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ftfc<R rjo 959-1 September 7, 1983 To the Addressee: Enclosed Is a copy of the Board’s revised Regulation K pamphlet, effective July 8, 1983, entitled "International Banking Operations." The pamphlet has been printed in the new smaller size and replaces the previous printings of that regulation, together with all supplements and amendments thereto. Additional copies of the pamphlet are available on request. Circulars Division FEDERAL RESERVE BANK OF NEW YORK sf^ s m msaBBB&ESz \ • r-ryTty B o a rd o f G o v ern o rs o f th e F ed era l R eserv e S ystem Regulation K International Banking Operations 12 CFR 211; as amended effective July 8, 1983 Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve District in which the inquiry arises. August 1983 Contents Page Subpart A—International Operations of United States Banking Organizations Page Subpart B—Foreign Banking Organizations Section 211.21—Authority, purpose, and scope................................................ 11 Section 211.1—Authority, purpose, and (a) Authority.....................................11 scope................................................ 1 (b) Purpose and scope.........................11 (a) Authority................................ 1 Section 211.22—Interstate banking (b) Purpose and scope.................... 1 operations of foreign banking Section 211.2—Definitions.................. 1 organizations...................................... 11 Section 211.3—Foreign branches of (a) Definitions................................... 11 member banks................................... 2 (b) Determination of homestate........11 (a) Establishment of foreign branches . 2 (c) Change of home state................... 12 (b) Further powers of foreign branches 2 (d) Bank mergers............................... 12 (c) Other permissible activities........ 3 (e) Attribution of home state.............. 12 (d) Reserves.................................. 3 Section 211.23—Nonbanking activities of Section 211.4—Edge and agreement foreign banking organizations................ 13 corporations...................................... 3 (a) Definitions................................... 13 (b) Qualifying foreign banking (a) Organization........................... 3 organizations................................13 (b) Nature and ownership of shares... 3 (c) Determining assets, revenues and (c) Branches.................................. 4 net income................................... 13 (d) Reserve requirements and interest (d) Loss of eligibility for exemptions .. 14 rate limitations......................... 4 (e) Specific determination of eligibility (e) Permissible activities in the United for nonqualifying foreign banking States..................................... 4 organizations................................14 (f) Agreement corporations........... 6 (f) Permissible activities and Section 211.5—Investments in other investments ................................. 14 organizations.................................... 6 (g) Exemptions under section 4(c) (9) (a) General policy......................... 6 of the Bank Holding Company Act 15 (b) Investment limitations ................ 6 (h) Reports........................................ 15 (c) Investment procedures............. 7 Subpart C—Export Trading (d) Listed activities....................... 8 Companies (e) Debts previously contracted...... 8 Section 211.31—Authority, purpose and Section 211.6—Lending limits and capital scope...................................................16 requirements..................................... 9 (a) Authority.....................................16 (a) Acceptances of Edge corporations . 9 (b) Purpose and scope...................... 16 (b) Liabilities of one person........... 9 Section 211.32—Definitions..................... 16 (c) Loans to foreign banks............. 9 (a) Export trading company................ 16 (d) Capitalization ............................ 9 (b) Bank, company, and subsidiary ... 16 Section 211.7—Supervision and reporting . 10 Section 211.33—Investments and (a) Supervision............................... 10 extensions of credit ..............................16 (b) Examinations............................10 (a) Amount of investments..................16 (c) Reports................... j .................10 (b) Extensions of credit.......................16 (d) Filing procedures...................... 10 Section 211.34—Procedures for filing and (e) Transition.................................10 processing notices ............................... 17 i Contents Page Page (a) Filing notice................................. 17 (b) Time period for Board action.......17 Bank Holding Company Act Section 2 (h )........................................ 28 Section 4(c)(9),(13), and (14) ...........28 Bank Export Services Act section 205 . . . . 31 International Banking Act Section 3(a), (g), and (h) ................... 