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FE D E RA L RESER VE BANK
OF NEW YORK
/"C ircular N o. 4 9 6 2 1
L N ovem ber IS, 1960 J
Reprints o f Regulations K and L
To A ll Banks, and Others Concerned,
in the Second Federal Reserve D istrict:
Enclosed are copies of Regulations K and L of the Board of
Governors of the Federal Reserve System.
Both regulations have
been reprinted to incorporate outstanding amendments and to conform
with the style of the Code of Federal Regulations.
Additional copies of either enclosure will be furnished upon
request.
A
lfred
H
ayes,
President.
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
CORPORATIONS DOING FOREIGN BANKING OR
OTHER FOREIGN FINANCING UNDER
THE FEDERAL RESERVE ACT
▼
REGULATION K
(1 2
CFR 2 1 1 )
As A m e n d e d t o N o v e m b e r 1 2 , 1 9 5 8
P rin t o f O c to b e r 1960
I
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed
to the Federal Reserve Bank of the district in which the inquiry
arises.
C O N T E N T S
( T h i s t e x t c o r r e s p o n d s t o t h e C o d e o f F e d e r a l R e g u l a t io n s ,
T i t l e 1 2 , C h a p t e r I I , P a r t 2 1 1 , c ite d a s 1 2
CFR
211)
S ec. 211.1. S cope and A pplication of T h is P art .......................................................
S ec. 211.2. D e fin itio n s
Page
1
........................................................................................................
1
(a) “ Corporation” ......................................................................................
( b ) “ Banking” .............................................................................................
1
1
(c) “ Banking Corporation” ....................................................................
1
(</) “ Financing Corporation” ................................................................
1
( e) “ Abroad”
...............................................................................................
1
.................................................................................................
1
( /) “ Goods”
(g ) “ Person” .................................................................................................
1
( h ) “ Affiliated”
2
..........................................................................................
(t) “ Capital and surplus” ................................................................ ....
2
S ec. 211 5 . O rganization , C orporate S tructure and O w n e r s h i p ......................
2
( a ) Articles of association and organization certificate...........
2
( b ) N am e
.....................................................................................................
2
(c) Authority to commence business.................................................
2
(</) Am endm ents to articles of association.....................................
3
(e) General requirements as to capital sto ck ...............................
( /) Citizenship of shareholders............................................................
3
3
S ec. 211.4. B a n k in g C orporations and F in a n c in g C orporations....................
4
S ec. 211.5. O perations A broad.............................................................................................
5
(o) General ...................................................................................................
( 6 ) Branches ...............................................................................................
5
5
S ec. 211.6. L im ited O perations in t h e U nited Sta t e s ..........................................
5
(a) General ...................................................................................................
5
( b ) Receipt of deposits in U .S . b y Banking C orp orations.. . .
6
(c) Extensions of credit in U .S. by Banking Corporations. . . .
((/) Other activities in U .S . by Banking Corporations.............
7
8
(e) Activities in U .S . by Financing Corporations........................
8
S ec. 211.7. A cceptances by B a n k in g C orporations................................................
10
(а ) General ...................................................................................................
10
(б ) M aturity ...............................................................................................
(c) Limitations ..........................................................................................
10
10
S ec . 211.8. I ssu e of O bligations by F in a n c in g C orporations ..........................
10
(а ) General ...................................................................................................
(б ) Secured obligations...........................................................................
10
11
(c) Unsecured obligations.......................................................................
(</) Information .........................................................................................
11
12
S ec. 211.9. I n v e s t m e n t s i n S tock of O ther C orporations.................................
13
( a ) General ...................................................................................................
( b ) B y Banking Corporations................................................................
13
14
(c ) B y Financing Corporations............................................................
14
( d ) Statutory lim itations........................................................................
14
Sec . 211.10. G eneral L im itatio n s and R estrictions ..............................................
15
( а) Liabilities of one borrower..............................................................
(б ) Aggregate liabilities of Corporation..........................................
15
16
(c) Relations of Financing Corporations with affiliated banks
16
(d ) Sale of securities with guaranty or endorsement...............
17
(c ) Reports ...................................................................................................
17
( /) Examinations ......................................................................................
( g ) Am endm ents ........................................................................................
17
17
S ec . 211.11. C orporations w it h A greements U nder S ection 25 of th e F edF ederal R eserve A c t ....................................................................................
A ppend ix -S tatutory
P rovisions ........................................................................................
17
18
REGULATION K
(12 C F R 211)
As am ended to N ovem b er 12, 1958
CORPORATIONS DOING FOREIGN BANKING OR
OTHER FOREIGN FINANCING UNDER
THE FEDERAL RESERVE ACT
S E C T IO N 211.1— S C O P E A N D A P P L IC A T IO N O F T H IS P A R T
This part is issued by the Board of Governors of the Federal Re
serve System (hereinafter called the “ Board of Governors” ) under
authority of the Federal Reserve Act. It applies to corporations organ
ized under section 25(a) of that act (U.S.C., title 12, secs. 611-631)*
for the purpose of engaging in international or foreign banking or other
international or foreign financial operations, and to the extent specified
in § 211.11, to corporations having an agreement or undertaking with
the Board of Governors under section 25 of the act (U.S.C., title 12,
secs. 601-604).*
S E C T IO N 211.2— D E F IN IT IO N S
For the purpose of this part, unless the context otherwise requires—
(a) “ Corporation” when spelled with a capital “ C ” means a cor
poration organized under section 25(a) of the Federal Reserve Act.
(b) “ Banking” means the business of receiving or paying out de
posits, or accepting drafts or bills of exchange.
(r) “ Banking Corporation” means a Corporation which is engaged
in banking.
{(I) “ Financing Corporation” means a Corporation which is not
engaged in banking except to the extent that it is required by 4,he Secre
tary of the Treasury to act as fiscal agent of the United States. A
Corporation in existence on July 1, 1955 is a Banking Corporation if it
was engaged in banking on that date, or a Financing Corporation if not
so engaged on that date.
(e) “ Abroad” means in one or more foreign countries or dependen
cies or insular possessions of the United States.
(/> “ Goods” includes wares, merchandise, commodities and any
other tangible personal property (other than money).
(g)
“ Person” includes any individual, and any corporation, partner
ship, association or other similar organization.
* P ertinent portions o f this section are printed in the A ppendix.
1
REGULATION K
2
Secs.
211.2-211.3
(h)
“ Affiliated” when used w ith respect to tw o persons m eans that,
d irectly or in d irectly, either one controls, is con trolled b y , or is under
com m on con trol w ith , th e other.
(»*) “ Capital and surplus” means (1 ) p a id in and unim paired ca p i
tal and ( 2 ) surplus.
S E C T IO N
2113— O R G A N IZ A T IO N , C O R P O R A T E
O W N E R S H IP
STRUCTURE
AND
(а ) Articles of association and organization certificate. — A n y
num ber o f natural persons, n ot less than five, desiring t o organize a
corp ora tion under section 2 5 (a ) o f the F ederal R eserve A c t shall (1 )
enter into articles o f association (see F orm F . R . 151,1 w hich is sug
gested as a sa tisfa ctory form o f articles o f a s s o c ia tio n ); ( 2 ) m ake an
organization certificate on F orm F. R . 152,1; and (3 ) forw ard the
articles o f association and the organ ization certificate to the B oard
o f G overn ors. T h e articles o f association shall sp e cify in general
term s the ob je cts fo r w h ich th e C orp ora tion is form ed, and m a y
contain an y oth er provisions n ot inconsistent w ith law w h ich the
C orp ora tion m a y see fit to a d o p t fo r the regulation o f its business and
the con d u ct o f its affairs. E ach person intending to p a rticip a te in
the organ ization o f the C orp ora tion shall sign the articles o f associa
tion and the organization certificate and shall a ck n ow ledge the execu
tion o f the latter b efore a ju d g e o f som e cou rt o f record or n ota ry
p u blic, w h o shall ce rtify thereto under the seal o f such cou rt or n otary.
( б ) Name.— T h e nam e o f the C orp ora tion is su b ject to the a p p rova l
o f the B oard o f G overn ors, and a p relim in ary a p p lica tion fo r th a t
ap p roval m a y be filed w ith the B oa rd o f G o v e rn o r on F orm F . R . 150.1
T h e nam e shall in no case resem ble th e nam e o f a n y oth er corp ora tion
to the extent that it m ight result in m isleading or d eceiv in g th e p u b lic
as to its id en tity, purpose, con nection s or affiliations. T h e nam e o f
an y C orpora tion hereafter organized shall so fa r as p ra ctica b le in di
cate the nature o f the business con tem plated, and shall include the
w ord “ in tern ation al” , “ fo re ig n ” , “ overseas” , o r som e sim ilar wrord.
N o F inancing C orp ora tion hereafter organized w ill be perm itted to
h ave the w ord “ b a n k ” or “ b a n k in g” , o r a n y sim ilar w ord , as part
o f its name.
(c )
Authority to commence business.— A fte r the articles o f asso
ciation and organization certificate h ave been filed w ith and ap p roved
b y , and a prelim in ary perm it to begin business has been issued b y , the
B oard o f G overn ors, the association shall becom e and be a b o d y
corp orate, but none o f its pow ers, excep t such as are incidental and
1 Filed as p a rt o f original docum ent.
System, W ashington 25, D . C.
Copies available upon request to Federal Reserve
S ec . 211.3
REGULATION K
3
prelim inary to its organization, shall be exercised until the B oa rd o f
G overn ors has issued to it a final perm it t o com m ence business. B efore
the B oard o f G overn ors w ill issue its final perm it t o com m ence busi
ness, the president, cashier or secretary, togeth er w ith at least three
o f th e'd irectors, m ust ce rtify ( 1 ) that each director is a citizen o f the
U nited S tates; (2 ) th a t a m a jo rity o f the shares o f capital stock is
held and ow ned b y citizens o f the U nited States, b y corporations the
con trollin g interest in w hich is ow ned b y citizens o f the U nited States,
chartered under the law s o f the U nited States or o f a State o f the
U nited States, or b y firms or com panies the con trollin g interest in
w hich is ow ned b y citizens o f the U nited S tates; and (3 ) th a t o f the
authorized capital stock specified in the articles o f association at
least 25 per cent has been paid in in cash and th a t each shareholder
has in divid u ally paid in in cash at least 25 per cent o f his stock
subscription. T h erea fter the cashier or secretary shall ce rtify to the
p aym en t o f the rem aining installm ents as and w hen each is paid in,
in accord an ce w ith law.
(d ) Amendments to articles of association.— T h e articles o f asso
ciation m ay con tain provisions relative to the procedure w hereby
am endm ents th ereof m a y be effected in a n y m anner n ot inconsistent
w ith section 2 5 (a ) o f the F ederal R eserve A ct, other ap p lica b le law,
and this part. N o am endm ent o f the articles o f association shall
becom e effective unless and until it shall h ave been ap p roved b y the
B oard o f G overnors.
(e) General requirements as to capital stock.— N o C orporation
m a y be organized under section 2 5 (a ) w ith cap ital stock o f less than
$2,000,000. T h e p ar valu e o f each share o f stock shall be specified in
the articles o f association, and no C orpora tion w ill b e perm itted to
issue stock o f n o par value. I f there is m ore than one class o f stock ,
the name and am ount o f each class and th e ob ligation s, rights, and
privileges attaching thereto shall b e set forth fu lly in the articles
o f association. E ach class o f stock shall be so nam ed, or so described
in the stock certificates b y w hich it is represented, as to indicate as
clearly as possible its character and a n y unusual attributes.
(/) Citizenship of shareholders.— (1) In order to insure com p li
ance at all tim es w ith the requirem ents o f section 2 5 (a ) o f the F ederal
R eserve A ct relating to the U nited States citizenship o f those who
hold, ow n, or con trol a m a jo rity o f the shares o f capital stock o f a
C orporation , such stock shall be issuable and tran sferable on ly on
the b ook s o f the C orporation , and no issue or transfer o f stock which
w ould cause a v iola tion o f such requirem ents o f law or o f related
provisions o f this p art shall be m ade upon the book s o f the C orp ora
tion. T h e board o f directors o f the C orporation , acting d irectly or
REGULATION K
4
S ecs . 211.3-211.4
through an agent, m a y , b efore m aking any issue or tran sfer o f stock ,
require such eviden ce as in their discretion th ey m a y th in k necessary
in order to deten n in e whether or not the issue or tran sfer o f the stock
w ou ld result in such a v iola tion . T h e decision o f the board o f directors
in each such case shall be final and con clu sive as to, and n ot su b ject
to question b y , a n y person.
(2) I f at any tim e a change in the status o f the h older o f a n y shares
o f a C orp ora tion causes a v iola tion o f the requirem ents o f section
2 5 (a ) o f the F ederal R eserve A c t relating t o the U nited States citi
zenship o f those w h o h old, ow n, or con trol a m a jo rity o f the shares
o f cap ital stock o f a C orpora tion , the board o f directors shall, when
apprised o f that fa ct, forthw ith serve on the h older o f the shares in
question a n otice in w riting requiring such holder w ithin tw o m onths
to transfer such shares to a person then eligible t o acquire such shares.
W hen such n otice has been given b y the board o f directors, the shares
o f stock so held shall cease to con fer a n y right to v ote or to p articipate
in dividen ds thereafter d ecla re d ; and the right t o v ote and to receive
dividen ds shall resume o n ly after, and o n ly w ith respect t o votes
cast and dividen ds declared after, the shares h ave been transferred
as required above.
