Full text of District Notices (Federal Reserve Bank of Dallas) : Revised Regulation K Pamphlet and Amendment to Regulation Y, Circular No. 79-153

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F ederal

reserve

Ba n k

DALLAS. TEXAS

of

Dallas

75222

C ircular No. 79-153
September 10, 1979

REVISED REGULATION K PAMPHLET
(International Banking Operations)
and
AMENDMENT TO REGULATION Y
(Bank Holding Companies and Change in Bank Control)

TO ALL MEMBER BANKS,
BANK HOLDING COMPANIES,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
By C ircular No. 79-108, dated June 25, 1979, the Board of
Governors' press release and order announcing the adoption of revised
Regulation K was transmitted to you. At that time, you were also advised
that Section 2 2 5.4 (f) of Regulation Y had been incorporated into the new
regulation.
Enclosed with this circu lar is a copy of the new Regulation K
pamphlet and printed on the reverse of this circu lar is an amendment
making Regulation Y c u rren t. Member banks and others that maintain
Regulations Binders are requested to file these documents in their
binders. Additional copies of the material w ill be made available upon
request to the Secretary's Office of this Bank, Ext. 6267.
Any questions concerning the enclosed material should be
directed to the Attorney's Section of our Holding Company Supervision
Department, Ext. 6182.
Sincerely yours,
Robert H . Boykin
F irst Vice President
Enclosure

Banks and others are encouraged to use the following incoming WATS numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL

AMENDMENT TO REGULATION Y f

Effective June 14, 1979, Section 2 2 5 .4 ( f ) is
deleted from Regulation Y and incorporated into
Regulation K (1 2 C F R Part 2 1 1 ).

tF o r this Regulation to be complete as amended effective June 14, 1979, retain:
1) Printed Regulation Y pamphlet as amended effective April 5, 1978:
2 ) Amendment effective January 1, 1979,
Section 2 2 5 .4 (b );
3 ) Amendment effective M arch 10, 1979,
Section 225.1;
4 ) Amendment effective M arch 10, 1979, adding Section 225.7;
5 ) Amendment effective April 2, 1979, Section 2 2 5 .4 (a ) ; and
6 ) This slip sheet.

6-14-79

BOARD OF GOVERNORS

of the
FEDERAL RESERVE SYSTEM

INTERNATIONAL BANKING OPERATIONS

T
REGULATION K
(12 C F R P A R T 211)

Effective June 14, 1979

Any inquiry relating to this regulation should be addressed to the Federal
Reserve Bank o f the Federal Reserve District in which the inquiry arises.
Form s necessary for the preparation of reports may be obtained from any
Federal Reserve Bank.

CO NTENTS
S e c . 2 1 1 .1 — A u t h o r it y , P u r p o s e ,
S cope

S e c . 2 1 1 .5 — I n v e s t m e n t s

an d

..........................................................................

1

(a ) Authority ..............................
(b ) Purpose and S c o p e .............

1
1

S e c . 2 1 1 .2 — D e f i n

i t i o n s ........................................

S e c . 2 1 1 .3 — F o r e ig n B r a n c h e s
M

O r g a n iz a t io n s

em ber

(a ) Establishment of foreign
branches ................................
(b ) Further powers of foreign
branches ................................
(c ) Other permissible
activities ................................
(d ) Reserves
..........................

C o r p o r a t io n s

and

1

of

B a n k s ...................................................

S e c . 2 1 1 .4 — E d g e

(a )
(b )
(c )
(d )
(e )

2

2
2
3
3

A g reem en t

......................................................

3

e q u ir e m e n t s

it s and

C a p it a l

...................................................

(a ) Acceptances of Edge
C o rp o ra tio n s.........................
(b ) Liabilities of one person . .
( c ) Loans to foreign banks . . .
(d ) Capitalization ......................

3

(a ) Organization .........................
(b ) Nature and ownership of
shares .....................................
(c ) Branches ...............................
(d ) Reserve requirements and
interest rate limitations . . .
(e ) Permissible activities in the
United States ......................
( f ) Agreement Corporations .

O th er

General policy ....................
Investment limitations . . .
Investment p ro ced u res.. . .
Listed a c tiv itie s ....................
Debts previously
c o n tr a c te d ..............................

S e c . 2 1 1 .6 — L e n d in g L i m
R

in

...................................................

3
4
4
4
5

S e c . 2 1 1 .7 — S u p e r v i s i o n

(a )
(b )
(c)
(d )
(e )

and

R

e p o r t in g

Supervision ...........................
Exam inations .......................
Reports ...................................
Filing p ro c e d u re s...............
Transition ..............................

S t a t u t o r y A p p e n d ix

................................................

REGULATION K
(12 CFR PART 211)
Effective June 14, 1979

INTERNATIONAL BANKING OPERATIONS*

SE C T IO N 2 1 1 .1 — A U T H O R IT Y , P U R P O S E ,
AN D SCO PE

subsidiary of that com pany, and any direct or in­
direct subsidiary o f the organization.

(a) Authority. This Part is issued by the Board
of Governors of the Federal Reserve System
(“B oard”) under the authority of the Federal R e­
serve Act (12 U .S.C . 221
(“F R A ”) t ; the
Bank Holding Company A ct o f 1956 (12 U .S.C .
1841
(“B H C A ”) f ; and the International
Banking A ct o f 1978 (92 Stat. 607) (“IB A ”) t .
(b) Purpose and scope. This Part is in further­
ance of the purposes o f the F R A , the BH C A , and
the IB A . It applies to corporations organized un­
der section 25(a) o f the F R A (12 U .S.C . 6 1 1 -6 3 1 ),
“Edge Corporations”; to corporations having an
agreement or undertaking with the Board under
section 25 of the F R A (12 U .S.C . 6 0 1 -6 0 4 (a )),
“Agreement Corporations” ; to member banks with
respect to their foreign branches and investments
in foreign banks under section 25 o f the F R A (12
U .S.C . 6 0 1 -6 0 4 (a ));1 and to bank holding compa­
nies with respect to the exemption from the non­
banking prohibitions of the B H C A afforded
by section 4(c)(13) o f the B H C A (12 U .S.C .
1843(c)(13)).

(b) “Capital and surplus” means paid-in and
unimpaired capital and surplus, and includes un­
divided profits but does not include the proceeds
o f capital notes or debentures.

et seq.)

et seq.)

(c) “D irectly or indirectly” when used in refer­
ence to activities or investments o f an organization
means activities or investments o f the organization
or of any subsidiary o f the organization.

(d) An Edge Corporation is “engaged in bank­
ing” if it is ordinarily engaged in the business o f
accepting deposits in the United States from non­
affiliated persons.
(e) “ Engaged in business in the United States”
means maintaining and operating an office (other
than a representative office) or subsidiary in the
United States.
(f) “Foreign” or “ foreign country” refers to one
or more foreign nations, and includes the overseas
territories, dependencies, and insular possessions
of those nations and o f the United States, and the
Commonwealth o f Puerto Rico.
(g) “Foreign bank” means an organization that:
SE C T IO N 2 1 1 .2 — D E F IN IT IO N S
is organized under the laws o f a foreign country;
F o r the purposes of this Part:
engages in the business of banking; is recognized
(a)
An “affiliate” o f an organization means any as a bank by the bank supervisory or monetary
company o f which the organization is a direct or
authority of the country o f its organization or
indirect subsidiary, any other direct or indirect
principal banking operations; receives deposits to
* This text corresponds to the Code of Federal Regula­ a substantial extent in the regular course o f its
tions, Title 12, C hapter II, P art 211, cited as 12 CFR
business; and has the power to accept demand
PART 211.
deposits.
t Statute is printed in the Appendix.

1 Section 25 of the FR A , which refers to national bank­
ing associations, also applies to State m em ber banks of
the Federal Reserve System by virtue of section 9 of the
FRA (12 U.S.C. 321).

(h) “Foreign branch” means an office o f an in­
stitution which is located outside the country un­
der the laws of which the institution is organized.

REGULATION K

§ 211.3

ercised, unless extended by the Board. A member
bank shall inform the Board within 3 0 days o f the
(i)
“Investment” means the ownership or con­ opening, closing or relocation o f a branch and the
address o f a new or relocated foreign branch.
trol o f shares, including binding commitments to
(b)
Further powers of foreign branches. In ad­
acquire shares, and other contributions to the cap­
dition to its general banking powers, and to the
ital accounts o f an organization, including the
extent consistent with its charter, a foreign branch
holding o f an organization’s subordinated debt
o f a member bank may engage in the following
when shares o f stock o f the organization are also
activities so far as usual in connection with the
held directly or indirectly by an investor.
business o f banking in the country where it trans­
(j) “Investor” means an Edge Corporation,
acts business:
Agreement Corporation, bank holding company,
at which a banking or financing business is con­
ducted.

