Full text of Federal Reserve Bank of New York Circulars : 10758. International Banking Operations

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 10758
January 5, 1995

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INTER N A TIO N A L BA N K IN G OPERATIONS
Proposed A m endm ents to R egulation K
Comments Invited by February 13, 1995

To All Depository Institutions, U.S. Branches, Agencies, and
Representative Offices o f Foreign Banks, and Bank Holding Companies
in the Second Federal Reserve District, and Others Concerned:

The following statement has been issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has issued for public comment a proposed amendment to Regulation
K (International Banking Operations) to provide criteria for use in evaluating the operations of any
foreign bank in the United States that the Board has determined is not subject to comprehensive
supervision or regulation on a consolidated basis by its home country supervisor.
Comment is requested by February 13, 1995.
Section 202 (e) (7) of the Foreign Bank Supervision Enhancement Act requires the Board to develop
these criteria in consultation with the Treasury Department. The Board proposes to take these criteria
into account in reaching a view regarding whether a foreign bank that the Board has determined is not
subject to comprehensive, consolidated, home country supervision should be permitted to continue its
U.S. operations with or without supervisory constraints, or whether such U.S. operations should be
terminated.

Printed on the following pages is the text of the Board’s proposal, which has been published
in the Federal Register. Comments thereon should be submitted by February 13, 1995, and may
be sent to the Board of Governors, as specified in the notice, or to B. Gerard Dages, Manager,
International Surveillance and Review Department.




W illiam J. McD onough ,

President.

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Proposed Rules

Federal Register
Vol. 59, No. 238
Tuesday, December 13 1994

determined is not subject to such
supervision.
As provided in sections 7(e) (1) and
(5) of the IBA, as amended, a
determination by the Board that a
foreign bank is not subject to
comprehensive supervision or
regulation on a consolidated basis is a
sufficient ground, in and of itself, for the
FEDERAL RESERVE SYSTEM
Board to require or, in respect of federal
branches or agencies, to recommend,
12CFR Part 211
termination of the foreign bank’s U.S.
[Regulation K; Docket No. R-0862]
operations. 12 U.S.C. 3105(e)(1),(5).
Termination
of a foreign bank’s U.S.
International Banking Operations
SUPPLEMENTARY INFORMATION:
operations in these circumstances is not
mandatory, however. Instead, in
AGENCY: Board of Governors of the
The Statute
enacting section 7(e)(7) of the IBA,
Federal Reserve System.
Section 202(e)(7) of the FBSEA
Congress recognized that there may be
ACTION: Notice of proposed rulemaking.
amended section 7 of the International
factors in particular cases that militate
Banking Act of 1978 (IBA) by adding a
SUMMARY: The Board of Governors of the
against termination of a foreign bank’s
requirement
that
the
Board,
in
Federal Reserve System (Board or
operations. 12 U.S.C. 3105(e)(7).
consultation with the Treasury, develop U.S.
Federal Reserve) is seeking public
All aeterminations with regard to
and
publish
criteria
to
be
used
in
comment on a proposal to amend its
whether a foreign bank is subject to
regulations to include criteria to be used evaluating the operation of any foreign
comprehensive supervision or
bank in the United States that the Board regulation on a consolidated basis will
in evaluating the operations of any
has
determined
is
not
subject
to
be made in the context of the
foreign bank in the United States that
supervision and regulation of the
the Board has determined is not subject comprehensive supervision or
regulation on a consolidated basis. In
foreign bank’s existing U.S. operations.
to comprehensive supervision or
developing such criteria, the Board is
Just as is the case with other supervisory
regulation on a consolidated basis. The
required to allow reasonable
or regulatory determinations, a foreign
Board is required to develop such
opportunity for public review and
bank generally will have an opportunity
criteria, in consultation with the
comment. 12 U.S.C. 3105(e)(7). In order to provide its views and any
Secretary of the Treasury (Treasury),
information it considers to be relevant
and to publish them for public comment to implement this statutory provision,
the Board is issuing this notice of
in advance of any decision being made
pursuant to section 202(e)(7) of the
with regard to question of
Foreign Bank Supervision Enhancement proposed rulemaking pursuant to 12
CFR part 211 of its regulations
comprehensive, consolidated
Act (the FBSEA or Act).
governing
international banking
supervision, unless expeditious action
DATES: Comments must be received by
operations.
is necessary to protect the public
February 13, 1995.
The Congress in enacting the FBSEA
interest.
ADDRESSES: Comments should refer to
recognized the importance of the
The proposed criteria set out below
Docket No. R-0862 and may be mailed
comprehensive, consolidated
reflect the factors the Board considers
to William W Wiles, Secretary, Board of supervision of banks operating
will be relevant for purposes of
Governors of the Federal Reserve
internationally.The FBSEA
evaluating the operations of any foreign
System, 20th Street and Constitution
strengthened the role of U S. banking
bank the Board determines is not subject
Avenue, NW., Washington, DC 20551.
supervisors as the host country
to comprehensive supervision or
Comments also may be delivered to
supervisors of foreign banks operating
regulation on a consolidated basis by its
Room B—2222 of the Eccles Building
in this country The Act also recognized home country supervisors in accordance
between 8.45 a.m. and 5:15 p.m.
the importance of home country
with 12 CFR 211.24(c)(1).
weekdays, or to the guard station in the supervision in assuring the overall
Criteria
Eccles building courtyard on 20th
safety and soundness of foreign banks
Street, N.W (between Constitution
Following a determination by the
that conduct operations in the United
Avenue and C Street, N W.) at any time. States by requiring the Board:
Board that a foreign bank is not subject
Comments may be inspected in Room
1 To determine that a foreign bank is to comprehensive, consolidated
MP-500 of the Martin Building between subject to comprehensive supervision
supervision by its home country
9 00 a.m. and 5:00 p.m. weekdays,
supervisor in accordance with
on a consolidated basis by its home
except as provided in 12 CFR 261.8 of
country supervisor in order to establish § 211.24(c)(1) of Regulation K, the Board
the Board’s rules regarding availability
a new banking presence in this country; proposes to take into account a number
of information.
of criteria in reaching a view regarding
and
2.
To establish, in consultation with whether the foreign bank’s U S.
FOR FURTHER INFORMATION CONTACT:
operations should be terminated or
the Secretary of the Treasury, these
Kathleen M. O’Day, Associate General
permitted to continue, and, if the latter,
criteria in order to evaluate the
Counsel (202/452-3786), Sandra L.
whether any supervisory constraints
operation of any foreign bank in the
Richardson, Managing Senior Counsel
should be placed upon the bank in
United States that the Board has
202/452-6406), Margaret E. Miniter,
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.




