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federal
R eserve Bank
OF DALLAS
WILLIAM H. WALLACE
F IR S T V IC E p r e s i d e n t
DALLAS, TEXAS 75222
November 26, 1985
Ci rc ul ar 85-138
TO:
The Chief Executive Of ficer of a l l
member banks and others concerned in
the Eleventh Federal Reserve D i s t r i c t
SUBJECT
Revisions to Regulation K, International Banking Organizations, that
will permit Edge corporations to enlarge the scope of their activities
DETAILS
The Board of Governors of the Federal Reserve System has r ec en tl y
announced re v isi o n s to i t s Regulation K t h a t will permit Edge Corporations to
enlarge the scope of t h e i r a c t i v i t i e s . The major r ev is io ns to the reg ulatio n
allow Edges to provide f u l l banking servic es to a limited cl as s of companies
t h a t are r e s t r i c t e d by t h e i r c h a r t e r s or lic en se s to in t e r n a t i o n a l business,
requ ire 60 days notice to the Board p r i o r to c e r t a i n changes in c o n t r o l , and
re v is e c e r t a i n investment procedures. In a d d i ti o n , a limited number of
technical changes were incorporated in the revised Regulation K.
ATTACHMENTS
The Board’s press re l e a s e and the material as published in the
Federal Re gister are at tached.
MORE INFORMATION
For f u r t h e r information, please con tact John Rogers of t h i s Bank's
Legal Department a t (214) 651-6228.
Sincerely yours,
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE press release
For immediate re l e a s e
September 30, 1985
The Federal Reserve Board today published r e v is i o n s t o i t s Regulation K-I n t e r n a t i o n a l Banking O p e r a t i o n s - - t h a t w il l permit Edge corporations t o enlarge
t he scope of t h e i r a c t i v i t i e s .
The re v i si o n s become e f f e c t i v e October 24, 1985 with one exception.
The pr ovisions t h a t p e r t a i n t o investment procedures are e f f e c t i v e immediately.
The I n t e r n a t i o n a l Banking Act r equ ire s t he Board t o review and t o r ev is e
Regulation K every f i v e year s t o ensure t h a t th e purposes of the Edge Act are being
served in l i g h t of p r e v a i l i n g economic condit io ns and banking p r a c t i c e s .
Edge
co rp ora ti on s are co rp ora ti on s ch ar ter ed t o engage in i n t e r n a t i o n a l or fore ig n
banking or o th er i n t e r n a t i o n a l or foreign o p e r a t i o n s .
The major r e v i si o n s t o the re g u la t i o n p e r t a i n to:
a c t i v i t i e s of Edge
cor p or at io n s in the United S t a t e s ; changes in control of Edge co rp ora ti ons ; and
investment procedures.
Certa in oth er te ch n i ca l and c l a r i f y i n g re v i si o n s have
been made to Regulation K as w e l l .
The Board has de fe rre d making any changes in
the c a p i t a l requirements f o r banking Edge c o r p o r a t i o n s .
The revised re g u l a ti o n wi l l allow Edge Corporations to provide f u l l
banking s e r v i c e s t o a l i m it ed c l a s s of companies, such as foreign a i r l i n e s and
shipping companies, t h a t are r e s t r i c t e d by t h e i r c h a r t e r s or l i c e n s e s t o i n t e r
na ti on al bu sin e ss.
The Board may consider whether procedures can be developed
t o i d e n t i f y o th e r companies engaged in i n t e r n a t i o n a l business t h a t could q u a l i f y
f o r f u l l banking se r v i c e s from Edge c o r p o r a t i o n s .
(over)
The Board adopted changes to the r eg u la ti on t h a t would require any
party purchasing 25 percent or more of the voting shares of an Edge corporation
t o give th e Board 60 days notice p r i o r to a c q u i s i t i o n .
The Board revised the investment procedures app li ca b le t o Edge
c o r p o ra t i o n s .
The re gu lat io n has permitted Edge cor porations to in v es t the l e s s e r
of $2 million or f i v e percent of t h e i r c a p i t a l and surplu s without p r i o r n o ti ce
or approval by the Federal Reserve.
The Board increased the d o l l a r investment
amount t o $15 m il li o n .
The Board also granted a c e r t a i n amount of leeway in the p erm issible
a c t i v i t i e s of s u b s i d i a r i e s .
In order t o provide some f l e x i b i l i t y t o U.S. banking
o r ga ni zat io ns in acquiring c o n t r o l l i n g i n t e r e s t s in e x i s t i n g companies engaged in
impermissible a c t i v i t i e s , th e Board has l i b e r a l i z e d i t s standards t o allow such
companies to derive up to f iv e percent of a s s e t s and revenues from impermissible
acti v itie s .
In a d d i t i o n , the Board took a ct io n on some t ec h n ic al provisions of the
r eg u la ti o n regarding U.S. nonbanking a c t i v i t i e s of fo reign banks.
are o ut li ned in the Board's document.
The Board's n ot ic e is at t ac h ed .
-0 -
Attachment
These changes
39974
Federal R egi»ter^/JV oL 50^N o^2^^ue8dayj^O ctdb^^^^/^ul^ and Regulations
FEDERAL RESERVE SYSTEM
12CFR Part 211
[Docket No. R-0520]
Regulation K; International Banking
Operations
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
SUMMARY: The Board has reviewed and
revised its regulations governing the
operations of Edge corporations. The
revisions concern certain U.S. activities
of Edge corporations, lending limits and
investment and change in control
procedures applicable to Edge
corporations. Some proposals dealing
with foreign banking organizations
operating in the United States have also
been adopted.
EFFECTIVE DATE: October 24,1985,
except in the use of the provisions in
section 211.5(c), which are effective
immediately.
FOft FURTHER INFORMATION CONTACT:
Frederick R. Dahl, Associate Director
(202/452-2726); James S. Keller,
Manager, International Banking
Applications (202/452-2523), Division of
Banking Supervision and Regulation;
Ricki Rhodarmer Tigert, Assistant
General Counsel (202/452-3428);
Kathleen M. O’Day, Senior Counsel
(202/452-3786), Legal Division; or Joy W.
O’Connell, Telecommunication Device
for the Deaf (TDD), (202/452-3244).
Board of Governors of the Federal
Reserve System.
SUPPLEMENTARY INFORMATION: In June
1984, the Board published for comment
proposed revisions to Regulation K. Hie
proposals were made pursuant to the
directive in the International Banking
Act of 1978 (“IBA”) that the Board
review and revise Us regulations
governing Edge corporations every five
years in order to ensure that the
purposes of the Edge Act are being
served in light of prevailing economic
conditions.
The Board proposed major revisions
in four areas: (1) Activities of Edge
corporations in the United States; (2)
capitalization requirements and lending
limits of Edge corporations; (3)
procedures to permit Board review of a
proposed change in control of Edge
corporations, and (4) limits on
investments in other organisations. In
addition, various changes **ere
proposed to other parts of the
regulation.
The Board received 56 public
comments on the proposal. The final
revisions to the regulation and the
reasons for the Board’s action are
outlined below. Some of the proposed
revisions did not receive substantial
comment and were adopted as
proposed. In addition to the revisions
described below, a number of technical
and clarifying changes were also made.
Activities of Edge Corporations in the
United States
Edge corporations are international
banking and financial vehicles through
which U.S. banking organizations can
offer international banking services and
through which they may compete with
similar foreign-owned institutions in the
United States and abroad. An Edge
corporation is limited by statute to
engaging only in activities in the United
States that are "incidental” to
international or foreign business. The
Board, however, has broad discretionary
authority to determine what U.S.
activities are incidental to international
or foreign business of an Edge
corporation. The Board has interpreted
this provision to require that all deposits
accepted by Edge corporations from
domestic residents must be related to or
for the purpose of carrying out
intematioal transactions, and that all
credit and other transactions with
domestic residents must be related to
identifiable international transactions.
This approach, designed to assure the
international character of Edge
corporations and prevent their use to
circumvent limitations on interstate
banking, imposes fairly stringent
constraints on the op erations of Edge
corporations in the United States.
In its 1984 proposal for comment, the
Board suggested several possible
modifications to this transaction-bytransaction approach. The Board
requested comment on the feasibility of
these proposals and whether they would
maintain the necessary linkage with
international or foreign business
required by statute. The proposals ware
as follows:
1. Allow Edge corporations to provide
full banking services (deposits, loans
and other services) to a limited class of
companies that are restricted charter* or
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
licenses to an exclusively international
business.
2. Allow Edge corporations to engage
in domestic lending activities to the
extent they were funded with overseas
deposits from nonbank sources (the
"limited branch" concept).
3. Allow Edge corporations to lend for
domestic purposes to U.S. resident
customers so long as at least 75 percent
of the credits extended to that customer
were for international purposes and met
the traditional transactions test (a
"transactional leeway” approach).
4. Allow Edge corporations to lend for
domestic purposes to certain qualifying
customers (U.S. residents engaged
principally in international business) so
long as 75 percent of a corporation’s
business meets the transactions test (a
modified transactional leeway
approach).
The comments on the proposals were
mixed. Twenty commenters opposed
any expansion at all of the powers of
Edge corporations. These commenters,
primarily smaller and regional banking
organizations and associations
representing such organizations, stated
that any intrusion of Edge corporations
into domestic business is contrary to the
intent of the Edge Act, would constitute
impermissible interstate banking, and
would benefit only large institutions to
the detriment of smaller organizations.
On the other hand, four commenters
supported all the proposals to expand
Edge powers. The remainder of the
comments supported some expansion of
powers of Edge corporations but there
was considerable diversity in the
recommended approaches.
