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Federal

reserve

Bank

DALLAS, TEXA S

of

Dallas

75222

C irc u la r No. 79-48
March 14, 1979

REGULATION K - CORPORATIONS ENGAGED IN FOREIGN BANKING
AND FINANCING UNDER THE FEDERAL RESERVE ACT
(Proposed Amendments to Implement the International Banking Act of 1978)

TO ALL MEMBER BANKS,
BANK HOLDING COMPANIES,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has invited
comment on a proposal to amend its Regulation K (12 C .F .R . 211) governing
corporations engaged in international banking and financial operations known
as Edge and "Agreement" Corporations. The amendments are designed to im­
plement Section 3 of the International Banking Act of 1978.
At the same tim e, the Board has reviewed Regulation M (12 C .F .R .
213) which governs foreign operations of member banks and Section 225.4(f)
of Regulation Y (12 C .F .R . 2 2 5 .4 (f)) which concerns foreign investment by
bank holding companies. The Board proposes to incorporate revisions to these
regulations in one regulation which would be entitled "International Banking
Operations" and designated Regulation K .
Enclosed is a copy of the Board's press release and printed on the
following pages is the proposed regulation as published in the Federal Register.
Any comments regarding the proposal should be submitted in w riting to the
Secretary, Board of Governors of the Federal Reserve System, Washington, D .C .
20551. A ll correspondence should be received no later than A p ril 15, 1979, and
should refer to Docket No. R-0204.
Questions concerning the enclosed material should be addressed to
the Attorneys' Section of our Holding Company Supervision Department, Ext.
6182.
Sincerely yours,
Robert H . Boykin
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 follow ing incoming W A T S numbers in contacting this Bank:
1 -8 0 0 -4 9 2 -4 4 0 3 (intrastate) and 1-8 0 0 -5 2 7 -4 9 7 0 (interstate). F or calls placed locally, please use 651 plus
the extension referred to above.

Extract from Federal Register, V o l. 44, No. 36, Wednesday, February 21, 1979.
[ 6210- 01-M ]
FEDERAL RESERVE SYSTEM
[Regulation K ; Docket No. R-0204]
[12 CFR Part 211]
INTERNATIONAL BANKIN G OPERATIONS

A G E N C Y : B o a rd o f G o v e rn o rs o f the
F ed eral R eserve System .
A C T I O N : Proposed rule.
S U M M A R Y : B o a rd o f G overn ors o f
the F ed eral R eserve System proposes
to revise its regulations governing the
international operations o f m em ber
banks. E dge an d A gre em en t C o rp o ra ­
tions an d ban k h olding companies.
T h e proposal w ould update existing
regulations an d com bine th em in one
com prehensive regulation. W it h re­
spect to E d g e C orporation s in particu­
lar, the International B an k in g A ct o f
1978 ( “I B A ” ) directs the B o a rd to
revise its cu rrent regulation so as to
fu rth e r certain purposes including the
stim ulation o f com petition in provid­
in g international ban k in g and fin an c­
in g services th ro u gh o u t th e U n ited
States. T h e B o a rd is required to issue
fin a l regulations b y June 14,1979. T h e
proposed regulation im plem ents that
and o th er C ongressional purposes con­
tained in the I B A in addition to revis­
ing and reorganizing th e B o a rd ’s inter­
n ational b ank ing regulations.
D A T E : Com m ents must be received by
A p ril 15. 1979.
A D D R E S S : A dd ress comments to the
Secretary, B o a rd o f G o vern o rs o f the
F ed eral R eserve System , W ash in gto n ,
D .C . 20551. Com m ents sh o uld re fe r­
ence Docket N o. R-0204.
FOR
FURTHER
CONTACT:

IN F O R M A T IO N

Frederick R . D a h l, Associate D ire c ­
tor, Division o f B an k in g Supervision
and R eg u lation (202-452-2726); o r C.
K e e fe H urley , Jr., S en io r A ttorney,
L egal Division (202-452-3269) B o a rd
of G o vern o rs o f the F ed eral R eserve
System.
S U P P L E M E N T A R Y IN F O R M A T IO N :
T h e Intern atio n al B a n k in g A ct o f 1978
(P u b . L. N o . 95-369) ( “I B A ” ) requires
the B o a rd to revise its regulations gov­
erning corporations engaged in inter­
national b ank ing an d financial o per­
ations u n der section 25 (a) o f th e F ed ­
eral R eserve A ct (12 U .S .C . 611)
( “E dge C orpo ration s” ). T h e B o a rd has
taken this o pportunity to review not
only its regulations governing E dge
C orporation s (R e g u la tio n K , 12 C F R
211) b u t also its regulations governing
th e fo re ign operations o f m em ber
banks (R e g u la tio n M , 12 C F R 213) and
fo reign investm ent b y b an k h olding
com panies § 225.4(f) o f R eg u la tio n Y ,
12 C F R 225.4(f)). T h ese regulations
w ould b e revised an d com bined In one

com prehensive regulation entitled “In ­
ternational B a n k in g O p eratio n s” to be
designated as R eg u latio n K . In te g ra t­
ing these related m atters into one re g ­
ulation should resu lt in better u n der­
stan ding o f the regu latio n requ ire­
ments.
Section 3 o f the I B A contains the
first significant am endm ent to section
25 (a) o f th e F ed eral R eserve A ct
( “E d g e A ct” ) since th e enactm ent o f
the E dge A c t in 1919. In am en ding the
E d g e Act, C ongress declared th at E dge
C orporation s are to h ave powers s u ffi­
ciently bro ad to en able th em to com ­
pete with fo re ign bank s in th e U nited
States as w ell as abroad an d to provide
all segm ents o f th e U n ited States
econom y a m eans o f financing in terna­
tional trade and, in particular, e x ­
ports. In addition, E dge C orporation s
are to serve as a m eans o f fostering
th e participation o f regional and
sm aller banks in in ternational ban k in g
an d financing and, in gen eral, to stim ­
ulate com petition in m ak ing those
services
available
th ro u gh o u t
the
U n ited States.
T h e B o a rd is directed to revise Its
regulations and policies in fu rth eran ce
o f these objectives. T h e B o a rd is spe­
cifically directed to
elim inate or
m odify any unnecessary retrictions
th at disadvantage E d g e C orporation s
in com peting fo reign banks in the
U n ited States or abro a d o r th at have
th e opposite effect o f discrim inating
against foreign -ow n ed b an k in g institu­
tions. F in a l revised regulations must
be issued w ithin 120 days o f th eir p u b ­
lication fo r comment, or b y June 14,
1979.
T h e B o a rd h as review ed its re gu la­
tions w ith several objectives in mind:
first, to com ply w ith th e C on gression­
al m andate, p articu larly as it relates to
the U n ited States activities o f E dge
Corporations; second, to elim inate o b ­
solete restrictions an d c larify rem ain­
in g requirem ents; third, to incorporate
in th e regulations the policies o f the
B o a rd th at have previously been con­
tained in Individual interpretations
and decisions; fo u rth , to sim p lify the
regulato ry ap proval process; an d fin a l­
ly, to prom ote re gu lato ry efficiency. It
is intended th at th e revised rules will
supersede th e conditions n o w con­
tained in individual B o a rd consents.
A s a result o f this review, several
areas o f the regulations have been
identified as bein g in need o f sign ifi­
cant revision. T h e s e relate to banking
operations in th e U n ited States o f
E dge Corporations, U n ited States o f­
fices o f E dge C orporations, an d re g u la ­
tory approvals fo r fo re ign operations.
B a n k in g operations in the United
States. T h e proposed revision departs
fro m past practice b y creating a class
o f custom er w hose deposit an d loan
business w ould be presum ed to be fo r
international purposes. T h o se custom ­