31 Section 5 ..............................................32 Statutory Provisions Federal Reserve Act Section 25............................................19 Section 25(a)...................................... 21 ii Regulation K International Banking Operations 12 CFR 211; as amended effective July 8, 1983 SUBPART A—INTERNATIONAL OPERATIONS OF UNITED STATES BANKING ORGANIZATIONS SECTION 211.1—Authority, Purpose, and Scope (a) Authority. This part* is issued by the Board of Governors of the Federal Reserve System (“Board”) under the authority of the Federal Reserve Act (12 USC 221 et seq.) (“FRA”); the Bank Holding Company Act of 1956 (12 USC 1841 et seq.) (“BHCA”); and the International Banking Act of 1978 (92 Stat. 607) (“IBA”). (b) Purpose and scope. This part is in further ance of the purposes of the FRA, the BHCA, and the IBA. It applies to corporations orga nized under section 25(a) of the FRA (12 USC 611-631), “Edge Corporations”; to cor porations having an agreement or undertaking with the Board under section 25 of the FRA (12 USC 601-604(a)), “Agreement Corpora tions”; to member banks with respect to their foreign branches and investments in foreign banks under section 25 of the FRA (12 USC 601-604(a));*1 and to bank holding compa nies with respect to the exemption from the nonbanking prohibitions of the BHCA afford ed by section 4(c) (13) of the BHCA (12 USC 1843(c)(13)). SECTION 211.2—Definitions For the purposes of this part: any direct or indirect subsidiary of the organization. (b) “Capital and surplus” means paid-in and unimpaired capital and surplus, and includes undivided profits but does not include the pro ceeds of capital notes or debentures. (c) “Directly or indirectly ” when used in ref erence to activities or investments of an orga nization means activities or investments of the organization or of any subsidiary of the organization. (d) An Edge corporation is “engaged in if it is ordinarily engaged in the business of accepting deposits in the United States from nonaffiliated persons. banking ” (e) “Engaged in business in the United States ” means maintaining and operating an office (other than a representative office) or subsidiary in the United States. (f) “Foreign” or “foreign country ” refers to one or more foreign nations, and includes the overseas territories, dependencies, and insular possessions of those nations and of the United States, and the Commonwealth of Puerto Rico. (g) “Foreign bank ” means an organization that: is organized under the laws of a foreign country; engages in the business of banking; is recognized as a bank by the bank supervisory or monetary authority of the country of its organization or principal banking operations; receives deposits to a substantial extent in the regular course of its business; and has the power to accept demand deposits. (a) An “affiliate ” of an organization means (h) “Foreign branch ” means an office of an any company of which the organization is a institution which is located outside the coun direct or indirect subsidiary, any other direct try under the laws of which the institution is or indirect subsidiary of that company, and organized, at which a banking or financing business is conducted. * The words “this part,” as used herein, mean Regula tion K (Code of Federal Regulations, title 12, chapter II, part 211). 1 Section 25 of the FRA, which refers to national bank ing associations, also applies to state member banks of the Federal Reserve System by virtue of section 9 of the FRA (12 USC 321). (i) “Investment” means the ownership or control of shares, including binding commit ments to acquire shares, and other contribu tions to the capital accounts of an orga1 §211.2 nization, including the holding of an organization’s subordinated debt when shares of stock of the organization are also held directly or indirectly by an investor. Regulation K in 30 days of the opening, closing or reloca- tion of a branch and the address of a new or relocated foreign branch. (b) Further powers o f foreign branches. In ad dition to its general banking powers, and to the extent consistent with its charter, a foreign branch of a member bank may engage in the (k) “Joint venture” is an organization 20 per following activities so far as usual in connec cent or more of the voting stock of which is tion with the business of banking in the coun held directly or indirectly by an investor or by try where it transacts business: (1) guarantee customers’ debts or other an affiliate of the investor but which is not a wise agree for their benefit to make pay subsidiary of the investor. ments on the occurrence of readily ascer (/) “Listed activities” means the activities tainable events2 if the guarantee or specified in section 211.5(d). agreement specifies a maximum monetary liability; but except to the extent that the (m) “Organization” means a corporation, member bank is fully secured, it may not government, partnership, association, or any have liabilities outstanding for any