(1) guarantee customers’ debts or otherwise
agree for their benefit to make payments on the
(k) “Joint venture” is an organization 2 0 per
occurrence o f readily ascertainable events,2 if the
cent or more o f the voting stock of which is held
guarantee or agreement specifies a maximum
directly or indirectly by an investor or by an affili­
monetary liability; but except to the extent that the
ate o f the investor but which is not a subsidiary
member bank is fully secured, it may not have lia­
o f the investor.
bilities outstanding for any person on account of
(1)
“Listed activities” means the activities speci­
such guarantees or agreements which when aggre­
fied in section 211.5(d).
gated with other obligations o f the same person
(m) “Organization” means a corporation, gov­
exceed the limit contained in section 5 2 0 0 of the
ernment, partnership, association, or any other
Revised Statutes (12 U .S.C . 84);
legal or com m ercial entity.
(2) accepts drafts or bills o f exchange drawn
(n) “Person” means an individual or an organi­
upon it subject to the amount limitations o f sec­
zation.
tion 13 of the F R A (12 U .S.C . 372);
(o)
“Portfolio investment” means an investment
(3) invest in (i) the securities of the central
in an organization other than a subsidiary or joint
bank, clearing houses, governmental entities, and
venture.
government-sponsored development banks o f the
(p) “Subsidiary” means an organization more
country in which the foreign branch is located, (ii)
than 50 per cent o f the voting stock of which is
other debt securities eligible to meet local reserve
held directly or indirectly by the investor, or which
or similar requirements, and (iii) shares o f profes­
is otherwise controlled or capable of being con­
sional societies, schools, and the like necessary to
trolled by the investor or an affiliate o f the in­
the business o f the branch; however, the branch’s
vestor.
total investments under this provision (exclusive o f
securities held as required by the law o f that coun­
SE C T IO N 2 1 1 .3 — F O R E IG N B R A N C H E S
try or as authorized under section 5 1 3 6 o f the R e­
OF M EM BER BANKS
vised Statutes (12 U.S.C . 24)) shall not exceed
one per cent o f its total deposits on the preceding
(a)
Establishment of foreign branches. A mem­
year-end call report date (or on the date o f acqui­
ber bank may establish a foreign branch with prior
sition in the case o f a newly established branch
approval o f the Board. Unless otherwise advised by
that has not so reported);
the Board: (1) a member bank that has branches in
or member bank.

two or more foreign countries may establish initial
branches in additional foreign countries after 60
days’ notice to the Board; and (2) without prior
approval or prior notice, a member bank may es­
tablish additional branches in any foreign country
in which it operates one or more branches. A u­
thority to establish branches through prior ap­
proval or prior notice shall expire one year from
the earliest date on which it could have been ex­

(4) underwrite, distribute, buy, and sell obliga­
tions o f the national government o f the country in
which the branch is located, obligations o f an
agency or instrumentality o f the national govern­
ment, and obligations of a municipality or other

2 “ Readily ascertainable events” include, but are not lim­
ited to, events such as nonpaym ent of taxes, rentals, cus­
toms duties, or costs of transport and loss or nonconform ­
ance of shipping documents.

§ 211.4
local or regional governmental entity o f the coun­
try; however, no member bank may hold, or be
under commitment with respect to, obligations of
the government or governmental entities of a
country as a result o f underwriting, dealing, or
purchasing fo r the bank’s own account an aggre­
gate amount exceeding 10 per cent of the member
bank’s capital and surplus;
(5) take liens or other encumbrances on foreign
real estate in connection with its extensions of
credit, whether or not of first priority and whether
or not the real estate is improved or has been ap­
praised, and without regard to maturity or amount
limitations or amortization requirements o f section
24 of the F R A (12 U .S.C . 371);
(6) extend credit up to $ 1 0 0 ,0 0 0 or its equiva­
lent to an officer of the bank residing in the coun­
try in which the foreign branch is located to
finance the acquisition or construction of living
quarters to be used as the officer’s residence
abroad, provided any such credit extension is re­
ported promptly to the branch’s home office; how­
ever, when necessary to meet local housing costs,
such amount may be exceeded with the specific
prior approval of the member bank’s board o f di­
rectors;

REGULATION K
Board issues a preliminary permit approving its
proposed name, articles o f association, and organi­
zation certificate. The name shall include “interna­
tional,” “foreign,” “overseas,” or some similar
word, but may not resemble the name of another
organization to an extent that might mislead or
deceive the public. T he factors that will be consid­
ered by the Board in acting on a proposal to orga­
nize an Edge Corporation include:
(1) the financial condition and history of the
applicant;
(ii) the general character of its management;
(iii) the convenience and needs o f the commu­
nity to be served with respect to international
banking and financing services; and
(iv ) the effects o f the proposal on competition.
T he Board will publish in the
notice o f any such proposal and will give inter­
ested persons an opportunity to express their views
on the proposal.

Federal Register

(2) A fter the Board issues a preliminary permit,
the Edge Corporation may elect officers and other­
wise complete its organization, invest in obliga­
tions of the United States Government, and main­
tain deposits with banks, but it may not exercise
any other powers until the Board has issued a final
(7) act as insurance agent or broker;
permit to com mence business. N o amendment to
(8) pay to an employee o f the branch, as part
the articles of association shall become effective
of an employee benefit program, a greater rate of
until approved by the Board.
interest than that paid to other depositors o f the
(b)
Nature and ownership of shares. (1) Shares
branch; and
of stock in an Edge Corporation may not include
(9) engage in repurchase arrangements involv­
no-par value shares and shall be issued and trans­
ing commodities and securities that are the func­
ferred only on its books and in compliance with
tional equivalent o f extensions o f credit.
section 25(a) o f the F R A . The share certificates of
an Edge Corporation shall (i) name and describe
(c) Other permissible activities. A member bank
each class o f shares indicating their character and
that is o f the opinion that activities other than
any unusual attributes such as preferred status or
those specified in this section are usual in connec­
lack o f voting rights and (ii) conspicuously set
tion with the transaction o f the business of bank­
forth the substance o f (A) limitations upon the
ing in the places where its branches transact busi­
rights of ownership and transfer of shares imposed
ness may apply to the Board for permission to
by section 25(a) o f the F R A , and (B) rules that the
engage in such activities.
Edge Corporation shall prescribe in its by-laws to
(d) Reserves. Reserves shall be maintained
ensure compliance with this paragraph. Any change
against foreign branch deposits when required by
in status of a shareholder that causes a violation o f
Part 204 of this Chapter (Regulation D).
section 25(a) o f the F R A shall be reported to the
Board as soon as possible, and the Edge Corpora­
SE C T IO N 211.4 — E D G E A N D A G R E E M E N T
tion shall take such action as the Board may direct.
C O R P O R A TIO N S
(2)
One or more foreign or domestic institu­
(a)
Organization. (1) A proposed Edge Corpo­ tions referred to in section 3(f) of the IB A may
ration shall become a body corporate when the
apply fo r the Board’s prior approval to acquire a

REGULATION K

§ 211.4

m ajority of the shares o f the capital stock of an
Edge Corporation. In acting on an application by
a foreign institution that is not subject to the IBA
or the B H C A , the Board will impose any condi­
tions that are necessary to prevent undue concen­
tration of resources, decreased or unfair com peti­
tion, conflicts o f interest, or unsound banking
practices in the United States. The aggregate
amount invested in Edge Corporations by a for­
eign institution shall not exceed 10 per cent of the
foreign institution’s capital and surplus.
(c) Branches. (1) With prior Board approval, an
Edge Corporation may establish branches in the
United States. In acting on a proposal to establish
a branch in the United Statess, the Board will con­
sider the same factors enumerated in section
211.4(a)(1). The Board will publish in the
notice o f any proposal to establish a
branch in the United States and will give inter­
ested persons an opportunity to express their views
on the proposal.