ers which, on a nonconsolidated basis,
have m ore th an tw o-thirds o f their
purchases o r sales in international
commerce, w ould be ab le to obtain fu ll
deposit and other ban k in g services
fro m E dge C orporations.
T h is proposal represents a sign ifi­
cant departu re from existing rules and
th e B o a rd Invites com m ent on this
m atter. In particular, com m ents are
invited regard in g the desirability o f
the q u alifyin g custom er approach, the
criteria fo r designating an in ternation­
al customer, the n u m ber an d size o f
firm s th at w ould qualify, the effects o f
using a d iffe ren t percentage, an d the
desirability o f using a test o th e r th an
purchases or sales in international
com m erce such as the proportion o f
the custom er’s business devoted to e x ­
ports.
U n d e r cu rrent rules an d policies o f
the B o a rd each deposit and credit
transaction by a U nited States resi­
dent must be directly related to an in ­
ternational transaction. T h e B o a rd ’s
strict interpretation o f the statutory
requirem ent h as resulted in E d g e C o r­
porations bein g un able to fu lly service,
an d com pete effectively fo r the busi­
ness of, firm s specializing in in tern a­
tional trade. M oreover, these rules
h ave placed an adm inistrative and su­
pervisory bu rd e n on both E dge C o rp o ­
rations and
the F ed eral
Reserve
System . T h e proposed approach w ould
reduce these burdens an d enlarge the
ability o f E dge C orporation s to p ro­
vide international financial services
and, in this way. w ould be consistent
w ith the n ew expression o f legislative
intent contained in the I B A . T h o se
U n ited States residents th at do not
q u alify as international custom ers
w ould continue to be able to obtain
lim ited bank ing services directly con­
nected to international transactions.
U.S. Offices o f Edge Corporations.
U n d e r cu rrent regulations. E d g e C o r ­
porations m ay establish and operate
branches abroad but not in th e United
States. In o rd er to provide in ternation­
al banking services at d ifferen t loca­
tions in the U n ited States, banks have
been requ ired to incorporate separate
E dge Corporations. T h is requirem ent,
by necessitating separate capitaliza­
tion and separate adm inistrations, has
involved certain inefficienies and, fo r
some banks, has been a barrie r to en­
tering new markets.
T h e proposals w ould allow E dge C o r­
porations
to
establish
domestic
branches w ith the specific p rio r a p ­
proval o f the B oard. T h is o ffers the
possibility o f reducing costs and incon­
venience associated w ith separate in­
corporation an d w ould contribute to
th e efficiency and competitiveness o f
E dge Corporations. A llo w in g domestic
branches o f E dge C orporation s w ould
also be consistent w ith an o th er direc­
tive o f the I B A to m ake international

10510
banking and financial services availa­
ble th ro u gh o u t th e U n ited States. F o r
those banks now o perating E dge C o r­
porations at several locations in the
U n ited States, th e proposal w ould
o ffe r the possibility o f a change o f o r­
ganizational form . Com m ents are re­
quested on the proposal to allow E dge
C orporation s to establish branches in
the U n ited States.
R egulatory approvals. U n d e r exist­
ing rules, p rio r B o a rd consent is re ­
quired fo r virtu ally all investments in
foreign com panies unless the invest­
m ent is fo r less th an $500,000 an in ­
volves an ow nersh ip interest o f less
th an 25 per cent fo r w hich a G e n e ra l
Consent is given. In addition, prior
B o a rd approval is requ ired fo r the is­
suance o f debt obligations o f m ore
th an one year m aturity.
T h e proposed revisions contem plate
th e use o f an expanded G e n e ra l C o n ­
sent and p rio r notification, as w ell as
specific consent procedures. T h e e x ­
panded G e n e ra l C onsent w ould allow
investm ents o f u p to $2 m illion in sub­
sidiaries and join t ventures so lon g as
they are engaged in certain specified
activities, and w ould allo w p ortfo lio in ­
vestm ents in o th er com panies u p to
th e sam e d ollar am ount. B eyon d th at
am ount, investm ents could be m ade in
subsidiaries and jo in t ventures en­
gaged in specified activities up to 10
p er cent o f an E d g e C o rp o ratio n ’s cap­
ital w ith 60 days p rio r notice to the
Board. Sim plifed G e n e ra l Consent and
notification procedures w ould also
ap p ly to additional investments. A ll
o th er investments, either involving
la rge r am ounts or activities not speci­
fied in the regulation, w ould require
specific p rio r B o a rd approval. T h e a c ­
tivities specified are those w hich the
B o a rd gen erally has allow ed foreign
subsidiaries to engage in because o f
the financial character o f the activi­
ties o r their relationship to in terna­
tional b ank ing and financial o p er­
ation. T h e requirem ent fo r p rio r a p ­
proval o f long-term bo rrow in gs is
elim inated.
A n o th e r proposal pursu ant to the
I R A is th at the lim itation on the ag­
gregation liabilities o f E d g e C o rp o ra­
tions (cu rren tly ten times capital and
su rp lu s) be revised. A ll E d g e C o rp o ra ­
tions w ill be expected to m aintain ad e­
quate capital in relation to the scope
and character o f th eir operations.
H ow ever, the proposal w ould require
E dge C orporations engaged in ban k in g
to have capital and surplus o f not less
th an six p er cent o f total assets. C om ­
m ents are invited on the proposed cap­
ital standards.
Provisions relatin g to reseves against
fo reign b ra n ch deposits (g 213.7 of
R eg u latio n M , 12 C F R 213.7) are being
tran sferred to R eg u latio n D (12 C F R
204). R u les regard in g reserve requirm ents as th ey m ay ap p ly to in terna­

tional operaions conducted by m em ber
banks and E dge an d A greem en t C o r­
porations th ro u gh fo re ign branches
and subsidiaries w ill be considered in
connection with th e B o a rd ’s current
review o f the ap plicability or reserve
requirem ents under th e IB A , as w ell as
the gen era] review o f R eg u lation D
th at is in process.
A s h as been indicated, the I B A in
am ending the E d g e A ct emphasizes
th at E dge C orpo ration s should provide
to all segm ents o f th e U n ited States
econom y a m eans o f fin an cin g in tern a­
tional trade and, in particular, ex­
ports. T h e proposals w ould fu rth e r
this objective by perm itting E dge C o r­
porations to finance th e production o f
goods in the U n ited States w h ere the
goods are to be exported. U n d e r the
cu rrent regulation. E d g e C orporation s
m ay finance the shipm ent and storage
o f goods fo r export b u t not th eir p ro ­
duction. In addition, b y m aking E dge
C orporation s m ore efficien t and m ore
competitive, the p roposals w ould p ro ­
m ote U n ited States’ trade. T h e B o a rd
welcom es comments on these propos­
als an d any suggestions that, in the
term s o f th e IB A , w o u ld assist in
achieving “ a sound U n ite d States’ in­
ternational trade p osition.”
T h e proposed revisions are intended
to b e com prehensive. Since the exist­
in g regulations have n o t been substan­
tially am ended or reviseu fo r m any
years, comments a re invited not only
on th e m a jo r revisions described above
b u t on a ll other parts, Including those
w h ere n o changes are proposed.
T h e proposals do n o t address the
question o f the ap propriateness o f fo r­
eign subsidiaries len d in g to U nited
States residents fo r dom estic purposes.
In th e past, the B o a rd h as gen erally
considered this to be an im perm issible
activity fo r foreign subsidiaries on the
grou nds th a t it w as n o t related to in­
tern atio n al business. T h e r e have been
indications that the B o a r d ’s in terpre­
tation is unnecessarily restrictive in
th a t it interferes w ith th e ability o f
fo re ig n subsidiaries o f E d g e C o rp o ra ­
tions and m em ber ban k s to compete
w ith foreign banks. V iew s on this issue
are requested.
F in ally , under section 3 (g ) o f the
IB A , th e B o ard is requ ired to re po rt to
Con gress recom m endations on the
question o f w h eth er E d g e C o rp o ra­
tions sh o u ld be perm itted to become
m em bers o f the F ed e ra l R eserve
System . Currently, th e E d g e A ct p ro­
hibits th em from becom ing m em bers
even th o u gh they are requ ired to
m ain tain reserves on th eir domestic
deposits. Pu blic com m ent is invited In
o rd er to assist the B o a rd in its consid­
eration o f this issue.
I n developin g these proposals, th e
B o a rd has not fo llo w ed all o f th e pro­
cedures set fo rth in its policy state­
m ent o f J an u ary 15, 1979 (44 F R