Attorney (202/452-3900), Legal
Division; Michael G. Martinson,
Assistant Director (202/452-3640),
Betsy Roberts, Manager (202/452-3846),
Division of Banking Supervision and
Regulation. Board of Governors of the
Federal Reserve System. For the hearing
impaired only, Telecommunication
Device for the Deaf [TDD], Dorothea
Thompson (202/452-3544), Board of
Governors of the Federal Reserve
System, 20th and C Streets, NW ,
Washington, DC 20551.

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Federal Register / Vol. 59, No. 238 / Tuesday, December 13, 1994 / Proposed Rules

connection with those operations. These
criteria are:
1. The proportion of the foreign
bank’s total assets and total liabilities
that are located or booked in its home
country, as well as the distribution and
location of its assets and liabilities that
are located or booked elsewhere,
2. The extent to which the operations
and assets of the foreign bank and any
affiliates are subject to supervision by
its home country supervisor;
3
Whether the foreign bank has
effective and reliable systems of internal
controls and management information
and reporting, which enable
management properly to oversee the
bank’s worldwide operations;
4. W'hether the foreign bank’s home
country supervisor has any objection to
the bank continuing to operate in the
United States;
5. Whether the foreign bank’s home
country supervisor and the home
country supervisor of any parent of the
foreign bank share material information
regarding the operations of the foreign
bank with other supervisory authorities;
6. The relationship of the U S.
operations to the other operations of the
foreign bank, including whether the
foreign bank maintains funds in its U.S.
offices that are in excess of amounts due
from the foreign bank’s non-U S. offices;
7 The soundness of the foreign bank’s
overall financial condition^
8. The managerial resources of the
foreign bank, including the competence,
experience, and integrity of the officers
and directors and the integrity of its
principal shareholders;
9. The scope and frequency of
external audits of the foreign bank,
10. The operating record of the foreign
bank generally and its role in the
banking system in its home country;
11. The foreign bank’s record of
compliance with relevant laws, as well
as the adequacy of its money laundering
controls and procedures, in respect of
its worldwide operations,
12. The operating record of the U.S.
offices of the foreign bank and any
affiliates;
13. The views and recommendations
of the Office of the Comptroller of the
Currency (“OCC”) or the relevant state
banking regulator regarding the U S.
offices of the foreign bank,
14. Whether the foreign bank, if
requested, has provided the Board with
adequate assurances that such
information will be made available oh
the operations or activities of the foreign
bank and any of its affiliates as the
Board deems necessary to determine
and enforce compliance with the IBA,
the BHC Act, and other applicable
federal banking statutes, and