Register

Federal

(2)
An Edge Corporation may establish branches
abroad in accordance with the procedures in sec­
tion 211.3(a).
(d) Reserve requirements and interest rate limi­
tations. The deposits o f an Edge Corporation are
subject to Parts 204 and 217 o f this Chapter (Reg­
ulations D and Q) in the same manner and to the
same extent as if the Edge Corporation were a
member bank.
(e) Permissible activities in the United States.
An Edge Corporation may engage in activities in
the United States that are permitted by the sixth
paragraph of section 25(a) o f the F R A and in such
other activities as the Board determines are inci­
dental to international or foreign business. The
following activities will ordinarily be considered
incidental to an Edge Corporation’s international
or foreign business:
(1) Deposits from foreign governments and per­
sons. An Edge Corporation may receive in the
United States demand, savings, and time deposits
(including negotiable certificates of deposits) from
foreign governments and their agencies and in­
strumentalities, persons conducting business prin­
cipally at their offices or establishments abroad,
and individuals residing abroad.
(2) Deposits from other persons. An Edge C or­
poration may receive in the United States demand,

savings, and time deposits (including negotiable
certificates of deposit) if such deposits:
(i) are to be transmitted abroad;
(ii) consist o f collateral or funds to be used for
payment of obligations to the Edge Corporation;
(iii) consist o f the proceeds of collections abroad
that are to be used to pay for exported or imported
goods or for other costs of exporting or importing
or that are to be periodically transferred to the de­
positor’s account at another financial institution;
(iv) consist of the proceeds o f extensions of
credit by the Edge Corporation; or
(v) represent compensation to the Edge Corpo­
ration for extensions of credit or services to the
customer.
(3) Use of funds in the United States. Funds of
an Edge Corporation not currently employed in its
international or foreign business, if held or in­
vested in the United States, shall be in the form of
cash, deposits with banks, and money market in­
struments such as bankers’ acceptances, obliga­
tions o f or fully guaranteed by Federal, State, and
local governments and their instrumentalities,
repurchase agreements, Federal funds sold, and
com m ercial paper.
(4) General activities. Subject to the limitations
of section 25(a) of the F R A and section 2 1 1 .6 of
this Part, an Edge Corporation may engage in the
following activities to the extent consistent with
sound banking practices:
(i) issue obligations to domestic offices o f other
banks (including purchases o f Federal funds) or to
the United States or any of its agencies;
(ii) incur indebtedness from a transfer o f direct
obligations of, or obligations that are fully guaran­
teed as to principal and interest by, the United
States or any agency thereof that the Edge Corpo­
ration is obligated to repurchase;
(iii) issue long-term subordinated debt that does
not qualify as a “deposit” under Part 2 0 4 o f this
Chapter (Regulation D );
(iv) finance the following: (A) contracts, proj­
ects, or activities performed substantially abroad;
(B) the importation into or exportation from the
United States of goods, whether direct or through
brokers or other intermediaries; (C) the domestic
shipment or temporary storage o f goods being im­
ported or exported (or accumulated for export);

REGULATION K

§ 211.5
and (D) the assembly or repackaging of goods im­
ported or to be exported;
(v) finance the costs of production of goods and
services for which export orders have been re­
ceived or which are identifiable as being directly
for export;
(vi) assume or acquire participations in exten­
sions o f credit, or acquire obligations arising from
transactions the Edge Corporation could have fi­
nanced;
(vii) guarantee a customer’s debts or otherwise
agree for the customer’s benefit to make payments
on the occurrence of readily ascertainable events,3
if the guarantee or agreement specifies the maxi­
mum monetary liability thereunder and is related
to a type o f transaction described in paragraphs
(4)(iv) and (4)(v) o f this section;
(viii) receive checks, bills, drafts, acceptances,
notes, bonds, coupons, and other securities for col­
lection abroad, and collect such instruments in the
United States for a customer abroad;
(ix) hold securities in safekeeping for, or buy
and sell securities upon the order and for the ac­
count and risk o f a person;

(f)
Agreement Corporations. W ith the prior ap­
proval of the Board, a member bank or bank
holding company may invest in a Federally or
State chartered corporation that has entered into
an agreement or undertaking with the Board that
it will not exercise any power that is impermissible
for an Edge Corporation under this Part.
S E C T IO N 2 1 1 .5 — IN V E S T M E N T S IN O T H E R
O R G A N IZ A T IO N S
(a) General policy. Activities o f investors
abroad, whether conducted directly or indirectly,
shall be confined to those of a banking or financial
nature and those that are necessary to carry on
such activities. In doing so, investors shall at all
times act in accordance with high standards of
banking or financial prudence, having due regard
for diversification of risks, suitable liquidity, and
adequacy of capital. Subject to these consider­
ations and the other provisions o f this section,
it is the Board’s policy to allow activities abroad
to be organized and operated as best meets corpo­
rate policies.

(x) act as paying agent for securities issued by
foreign governments or other entities organized
under foreign law;

(b) Investment limitations. (1) An investor, in
accordance with the investment procedures de­
scribed in paragraph (c) o f this section, may
directly or indirectly:

(x i) act as trustee, registrar, conversion agent,
or paying agent with respect to any class of secur­
ities issued to finance foreign activities and dis­
tributed solely outside the United States;

(1) invest in a subsidiary that engages solely in
listed activities or in such other activities as the
Board has determined in the circumstances o f a
particular case are permissible;

(x ii) make private placements of participations
in its investments and extensions of credit; how­
ever, except to the extent permissible for member
banks under section 5 1 3 6 of the Revised Statutes
(12 U .S.C . 24), no Edge Corporation may other­
wise engage in the business of selling or distribut­
ing securities in the United States; and

(ii) invest in a joint venture provided that, un­
less otherwise permitted by the Board not more
than 10 per cent of the joint venture’s consoli­
dated assets or revenues shall be attributable to
activities that would not be permissible fo r a
subsidiary;

(iii) make portfolio investments (including
securities held in trading or dealing accounts) in
an organization if the total direct and indirect
(5)
Other permissible activities. An Edge Cor­ portfolio investments in organizations engaged in
activities that are not permissible for joint ventures
poration that is of the opinion that other activities
does not at any time exceed 100 per cent of the
in the United States would be incidental to its
investor’s capital and surplus.4
international or foreign business may apply to the
(2) A member bank’s direct investments under
board for such a determination.
section 25 of the F R A shall be limited to foreign
banks and to foreign organizations formed for the
(xiii) buy and sell spot and forward foreign
exchange.

3 “Readily ascertainable events” include, but are not lim­
ited to, events such as nonpaym ent of taxes, rentals, cus­
toms duties, or costs of transport and loss or nonconform ­
ance of shipping documents.

4 For this purpose, a direct subsidiary of a member bank
is deemed to be an investor.

REGULATION K

§ 211.5

sole purpose o f either holding shares of a foreign
bank or performing nominee, fiduciary, or other
banking services incidental to the activities o f a
foreign branch or foreign bank affiliate of the
member bank.

investment unless an affiliate has made such invest­
ments. Authority to make investments under prior
notice or prior consent shall expire one year from
the earliest date on which it could have been
exercised, unless extended by the Board.

(3) Subsidiaries may establish branches in
accordance with the procedures set forth in section
211.3(a).

(1)
General consent. The Board grants its gen­
eral consent for the following:

(4) In computing the amount that may be in­
vested in any organization under this section
there shall be included any unpaid amount fo r
which the investor is liable and any investments
by affiliates.
(5) An investor shall dispose o f an investment
promptly (unless the Board authorizes retention)
if:
(i) the organization invested in (A) engages in
the business o f underwriting, selling or distribut­
ing securities in the United States; (B) engages in
the general business o f buying or selling goods,
wares, merchandise, or commodities in the United
States; or (C) transacts business in the United
States that is not incidental to its international or
foreign business;
(ii) in the case o f a subsidiary, it engages in an
activity other than that which the Board has de­
termined to be permissible; or in the case o f joint
venture, it engages in an impermissible activity
beyond that described in paragraph (b) (1) (ii) of
this section; or
(iii) after notice and opportunity for hearing,
the investor is advised by the Board that its in­
vestment is inappropriate under the F R A , the
BHCA, or this Part.

(1) any investment in a joint venture or sub­
sidiary, and any portfolio investment, if: (A) the
organization is not engaged in business in the
United States; and (B) the total amount invested
does not exceed the lesser of (7) $2 million or
five per cent of the investor’s capital and surplus
in the case of a member bank, bank holding com ­
pany, or Edge Corporation engaged in banking, or
25 per cent o f the investor’s capital and surplus
in the case o f an Edge Corporation not engaged
in banking;

(2)

(ii) any additional investment in an organiza­
tion if: (A) the additional investment does not
cause the organization to be a direct or indirect
subsidiary or joint venture o f the investor; and (B)
the additional amount invested does not in any
calendar year exceed 10 per cent of the investor’s
historical cost plus dividends for that year. The
amount that may be invested under this provision
o f the general consent may, if not exercised, be
carried forward and accumulated for up to five
consecutive years; or
(iii) any investment that is acquired from an
affiliate at net asset value.