3,957). T h e proposals w ere inititated
befo re the policy statem ent w as ad o pt­
ed and expeditious action is necessary
to m eet the statutory deadline fo r is­
suing these proposals, i.e. F e b ru a ry 14,
1979.
F o r this reason, th e regulato ry a n a l­
ysis at this stage is n eith er as ex h a u s­
tive nor as fo rm a l as th at contem plat­
ed b y the statement. T h e regulatory
analysis should include at a m inim um
a discussion o f th e need fo r and p u r­
pose o f the regulation; a description o f
the various options available; an d an
analysis, if appropriate, o f th eir possi­
ble economic consequences; an esti­
m ate o f th e reporting burdens o r rec­
o rdkeeping requirem ents, and recom ­
m endations fo r the best course o f
action based on an evaluation o f the
alternatives.
T h e B o a rd w ould appreciate any
d ata and in form ation from th e public
th a t w ould be o f use in im proving the
re g u lato ry analysis befo re fin al action
is taken. Specifically, figu res based on
studies o r surveys re gard in g th e costs
and benefits o f the proposals o r a lter­
natives w o u ld be especially help fu l.
C onclusions should be reached as to
w h e th e r the proposals or any altern a­
tives favored b y the respondents
w ould have a m ajo r im pact on;
(1 ) T h e n atio n ’s econom y as a w hole
e.g., an effect o f $100 m illion or m ore
in gross an n u al costs o r revenues;
(2 ) Costs o r prices fo r consumers, in­
dividual industries, levels o f govern­
m ent o r geograp hic regions;
(3 ) T h e volum e an d cost o f credit.
R E G U L A T IO N K
(12 C .F .R . 211)
A s am ended effective
PART 211— INTERNATIONAL BANKING
OPERATIONS
Sec.
211.1 Authority, Purpose, and Scope.
211.2 Definitions.
211.3 Foreign Branches of M em ber Banks.
211.4 Edge and Agreement Corporations.
211.5 Investments by M em ber Banks, Edge
and Agreement Corporations, and Bank
Holding Companies.
211.6 Prudential Limitations, Supervision,
and Reporting.

§ 211.1

Authority, purpose, and scope.

( a ) Authority. T h is p art is issued by
the B o a rd o f G o vern o rs o f th e F ed eral
R eserve System u n der th e au th ority
o f th e F ed e ra l R eserve A ct (12 U .S .C .
226) ( " A c t ” ); the B a n k H o ld in g C om ­
p an y A c t o f 1956 (12 U .S .C . 1841)
( “B H C A ” );
an d
th e
Intern ation al
B an k in g A ct o f 1978 (92 Stat. 607)
( “I B A " ) .
( b ) P urpose and scope. T h is P a r t Is
in fu rth eran ce o f th e purposes o f the
Act, th e B H C A , and th e IB A . I t ap ­
plies to corporations organized un der
section 2 5 (a) o f th e A ct (12 U .S .C . 611-

10511
631), “ E dge C orpo ration s"; to co rp o ra­
tions h avin g an agreem en t o r u n der­
takin g w ith th e B o a rd u n der section
25 o f th e A c t (12 U .S .C . 60 1 -6 0 4 (a»,
“A gre em en t C orpo ration s” ; to m em ber
bank s w ith respect to th eir foreign
b ranches an d investments in foreign
banks un der section 25 o f th e A ct (12
tT.S.C. 601- 6 0 4 (a )); 1 an d to domestic
b an k h olding com panies w ith respect
to th e exem ption fro m th e n o n ban k­
ing p rohibition s o f the B H C A afford e d
b y section 4 (c)(1 3 ) o f th e B H C A (12
U .S .C . 1843 (0 (13 )).

fication to th e B o ard ; (2 ) w ith o u t spe­
c ific -p r io r ap pro val a m em ber bank
m ay establish an d operate additional
b ranches in an y fo reign country in
w h ich
it operates
o ne
o r m ore
branches. W ith o u t 30 days a m em ber
b an k sh all in fo rm th e B o a rd o f the
opening, closing o r relocation an d the
address o f a new o r relocated branch.
(b )
Further Pow ers
o f Foreign
Branches. In addition to its general
ban k in g powers, an d to th e extent con­
sistent w ith its c h a rte r in th e case o f a
State bank, a fo reign bra n ch o f a
m em ber ban k so fa r as usual in con­
§211.2 Definitions.
nection w ith th e business o f bank ing
in the country w h ere it transacts busi­
( a ) “A b ro a d ,” “ fo reign ,” o r “ foreign
ness m ay: (1 ) G u a ra n te e custom ers’
co u n try ” refers to one o r m ore foreign
debts o r otherw ise agree fo r th eir
nations, an d includes the overseas ter­
ben efit to m ake paym ents on th e oc­
ritories, dependencies, an d in su lar pos­
currence
of
readily
ascertainable
sessions o f the U n ited States, an d the
events,2 If th e gu aran tee or agreem ent
C om m onw ealth o f Puerto' Rico.
specifies its m axim um m onetary liabil­
( b ) A n E dge C orpo ration is “ engaged
ity thereunder; but, except to the
in ban k in g” If it ord inarily h as in the
exten t th at th e m em ber ban k is fu lly
U n ited States total deposit, accept­
secured, it m ay not have liabilities o u t­
ance, an d F ed eral funds liabilities e x ­
stan ding fo r an y person on account o f
ceeding its capital and surplus.
such gu aran tees o r agreem ents w hich
(c )
“ Invest,”
“investm ent,”
and
w h en aggregated w ith o th e r o bliga­
“ h ave invested,” m eans th e purchase
tions o f th e sam e person exceeds the
o f shares (in clu din g rights to acquire
lim it contained in section 5200 o f the
sh ares) an d oth er contributions to the
R evised Statutes (12 U .S .C . 84);
capital o r surplus o f an organization,
(2 ) A ccept d rafts o r bills o f exch ange
including the h olding o f an organ iza­
d raw n u p o n it provided th a t such ac­
tio n ’s subordinated debt.
ceptances sh all b e subject to the
( d ) “ F o re ign b a n k ” m eans an institu­
am oun t lim itations o f section 13 o f the
tion organized u n der th e law s o f a fo r­
A ct (12 U .S .C . 372);
eign country an d any subsidiary o r a f­
(3 ) Invest in th e securities o f the
filiate o f th e institution organized
central bank, clearing houses, govern­
un der such law s th at engages in the
m ental
entities,
an d
governm entbusiness o f banking, including m er­
ow n ed developm ent bank s o f the coun­
chant b an k in g an d o th e r activities
try in w hich th e fo re ign b ra n c h is lo ­
usual in connection w ith the business
cated, b u t th e total o f such invest­
o f banking, in th e country w h ere the
m ents by th e bra n ch (exclusive o f se­
institution is organized.
curities h eld as requ ired b y th e la w o f
(e ) “ F o reign b ra n c h ” m eans any
th a t coun try o r as au thorized un der
b ra n ch located outside th e coun try In
section 5136 o f th e R evised Statutes
w h ich th e p aren t organization is incor­
(12 U .S .C . 24 )) sh a ll n ot exceed one
porated.
percent o f its total deposits on the pro­
( f ) “O rg an izatio n ” m eans a corp ora­
ceeding year-end call re po rt date (o r
tion, governm ent, p artnership, associ­
on th e date o f acquisition in the case
ation, o r an y o th er legal or com m er­
cial entity.
o f a new ly established b ra n ch w hich
h as n ot so reported);
( g ) “ P e rso n ” m ean s an individual or
(4 ) U nderw rite, distribute, buy, and
a n organization.
sell obligations o f th e national govern­
§211.3 Foreign
branches
of
member
m ent o f the coun try in w h ich it is lo­
banks.
cated (in clu din g obligations Issued b y
(a )
Establishing Foreign Branches. an y agency o r instrum entality, and
supported by th e fu ll fa ith an d credit
P r io r B o a rd ap pro val is requ ired fo r
o f th e governm ent). H ow ever, no
th e establishm ent an d operation o f a
m em ber b an k m ay hold, or be un der
m em ber b a n k ’s initial branches in two
com m itm ent w ith respect to, o bliga­
fo reign countries. U nless otherw ise ad ­
tions o f a governm ent as a resu lt o f
vised b y the B o ard : ( l ) a m em ber ban k
u nderw riting, dealing, o r p urchasing
th a t has branches in two o r m ore fo r­
fo r its ow n account an aggregate
eign countries m ay establish an d o per­
am oun t exceeding lp percent o f the
ate initial branches in addition al fo r­
m em ber b a n k ’s capital an d surplus;
eign countries a fte r 60 d ay s’ p rio r noti(5 ) T a k e liens o r o th e r encum ­
1
A lthough section 25 o f the Act refers to brances on fo re ign re al estate in con­
national banking associations, fo r purposes
o f Federal law, the provisions of this Part
apply to State member banks o f the Federal
. Reserve System, see section 9 o f the Act (12
U.S.C. 321).