15.
Any other information relevant to manner by banks that are subject to a
significant degree of supervision by
the safety amd soundness of the U.S
their home country authorities. The
operations of the foreign bank.
These criteria address factors relating Board, therefore, considers it to be
both to the operations of the foreign
appropriate, in developing the proposed
bank as a whole and to its U.S.
criteria, to take into account the panoply
operations in particular. Evaluations of
of tools available to the Board and other
both of these facets of a foreign bank’s
banking regulators to regulate the
operations are necessary in order to
operations of foreign banks that are not
determine whether the bank’s U.S.
yet subject to full consolidated
operations should be permitted to
supervision, which fall short of the
continue and, if so, whether these
ultimate sanction of termination of their
operations should be subject to
U.S. operations.
supervisory constraints.
As required by the Act, the Board has
As subsection (e) of proposed § 211.30 consulted with the Treasury in the
of Regulation K provides, any foreign
development of the proposed criteria
bank that the Board determines is not
and the Treasury has agreed that the
subject to comprehensive, consolidated criteria may be published for comment.
supervision may be required to enter
Further consultation will take place
into an agreement to conduct its U.S.
with the Treasury following the analysis
operations subject to such restrictions as by both agencies of the comments
the Board, having taken into account the received The Board requests comment
criteria, determines to be appropriate in on all aspects of the proposed criteria.
order to assure the safety and soundness
Paperwork Reduction Act
of the bank’s U S. operations. Where
appropriate, such an agreement could
No collections of information
require a suitable degree of insulation
pursuant to section 3504(h) of the
between the foreign bank’s U.S.
Paperwork Reduction Act (44 U.S C.
operations and its operations (or those
3501 et seq.) are contained in the
of its affiliates) in other countries. For
proposed rule
example, one means of accomplishing
Regulatory Flexibility Act Analysis
this would be to require the bank to
conduct its U.S. banking operations in
Pursuant to section 605(b) of the
a “net due to*’ position vis-a-vis the rest Regulatory Flexibility Act (Pub L. 96of the organization. Other restraints also 354, 5 U S.C. 601 et seq ), the Board
could be imposed where appropriate
certifies that the proposed criteria
(e.g., restricting transactions with other
would not have a significant economic
parts of the organization or requiring
impact on a substantial number of small
that international transactions of the
entities that are subject to its regulation.
U.S. offices be conducted through a
correspondent acceptable to the Board). List of Subjects in 12 CFR Part 211
Prior to imposing such restrictions, the
Exports, Federal Reserve System,
Board will consult with the OCC or the
Foreign banking, Holding companies,
appropriate state banking authority.
Investments, Reporting and
If any requirements imposed in such
recordkeeping requirements.
an agreement were not adhered to, the
For the reasons set out in the
U.S. banking operations of the foreign
preamble, the Board proposes to amend
bank would be subject to further
12 CFR part 211 as set forth below
enforcement action, including issuance
of an order terminating the activities of
PART 211—INTERNATIONAL
the U.S. offices or transmittal of a
BANKING OPERATIONS
recommendation to the OCC for such
(REGULATION K)
termination, as appropriate in the
1 The authority citation for Part 211
circumstances.
is revised to read as follows.Request for Comment
Authority: 12 U S C. 221 et seq , 1818,
The Board believes that the proposed 1841 et seq , 1843 et seq , 3100 et seq , 3901
criteria will be sufficient to evaluate the et seq.
safety and soundness of the U S.
2 A new §211 30 is added to subpart
operations of a foreign bank, to
B to read as follows
determine whether its U.S. operations
should be permitted to continue in the
§ 211.30 Criteria for evaluating the U.S.
absence of comprehensive, consolidated operations of foreign banks not subject to
consolidated supervision.
supervision by the home country
authority, and, if so, on what basis. At
(a)
General Pursuant to the Foreign
the same time, the Board does not wish
Bank Supervision Enhancement Act,
to impact unduly the existing operations *Public Law 102-242, 105 Stat 2286
(1991), (the FBSEA) the Board shall
of foreign banks, the vast majority of
develop and publish criteria to be used
which are operated in a safe and sound