(2) Prior notification. An investment in a sub­
sidiary or joint venture that does not qualify under
the general consent procedure, may be made after
(c)
Investment procedures.5 D irect and indirect the investor has given 60 days’ prior written notice
to the Board if the total amount to be invested
investments shall be made in accordance with the
does not exceed 10 per cent of the investor’s
general consent, notice, or specific consent proce­
capital and surplus. The notification period shall
dures contained in this section. The Board may at
commence at the time the notice is accepted. T he
any time, upon notice, suspend the general consent
and notification procedures with respect to any
investor or with respect to the acquisition o f shares
o f companies engaged in particular kinds of activi­
ties. An investor must receive prior specific con­
sent o f the Board for investment in its first sub­
sidiary, its first joint venture, and its first portfolio

5 W hen necessary, the general consent and prior notifica­
tion provisions of this section constitute the Board’s ap­
proval under the eighth paragraph of section 25(a) of the
FR A for investments in excess of the lim itations therein
based on capital and surplus.

Board may, during the notification period, dis­
approve the investment, suspend the period, or re­
quire that an application be filed by the investor
for the Board’s specific consent.
(3) Specific consent. Any investment that does
not qualify for either the general consent or the
prior notification procedure shall not be consum­
mated without the specific consent of the Board.
(d)
Listed activities. The Board has determined
that the following activities are usual in connection

§

211.6

REGULATION K

with the transaction of banking or other financial
operations abroad:

An investor that is o f the opinion that other
activities are usual in connection with the trans­
action o f the business o f banking or other financial
operations abroad and are consistent with the F R A
or the BH CA may apply to the Board for such a
determination.

(1) commercial banking;
(2 ) financing, including com m ercial financing,
consumer financing, mortgage banking, and facto r­
ing;

(e)
Debts previously contracted. Shares of stock
or other evidences o f ownership acquired to pre­
vent a loss upon a debt previously contracted in
good faith shall not be subject to the limitations
or procedures of this section; however, the shares
or evidences of ownership shall be disposed of
promptly, but in no event later than two years
after their acquisition unless the Board authorizes
retention for a longer period.

(3) leasing real or personal property if the lease
serves as the functional equivalent o f an extension
of credit to the lessee o f the property;
(4) acting as fiduciary;
(5) underwriting credit life insurance and credit
accident and health insurance related to extensions
of credit by the investor or its affiliates;
(6) performing services for other direct or in­
direct operations of a United States banking or­
ganization, including representative functions, sale
of long term debt, name saving, and holding assets
acquired to prevent loss on a debt previously con­
tracted in good faith;

SE C T IO N 2 1 1 .6 — L E N D IN G L IM IT S AN D
C A P IT A L R E Q U IR E M E N T S
(a) Acceptances of Edge Corporations. An
Edge Corporation shall be and remain fully se­
cured for (i) all acceptances outstanding in excess
of twice its capital and surplus; and (ii) all accept­
ances outstanding for any one person in excess of
10 per cent of its capital and surplus. These limita­
tions shall not apply (i) if the excess represents the
international shipment o f goods and the Edge
Corporation is fully covered by primary obliga­
tions to reimburse it that are also guaranteed by
banks or bankers, or (ii) if the Edge Corporation
is covered by participation agreements from other
banks.

(7) holding the premises of a branch of an Edge
Corporation or member bank or the premises of a
direct or indirect subsidiary;
(8) providing investment, financial or economic
advisory services;
(9) general insurance brokerage;
(10) data processing;
(11) managing a mutual fund if the fund’s
shares are not sold or distributed in the United
States or to United States residents and the fund
does not exercise managerial control over the firms
in which it invests;

(b) Liabilities of one person. (1) Except as the
Board may otherwise specify:

(12) performing management consulting serv­
ices provided that such services when rendered
with respect to the United States market shall be
restricted to the initial entry;

(1) the liabilities of any person to an Edge Cor­
poration engaged in banking and to its direct or
indirect subsidiaries shall not exceed 10 per cent
of the Edge Corporation’s capital and surplus;
(ii)
the total liabilities of any person to a
majority owned foreign bank or Edge Corporation
subsidiary o f a member bank, and to majority
owned subsidiaries of such foreign bank or Edge
Corporation when combined with liabilities of the
same person to the member bank and its majority
owned subsidiaries, shall not exceed the member
bank’s limitation on loans to one person.

(13) underwriting, distributing, and dealing in
debt and equity securities outside the United
States, provided that no underwriting commitment
by a subsidiary of an investor for shares of an
issuer may exceed $2 million or represent 20 per
cent o f the capital and surplus or voting stock of
an issuer unless the underwriter is covered by
binding commitments
other purchasers;

from

subunderwriters or

(14) engaging in other activities that the Board
has determined by regulation or order are closely

(2) “Liabilities” includes: ineligible acceptances
outstanding; obligations for money borrowed; in­
vestments in another organization (valued at
original cost) except where that organization is a

related to banking under section 4(c) (8) of the
BH CA .

7

REGULATION K
direct or indirect subsidiary; unsecured obligations
resulting from the issuance of guarantees or similar
agreements; underwriting commitments to an is­
suer of securities; in the case o f a partnership or
firm, obligations of its members, in the case of a
corporation, obligations incurred for its benefit by
other corporations that it controls; and in the case
o f a foreign government, the liabilities of its de­
partments or agencies deriving their current funds
prinicipally from general tax revenues.
(3)
The limitations o f this paragraph do not
apply to;
(i) deposits of banks and Federal funds pur­
chased;
(ii) bills or drafts drawn in good faith against
actual goods and on which two or more parties are
liable;
(iii) any acceptance that has not matured and is
not held by the acceptor;
(iv) obligations to the extent secured by cash
collateral; or
(v) obligations to the extent supported by the
full faith and credit o f the following: (A) the
United States or any o f its departments, agencies,
establishments, or wholly-owned corporations (in­
cluding obligations to the extent insured against
foreign political and credit risks by the ExportImport Bank of the United States or the Foreign
Credit Insurance Association), the International
Bank for Reconstruction and Development, the
International Finance Corporation, the Interna­
tional Development Association, the Inter-A m eri­
can Development Bank, or the Asian Development
B ank; (B) any organization if at least 25 per cent
of such an obligation or o f the total credit is also
supported by the full faith and credit of, or partici­
pated in by any institution designated in paragraph
(b) (3) (v) (A) o f this section in such manner that
default to the lender will necessarily include de­
fault to that entity. The total liabilities o f such
person shall at no time exceed 100 per cent of the
capital and surplus o f the lender or the parent
Edge Corporation.
(c) L o an s to fo reign banks. A member bank
that holds directly or indirectly shares in a foreign
bank may make loans to that foreign bank with­
out regard to section 23A o f the F R A .
(d) Capitalization. An Edge Corporation shall
at all times be capitalized in an amount that is

§ 211.7
adequate in relation to the scope and character of
its activities. In the case o f an Edge Corporation
engaged in banking, its capital and surplus shall
be not less than seven per cent of risk assets. F or
this purpose, risk assets shall be deemed to be all
assets on a consolidated basis other than cash,
amounts due from banking institutions in the
United States, United States Government securi­
ties, and Federal funds sold.

S E C T IO N 2 1 1 .7 — S U P E R V IS IO N A N D
R E P O R T IN G
(a) Supervision. (1) Investors shall supervise and
administer their foreign branches and subsidiaries
in such a manner as to ensure that their operations
conform to high standards o f banking and finan­
cial prudence. Effective systems of records, con­
trols, and reports shall be maintained to keep man­
agement informed o f their activities and condition.
Such systems should provide, in particular, infor­
mation on risk assets, liquidity management, and
operations of controls and conform ance to man­
agement policies. Reports on risk assets should
be sufficient to permit an appraisal o f credit quality
and assessment of exposure to loss, and fo r this
purpose provide full information on the condition
of material borrowers. Reports on the operations
of controls should include the internal and external
audits of the branch or subsidiary.
(2) Investors shall maintain sufficient informa­
tion with respect to joint ventures to keep in­
formed of their activities and condition. Such in­
formation shall include audits and other reports
on financial performance, risk exposure, manage­
ment policies, and operations o f controls. Com ­
plete information shall be maintained on all trans­
actions with the joint venture by the investor and
its affiliates.
(3) The reports and inform ation specified in
paragraphs (1) and (2) shall be made available to
examiners o f the appropriate bank supervisory
agencies.
(b) Examinations. Exam iners appointed by the
Board shall examine each Edge Corporation once
a year. An Edge Corporation shall make available
to examiners sufficient information to assess its
condition and operations and the condition and
activities o f any organization whose shares it
holds.