person other legal or commercial entity. on account of such guarantees or agree (n) “Person” means an individual or an ments which when aggregated with other organization. obligations of the same person exceed the limit contained in section 5200 of the Re (o) “Portfolio investment” means an invest vised Statutes (12 USC 84); ment in an organization other than a subsidi (2) accept drafts or bills of exchange ary or joint venture. drawn upon it; however, such acceptances (p) “Subsidiary ” means an organization that are of the type described in paragraph more than 50 percent of the voting stock of 7 of section 13 of the FRA (12 USC 372) which is held directly or indirectly by the in shall be subject to the amount limitations vestor, or which is otherwise controlled or ca provided therein and such acceptances that pable of being controlled by the investor or an are of the type described in paragraph 12 of affiliate of the investor. section 13 of the FRA shall be subject to the amount limitations provided therein; (3) invest in (i) the securities of the cen SECTION 211.3—Foreign Branches of tral bank, clearing houses, governmental Member Banks entities, and government-sponsored devel opment banks of the country in which the (a) Establishment o f foreign branches. A foreign branch is located, (ii) other debt se member bank may establish a foreign branch curities eligible to meet local reserve or with prior approval of the Board. Unless oth similar requirements, and (iii) shares of erwise advised by the Board: (1) a member professional societies, schools, and the like bank that has branches in two or more foreign necessary to the business of the branch; countries may establish initial branches in ad however, the branch’s total investments un ditional foreign countries after 60 days’ notice der this provision (exclusive of securities to the Board; and (2) without prior approval held as required by the law of that country or prior notice, a member bank may establish or as authorized under section 5136 of the additional branches in any foreign country in Revised Statutes (12 USC 24)) shall not which it operates one or more branches. Au exceed 1 percent of its total deposits on the thority to establish branches through prior ap proval or prior notice shall expire one year 2 “Readily ascertainable events” include, but are not lim from the earliest date on which it could have ited to events such as nonpayment of taxes, rentals, cus been exercised, unless extended by the Board. toms duties, or costs of transport and loss or nonconfor A member bank shall inform the Board with mance of shipping documents. (j) “Investor” means an Edge corporation, agreement corporation, bank holding compa ny, or member bank. 2 Regulation K preceding year-end call report date (or on the date of acquisition in the case of a newly established branch that has not so reported); (4) underwrite, distribute, buy, and sell obligations of the national government of the country in which the branch is located, obligations of an agency or instrumentality of the national government, and obligations of a municipality or other local or regional governmental entity of the country; howev er, no member bank may hold, or be under commitment with respect to, obligations of the government or governmental entities of a country as a result of underwriting, deal ing, or purchasing for the bank’s own ac count an aggregate amount exceeding 10 percent of the member bank’s capital and surplus; (5) take liens or other encumbrances on foreign real estate in connection with its ex tensions of credit, whether or not of first priority and whether or not the real estate is improved or has been appraised, and with out regard to maturity or amount limita tions or amortization requirements of sec tion 24 of the FRA (12 USC 371); (6) extend credit up to $100,000 or its equivalent to an officer of the bank residing in the country in which the foreign branch is located to finance the acquisition or con struction of living quarters to be used as the officer’s residence abroad, provided any such credit extension is reported promptly to the branch’s home office; however, when necessary to meet local housing costs, such amount may be exceeded with the specific prior approval of the member bank’s board of directors; (7) act as insurance agent or broker; (8) pay to an employee of the branch, as part of an employee benefit program, a greater rate of interest than that paid to other depositors of the branch; and (9) engage in repurchase arrangements in volving commodities and securities that are the functional equivalent of extensions of credit. §211.4 connection with the transaction of the busi ness of banking in the places where its branch es transact business may apply to the Board for permission to engage in such activities. (d) Reserves. Reserves shall be maintained against foreign branch deposits when required by part 204 of this chapter (Regulation D). SECTION 211.4— Edge and Agreement