I f on the expiration o f tw o m onths a fter such
n otice the shares shall n ot h ave been so transferred, the shares shall
p rom p tly be sold at p u b lic or p riv a te sale b y the C orpora tion , as agent
for and for the accou nt o f the ineligible holder, to a person then eligible
to acquire such shares. In the event such shares ca n n ot be sold fo r a
reasonable price and w ithin a reasonable tim e at such a p u b lic or
p riva te sale, the shares w ill, w ith the a p p rova l o f the B oard o f
G overn ors, be forfeited t o the C orporation .
(3) T he board o f directors shall prescribe in the b y -la w s o f the C o r
p oration appropriate rules fo r the registration o f the shares o f sto ck in
accord an ce with the term s o f the law and this part. T h e certificates
o f stock issued b y the C orpora tion shall contain p rovisions sufficient
to put the h older on n otice o f the term s o f the law and regulations
defining the lim itations upon the rights o f ownership and transfer.
S E C T IO N 211.4— B A N K IN G C O R P O R A T IO N S A N D
C O R P O R A T IO N S
F I N A N C IN G
A B anking C orpora tion (a ) shall not issue or have outstanding any
debentures, bonds, prom issory
notes or sim ilar ob ligation s
except
prom issory notes due within one y ea r eviden cin g borrow in g from banks
or bankers, and (b ) shall n ot engage in the business o f issuing, under
w riting, selling or distribu tin g securities, except to such lim ited extent
as the B oard o f G overn ors m a y, upon application o f the C orpora tion ,
exem pt activities o f the C o rp o ra tio n ’s branch or a g cn cy in a foreign
S e c s . 211.4, 211.5-211.6
REGULATION K
5
cou n try w ith respect to ob ligation s o f, or obliga tion s u n con dition ally
guaranteed as to principal and interest b y , the national governm ent
o f such cou ntry. A F inancing C orp ora tion shall n ot engage in banking
except to the extent that it is required b y the S ecretary o f the T reasu ry
to act as fiscal agent o f the U nited States. T h e B oard o f G overn ors
m ay grant perm ission, su b ject to such con ditions as it m a y prescribe,
for a B anking C orpora tion to change to a F inancing C orporation , or
for the reverse.
S E C T IO N 211.5— O P E R A T IO N S A B R O A D
(a ) General.— E xcept as otherw ise p rov id ed b y law or b y this
part, a C orporation m a y exercise abroad , through branches or agencies
established w ith the a p p rova l o f the B oa rd o f G overn ors or through
correspondents or oth er agents, n ot on ly th e pow ers sp ecifica lly set
forth in the law or b y this part and those incidental thereto, but also
such powers as m ay be usual in the determ ination o f the B oard o f
G overn ors in con nection w ith the tran saction o f banking in the case
o f a B ank ing C orpora tion , or other financial operations in the case of
a F inancing C orpora tion , in the place in w hich the C orp ora tion is
transacting business. A s indicated in § 2 1 1 .6 (e) ( 2 ) , the activities of
a F inancing C orp oration abroad are lim ited b y the requirem ent that it
shall not, b y its activities abroad , engage or particip ate, d irectly or
in directly, in certain activities in the U nited States.
(b ) Branches.— W ith the p rior a p p rova l o f the B oard o f G overn ors,
a C orporation m a y establish branches or agencies abroad.
S E C T IO N 211.6— L I M IT E D O P E R A T IO N S IN T H E U N IT E D S T A T E S
(a )
General.— A C orpora tion shall not carry on a n y part o f its
business in the U nited States except such as shall be incidental to its
international or foreign business. It m a y not engage in the United
States in the business o f acting as trustee, or in a like fiduciary ca p a c
ity, or act in the U nited States as registrar or in a n y sim ilar ca p a city
w ith respect to the servicing in the U nited States o f a n y security issue
distributed th erein ; but it m a y a ct as p a yin g agent in the U nited States
w ith respect to securities issued b y a “ foreign state” as defined in sec
tion 2 5 (b ) o f the F ederal R eserve A ct or b y a corporation chartered
b y such a foreign state and n ot qualified under the law s o f the United
States or any S tate fo r the D istrict o f C olu m b ia ) to d o business in the
U nited States. A C orpora tion m a y n ot establish a n y branch in the
U nited States, but w ith the p rior a p p rova l o f the B oard o f G overn ors
m ay establish agencies in the U nited States fo r specific purposes, but
not generally to ca rry on the business o f the C orporation . Funds o f a
REGULATION K
6
S ec . 211.6
C orpora tion n ot currently em p loyed in the international or foreign
business o f the C orp ora tion in accord an ce w ith oth er provisions o f this
part, if held or invested in the U nited States, shall be o n ly in the
form o f (1 ) cash, (2 ) deposits w ith banks, (3 ) ban kers’ acceptan ces or
prim e open m arket com m ercial paper, or (4 ) d irect ob liga tion s o f the
U nited States or oth er investm ent securities o f such kinds, and in such
am ounts, as the C orp ora tion cou ld purchase w ithin the lim itations of
section 5136 o f the R evised Statutes (U .S .C ., title 12, sec. 24) if it were
a m em ber bank o f the F ederal R eserve System . S u b je ct to th e other
p rovisions o f this part, succeeding paragraphs o f this section in d i
cate generally the kinds o f transactions b y a C orp ora tion w h ich m a y
be considered appropriate in the U nited States.
(b )
Receipt of deposits in United States by Banking Corpo
rations.— (1 ) A B ank ing C orp ora tion m a y receive o n ly such deposits
w ithin the U nited States as m a y be incidental to or fo r th e purpose o f
carryin g out transactions abroad. Such deposits m a y be either tim e or
dem and, and shall be su b ject to all the requirem ents o f P a rt 217 o f this
ch apter (R eg. Q ) (w hich relates to the p a ym en t o f interest on deposits
and related m atters) in the sam e m anner as if the C orp ora tion w ere a
m em ber bank o f the F ederal R eserve S y stem ; but n o such d ep osit shall
be a “ savings d e p o sit” as defined in said P art 217 o f this chapter. I f a
B ank ing C orpora tion receives deposits in the U nited States, it shall
m aintain reserves against such deposits in th e sam e m anner and
am ount (bu t in n o event less in the aggregate than 1 0 per cent o f such
d eposits) as if it were a m em ber ban k o f the F ederal R eserve System ,
and shall in like m anner subm it reports o f deposits and be su b ject to
all the requirem ents o f P art 204 o f this chapter (R eg. D ) (w hich re
lates to reserves o f m em ber b a n k s).
(2 )
A deposit received in the U nited States b y a B ank ing C o rp o ra
tion from a foreign dep ositor w ill ord in arily be considered incidental to
or for the purpose o f ca rryin g ou t tran sactions abroad p rovid ed the
d eposit is not to be used to m ake paym ents fo r expenses in the U nited
States o f a U nited States office or representative and in ad d ition the
d eposit (i) is to be used to m ake paym ents fo r transactions a b roa d , fo r
goods exported or im ported, fo r oth er d irect costs o f export or im port,
or fo r carryin g ou t transactions w ith the C orp ora tion under paragraph
( c ) , or id ) o f this section ; or (ii) is to be held fo r reserve or w orking
balance purposes, except that a B ank ing C orp ora tion shall n ot receive
funds to be held in the U nited States as tim e deposits so le ly fo r pur
poses o f safekeepin g or investm ent and unrelated to oth er international
or foreign business o f the dep ositor w ith the C orporation . A s used in
this paragraph “ foreign d ep o sito r” means a foreign governm ent, a per
S e c . 211.6
REGULATION K
7
son con d uctin g business p rin cip a lly at the p erson ’s offices or establish
m ent abroad , or a foreign national resident abroad.
(3 )
A dep osit received in the U nited States b y a B a n k in g C o rp o ra
tion from a dep ositor w ho is not a foreign dep ositor w ill ord in arily be
considered incidental to or fo r the purpose o f carryin g out transactions
abroad p rovided the d ep osit is n ot to be used to m ake paym ents fo r
expenses in the U nited States o f a U nited States office or representative
and in addition the d ep osit (i) is fo r transm ission to a p lace a b ro a d ; or
(ii) is to p rov id e collateral or p a ym en t fo r extensions o f credit b y the
C orp ora tion ; or (iii) represents proceeds o f collection s abroad w hich
arc\to be used to m ake paym ents fo r good s exported or im ported or fo r
othfcr direct costs o f export or im port, or p eriod ica lly transferred to the
d ep ositor’s accou n t a t another b a n k ; or (iv ) represents proceed s o f ex
tensions o f credit b y the C orp ora tion w h ich are to be used fo r the pur
poses o f the credit extension or to be p erio d ica lly transferred to the
d ep ositor’s accou n t a t another bank.
(c )
Extensions of credit in United States by Banking Corpo
rations.— It w ill ord in a rily be considered incidental to the inter
national or foreign business o f a B ank ing C orp ora tion fo r it to engage
in any o f the follow in g transactions in the U nited States w ith respect
t o extensions o f cred it:
(1) A s prin cipal or as agent fo r another ban k, issue, confirm , or a d
vise letters o f credit or other authorizing instrum ent (o r receive and
forw ard to another b a n k application s th erefor) w hich con tem plate the
draw ing o f “ q u a lify in g d r a fts ” . A s used in this paragraph “ q u a lifyin g
d ra fts” means d rafts or bills o f exchange draw n, or w ritten receipts
given, to cov er specific good s in the process o f bein g (i) exported from
or im ported in to the U nited States, (ii) tem p ora rily stored in the
U nited States as p art o f such an exportation or im portation , (iii) stored
abroad , or (iv ) shipped w ithin or betw een places abroad , or to cov er
(v ) p erform an ce o f sp ecific contracts at p laces abroad or o f specific
international or foreign transactions, (v i) cost o f operating ships in
international or foreign tran sportation , or (v ii) p aym en ts in connection
w ith international or foreign transfers o f royalties, cop yrigh ts or patent
rights or w ith the rendering o f services at, or n ecessary fo r carrying
out p rojects at, p laces abroad.
(2 ) A s principal or as agent fo r another ban k , accep t, negotiate, pre
sent, discount, purchase, or p a y “ q u a lify in g d ra fts” , if the C orpora tion
or a ban k at a place abroad issued, confirm ed or advised the au th oriz
ing letter o f credit or other authorizing instrum ent or if the office o f
the C orp oration is nam ed in the authorizing instrum ent as the p lace o f
p aym en t or an op tion a l p la ce o f p a ym en t thereof.
(3 ) A cce p t d ra fts or bills o f exchange w hich are draw n b y a bank or
REGULATION K
8
S ec . 211.6
banker loca ted in a p lace abroad fo r the purpose o f furnishing d olla r
exchange as required b y the usages o f trad e in such place.
(4 ) Purchase, discou n t, or lend on, d ocu m en ta ry or oth er drafts
w h ich the C orp ora tion is to send t o a p la ce a broad fo r collection .
(5 ) M a k e advances to , or acquire the ob ligation s o f, foreign g overn
ments ; or, if the advances or acquisitions are fo r the purpose o f fin a n c
ing activities a broad or p a y m en t fo r good s exported or im p orted or
other d irect costs o f export or im port (b u t n ot expenses in the U nited
States o f a U nited States office or rep resen ta tive), m ake a dvan ces to ,
or acquire the ob ligation s o f, a person con d u ctin g business p rin cip a lly
at the person ’s offices or establishm ents abroad or a foreign national
resident abroad.
( 6 ) F inance b y loan, a ccep tan ce, or otherw ise:
(i) T h e shipm ent (bu t n ot p rod u ction ) o f sp ecific good s w hich
are being exported, or being accum ulated fo r export as p art o f an
existing export financing arrangem ent o f the C o rp o ra tio n ; or
(ii) T h e storage o f specific good s abroad or the shipm ent o f
specific good s betw een places a b ro a d ; or
(iii) T h e im portation o f specific good s into th e U nited States,
w hich m a y include lending against the shipping docum ents p en d
ing arrival o f the goods from a p la ce a b ro a d ; or
(iv ) In the case o f specific good s w hose im portation in to the
U nited States w as financed b y the C orpora tion , the d eliv ery o f the
good s to the purchaser through dom estic transport fa cilities or the
assem bly or pack agin g o f the good s fo r resale w ith ou t essential
change in the nature o f the product.
(d) Other activities in United States by Banking Corpora
tions.— It w ill ord in arily be considered incidental to the international
or foreign business o f a B ank ing C orpora tion fo r it to engage in a n y o f
the follow in g oth er activities in the U nited States:
(1 ) B u y and sell sp ot and future foreign exchange.
(2 ) R eceive checks, drafts, bills o f exchange, acceptan ces, notes,
bonds, cou pons and other securities fo r collection abroad , and collect
such instrum ents in the U nited States when received from custom ers
abroad.
(3 ) H old securities in safekeeping for, o r b u y and sell securities
upon the order and fo r the accou nt and risk o f, custom ers a broad with
w hom oth er relationships perm itted b y this part arc m aintained.
(e) Activties in United States by Financing Corporations.—
(1 ) It w ill ord in arily be considered incidental to the international or
foreign business o f a F in an cin g C orpora tion fo r it to engage in a n y o f
the follow in g transactions in the U nited States:
S ec . 211.6
REGULATION K
9
(i) F inance its ow n authorized activities (e.g., borrow m on ey or
issue its ow n securities) or hold or invest, in accord an ce w ith
paragraph (a ) o f this section, funds n ot cu rren tly em ployed in
the international or foreign business o f the C orporation .