Restricted Charter
Under this proposal, an Edge
corporation could provide full banking
services (deposit-taking, lending and
other services) to any entity that
engages only in international business
by virtue of its charter or license or by
government regulation. These
establishments would include such
entities as international airlines or
shipping lines and export trading
companies that engage exclusively in
international activities. This proposal is
viewed as easier to administer than the
qualified business entity ("QBE”)
concept that was proposed but not
adopted in 1979, which required that the
QBE meet a quantitative test based on
export-import transactions.
The Board has determined to adopt
this test as proposed. There is a clear
international connection in the
operations of these entities and any
transaction by an Edge corporation with
one of these entities would be incidental
to international or foreign business.
Some commenters suggested expanding
the list of eligible organizations to
include embassies, consulates, agencies
of foreign governments, international
commodities brokerage firms,
international organizations such as the
World Bank, and Foreign Sales
Corporations ("FSCs"). The Board has
included FSCs on the list in the
regulation because they meet the test of
being exclusively engaged in
international transactions. The other
entities suggested by the comments all
transact substantial domestic business
and therefore would not qualify under
the test. It should be noted, however,
that Edge corporations are currently
permitted to maintain official embassy
and consular accounts, although they
may not offer accounts to embassy
personnel. The Board is continuing to
consider standards and procedures for
determining whether other entities or
businesses may be considered truly
international and therefore eligible for
full banking services from Edge
corporations.
"Limited Branch" Concept
Under this approach, the international
link that is required between an Edge
corporation’s domestic and international
business would have been supplied by
the funding sources of the Edge. The
proposal would have permitted an Edge
corporation to lend for any purpose in
the United States up to the amount of
the deposits it derived from foreign
nonbank sources. This proposal drew
the most support of any of the proposals
from money center banks, some regional
companies active in international
lending, and trade associations of the
larger institutions. These commenters
stated that this proposal could be the
single most important regulatory
measure that would enable Edges to
compete more effectively with U.S.
branches and agencies of foreign banks.
They also stated that the Board has
broad discretionary power under the
Edge Act to determine what is
“incidental” and that the tie between
nonqualifying loans and foreign deposit*
taking may provide a sufficient
international nexus. They went on to
state that the effectiveness of the
approach would be seriously
compromised by not including all
foreign source deposits, including those
from foreign banks.
The opponents of this approach stated
that a funding link is insufficient to
make domestic loans "incidental” to
international business. They asserted
that the Board would be assisting in the
creation of a loophole that would permit
evasion of the restrictions on interstate
banking, including by nonbank banks.
39975
Opponents also contended that Edges
remain an attractive vehicle despite
limitations on powers, as evidenced by
their proliferation since 1979 (from about
70 offices to about 320 offices).
After consideration of the comments
received, the Board was not convinced
that adoption of this proposal would be
consistent with the requirements of the
Edge Act that an Edge corporation’s
business in the United States must be
incidental to foreign business. It was
also not clear that the proposal would
further the purpose of the Act to finance
international trade since the thrust of
the proposal would be toward
transactions of a purely domestic
nature. For these reasons the Board
determined not to adopt the proposal in
the final revision.
Transactional Leeway Proposals
The two other proposals put forth for
comment attracted little support. In the
transactional leeway proposal, an Edge
corporation would be permitted to lend
to a customer for any purpose up to 25
percent of the Edge’s total lending to
that customer. Thus, 75 percent of the
business of an Edge corporation with
that customer would have to meet the
transaction-by-transaction test but the
Edge would also be able to service the
needs of the customer better by lending
a limited amount for purposes that could
not meet this strict transaction test.
There would be no expansion of
deposit-taking activities.
Some commenters were opposed to
this approach as an unwarranted
expansion of Edge powers in the
domestic area. Others did not support it
because the proposal would be too
difficult to implement. These
commenters stated that the
recordkeeping would be burdensome
and that compliance could fluctuate
according to when a customer repaid
loans.
In a similar vein, it was also proposed
that an Edge corporation be permitted to
lend to “qualified customers” for
domestic purposes up to 25 percent of
the Edge’s total lending. No expansion
of deposit-taking would be permitted.
The Board requested specific comment
on the feasibility of the approach and on
the measures that should be employed
in determining qualified customers. The
Board requested actual data that could
be used in establishing the test.
As with the previous approach, few
commenters supported this proposal.
Most objections focused on the
difficulties in establishing a rational test
for measuring international business
and on the recordkeeping burden that
would be required. Others objected on
the poendt feat the bencfite received
would be far outweigkod fay the
bmnieuMwa w yfa— > of the
pw pw l Many other oaam aiten,
mainly smaller and regional braking
organizations, objected because, in their
view, it would exceed the scope of the
Edge Act and wooJd permit Edge
participation in domestic banking.
In proposing these for comment, the
Board had intended to reduce the
burden of maintaining records on a
transaction-by-transaction basis. Many
of the comments indicate that these
proposals would be more burdensome
than the current requirements.
Moreover, little useful data that would
help establish a qualified customer test
in die modified transactional leeway
proposal was supplied by the comments.
In light of this and the admittedly
difficult administrative problems
associated with die proposals, the Board
has determined not to adopt these
proposals.
One commenter did submit data on
the number of companies that engage in
export sales and recommended adoption
of a test that establishes a very low
threshold of international sales—10
percent—in order to qualify. In support
of this very low test, the comment states
that it is those companies with low
exports sales that could best me the
services of Edge corporations. The
Board is of the view that this does not
meet the intent of the proposal, which
was to establish a test of whether a
customer is primarily engaged in
international business such that all of an
Edge's dealings with that customer
could reasonably be deemed to be
internationally related. This particular
proposal would permit Edges to act as
full service lenders to companies that
have negligible connections to
international business transactions and,
for this reason, th6 Board did not adopt
it.
In sum, the Board has revised
Regulation K to permit Edge
corporations to engage in a fuller range
of transaction with identifiable
international businesses. The Board has
not adopted provisions that would allow
a substantial expansion of an Edge
corporation's domestic powers because
of die difficulty in devising standards
that would meet the incidental test,
would be easily administered, and
would not involve potential evasion of
statutory restrictions against interstate
banking.
Although the Board has adopted only
one of the proposals liberalizing Edge
tending powers, the Board also believes
that the purposes of the revision of
Regulation K, which ate tepmfce Edge
corporations mece competitive and to
provide U£. businesses with a source of
international credit and other services,
are met through other revisions of the
regulation adopted by the Board. These
include a significant increase In the
lending limit of Edge corporations and
the liberalization of investment limits.
With respect to activities in the United
States, the revised regulation clarifies
that an Edge corporation may offer
merger and acquisition advice to foreign
persons and to U.S. persons with respect
to foreign assets. This would include
providing advice to a U.S. company on a
proposed merger with or acquisition by
a foreign company. This activity has
been previously determined to be
permissible for Edge corporations
subject to the conditions that a foreign
company to which it provides advice is
a company more than half of the assets
and revenues of which, on a
consolidated basis at the ultimate
parent level, are located and derived
outside the United States. Advice on
transactions hi the United States is
available only to foreign persons and a
U.S. subsidiary of a foreign company
would not be considered “foreign" for
this purpose.
Similarity, the provision dealing with
an Edge corporation acting as a agent
for the purchase of securities at the
order and for the account of a customer
has been adopted as proposed. The
provision was clarified to require that,
with respect to U.S. securities, the
customer for whom the Edge corporation
is acting must be a foreign person. In
(his regard, an Edge corporation would
be permitted to purchase and sell, for
the account of any customer, securities
that are registered in the United States
for the sole purpose of serving as a
substitute for foreijpi securities issued
abroad. These kinds of securities, socalled American depository receipts
(“ADRs”), have substance only with
respect to fee underlying foreign
securities and therefore would be
considered foreign securities for
purposes of Regulation K.
Tlie revised regulation also would
permit Edge corporations to engage in a
wider range of foreign exchange activity
than is currently permitted. As new
contracts In foreign exchange are
developed, an Edge corporation would
be permitted to enter these contracts
without receiving prior Board approval.
Several commenters stated that futures,
options and options on futures contracts
on foreign exchange are useful hedging
tools that enhance the ability of an Edge
corporation to minimize risk associated
with transactions related to foreign
currencies. An Edge corporation is
expected to conduct these operations hi
a prudent manner and In accordance
with 4he policies governing the foreign
exchange activities of its parent U.S.
banking organization. For an.Edge
Corporation that is not owned by a U.S.
banking organization, the Edge
corporation should conduct its foreign
exchange activities in accordance with
Board policies. This authority would not
permit an Edge corporation to become a
member of an exchange or to act
generally as a broker or futures
commission merchant with respect to
contracts on foreign exchange. Such
activity would require an application to
fee Board for prior approval.
Prudential timritations on Edge
corporations
The Board proposed a number of
changes to $ 211.8 of Regulation K,
dealing with limits on acceptances,
lending limits, and capital requirements.
The technical changes on bankers’
acceptances—one clarifying that a
separate lending limit applies to
acceptances of the kind described in
section 13 of fee Federal Reserve Act
and fee other clarifying fee treatment of
participation agreements wife respect to
acceptances—drew little comment and
are adopted as proposed.
The Board has also proposed raising
the customer lending limit for Edge
corporation from 10 percent to 15
percent of fee Edge Corporation’s
capital and surplus. Some commenters
stated that an Edge corporation does not
need a separate lending limit and feat
an Edge’s lending should merely be
aggregated into the parent bank’s
customer lending limit. The Board,
however, continues to believe feat Edge
corporations, as separate corporate
banking vehicles, should be operated In
accordance wife prudent standards,
which would include diversification.
Therefore, fee separate lending limit for
Edge corporation is maintained. The
Board adopted the proposed increase in
fee per-customer lending limit of 15
percent of the Edge corporation's capital
and surplus.