Federal Register / Vol. 59, No. 238 / Tuesday, December 13, 1994 / Proposed Rules
in evaluating the operations of any
foreign bank in the United States that
the Board has determined is not subject
to comprehensive supervision or
regulation on a consolidated basis.
(b)
Criteria. Following a
determination by the Board that a
foreign bank is not subject to
comprehensive, consolidated
supervision by its home country
supervisor in accordance with
§ 211.24(c)(1) of this subpart, the Board
shall consider the following criteria in
determining whether the foreign bank’s
U.S. operations should be permitted to
continue and, if so, whether any
supervisory constraints should be
placed upon the bank in connection
with those operations:
(1) The proportion of the foreign
bank’s total assets and total liabilities
that are located or booked in its home
country, as well as the distribution and
location of its assets and liabilities that
are located or booked elsewhere;
(2) The extent to which the operations
and assets of the foreign bank and any
affiliates are subject to supervision by
its home country supervisor;
(3) Whether the foreign bank has
effective and reliable systems of internal
controls and management information
and reporting, which enable
management properly to oversee the
bank’s worldwide operations;
(4) Whether the foreign bank’s home
country supervisor has any objection to
the bank continuing to operate in the
United States;
(5) Whether the foreign bank’s home
country supervisor and the home
country supervisor of any parent of the
foreign bank share material information
regarding the operations of the foreign
bank with other supervisory authorities;
(6) The relationsnip of the U.S.
operations to the other operations of the
foreign bank, including whether the
foreign bank maintains funds in its U.S.
offices that are in excess of amounts due
to its U.S. offices from the foreign bank’s
non-U.S. offices;
(7) The soundness of the foreign
bank’s overall financial condition;
(8) The managerial resources of the
foreign bank, including the competence,
experience, and integrity of the officers
and directors and the integrity of its
principle shareholders;
(9) The scope and frequency of
external audits of the foreign bank;
(10) The operating record of the
foreign bank generally and its role in the
banking system in its home country;
(11) The foreign bank’s record of
compliance with relevant laws, as well
as the adequacy of its money laundering
controls and procedures, in respect of
its worldwide operations;




(12) The operating record of the U S.
offices of the foreign bank;
(13) The views and recommendations
of the Office of the Comptroller of the
Currency or the relevant state banking
regulator regarding the U.S. offices of
the foreign bank;
(14) Whether the foreign bank, if
requested, has provided the Board with
adequate assurances that such
information will be made available on
the operations or activities of the foreign
bank and any of its affiliates as the
Board deems necessary to determine
and enforce compliance with the
International Banking Act, the Bank
Holding Company Act, and other
applicable federal banking statutes; and
(15) Any other information relevant to
the safety and soundness of the U.S.
operations of the foreign bank.
(c) Restrictions on U.S. operations—
(1) Terms of agreement. Any foreign
bank that the Board determines is not
subject to comprehensive supervision or
regulation on a consolidated basis by its
home country supervisor pursuant to
§ 211,24(c)(1) of this subpart, may be
required to enter into an agreement to
conduct its U S. operations subject to
such restrictions as the Board, having
considered the criteria set forth in
paragraph (b) of this section, determines
to be appropriate in order to assure the
safety and soundness of its U.S.
operations.
(2)
Failure to enter into or comply
with agreement A foreign bank that is
required by the Board to enter into an
agreement pursuant to paragraph (c)(1)
of this section and either fails to do so
or fails to comply with the terms of such
agreement may be subject to
enforcement action in order to assure
safe and sound banking operations
under 12 U.S C. 1818, or to termination
or a recommendation for termination of
its U.S. operations under § 211.25(a) and
(e) of this subpart and section (7)(e) of
the IBA (12 USC. 3105(e)).
By order of the Board of Governors of the
Federal Reserve System, December 7,1994.
William W. Wiles,

Secretary of the Board
[FR Doc. 94-30549 Filed 12-12-94: 8:45 ami
BILUNG CODE 6 210-01-P

64173