States or the District of Columbia, which
1 Section 25 of the FRA, which refers to national
banking associations, also applies to State member
banks of the Federal Reserve System by virtue of
section 9 of the FRA (12 U.S.C. 321).
62905
maintains oadit balance* wad engages
in the bnana o ft talna g w ra e rc ia l
loans. An account soil a rt he
considered a crsdit hwiaece unless funds
placed in the Bccmdt coafona to the
criteria lfit'forth in the definition off
“agency” n wbseetion (b) of this
section.
(f) “Directly or nwfoectly”***
(g) “Domestic branch*' means any
office or any place of business of a
foreign bank located m any State of die
United-States that may accept domestic
deposits and deposits that are incidental
to or for die purpose of carrying out
transaction in foreign countries or
dependencies or insular possessions of
the United States.
(h) An Edge Corporation is "engaged
in banking” ***
(i) “Engaged in business in the United
States”***
( j ) '“Foreign” o t “foreign country”***
(k) "Foreign bank”***. For purposes of
§ 211.8 of this Part, an institution
organized under the laws of a foreign
country that engages in the business of
banking is a "foreign bank” even though
all of the criteria of the preceding
sentence are not satisfied.
(1) “Foreign branch"***
(m) “Investment”***
(n) “Investor”***
(o) "Joint venture"***
(p) “Listed activities”***
(q) “Organization”***
(r) “Person”***
(s) "'Portfolio investment"*’**
(t) “Subsidiary”***
3.
Regulation K would be amended by
adding a new section, S211.8, as
follows:
§ 211.8 In te rs ta te banking o perations o f
foreig n banka and foreign bank holding
com panies.
(a) Determination o f home State. A
foreigitbank shall have its home State
determined according to this section. A
foreign bank that is authorized to select
its home State shall do so by filing a
declaration of home State within 90
days of the effective date of this section.
In the absence of such selection, the
Board will determine a foreign bank’s
home Stale. Within one year after the
home Stale of a foreign bank has been
determined: the foreign bank shall dose
its domestic branches that are not
permissible under section 5(b) of the
IBA or convert such domestic branches
to agencies or enter into an agreement
with the Board regarding deposits at
such brandies as prescribed insertion
5(a) of the IBA and the foreign bank
shall divert voting shares of, interests in
or assets ofbanks that are not
permissible under section 9(b) of the
IBA.
62906
Federal Register / Vol. 44, No. 213 / Thursday, November 1 1979 / Proposed Rules
,
(1) A foreign bank that does not
operate a domestic branch or banking
subsidiary shall not be required to select
a home State and shall not have its
home State designated by the Board.
(2) A foreign bank (except a foreign
bank to which subsection 4 of this
section applies) that has any
combination of domestic 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.
(3) A foreign bank that before July 27,
1978, had established or applied for one
domestic branch or one banking
subsidiary, and was not otherwise
engaged in banking in the United States
on that date, shall have its home State
determined to be the State in which such
domestic branch or banking subsidiary
is located.
(4) A foreign bank that before July 27,
1978, had no domestic branches or
banking subsidiaries or had only
agencies or commercial lending
companies, and, after that date, has
established or establishes either a
domestic branch or a banking subsidiary
shall have as its home State that State in
which its initial domestic branch or
banking subsidiary is located.
(b) Change of home State. A foreign
bank may change its home State once if:
(1) Prior notification of the proposed
change is filed with the Board; and
(2) Domestic branches established
and investments in banks acquired in
reliance on its original home State
designation are conformed to that which
would have been permissible had the
new home State been designated as its
home State originally.
(c) Bank mergers. (1) A foreign bank
with one or more banking subsidiaries
that selects as its home State a State
other than that in which a banking
subsidiary is located shall, if it proposes
to acquire all or substantially all of the
assets of a bank located outside its
home State:
(i) Give 60 days' prior notification to
the Board concerning the proposed
acquisition, and
(ii) If the Board makes a preliminary
determination that the proposed
acquisition would be inconsistent with
the foreign bank’s home State selection,
show cause why its home State should
not be redesignated as a result of the
proposed transaction; and
(iii) If after reviewing the foreign
bank’s submissions the Board makes a
final determination that the proposed
acquisition would be inconsistent with
the foreign bank's home State selection,
change it home State to the State where
such acquisition is to be made in
accordance with subsection (b)(2) of this
section.