nection w ith its extensions o f credit,
w h eth er o r not o f first p riority and
w h eth er o r not such re al estate Is im ­
proved o r h as been appraised, an d
w ithout regard to m aturity o r am ount
lim itations o r am ortization requ ire­
m ents o f section 24 o f th e A ct (12
U .S .C . 371);
(6 ) E xten d credit to an executive o f­
ficer o f th e fo reign bran ch in an
am oun t up to $100,000 o r its equiva­
lent in ord er to finance th e acquisition
o r construction o f living q uarters to be
used as the o ffic e r’s residence abroad,
provided each credit extension is
prom ptly reported to th e b ran ch 's
hom e office. W h e n necessary to m eet
local housing costs, such am oun t m ay
be exceeded w ith the specific p rio r ap­
proval o f the m em ber ban k 's bo ard o f
directors;
(7 ) A ct as insurance agent o r broker.
A m em ber b an k th at is o f th e opin­
ion th at o th er activities are usual in
connection w ith th e transaction o f the
business o f bank ing in th e places
w h ere its branches transact business,
m ay ap p ly to th e B ro a d fo r perm ission
to engage in such activities.
(c ) Suspending O perations D u rin g
D isturbed Conditions. T h e o fficer in
charge o f a fo re ign bran ch m ay sus­
pend its operations d urin g disturbed
conditions w h ich m ake conduct o f op­
erations
im practicable;
bu t
every
e ffo rt sh all be m ade befo re an d d uring
th e suspension to serve th e b ra n ch ’s
depositors an d customers. F u ll in fo r­
m ation concerning any suspension
sh all be reported pro m ptly to the
b ra n c h ’s hom e office, w hich sh all im­
m ediately send a copy to th e B o ard
th ro u gh the F ed eral R eserve B a n k o f
its district.
(d ) Reserves. Reserves sh a ll be m ain­
tained against foreign b ra n ch deposits
w h en and as required by P a rt 204
(R e g u la tio n D ).
§211.4
Edge
tions.

and

agreement

corpora­

(a )
Organization. A proposed E dge
C orpo ration sh all becom e a b o dy cor­
p orate upon issuance b y th e B o a rd o f
a prelim inary perm it approving its
proposed nam e, articles o f association,
and organization certificate. T h e nam e
s h a ll include “in ternational,” " f o r ­
eign,” “overseas,” o r som e sim ilar
w ord, bu t m ay not resem ble th e nam e
o f an o th er organization to an extent
th a t m ig h t m islead o r deceive th e
public. A fte r issuance b y th e B o a rd o f
a prelim inary perm it, an E d g e C o rp o ­
ra tio n m ay (1 ) elect officers an d other­
wise com plete its organization an d (2 )
invest in obligations o f th e U n ited
States G overnm ent, b u t none o f its
o th e r pow ers m ay be exercised until
2 Including, but not limited to eventsjsuch
th e B o a rd h as issued a fin a l p erm it to
as nonpayment o f taxes, rentals, customs
com m ence business. N o am endm ent to
duties, or costs of transport and loss o f non­
th e
articles
of
association
sh all
conformance of shipping documents.

10512
becom e effective until approved by the
B oard.
( b ) Ow nersh ip o f Shares. S h ares o f
stock in an E d g e C orporation m ay not
include no p a r value shares and sh all
b e issuable an d tran sferable o nly on
its books and in com pliance w ith sec­
tion 25(a) o f the Act. A n y change in
status o f a sh areh o ld er th at causes a
violation o f section 25(a) o f the A c t
sh all be reported to th e B o ard as soon
as possible and the E dge C orporation
shall take action w ith respect thereto
as th e B o a rd m ay direct. T h e share
certificates o f an E dge C orporation
shall (1 ) nam e and describe each class
o f shares indicating its character and
any un usual attributes such as p re­
ferred status o f lack o f voting rights;
and (2 ) conspicuously set fo rth the
substance o f ( i ) lim itations upon the
righ ts o f ow nersh ip and tran sfer o f
shares im posed by section 25 (a) o f the
Act, and (ii) rules w hich the E dge C o r­
p oration sh all prescribe in its by-laws
to ensure com pliance w ith this p a ra ­
graph .
(c ) Foreign Ownership. O ne or more
foreign banks m ay ap ply fo r the
B o a r d ’s p rio r ap pro val to acquire 50
p er cent o r m ore o f th e shares o f the
capital stock o f an E dge C orporation.
T h e B o a rd w ill require a foreign bank
that, in connection w ith such applica­
tion proposed to acquire 25 p er cent or
m ore o f the voting shares o f an E dge
C orporation, to enter into an agree­
m ent or un dertak in g w ith the B o a rd
th at it w ill com ply with the provisions
o f the B H C A in the same m ann er and
to the sam e extent as a fo reign ban k
th at has a bran ch or agency in U nited
States.
( d ) Branches. W ith prior B o a rd ap ­
proval, an E dge C orpo ration m ay es­
tablish b ranches in the U n ited States.
A n E dge C orporation m ay establish
branches abroad in accordance w ith
th e procedures set fo rth in § 211.3(a).
O p eratio n s o f a branch abroad m ay be
suspended d uring disturbed conditions
in accordance w ith section 211.3(c).
(e ) R eserve Requirem ents and In ter­
est R ate Lim itations. T h e liabilities o f
an E dge C orporation fo r desposits in
the U n ited States and abro a d sh all be
subject to Pa rts 204 (R e g u la tio n D )
and 217 (R e g u la tio n Q ) in the same
m an n er and to the same extent as if
the E dge C orpo ration were a m em ber
ban k o f the F ed eral R eserve System.
( f ) Perm issible A ctivities in the
United States.— <1) General policy. In
addition to the activities described in
the sixth p a ra g ra p h o f section 25 (a) o f
the Act, an E dge C orporation m ay
engage in such activities in the U nited
States as the B o a rd determ ines are in­
cidental to its international or fo reign
business. T h e fo llo w in g activities will
ordinarily be considered incidental to
an E d g e C orpo ration 's international or
fo re ign business:

(2 ) Deposits fro m qualifying persons.
A n E d g e C orporation m ay receive in
th e U n ited States dem and, time, and
savings deposits from , and issue nonn egotiable certificates o f deposit to:
( i ) F o re ign governm ents, persons
conducting business prin cip ally at
th eir offices or establishm ents abroad,
an d individuals resident abroad;
(ii) Person s prin cipally engaged in
international or fo reign commerce.
U nless the circum stances indicate oth­
erwise, a person sh all be presum ed to
be prin cipally engaged in international
or
fo reign
com m erce
if,
on
an
unconsolidated basis an d according to
docum ents m aintained by the E dge
C orporation , two th ird s o f the p e r­
son’s purchases or sales o f goods and
services are directly attribu table to in­
tern ation al o r foreign commerce.
(3 ) Deposits from other than Qualify­
in g entities. A n E dge C orporation m ay
receive in the U nited States demand,
time, an d savings deposits an d m ay
issue nonnegotiable certificates o f d e­
posit th at are not to be used to pay e x ­
penses in the U n ited States o f an
o ffice o r representative if the deposits:
( i ) A re to be transm itted abroad;
(ii) Consist o f collateral or funds to
be' used fo r paym ent o f extensions o f
credit;
(iii) Consist o f the proceeds o f collec­
tions abro a d w hich fu n d s are to be
used to p ay fo r goods exp o rted o r im ­
ported o r fo r o th er costs o f exp o rt or
im port o r are to be periodically trans­
ferred to th e depositor’s account at an ­
o th er fin an cial institution;
(iv ) Consist o f the proceeds o f exten­
sions o f credit by th e E d g e C o rp o ra ­
tion; or
(v ) R ep resen t com pensation to the
E d g e C orpo ration fo r extensions o f
credit o r services to th e customer.
(4 ) Use o f short term, fu n d s in the
U nited States. Funds o f an E dge cor­
poration not currently em ployed in its
in ternational or foreign business, if
held or invested in the U n ited States,
sh all be in the form o f cash, deposits
w ith banks, and m oney m arket instru­
m ents including bank ers’ acceptances,
obligations o f Federal, State, and local
governm ents. F ed eral fu n d s sold, and
com m ercial paper.
(5 ) O ther perm issible activities.
S u b je ct to the lim itations o f section
2 5 (a) o f the A ct and §211.6 o f this
P a rt, an E dge C orporation m ay to the
exten t consistent w ith sound banking
practices:
( i ) Issue obligations to domestic
ban k in g offices o f o th er banks, or to
th e U n ited States or agencies thereof;
(ii) In cu r indebtedness fro m a trans­
fe r o f direct obligations th a t are fu lly
gu aran teed as to principal and interest
by th e U n ite d States o r any agency
th e re o f th a t the E dge C orp o ration is
obligated to repurchase;

(iii) Issue lon g term subordin ated
debt th at does not q u alify as a "d e p o s­
it” u n der P a rt 204 (R e g u la tio n D );
(iv ) E xten d credit fo r an y purpose to
a person th a t w ould be perm itted to
m aintain deposits w ith the E d g e Cofrp oration u n der § 211.4(f)(2) w h i t e
such funds are to be used in the p e r­
son's business;
(v ) Finance th e follow ing: ( A ) con­
tracts, projects, o r activities perform ed
abroad, ( B ) th e im portation into o r e x ­
portation fro m th e U n ited States o f
goods, ( C ) th e domestic shipm ent or
tem porary storage o f goods being e x ­
ported or imported;
(v i) Finance the direct production
and prep aratio n o f goods readily iden­
tifiable as being fo r export;
(v ii) T ak e over o r acquire subsequent
participations in extensions o f credit,
or acquire obligations, grow ing out of
transactions the E d g e C orporation
could have financed at inception;
(v iii) G u a ran tee a custom er’s debts
or otherw ise agree f6 r the custom er’s
benefit to m ake paym ents on the oc­
currence
of
readily
ascertainable
events such as nonpaym ent o f taxes,
rentals, customs duties, or costs o f
transport and loss or nonconform ance
o f sh ip p in g documents. T h e guaran tee
or agreem ent m ust specify the m ax i­
m um m onetary liability th ereunder
and be related to a type o f transaction
described in (iv )-(v i) above;
(ix ) Receive checks, bills, drafts, ac­
ceptances, notes, bonds, coupons, and
other securities fo r collection abroad,
and collect such instrum ents in the
U n ited States fo r a custom er abroad;
( x ) H o ld securities in safekeeping
for, or buy and sell securities upon the
order and fo r the accouht and risk o f
an existing customer;
(x i) A ct as p aying agent fo r securi­
ties issued by fo reign governm ents or
o th er entitles organized un der foreign
la w and not qualified u n der th e law s
o f th e U nited States o r any S tate or
the D istrict o f C olum bia to do busi­
ness in th e U n ited States;
(x ii) A ct as trustee, registrar, conver­
sion agent, and p ay in g agent w ith re­
spect to any class o f securities issued
to finance fo reign activities and dis­
tributed solely outside the U n ited
States;
(x iii) M a k e p rivate placem ents o f
participations in its investments and
extensions o f credit; however, no E dge
C orporation m ay otherwise engage in
the business o f selling or distributing
securities in th e U n ited States.
(x iv ) B u y and sell spot and fo rw a rd
foreign exchange.
(6 )
A n E dge C orporation th at is o f
the opinion th at o th er activities in the
U n ited States w o u ld be Incidental to
its international o r foreign business
m ay ap p ly to the B o a rd fo r such a
determ ination.