REGULATION K

§ 211.7
(c) Reports. (1) Each Edge Corporation shall
make at least two reports of condition annually to
the Board at such times and in such form as the
Board may prescribe. The Board may require that
statements of condition or other reports be pub­
lished or made available for public inspection.
(2) Edge Corporations, member banks, and
bank holding companies shall file such reports
on their foreign operations as the Board may
require.
(3) A member bank, Edge Corporation or a
bank holding company shall report within 30 days
any acquisition or disposition of shares in a
manner prescribed by the Board.
(d) Filing procedures. Unless otherwise directed
by the Board, applications, notifications, and re­
ports required by this Part shall be filed with the
Federal Reserve Bank of the district in which the
parent bank or bank holding company is located,
or if none, the Federal Reserve Bank of the dis­
trict in which the applying or reporting institution
is located. Instructions and forms for such appli­
cations, notifications and reports are available
from the Federal Reserve Bank.
(e) Transition. (1) Transactions that have been
consummated or activities engaged in pursuant to
the Board’s general or specific consent prior to
June 8, 1979, may be retained or continued. Con­
ditions imposed or undertakings in connection with
such investments that are inconsistent with this
Part shall be superseded by this Part.
(2) Extensions of credit in excess o f the limita­
tions o f section 211.6(b ) that were outstanding on
June 8, 1979, may remain outstanding until the
date o f maturity.
(3) Edge Corporations whose accounts or invest­
ments do not conform to sections 211.6(d) or
211.5(b) o f this Part on June 14, 1979, shall con­
form such accounts and investments by June 14,
1981.
S T A T U T O R Y A P P E N D IX

Section 25 o f the Federal Reserve Act (1 2
U.S.C . 6 0 1 -604a) reads in part as follows: 1

’ Paragraph numbers and captions have been added to
facilitate reference.

Capital and surplus required to exercise powers
Sec. 2 5 . Any national banking association pos­
sessing a capital and surplus of $ 1 ,0 0 0 ,0 0 0 or
more may file application with the Board of G ov­
ernors o f the Federal Reserve System fo r permis­
sion to exercise, upon such conditions and under
such regulations as may be prescribed by the said
board, the following powers:

[U. S. C., title 12, sec. 601.]
Establishment of foreign branches
First. T o establish branches in foreign countries
or dependencies or insular possessions o f the
United States for the furtherance of the foreign
com merce o f the United States, and to act if re­
quired to do so as fiscal agents o f the United
States.

[U. S. C„ title 12, sec. 601.]
Purchase of stock in corporations engaged in
foreign banking
Second. To invest an amount not exceeding in
the aggregate ten per centum o f its paid-in capi­
tal stock and surplus in the stock o f one or more
banks or corporations chartered or incorporated
under the laws o f the United States or o f any
State thereof, and principally engaged in interna­
tional or foreign banking, or banking in a de­
pendency or insular possession o f the United
States either directly or through the agency, own­
ership, or control of local institutions in foreign
countries, or in such dependencies or insular
possessions.

[U. S. C„ title 12, sec. 601.]
Acquisition of ownership of foreign banks
Third. To acquire and hold, directly or indi­
rectly, stock or other evidences o f ownership in
one or more banks organized under the law o f a
foreign country or a dependency or insular pos­
session o f the United States and not engaged, di­
rectly or indirectly, in any activity in the United
States except as, in the judgment of the Board of
Governors o f the Federal Reserve System, shall
be incidental to the international or foreign busi­

REGULATION K
ness o f such foreign bank, and, notwithstanding
the provisions of section 23 A o f this Act, to make
loans or extensions o f credit to or fo r the account
o f such bank in the manner and within the limits
prescribed by the Board by general or specific
regulation or ruling.

[U. S. C., title 12, sec. 601.]
*

*

*

Application for permission to exercise powers
Such application shall specify the name and
capital o f the banking association filing it, the
powers applied for, and the place or places where
the banking or financial operations proposed are
to be carried on. The Board o f Governors o f the
Federal Reserve System shall have power to ap­
prove or to reject such application in whole or in
part if fo r any reason the granting o f such appli­
cation is deemed inexpedient, and shall also have
power from time to time to increase or decrease
the number o f places where such banking opera­
tions may be carried on.

[U. S. C., title 12, sec. 601.]
Examination and reports of condition
Every national banking association operating
foreign branches shall be required to furnish in­
form ation concerning the conditions o f such
branches to the Comptroller of the Currency upon
demand, and every member bank investing in the
capital stock o f banks or corporations described
above shall be required to furnish information con­
cerning the condition o f such banks or corpora­
tions to the Board of Governors o f the Federal
Reserve System upon demand, and the Board of
Governors o f the Federal Reserve System may
order special examinations of the said branches,
banks, or corporations at such time or times as it
may deem best.

[U. S. C., title 12, sec. 602.]
Agreement to restrict operations
Before any national bank shall be permitted to
purchase stock in any such corporation the said
corporation shall enter into an agreement or un­
dertaking with the Board o f Governors o f the
Federal Reserve System to restrict its operations
or conduct its business in such manner or under

STATUTORY APPENDIX
such limitations and restrictions as the said board
may prescribe fo r the place or places wherein
such business is to be conducted. I f at any time
the Board o f Governors o f the Federal Reserve
System shall ascertain that the regulations pre­
scribed by it are not being complied with, said
board is hereby authorized and empowered to
institute an investigation o f the matter and to
send fo r persons and papers, subpoena witnesses,
and administer oaths in order to satisfy itself as
to the actual nature o f the transactions referred
to. Should such investigation result in establishing
the failure o f the corporation in question, or o f
the national bank or banks which may be stock­
holders therein, to comply with the regulations
laid down by the said Board o f Governors of the
Federal Reserve System, such national banks may
be required to dispose o f stock holdings in the
said corporation upon reasonable notice.

[U. S. C., title 12, sec. 603.]
Accounts of foreign branches
Every such national banking association shall
conduct the accounts o f each foreign branch in­
dependently o f the accounts o f other foreign
branches established by it and of its home office,
and shall at the end o f each fiscal period transfer
to its general ledger the profit or loss accrued at
each branch as a separate item.

[U. S. C., title 12, sec. 604.]
Additional banking powers authorized
Regulations issued by the Board of Governors
o f the Federal Reserve System under this section,
in addition to regulating powers which a foreign
branch may exercise under other provisions of
law, may authorize such a foreign branch subject
to such conditions and requirements as such regu­
lations may prescribe, to exercise such further
powers as may be usual in connection with the
transaction of the business o f banking in the
places where such foreign branch shall transact
business. Such regulations shall not authorize a
foreign branch to engage in the general business
o f producing, distributing, buying or selling goods,
wares, or merchandise; nor, except to such limited
extent as the Board may deem to be necessary
with respect to securities issued by any “foreign

REGULATION K

STATUTORY APPENDIX
state” as defined in section 25(b) o f this Act,
shall such regulations authorize a foreign branch
to engage or participate, directly or indirectly, in
the business of underwriting, selling, or distribut­
ing securities.

[U. S. C., title 12, sec. 604a.]
Section 25(a) o f the Federal Reserve A ct (12
U.S.C . 611-631) reads as follows:

Organization
Sec. 25. (a) Corporations to be organized for
the purpose of engaging in international or fo r­
eign banking or other international or foreign
financial operations, or in banking or other finan­
cial operations in a dependency or insular posses­
sion o f the United States, either directly or
through the agency, ownership, or control o f local
institutions in foreign countries, or in such de­
pendencies or insular possessions as provided by
this section, and to act when required by the
Secretary o f the Treasury as fiscal agents of the
United States, may be formed by any number of
natural persons, not less in any case than five:
That nothing in this section shall be
construed to deny the right of the Secretary *of the
Treasury to use any corporation organized under
this section as depositaries in Panam a and the
Panam a Canal Zone, or in the Philippine Islands
and other insular possessions and dependencies of
the United States.

