Full text of Federal Reserve Bank of New York Circulars : Interpretation of Regulations K and M

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FEDERAL RESERVE BANK
OF NEW YORK
June 20, 1969

Interpretation o f Regulations K and M
To All Member Banks, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System recently considered whether
foreign subsidiaries of member banks and Edge and Agreement corporations should be
permitted to acquire, without its consent, ’’ rights" to acquire shares in companies organized
or doing business in the United States, in connection with extensions of credit to foreign
affiliates of such companies.
The Board concluded that section 25(a) does not require its consent in such cases. The
Board, therefore, declared that, subject to certain specified conditions, Board consent is no
longer necessary for the acquisition of such "rights" incident to credit extensions or the
purchase of debt obligations by such foreign subsidiaries. Printed below is an excerpt from
the Federal Register of June 19, containing the text of the interpretation reflecting these
conclusions.
Additional copies of this circular will be furnished upon request.
Alfred Hayes,
President.
(b) In borrowing abroad through affili­
the general business of buying or selling
ates to finance their overseas operations,
goods, wares, mechandise or commodi­
Chapter II— Federal Reserve System U.S. corporations have made increasing ties in the United States (or transacts)
use of obligations convertible into shares
any business in the United States except
SUBCHAPTER A— BOARD OF GOVERNORS OF
of the parent corporation or have offered
THE FEDERAL RESERVE SYSTEM
rights to acquire such shares (both such such as in the judgment of the Board
[R eg. K ]
* * * may be incidental to its inter­
convertible obligations and rights here­
national or foreign business * * *”.
PART 211— C O R P O R A T IO N S EN­ inafter being collectively referred to as
“rights” ) . Since many foreign subsidiar­
U.S.C. 615. Interprets or applies 12 U.S C.
G A G E D IN FOREIGN B A N K IN G ies of member banks and Edge and 6(12
1 5 (c ))
A N D FIN A N CIN G U N D E R THE Agreement corporations are important
Dated at Washington, D.C., this 5th
FEDERAL RESERVE ACT
sources for such financing, the question
day of June 1969.
has arisen whether the Board should
Acquisition of “Rights”
permit such subsidiaries to acquire,
By order of the Board of Governors.
§ 211.104 Acquisition of rights to ac­ without its consent, such “rights” to ac­
[s e a l]
R o b e r t P. F o r r e s t a l,
quire shares incident to extensions quire shares of corporations which are
Assistant Secretary.
o f credit.
organized or doing business in the United
[F.R. D oc. 69-7222; Filed, Ju ne 18, 1969;
States.
(a)
When the Board grants its specific
8:45 a.m .]
(c) Having concluded that such sub­
consent for a member bank or a corpo­
sidiaries
should
in
certain
circumstances
ration organized under section 25(a) of
the Federal Reserve Act (an “Edge” be permitted to acquire such “ rights”
corporation) or operating pursuant to without its consent and that section 25
[R eg. M]
(a) does not require otherwise, the Board
an agreement with the Board under sec­
hereby
specifies
that,
as
used
in
§
211.8
PART
213—
FOREIGN
ACTIVITIES OF
tion 25 thereof (an “Agreement” corpo­
ration) to acquire a controlling stock (b), the term “shares” does not include
NATIONAL BANKS
interest in another corporation, the “ rights” to acquire shares of other cor­
Acquisition of “Rights”
terms of such consent ordinarily condi­ porations, even those organized or doing
tion the continued holding of such stock business in the United States: Provided, § 213.102 Acquisition of rights to ac­
upon the requirement that the subsidi­ That such “rights” (1) are exercised
quire shares incident to extensions
of credit.
ary limit its activities to those permis­ only with specific consent of the Board,
(2)
are
acquired
incident
to
an
exten­
sible for an Edge corporation. Except for
For text of this interpretation, see
sion
of
credit
or
the
purchase
of
a
debt
investments in the shares of “foreign
§ 211.104 of this subchapter.
corporations not doing business in the obligation, (3) have an investment value
(12 U.S.C. 601. In terprets or applies 12
United States” to the limited extent au­ relatively small in relation to the obliga­
U.S.C. 601)
thorized by the general consent in § 211.- tion to which they pertain, and (4) will
8(a) or as otherwise permitted in § 211.8 not cause the subsidiary to have invested
Dated at Washington, D.C., this 5th
(b) or (c )(2 ), specific consent of the more than $500,000 in the “rights” and day of June 1969.
Board is required before an Edge corpo­
By order of the Board of Governors.
shares of any corporation.
ration may acquire “shares” in another
(d) In this connection it is noted that
[ seal]
R obert P . F o rrestal,
corporation. Section 211.8(c)(2) pro­
Assistant Secretary.
vides that “unless otherwise specified, section 25(a) prohibits the purchase and
‘shares’ in this section includes any holding of stock (including the exercise [F H . D oc. 69-7223; F iled, Ju ne 18, 1969;
rights to acquire shares * *
of “rights” ) if the issuer is “engaged in
8:45 a.m .)

Title 12 -B A N K S AND BANKING