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F ederal re se r ve Ban k o f Da l l a s D ALLAS, TEXAS 7 5 2 2 2 Circular No. 67-57 March 16, 1967 REVISION OF REGULATION M AND AMENDMENTS TO REGULATION K To All Member Banks in the Eleventh Federal Reserve District: There follows the text of an explanatory press release issued by the Board of Governors of the Federal Reserve System 011 March 15, 1967, with regard to the revision of Regulation M and conforming amendments to Regulation K : The Board of Governors has adopted, effective March 15, 1967, a revi sion of its Regulation M. The principal purpose of the revision is to add to the Regulation two new sections covering the purchase by national banks of stock of foreign banks and loans to such banks by the national banks. Under applicable law, Regulation M generally applies also to State-char tered banks that are members of the Federal Reserve System. Prior to this revision, the Regulation covered only foreign branches of member banks. The two new sections of the Regulation added by the revision imple ment an amendment to section 25 of the Federal Reserve Act (12 U .S.C. 601-604a) that was approved Ju ly 1, 1966 (Public Law 89-485, section 1 2 (b )). Under the amended law, any national bank having a capital and surplus of $1 million or more, with the permission of the Board and pur suant to its regulations, may invest directly or indirectly in the stock of foreign banks and make loans or extensions of credit to such banks without regard to section 23A of the Federal Reserve Act (12 U .S.C. 371c), which places restrictions on loans by member banks to their affiliated organizations. One of the new sections of the revised Regulation (section 213.4) authorizes national banks that have obtained the permission of the Board to acquire the stock of foreign banks, but limits the total amount of these foreign bank investments to not more than 25 per cent of the capital and surplus of the investing U. S. bank taken together with its capital invest ments, if any, in so-called Edge and Agreement corporations operating pur suant to sections 25 and 2 5 (a) of the Federal Reserve Act (12 U.S.C. 611-631). The new Regulation does not require prior consent of the Board for U. S. banks to acquire or exercise stock rights in lieu of dividends which are declared on shares already held by the U. S. bank and which do not result in an increase in percentage ownership of the foreign bank. A conforming amendment to the Board’s Regulation K dealing with Edge and Agreement corporations has been made in this respect. (OVER) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) The other new section of the revised Regulation (section 213.5) author izes U. S. banks which have a direct or indirect stock investment in foreign banks to make loans or extensions of credit to such foreign banks without regard to the provisions of section 23A of the Federal Reserve Act. The provisions of Regulation K which restrict loans by Edge and Agreement corporations to their foreign affiliates has been deleted to conform that Regulation to Regulation M. The revision also amends Regulation M to increase to $50,000 from $20,000 the amount of credit which may be extended by a foreign branch of a U. S. bank to one of its executive officers for the purpose of acquiring or constructing living quarters for his use abroad. Stock acquisitions in and loans or extensions of credit to foreign banks made pursuant to the revised Regulation will be considered foreign invest ments for the purposes of the guidelines issued under the Voluntary For eign Credit Restraint Program presently in effect. The revision of Regulation M has been prepared in the light of comments received by the Board subsequent to publication of proposed revisions of the Regulation in the Federal Register of August 16, 1966, and January 25, 1967. In the January 25, 1967, proposed revision of the Regulation a provision was included that would have required a domestic bank, when requested by the Board, to cause a foreign bank controlled by it to make reports to the Board and to submit to examinations by examiners selected or auditors approved by the Board. The Board’s Regulation K has con tained a comparable provision for a number of years. Although use of the provision in Regulation K has never been necessary, it has come to the Board’s attention that such a provision might be regarded as having extraterritorial implications which were not intended. In order to avoid any misunderstanding on this point, the provision has been dropped from the revision of Regulation M and a conforming amendment to Regula tion K has been made. The Board expects that the foreign branches and affiliates of every member bank will conduct their affairs in accordance with the laws of the countries in which they carry on their activities. The Board further expects that member banks (and their foreign branches and affiliates) will conduct their activities, in the United States and abroad, on the basis of high stand ards of banking and financial prudence. Member banks are expected to make sufficient information available to the Board as will enable the Board to satisfy itself that those standards are being met. Copies of the revised Regulation and conforming amendments to Regulation K will be distributed to all member banks in about two weeks. In the meantime, those banks having an immediate need for the revised Regulation M andamendments to Regulation K should contact the Federal Reserve Bank of Dallas. Yours very truly, Watrous H. Irons President
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