Provided,

“The Congress hereby declares that it is the
purpose of this section to provide for the establish­
ment o f international banking and financial corpo­
rations operating under Federal supervision with
powers sufficiently broad to enable them to com ­
pete effectively with similar foreign-owned institu­
tions in the United States and abroad; to afford to
the United States exporter and importer in par­
ticular, and to United States com m erce, industry,
and agriculture in general, at all times a means
o f financing international trade, especially United
States exports; to foster the participation by re­
gional and smaller banks throughout the United
States in the provision of international banking
and financing services to all segments of United
States agriculture, com merce, and industry, and,
in particular small business and farming concerns;
to stimulate competition in the provision of inter­

national banking and financing services throughout
the United States; and, in conjunction with each
of the preceding purposes, to facilitate and stimu­
late the export of United States goods, wares,
merchandise, commodities, and services to achieve
a sound United States international trade position.
The Board o f Governors o f the Federal Reserve
System shall issue rules and regulations under this
section consistent with and in furtherance o f the
purposes described in the preceding sentence, and,
in accordance therewith, shall review and revise
any such rules and regulations at least once every
five years, the first such period commencing with
the effective date o f rules and regulations issued
pursuant to section 3(a) of the International Bank­
ing A ct o f 1978, in order to ensure that such pur­
poses are being served in light o f prevailing
econom ic conditions and banking practices.”

[U. S. C., title 12, sec. 611.]
Articles of association
Such persons shall enter into articles of asso­
ciation which shall specify in general terms the
objects for which the association is formed and
may contain any other provisions not inconsistent
with law which the association may see fit to
adopt for the regulation o f its business and the
conduct of its affairs.

[U. S. C., title 12, sec. 612.]
Exception of articles of association; contents of
organization certificate
Such articles o f association shall be signed by
all of the persons intending to participate in the
organization o f the corporation and, thereafter,
shall be forwarded to the Board o f Governors o f
the Federal Reserve System and shall be filed
and preserved in its office. The persons signing
the said articles o f association shall, under their
hands, make an organization certificate which
shall specifically state:
First. The name assumed by such corporation,
which shall be subject to the approval o f the
Board o f Governors o f the Federal Reserve Sys­
tem.
Second. The place or places where its opera­
tions are to be carried on.
Third. The place in the United States where
its home office is to be located.

REGULATION K
Fourth. The amount o f its capital stock and
the number of shares into which the same shall
be divided.
Fifth. The names and places o f business or
residence o f the persons executing the certificate
and the number o f shares to which each has
subscribed.
Sixth. The fact that the certificate is made to
enable the persons subscribing the same, and all
other persons, firms, companies, and corporations,
who or which may thereafter subscribe to or pur­
chase shares of the capital stock of such corpora­
tion, to avail themselves o f the advantages of this
section.

[U. S. C., title 12, sec. 613.]

STATUTORY APPENDIX
Governors o f the Federal Reserve System regu­
lating the manner in which its stock shall be
transferred, its directors elected or appointed, its
officers and employees appointed, its property
transferred, and the privileges granted to it by
law exercised and enjoyed.

[U. S. C., title 12, sec. 614.]
Powers; regulations of Board of Governors of the
Federal Reserve System
Each corporation so organized shall have power,
under such rules and regulations as the Board o f
Governors of the Federal Reserve System may
prescribe:

[U. S. C., title 12, sec. 615.]

Filing organization certificate; issuance of permit

Banking powers

The persons signing the organization certificate
shall duty acknowledge the execution thereof
before a judge o f some court of record or notary
public, who shall certify thereto under the seal of
such court or notary, and thereafter the certificate
shall be forwarded to the Board o f Governors
o f the Federal Reserve System to be filed and
preserved in its office. Upon duly making and
filing articles o f association and an organization
certificate, and after the Board o f Governors of
the Federal Reserve System has approved the
same and issued a permit to begin business, the
association shall become and be a body corporate,
and as such and in the name designated therein
shall have power to adopt and use a corporate
seal, which may be changed at the pleasure of
its board o f directors; to have succession for a
period o f twenty years unless sooner dissolved
by the act of the shareholders owning two-thirds
o f the stock or by an A ct o f Congress or unless
its franchises become forfeited by some violation
o f law; to make contracts; to sue and be sued,
complain, and defend in any court o f law or
equity; to elect or appoint directors, and, by its
board o f directors, to appoint such officers and
employees as may be deemed proper, define their
authority and duties, require bonds of them, and
fix the penalty thereof, dismiss such officers or
employees, or any thereof, at pleasure and ap­
point others to fill their places; to prescribe, by
its board o f directors, by-laws not inconsistent
with law or with the regulations of the Board of

(a )
T o purchase, sell, discount, and negotiate,
with or without its indorsement or guaranty,
notes, drafts, checks, bills of exchange, accept­
ances, including bankers’ acceptances, cable trans­
fers, and other evidences of indebtedness; to
purchase and sell with or without its indorsement
or guaranty, securities, including the obligations
of the United States or o f any State thereof but
not including shares of stock in any corporation
except as herein provided; to accept bills or drafts
drawn upon it subject to such limitations and re­
strictions as the Board o f Governors of the Fed ­
eral Reserve System may impose; to issue letters
of credit; to purchase and sell coin, bullion, and
exchange; to borrow and to lend money; to issue
debentures, bonds, and promissory notes under
such genera] conditions as to security and such
limitations as the Board o f Governors of the Fed ­
eral Reserve System may prescribe, to receive
deposits outside o f the United States and to re­
ceive only such deposits within the United States
as may be incidental to or for the purpose of
carrying out transactions in foreign countries or
dependencies or insular possessions of the United
States; and generally to exercise such powers as
are incidental to the powers conferred by this Act
or as may be usual, in the determination of the
Board

of

Governors

o f the

Federal

Reserve

System, in connection with the transaction o f the
business of banking or other financial operations

REGULATION K

STATUTORY APPENDIX
in the countries, colonies, dependencies, or posses­
sions in which it shall transact business and not
inconsistent with the powers specifically granted
herein. Nothing contained in this section shall be
construed to prohibit the Board of Governors of
the Federal Reserve System, under its power to
prescribe rules and regulations, from limiting the
aggregate amount o f liabilities of any or all
classes incurred by the corporation and outstand­
ing at any one time. W henever a corporation
organized under this section receives deposits in
the United States authorized by this section it
shall carry reserves in such amounts as the Board
of Governors of the Federal Reserve System may
prescribe, for member banks of the Federal R e­
serve System.

[U. S. C., title 12, sec. 615.]

of Governors o f the Federal Reserve System, no
corporation organized hereunder shall invest in
any one corporation an amount in excess of 10
per centum of its own capital and surplus, except
in a corporation engaged in the business o f bank­
ing, when 15 per centum of its capital and sur­
plus may be so invested:
That
no corporation organized hereunder shall pur­
chase, own, or hold stock or certificates of owner­
ship in any other corporation organized hereunder
or under the laws of any State which is in sub­
stantial competition therewith, or which holds
stock or certificates of ownership in corporations
which are in substantial competition with the
purchasing corporation.

Provided further,

[U. S. C., title 12, sec. 615.]
Purchase of stock to prevent loss on debt pre­
viously contracted

Branches
(b ) T o establish and maintain for the trans­
action o f its business branches or agencies in
foreign countries, their dependencies or colonies,
and in the dependencies or insular possessions of
the United States, at such places as may be
approved by the Board of Governors o f the Fed ­
eral Reserve System and under such rules and
regulations as it may prescribe, including coun­
tries or dependencies not specified in the original
organization certificate.

[U. S. C., title 12, sec. 615.]

Nothing contained herein shall prevent corpo­
rations organized hereunder from purchasing and
holding stock in any corporation where such pur­
chase shall be necessary to prevent a loss upon
a debt previously contracted in good faith; and
stock so purchased or acquired in corporations
organized under this section shall within six
months from such purchase be sold or disposed
o f at public or private sale unless the time to so
dispose of same is extended by the Board of G ov­
ernors of the Federal Reserve System.

[U. S. C., title 12, sec. 615.]
Ownership of stock in other corporations
( c ) With the consent of the Board of G over­
nors o f the Federal Reserve System to purchase
and hold stock or other certificates of ownership
in any other corporation organized under the pro­
visions of this section, or under the laws o f any
foreign country or a colony or dependency there­
of, or under the laws o f any State, dependency,
or insular possession o f the United States but not
engaged in the general business o f buying or sell­
ing goods, wares, merchandise or commodities
in the United States, and not transacting any
business in the United States except such as in
the judgment of the Board of Governers of the
Federal Reserve System may be incidental to its
international or foreign business:
That, except with the approval of the Board

ever,

Provided, how­

Restrictions on business in United States
No corporation organized under this section
shall carry on any part of its business in the
United States except such as, in the judgment of
the Board of Governors of the Federal Reserve
System, shall be incidental to its international or
foreign business:
That ex­
cept such as is incidental and preliminary to its
organization no such corporation shall exercise
any of the powers conferred by this section until
it has been duly authorized by the Board of G ov­
ernors of the Federal Reserve System to com­
mence business as a corporation organized under
the provisions of this section.