Corporations (a) Organization. (1) A proposed Edge cor poration shall become a body corporate when the Board issues a preliminary permit approving its proposed name, articles of as sociation, and organization certificate. The name shall include “international,” “for eign,” “overseas,” or some similar word, but may not resemble the name of another organization to an extent that might mis lead or deceive the public. The factors that will be considered by the Board in acting on a proposal to organize an Edge corporation include: (i) the financial condition and history of the applicant; (ii) the general character of its management; (iii) the convenience and needs of the community to be served with respect to international banking and financing serv ices; and (iv) the effects of the proposal on com petition. The Board will publish in the Federal Register notice of any such pro posal and will give interested persons an opportunity to express their views on the proposal. (2) After the Board issues a preliminary permit, the Edge corporation may elect offi cers and otherwise complete its organiza tion, invest in obligations of the United States government, and maintain deposits with banks, but it may not exercise any oth er powers until the Board has issued a final permit to commence business. No amend ment to the articles of association shall be come effective until approved by the Board. (c) Other permissible activities. A member bank that is of the opinion that activities other (b) Nature and ownership o f shares. (1) Shares of stock in an Edge corporation may than those specified in this section are usual in 3 §211.4 not include no-par value shares and shall be issued and transferred only on its books and in compliance with section 25(a) of the FRA. The share certificates of an Edge cor poration shall (i) name and describe each class of shares indicating their character and any unusual attributes such as pre ferred status or lack of voting rights and (ii) conspicuously set forth the substance of (A) limitations upon the rights of owner ship and transfer of shares imposed by sec tion 25(a) of the FRA, and (B) rules that the Edge corporation shall prescribe in its bylaws to ensure compliance with this para graph. Any change in status of a sharehold er that causes a violation of section 25(a) of the FRA shall be reported to the Board as soon as possible, and the Edge corporation shall take such action as the Board may direct. (2) One or more foreign or domestic insti tutions referred to in section 3(f) of the IBA may apply for the Board’s prior ap proval to acquire a majority of the shares of the capital stock of an Edge corporation. In acting on an application by a foreign insti tution that is not subject to the IBA or the BHCA, the Board will impose any condi tions that are necessary to prevent undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices in the United States. The aggregate amount invested in Edge corporations by a foreign institution shall not exceed 10 percent of the foreign institution’s capital and surplus. Regulation K portunity for the public to give written comment on the proposal to the appropri ate Federal Reserve Bank for at least 30 days after the date of publication. The fac tors considered in acting upon a proposal to establish a branch are those enumerated in section 211.4(a)(1). (2) An Edge corporation may establish branches abroad in accordance with the procedures in section 211.3(a). (d) Reserve requirements and interest rate limitations. The deposits of an Edge corpora tion are subject to parts 204 and 217 of this chapter (Regulations D and Q) in the same manner and to the same extent as if the Edge corporation were a member bank. (e) Permissible activities in the United States. An Edge corporation may engage in activities in the United States that are permitted by the sixth paragraph of section 25(a) of the FRA and in such other activities as the Board determines are incidental to international or foreign business. The following activities will ordinarily be considered incidental to an Edge corporation’s international or foreign business: (1) Deposits from foreign governments and persons. An Edge corporation may re ceive in the United States demand, savings, and time deposits (including negotiable cer tificates of deposits) from foreign govern ments and their agencies and instrumentali ties, persons conducting business principal ly at their offices or establishments abroad, and individuals residing abroad. (2) Deposits from other persons. An Edge (c) Branches. (1) An Edge corporation may corporation may receive in the United establish branches in the United States 45 States demand, savings, and time deposits days after the Edge corporation has given (including negotiable certificates of depos notice to its Reserve Bank, which is to in it) if such deposits: clude a copy of the notice of the proposal (i) are to be transmitted abroad; published in a newspaper of general circula (ii) consist of collateral or funds to be tion in the communities to be served by the used for payment of obligations to the Edge corporation; branch, unless the Edge corporation is noti fied to the contrary within that time. The (iii) consist of the proceeds of collec newspaper notice shall be placed in the clas tions abroad that are to be used to pay sified advertising legal notices section of the for exported or imported goods or for newspaper and may appear no more than other costs of exporting or importing or 90 calendar days prior to submission of no that are to be periodically transferred to the depositor’s account at another finan tice of the proposal to the Reserve Bank. cial institution; The newspaper notice must provide an op 4 Regulation K (iv) consist of the proceeds of extensions of credit by the Edge corporation; or (v) represent compensation to the Edge corporation for extensions of credit or services to the customer. (3) Use of funds in the United States. Funds of an Edge corporation not currently employed in its international or foreign business, if held or invested in the United States, shall be in the form of cash, deposits with banks, and money market instruments such as bankers’ acceptances, obligations of or fully guaranteed by federal, state, and lo cal governments and their instrumentalities, repurchase agreements, federal funds sold, and commercial paper. (4) General activities. Subject to the limi tations of section 25(a) of the FRA and section 211.6 of this part, an Edge corpora tion may engage in the following activities to the extent consistent with sound banking practices: (i) issue obligations to domestic offices of other banks (including purchases of federal funds) or to the United States or any of its agencies; (ii) incur indebtedness from a transfer of direct obligations of, or obligations that are fully guaranteed as to principal and interest by, the United States or any agency thereof that the Edge corporation is obligated to repurchase; (iii) issue long-term subordinated debt that does not qualify as a “deposit” un der part 204 of this chapter (Regulation D ); (iv) finance the following: (A) con tracts, projects, or activities performed substantially abroad; (B) the importa tion into or exportation from the United States of goods, whether direct or through brokers or other intermediaries; (C) the domestic shipment or temporary storage of goods being imported or ex ported (or accumulated for export); and (D) the assembly or repackaging of goods imported or to be exported; (v) finance the costs of production of goods and services for which export or ders have been received or which are identifiable as being directly for export; (vi) assume or acquire participations in §211.4 extensions of credit, or acquire obliga tions arising from transactions the Edge corporation could have financed; (vii) guarantee a customer’s debts or otherwise agree for the customer’s benefit to make payments on the occurrence of readily ascertainable events,3 if the guar antee or agreement specifies the maxi mum monetary liability thereunder and is related to a type of transaction de scribed in paragraphs (4)(iv) and (4) (v) of this section; (viii) receive checks, bills, drafts, ac ceptances, notes, bonds, coupons, and other securities for collection abroad, and collect such instruments in the United States for a customer abroad; (ix) hold securities in safekeeping for, or buy and sell securities upon the order and for the account and risk of a person; (x) act as paying agent for securities is sued by foreign governments or other en tities organized under foreign law; (xi) act as trustee, registrar, conversion agent, or paying agent with respect to any class of securities issued to finance foreign activities and distributed solely outside the United States; (xii) make private placements of partici pations in its investments and extensions of credit; however, except to the extent permissible for member banks under sec tion 5136 of the Revised Statutes (12 USC 24), no Edge corporation may oth erwise engage in the business of selling or distributing securities in the United States; (xiii) buy and sell spot and forward for eign exchange; (xiv) act as investment or financial ad viser by providing portfolio investment advice and portfolio management with respect to securities, other financial in struments, real property interests and other investment assets,33 provided such 3 “Readily ascertainable events” include, but are not lim ited to, events such as nonpayment of taxes, rentals, cus toms duties, or costs of transport and loss or nonconfor mance of shipping documents. 3a For purposes of this section, management of an invest ment portfolio does not include operational management of real property, industrial and commercial assets. 