With respect to lending limits
generally, Regulation K also requires
aggregation of the loans made to a
customer by an Edge corporation wife
fee loans to the same customer by the
parent bank. The total amount may not
exceed the parent bank’s lending limit.
The provision has been the source of
some confusion because Regulation K
includes within fee lending limit certain
kinds of obligations feat may not be
included in Ate parent bank lending
limit. For example, Regulation K
includes within fee lending limit
investmen ts in unefftltated
organizations. The National Bank Act,
Federal Register / Vol. 50, No. WO / Tuesday, October 1, 1985 / Rules and Regulations
however, permits a national bank to
invest up to 10 percent of its capital and
surplus in debt securities of other
organizations. These investment
securities are not included in the
National Bank Act’s lending limit.
The purpose of the aggregation
requirement is to prevent the parent
bank from using the Edge corporation to
‘evade the parent bank’s lending limits.
For purposes of determining compliance
with the aggregation provision of
Regulation K’s lending limit, a parent
bank may exclude from the Edge
corporation’s loans and extensions of
credit any obligations, such as
investment securities, that are not
included in the parent bank’s lending
limit. Where such obligations, however,
are subject to separate limitations in the
law or regulations governing the parent
bank, the Edge corporation’s holdings of
such obligations may not be used to
evade these separate limitations on the
parent bank.
With respect to capitalization
requirements, under the current
regulation the capital requirement for
banking Edge corporations is set at 7
percent of “risk” assets with risk assets
being defined as total assets less cash,
amounts due from domestic banking
organizations, U.S. government
securities, and federal funds sold. It was
proposed to change this standard to
accord with the standards applied to
commercial banks under the Board’s
capital adequacy guidelines. The Board
did not adopt this proposal.
The principal objection to the
proposal in comments submitted to the
Board was similar to that voiced with
respect to lending limits, namely, that no
separate capital requirement should be
applied to Edge corporations because
they are generally parts of larger
banking organizations to which a capital
requirement is applied on a consolidated
basis. However, as already noted, an
Edge corporation is a separately
chartered company engaged in the
conduct of a banking business and
should therefore maintain an individual
capital position to support its own
operations. Moreover, not all banking
Edge corporations are part of larger
banking organizations to which U.S.
capital requirements apply. In addition
to Edge corporations owned by foregin
banks, several Edge corporations have
recently been acquired by nonbanking
organizations.
A number of comments objected to
abandoning the “risk asset” capital
requirement, asserting that it would
have a negative impact on some Edge
corporations because of clearing
activities and the large amounts of funds
in the category of “due from banks.” At
the time the change was proposed,
available data indicated that, while a
few banking Edge corporations would
have to strengthen their capital
positions, changes in clearing
procedures had greatly reduced the
amount of float, and thus the amount of
interbank claims booked in Edge
corporations. Thus, the original
justification for the risk asset standard
for capital requirements appeared
inapplicable. More recent data still seem
to confirm that conclusion. The data
show that 12 out of 94 banking Edge
corporations would have to obtain
additional capital or reduce assets if the
capital standard were changed. Of those
12 Edge corporations, many are either
placing large amounts of surplus funds
with their parent banks or are very
active in interbank money market
transactions. For example, in several of
these cases, claims on other banks
amount to a majority of total assets.
Most of the affected corporations have
capital ratios that range from three to
five percent of total assets and are still
capitalized well above the 7 percent of
risk assets standards. The remaining 82
banking Edge corporations, in addition
to meeting the risk-asset ratio
requirement, also have capital ratios
well in excess of the minimum
standards under the capital guidelines.
In light of the generally satisfactory
capital positions on Edge corporations,
the Board has decided to defer action on
this proposal pending futher experience
with the capital guidelines for banks
and bank holding companies. Those
guidelines are being reevaluated in the
light of recent developments in banking
markets and for their adequacy in
relation to current banking practices.
The Board believed that a change in the
method of calculating the capital
requirements of Edge Corporations
should await that reevaluation. As
already noted, the great bulk of existing
banking Edge corporations now meet
the commercial bank capital standards.
Because the Board has deferred action
on the proposal to adopt the capital
adequacy standards applicable to banks
for Edge corporations, Regulation K has
not been revised to conform the
definition of capital and surplus to the
components of primary capital in the
Board’s capital adequacy guidelines.
Capital and surplus therefore will
continue to be defined in § 211.2(b) to
include paid-in and unimpaired capital
and surplus, which would include
reserves for loan losses, and undivided
profits, but not capital notes or
debentures.
39977
Change in control of Edge corporations
The Board in 1984 proposed for
comment a procedure that would require
a person to give the Board prior notice
of acquisition of control of an Edge
corporation. In its proposal, the Board
noted the substantial growth in the
number and the asset size of Edge
corporations since 1979, and their
increased participation in the economy
and the interbank market. The prior
review procedure was intended to allow
the Board to assess the financial
strength of the acquiror and whether
adverse effects might result from the
acquisition.
Under the proposed procedure any
person would be required to give 60
days’ notice before acquiring 25 percent
or more of the voting shares of an Edge
corporation. The Board could
disapprove an investment or impose
conditions necessary to prevent adverse
effects such as conflicts of interest,
undue concentration of resources or
unsound banking practices. The
proposal was generally supported in the
comments received. However, three
commenters objected on the grounds
that the Board lacked specific statutory
authority for the requirement.
The Board has exclusive jurisdiction
over chartering, supervising and
examining Edge corporations. The
governing statute and the Board’s
regulations establish a comprehensive
scheme requiring the prior approval of
the Board for the formation and
establishment of Edge corporations,
extensions of their corporate existence,
change to their articles of association,
their investments in other organizations
and any new activities in which they
may seek to engage. Moreover,
paragraph 4 of the Edge Act provides
that an Edge corporation may prescribe
"by-laws not inconsistent with law or
with the regulations of the Board . . .
regulating the manner in which its stock
shall be transferred . . . .” This
framework commits responsibility to the
Board to maintain the sound operation
of Edge corporations and clearly
authorizes the Board to adopt a
procedure for review of the transfer of
ownership of an Edge corporation.
Therefore, the Board adopted the
proposal. The language of the proposal
was revised to reflect some technical
clarifications and to make clear that the
prior notice requirements applies to
foreign banks acquiring between 25 and
50 percent of the shares of an Edge
corporation.
39978
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
Investment procedures
Under Regulation K, U.S. banking
organizations may invest in
international subsidiaries that confine
their activities to those specified by the
Board as permissible, and may acquire
20 to 50 percent interests in foreign joint
ventures that are predominantly
engaged in premissible activities. They
may also make international portfolio
investment by acquiring up to 20 percent
of the shares of companies regardless of
the nature of their activities. These
investments must be made in
accordance with procedures set forth in
the regulation.
Three changes were proposed in those
procedures.
1. Under the General Consent, to raise
the amount for initial investments that
may be made without prior notice or
approval from $2 million to $15 million.
2. Under the General Consent, to alter
from historical cost to book value the
basis on which additional investments
in a single organization may be made
without prior notice or approval.
3. In the acquistion of going concerns,
to permit some leeway in the
requirement that subsidiaries confine
their activities exclusively to those
listed in the regulation.
The General Consent now permits
initial investments of lesser of $2 milion
or five percent of the investor’s capital
and surplus to be made without prior
notice or consent, provided, of course,
that the investment raises no question
regarding the permissiblity of the
activities. The comment supported a
liberalization of the General Consent,
with some commenters proposing a
higher dollar amount than that
proposed, and others suggested
elimination of the dollar amount with
reliance exclusively on the five percent
of capital limitation. After consideration
of all comments, the Board adopted the
proposal to raise the initial investment
amount covered by general consent to
$15 million. In reaching this
determination, the Board noted that
elimination of a dollar amount limit
would allow the largest banks to make
substantial individual investments
without any prior review, in some cases
of up to $300 million. Because this
amount can be leveraged many times in
the case of subsidiaries, thus increasing
exposure beyond the investment
amount, the Board decided to maintain a
dollar limit set at a level that would
allow routine initial investments to be
made without regulatory scrutiny while
at the same time permitting regulatory
review of those investments that are
likely to be more significant.
As to the second proposed change in
investment procedures, additional
investments beyond the initial
investment (or series of investments up
to $15 million) in an organization may
now be made under the General
Consent in any one year of up to 10
percent of the historical cost of the
investment and these rights may be
carried forward and accumulated for up
to five years [i.e., up to 50 percent). It
was proposed that the basis for this
calculation be changed from historical
cost to book value. It was believed that
the book value would be easier to
account for over time and therefore that
the change would represent a
simplication. However, a number of
strong objections were received to the
proposed change, and these objections
were registered mainly by organizations
active in making additional investments.
The main arguments were that
maintaining records of historical cost is
not burdensome, that book values
fluctuate, and that more often than not
additional investments are likely to be
needed where the book value has fallen
below historical cost. Some commenters
suggested that if a change were to be
made it should permit the greater of
historical cost or book value to be used
as the basis. However, this could lead to
difficult problems of regulatory
administration and compliance. In light
of all the comments, the Board decided
to retain the historical cost criterion for
calculating additional investments under
the General Consent.
The third proposed change in
investment procedures was to allow a
certain amount of leeway in the
permissible activities of subsidiaries
when they are acquired as going
concerns. Under the present regulatory
requirements, a subsidiary must
conform its activities exclusively to
those listed in the regulation or
otherwise permitted by the Board. By
contrast, up to 10 percent of the assets
or revenues of a joint venture may be
attributable to impermissible activities.
When subsidiaries have been
acquired as going concerns, there have
often been parts of the organization
engaged in impermissible activities.