(ii) A cqu ire ob ligation s (b y purchasing, discounting, or lending
thereon) which cov er the export o f specific good s (including d i
rectly related services and oth er d irect costs o f the export, but not
expenses in the U nited States o f a U nited States office or repre
sen ta tiv e), h ave as a p rim ary ob lig or a foreign governm ent or a
person con d uctin g business p rin cip a lly at th e p erson ’s offices or
establishm ents abroad , and are acqu ired b y the C orpora tion as
part o f such export transaction.
(iii) M a k e advances to, or acquire (b y purchasing, discounting,
or lending thereon) the obligations o f, foreign governm ents; or, if
the advances or acquisitions are fo r the purpose o f financing a ctiv i
ties abroad or p a ym en t fo r goods exported (inclu din g d irectly re
lated services and oth er d irect costs o f the export, but n ot expenses
in the U nited States o f a U nited States office or rep resen tative),
m ake advances to, or acquire (b y purchasing, discounting, or lend
ing thereon) the ob ligation s o f, a person con d uctin g business prin
cip a lly a t the person ’s offices or establishm ents abroad.
(iv ) Issue sight letters o f credit undertaking to extend credit
authorized under oth er provisions o f this paragraph, but in no
event con tem platin g the a ccep tin g o f any drafts.
(v ) G uarantee advances w hich the C orpora tion is authorized
to m ake, or ob ligation s it is authorized to acquire, under other
provisions o f this paragraph.
(v i) E xtend credit, b y means o f advances, guarantees or oth er
wise, to a corp ora tion in w hich the F in an cin g C orpora tion ow ns all
the v otin g stock , or all except d irectors’ q u a lify in g shares, to en
able such subsidiary to extend credit w hich the F in an cin g C o rp o
ration is itself authorized to extend under other provisions o f this
paragraph.
(2 )
A F inancing C orpora tion , in issuing, underw riting, selling or d is
tributing securities abroad , shall n ot engage or p articipate in the under
writing, sale or distribution o f securities in the U nited States (except
the issuance o f its ow n secu rities), and m a y not so engage or p a rtici
pate d irectly or in d irectly or through an agen cy or on a com m ission or
consignm ent basis or in a n y other manner. I f a security issue is being
sold or distributed p a rtly in and p a rtly outside the U nited States, a
F inancing C orp oration m a y not underw rite, even on a stan d by basis,
that portion being sold or distributed in the U nited States (n o m atter
b y w hom it is being so sold or d istrib u ted ).
REGULATION K
10
S ecs . 211.7-211.8
S E C T IO N 211.7— A C C E P T A N C E S B Y B A N K IN G C O R P O R A T IO N S
(а )
General.— In
a ccep tin g drafts or b ills o f exchange as perm itted
in § § 2 1 1 .5 and 211.6, a B a n k in g C orp ora tion shall c o m p ly w ith the
requirem ents set forth in the su cceedin g paragraphs o f this section.
(б )
Maturity.— N o
B ank ing C orp ora tion shall accep t a n y d ra ft or
bill o f exchange draw n fo r the purpose o f furnishing d o lla r exchange
having at the date o f its a ccep ta n ce m ore than three m onths to run, or
accep t a n y oth er d ra ft or bill o f exchange having at the date o f its
accep ta n ce m ore than six m onths to run, exclusive in either case of
d ay s o f grace.
(c )
Limitations.— N o a cceptan ces shall be m ade fo r th e a ccou n t
o f an y one person in an am ount aggregating at any tim e in excess o f 10
per cent o f the cap ital and surplus o f the C orpora tion , unless th e trans
action is fu lly secured or unless it represents an exportation or im p or
tation o f good s and there is a p rim a ry o b lig a tion to reim burse th e C o r
p oration w hich is also guaranteed b y a ban k or banker. W h en ev er the
aggregate o f acceptan ces outstanding at a n y tim e exceeds the am ount
o f the C orp ora tio n ’s cap ital and surplus, 50 per cent o f a ll the a cce p t
ances in excess o f such am ount up to tw ice the am ount o f the capital
and surplus, and all the a cceptan ces outstanding in excess o f such d o u
ble am ount, ( 1 ) shall be fu lly secured, or ( 2 ) shall represent ex p orta
tion or im portation o f good s and shall have a p rim ary ob liga tion t o re
im burse the C orp ora tion w hich is also guaranteed b y a ban k or banker.
In accepting d ra fts drawn fo r the purpose o f furnishing d olla r exchange,
a B anking C orp ora tion shall be su b ject to all the lim itations and re
quirem ents o f P a rt 203 o f this ch apter (R e g . C ) (w hich relates to a c
ceptances b y m em ber banks o f drafts and bills o f exchange) th a t w ould
a p p ly if it were a m em ber ban k o f the Federal R eserve System .
S E C T IO N 211.8— ISSUE O F O B L IG A T IO N S B Y F IN A N C I N G
C O R P O R A T IO N S
(a )
General.—A F in an cin g C orpora tion is not required t o obtain
the ap p rova l o f the B oard o f G overn ors b efore issuing a n y o f its d e
bentures, bonds, p rom issory notes or oth er such obligation s, but, as
specified in § 2 1 1 . 1 0 ( 6 ) , it shall in no event h ave liabilities outstanding
at a n y tim e exceeding ten tim es its cap ital and surplus. E v e ry F in a n c
ing C orp oration shall ca rry on its business in accord a n ce w ith sound
financial policies, including am on g oth er considerations, a prop er regard
to the relationship betw een its assets and the m aturities o f its ob lig a
tions, so as to give reasonable asurance that the C orp ora tion w ill be in
a position to p a y its ob ligation s as th ey m ature. F urther requirem ents
are set forth in paragraphs ( 6 ) , (c ) and ( d ) o f this section w ith respect
Sec.
211.8
REGULATION K
11
to secured obligations, unsecured obligations, and information to be
made available.
(6)
Secured obligations.— All secured obligations issued by a
Financing Corporation (except promissory notes due within one year
evidencing borrowing from banks or bankers) shall be secured by col
lateral which, unless placed under the control of the person or persons
owning all the obligations secured thereby, shall be transferred and
delivered, free o f any prior lien, charge, or encumbrance thereon, to a
member bank of the Federal Reserve System as the trustee under a
trust indenture executed by the Financing Corporation as security for
the obligations of the Corporation issued or to be issued thereunder,
which trust indenture shall prescribe the general form of such obliga
tions and shall require that every such obligation shall be authenti
cated by the certificate of the trustee noted thereon.
(c)
Unsecured obligations.— In the event a Financing Corporation
issues or has outstanding any unsecured obligations (except promissory
notes due within one year evidencing borrowing from banks or bank
ers), the Corporation shall com ply with the following requirements:
(1) While any such unsecured obligations are outstanding, loans or
other credits held by the Corporation, or outstanding with its guar
antee, shall not have a maturity of more than ten years.
(2) All unsecured obligations issued by the Corporation (except
promissory notes due within one year evidencing borrowing from banks
or bankers) shall contain a provision, or shall be issued under an agree
ment, which shall provide that the Corporation will not, during the
time any such obligations remain outstanding:
(i) Issue any obligations, regardless of maturity or payee (ex
cept in renewal or retirement of an equivalent amount of indebt
edness), if immediately thereafter the fair value of the assets of
the Corporation, excluding notes, drafts, bills of exchange and
other evidences of indebtedness that are in default as to either
principal or interest for a period in excess of six months, would be
less than 110 per cent of the aggregate principal amount of all
borrowings of the Corporation:
(ii) M ortgage, pledge or otherwise subject any of its assets to
any lien or charge to secure any indebtedness for borrowed money
or to secure any other obligations of the Corporation, unless each
person holding any of the Corporation’s unsecured obligations
(other than obligations specifically subordinated to all other debt
of the C orporation), which would remain outstanding after such
transaction, either grants his consent or is provided with security
substantially equivalent in value (in proportion to obligations
held) to that provided by such mortgage, pledge, lien or charge;
12
REGULATION K
S ec . 211.8
(iii) Sell, lease, assign or otherwise dispose o f all or substan
tia lly all its assets; or
(iv ) D ecla re or p a y an y dividen d (other than a dividen d p a y
able in stock o f the C orp ora tion ) or authorize o r m ake a n y other
d istribution (except u pon redem ption o f preferred stock , including
p aym ents m ade fo r this purpose into a preferred sto ck sinking
fund, in accord a n ce w ith law and the articles o f association o f the
C orp ora tion ) on a n y sto ck o f the C orpora tion otherwise than out
o f the earned surplus o f th e C orp ora tion as determ ined in a cco rd
ance w ith gen erally a ccep ted a ccou n tin g principles.
(d )
I n fo r m a t io n .— N o prospectus, circular, letter, advertisem ent,
or oth er statem ent published or issued in a n y form or m anner b y a
F in an cin g C orpora tion , or b y persons underw riting, selling, or d is
tributing an issue o f obliga tion s b y the C orpora tion , shall con tain an y
m atter to indicate th a t an y ob ligation s issued b y such C orp ora tion or
the collateral securing sam e has in a n y w a y received the a p p rov a l o f
the B oard o f G overn ors or a n y other a g en cy o f the U nited States or
that the collateral securing sam e has been appraised or ap p rov ed in
a n y w a y b y the B oard o f G overn ors or a n y other a g en cy o f the U nited
States. T here shall be set forth on the outside fron t co v e r page of
every prospectus the follow in g statem ent in capital letters printed in
b o ld -fa ce rom an ty p e at least as large as ten -p oin t m odern ty p e and at
least tw o points le a d e d :
T hese securities have not been ap p roved or disap p roved b y
the B oard o f G overn ors o f the Federal R eserve System or a n y
other agen cy o f the U nited States nor has the B oa rd or any
other agen cy o f the U nited States passed upon the a ccu ra cy
or ad eq u a cy o f this prospectus. T hese securities are the o b li
gation solely o f (N a m e o f F inancing C o rp o ra tio n ), and no
oth er individual, organ ization, or group has an y d irect or
indirect responsibility fo r their paym ent.
W ith in forty days a fter issuing a n y ob ligation s (except prom issory
notes due w ithin one y ea r evidencing borrow in g from banks or b a n k
e rs ), a F inancing C orp ora tion shall file w ith the B oa rd o f G overn ors
copies o f all prospectuses and oth er literature describing or affecting
such issue published b y the C orp ora tion or its officers or b y persons
underw riting, selling or distributing the issue, and shall also file with
the B oard o f G overn ors the in form ation described in subparagraphs (1 )
through (4 ) o f this paragraph to the extent, if a n y, that such in form a
tion is n ot contained in such prospectuses. T h e in form ation described
in subparagraphs (1 ) through (4 ) o f this paragraph is as fo llo w s:
(1 )
T h e am ount o f the funded debt outstanding and to be created b y
the ob ligation s offered, including the net price received and to be
S ec . 211.8-211.9
REGULATION K
13
received b y the C orpora tion fo r such obligation s, w ith a b rief descrip
tion o f the date, m aturity, and ch aracter o f such d eb t, rate o f interest,
ch aracter o f am ortization provisions, and the collateral, if any, p ro
vided or to be p rovided th erefor, and a sum m arized statem ent o f the
con ditions, if an y , under w hich substitution o f collateral is perm itted,
and if substitution is perm issible w ith ou t n otice, a sp ecific statem ent
to th a t effect.
(2 ) A balance sheet show ing all assets and liabilities, including c o n
tingent liabilities, o f the C orpora tion w ith supporting schedules in the
form prescribed b y the B oard o f G overn ors fo r reports o f condition
(F o n n F .R . 3 1 4 )- and an analysis o f surplus show ing how and from
w hat sources such surplus was created, all as o f the close o f business on
the date o f issuance o f the obligation s, and giving effect thereto.
(3 ) A co p y o f a n y underlying agreem ents or indentures affectin g the
obligations.
(4 ) A cop y o f the op in ion or opinions o f counsel as to the legality o f
the issue, the v a lid ity o f a n y indenture, and the sufficiency o f any
transfers o f collateral executed under an y indenture.
S E C T IO N 211.9— IN V E S T M E N T S IN S T O C K O F O T H E R C O R P O R A T IO N S
(a )
G e n e ra l.— W ith the p rior consent o f the B oa rd o f G overn ors
and su b ject to the provisions o f section 2 5 (a ) o f the F ederal R eserve
A ct, and this part, a C orp ora tion m a y purchase and hold stock in
other corporations. T h e succeeding paragraphs o f this section in di
cate the circum stances in w hich such consent m a y be granted upon
individual ap p lication , those in w hich such consent is ord in arily not
granted, and those in w hich general consent m a y be granted u pon a p p li
cation as to ty p es o f situations. A n y consent granted b y the B oard
m ay be con d ition al, and the con ditions prescribed m a y a p p ly to a ctiv i
ties o f the C orp oration and also to activities o f the corp ora tion in which
stock is purchased or held. A C orp ora tion m a y purchase and hold
stock where such purchase is necessary to prevent a loss upon a debt
previou sly con tracted in good fa ith ; but stock so acquired shall be
disposed o f w ithin six m onths from the date o f acqu isition unless such
tim e is extended b y the B oard o f G overn ors. I f a C orpora tion makes
a perm issible purchase o f stock , but a later change in circum stances or
in this part causes the holding o f the stock to be no longer perm issible,
the C orpora tion shall dispose o f the stock , or the n on con form ity with
this part shall otherw ise be corrected, as p rom p tly as pra ctica b le and
in any event within six m onths unless such tim e is extended b y the
B oard o f G overnors. A s used in this section, the term “ s to c k ” includes
all certificates o f ownership.