(2) Factors to be considered by the
Board in making its preliminary and
final determinations will include: the
size of the proposed acquisition relative
to the foreign bank’s other operations in
the United States; the ability of the
foreign bank to change its home State;
and the existence of other potential
acquirers.
(d) Attribution of home State. (1) A
foreign bank or organization and the
other foreign banks or organizations
over which it exercises 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 majority of the voting
shares of another bank or organization.
(3) Where it appears to the Board that
a foreign bank or organization exercises
actual control over the management or
policies of another foreign bank or
organization, the board may inform the
parties that a preliminary determination
of control has been made on the basis of
the facts summarized in the
communication. In the event of a
preliminary determination 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 circumstances 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 determination in which event
the parties will be regarded as one
foreign bank and will be entitled to one
home State.
(4) Until otherwise advised by the
Board, a foreign bank or organization
and any foreign bank or organization of
which it owns 10 percent or more of the
voting shares shall be regarded as one
foreign bank entitled to one home State.
Board of Governors of the Federal Reserve
System, October 29,1979.
Theodore E. Allison,
Secretary of the Board.
[FR Doc. 79-33890 Filed 10-31-79; 8:4a am]
BILLING CODE 6210-01-M
For Immediate release
October 30, 1979
The Federal Reserve Board today proposed regulations H a l t i n g
the interstate banking activities of foreign banks in the United States.
The proposed rules, on which the Board asked comment by January 4,
1980,would implement the provisions of the International Banking Act of
1978
restricting the establishment in the United States by foreign banks
of branches and subsidiary banks in more than one State.
The proposed
rules would be incorporated into the Federal Reserve's Regulation K.
Prior to passage of the IBA, foreign banks could establish
branches or agencies in one or more States, under State license.
The
IBA placed foreign banking in the United States under Federal regulation
and established certain restrictions on the Interstate operation of
branches, agencies, commercial lending companies
(New Y ork investment
companies) and subsidiary banks of foreign banks.
In general, the Board's proposals would prescribe procedures
by which a foreign bank could choose a "home State, for its office or
r
offices in the United States; establish rules limiting interstate
expansion of domestic deposit taking
by foreign banks, and provide
Federal standards for distinguishing deposits from "credit balances" as a
regulatory guide in limiting deposit taking by foreign banks in more than
one State.
In making its proposals the Board noted that:
The legislative history of the IBA indicates that
the competitive advantage of foreign banks over
domestic banks prior to passage of the IBA was
most evident in the ability of foreign banks to
receive domestic deposits at interstate offices.
2-
In general, one of the purposes of the IBA
Is to limit the interstate domestic deposit
taking capabilities of foreign banks. The
Congress was less concerned with interstate
lending by foreign banks, and, thus, the IBA
and the Board's proposed rules do not limit
such activity.
The IBA provides that the U.S. offices that foreign banks
established or applied to establish as of July 27, 1978 are "grand
fathered".
offices.
Such foreign banks may thus continue to operate these
The Act provides that a foreign bank may operate domestic
deposit taking offices established after the grandfather date only
in its "home State".
The IBA provides further:
—
A foreign bank with offices in more than one
State may choose as its home State any State
in which it had, as of the grandfather date,
a branch, agency, commercial lending company
or a subsidiary bank. If a foreign bank does
not choose a home State, the Board may do so
for it.
—
Within this home State the foreign bank may
expand its deposit taking activities. In
other states where it has grandfathered
offices it may retain those offices but not add
new ones.
—
After it chooses a home State, the foreign bank
may establish, elsewhere, branches or agencies
that do not accept domestic deposits.
—
In the event a new out-of-home-State branch is to be
established, the foreign bank must enter into
an agreement with the Board that the new branch
will accept only deposits such as Edge Corporations
may accept: those that are incidental to or for
the purpose of carrying out international transactions,
—
A foreign bank that has chosen a home State may not
acquire a bank in another state.
3Following are the Board's proposals with respect to these
provisions of the IBA, and some of the principal considerations bearing
upon the proposals.
Home State selection
1.
Where a foreign bank has no deposit taking offices (branches
or subsidiary banks) in the United States, the Board would not require
the foreign bank to select a home State.
2.
In most circumstances, the Board would accept a foreign
bank's selection of a home State from among the states in which it has
grandfathered offices.
3.