These sectors, either departments of the
company or separate subsidiaries, have
often been small in relation to the
overall organization and sometimes
have been historically associated with
the firm acquired. In the circumstances,
it has frequently been awkward to effect
their discontinuance either prior to
acquisition or even post-acquisition. The
proposed change sought to avoid this
kind of difficulty by Betting a de minimis
standard that would allow up to 2
percent of assets and revenues in such
companies to be derived from
impermissible activities.
While supporting the idea in principle,
many commenters suggested a higher
limit [e.g., 5 percent) or applying the
limit selected to all subsidiaries (going
concerns and de novo). Because the
proposal was intended to provide
flexibility to banking organizations, the
Board adopted a limit of 5 percent of
assets and revenues that may be
derived from impermissible activities in
a subsidiary acquired as a going
concern. The provision is intended
primarily to permit acquisitions under
the General Consent and should provide
the intended flexibiity in that area.
Where, however, an investor proposes
to acquire a very large organization,
which does not qualify for the General
Consent, such that 5 percent of assets
and revenues would be large in absolute
dollar terms, the Board will take into
account the size of the investment, the
magnitude of impermissible activities,
and the structure of the acquired
organization in detemining whether the
proposed investment should be
approved or whether the impermissible
activities could be retained. The Board
also determined that de novo
subsidiaries should continue to conform
strictly to the activities standards set by
the Board because the parent has
control over the subsidiary’s activities
from the outset.
In addition to these revisions, the
Board adopted as proposed the revision
to | 211.5(d)(5) that would permit foreign
subsidiaries to underwrite all forms of
credit life, and credit accident and
health insurance, eliminating the
requirement that such insurance be
underwritten only for credit extended by
the investor and its affiliates. Section
211.5(d)(1) was revised to clarify that a
U.S. banking organization may invest in
foreign thrift institutions, such as
savings banks and building and loan
associations.
The Board also adopted as proposed
the revision that eliminates from the list
of activities in § 211.5(d) those activities
that the Board has found to be closely
related to banking by order under
section 4(c)(8) of the B^nk Holding
Company Act. Investments made or
activities commenced in reliance on this
provision may continue to be held or
conducted.
Securities Activities Abroad
The Board proposed no change to the
provision permitting foreign subsidiaries
to engage in certain securities activities.
Comments were received on two
aspects of securities activities abroad:
limits on the underwriting of equities
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
and limits affecting dealing or trading in
equities. Because of significant
developments currently under way in
this area, no changes were adopted in
the rules governing the conduct of
securities activities abroad pending
further study and analysis.
U.S. nonbanking activities of foreign
banks. One proposed change in the
regulation dealt with exempt U.S.
nonbanking activities of foreign banks.
Section 2(h) of the BHC Act permits
foreign banks to own foreign companies
that engage in nonbanking activities in
the United States if the U.S. activities
are in the same general line of business
as the company’s foreign activities. The
exemption is intended to prevent
disruptions in the foreign activities and
business of foreign banks that would
occur if its nonbank affiliates were
completely barred from U.S. markets.
However, the exemption was intended
to be available to commercial and
industrial companies with which foreign
banks were affiliated and not to
companies that engage in financial or
financially-related activities, or are
primarily investment vehicles.
To clarify this point, an amendment to
§ 211.23(f)(5) was proposed which would
require these foreign companies
affiliated with foreign banks to conduct
an actual operating business overseas in
order to take advantage of the
exemption. This would preclude a
foreign company that engages only in
acquiring noncontrolling interests in
other companies from using the section
2(h) exemption to engage in the United
States in activities of the kind conducted
by such companies. An example would
be a foreign bank that directly or
indirectly acquires oil and gas properties
abroad as investments and seeks to rely
on the section 2(h) exemption to engage
in the oil and gas business in the United
States or to engage generally in
investing in such properties in the
United States.
Two commenters opposed adoption of
this change. They argued that the Board
should not seek to prevent foreign
banking organizations from investing for
their own account in real estate and oil,
gas and other mineral properties in the
United States because these are
commercial properties entitled to the
exemption. The Board is of the view that
the exemption was intended to apply
only to directly related U.S. activities of
foreign affiliates engaged in commercial
activities and was not intended to allow
unrelated investments in commercial
and industrial businesses in the U.S.
simply because investments are held in
the same kinds of businesses abroad.
Both commenters requested that the
provision not be construed to exclude
39979
an additional power appeared necessary
foreign shell holding companies that are
in order to allow foreign branches of
set up for legitimate corporate tax
member banks to compete with local
purposes. The Board did not intend that
the proposal interfere with or inhibit the banking organizations.
legitimate structuring of foreign holdings
The Board has amended the
by foreign banking organizations. The
regulations to permit a member bank,
Board adopted the proposal with the
with the prior approval of the Board, to
clarification that the U.S. company may
hold shares of subsidiaries that engage
be held through a shell holding company solely in activities permitted to a foreign
so long as the foreign banking
branch where this structure is required
organization controls a foreign company by local law or regulation. Because the
actually engaged in the same kind of
subsidiary would engage only in
commercial business as the U.S.
activities permitted to the branch, the
company.
shareholding would be permissible and
The Board had also proposed a
consistent with the Board's longstanding
change to §211.23(b) of Regulation K
position that a member bank may not
concerning qualification of foreign
directly hold the shares of a foreign
banking organizations to take advantage company except as the Board may
of the exemptions for foreign banks in
permit in accordance with section 25 of
the Bank Holding Company Act. The
the Federal Reserve Act.
proposal required that a foreign bank
De minimis investments in shares.
include in its calculation of the amount
Regulation K requires divestiture of any
of its assets, revenues and net income
investment if the organization invested
attributable to U.S. banking, any assets,
in engages directly or indirectly in
revenues or income derived from
business in the United States that is not
banking operations in U.S. territories
permitted to an Edge Corporation. This
and possessions and Puerto Rico. The
requirement applies no matter how
Institute of Foreign Bankers objected to
small the ownership interest may be,
this proposal because such locations
and can have an adverse impact upon
have generally been treated as foreign.
U.S. banking organizations that make
However, the Board continues to be of
small investments in foreign companies
the view that a foreign bank, should not
that thereafter engage directly or
be permitted to bootstrap itself into
indirectly in activities in the United
qualification for exemptions from
States.
nonbanking prohibitions by including
Several commenters requested limited
banking assets that are subject to U.S.
relief from this divestiture requirement.
jurisdiction. Therefore, the Board
The Board believes that this requirement
adopted this revision as proposed.
is unnecessarily stringent and has
amend the regulation to permit U.S.
Other Issues
banking organizations to invest in up to
The Board also adopted two
five percent of the shares of a foreign
liberalizing provisions that were not
company that engages in business in the
contained in the proposal for comment.
United States without being required to
Additional investment authority for
divest those shares. This five percent
foreign branches. Section 25 of the
exemption would correspond to the
Federal Reserve Act provides that a
exemption for bank holding companies
member bank may hold the shares of a
under the Bank Holding Company Act
foreign bank as a limited exception to
for investments in up to five percent of
the restrictions on member bank
ownership of stock generally. The Board the shares of any company without
has not permitted member banks to hold regard to the activities of the company
and may fairly be regarded as incidental
directly the shares of any foreign
to the foreign business of the investor
organization other than a foreign bank.
because it is a de minimis holding.
The Board has received requests to
In light of the Board’s adoption of this
permit member banks to hold directly
liberalization, other clarifying and
the shares of companies that engage
only in activities permitted to the foreign conforming changes were made to
branch or foreign bank subsidiary of the I 211.5(b).
Pursuant to section 605(b) of the
member bank where the conduct of the
Regulatory flexibility Act (Pub. L. 96activity in a separate company is
required or necessary under local law or 354, 5 U.S.C. 601 et seq.), the Board
certifies that the regulation will not have
regulation.
The Board has the authority under
a significant economic impact on a
substantial number of small entities.
section 25 to grant additional powers to
foreign branches of member banks
List of Subjects in 12 CFR Part 211
where such powers are usual in
Banks, banking; Federal Reserve
connection with the banking business in
the country in which the bank is located. System; Foreign banking, Investments,
The Boafd has used this authority where Reporting and recordkeeping
39980
Federal Register / Vol. 50, No. 190 J Tuesday, October 1, 1985 / Rules and Regulations
requirements. Export trading companies,
Allocated transfer risk reserve, reporting
and disclosure of international assets,
accounting for fees on international
loans.
12 CFR Part 211 is amended as
follows:
1. The authority citation for Part 211
continues to read as follows:
Authority: Federal Reserve Act (12 U.S.C.
211 et se<7-); Bank Holding Company Act of
1956, as amended (12 U.S.C 1841 et seq.)< the
International Banking Act of 1978 (Pub. L. 95369; 92 Stat. 607; 12 U.S.C. 3101 et seq.)\ the
Bank Export Services Act (Title'll, Pub. L. 97290, 96 Stat. 1235); and the International
Lending Supervision Act (Title IX, Pub. L. 98181, 97 Stat. 1153).
Subpart A of 12 CFR Part 211 is
revised to read as follows:
PART 211—INTERNATIONAL
BANKING OPERATIONS
Subpart A—International Operations of
United States Banking Organizations
Sec.
211.1 Authority, purposes, and scope.
211.2 Definitions.
211.3 Foreign branches of U.S. banking
organizations.
211.4 Edge and Agreement corporations.
211.5 Investments and activities abroad.
211.6 Lending limits and capital
requirements.
211.7 Supervision and reporting.
*
*
*
*
*
SUBPART A—INTERNATIONAL
OPERATIONS OF UNITED STATES
BANKING ORGANIZATIONS
§ 211.1 Authority, purpose, and scope.