2 See S 262.5 o f this chapter. I The B oard's Rules o f Procedure.
REGULATION K
14
S ec . 211.9
(6 )
By Banking Corporations.— C onsen t o f the B oa rd o f G o v e r
nors fo r a B ank ing C orp ora tion t o purchase and hold stock in other
corp orations w ill n ot be granted except u pon in d ivid u al ap p lica tion
setting forth the relevant facts and circum stances. T h e B oard o f G o v
ernors ord in arily w ill n ot grant consent fo r a B a n k in g C orp ora tion to
purchase and hold stock in a corp ora tion n ot engaged in ban k in g or
closely related activities.
(c ) By Financing Corporations.— S u b ject to a p p lica b le require
m ents o f law and o f this p art and u pon ap p lica tion setting forth
the proposed program o f the F in a n cin g C orpora tion , the B o a rd o f
G overn ors m a y grant its general consent fo r a F in an cin g C orp ora tion
to purchase and hold stock , up t o such am ounts and in such circu m
stances as the B oa rd m a y prescribe, in generally designated ty p e s o f
corp orations which are n ot engaged in banking and also are neither
in corporated, nor qualified to d o business in th e U nited States, under
the law s o f the U nited States or a n y State (o r the D istrict o f C o lu m
b ia ), p rovided such stock is purchased from a foreign seller b y n eg oti
ations in w hich no U nited States office or establishm ent o f the seller
participates, and p rov id ed further that such purchase or h olding does
not cause the F in an cin g C orp ora tion to be affiliated w ith a n y person
engaged in banking or w ith an y person the stock o f w hich the C o r p o
ration w ould be forb id den to purchase or hold under paragraph (d )
o f this section. In a n y other instance consent o f the B oard o f G o v e r
nors for a F inancing C orp ora tion t o purchase and hold stock w ill not
be granted, except in special cases u pon individual app lication setting
forth the relevant fa cts and circum stances. T h e B oard o f G overn ors
ord in arily w ill not grant consent fo r a F in an cin g C orp ora tion t o pur
chase and hold stock in a corp ora tion engaged in banking.
(d ) Statutory limitations.— U n der section 2 5 (a )
o f the F ederal
R eserve A ct, the follow in g lim itations a p p ly to the purchase or h olding
o f stock b y a C o rp ora tion :
(1 ) T h e corp ora tion w hose stock is purchased or held (i) shall be
organized under section 2 5 (a ) o f the F ederal R eserve A ct, th e law s o f
an y foreign cou ntry or a co lo n y or d ep en d en cy th ereof, or the law s o f
an y State, d ep enden cy, or insular possession o f the U nited S tates; and
(ii) shall n ot be engaged in the general business o f b u yin g or selling
good s in the U nited S tates; and (iii) shall n ot be tran sacting a n y busi
ness in the U nited States except such as in the ju d gm en t o f the B o a rd o f
G overn ors m a y be incidental to its international or foreign business.
(2 ) E xcept w ith the p rior a p p rova l o f the B oard o f G overn ors in
addition to an y consent o f the B oard o f G overn ors otherw ise required,
a C orporation shall not invest an am ount in excess o f 15 per cent o f its
cap ital and surplus in the stock o f an y one corp ora tion engaged in the
S ecs . 211.9-211.10
REGULATION K
15
business o f banking, or an am ount in excess o f 1 0 per cent o f its capital
and surplus in the stock o f a n y other kin d o f corporation.
(3)
A C orporation shall not purchase, ow n , or hold any stock in an y
oth er corp ora tion organized under section 2 5 (a ) o f the Federal R eserve
A ct or under the laws o f a n y State, w hich is in substantial com petition
therewith, or w hich holds stock in corporations w hich are in substantial
com p etition w ith the purchasing C orporation .
S E C T IO N 211.10— G E N E R A L L IM IT A T IO N S A N D R E S T R IC T IO N S
(a )
Liabilities of one borrower.— T h e to ta l liabilities to a C o r
p oration o f a n y person or governm ent fo r m on ey borrow ed shall a t no
tim e exceed in the case o f a B ank ing C orp ora tion 10 per cent o f its
capital and surplus, or in the case o f a F in an cin g C orpora tion 50 per
cent thereof. F or the purposes o f this paragraph, the cost to a C o rp o ra
tion o f an y stock ow ned b y it shall, unless otherw ise specified b y the
B oard o f G overn ors in a particu lar case, be treated as if it were a lia b il
ity o f the issuer o f the stock fo r m on ey borrow ed ; all bonds, notes or
oth er such obligation s, whether or n ot purchased in the open m arket,
shall be treated as such a lia b ility ; the liabilities o f a partnership or
firm shall include those o f the several m em bers th e r e o f; the liabilities
o f a corp ora tion shall include all liabilities incurred b y a n y subsidiary
o f the corporation for the benefit o f the co r p o r a tio n ; and the liabilities
o f a foreign governm ent shall include those o f all its departm ents or
agencies w hich derive their current funds p rin cip a lly from the general
tax revenues o f the foreign governm ent. T h e lim itations con tain ed in
this paragraph shall n ot a p p ly ( 1 ) to ob ligation s in the form o f drafts
or bills o f exchange draw n in good faith against a ctu a lly existing
v a lu es; ( 2 ) to obliga tion s arising out o f the d iscou n t o f com m ercial or
business p ap er a ctu a lly ow ned b y the person negotiating the sa m e; (3 )
to the lia bility o f a custom er on a ccou n t o f an acceptan ce m ade b y the
C orpora tion for his a ccou n t unless the C orp ora tion itself holds the a c
ceptan ce or the a ccep ta n ce has m atured and the custom er has failed to
place the C orp oration in funds to cov er p aym en t o f the accep tan ces;
(4) to the exent that liabilities are d irect obliga tion s o f the United
States or are secured or covered b y u ncon dition al guarantees, com m it
ments, or agreem ents to take ov er or to purchase, m ade b y the United
States or b y an y departm ent or establishm ent o f, or corporation w h olly
ow ned b y , the U nited States or b y the In tern ational B a n k fo r R e co n
struction and D evelop m en t or the In tern ational F in an ce C o rp o ra tio n ;
(5 ) to a direct ob liga tion o f, or ob liga tion u n con d ition a lly guaranteed
b y , a foreign governm ent or its appropriate financial or central banking
au th ority, and w ith respect to w hich an institution described in subparagraph (4 ) o f this paragraph has given an u ncon dition al guarantee,
REGULATION K
16
S ec . 211.10
com m itm en t or agreem ent t o tak e o v e r or to purchase (o r has accepted
a p articip ation ) w hich covers on ly a p ortion o f the ob liga tion (o r a p o r
tion o f the total credit, in th e case o f a p a rticip a tio n ), but covers it to
the extent o f a t least 25 per cent and in such m anner th a t a n y d efau lt
to the C orp ora tion w ill necessarily include a d efa u lt t o the g overn
m ental a g en cy (a n y such partial but con cu rrent guarantee, com m it
m ent, agreem ent or p articip ation b y such an institution bein g herein
a fter called a “ prop ortion ate governm ental guarantee” ) ; ( 6 ) in the
case o f a F in an cin g C orpora tion , to a n y ob liga tion w hich is su b je ct to
a “ prop ortion ate governm ental guarantee” and does n ot exceed 1 00 per
cent o f the C o rp o ra tio n ’s cap ital and surplus; (7 ) t o d irect ob ligation s
o f the national governm ent o f a foreign cou ntry in w hich the C o rp o ra
tion has a branch or agen cy, or ob ligation s fu lly and u n con d ition a lly
guaranteed as to p rin cipal and interest b y such governm ent, p rovid ed
such branch or agen cy has outstanding equal or greater liabilities p a y
able in the sam e cu rren cy; or ( 8 ) to such oth er classes o f transactions
at a branch or agen cy o f a C orp ora tion in a foreign cou n try as the
B oa rd o f G overn ors m a y, upon ap p lica tion o f the C orpora tion , exclude
from the lim itations o f this paragraph due to special circum stances
surrounding such tran sactions in such country.
(6 )
Aggregate liabilities of Corporation.— E x ce p t w ith the p rior
perm ission o f the B oa rd o f G overn ors, the aggregate outstanding lia b il
ities o f (1 ) a B a n k in g C orp ora tion on a ccou n t o f acceptan ces, m on th ly
average dom estic and foreign deposits, borrow ings, guaranties, endorse
ments and an y other such obligation s, or (2 ) a F in an cin g C orp ora tion
on accou n t o f debentures, bonds, notes, guaranties, endorsem ents and
an y oth er such obligation s, shall n ot exceed ten tim es the a m ou n t o f
the C o rp o ra tio n ’s capital and surplus. In determ ining th e am ount o f
the liabilities w ithin the m eaning o f this paragraph, endorsem ents o f
bills o f exchange h avin g n ot m ore than six m onths to run, draw n and
accep ted b y others, shall n ot be included.
(c )
Relations of Financing Corporations with affiliated banks.—
W h en ever a F in an cin g C orp ora tion is affiliated w ith a b a n k in the
U nited States, such C orpora tion shall n ot incur any lia b ility to such
ban k th at w ou ld cause the total liabilities o f such C orp ora tion t o such
ban k to exceed 10 per cent o f the cap ital and surplus o f such ban k, or
cause the tota l liabilities to such ban k o f all F in an cin g C orporation s
affiliated w ith such b a n k t o exceed 2 0 per cent o f such ca p ita l and sur
plus.
F or the purposes o f this p aragraph, a F in an cin g C orpora tion
incurs a lia b ility to a ban k w henever such ban k or a n y organization
affiliated with such ban k (oth er than such F in an cin g C orp ora tion or
a n y organization con trolled b y it) m akes (i) a n y investm ent in, or
ad va n ce on the collateral secu rity o f, cap ital stock or ob liga tion s o f
S ecs . 211.10-211.11
REGULATION K
17
such C orp oration or a n y organ ization con trolled b y it, or (ii) an y loan
or extension o f credit to , or a n y purchase under repurchase agreement
from , such C orp oration or an y organ ization con trolled b y it.
(d ) Sale of securities with guaranty or endorsement.— W h en
ever a C orp oration sells, discounts, or negotiates w ith its endorsem ent
or guaranty an y securities, notes, drafts, b ills o f exchange, acceptances,
ban kers’ acceptances, or other eviden ce o f indebtedness, it shall enter
on its book s a prop er record th ereof, describing in detail each such e v i
dence o f indebtedness so sold, discounted, or n egotiated, the am ounts
th ereof, the parties thereto, the m a tu rity th ereof, and the nature o f the
C orp ora tion ’s lia b ility thereon. E v e ry financial statem ent o f the C o r
poration subm itted t o the B oard o f G overn ors or m ade p u blic in any
w a y shall show the aggregate am ount o f all such liabilities outstanding
as o f the date on w hich such statem ent purports t o show the financial
con dition o f the C orporation .
(e ) Reports.— E ach C orpora tion shall m ake at least tw o reports
an nu ally t o the B oard o f G overn ors at such tim es and in such form as
the B oard m ay require. T he B oard m a y , in its discretion, require that
statem ents o f con d ition or such other reports as it m a y sp ecify be p u b
lished or m ade availa b le fo r p u b lic inspection.
(/) Examinations.— E ach C orp ora tion shall be exam ined at least
on ce a y ea r b y exam iners a p poin ted b y the B oard o f G overn ors. E ach
C orpora tion shall obtain and m ake ava ila b le to such exam iners, am ong
other things, such in form a tion as to the earnings, finances, m anagem ent
and oth er aspects o f a n y corp ora tion w hose stock is held b y the C o r p o
ration as m ay be app rop riate fo r appraising such investm ent and deter
m ining its su itability. W hen required b y the B oard o f G overn ors, each
C orpora tion shall cause a n y organization con trolled b y it to perm it
such exam iners to exam ine such organization. T h e cost o f exam inations
shall be fixed b y th e B oard o f G overn ors and paid b y the C orporation .
(g ) Amendments.— T h is part is su b je ct to am endm ent b y the
B oard o f G overn ors from tim e to tim e.
S E C T IO N 211.11— C O R P O R A T IO N S W I T H A G R E E M E N T S U N D E R
S E C T IO N 25 01-' T H E F E D E R A L R E S E R V E A C T
In addition to an y oth er requirem ents to which it m a y be su bject,
n o corporation having an agreem ent or undertaking w ith the B oard o f
G overn ors under section 25 o f the Federal R eserve A ct shall purchase
or hold an y asset, or otherw ise exercise a n y o f its pow ers in the United
States or abroad in a n y m anner, w hich w ou ld n ot be perm issible under
the provisions o f this part if such corp ora tion were a B anking
C orporation .
APPENDIX
STATUTORY PROVISIONS
Section 25 o f the F ederal R eserve A c t reads in p art as fo llo w s:
Capital and surplus required to exercise powers
Sec. 25. A n y national banking association possessing a ca p ita l and
surplus o f $1,000,000 or m ore m a y file ap p lica tion w ith the B o a rd of
G overn ors o f the Federal R eserve System fo r perm ission t o exercise,
upon such conditions and under such regulations as m a y be prescribed
b y the said board, either or both o f th e follow in g pow ers:
Establishment of foreign branches
F irst. T o establish branches in foreign countries or dependencies or
insular possessions o f the U nited States fo r the furtherance o f the fo r
eign com m erce o f the U nited States, and t o a ct if required to d o so as
fiscal agents o f the U nited States.