10513
(g )
C orporations “
with Agreem ents in a com m ercial ban k in g business; (ii)
u nder section 25 o f the A c t W it h the
are recognized as com m ercial banks by
th e ban k supervisory o r m onetary au ­
p rio r ap proval o f the B oard , a m em ber
th ority o f th e country o f th eir o rgan i­
b an k m ay Invest in a C orpo ration th at
zation or principal ban k in g operations;
h as entered into an agreem ent o r un ­
(iii) receive deposits to a substantial
d ertaking w ith th e B o a rd th at it will
extent in th e re gu lar course o f their
not exercise any p ow er except as
business; and (iv ) have th e p ow er to
w o u ld be perm issible fo r an E d g e C o r­
accept dem and deposits. A m em ber
poration un der this Part.
ban k m ay also ow n or control foreign
organizations th a t are organized fo r
§211.5 Investments in other organiza­
the sole purpose o f either h olding
tions.
shares o f a fo re ign ban k o r p erfo rm in g
( a ) General Policy. E dge C o rp o ra ­
nom inee, fidu ciary or o th er bariking
tions, ban k h olding companies, and
services in c id e n ta l to th e activities o f
m em ber banks (re fe rre d to in this Sec­
a fo reign bra n ch or foreign b an k a ffili­
tion as "investors” ), sh all confine their
ate o f the m em ber bank. Investm ents
activities abroad to those o f a banking
b y a foreign ban k subsidiary o f a
o r financial nature. In doing so, th ey
m em ber bdnk sh all be subject to the
sh all at all times act in accordance
sam e lim itations and restrictions as an
w ith h ig h standards o f ban k in g or fi­
E d g e Corporation.
nancial prudence, h aving due regard
(3 ) Investm ents b y subsidiaries shall
fo r diversification o f risks, suitable li­
be subject to the lim itations, restric­
quidity, and adequacy o f capital. S u b ­
tions and procedures o f this section.
ject to these considerations and the
Subsidiaries m ay establish branches in
o th er provisions o f this section, it is
accordance w ith the procedures set
th e B o a rd ’s policy to allow activities
fo rth in 211.3(a).
ab ro a d to be organized and operated
(4 ) In com puting the am oun t w hich
as best meets corporate policies.
m ay be invested in any organization
F o r purposes o f this section: (i ) “sub­
u n der this section th ere sh a ll be in­
sidiary” is an organization 50 per cent
cluded any un paid am ount fo r w hich
o r m ore o f the capital an d surplus or
th e investor is liable an d any invest­
voting stock o f w h ich is h eld directly
m ents b y a ffiliated com panies. T h e ac­
quisition o f righ ts to acquire shares
o r indirectly b y an investor o r w hich is
sh all be regard ed as an investment;
otherw ise controlled by an investor;
however, p rio r B o a rd consent is not re­
(ii) “ joint venture” is an organization
q uired fo r th e acquisition o f righ ts to
20 per cent or m ore bu t less th an 50
acquire shares o f an organization if
per cent o f the capital an d surplus or
such rights are acquired as an incident
voting stock o f w hich is held directly
to an extension o f credit, are exercis­
or indirectly b y an investor an d w hich
a b le only w ith specific B o a rd consent,
is not controlled by the investor; (iii)
an d do not cause th e investor to have
“ portfolio investm ent” refers to an in­
invested m ore th an $2 m illion in the
vestm ent in any com pany o th er th an a
rights and shares o f th e organization.
subsidiary or join t venture; (iv ) "listed
(5 ) A n investm ent in an organization
activities” m eans the activities con­
sh all be disposed o f as p ro m ptly as
tained in section 2 1 1 .5 (d )(l)-(1 3 ) th at
practicable if:
the B o a rd h as determ ined are u su al in
( i ) th e organization engages in the
connection w ith the transaction o f the
business o f underw riting, selling or
business o f b an k in g or ge other fin an ­
d istributing securities in th e U nited
cial operations abroad.
States o r bu y in g or selling goods,
( b ) Investm en t lim itations. (1 ) In ac­
wares, m erchandise, o r com m odities in
cordance w ith the investm ent proce­
th e U n ited States;
dures described in p a ra g ra p h (c ) o f
(ii) except to such lim ited extent as
this section, an Investor may:
is perm issible fo r joint ventures, a
(1) invest in a subsidiary th a t en­
join t venture o r subsidiary engages In
gages solely in listed activities o r in
any activity o th er th an th at w hich the
such o th e r activities as th e B o a rd has
B o a rd has determ ined to be perm issi­
determ ined in the circumstances o f a
ble; or
p articu lar case are perm issible;
(iii) th e investor is advised b y the
(ii) invest in a join t venture provided
B o a rd th at its investm ent is in app ro­
that, unless otherwise perm itted by
p riate u n der th e Act, the B H C A or
the B oard , not m ore th an 5 p e r cent o f
this Part.
the join t venture’s consolidated assets
(c )
In vestm en t p r o c e d u r e s S u bject
o r revenues sh all be attributable to ac­
to th e lim itations o f ( b ) above, invest­
tivities th at w o u ld n ot be perm issible
m ents m ay be m ade in accordance
fo r a subsidiary;
w ith th e gen eral consent, notification,
(iii) m ake portfolio investments in
an d specific consent procedures con­
any organization provided th a t the
total direct and indirect p o rfo lio in­
3 W h e n necessary, the G eneral Consent
vestm ents sh all not exceed 50 p e r cent
and prior notification provisions of this sec­
o f th e investor’s capital and surplus.
tion constitute the Board's approval under
(2 ) A m em ber b a n k ’s direct invest­
the eighth paragraph of the Act fo r invest­
m ents sh all b e lim ited to fo reign
ments in excess of the limitations therein
banks that: ( i ) are prin cipally engaged
on capital and surplus.

tained in this section. T h e B o a rd m ay
at any time, upon notice, suspend the
G e n e ra l C onsent an d notification p ro ­
cedures w ith respect to an y investor or
w ith respect to the acquisition o f
shares o f com panies engaged in partic­
u lar kinds o f activities. E ach investor
m ust receive p rio r specific consent o f
the B o a rd fo r its first investm ent in a
subsidiary, its first investm ent in a
join t venture, and its first p ortfo lio in­
vestment.
(1 ) General Consent. T h e b o ard
grants its G e n e ra l C onsent fo r the fo l­
lowing:
( A ) A n y investm ent in a join t ven­
ture o r subsidiary, and any p ortfolio
investment, provided: ( i ) the organiza­
tion is not engaged in business in the
U n ited States; (ii) the am ount invested
does not exceed $2 m illion or 5 per
cent o f the investor’s capital and su r­
plus in th e case o f a m em ber bank,
ban k h olding com pany o r E dge C o rp o ­
ration engaged in banking; o r (iii) $2
m illion or 25 p er cent o f the investor’s
capital and surplus in the case o f an
E dge C orporation not engaged in
banking;
( B ) A dd ition al investm ent in an o r­
ganization in w hich the investor has
an existing investment, provided: (i)
the additional investment does not
cause the investor to ho ld either 20
p er cent o r m ore or 50 p er cent or
m ore o f the capital and surplus or
voting stock o f an organization being
h eld by the investor; (ii) the additional
am oun t invested does not in any calen­
d er year exceed 10 p er cent o f the in­
vestor’s original cost plus dividends for
th a t year. T h e ability to m ake an in­
vestm ent pursu ant to this provision o f
th e G e n e ra l C onsent m ay, if not ex er­
cised, be carried fo rw a rd an d accum u­
lated fo r up to 5 consecutive years.
(2 ) P r io r N otification. A n invest­
m ent (in clu din g an additional invest­
m en t) in a subsidiary or join t venture
th a t does no business in the U nited
States and th at does not q u alify under
the G e n e ra l C onsent m ay be m ade
a fte r the investor has given 60 days’
p rio r w ritten notice to the B o a rd p ro ­
vided the am ount to be invested does
not exceed 10 per cent o f the inves­
to r’s capital and surplus. T h e B o ard
m ay, d u rin g th at period, eith er issue a
w ritten notice disapproving the invest­
m ent, extend the period o r request a
fu ll application.
(3 ) Specific C o n sen t A n y investm ent
th a t does not q u alify fo r eith er the
G e n e ra l C onsent o r the p rio r notifica­
tion procedure sh all not b e consum ­
m ated w ith o ut th e specific p rio r a p ­
p roval o f the B oard.
( d ) Activities.
(1 ) Com m ercial banking;
(2 ) Financing, including com m ercial
financing, consum er financing, m ort­
gage ban k in g an d factoring;