(a) Authority. This subpart is issued
by the Board of Governors of the
Federal Reserve System (“Board”) under
the authority of the Federal Reserve Act
(“FRA") (12 U.S.C. 221 et seg.); the Bank
Holding Company Act of 1956 (“BHC
Act") (12 U.S.C. 1841 etseg.)\ and the
International Banking Act of 1978
(“IBA”) (92 Stat. 607; 12 U.S.C. 3101 et
seq.). Requirements for the collection of
information contained in this regulation
have been approved by the Office of
Management and Budget under the
provision of 44 U.S.C. 3501, et seq. and
have been assigned OMB Nos. 71000107; 7100-0109; 7100-0110; 7100-0069;
7100-0086, and 7100-0073.
(b) Purpose. This subpart sets out
i rules governing the international and
foreign activities of U.S. banking
organizations, including procedures for
establishing foreign branches and Edge
corporations to engage international
banking and for investments in foreign
organizations.
(c) Scope. This subpart applies to
corporations organized under section
25(a) of the FRA (12 U.S.C. 611-631),
“Edge corporations"; to corporations
having an agreement or undertaking
with the Board under section 25 of the
FRA (12 U.S.C. 601-604a), "Agreement
corporations"; to member banks with
respecHo their foreign branches and
investments in foreign banks under
section 25 of the FRA (12 U.S.C. 601604a);1and to bank holding companies
with respect to the exemption from the
nonbanking prohibitions of the BHC Act
afforded by section 4(c) (13) of the BHC
Act (12 U.S.C. 1843(c)(13)).
§211.2 Definitions.
Unless otherwise specified, for the
purposes of this subpart:
(a) An “affiliate” of an organization
means (1) any entity of which the
organization is a direct or indirect
subsidiary; or (2) any direct or indirect
subsidiary of the organization or such
entity.
(b) "Capital and surplus" means paidin and unimpaired capital and surplus,
and includes undivided profits but does
not include the proceeds of capital notes
or debentures.
(c) "Directly or indirectly” when used
in reference to activities or investments
of an organization means activities or
investments of the organization or of
any subsidiary of the organization.
(d) An Edge corporation is “engaged
in banking" if it is ordinarily engaged in
the business of accepting deposits in the
United States from nonaffiliated
persons.
(e) “Engaged in business” or “engaged
in activities” in the United States means
maintaining and operating an office
(other than a representative office) or
subsidiary in the United States.
(f) “Foreign” or “foreign country”
refers to one or more foreign nations,
and includes the overseas territories,
dependencies, and insular possessions
of those nations and of the United
States, and the Commonwealth of
Puerto Rico.
(g) “Foreign bank” means an
organization that: is organized under the
laws of a foreign country; engages in the
business of banking; is recognized as a
bank by the bank supervisory or
monetary authority of the country of its
organization or principal banking
operations; receives deposits to a
substantial extent in the regular course
of its business; and has the power to
accept demand deposits.
(h) “Foreign branch" means an office
of an organization (other than a
1 Section 25 of the FRA, which refers to national
banking associations, also applies to state member
banks of the Federal Reserve System by virtue of
section 9 of the FRA (12 U.S.C. 321).
representative office) that is located
outside the country under the laws of
which the organization is established, at
which a banking or financing business is
conducted.
(i) “Investment" means the ownership
or control of shares (including
partnership interests and other interests
evidencing ownership)* binding
commitments to acquire shares,
contributions to the capital and surplus
of an organization, and the holding of an
organization’s subordinated debt when
shares of the organization are also held
by the investor or the investor’s affiliate.
(j) "Investor” means an Edge
corporation, Agreement corporation,
bank holding company, or member bank.
(k) "Joint venture” means an
organization that has 20 percent or more
of its voting shares held directly or
indirectly by the investor or by an
affiliate of the investor, but which is not
a subsidiary of the investor.
(1) “Organization” means a
corporation, government, partnership,
association, or any other entity.
(m) “Person” means an individual or
an organization.
(n) “Portfolio investment" means an
investment in an organization other than
a subsidiary or joint venture.
(o) “Representative office” means an
office that engages solely in
representational and administrative
functions such as solicitation of new
business for or liaison between the
organization’s head office and
customers in the United States, and does
not have authority to make business
decisions for the account of the
organization represented.
(p) “Subsidiary” means an
organization more than 50 percent of the
voting shares of which is held directly or
indirectly by the investor, or which is
otherwise controlled or capable of being
controlled by the investor or an affiliate
of the investor.
§ 211.3 Foreign branches of U.S. banking
organizations.
(a) Establishment o f foreign
branches.—(1) Right to establish
branches. Foreign branches may be
established by any member bank having
capital and surplus of $1,000,000 or
more, an Edge corporation, an
Agreement corporation, or a subsidiary
held pursuant to this Subpart. Unless
otherwise provided in this section, the
establishment of a foreign branch
requires the specific prior approval of
the Board.
(2) Branching within a foreign
country. Unless the organization has
been notified otherwise, no prior Board
approval is required for an organization
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
to establish additional branches in any
foreign country where it operates one or
more branches.2
(3) Branching into additional foreign
countries. After giving the Board 45
days’ prior written notice, an
organization that operates branches in
two or more foreign counties may
establish a branch in an additional
foreign country, unless notified
otherwise by the Board.2
(4) Expiration of branching authority.
Authority to establish branches through
prior approval or prior notice shall
expire one year from the earliest date on
which the authority could have been
exercised, unless the Board extends the
period.
(5) Reporting. Any organization that
opens, closes, or relocates a branch
shall report such change in a manner
prescribed by the Board.
(b) Further powers of foreign
branches of member banks. In addition
to its general banking powers, and to the
extent consistent with its charter, a
foreign branch of a member bank may
engage in the following activities so far
as usual in connection with the business
of banking in the country where it
transacts business:
(1) Guarantees. Guarantee debts, or
otherwise agree to make payments on
the occurrence of readily ascertainable
events,3if the guarantee or agreement
specifies a maximum monetary liability;
but except to the extent that the member
bank is fully secured, it may not have
liabilities outstanding for any person on
account of such guarantees or
agreements which when aggregated with
other unsecured obligations of the same
person exceed the limit contained in
paragraph (a)(1) of section 5200 of the
Revised Statutes (12 U.S.C. 84) for loans
and extensions of credit;
(2) Investments. Invest in: (i) The
securities of the central bank, clearing
houses, governmental entities, and
government-sponsored development
banks of the country in which the
foreign branch is located; (ii) other debt
securities eligible to meet local reserve
or similar requirements; and (iii) shares
of professional societies, schools, and
the like necessary to the business of the
branch; however, the total investments
of the bank’s branches in that country
under this paragraph (exclusive of
2For the purpose of this paragraph, a subsidiary
other than a bank or an Edge or Agreement
corporation is considered to be operating a branch
in a foreign country if it has an affiliate that
operates an office (other than a representative
office) in that country.
3"Readily ascertainable events” include, but are
not limited to, events such as nonpayment of taxes,
rentals, customs duties, 6r costs of transport and
loss or nonconformance of shipping documents.
securities held as required by the law of
that country or as authorized under
section 5136 of the Revised Statutes (12
U.S.C. 24, Seventh)) may not exceed one
percent of the total deposits of the
bank’s branches in that country on the
preceding year-end call report date (or
on the date of acquisition of the branch
in the case of a branch that has not so
reported);
(3) Government obligations.
Underwrite, distribute, buy, and sell
obligations of: (i) The national
government of the country in which the
branch is located; (ii) an agency or
instrumentality of the national
government; and (iii) a municipality or
other local or regional governmental
entity of the country; however, no
member bank may hold, or be under
commitment with respect to, such
obligations for its own account in an
aggregate amount exceeding 10 percent
of its capital and surplus;
(4) Credit extensions to bank's
officers. Extend credit to an officer of
the bank residing in the country 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 the
credit extension is reported promptly to
the branch’s home office and any
extension of credit exceeding $100,000
(or the equivalent in local currency) is
reported also to the bank’s board of
directors;
(5) Real estate loans. 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 has
been improved.
(6) Insurance. Act as insurance agent
or broker;
(7) Employee benefits program. Pay to
an employee of the branch, as part of an
employee benefits program, a greater
rate of interest than that paid to other
depositors of the branch;
(8) Repurchase agreements. Engage in
repurchase agreements involving
securities and commodities that are the
functional equivalents of extensions of
credit;
(9) Investment in subsidiaries. With
the Board’s prior approval, establish or
invest in a wholly-owned subsidiary to
engage solely in activities in which the
member bank is permitted to engage in
or activities that are incidental to die
activities of the foreign branch, where
required by local law or regulation; and
(10) Other activities. With the Board’s
prior approval, engage in other activities
that the Board determines are usual in
connection with the transaction of the
business of banking in the places where
39981
the member bank’s branches transact
business.
(c) Reserves o f foreign branches of
member banks. Reserves shall be
maintained against foreign branch
deposits when required by Part 204 of
this chapter (Regulation D).
§ 211.4 Edge and Agreement
corporations.
(a) Organization.—(1) Permit. A
proposed Edge corporation shall become.
a body corporate when the Board issues
a permit approving its proposed name,
articles of association, and organization
certificate.
(2) Name. The name shall include
“international,” “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.
(3) Federal Register notice. The Board
will publish in the Federal Register
notice of any proposal to organize an
Edge corporation and will give
interested persons an opportunity to
express their views on the proposal.
(4) Factors considered by the Board.
The factors considered by the Board in
acting on a proposal to organize an Edge
Corporation include;
(i) The financial condition and history
of the applicant:
(ii) The general character of its
management;
(iii) The convenience and needs of the
community to be served with respect to
international banking and financing
services; and
(iv) The effects of the proposal on
competition.