Purchase of stock in corporations engaged in foreign banking
Second. T o invest an am ount n ot exceeding in th e aggregate ten per
centum o f its p a id -in cap ital stock and surplus in the stock o f one or
m ore banks or corp orations chartered or in corporated under the laws
o f the U nited States or o f an y State th ereof, and p rin cip a lly engaged in
international or foreign banking, or banking in a depend en cy or insular
possession o f the U nited States either d irectly or through th e agen cy,
ow nership, or con trol o f local institutions in foreign countries, or in
such dependencies or insular possessions.
*
*
*
*
*
Application for permission to exercise powers
Such app lication shall sp ecify the nam e and capital o f the banking
association filing it, the pow ers applied for, and the p lace or places
where the banking or financial operations p roposed are to be carried on.
T h e B oard o f G overn ors o f the F ederal R eserve S ystem shall have
p ow er to ap p rove or to reject such ap p lica tion in w h ole or in p art if fo r
an y reason the granting o f such ap p lica tion is deem ed inexpedient, and
shall also have pow er from tim e to tim e to increase or decrease the
num ber o f places where such banking operations m a y be carried on.
Examinations and reports of condition
E very national banking association operating foreign branches shall
be required to furnish in form ation concerning the con d ition o f such
branches to the C om p troller o f the C u rren cy upon dem and, and every
m em ber bank investing in the cap ital stock o f banks or corporations
described a b ov e shall be required to furnish in form ation concerning the
18
REGULATION K
19
condition of such banks or corporations to the Board of Governors of
the Federal Reserve System upon demand, and the Board of Governors
of the Federal Reserve System may order special examinations of the
said branches, banks, or corporations at such time or times as it may
deem best.
Agreement to restrict operations
Before any national bank shall be permitted to purchase stock in
any such corporation the said corporation shall enter into an agreement
or undertaking with the Board of Governors o f the Federal Reserve
System to restrict its operations or conduct its business in such manner
or under such limitations and restrictions as the said board m ay pre
scribe for the place or places wherein such business is to be conducted.
I f at any time the Board of Governors of the Federal Reserve System
shall ascertain that the regulations prescribed by it are not being com
plied with, said board is hereby authorized and empowered to institute
an investigation of the matter and to send for persons and papers,
subpoena witnesses, and administer oaths in order to satifsy itself as to
the actual nature of the transactions referred to. Should such investi
gation result in establishing the failure of the corporation in question,
or of the national bank or banks which m ay be stockholders therein, to
com ply with the regulations laid down by the said Board of Governors
of the Federal Reserve System, such national banks m ay be required
to dispose of stockholdings in the said corporation upon reasonable
notice.
*
*
*
*
*
Section 2 5(a) of the Federal Reserve A ct reads as follows: .
Organization
Sec. 25(a ). Corporations to be organized for the purpose of engag
ing in international or foreign banking or other international or foreign
financial operations, or in banking or other financial operations in a
dependency or insular possession o f the United States, either directly
or through the agency, ownership, or control of local institutions in
foreign countries, or in such dependencies or insular possessions as pro
vided by this section, and to act when required by the Secretary of the
Treasury as fiscal agents of the United States, m ay be formed by any
number of natural persons, not less in any case than five: Provided,
That nothing in this section shall be construed to deny the right o f the
Secretary of the Treasury to use any corporation organized under this
section as depositaries in Panama and the Panama Canal Zone, or in
the Philippine Islands and other insular possessions and dependencies
of the United States.
REGULATION K
20
Articles o f association
Such persons shall enter in to articles o f association w hich shall
sp ecify in general term s the ob jects fo r w hich the association is form ed
and m ay contain a n y other provisions n ot inconsistent w ith law w hich
the association m a y see fit to a d op t fo r the regulation o f its business
and the con d u ct o f its affairs.
Execution of articles of association; contents of organization
certificate
Such articles o f association shall be signed b y all o f the persons
intending to p articipate in the organ ization o f the corp ora tion and,
thereafter, shall be forw arded to the B oa rd o f G overn ors o f the F ederal
R eserve System and shall be filed and preserved in its office. T he
persons signing the said articles o f association shall, under their hands,
m ake an organ ization certificate w hich shall sp ecifica lly state:
First.
T h e name assum ed b y such corp ora tion , w hich shall be
su b ject to the a p p rova l o f the B oa rd o f G overn ors o f the F ederal
R eserve System .
x
Second.
T hird .
T h e place or places where its operations are to be carried on.
T h e p lace in the U nited States where its hom e office is to
be located.
F ourth. T h e am ount o f its cap ital stock and the num ber o f shares
into w hich the same shall be divided.
F ifth . T h e nam es and p laces o f business or residence o f the persons
executing the certificate and the num ber o f shares to w hich each has
subscribed.
Sixth. T h e fa c t that the certificate is m ade t o enable the persons
subscribing the sam e, and all oth er persons, firms, com panies, and
corporations, w ho or w hich m a y th ereafter subscribe t o or purchase
shares o f the capital stock o f such corp ora tion , t o avail them selves o f
the advantages o f this section.
Filing organization certificate; issuance of permit
T h e persons signing the organization certificate shall d u ly a ck n o w l
edge the execution th ereof b efore a ju d ge o f som e cou rt o f record or
n ota ry p u blic, w h o shall c e rtify thereto under the seal o f such cou rt or
n otary , and thereafter the certificate shall be forw arded to th e B oard
o f G overn ors o f the F ederal R eserve System to be filed and preserved
in its office. U p on d u ly m aking and filing articles o f association and an
organ ization certificate, and a fter the B oard o f G overn ors o f the F e d
eral R eserve System has ap p roved the sam e and issued a perm it to
begin business, the association shall b ecom e and be a b o d y corp ora te,
REGULATION K
21
and as such and in the nam e designated therein shall h ave pow er to
ad op t and use a corp ora te seal, w hich m a y be changed at the pleasure
o f its board o f d irectors; to h ave succession fo r a period o f tw enty
years unless soon er dissolved b y the act o f the shareholders owning
tw o-th ird s o f the stock or b y an A ct o f C ongress or unless its franchises
becom e forfeited b y som e v iola tion o f la w ; to m ake co n tra cts; to sue
and be sued, com plain , and defen d in a n y court o f law or e q u ity ; to
elect or appoin t directors, all o f w hom shall be citizens o f the United
States; and, b y its board o f directors, to appoin t such officers and
em ployees as m a y be deem ed proper, define their a u th ority and duties,
require bonds o f them , and fix the p en a lty th ereof, dism iss such officers
or em ployees, or a n y th ereof, at pleasure and appoin t others to fill
their p la ces; to prescribe, b y its board o f directors, b y -la w s not
inconsistent with law or w ith the regulations o f the B oard o f G o v
ernors o f the F ederal R eserve System regulating the m anner in which
its stock shall be transferred, its directors elected or a ppoin ted, its
officers and em p loyees a ppoin ted, its p rop erty transferred, and the
privileges granted to it b y la w exercised and en joyed .
Powers; regulations of Board of Governors of the Federal Reserve
System
E ach corp oration so organized shall h ave pow er, under such rules
and regulations as the B oard o f G overn ors o f the Federal R eserve
System m ay prescribe:
Banking powers
(a )
T o purchase, sell, discou n t, and negotiate, w ith or w ithout its
indorsem ent or guaranty, notes, d rafts, ch eck s, bills o f exchange,
acceptances, including ban kers’ a ccep ta n ccs, ca b le transfers, and other
evidences o f indebtedness; to purchase and sell, with or w ith ou t its
indorsem ent or guaranty, securities, including the obliga tion s o f the
U nited States or o f a n y State th ereof but n ot including shares o f stock
in an y corporation except as herein p ro v id e d ; t o a ccep t bills or drafts
drawn upon it su b ject to such lim itations and restrictions as the B oard
o f G overn ors o f the F ederal R eserve System m a y im p ose; to issue
letters o f cred it; to purchase and sell coin, bullion, and exch an ge; to
borrow and to lend m o n e y ; to issue debentures, bon ds, and prom issory
notes under such general con d ition s as to security and such lim itations
as the B oard o f G overn ors o f the F ederal R eserve System m a y pre
scribe, but in no event h avin g liabilities outstanding thereon at an y
one tim e exceeding ten tim es its capital stock and surplus; to receive
deposits outside o f the U nited States and to receive on ly such deposits
within the U nited States as m a y be incidental to or fo r the purpose
o f carryin g out tran sactions in foreign countries or dependencies or
22
REGULATION K
insular possessions o f the U nited S ta te s; and gen erally to exercise such
pow ers as are incidental to the pow ers conferred b y this A c t or as m a y
be usual, in the determ ination o f the B oa rd o f G overn ors o f the Federal
R eserve System , in con nection w ith the tran saction o f the business of
banking or other financial operations in the countries, colon ies, depend
encies, or possessions in w hich it shall transact business and n ot in con
sistent w ith the pow ers sp ecifica lly granted herein. N oth in g contained
in this section shall be construed to p roh ib it the B oa rd o f G overn ors o f
the F ederal R eserve System , under its p ow er to prescribe rules and reg
ulations, from lim iting the aggregate am ount o f liabilities o f a n y o r all
classes incurred b y the corp ora tion and outstanding a t a n y one tim e.
W h enever a corporation organized under this section receives deposits
in the U nited States authorized b y this section it shall ca rry reserves in
such am ounts as the B oa rd o f G overn ors o f the F ederal R eserve System
m ay prescribe, but in no event less than 10 per centum o f its deposits.
Branches
(b ) T o establish and m aintain fo r the tran saction o f its business
branches or agencies in foreign countries, their dependencies or colonies,
and in the dependencies or insular possessions o f the U nited States, at
such places as m a y be ap p roved b y the B oard o f G overn ors o f the
F ederal R eserve System and under such rules and regulations as it
m a y prescribe, including countries or dependencies n o t specified in the
original organ ization certificate.
Ownership of slock in other corporations
(c ) W ith the consent o f the B oard o f G overn ors o f the F ederal R e
serve System to purchase and hold stock or other certificates o f ow n er
ship ir a n y other corporation organized under th e provision s o f this
section, or under the law s o f a n y foreign cou n try or a c o lo n y or d e
pen den cy th ereof, or under the laws o f a n y State, d ep enden cy, or
insular possession o f the U nited States but n o t engaged in th e general
business o f b u yin g or selling goods, wares, m erchandise or com m odities
in the U nited States, and n ot tran sacting a n y business in the U nited
States except such as in the ju d gm en t o f the B oa rd o f G overn ors o f the
F ederal R eserve System m a y be incidental to its international or fo r
eign business: Provided, however, T h a t, except with the a p p rova l o f the
B oard o f G overn ors o f the F ederal R eserve System , no corp ora tion
organized hereunder shall invest in an y one corp ora tion an am ount in
excess o f 10 per centum o f its own capital and surplus, except in a co r
poration engaged in the business o f banking, when 15 per centum o f its
capital and surplus m a y be so in v ested : Provided further, T h a t n o c o r
p oration organized hereunder shall purchase, ow n, or hold stock or
certificates o f ow nership in an y oth er corp ora tion organized hereunder
REGULATION K
23
or under the laws o f a n y State w hich is in substantial com p etition there
w ith, or w hich holds stock or certificates o f ow nership in corporations
w hich are in substantial com p etition w ith the purchasing corporation.
Purchase of stock to prevent loss on debt previously contracted
N oth in g contained herein shall preven t corp orations organized here
under from purchasing and holding stock in a n y corp ora tion where such
purchase shall be necessary to preven t a loss upon a debt previou sly
con tracted in good fa it h ; and stock so purchased or acquired in co rp o
rations organized under this section shall within six m onths from such
purchase be sold or disposed o f at p u b lic or p riv a te sale unless the
tim e to so dispose o f sam e is extended b y the B oa rd o f G overn ors o f
the Federal R eserve System .
Restrictions on business in United States
N o corporation organized under th is section shall ca rry on a n y part
o f its business in the U nited States except such as, in the ju d gm en t o f
the B oard o f G overn ors o f the Federal R eserve System , shall be in ci
dental to its international or foreign business: A nd provid ed fu rth er,
T h a t except such as is incidental and p relim in ary to its organization
no such corporation shall exercise an y o f the pow ers conferred b y this
section until it has been du ly authorized b y the B oard o f G overn ors
o f the F ederal R eserve System to com m ence business as a corporation
organized under the provisions o f this section.
Corporation trading in commodities or attempting to control
prices
N o corporation organized under this section shall engage in co m
m erce or trade in com m odities except as sp ecifica lly p rovid ed in this
section, nor shall it either d irectly or in d irectly con trol or fix or attem pt
to con trol or fix the p rice o f an y such com m odities. T h e charter o f an y
corporation violatin g this provision shall be su b ject to forfeitu re in the
m anner hereinafter p rovid ed in this section. I t shall be unlaw ful for
a n y director, officer, agent, or em ployee o f a n y such corporation to use
or to conspire to use the credit, the funds, or the p ow er o f the corp ora
tion to fix or con trol the p rice o f any such com m odities, and an y such
person violatin g this provision shall be liable to a fine o f n ot less than
$1,000 and not exceeding $5,000 or im prisonm ent not less than one year
and n ot exceeding five years, or both , in the discretion o f the court.