Where a foreign bank has one branch or one subsidiary bank
and no other banking offices in the United States, the State with that
branch or subsidiary would be the foreign bank's home State.
4.
Where a foreign bank has one or more deposit taking offices
In the United States it would be required to select a home State within
90 days after the Board's regulations in this respect become final.
If such a bank does not choose a home State, the Board would do so for it.
Changing a Home State
A foreign bank would be allowed to change its home State one
time, provided:
—
It either closes branches it had been allowed to
open due to its first home State designation,
or converts such branches to agencies or to branches
limited to the deposit taking authority of Edge
Corporations.
--
It divests any interests it had been allowed to
acquire due to its first home State designation.
•4-
Branches and Agencies
The IBA restricts the establishment of branches, but not
agencies, outside a foreign bank's home State.
The IBA defines a
"branch" as "any office or any place of business of a foreign bank
located in any State of the United States at which deposits are
received."
The IBA defines an "agency" as an office or place of business
of a foreign bank in a State "at which credit balances are
but at
maintained . . .
which deposits may not be accepted from citizens or residents of
the United States."
Thus, the ability of an agency to receive only credit balances
distinguishes an agency from a branch.
Currently, the various
States determine what constitutes a credit balance.
To avoid a
multiplicity of criteria for distinguishing credit balances from deposits,
the Board proposed the following minimum criteria as a Federal standard:
1.
Sources
For an account to be considered a credit balance, the funds in
the account must be:
derived from the exercise of other lawful
banking powers; maintained at all times to serve a specific
purpose, and not solicited from the general public.
2.
Uses
For an account to be considered a credit balance funds in
the account:
must not be used to pay operating expenses
in the United States, such as rent, salaries or taxes; must
be withdrawn within a reasonable period of time after the
specific purpose for which they were placed in the account is
accomplished, and must be drawn upon in a manner reasonable in
relation to the size and nature of the account.
Control of foreign bank and Its affiliates
The interstate banking provisions of the IBA. state that a
foreign bank may not directly or indirectly establish and operate a
Federal or State chartered branch outside its home State.
the question:
This raises
what constitutes indirect control for these purposes?
The Board proposed that two or more foreign banks operating in
the United States, each of which is majority owned by a common parent
bank, be regarded as one banking organization, entitled to only one
home State.
A foreign bank and its majority owned foreign bank subsidi
aries would also be regarded as one banking organization.
In making this proposal the Board recognized that it differs
from the definition of a banking "family” set forth in the rules proposed
by the Board under the IBA in July for the purpose of reserve requirements.
The Board noted that the earlier proposal stated explicitly that the same
definition of "family" may not be used for other purposes.
Acquisition by merger
The provisions of the IBA raise the question whether a foreign
bank, although prohibited from acquiring directly a bank outside its
home State, should also be prohibited from doing so by merger.
The Board noted t hat, under the Bank Holding Company A c t ,
without application to the Board for approval a bank holding company
may effectively acquire an additional bank
indirectly by having
subsidiary bank acquire the assets of another bank.
its
The Board said
that this would be at odds with the general purposes of the IBA, as it
would allow a foreign bank to expand its domestic deposit-taking
capabilities in more than one State.
-6 -
To carry out the purposes of the IBA to limit the interstate
I
domestic deposit taking ability of foreign banks in the United States,
the Board proposed:
1.
To require a foreign bank holding company that has a
subsidiary bank outside its home State to give 60 days notification to
the Board before the subsidiary acquires all or substantially all of the
assets of a bank.
The Board would then examine the proposed acquisition,
and determine whether it appeared to be consistent with the interstate
restraints of the IBA.
If the Board decided that the resulting acquisition by merger
would be contrary to the purposes of the IBA, the Board would require the
foreign bank holding company to show cause why its home State designation
should not be changed to that of its subsidiary bank.
The foreign bank
holding company would,except in the case of grandfathered offices,be
required to terminate domestic deposit taking in its original home State.
2.
In addition, the Board said it would support legislation that
would amend the Bank Holding Company Act to forbid such acquisitions by
merger.
California offices
The Board has issued a separate proposed interpretation stating
that, for purposes of the interstate restrictions of the IBA, it will
regard offices of foreign banks that accept foreign source deposits, but
not domestic deposits,
(as agencies may do under California law) as agencies
rather than branches.
The Board's proposed regulations and interpretation are attached.
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