10514
(3 ) Leasin g real o r personal p roperty
as Is perm issible fo r b an k h o ldin g com ­
panies p ursu an t to section 225.4(a)(6)
o f R eg u lation Y ;
(4 ) A ctin g as fiduciary;
(5 ) U n d e rw ritin g credit life insur­
ance and credit accident and health in­
surance related to extensions o f credit
b y th e investor or its affiliates;
(6 ) P e rfo rm in g services fo r other
direct o r indirect operations o f a
U n ited States b an k in g organization in­
cluding representative functions, the
sale o f lon g term debt, nam e saving,
h o ldin g assets th at are acquired to
prevent loss on a debt previously con­
tracted in good faith;
(7 ) H o ld in g th e prem ises o f a branch
o f an affiliated E dge C orpo ration or
m em ber b an k b u t the am oun t so in­
vested sh all n ot exceed th a t w hich a
State m em ber b an k m ay Invest p ursu­
an t to section 24A o f the A ct (12
U .S .C . 371(d));
(8 ) A ctin g as investm ent o r financial
advisor to n o n residents o f th e U n ited
States;
(9 ) G e n e ra l Insurance brokerage;
(10) D a t a processing;
(11) M a n a g in g a m utual fund, p ro ­
vided th e fu n d 's shares are not sold or
distributed in th e U n ite d States o r to
U n ited States residents an d the fu n d
does not exercise an y m anagerial con­
trol over th e firm s in w h ich it invests;
(12) P e rfo rm in g m anagem ent con­
sulting services, provided th a t such
services w h en rendered w ith respect to
the U n ited States m arket sh a ll be re ­
stricted to th e initial entry; and
(13 ) U nderw riting, d istributing and
d ealing in debt and equity securities
outside the U n ited States in accord­
ance w ith section 211.6(a)(4) provided
that, except as covered by bin ding
com m itm ents fro m subu nderw riters or
o th er purchasers, no un derw ritin g
com m itm ent fo r an equity security
m ay exceed $2 m illion o r represent
m ore th an 20 p er cent o f the capital
an d surplus o r voting stock o f an y o r­
ganization.
A n investor th at is o f th e opinion
th at o th er activities are usual in con­
nection w ith the transaction o f the
business o f banking or o th er financial
operations a b ro a d an d are not incon­
sistent w ith the A ct m ay ap p ly to the
B o a rd fo r such a determ ination.

goods and the E d g e C o rp o ratio n is
fu lly covered by p rim a ry obligations to
reim burse it w hich a re also gu aran ­
teed by banks or ban k ers o r w h ere the
E dge C orporation is covered b y p a r­
ticipation
agreem ents
fro m
other
banks.
(2 )
L iabilities o f one person. E xcept
as th e B o a rd m ay otherw ise specify;
( i ) T h e total liabilities o f any person
to an E dge C o rp o ratio n an d its direct
o r indirect subsidiaries sh all at no
time exceed 50 p e r cent o f the E dge
C o rp o ratio n ’s capital an d surplus, or
10 p e r cent o f its capital a n d surplus if
th e E d g e C orpo ration is engaged in
banking;
(ii) T h e total liabilities o f any person
to an E d g e C orporation th at is a sub­
sidiary o f a m em ber b an k o r to direct
o r indirect subsidiaries o f th e E dge
C orp o ration w hen com bined w ith li­
abilities to the m em ber b a n k an d its
o th e r subsidiaries sh all not exceed the
am oun t lim itation o n th e m em ber
ban k 's loans to one bo rrow er;
(iii) T h e total liabilities o f any
person to a fo reign b a n k th at is a sub­
sidiary o f a m em ber b an k sh a ll not
exceed 50 p er cent o f th e foreign
b a n k ’s capital and su rp lu s an d w hen
com bined
w ith
liabilities
to
the
m em ber ban k and its o th e r subsidiar­
ies sh a ll not exceed th e am oun t lim ita­
tion o n th e m em ber b a n k ’s loans to
one borrow er; and
(iv ) T h e total liabilities o f any
person to a foreign subsidiary o f a
ban k h o ldin g com pany (o th e r th an
those h eld th ro u gh m em ber banks an d
E d g e C orpo ration s) sh a ll n ot exceed
50 p e r cent o f the su bsid iary ’s capital
an d surplus.

In this section, "c a p ita l and su rp lu s”
m eans p aid in and un im paired capital
an d surplus an d undivided p ro fits bu t
does not include the proceeds o f capi­
ta l notes o r debentures. "S u b sid ia ry ”
h as th e sam e m ean in g as in §211.5.
"L ia b ilitie s ” includes: Ineligible accep­
tances; obligations fo r m oney b o r­
row ed; investments in an o th er o rga n i­
zation (v alu ed at o riginal cost) except
w h e re th a t organization is a direct or
indirect subsidiary; unsecured o bliga­
tions resu lting from th e Issuance o f
guarantees, or sim ilar agreem ents; in
th e case o f a partn ersh ip o r firm , o bli­
gations o f its mem bers; In th e case o f a
corporation, obligations in curred fo r
§211.6 Prudential limitations supervision
its b en e fit b y other corporations th a t
and reporting.
it controls; and in the case o f a foreign
(a )
Pruden tia l lim itations and re­ governm ent, the liabilities o f its de­
strictions.— (1 ) Acceptances o f Edge
partm ents o r agencies deriving th eir
Corporations. A n E dge C orporation
cu rrent fu n d s principally fro m general
sh all b e an d rem ain fu lly secured fo r
ta x revenues. “Liabilities” does not in­
(i)
all acceptances outstanding in clude F ed eral funds sold. T h e lim ita­
excess o f twice its capital an d surplus,
tions o f this p a ra g ra p h sh a ll not ap ply
to ( i ) n egotiable bills o r d rafts d raw n
an d (ii) all acceptances fo r an y one
in good fa ith against actual goods and
person in excess o f 10 p e r cent o f its
on w h ich tw o or m ore parties are
capital an d surplus. T h ese lim itations
liab le (ii) any acceptance th a t h as not
shall not ap p ly w h ere th e excess rep ­
m atu red and is not h eld b y th e accep­
resents the ln tem a tio n l shipm ent o f

tor, (iii) obligations to th e exten t se­
cured by cash collateral o r (lv ) o b liga­
tions to th e exten t supported b y th e
fu ll faith and credit o f th e follow ing:
(1 ) T h e U n ited States o r any o f its
departm ents, agencies, establishm ents
o r w h o lly owned corporations (in clu d ­
ing obligations to the extent insured
against fo re ign political an d credit
risks b y the E xp o rt-Im p o rt B a n k of
the U n ited States or th e F o reign
C redit Insurance A ssociation), th e In ­
ternational B an k fo r Reconstruction
and Developm ent, the International
Finance Corporation, th e In tern atio n ­
al D evelopm ent Association, the In terA m erican D evelopm ent B ank , or the
A sian D evelop m ent Bank;
(2 ) A n y organization if at least 25
p er cent o f such an obligation or o f
th e total credit is also supported b y
the fu ll faith and credit of, o r partici­
pated in b y any institution designated
in (i ) above in such m an n er th a t de­
fa u lt to the lender w ill necessarily in ­
clude d e fau lt to such institution. T h e
total liabilities o f such person sh all at
no time exceed 100 p er cent o f th e cap­
ital an d surplus o f the lender o r the
p aren t E dge C orporation.
(3 ) Capitalization. A n E dge C orpo ­
ration sh all at all times be capitalized
in an am oun t th a t is adequate in re la­
tion to the scope and character o f its
activities, b u t in th e case o f an E dge
C orpo ration engaged in banking, its
capital and surplus sh all not b e less
th an six p er cent o f total consolidated
assets.
(4 ) U nderw riting and dealing in se­
curities abroad. W h e r e a fo reign sub­
sidiary
of
an
E dge
C orporation,
m em ber bank, o r ban k h olding com pa­
ny engages in un derw ritin g o r d ealing
in securities,4 abroad pursu ant to sec­
tion 211.5(d), an un derw ritin g com m it­
m ent w ith re gard to a security sh all be
deem ed a liability o f the issuer to the
investor an d th e am ount o f the un der­
w riting com m itm ent plus o th er liab il­
ities o f th e issuer sh all not exced the
Investor’s lending limit.
(b )
Supervision.
M e m b e r banks.
E dge C orporation s and ban k h o ldin g
com panies sh all supervise and adm in­
ister th eir foreign branches, subsidiar­
ies and join t ventures in such a
m an n er as to ensure th a t th eir oper­
ations conform to h ig h stan dards o f
bank ing an d financial prudence. E ffe c ­
tive systems o f records, controls, and
reports sh all be m aintained to keep
m anagem ent in form ed o f the activities
an d condition o f fo reign branches,
subsidiaries an d joint ventures. Su ch
systems should provide, in particular,
in form ation on risk assets, liquidity
m anagem ent, and operations o f con* Equity securities held in a trading or
dealing portfolio are to be included when
determining the aggregate amount o f "port­
folio Investments” permitted under section

211.5.