A nd provided further,

[U. S. C., title 12, sec. 616.]

REGULATION K
Corporation trading in commodities or attempting
to control prices
No corporation organized under this section
shall engage in com m erce or trade in commodi­
ties except as specifically provided in this section,
nor shall it either directly or indirectly control
or fix or attempt to control or fix the price of
any such commodities. The charter of any cor­
poration violating this provision shall be subject
to forfeiture in the manner hereinafter provided
in this section. It shall be unlawful for any di­
rector, officer, agent, or employee of any such
corporation to use or to conspire to use the credit;
the funds, or the power o f the corporation to fix
or control the price of any such commodities, and
any such person violating this provision shall be
liable to a fine of not less than $ 1 ,0 0 0 and not
exceeding $ 5 ,0 0 0 or imprisonment not less than
one year and not' exceeding five years, or both,
in the discretion o f the court.

[U. S. C„ title 12, sec. 617.]
Capital stock
No corporation shall be organized under the
provisions o f this section with a capital stock of
less than $ 2 ,0 0 0 ,0 0 0 one-quarter o f which must
be paid in before the corporation may be author­
ized to begin business, and the remainder o f the
capital stock of such corporation shall be paid
in installments of at least 10 per centum on the
whole amount to which the corporation shall be
limited as frequently as one installment at the
end of each succeeding two months from the time
of the commencement of its business operations
until the whole of the capital stock shall be paid
in:
That whenever $ 2 ,0 0 0 ,0 0 0
o f the capital stock o f any corporation is paid
in the remainder o f the corporation’s capital stock
or any unpaid part of such remainder may, with
the consent of the Board o f Governors o f the
Federal Reserve System and subject to such reg­
ulations and conditions as it may prescribe, be
paid in upon call from the board of directors;
such unpaid subscriptions, however, to be in­
cluded in the maximum o f 10 per centum of the
national bank’s capital and surplus which a na­
tional bank is permitted under the provisions of
this A ct to hold in stock o f corporations engaged
in business of the kind described in this section

Provided, however,

STATUTORY APPENDIX
and in section 25 o f the Federal Reserve A ct as
amended. T h e capital stock o f any such cor­
poration may be increased at any time, with the
approval of the Board o f Governors o f the Fed ­
eral Reserve System, by a vote o f two-thirds of its
shareholders or by unanimous consent in writing
of the shareholders without a meeting and without
a formal vote, but any such increase o f capital
shall be fully paid in within ninety days after
such approval; and may be reduced in like man­
ner, provided that in no event shall it be less than
$ 2 ,0 0 0 ,0 0 0 . No corporation, except as herein
provided, shall during the time it shall continue
its operations, withdraw or permit to be with­
drawn, either in the form of dividends or other­
wise, any portion of its capital. Any national
banking association may invest in the stock o f any
corporation organized under the provisions of
this section, but the aggregate amount of stock
held in all corporations engaged in business of
the kind described in this section and in section
25 o f the Federal Reserve Act as amended shall
not exceed 10 per centum o f the subscribing
bank’s capital and surplus.

[U. S. C„ title 12, sec. 618.]
Citizenship of stockholders
“Except as otherwise provided in this section,
a majority of the shares of the capital stock o f
any such corporation shall at all times be held and
owned by citizens of the United States, by corpo­
rations the controlling interest in which is owned
by citizens of the United States, chartered under
the laws of the United States or o f a State o f the
United States, or by firms or companies, the
controlling interest in which is owned by citizens
of the United States. Notwithstanding any other
provisions of this section, one or more foreign
banks, institutions organized under the laws of
foreign countries which own or control foreign
banks, or banks organized under the laws o f the
United States, the States of the United States, or
the District of Columbia, the controlling interests
in which are owned by any such foreign banks or
institutions, may, with the prior approval o f the
Board of Governors of the Federal Reserve Sys­
tem and upon such terms and conditions and
subject to such rules and regulations as the Board
of Governors of the Federal Reserve System may
prescribe, own and hold 50 per centum or more

REGULATION K

STATUTORY APPENDIX
of the shares of the capital stock of any corpora­
tion organized under this section, and any such
corporation shall be subject to the same provisions
o f law as any other corporation organized under
this section, and the terms ‘controls’ and ‘con­
trolling interest’ shall be construed consistently
with the definition o f ‘control’ in section 2 o f the
Bank Holding Company Act o f 1956. F o r the
purposes o f the preceding sentence o f this para­
graph the term ‘foreign bank’ shall have the mean­
ing assigned to it in the International Baking
Act o f 1978.”

[U. S. C„ title 12, sec. 619.]
Members of Board of Governors of the Federal
Reserve System as directors, officers, or stock­
holders
No member of the Board o f Governors of the
Federal Reserve System shall be an officer or
director of any corporation organized under the
provisions of this section, or o f any corporation
engaged in similar business organized under the
laws o f any State, nor hold stock in any such
corporation, and before entering upon his duties
as a member of the Board of Governors of the
Federal Reserve System he shall certify under
oath to the Secretary o f the Treasury that he has
complied with this requirement.

[U. S. C., title 12, sec, 620.]
Shareholders’ liability; corporation not to become
member of Federal Reserve bank
Shareholders in any corporation organized
under the provision of this section shall be liable
for the amount of their unpaid stock subscrip­
tions. No such corporation shall become a mem­
ber of any Federal Reserve bank.

[U. S. C., title 12, sec. 621.]
Forfeiture of charter for violation of law
Should any corporation organized hereunder
violate or fail to comply with any of the pro­
visions of this section, all of its rights, privileges,
and franchises derived herefrom may thereby be
forfeited. Before any such corporation should be
declared dissolved, or its rights, privileges, and
franchises forfeited, any noncompliance with, or

violation o f such laws shall, however, be deter­
mined and adjudged by a court o f the United
States o f competent jurisdiction, in a suit brought
for that purpose in the district or territory in
which the home office o f such corporation is
located, which suit shall be brought by the United
States at the instance of the Board o f Governors
of the Federal Reserve System or the Attorney
General. Upon adjudication of such noncompli­
ance or violation, each director and officer who
participated in, or assented to, the illegal act or
acts, shall be liable in his personal or individual
capacity for all damages which the said corpora­
tion shall have sustained in consequence thereof.
No dissolution shall take away or impair any
remedy against the corporation, its stockholders,
or officers fo r any liability or penalty previously
incurred.

[U. S. C„ title 12, sec. 622.]
Voluntary liquidation
Any such corporation may go into voluntary
liquidation and be closed by a vote o f its share­
holders owning two-thirds of its stock.

[U. S. C„ title 12, sec. 623.]
Insolvency: appointment of receiver
W henever the Board of Governors o f the Fed ­
eral Reserve System shall become satisfied of the
insolvency of any such corporation, it may ap­
point a receiver who shall take possession of all
the property and assets of the corporation and
exercise the same rights, privileges, powers, and
authority with respect thereto as are now exer­
cised by receivers o f national banks appointed
by the Comptroller o f the Currency o f the United
States:
That the assets o f the
corporation subject to the laws of other coun­
tries or jurisdictions shall be dealt with in ac­
cordance with the terms o f such laws.

Provided, however,

[U. S. C., title 12, sec. 624.]
Stockholders’ meetings; records; reports; examina­
tions
Every corporation organized under the pro­
visions of this section shall hold a meeting o f its
stockholders annually upon a date fixed in its by­

REGULATION K
laws, such meeting to be held at its home office
in the United States. Every such corporation shall
keep at its home office books containing the
names of all stockholders thereof, and the names
and addresses o f the members of its board of
directors, together with copies o f all reports made
by it to the Board of Governors of the Federal
Reserve System. Every such corporation shall
make reports to the Board o f Governors of the
Federal Reserve System at such times and in such
form as it may require; and shall be subject to
examination once a year and at such other times
as may be deemed necessary by the Board of
Governors o f the Federal Reserve System by
examiners appointed by the Board of Governors
of the Federal Reserve System, the cost of such
examinations, including the compensation of the
examiners, to be fixed by the Board of Governors
of the Federal Reserve System and to be paid
by the corporation examined.

[U. S. C„ title 12, sec. 625.]
Dividends and surplus fund
The directors o f any corporation organized un­
der the provisions of this section may, semian­
nually, declare a dividend of so much o f the net
profits o f the corporation as they shall judge
expedient; but each corporation shall, before the
declaration o f a dividend, carry one-tenth of its
net profits o f the preceding half year to its surplus
fund until the same shall amount to 20 per centum
o f its capital stock.