(5) Authority to commence business.
After the Board issues a permit, the
Edge corporation may elect officers and
otherwise complete its organization,
invest in obligations of the United States
Government, and maintain deposits
with depository institutions, but it may
not exercise any other powers until at
least 25 percent of the authorized capital
stock specified in the articles of
association has been paid in cash, and
each shareholder has paid in cash at
least 25 percent of that shareholder’s
stock subscription. Unexercised
authority to commence business as an
Edge corporation shall expire one year
after issuance of the permit, unless the
Board extends the period.
(6) Amendments to articles of
association. No amendment to the
articles of association shall become
effective until approved by the Board.
(b) Nature and ownership of shares.—
(1) Shares. Shares of stock in an Edge
corporation may not include no-par
value shares and shall be issued and
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Federal Register / VoL 50, No. 190 / Tuesday, October 1, 1985 / Rotes and Regulations
transferred only on its books and is
compliance with section 25(a) of the
FRA and this subpart The share
certificates of an Edge corporation shall:
(1) Name and describe each class of
shares indicating its character and any
unusual attributes such as preferred
status or lack of voting rights; and
(ii) Conspicuously set forth the
substance of:
(A) Limitations upon the rights of
ownership and transfer of shares
imposed by section 25(a) of the FRA;
and
(B) Rules that the Edge corporation
prescribes in its by-laws to ensure
compliance with this paragraph. Any
change in status of a shareholder that
causes a violation of section 25(a) of the
FRA shall be reported to the Board as
soon as possible, and the Edge
corporation shall take such action as the
Board may direct.
(2) Ownership of Edge corporations
by foreign institutions.—(i) Prior Board
approval. One or more foreign or
foreign-controlled domestic institutions
referred to in paragraph 13 of section
25(a) of the FRA (12 U.S.C. 619) may
apply for the Board’s prior approval to
acquire directly or indirectly a majority
of the shares of the capital stock of an
Edge corporation.
(ii) Conditions and requirements. Such
an institution shall:
(A) Provide the Board information
related to its financial condition and
activities and such other information as
may be required by the Board;
(B) Ensure that any transaction by an
Edge corporation with an affiliate4is on
substantially the same terms, including
interest rates and collateral, as those
prevailing at the ?ame time for
comparable transactions by the Edge
corporation with nonaffiliated persons,
and does not involve more than the
normal risk of repayment or present
other unfavorable features;
(C) Ensure that the Edge corporation
will not provide funding on a continual
or substantial basis to any affiliate or
office of the foreign institution through
transactions that would be inconsistent
with die international and foreign
business purposes for which Edge
corporations are organized;
(D) In the case of a foreign institution
not subject to section 4 of the BHC Act:
(i) Comply with any conditions that the
Board may impose that are necessary to
prevent undue concentration of
resources, decreased or unfair
competition, conflicts of interest, or
4 Fur piHpores of this paragraph, “affiliate" means
any organization that would be an “affiliate*' under
section 2SA of the FRA (12 U.S.C. 371c) if the Edge
corporation were a member bank.
unsound banking practices in the United
States; and (ii) give the Board 45 days'
prior written notice, in a form to be
prescribed by the Board, before
engaging in any nonhanking activity in
the United States, or making any initial
or additional investments in another
organization, that would require prior
Board approval or notice by an
organization subject to section 4 of the
BHC Act; in connection with such
notice, the Board may impose conditions
necessary to prevent adverse effects
that may result from such activity or
investment and
(E) invest in Edge corporation no more
than 10 percent of the institution’s
capital and surplus.
(3) Change in control.—(i) Prior
notice. Any person shall give the Board
60 days’ prior written notice, in a form to
be prescribed by the Board, before
acquiring, directly or indirectly, 25
percent or more of the voting shares, or
otherwise acquiring control, of an Edge
corporation; the Board may extend the
60-day period for an additional 30 days
by notifying the acquiring party.
(ii) Board review. Interviewing a
notice filed under this paragraph, the
Board shall consider the factors set forth
in paragraph (a)(4) of this section and
may disapprove a notice or impose any
conditions that it finds necessary to
assure the safe and sound operation of
the Edge corporation, to assure the
international character of its operation,
and to prevent adverse effects such as
decreased or unfair competition,
conflicts of interest, or undue
concentration of resources.
(c) Domestic branches. An Edge
corporation may establish branches in
the United States 45 days after the Edge
corporation has given notice to its
Reserve Bank, unless the Edge
corporation is notified to the contrary
within that time. The notice to the
Reserve Bank shall include a copy of the
notice of the proposal published in a
newspaper of general circulation in the
communities to be served by the branch
and may appear no earlier than 90
calendar days prior to submission of
notice of the proposal to the Reserve
Bank. The newspaper notice must
provide an opportunity for the public to
give written comment on the proposal to
the appropriate Federal Reserve Bank
for at least 30 days after the date of
publication. Hie factors considered in
acting upon a proposal to establish a
branch are enumerated in paragraph
(a)(4) of this section. Authority to open a
branch under prior notice shall expire
one year from the earliest date on which
that authority could have been
exercised, unless the Board extends the
period
(d) Reserve requirements and interes t
rate limitations, The deposits of an Edge
or Agreement corporation are subject to
Parts 204 and 217 of this chapter
(Regulations D and Q) in the same
manner and to the same extent as if th°
Edge or Agreement corporation were
member bank.
(e) Permissible activities in the
United States. An Edge corporation may
engage directly or indirectly in activities
in the United States that are permitted
by the sixth paragraph of section 25(a)
of the FRA and are incidental to
international or foreign business, and in
such other activities as the Board
determines are incidental to
international or foreign business. The
following activities will ordinarily be
considered incidental to an Edge
corporation's international or foreign
business:
(1) Deposit activities.—(i) Deposits
from foreign governments and foreign
persons. An Edge coiporation may
receive in the United States transaction
accounts, savings, and time deposits
(including issuing negotiable certificates
of deposits) from foreign governments
and their agencies and instrumentalities;
offices or establishments located, and
individuals residing, outside the United
States.
(ii) Deposits from other persons. An
Edge corporation may receive from any
other person in the United States
transaction accounts, savings, and time
deposits (including issuing negotiable
certificates of deposit) if such deposits:
(A) Are to be transmitted abroadr
(B) Consist of funds to be used for
payment of obligations to the Edge
corporation or collateral securing such
obligations;
(C) Consist of 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 depositor’s account at another
financial institution;
(D) Consist of the proceeds of
extensions of credit by the Edge
corporation;
(E) Represent compensation to the
Edge coiporation for extensions of credit
or services to the customer;
(F) Are received from Edge or
Agreement corporations, foreign ban
and other depository institutions (as
described in Part 204 of this chapter
(Regulation D));
(G) Are received from an organization
that by its charter, license or enabling
law is limited to business’that is of an
international character* including
Foreign Sales Corporations (26 U.S.C.
921); transportation organizations
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
engaged exclusively in the international
transportation of passengers or .in the
movement of goods, wares, commodities
or merchandise in international or
foreign commerce; and export trading
companies that are exclusively engaged
in activities related to international
trade.
(2) Liquid funds. Funds of an Edge or
Agreement corporation not currently
employed in its international or foreign
business, if held or invested in the
United States, shall be in the form of
cash, deposits with depository
institutions, as described in Part 204 of
this chapter (Regulation D), and other
Edge and Agreement corporations, and
money market instruments (including
repurchase agreements with respect to
such instruments) such as bankers’
acceptances, obligations of or fully
guaranteed by federal, state, and local
governments and their instrumentalities,
federal funds sold, and commercial
paper.
(3) Borrowings. An Edge corporation
may:
(i) Borrow from offices of other Edge
and Agreement corporations, foreign
banks, and depository institutions (as
described in Part 204 of this chapter,
Regulation D) or issue obligations to the
United States or any of its agencies or
instrumentalities;
(ii) Incur indebtedness from a transfer
of direct obligations of, or obligations
that are fully guaranteed as to principal
and interest by, the United States or any
agency or instrumentality thereof that
the Edge corporation is obligated to
repurchase;
(iii) Issue long-term subordinated debt
that does not qualify as a "deposit”
under Part 204 of this chapter
(Regulation D).
(4) Credit activities. An Edge
corporation may:
(i) Finance the following: (A)
contracts, projects, 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 of goods
being imported or exported (or
accumulated for export); and (D) the
assembly or repackaging of goods
imported or to be exported;
(ii) Finance the costs of production of
goods and services for which export
orders have been received or which are
identifiable as being directly for export;
(iii) Assume or acquire participations
in extensions of credit, or acquire
obligations arising from transactions the
Edge corporation could have financed;
(iv) Guarantee debts, or otherwise
agree to make payments on the
occurrence of readily ascertainable
events,5if the guarantee or agreement
specifies the maximum monetary
liability thereunder and is related to a
type of transaction described in
paragraphs (e)(4)(i) and (ii) of this
section; and
(v) Provide credit and other banking
services for domestic and foreign
purposes to organizations of the type
described in § 211.4(e)(l)(ii)(G) of this
part.
(5) Payments and collections. An Edge
corporation may receive checks, bills,
drafts, acceptances, notes, bonds,
coupons, and other instruments for
collection abroad, and collect such
instruments in the United States for a
customer abroad; and may transmit and
receive wire transfers of funds and
securities for depositors.
(6) Foreign exchange. An Edge
corporation may engage in foreign
exchange activities.