Capital stock
N o corporation shall be organized under the provisions o f this section
w ith a capital stock o f less than $ 2 ,0 0 0 ,0 0 0 , on e-qu arter o f w hich must
be paid in before th e corp ora tion m a y be authorized to begin business,
REGULATION K
24
and the rem ainder o f the cap ital sto ck o f such corp ora tion shall b e paid
in installm ents o f at least 10 per centum on the w h ole am ount t o w hich
the corporation shall be lim ited as frequ en tly as one installm ent a t the
end o f each succeeding tw o m onths from the tim e o f the com m en ce
m ent o f its business operations until the w h ole o f th e cap ital stock
shall be paid in : P rovid ed , h ow ev er, T h a t w henever $2,000,000 o f the
capital stock o f an y corp ora tion is paid in the rem ainder o f the co r
p ora tio n ’s capital stock or a n y unpaid p art o f such rem ainder m a y ,
w ith the consent o f the B oard o f G overn ors o f the F ederal R eserve
System and su b ject t o such regulations and con d ition s as it m a y
prescribe, be p a id in upon call from the board o f d ire cto rs; such unpaid
subscriptions, how ever, to be included in the m axim um o f 1 0 per
centum o f the national b a n k ’s ca p ita l and surplus w hich a national
bank is perm itted under the p rovisions o f this A ct to hold in stock of
corp orations engaged in business o f the kind described in this section
and in section 25 o f the F ederal R eserve A c t as a m en ded: P rov id ed
fu rth er, T h a t no such corp ora tion shall h ave liabilities outstanding at
an y one tim e upon its debentures, bonds, and p rom issory n otes in
excess o f ten tim es its p a id -in cap ital and surplus. T h e ca p ita l stock
o f a n y such corporation m a y be increased at a n y tim e, w ith the
ap p roval o f the B oard o f G overn ors o f th e F ederal R eserve System ,
b y a v ote o f tw o-th ird s o f its shareholders or b y unanim ous consent in
w riting o f the shareholders w ithout a m eeting and w ith ou t a form al
v ote, but a n y such increase o f cap ital shall be fu lly paid in w ithin
n inety d ay s a fter such a p p ro v a l; and m a y be reduced in like m anner,
p rovid ed that in no event shall it be less than $2,000,000. N o co rp o ra
tion, except as herein provid ed , shall during the tim e it shall continue
its operations, w ithdraw or perm it to be w ithdraw n, either in the form
o f dividen d s or otherw ise, a n y portion o f its capital. A n y national b a n k
ing association m a y invest in the sto ck o f a n y corp ora tion organized
under the provisions o f this section, but the aggregate am ount o f stock
held in all corp orations engaged in business o f the kind described in this
section and in section 25 o f the F ederal R eserve A c t as am ended shall
not exceed 10 per centum o f the subscribing b a n k ’s capital and surplus.
Citizenship of stockholders
A m a jority o f the shares o f the cap ital stock o f a n y such corp ora tion
shall at all tim es be held and ow ned b y citizens o f the U n ited States,
b y corporations the con trollin g interest in w hich is ow ned b y citizens o f
the U nited States, chartered under the law s o f the U nited States or
o f a State o f the U nited States, or b y firms or com panies, the co n
trollin g interest in w hich is ow ned b y citizens o f the U nited States.
REGULATION K
25
Members of Board of Governors of the Federal Reserve System
as directors, officers, or stockholders
N o m em ber o f the B oard o f G overn ors o f th e F ederal R eserve System
shall be an officer or director o f an y corp ora tion organized under the
provisions o f this section, or o f a n y corporation engaged in sim ilar
business organized under the law s o f a n y S tate, n or hold stock in an y
such corp oration , and b efore entering u pon his duties as a m em ber of
the B oard o f G overn ors o f the F ederal R eserve S ystem he shall certify
under oath to the S ecretary o f the T reasu ry that he has com plied with
this requirem ent.
Shareholders’ liability; corporation not to become member of
Federal reserve bank
Shareholders in any corp ora tion organized under the provisions of
this section shall be liable fo r the am ount o f their unpaid stock su b
scriptions. N o such corp ora tion shall becom e a m em ber o f an y Federal
reserve bank.
Forfeiture of charter for violation of law
Should an y corp oration organized hereunder v io la te or fail to com p ly
w ith an y o f the provisions o f this section, all o f its rights, privileges,
and franchises derived herefrom m a y th ereby be forfeited . B efore any
such corporation shall be declared d issolved, or its rights, privileges,
and franchises forfeited , a n y n oncom plian ce w ith, or v iola tion o f such
laws shall, h ow ever, be determ ined and adju dged b y a cou rt o f the
U nited States o f com peten t ju risdiction , in a suit brought fo r that
purpose in the d istrict or territory in w hich the hom e office o f such
corporation is loca ted , w hich suit shall be brou ght b y the U njted States
a t the instance o f the B oard o f G overn ors o f the Federal R eserve S y s
tem or the A ttorn ey G eneral. U p on a d ju d ica tion o f such n on com p li
ance or v iola tion , each d irector and officer w h o p a rticipated in, or
assented to, the illegal act or acts, shall be lia b le in his personal or
individual ca p a city fo r all dam ages w hich the said corp ora tion shall
h ave sustained in consequence thereof. N o dissolution shall tak e aw ay
or im pair an y rem edy against the corp ora tion , its stock h olders, or
officers for an y liab ility or p en a lty p rev iou sly incurred.
Voluntary liquidation
A n y such corp oration m a y go in to volu n ta ry liquidation and be
closed b y a v ote o f its shareholders ow ning tw o-th ird s o f its stock.
Insolvency; appointment of receiver
W h enever the B oard o f G overn ors o f the F ederal R eserve System
shall becom e satisfied o f the in solven cy o f an y such corp ora tion , it m a y
appoin t a receiver w h o shall tak e possession o f all o f the p rop erty and
REGULATION K
26
assets o f the corp ora tion and exercise th e sam e rights, privileges,
pow ers, and au th ority w ith respect thereto as are n ow exercised b y
receivers o f national banks appointed b y the C om p troller o f the C u r
ren cy o f the U nited S tates: P ro v id ed , h ow ever, T h a t the assets o f the
corp ora tion su b ject to the law s o f oth er countries or ju risdiction s shall
be dealt w ith in accord a n ce w ith the term s o f such laws.
Stockholders’ meetings; records; reports; examinations
E very corp ora tion organized under the provisions o f this section
shall hold a m eeting o f its stock h olders an nu ally u pon a date fixed in
its b y -la w s, such m eeting to be held at its hom e office in the U nited
States.
E v e ry such corp ora tion shall keep a t its hom e office book s
con tain ing the nam es o f all stock h olders th ereof, and th e nam es and
addresses o f the m em bers o f its board o f directors, togeth er w ith copies
o f all reports m ade b y it to the B oard o f G overn ors o f the F ederal
R eserve System .
E v e r y such corp ora tion shall m ake reports to the
B oard o f G overn ors o f the F ederal R eserve System at such tim es and
in such form as it m a y requ ire; and shall be su b ject to exam ination
on ce a y ea r and at such oth er tim es as m a y be deem ed n ecessary b y
the B oard o f G overn ors o f the F ederal R eserve System b y exam iners
ap poin ted b y the B oa rd o f G overn ors o f the F ederal R eserve System ,
the cost o f such exam inations, including the com pensation o f the
exam iners, to be fixed b y the B oa rd o f G overn ors o f the F ederal
R eserve System and t o be paid b y the corp ora tion exam ined.
Dividends and surplus fund
T h e directors o f a n y corporation organized under th e p rovisions o f
this section m a y , sem iannually, declare a dividen d o f so m uch o f the
net profits o f the corp ora tion as th ey shall ju d g e exp ed ien t; but each
corporation shall, b efore the d eclaration o f a d ividen d, ca rry one-tenth
o f its net profits o f the precedin g h a lf y e a r t o its surplus fund until
the sam e shall am ount to 2 0 p er centum o f its cap ital stock.
Taxation
A n y corporation organized under the provisions o f this section shall
be su bject to tax b y the State within w h ich its hom e office is located
in the sam e m anner and to the sam e extent as other corp orations
organized under the law s o f that S tate w hich are transacting a sim ilar
ch aracter o f business. T h e shares o f stock in such corp ora tion shall
also be su bject to tax as th e personal p rop erty o f the owners o r holders
th ereof in the sam e m anner and t o the sam e extent as the shares o f
stock in sim ilar State corporations.
REGULATION K
27
Extension of corporate existence
A n y corporation organized under the p rovisions o f this section m a y
at an y tim e within the tw o years next p reviou s to the date o f the
expiration o f its corp orate existence, b y a v ote o f the shareholders
ow ning tw o-th ird s o f its stock , ap p ly to the B oa rd o f G overn ors o f the
F ederal R eserve System fo r its a p p rova l t o extend the period o f its
corp orate existence fo r a term o f n ot m ore than tw en ty years, and upon
certified ap p roval o f the B oard o f G overn ors o f the F ederal R eserve
S ystem such corporation shall have its corp orate existence fo r such
extended period unless soon er dissolved b y th e act o f th e shareholders
ow ning tw o-th ird s o f its stock , or b y an A c t o f C ongress or unless its
franchise becom es forfeited b y som e v iola tion o f law.
Conversion of State corporation into Federal corporation
A n y bank or banking institution, p rin cip a lly engaged in foreign busi
ness, in corporated b y special law o f a n y State or o f the U nited States or
organized under the general law s o f a n y S tate or o f the U nited States
and having an unim paired cap ital sufficient to entitle it to becom e a
corp oration under the p rovisions o f this section m a y , b y the v o te o f
the shareholders ow ning n ot less than tw o-th ird s o f the cap ital stock
o f such ban k or banking association, w ith the a p p rova l o f the B oard
o f G overn ors o f the F ederal R eserve System , be con verted into a
F ederal corp oration o f the kind authorized b y this section w ith any
nam e approved b y the B oard o f G overn ors o f the F ederal R eserve
S ystem : P ro vid ed , h ow ever, T h a t said con version shall n ot be in con
traven tion o f the S tate law. In such case the articles o f association
and organization certificate m a y be executed b y a m a jo rity o f the
directors o f the ban k or banking institution, and the certificate shall
declare that the ow ners o f a t least tw o-th ird s o f the capital stock have
authorized the directors to m ake such certificate and to change or
con vert the bank or banking institution into a Federal corporation.
A m a jority o f the directors, a fter executing the articles o f association
and the organization certificate, shall have pow er to execute all other
papers and to d o w h atever m a y be required to m ake its organization
p erfect and com plete as a Federal corporation. T h e shares o f an y such
corporation m ay continue to be fo r the sam e am ount each as they were
before the conversion, and the directors m a y continue to be directors
o f the corporation until others arc elected or appointed in accord an ce
w ith the provisions o f this section. W hen the B oard o f G overn ors o f
the Federal R eserve System has given to such corporation a certificate
th at the provisions o f this section h ave been com plied w ith, such c o r
poration and all its stockholders, officers, and em ployees, shall have the
sam e pow ers and privileges, and shall be su b ject to the sam e duties,
28
REGULATION K
liabilities, and regulations, in all respects, as shall h ave been prescribed
b y this section fo r corp orations origin a lly organized hereunder.
Criminal offenses of officers and employees
E very officer, director, clerk , em ployee, or agent o f a n y corporation
organized under this section w h o em bezzles, abstracts, or w illfu lly m is
applies an y o f the m oneys, funds, credits, securities, evidences o f in
debtedness or assets o f any character o f such co rp o ra tio n ; or w ho,
w ith ou t au th ority from the directors, issues or puts forth a n y certifi
cate o f deposit, draw s a n y order or bill o f exchange, m akes any
accep tan ce, assigns a n y n ote, bon d, debenture, d ra ft, bill o f exchange,
m ortgage, ju dgm en t, or decree.; or w h o m akes an y false en try in a n y
b ook , report, or statem ent o f such corp ora tion w ith intent, in either
case, to injure or defrau d such corp ora tion or a n y oth er com p a n y , b o d y
p olitic or corporate, or a n y in dividual person, or to d eceive a n y officer
o f such corp ora tion , the B oard o f G overn ors o f the F ederal R eserve
System , or a n y agent or exam iner appointed t o exam ine th e affairs o f
a n y such co rp o ra tio n ; and ev e ry receiver o f a n y such corp ora tion and
every clerk or em ployee o f such receiver w ho shall em bezzle, abstract,
or w illfu lly m isap ply or w ron g fu lly con vert to his ow n use a n y m oneys,
funds, credits, or assets o f a n y ch aracter w hich m a y com e in to his
possession or under his con trol in the execution o f his trust or the
perform an ce o f the duties o f his e m p loym en t; and every such receiver
or clerk or em ployee o f such receiver w h o shall, w ith intent t o in ju re or
defrau d a n y person, b o d y p o litic or corporate, or to d eceive or m islead
the B oard o f G overn ors o f the F ederal R eserve System , o r a n y agent
or exam iner a p poin ted t o exam ine th e affairs o f such receiver, shall
m ake an y false en try in a n y b o o k , report, or record o f a n y m atter
con nected w ith the duties o f such rece iv e r; and every person w ho
w ith like intent aids or abets a n y officer, director, clerk, em p loyee, or
agent o f a n y corporation organized under this section, or receiver or
clerk or em p loyee o f such receiver as aforesaid in a n y v iola tion o f this
section, shall upon con v iction th ereof be im prisoned fo r n ot less than
tw o years nor m ore than ten years, and m a y also be fined n ot more
than $5,000 in the discretion o f the court.