[U. S. C., title 12, sec. 626.]

STATUTORY APPENDIX
Extension of corporate existence
Any corporation organized under the provisions
of this section may at any time within the two
years next previous to the date o f the expiration
of its corporate existence, by a vote o f the share­
holders owning two-thirds of its stock, apply to
the Board o f Governors of the Federal Reserve
System for its approval to extend the period of
its corporate existence for a term of not more
than twenty years, and upon certified approval
of the Board o f Governors of the Federal Reserve
System such corporation shall have its corporate
existence for such extended period unless sooner
dissolved by the act of the shareholders owning
two-thirds of its stock, or by an Act of Congress
or unless its franchise becomes forfeited by some
violation of law.

[U. S. C„ title 12, sec. 628.]
Conversion of State corporation into Federal cor­
poration
Any bank or banking institution, principally
engaged in foreign business, incorporated by
special law o f any State or of the United States
or organized under the general laws o f any State
or of the United States and having an unimpaired
capital sufficient to entitle it to become a cor­
poration under the provisions of this section may,
by the vote o f the shareholders owning not less
than two-thirds o f the capital stock o f such bank
or banking association, with the approval of the
Board of Governors of the Federal Reserve Sys­
tem, be converted into a Federal corporation of
the kind authorized by this section with any
name approved by the Board of Governors of
the Federal Reserve System:
,
That said conversion shall not be in contravention
o f the State law. In such case the articles o f as­
sociation and organization certificate may be
executed by a majority o f the directors of the
bank or banking institution, and the certificate
shall declare that the owners of at least twothirds of the capital stock have authorized the
directors to make such certificate and to change
or convert the bank or banking institution into
a Federal corporation. A m ajority o f the direc­
tors, after executing the articles of association
and the organization certificate shall have power
to execute all other papers and to do whatever
may be required to make its organization perfect

Provided, however

Taxation
Any corporation organized under the provisions
of this section shall be subject to tax by the State
within which its home office is located in the
same manner and to the same extent as other
corporations organized under the laws o f that
State which are transacting a similar character of
business. The shares of stock in such corporation
shall also be subject to tax as the personal prop­
erty of the owners or holders thereof in the same
manner and to the same extent as the shares of
stock in similar State corporations.

[U. S. C„ title 12, sec. 627.]

STATUTORY APPENDIX
and complete as a Federal corporation. The shares
of any such corporation may continue to be for
the same amount each as they were before the
conversion, and the directors may continue to
be directors o f the corporation until others are
elected or appointed in accordance with the pro­
visions o f this section. When the Board of G ov­
ernors of the Federal Reserve System has given to
such corporation a certificate that the provisions of
this section have been complied with, such corpo­
ration and all its stockholders, officers, and em­
ployees, shall have the same powers and privileges,
and shall be subject to the same duties, liabilities,
and regulations, in all respects, as shall have been
prescribed by this section for corporations origi­
nally organized hereunder.

[U. S. C., title 12, sec. 629.]
Criminal offenses of directors, officers, and em­
ployees
Every officer, director, clerk, employee, or
agent of any corporation organized under this
section who embezzles, abstracts, or willfully
misapplies any o f the moneys, funds, credits,
securities, evidences o f indebtedness or assets of
any character of such corporation; or who, with­
out authority from the directors, issues or puts
forth any certificate o f deposit, draws any order
or bill o f exchange, makes any acceptance, as­
signs any note, bond, debenture, draft, bill of
exchange, mortgage, judgment, or decree; or who
makes any false entry in any book, report, or
statement o f such corporation with intent, in
either case, to injure or defraud such corporation
or any other company, body politic or corporate,
or any individual person, or to deceive any officer
of such corporation, the Board of Governors of
the Federal Reserve System, or any agent or ex­
aminer appointed to examine the affairs o f any
such corporation; and every receiver o f any such
corporation and every clerk or employee of such

REGULATION K
receiver who shall embezzle, abstract, or willfully
misapply or wrongfully convert to his own use
any moneys, funds, credits, or assets o f any char­
acter which may come into his possession or
under his control in the execution o f his trust or
the performance o f the duties o f his employment;
and every such receiver or clerk or employee of
such receiver who shall, with intent to injure or
defraud any person, body politic or corporate, or
to deceive or mislead the Board of Governors of
the Federal Reserve System, or any agent or
exam iner appointed to examine the affairs o f such
receiver, shall make any false entry in any book,
report, or record of any matter connected with
the duties o f such receiver; and every person who
with like intent aids or abets any officer, director,
clerk, employee, or agent of any corporation
organized under this section or receiver or clerk
or employee of such receiver as aforesaid in any
violation o f this section, shall upon conviction
thereof be imprisoned for not less than two years
nor more than ten years, and may also be fined
not more than $ 5 ,0 0 0 , in the discretion of the
court.

[U. S. C., title 12, sec. 630.]
Representation that United States is liable for ob­
ligations
W hoever being connected in any capacity with
any corporation organized under this section
represents in any way that the United States is
liable for the payment of any bond or other
obligation, or the interest thereon, issued or in­
curred by any corporation organized hereunder,
or that the United States incurs any liability in
respect of any act or omission o f the corporation,
shall be punished by a fine of not more than
$ 1 0 ,0 0 0 and by imprisonment fo r not more than
five years.
[U . S. C ., title 12, sec. 631.]

REGULATION K
BANK HOLDING COMPANY ACT OF 1956

STATUTORY APPENDIX

Federal Reserve A ct in competing with foreignowned banking institutions in the United States
or abroad or (3 ) impede the attainment of the
Act of May 9, 1956 (70 Stat. 133)
Congressional purposes set forth in section 2 5 (a )
of the Federal Reserve Act as amended by sub­
section (b ) of this section. In furtherance of such
ec 4. * * *
purpose, the Congress believes that the Board
(c )
The prohibitions in this section shall not should review and revise its rules, regulations, and
apply to any bank holding company which is (i)
interpretations issued pursuant to section 2 5 (a )
a labor, agricultural, or horticultural organization
of the Federal Reserve A ct to eliminate or modify
and which is exempt from taxation under section
any restrictions, conditions, or limitations not
501 of the Internal Revenue Code of 1954, or (ii)
required by section 2 5 (a ) of the Federal Reserve
a company covered in 1970 more than 85 per
Act, as amended, that ( 1 ) discriminate against
centum o f the voting stock of which was collec­
foreign-owned banking institutions, (2 ) disad­
tively owned on June 30, 1968, and continuously
vantage or unnecessarily restrict or limit corpora­
thereafter, directly or indirectly, by or for mem­
tions organized under section 2 5 (a ) of the Federal
bers of the same family, or their spouses, who are
Reserve A ct in competing with foreign-owned
lineal descendants of common ancestors; and such
banking institutions in the United States or
prohibitions shall not, with respect to any other
abroad, or (3 ) impede the attainment o f the
bank holding company, apply to—
Congressional purposes set forth in section 2 5 (a )
o f the Federal Reserve Act as amended by sub­
* * *
section (b ) of this section. Rules and regulations
pursuant to this subsection and section 2 5 (a )
(1 3 ) shares of, or activities conducted by,
o f the Federal Reserve Act shall be issued not
any company which does no business in
the
later than 150 days after the date of enactment
United States except as an incident to its in­
of this section and shall be issued in final form
ternational or foreign business, if the Board by
and become effective not later than 120 days
regulation or order determines that, under the
after they are first issued.
cicumstances and subject to the conditions set
forth in the regulation or order, the exemption
* * *
would not be substantially at variance with the
purposes of this A ct and would be in the public
(g ) The Board shall report to the Congress not
interest.
later than 2 7 0 days after the date o f enactment of
this A ct its recommendations with respect to
permitting corporations organized or operating
INTERNATIONAL BANKING ACT OF 1978
under section 25 or 2 5 (a ) o f the Federal Reserve
Act, to become members of Federal Reserve
Banks.
Act of September 17, 1978 (92 Stat. 607)
(h ) As part o f its annual report pursuant to
section 10 of the Federal Reserve Act, the Board
ec 3 .(a ) It is the purpose of this section to
shall include its assessment o f the effects of the
eliminate or modify provisions in section 2 5 (a )
amendments made by this A ct on the capitaliza­
of the Federal Reserve Act that (1 ) discriminate
tion and activities of corporations organized or
against foreign-owned banking institutions, ( 2 ) dis­
operating under section 25 or 2 5 (a ) of the
advantage or unnecessarily restrict or limit corpo­
Federal Reserve Act, and on com mercial banks
rations organized under section 2 5 (a ) o f the
and the banking system.

S .

S .