10515
trols an d conform ance to m anagem ent
policies. R ep o rts o n risk assets should
b e sufficient to perm it an ap praisal o f
credit quality an d assessment o f exp o­
sure to loss o f th e subsidiary, joint
ventures, o r branch, an d fo r this p u r­
pose provide fu ll in form ation on the
condition o f m aterial borrow ers. R e ­
p orts on th e operations o f controls
should include th e in ternal and exter­
n al audits o f th e branch, subsidiary or
jo in t venture. T h ese reports an d this
Inform ation sh all be m ade available to
exam iners o f th e ap propriate b an k su­
pervisory agencies.
(c ) Exam inations. E xam in ers ap ­
pointed b y th e B o a rd sh all exam ine
each E dge C orpo ration once a year.
A n E dge C orporation sh all m ake avail­
able to exam iners sufficient in fo rm a­
tion to assess its condition an d oper­
ations and the condition and activities
o f an y organization w hose shares it
holds.
( d ) Reports. (1 ) E ach E dge C o rp o ra­
tion sh a ll m ake at least tw o reports o f
condition an n ually to th e B o a rd at
such times an d in such fo rm as the
B o a rd m ay prescribe. T h e B o a rd m ay
require th at statem ents o f condition
o r o th er reports be p ublish ed o r m ade
available fo r public inspection.
(2 )
E dge
Corporations,
m em ber
banks, and ban k h o ld in g com panies
sh all file such reports on th eir foreign
operations as th e B o a rd m ay require.
(3 ) A m em ber bank, E dge C o rp o ra ­
tion o r a b an k h olding com pany sh all
re p o rt w ith in 30 days an acquisition or
disposition o f shares in a m an n er pre­
scribed b y the B oard.
(e ) F ilin g procedures. U n less other­
wise directed b y the B o ard , applica­
tions, notifications, an d reports re­
q uired b y this P a rt sh all be filed w ith
th e F ed eral R eserve B a n k o f the dis­
trict in w hich th e paren t b an k or ban k
h o ldin g com pany is located, o r if none,
th e F ed eral R eserve B an k o f the dis­
trict in w hich the ap ply in g o r re p o rt­
ing institution is located. Instructions
and fo rm s fo r such applications, noti­
fications an d reports are available
fro m th e F ed eral R eserve Bank.
B y o rd er o f th e B o a rd o f Governors,
F e b ru a ry 14,1979.
T h e o d o re E. A llis o n ,

Secretary o f the Board.
[F R Doc. 79-5324 Piled 2-20-79: 8:45 am ]

F E D E R A L
press
f^AL

R E S E R V E

release

Rt^.

For Immediate release

February 14, 1979

The Federal Reserve Board today proposed amendments to Its
regulationsgoverning corporations engaged in international banking and
financial operations, known as Edge Corporations.

These amendments are

designed to Implement section 3 of the International Banking Act of 1978.
The Board also proposed a series of amendments to its
regulations governing the international operations

of U.S. banks.

The

proposals would consolidate existing regulation in

this area andwould

formalize a number of Board policy positions that have previously been
developed on a case-by-case basis.
The Board asked for comment on its proposals by April 15, 1979.
In making its proposals, the Board noted:
Section 3 of the IBA (International Banking Act) contains
the first significant amendment to Section 25(a) of the
Federal Reserve Act ("Edge Act") since enactment of the
Edge Act in 1919.
In amending the Edge Act, Congress
declared that Edge Corporations are to have powers
sufficiently broad to enable them to compete with foreign
banks In the United States as well as abroad and to provide
all segments of the United States economy a means
of financing international trade, and, in particular,
exports.
In addition, Edge Corporations are to serve
as a means of fostering' the participation of regional
and smaller banks in international banking and financing
and, in general, to stimulate competition in making those
services available throughout the United States...
The Board is specifically directed to eliminate or modify
any unnecessary restrictions that disadvantage Edge
Corporations in competing with foreign banks In the United
States or abroad or that have the opposite effect of
discriminating against foreign-owned banking Institutions.

The Board has reviewed the affected regulations with the
following objectives in mind:
--To comply with the Congressional mandate in the IBA,
particularly as it concerns U.S. activities of
Edge Corporations.
— To eliminate obsolete restrictions and to clarify the
regulat ions.
— To Incorporate into regulations Board policies previously
available only in individual interpretations and decisions.
--To simplify the regulatory approval process and promote
regulatory efficiency.
The principal new elements of the Board's proposals are:
1.

Banking operations in the United States:

The proposed regulatory revisions would create for Edge Corporations
a new class of international customer whose deposit and loan business would be
presumed to be for International purposes.

Customers having more than two-thirds of

their purchases or sales in international commerce would qualify as
international customers.
Under current rules each deposit and credit transaction by a
U.S. resident with an Edge Corporation must be directly related to an
international transaction.
to service fully, or

This has meant that Edge Corporations were unable

to compete effectively for, the business of firms

specializing in International trade.

International customers that meet the

new test would be able to conduct a full banking business with Edge
Corporations. The Board specifically invited comment on this aspect of its
proposal.
For all customers, Edge Corporations would be permitted to finance
the production of U.S. goods for exports.

Under the current regulation,

Edge Corporations may finance the shipment and storage of goods for export

-3but not their production.

The Board's propossl would be in furtherance

of an IBA directive of enhancing the export financing capabilities of Edge
Corporations.
2.

U.S. offices of Edge Corporations:

As proposed, Edge Corporations would be allowed to establish branches
in the United States with specific prior Board approval.
Under current regulations, Edge Corporations may establish branches
abroad but not in the United States. To provide international banking
services at different locations in the U.S., banks or other sponsors have been
required to incorporate separate domestic Edge Corporations.
The proposal would be consistent with the directive in the IBA to
make international banking and financial services available throughout the
United States. It is intended, further, to reduce costs and inconveniences
arising from multiple incorporations, to promote use of Edge Corporations by
smaller and regional banks, and to contribute to the efficiency of Edge Corporations.
3.

Regulatory approvals:

The Board's proposal would provide expanded and simplified
procedures for investments by banks, Edge Corporations, and bank holding
companies.

The proposal would grant the Board's general consent for invest­

ments of up to $2 million in foreign subsidiaries and joint ventures if they are
engaged in permissible activities specified in the regulation.

Consent would

also be granted for limited portfolio investments in other companies.
Certain investments that do not qualify for the general consent
could be made after 60 days' notification to the Board.

All other investment

would have to receive the Board's specific prior approval.

-4The activities specified in the regulation are those the Board
has generally allowed foreign subsidiaries because they are of a financial
character or are related to international banking and financial operations.
4.

Other

The Board also proposed changes in existing limitations on the
aggregate liabilities of Edge Corporations.

Under the proposal, the

Board stated that Edge Corporations will be expected to maintain adequate
capital in relation to the scope and character of their operations but
not less than 6 per cent of total assets in the case of Edge Corporations
engaged in banking.
The Board's proposals do not address the question of lending by
foreign subsidiaries to United States residents for domestic purposes.
The Board, however, requested comment on the appropriateness of the
existing policy which prohibits such loans.
The Board also requested comnent on the question whether Edge
Corporations should be permitted to become members of the Federal Reserve
System.
The proposed regulation, which would be entitled "International
Banking Operations," is attached.

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