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FEDERAL RESERVE BANK OF N E W YORK Circular No. 7 7 2 01 [ September 29, 1975 J INTERPRETATION OF REGULATIONS K AND Y Computation of Amount Invested in Foreign Corporations To All Member Banks, and Others Concerned, in the Second Federal Reserve District: On September 12, 1975, the Board of Governors of the Federal Reserve System issued an interpretation of its Regulation K — Corporations Engaged in Foreign Banking and Financing U nder the Federal Reserve Act— and Regulation Y— Bank H olding Companies— regarding com putation of the amount invested in foreign corporations under general consent procedures. In subm itting the interpretation for publication in the Federal R egister the Board made the following statem ent: Under section 211.8(a) of Regulation K, the Board of Governors grants its general consent for a cor poration organized under section 2 5 (a) of the Federal Reserve Act (an “Edge Act Corporation” ) to invest, directly or indirectly, in the shares of foreign corporations not doing business in the United States; but no investment thereunder shall cause an Edge Act Corporation to have invested more than $500,000 in the shares, or to hold more than 25 per cent of the voting shares, of any foreign corporation. The Board of Gov ernors has ruled that in computing the $500,000 limitation under these general consent procedures, an Edge Act Corporation must include not only amounts actually paid in to the foreign corporation for its shares but also unpaid amounts on the shares of the corporation for which the Edge Act Corporation will be liable. If the total of such amounts exceeds $500,000, the Edge Act Corporation must apply for the Board’s specific consent to make such investment. This interpretation also applies to the foreign investments of domestic bank holding companies since, under Regulation Y, the consent procedures of Regulation K also govern such investments. Enclosed is a copy of the interpretation. Inquiries regarding this m atter may be directed to our Foreign Banking Applications Department. Additional copies of the enclosure will be furnished upon request. P a u l A. V o l c k e r , President. Board of Governors of the Federal Reserve System BANK HOLDING COMPANIES IN T E R P R E T A T IO N O F R E G U L A T IO N S K A N D Y §211.111 § 225.133 C om putation of A m ount Invested in Foreign Corporations U nder G eneral Consent Procedures. (a) Under section 211.8(a) of Regulation K, the Board of Governors grants its general consent for a corporation organized under sec tion 2 5 (a) of the Federal Reserve Act (an “Edge Act Corporation” ) to invest, directly or indirectly, in the shares of foreign corporations not doing business in the United States; but no investment thereunder shall cause an Edge Act Corporation to have invested more than $500,000 in the shares, or to hold more than 25 per cent of the voting shares, of any foreign corporation. Under § 225.4(f) (2 ) of Regula tion Y, these general consent procedures also govern the foreign investments of domestic bank holding companies made pursuant to sec tion 4 (c ) (13) of the Bank Holding Company Act of 1956, as amended. (b) In computing the $500,000 limitation under the general consent procedures, an Edge Act Corporation or bank holding company must include not only amounts actually paid in for the shares of the foreign corporation but also any unpaid amounts on the shares of the for eign corporation for which the Edge Act Cor poration or bank holding company will be li able. If the total of such amounts exceeds $500,000, then the Edge Act Corporation or bank holding company must apply for the Board’s prior specific consent to make such investment. (c) For example, an Edge Act Corporation plans to acquire a 2 0 per cent interest in a pro posed foreign corporation by subscribing to 60,000 shares with a par value of $ 1 0 per share. Initially, the shares will be 50 per cent paid in for an initial investment of $300,000; under the Articles of Association of the proposed corpo ration, the unpaid balance of $300,000 on the shares may be called at any time at the discretion of the corporation’s board of directors. It ap pears that some Edge Act Corporations have in this situation only included in their computation the $300,000 initially paid in to the foreign cor poration, and would thus acquire the shares of the foreign corporation under the general con sent procedures. The Board has determined that in this situation the total amount invested for purposes of the general consent procedures is $600,000, as the Edge Act Corporation must include in the computation its liability for the unpaid balance on the shares. The proposed in vestment in this situation would therefore re quire prior specific Board consent. By O rder of the Board of Governors of the Federal Reserve System, September 12, 1975. [Enc. Cir. No. 7720] P R I N T E D I N N E W YORK