Representation that United States is liable for obligations
W h oev er being connected in an y ca p a city w ith a n y corp ora tion
organized under this section represents in an y w a y that the U nited
States is liable fo r the p a ym en t o f an y bon d or other obligation , or the
interest thereon, issued or incurred b y a n y corporation organized here
under, or that the U nited States incurs an y lia b ility in respect o f any
act or om ission o f the corporation, shall be punished b y a fine o f not
m ore than $ 10,000 and b y im prisonm ent fo r n ot m ore than five years.
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
INTERLOCKING BANK DIRECTORATES
UNDER THE CLAYTON ACT
T
REGULATION L
(1 2 CFR 2 1 2 )
As a m e n d e d effectiv e A u gu st 2 1 , 19 5 9
P r in t o f O c t o b e r 1 9 6 0
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to the
Federal Reserve Bank of the district in which the inquiry arises.
November 2, 1960
ERRATUM SHEET
In the October 1960 p rin t of R egulation L on page 3 Section
212.2
(d) (5) co n ta in s a m isprinted
should read “ C o n tig u o u s.”
word “ C ontinuo us”
CONTENTS
Page
S e c . 2 1 2 .0 . S c o p e o f P a r t ..................................................................................................................................
Sec. 212.1. Prohibitions
....................................................................................................
1
1
( a)
Directors, officers, and employees of member banks
1
(b)
Private bankers.................................................................................
1
S ec. 212.2. E xceptions ........................................................................................................
1
S e c . 2 1 2 .3 .
( а)
Persons other than private bankers or directors, officers,
or employees of member banks..............................................
(б)
Banks not organized under National Bank Act, State law,
or laws of District of Columbia..............................................
2
(c)
Relationships lawfully existing on August 23, 1935 ............
2
( d)
Exceptions applicable to directors, officers, and employees
of member banks.........................................................................
2
(e)
Exceptions applicable to private bankers...............................
3
R e l a t io n s h ip s p e r m it t e d
( a)
by
1
B o a r d ..........................................................................
4
Morris Plan bank or similar institution.................................
4
(b)
Pending consolidation or merger................................................
4
(c)
Trust company having no deposit accounts...........................
5
(d )
Exceptions applicable to a private banker.............................
5
(e )
Relationships lawfully existing on August 23, 1935
6
S e c . 2 1 2 .4 .
E nforcem ent
...............................................................................................................................
6
S e c . 2 1 2 .5 .
A m endm ents
...............................................................................................................................
6
A p p e n d i x - S t a t u t o r y P r o v i s i o n s ...............................................................................................................
7
R E G U L A T IO N L
(1 2 C F R
212)
As amended effective August 21, 1959
INTERLOCKING BANK DIRECTORATES
UNDER THE CLAYTON ACT*
SE C TIO N 212.0—SCOPE OF PAR T
This part is based upon and issued pursuant to the provisions of
section 8 of the Clayton A ct (38 Stat. 732, 49 Stat. 718; 15 U.S.C. 19)
SE C T IO N 212.1— PRO H IB ITIO N S
Under section 8 of the Clayton A ct, except as stated in §212.2.
(a) Directors, officers, and employees of member banks.— N o
person who is a director, officer, or employee o f a member bank of the
Federal Reserve System can legally be at the same time a director,
officer, or employee of any other bank, banking association, savings
bank, or trust com pany organized under the National Bank A ct or
organized under the laws o f any State or of the D istrict of C olum bia;
(b) Private bankers.— N o private banker2 can legally be at the
same time a director, officer, or employee o f any bank, banking asso
ciation, savings bank, or trust com pany organized under the National
Bank A ct or organized under the laws o f any State or o f the District
of Columbia.
SE C TIO N 2 1 2 .2 -E X C E P T IO N S
The provisions of section 8 of the Clayton A ct:
(a)
Persons other than private bankers or directors, officers, or
employees of member banks.— D o not apply to a person who is
neither a private banker nor a director, officer, or employee of a
member bank of the Federal Reserve System;
• T h e t e x t c o r re s p o n d s t o th e C o d e o f F e d e ra l R e g u la tio n s , T it le 12, C h a p te r I I , P a r t 2 1 2 ;
c ite d as 12 C F R 212.
'S e c t i o n 32 o f th e B a n k in g A c t o f 1933 (49 S ta t. 709 ; 12 U .S .C . 7 8 ) is a p p lic a b le in ce rta in
c ir c u m s ta n c e s t o in t e r lo c k in g re la tio n s h ip s be tw e e n m e m b e r b a n k s a n d u n d e rw r ite r s a n d deal
ers in s ecu rities. S ee P a r t 218.
S ection 17 ( c ) o f th e P u b lic U tility A c t o f 1935 (4 9 S ta t. 831; 15 U .S .C . 7 9 * ( c ) ) is a p p li
ca b le in c e r ta in c ir c u m sta n c e s t o in t e r lo c k in g re la tio n s h ip s be tw e e n b a n k s a n d p u b lic u tility
c o m p a n ie s a n d p u b lic u tility h o ld in g c o m p a n ie s . In q u irie s r e g a r d in g th is s e c tio n should be
add ressed t o t h e S ecu rities a n d E x c h a n g e C o m m is s io n a n d n o t t o th e B o a rd o f G o v e rn o rs o f
th e F ed e ra l R e s e r v e S ystem .
S ection 305 ( b ) o f th e F e d e ra l P o w e r A c t (4 9 S ta t. 856; 16 U .S .C . 825d ( b ) ) is a p p lica b le
in c e r ta in c ir c u m s ta n c e s t o in t e r lo c k in g r e la tio n s h ip s b e tw e e n p u b lic u tility c o m p a n ie s and
b a n k s w h ich a r e a u th o riz e d b y law t o u n d e r w r ite o r p a r t ic ip a t e in t h e m a r k e tin g o f s e cu ritie s
o f a p u b lic u tility . In q u ir ie s r e g a r d in g th is s e c tio n sh o u ld be add ressed t o th e F e d e ra l P o w e r
C om m ission a n d n o t t o t h e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e s e r v e S ystem .
s T h e term “ p r iv a t e b a n k e r ” m e a n s an u n in c o r p o r a te d in d iv id u a l e n g a g e d in th e b a n k in g
b u sin ess o r a m e m b e r o f an u n in c o r p o r a te d firm e n g a g e d in such b u sin ess.
1
REGULATION L
2
S ex : . 2 1 2 .2
Banks not organized under National Bank Act, State law,
or laws of District of Columbia.— D o not prohibit a private banker
(6 )
or a director, officer, or employee of a member bank of the Federal
Reserve System from being at the same time a director, officer, or
employee of any number of other banking institutions not organized
under the National Bank A ct or under the laws of any State or of the
D istrict of C olum bia3;
(c) Relationships lawfully existing on August 23, 1935.—Do
not prohibit, until February 1, 1939, any interlocking relationship
involving a member bank, which was in existence on August 23, 1935,
the date of the enactment of the Banking A ct of 1935, and which, at
that time, was lawful under the Clayton A ct, either (1) because it was
authorized by a perm it4 then in effect5 or (2) because it was other
wise not subject to the prohibitions of the Clayton A c t6;
{d) Exceptions applicable to directors, officers, and employees
of member banks.— D o not prohibit a director, officer, or employee
of a member bank of the Federal Reserve System from being at
the same time a director, officer, or employee o f any number of the
following:
(1)
Banks, banking associations, savings banks, or trust com
panies, more than 90 per cent of the stock of which is owned
directly or indirectly by the United States or by any corporation
of which the United States directly or indirectly owns more than
90 per cent o f the stock;
3 In o t h e r w ord s, th e p r o v is io n s o f s e c tio n 8 o f th e C la y to n A c t d o n o t p r o h ib it a p r iv a t e
b a n k er o r a d ir e c t o r , o ffice r, o r e m p lo y e e o f a m e m b e r b a n k o f t h e F e d e ra l R e s e r v e S ystem
fr o m b e in g a t th e s a m e tim e a d ir e c to r , o ffice r, o r e m p lo y e e o f a n y n u m b e r o f th e f o ll o w i n g :
( o ) J o in t S tock L a n d b a n k s . F e d e ra l L a n d b a n k s . F e d e ra l R e s e r v e b a n k s. F e d e ra l I n te r m e
d ia te C r e d it b a n k s. T h e C e n tr a l B a n k f o r C o o p e ra tiv e s , F e d e ra l H o m e L o a n b a n k s, fo r e ig n
b a n k in g c o r p o r a t io n s o r g a n iz e d u n d e r s e c tio n 2 5 ( a ) o f th e F e d e ra l R e s e r v e A c t (4 1 S ta t. 378,
as a m en d ed ; 12 U .S .C . 611-631) a n d o t h e r in s titu tio n s o r g a n iz e d u n d e r la w s o f t h e U n ite d
S tates o t h e r th an t h e N a tio n a l B a n k A c t ;
( 6 ) B a n k in g in s titu tio n s o rg a n iz e d u n d e r t h e law s o f te r r it o r ie s , d e p e n d e n cie s , o r in ju la r
p os ses sion s o f th e U n ite d S tates, su ch as P u e r t o R ic o o r th e C a n al Z o n e , a n d n o t o r g a n iz e d
u n d er th e N a tio n a l B a n k A c t ; an d
( c ) B a n k in g in s titu tio n s o r g a n iz e d u n d e r th e la w s o f f o r e ig n co u n tr ie s .
F ed era l S a v in g s a n d L o a n A s s o c ia tio n s a n d F e d e ra l C r e d it U n io n s a r e n o t o r g a n iz e d und er
th e N a tio n a l B a n k A c t o r u n d e r th e law s o f a n y S ta te o r o f th e D is t r ic t o f C o lu m b ia , and
t h e r e fo r e a r e e x c e p te d o n th a t g r o u n d ir r e s p e c tiv e o f w h e th e r th ey a r e “ b a n k s ” o r “ b a n k in g
a s s o c ia tio n s ” w ith in th e m e a n in g o f th e statu te.
4 R e la tio n s h ip s w h ich w e re la w fu l on A u g u s t 23, 1935, b e ca u s e a u th o riz e d b y a p e r m it th en
in e ffe c t w ere la w fu l w ith in th e m e a n in g o f th is e x c e p t io n ir r e s p e c t iv e o f w h e th e r th e p e r m it
te e w a s th en a lso s e r v in g in o th e r re la tio n s h ip s w h ic h w e r e w ith in th e p r o h ib itio n s o f th e
C la yton A c t b u t w h ic h w e r e n o t a u th o riz e d b y su ch p e r m it.
r'I t is im m a teria l w h e th e r o r n o t such p e r m it c o n ta in e d a p r o v is io n lim it in g its d u r a tio n ,
p r o v id e d it w a s in e ffe c t o n A u g u s t 23, 1935.
“ T h e p r o v is io n s o f th e C la y to n A c t r e g a r d in g in t e r lo c k in g b a n k d ir e cto r a te s in e ffe c t p r io r
t o A u g u s t 23, 1935, a r e a n a ly z e d in R e g u la tio n L , S e rie s o f 1933, w h ich w a s p u b lish e d in th e
F e d e ra l R e s e rv e B u lletin f o r N o v e m b e r 1933, p a g e 711.
S e c . 2 1 2 .2
REGULATION L
3
(2) Banks, banking associations, savings banks, or trust com
panies which have been placed form ally in liquidation or which
are in the hands of receivers, conservators, or other officials exer
cising similar functions;
(3) Corporations principally engaged in international or foreign
banking or banking in a dependency or insular possession of the
United States which have entered into agreements with the Board
of Governors of the Federal Reserve System pursuant to section
25 of the Federal Reserve A ct (39 Stat. 755, 41 Stat. 285, 286; 12
U.S.C. 601-605);
(4) Banks, banking associations, savings banks, or trust com
panies, more than 50 per cent o f the common stock of which is
owned directly or indirectly7 by persons who own directly or indi
rectly7 more than 50 per cent of the common stock of such member
bank;
(5) Banks, banking associations, savings
panies not located and having no branch in
or. village as that in which such member
thereof is located, or in any city, town, or
adjacent thereto8;
banks, or trust com
the same city, town,
bank or any branch
village continuous or
(6) Banks, banking associations, savings banks, or trust com
panies not engaged in a class or classes of business9 in which such
member bank is engaged;
(7) Mutual savings banks having no capital stock;
(e)
Exceptions applicable to private bankers.— D o not prohibit
a private banker from being at the same time a member of any number
of firms of private bankers, or from being at the same time a director,
officer, or employee of any number of the following:
’ T h e fo llo w in g a r e c le a r illu s tra tio n s
c e n t o f th e s to c k o f o n e b a n k is o w n e d
o f th e s to c k o f o n e ban k is held in tr u s t
m ore th an 50 p e r c e n t o f th e s t o c k o f
o f in d ir e c t o w n e r s h ip : ( 1 ) w h e r e m o r e th an 50 p e r
b y th e o t h e r b a n k ; ( 2 ) w h e r e m o r e th a n 50 p e r ce n t
f o r th e sh a re h o ld e rs o f th e o t h e r b a n k : a n d ( 3 ) w h ere
o n e b a n k is o w n e d b y a c o r p o r a t io n all th e s to c k o f
w h ich is o w n e d b y th e sh a reh o ld e rs o f th e o th e r ban k .