(7) Fiduciary and investment advisory
activities. An Edge corporation may:
(i) Hold securities in safekeeping for,
or buy and sell securities upon the order
and for the account and risk of, a
person, provided such services for U.S.
persons shall be with respect to foreign
securities only;
(ii) Act as paying agent for securities
issued by foreign governments or other
entities organized under foreign law;
(iii) Act as trustee, registrar,
conversion agent, or paying agent with
respect to any class of securities issued
to finance foreign activities and
distributed solely outside the United
States;
(iv) Make private placements of
participations in its investments and
extensions of credit; however, except to
the extent permissible for member
banks under section 5136 of the Revised
Statutes (12 U.S.C. 24, Seventh), no Edge
corporation may otherwise engage in the
business of underwriting, distributing, or
buying or selling securities in the United
States;
(v) Act as investment or financial
adviser by providing portfolio
investment advice and portfolio
management with respect to securities,
other financial instruments, real
property interests and other investment
assets,6and by providing advice on
‘ “Readily ascertainable events” include, but are
not limited to, events such as nonpayment of taxes,
rentals, customs duties, or cost of transport and loss
or nonconformance of shipping documents.
6 For purposes of this section, management of an
investment portfolio does not include operational
management of real property, or industrial or
commercial assets.
39983
mergers and acquisitions, provided such
services for U.S. persons shall be with
respect to foreign assets only; and
(vi) Provide general economic
information and advice, general
economic statistical forecasting services
and industry studies, provided such
services for U.S. persons shall be with
respect to foreign economies and
industries only.
(8) Banking services for employees.
Provide banking services, including
deposit services, to the officers and
employees of the Edge corporation and
its affiliates; however, extensions of
credit to such persons shall be subject to
the restrictions of Part 215 of this
chapter (Regulation O) as if the Edge
corporation were a member bank.
(9) Other activities. With the Board’s
prior approval, engage in other activities
in the United States that the Board
determines are incidental to the
international or foreign business of Edge
corporations.
(f) Agreement corporations. With the
prior approval 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 art Edge
corporation under this subpart.
§211.5 Investments and activities abroad.
(a) General policy. Activities 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 considerations
and the other provisions of this section,
it is the Board’s policy to allow activities
abroad to be organized and operated as
best meets corporate policies.
(b) Investment requirements.—(1)
Eligible investments, (i) An investor
may directly or indirectly:
(A) Invest in a subsidiary that engages
solely in activities listed in paragraph
(d) of this section or in such other
activities as the Board has determined
in the circumstances of a particular case
are permissible except thai, in the case
of an acquisition of a going concern,
existing activities that are not otherwise
permissible for a subsidiary may
account for not more than five percent
of either the consolidated assets or
revenues of the acquired organization;
(B) Invest in a joint venture provided
that, unless otherwise permitted by the
39984
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
Board, not more than 10 percent of the
accordance with the general consent
joint venture’s consolidated assets or
prior notice, or specific consent
revenues shall be attributable to
procedures contained in this paragraph.
activities not listed in paragraph (d) of
The Board may at any time, upon notice,
this section; and
suspend the general consent and prior
notice procedures with respect to any
(C) Make portfolio investments
investor or with respect to the
(including securities held in trading or
acquisition of shares of organizations
dealing accounts) in an organization if
engaged in particular kinds of activities.
the total direct and indirect portfolio
investments in organizations engaged in An investor shall apply for and receive
the prior specific consent of the Board
activities that are not permissible for
for its initial investment in its first
joint ventures does not at any time
subsidiary or joint venture unless an
exceed 100 percent of the investor’s
affiliate has made such an investment.
capital and surplus.7
Authority to make investments under
(ii) A member bank’s direct
investments under section 25 of the FRA prior notice or specific consent shall
expire one year from the earliest date on
shall be limited to foreign banks and to
foreign organizations formed for the sole which the authority could have been
exercised, unless the Board extends the
purpose of either holding shares of a
period.
foreign bank or performing nominee,
(1) General consent Subject to the
fiduciary, or other banking services
other limitations of.this section, the
incidental to the activities of a foreign
Board grants its general consent for the
branch or foreign bank affiliate of the
following:
member bank.
(i) Any investment in a joint venture
(2) Investment limit. In computing the
or subsidiary, and any portfolio
amount that may be invested in any
investment, if the total amount invested
organization under this section, there
shall be included any unpaid amount for (in one transaction or in a series of
transactions) does not exceed the lesser
which the investor is liable and any
of:
investments by affiliates.
(A) $15 million; or
(3) Divestiture. An investor shall
dispose of an investment promptly
(B) 5 percent of the investor’s capital
(unless the Board authorizes retention}
and surplus in the case of a member
if:
bank, bank holding company, or Edge
corporation engaged in banking, or 25
(i) The organization invested in—
{A) Engages in the general business of percent of the investor’s capital and
surplus in the case of an Edge
buying or selling goods, wares,
corporation not engaged in banking;
merchandise, or commodities m the
(ii) Any additional investment in an
United States;
organization in any calendar year so
(B) Engages directly or indirectly in
long as
other business in the United States that
(A) The total amount invested in that
is not permitted to an Edge corporation
calendar year does not exceed 10
in the United States except that an
percent of the investor’s capital and
investor may hold up to five percent of
surplus; and
the shares of a foreign company that
engages directly or indirectly in
(B) The total amount invested under
business in the United States that is not
§ 211.5 (including investments made
permitted to an Edge corporation; or
pursuant to specific consent or prior
notice) in that calendar year does not
(C) Engages in impermissible
exceed cash dividends reinvested under
activities to an extent not permitted
under paragraph (b)(1) of this section; or paragraph (c)(l)(iii) of this section plus
10 percent of the investor’s direct and
(ii) After notice and opportunity for
indirect historical cost® in the
hearing, the investor is advised by the
Board that its investment is
9The “historical cost*’ of an investment consists
inappropriate under the FRA, the BHC
of the actual amounts paid for shares or otherwise
Act or this subpart.
contributed to the capital accounts, as measured in
(c) Investment procedures.8Direct and dollars at the exchange rate in effect a t the time
each investment was made. It does not iaclade
indirect investments shall be made in
7For this purpose, a direct subsidiary of a
member bank is deemed to be an investor.
8When necessary, the general consent and prior
notice provisions of this section constitute the
Board's approval under the eighth paragraph of
section 2S(a| of the FRA for investments in excess
of the limitations therein based on capital and
surplus.
subordinated debt or unpaid commitments to invest
even though these may be considered investments
for other purposes of this part. For investments
acquired indirectly as a res ok of acquiring a
subsidiary, the historical cost to the investor is
measured as of the date of acquisition of the
subsidiary at the net asset value of the equity
interest in the case of subsidiaries and joint
ventures, and in the case of portfolio investments, at
the book carrying value.
organization, which investment
authority* to the extent unexercised
may be carried forward and
accumulated for up to five consecutive
years;
(iii) Any additional investment in an
organization in an amount equal to cash
dividends received from that
organization during the preceding 12
calendar months; or
(iv) Any investment that is acquired
from an affiliate at net asset value.
(2) Prior notice. An investment that
does not qualify under the general
consent procedure may be made after
the investor has given 45 days’ prior
written notice to the Board if the total
amount to be invested does not exceed
10 percent of the investor's capital and
surplus. The Board may waive the 45day period if it finds immediate action is
required by the circumstances
presented. Hie notice period shall
commence at the time the notice is
accepted. The Board may suspend the
period or act on the investment under
the Board's specific consent procedures.
(3) Specific consent Any investment
that does not qualify for either the
general consent or die prior notice
procedure shall not be consummated
without the specific consent of the
Board.
(d) Permissible activities. Hie Board
has determined that the following
activities are usual in connection with
the transaction of banking or other
financial operations abroad;
(1) Commercial and other banking
activities;
(2) Financing, including commercial
financing, consumer financing, mortgage
banking, and factoring;
(3) Leasing real or personal property,
or acting as agent broker, or advisor in
leasing real or personal property, if the
lease serves as the functional equivalent
of an extension of credit to the lessee of
the property;
(4) Acting as fiduciary;
(5) Underwriting credit life insurance
and credit accident and health
insurance;
(6) Performing services for other direct
or indirect operations of a United States
banking organization, including
representative functions, sale of long
term debt, name saving, holding assets
acquired to prevent loss on a debt
previously contracted in good faith, and
other activities that are permissible
domestically for a bank holding
company under sections 4(a)(2)(A) and
4(c)(1)(C) of the BHC Act;
(7) Holding the premises of a branch
of an Edge coiporation or member bank
or the premises of a direct or indirect
subsidiary, or holding or leasing the
Federal Register / Vol. 50, No. 190 / Tuesday, October 1, 1985 / Rules and Regulations
residence of an officer or employee of a
branch or subsidiary;
(8) Providing investment, financial, or
economic advisory services;
(9) General insurance agency and
brokerage;
(10) Data processing;
(11) Managing a mutual fund if the
fund’s shares are not sold or distributed
in the United States or to United States
residents and the fund does not exercise
managerial control over the firms in
which it invests;
(12) Performing management
consulting services provided that such
services when rendered with respect to
the United Sates market shall be
restricted to the initial entry;
(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 percent of the capital and
surplus or voting shares of an issuer
unless the underwriter is covered by
binding commitments from
subunderwriters or other purchasers;
(14) Operating a travel agency
provided that the travel agency is
operated in connection with financial
services offered abroad by the investor
or others;
(15) Engaging in activities that the
Board has determined by regulation in
12 CFR 225.25(b) are closely related to
banking under section 4(c)(8) of the BHC
Act; and
(16) With the Board’s specific
approval, engaging in other activities
that the Board determines are usual in
connection with the transaction of the
business of banking or other financial
operations abroad and are consistent
with the FRA or the BHC Act.
(e) Debts previously contracted.
Shares or other ownership interests
acquired to prevent a loss upon a debt
previously contracted in good faith shall
not be subject to the limitations or
procedures of this section; however,
they 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.
described in paragraph 7 of section 13 of
the FRA (12 U.S.C. 372).
(2) Exceptions. These limitations do
not apply if the excess represents the
international shipment of goods and the
Edge corporations (i) is fully covered by
primary obligations to reimburse it that
are guaranteed by banks or bankers, or
(ii) is covered by participation
agreements from other banks, as such
agreements are described in § 250.165 of
this chapter.
(b) Loans and extensions of credit to
one person.—(1) Limitations. Except as
the Board may otherwise specify:
(1) The total loans and extensions of
credit outstanding to any person by an
Edge corporation engaged in banking
and its direct or indirect subsidiaries
may not exceed 15 percent of the Edge
corporation’s capital and surplus;10and
(ii) The total loans and extensions of
credit to any person by a foreign bank or
Edge corporation subsidiary of a
member bank, and by majority-owned
subsidiaries of a foreign bank or Edge
corporation, when combined with the
total loans and extensions of credit to
the same person by the member bank
and its majority-owned subsidiaries,
may not exceed the member bank’s
limitation on loans and extensions of
credit to one person.
(2) “Loans and extensions of credit"
means all direct or indirect advances of
funds to a person 11made on the basis of
any obligation of that person to repay
the funds. These shall include
acceptances outstanding not of the types
described in paragraph 7 of section 13 of
the FRA (12 U.S.C. 372); any liability of
the lender to advance funds to or on
behalf of a person pursuant to a
guaranteed, standby letter of credit, or
similar agreements; investments in the
securities of another organization except
where the organization is a subsidiary,
and any underwriting commitments to
an issuer of securities where no binding
commitments have been secured from
subunderwriters or other purchasers.
(3) Exceptions. The limitations of
paragraph (b)(1) of this section do not
apply to:
(i) Deposits with banks and federal
funds sold;
§ 211.6 Lending limits and capital
requirements.
'•For purposes of this subsection, “subsidiary”
includes subsidiaries controlled by the Edge
corporation but does not include companies
otherwise controlled by affiliates of the Edge
corporation.
11 In the case of a foreign government, these
include loans and extensions of credit to the foreign
government's departments or agencies deriving their
current funds principally from general tax revenues.
In the case of a partnership or firm, these include
loans and extensions of credit to its members and,
in the case of a corporation, these include loans and
extensions of credit to the corporation's affiliates
where the affiliate incurs the liability for the benefit
of the corporation.
(a) Acceptances o f Edge
corporations.—(1) Limitations. An Edge
corporation shall be and remain fully
secured for (i) all acceptance
outstanding in excess of 200 percent of
its capital and surplus; and (ii) all
acceptances outstanding for any one
person in excess of 10 percent of its
capital and surplus. These limitations
apply only to acceptances of the types
39985
(ii) Bills or drafts drawn in good faith
against actual goods and on which two
or more unrelated parties are liable;
(iii) Any bankers’ acceptance of the
kind described in paragraph 7 of section
13 of the FRA that is issued and
outstanding;
(iv) Obligations to the extent secured
by cash collateral or by bonds, notes,
certificates of indebtedness, or Treasury
bills of the United States;
(v) Loans and extensions of credit that
are covered by bona fide participation
agreements; or
(vi) Obligations to the extent
supported by the full faith and credit of
the following:
(A) The United States or any of its
departments, agencies, establishments,
or wholly-owned corporations (including
obligations to the extent insured against
foreign political and credit risks by the
Export-Import Bank of the United States
or the Foreign Credit Insurance
Association), the International Bank for
Reconstruction and Development, the
International Finance Corporation, the
International Development Association,
the Inter-American Development Bank,
the African Development Bank, or the
Asian Development Bank;
(B) Any organization if at least 25
percent of such an obligation or of the
total credit is also supported by the full
faith and credit of, or participated in by,
any institution designated in paragraph
(b)(3)(v)(A) of this section in such
manner that default to the lender will
necessarily include default to that
entity. The total loans and extensions of
credit under this subparagraph to any
person shall at not time exceed 100
percent of the capital and surplus of the
Edge corporation.
(c) Capitalization. An Edge
corporation shall at all times be
capitalized in an amount that is
adequate in relation to the scope and
character of its activities. In the case of
an Edge corporation engaged in banking,
its capital and surplus shall be not less
than 7 percent of risk assets. For this
purpose, subordinated capital notes or
debentures, in an amount not to exceed
50 percent of non-debt capital, may be
included for determining capital
adequacy in the same manner as for a
member bank; risk assets shall be
deemed to be all assets on a
consolidated basis other than cash,
amounts due from banking institutions
in the United States, United States
Government securities, and Federal
funds sold.
§ 211.7 Supervision and reporting.
(a) Supervision.—(1) Foreign branches
and subsidiaries. Organizations
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conducting international banking
operations under this Subpart shall
supervise and administer their foreign
branches and subsidiaries in such a
manner as to ensure that their
operations conform to high standards of
banking and financial prudence.
Effective systems of records, controls,
and reports shall be maintained to keep
management informed of their activities
and condition. Such systems should
provide, in particular, information on
risk assets, liquidity management, and
operations of controls and conformance
to management policies. Reports on risk
assets should be sufficient to permit an
appraisal of credit quality and
assessment of exposure to loss, and for
this purpose provide full information on
the condition of material borrowers.
Reports on the operations of controls
should include internal and external
audits of the branch or subsidiary.
(2) Joint ventures. Investors shall
maintain sufficient information with
respect to joint ventures to keep
informed of their activities and
condition. Such information shall
include audits and other reports on
financial performance, risk exposure,
management policies, and operations of
controls. Complete information shall be
maintained on all transactions with the
joint venture by the investor and its
affiliates.
(3) Availability of reports to
examiners. The reports and information
specified in paragraph (a) (1) and (2) of
this section shall be made available to
examiners of the appropriate bank
supervisory agencies.
(b) Examinations. Examiners
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 of any
organization whose shares it holds.
(c) Reports.—(1) Reports of condition.
Each Edge corporation shall make
reports of condition 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 published or made available for
public inspection.
(2) Foreign operations. Edge and
Agreement corporations, member banks,
and bank holding companies shall file
such reports on their foreign operations
as the Board may require.
(3) Acquisition or disposition o f
shares. A member bank, Edge or
Agreement corporation or a bank
holding company shall report in a
manner prescribed by the Board any
acquisition or disposition of shares.
(d) Filing and processing procedures.
(1) Unless otherwise directed by the
Board, applications, notifications, and
reports required by this part shall be
filed with the Federal Reserve Bank of
the district in which the parent bank or
bank holding company is located or, if
none, the Federal Reserve Bank of the
district in which the applying or
reporting institution is located.
Instructions and forms for such
applications, notifications and reports
are available from the Federal Reserve
Banks.
(2) The Board shall act on an
application or notification under this
Subpart within 60 calendar days after
the Reserve Bank has accepted the
application or notification unless the
Board notifies the investor that the 60day period is being extended and states
the reasons for the extension.
3. Subpart B of 12 CFR Part 211 is
amended by revising § 211.23 (b) and (f)
introductory text and (f)(5) to read as
follows:
Subpart B—Foreign Banking
Organizations
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§ 211.23 Nonbanking Activities of Foreign
Banking Organizations.
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(b) Qualifying foreign banking
organizations. Unless specifically made
eligible for the exemptions by the Board,
a foreign banking organization shall
qualify for the exemptions afforded by
this section only if, disregarding its
United States banking, more than half of
its worldwide business is banking; and
more than half of its banking business is
outside the United States.1In order to
qualify, a foreign banking organization
shall:
(1) Meet at least two of the following
requirements:
(i) Banking assets held outside the
United States exceed total worldwide
nonbanking assets;
(ii) Revenues derived from business of
banking outside the United States
exceed total revenues derived from its
worldwide nonbanking business; or
(iii) Net income derived from the
business of banking outside the United
States exceeds total net income derived
from its worldwide nonbanking
businesses; and
1None of the assets, revenues, or net income,
whether held or derived directly or indirectly, of a
subsidiary bank, branch, agency, commercial
lending company, or other company engaged in the
business of banking in the United States (including
any territory of the United States, Puerto Rico,
Guam, American Samoa, or the Virgin Islands) shall
be considered held or derived from the business of
banking “outside the United States.”
(2) Meet at least two of the following
requirements:
(i) Banking assets held outside the
United States exceed banking assets
held in the United States;
(ii) Revenues derived from the
business of banking outside the United
States exceed revenues derived from the
business of banking in the United States;
or
(iii) Net income derived from the
business of banking outside the United
States exceeds net income derived from
the business of banking in the United
States.
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(f) Permissible activities and
investments. A foreign banking
organization that qualifies, under
paragraph (b) of this section may:
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(5) Own or control voting shares of a
foreign company that is engaged directly
or indirectly in business in the United
States other than that which is
incidental to its international or foreign
business, subject to the following
limitations:
(i) More than 50 percent of the foreign
company's consolidated assets shall be
located, and consolidated revenues
derived from, outside the United States;
(ii) The foreign company shall not
directly underwrite, sell, or distribute,
nor own or control more than 5 percent
of the voting shares of a company that
underwrites, sells, or distributes
securities in the United States except to
the extent permitted bank holding
companies;
(iii) If the foreign company is a
subsidiary of the foreign banking
organization, the foreign company must
be, or control, an operating company
and its direct or indirect activities in the
United States shall be subject to the
following limitations:
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Board of Governors of the Federal Reserve
System, September 25,1965.
William W. Wiles,
Secretary of the Board.
[FR Doc. 85-23339 Filed 9-30-85; 8:45 am]
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