" T h e B oa rd has in te rp re te d th e te rm “ c o n t ig u o u s ” as r e fe r r in g t o c itie s , t o w n s , a n d villages
w h o s e c o r p o r a t e lim its tou ch o r c o in c id e at s o m e p o in t, a n d has in te rp re te d th e w o rd " a d j a
c e n t” as r e fe r r in g t o c itie s , t o w n s , and v illa g e s w h ic h , a lth o u g h n o t a c tu a lly “ c o n t ig u o u s ”
w ith in th e a b o v e in t e r p r e ta tio n o f th a t w o rd , a r e lo ca te d in s u ch c lo s e p r o x im it y a n d a r e so
rea d ily a ccessib le t o ea ch o t h e r as t o be in p r a c t ic a l e ffe c t a s in g le c ity , to w n , o r villa ge , as
f o r ex a m p le , c itie s , t o w n s , o r v illa g e s se p a r a te d o n ly b y a w a te r-c o u r s e , o r a s u b u rb o f a c it y
sep a ra ted fr o m th a t c it y b y an in te r v e n in g su bu rb.
" T h e p h r a s e " c la s s o r classes o f b u sin e ss” r e fe r s t o th e v a r io u s ty p e s o f b u sin ess e n g a g e d in
b y such in stitu tio n s in v o lv in g re la tio n s h ip s w ith c u s to m e rs , such as ( 1 ) r e c e iv in g c o m m e rcia l
d e p o s its, ( 2 ) re c e iv in g s a v in g s d e p o s its , ( 3 ) c a r r y in g c h e c k in g a c c o u n ts , ( 4 ) m a k in g c o m
m e r cia l loan s, ( 5 ) m a k in g rea l e sta te loan s, ( 6 ) m a k in g loan s on s to ck o r b o n d c o lla te ra l. ( 7 )
m a k in g “ p e r s o n a l" loa n s o f th e c h a r a c te r u sually m a d e b y M o r ris P la n o r In d u s tr ia l ban ks,
( 8 ) e n g a g in g in c o r p o r a t e t iu s t b u sin ess, a n d ( 9 ) e n g a g in g in in d iv id u a l tr u s t b u sin ess.
REGULATION L
4
S e c . 2 1 2 .3
(1) Banks, banking associations, savings banks, or trust com
panies, more than 90 per cent of the stock of which is owned
directly or indirectly by the United States or by any corporation
of which the United States directly or indirectly owns more than
90 per cent of the stock;
(2) Banks, banking associations, savings banks, or trust com
panies which have been placed form ally in liquidation or which
are in the hands of receivers, conservators, or other officials exer
cising similar functions;
(3) Corporations principally engaged in international or foreign
banking or banking in a dependency or insular possession of the
United States which have entered into agreements with the Board
of Governors of the Federal Reserve System pursuant to section
25 o f the Federal Reserve A ct (39 Stat. 755, 41 Stat. 285, 286; 12
U.S.C. 601-605);
(4) Mutual savings banks having no capital stock.
SE C TIO N 212.3— R ELA TIO N SH IP S P E R M IT T E D B Y BOARD
In addition to any relationships covered by the foregoing exceptions,
not more than one of the following relationships is hereby perm itted10
by the Board of Governors of the Federal Reserve System in the case
of any one individual:
(a) Morris Plan bank or similar institution.— Any private banker
or any director, officer, or employee of a member bank of the Federal
Reserve System may be at the same time a director, officer, or employee
of not more than one cooperative bank, credit union or other similar
institution; and any private banker or any director, officer, or employee
of a member bank of the Federal Reserve System who is lawfully serv
ing as a director, officer, or employee of a Morris Plan bank or similar
institution on January 31, 1939 may continue such service until June
1,1940;
(b) Pending consolidation or merger.— Any director, officer, or
employee of a member bank o f the Federal Reserve System m ay be at
the same time a director, officer, or employee of not more than one
other bank, banking association, savings bank, or trust com pany if the
records of both institutions show that active consideration is being
given to the consolidation or merger o f such member bank and such
other bank, banking association, savings bank, or trust com pany, or
" ’ T h e p r o v is io n s fo r m e r ly c o n ta in e d in s e c tio n 8 o f th e C la yton A c t a u t h o r iz in g th e issu a n ce
o f in d ivid u a l p erm its b y th e B o a rd w e r e r e p e a le d b y s e c tio n 329 o f th e B a n k in g A c t o f 1936,
a n d th e A c t n o w p r o v id e s t h a t th e B o a rd " m a y b y re g u la tio n p e r m it su ch s e r v ic e as a d ir e c
t o r , o fficer, o r e m p lo y e e o f n o t m o r e th a n o n e o th e r su ch in s titu tio n o r b r a n c h t h e r e o f • *
(S e e fir s t p a r a g r a p h o f s e c tio n 8 (4 9 S ta t. 718; 15 U .S .C . 1 9 ) . )
A c c o r d in g ly , in d iv id u a l
p e r m its w ill n o lo n g e r be issued.
S e c . 2 1 2 .3
REGULATION L
5
that active consideration is being given to the purchase of a substantial
portion of the assets and the assumption of a substantial portion of the
liabilities of one such institution b y the other;
P r o v id e d , That no interlocking relationship permitted pursuant to
this paragraph shall continue for a period or periods aggregating more
than six m onths;11
(c) Member banks not exercising trust powers and trust com
panies not holding deposits.— A ny director, officer, or employee of a
member bank of the Federal Reserve System which does not exercise
trust powers may be at the same time a director, officer, or employee
of not more than one trust com pany which does not receive or hold
deposits,12 and any director, officer, or employee of a trust company
which is a member of the Federal Reserve System and which does not
receive or hold deposits12 may be at the same time a director, officer,
or employee o f not more than one bank, banking association, or savings
bank which does not exercise trust pow ers;
(d ) Exceptions applicable to a private banker.— Any private
banker may be at the same time a director, officer, or employee of not
more than one of the following:
(1) A bank, banking association, savings bank, or trust com
pany organized under the laws of any State or of the D istrict of
Columbia which is not a member bank o f the Federal Reserve
System ;
(2) A member bank more than 50 per cent o f the common stock
of which is owned directly or indirectly by such private banker or
by a firm of private bankers of which he is a member;
(3) A member bank not located and having no branch in the
same city, town, or village as that in which such private banker or
a firm of private bankers of which he is a member maintains a
place of business, or in any city, town, or village contiguous or
adjacent thereto;13
(4) A member bank not engaged in a class or classes of busi
11 In th e c a s e o f a n y rela tio n s h ip existing: on th e d a te th is p a r t b e co m e s e ffe c tiv e , s u ch 6
m on th s p e r io d sh all b e g in t o ru n o n th e e ffe c tiv e d a te o f th is p a r t.
12F o r th e p u r p o s e o f p a r a g r a p h
a n d held in a fid u cia r y c a p a c ity .
( c ) , th e te r m " d e p o s it s ” shall n o t in clu d e fu n d s received
, s T h e B o a rd has in te rp re te d th e te rm “ c o n t ig u o u s " as r e fe r r in g t o c itie s , t o w n s , a n d v il
lages w h ose c o r p o r a t e lim its to u ch o r c o in c id e a t s o m e p o in t , and has in te rp re te d th e w o rd
" a d ja c e n t ” as r e fe r r in g t o c itie s , t o w n s a n d v illa g e s w h ich , a lth o u g h n o t actu a lly " c o n t ig u o u s ”
w ith in th e a b o v e in te r p r e ta tio n o f t h a t w o rd , a r e lo ca te d in such c lo s e p r o x im it y a n d a r e so
rea d ily a cces sib le t o each o th e r as t o b e in p r a c tic a l e ffe c t a s in g le c ity , to w n , o r v illa g e , as
f o r ex a m p le , c itie s , to w n s , o r v illa g e s se p a r a te d o n ly b y a w a te r-c o u r s e , o r a s u b u rb o f a city
s ep a ra ted fr o m t h a t c it y b y an in te r v e n in g su b u rb .
REGULATION L
6
S e c s . 2 1 2 .3 -2 1 2 .5
ness14 in which such private banker or a firm of private bankers
of which he is a member is engaged;
(e) [Reserved]
(/) Restrictions.— Any director, officer, or employee o f a member
bank of the Federal Reserve System may be at the same time a direc
tor, officer, or employee of not more than one bank which is principally
engaged in international or foreign banking and which does not receive
deposits or make loans in the United States except as m ay be inci
dental to its international or foreign business.
SE C TIO N 212.4— E N F O R C E M E N T
(а) Action by Federal Reserve Agent.— Each Federal Reserve
Agent shall cause the information contained in reports o f examination
of member banks and other information available to him from other
sources to be analyzed in the light o f the provisions of section 8 o f the
Clayton A ct relating to interlocking relationships involving banks;
and, in the case of any apparent violation of that section, shall com
municate with the banking institutions and with the director, officer
or employee involved, with a view of ascertaining whether the relation
ships involved are in conform ity with the law, and if not, obtaining
compliance with the law.
(б ) Reports to Board.— In each case in which, after taking the
steps outlined above, the Federal Reserve Agent finds that the rela
tionships involved are in violation of the law and have not been
brought into conform ity with the law within a reasonable time after
the matter was brought to the attention of the banking institutions and
the officer, director or employee involved, the Federal Reserve Agent
shall report the facts to the Board of Governors of the Federal Reserve
System with a recommendation as to the action to be taken.
SE C TIO N 212.5— A M E N D M E N T S
This part is subject to amendment or repeal, in whole or in part,
in the discretion of the Board of Governors of the Federal Reserve
System.
14 T h e p h ra se “ cla ss o r cla sses o f b u sin e ss” r e fe r s t o th e v a r io u s ty p e s o f b u sin ess e n g a g e d in
b y s u c h in stitu tio n s in v o lv in g re la tio n s h ip s w ith c u s to m e rs , s u ch as ( 1 ) r e c e iv in g co m m e r c ia l
d ep osits , ( 2 ) r e c e iv in g s a v in g s d e p o s its , ( 3 ) c a r r y in g c h e c k in g a c c o u n ts , ( 4 ) m a k in g c o m
m e rcia l loa n s, ( 5 ) m a k in g rea l e s ta te lo a n s, ( 6 ) m a k in g lo a n s o n s to c k o r b o n d c o lla te r a l, ( 7 )
m a k in g “ p e r s o n a l” loan s o f th e c h a r a c te r u sually m a d e b y M o rris P la n o r I n d u s tr ia l b a n k s,
( 8 ) e n g a g in g in c o r p o r a t e t r u s t b u sin ess, a n d ( 9 ) e n g a g in g in in d iv id u a l t r u s t b u sin e ss.
7
APPENDIX
)
S T A T U T O R Y PROVISIONS
Section 8 o f the C layton A ct (U.S.C., title 15, sec. 19), as amended
by the Banking A ct of 1935, reads in part as follows:
S e c . 8. N o private banker or director, officer, or employee of
any member bank of the Federal Reserve System or any branch
thereof shall be at the same time a director, officer, or employee
of any other bank, banking association, savings bank, or trust
com pany organized under the National Bank A ct or organized
under the laws of any State or of the D istrict of Columbia, or any
branch thereof, except that the Board of Governors of the Federal
Reserve System may by regulation permit such service as a direc
tor, officer, or employee o f not more than one other such institu
tion or branch thereof; but the foregoing prohibition shall not
apply in the case of any one or more of the following or any
branch thereof:
(1) A bank, banking association, savings bank, or trust com
pany, more than 90 per centum o f the stock of which is owned
directly or indirectly by the United States or by any corporation
o f which the United States directly or indirectly owns more than
90 per centum of the stock.
(2) A bank, banking association, savings bank, or trust com
pany which has been placed form ally in liquidation or which is
in the hands o f a receiver, conservator, or other official exercising
similar functions.
(3) A corporation principally engaged in international or for
eign banking or banking in a dependency or insular possession of
the United States which has entered into an agreement with the
Board of Governors of the Federal Reserve System pursuant to
section 25 of the Federal Reserve Act.
(4) A bank, banking association, savings bank, or trust com
pany, more than 50 per centum of the common stock of which is
owned directly or indirectly by persons who own directly or indi
rectly more than 50 per centum of the common stock o f such
member bank.
(5) A bank, banking association, savings bank, or trust com
pany not located and having no branch in the same city, town, or
village as that in which such member bank or any branch thereof
is located, or in any city, town, or village contiguous or adjacent
thereto.
REGULATION L
(6) A bank, banking association, savings bank, or trust com
pany not engaged in a class or classes of business in which such
member bank is engaged.
(7) A mutual savings bank having no capital .stock.
Until February 1, 1939, nothing in this section shall prohibit
any director, officer, or employee of any member bank of the
Federal Reserve System, or any branch thereof, who is lawfully
serving at the same time as a private banker or as a director,
officer, or employee of any other bank, banking association, sav
ings bank, or trust com pany, or any branch thereof, on the date
of enactment of the Banking A ct of 1935, from continuing such
service.
The Board of Governors of the Federal Reserve System is
authorized and directed to enforce compliance with this section,
and to prescribe such rules and regulations as it deems necessary
for that purpose.
*
*
*
*
*
*
W hen any person elected or chosen as a director or officer or
selected as an employee of any bank or other corporation subject
to the provisions of this A ct is eligible at the time of his election
or selection to act for such bank or other corporation in such
capacity his eligibility to act in such capacity shall not be affected
and he shall not become or be deemed amendable to any of the
provisions hereof by reason of any change in the affairs of such
bank or other corporation from whatsoever cause, whether spe
cifically excepted by any of the provisions hereof or not, until the
expiration of one year from the date of his election or employment.
@FedFRASER