5 §211.4 services for U.S. persons shall be with re spect to foreign assets only; and (xv) provide general economic informa tion and advice, general economic statis tical forecasting services and industry studies, provided such services for U.S. persons shall be with respect to foreign economies and industries only. (5) Other permissible activities. An Edge corporation that is of the opinion that other activities in the United States would be inci dental to its international or foreign busi ness may apply to the board for such a determination. (f) Agreement corporations. With the prior approval of the Board, a member bank or bank holding company may invest in a feder ally or state-chartered corporation that has entered into an agreement or undertaking with the Board that it will not exercise any power that is impermissible for an Edge cor poration under this part. SECTION 211.5—Investments in Other Organizations (a) General policy. Activities of investors abroad, whether conducted directly or indi rectly, shall be confined to those of a banking or financial nature and those that are neces sary to carry on such activities. In doing so, investors shall at all times act in accordance with high standards of banking or financial prudence, having due regard for diversifica tion of risks, suitable liquidity, and adequacy of capital. Subject to these considerations and the other provisions of this section, it is the Board’s policy to allow activities abroad to be organized and operated as best meets corpo rate policies. (b) Investment limitations. (1) An investor, in accordance with the investment proce dures described in paragraph (c) of this section, may directly or indirectly: (i) invest in a subsidiary that engages solely in listed activities or in such other activities as the Board has determind in the circumstances of a particular case are permissible; 6 Regulation K (ii) invest in a joint venture provided that, unless otherwise permitted by the Board not more than 10 percent of the joint venture’s consolidated assets or rev enues shall be attributable to activities that would not be permissible for a subsidiary; (iii) make portfolio investments (includ ing securities held in trading or dealing accounts) in an organization if the total direct and indirect portfolio investments in organizations engaged in activities that are not permissible for joint ventures does not at any time exceed 100 percent of the investor’s capital and surplus.4 (2) A member bank’s direct investments under section 25 of the FRA shall be limit ed to foreign banks and to foreign organiza tions formed for the sole purpose of either holding shares of a foreign bank or per forming nominee, fiduciary, or other bank ing services incidental to the activities of a foreign branch or foreign bank affiliate of the member bank. (3) A subsidiary (other than a member bank or an Edge corporation) may estab lish a foreign branch with prior approval of the Board. Unless otherwise advised by the Board: (i) a subsidiary (other than a mem ber bank or an Edge corporation) whose affiliates have offices (other than represent ative offices) in two or more foreign coun tries may establish initial branches in addi tional foreign countries after 60 days’ notice to the Board; (ii) a foreign bank subsidiary may, without prior approval or prior no tice, establish additional branches in any country in which it operates one or more offices (other than representative offices); and (iii) without prior approval or prior notice, any subsidiary (other than a foreign bank, member bank, or Edge corporation) may establish additional branches in any foreign country in which any affiliate oper ates one or more offices (other than repre sentative offices). Authority to establish branches through prior approval or prior notice shall expire one year from the earli est date on which that authority could have 4 For this purpose, a direct subsidiary of a member bank is deemed to be an investor. Regulation K §211.5 sent of the Board for investment in its first subsidiary, its first joint venture, and its first portfolio investment unless an affiliate has made such investments. Authority to make in vestments under prior notice or prior consent shall expire one year from the earliest date on which it could have been exercised unless ex tended by the Board. (1) General consent. The Board grants its general consent for the following: (i) any investment in a joint venture or subsidiary, and any portfolio investment, if: (A) the organization is not engaged in business in the United States; and (B) the total amount invested does not ex ceed the lesser of (7) $2 million or (2) 5 percent of the investor’s capital and sur plus in the case of a member bank, bank holding company, or Edge corporation engaged in banking, or 25 percent of the investor’s capital and surplus in the case of an Edge corporation not engaged in banking; (ii) any additional investment in an or ganization in any calendar year so long as (A) the investment does not cause the organization to be a direct or indirect subsidiary or joint venture of the inves tor; (B) the total amount invested in that calendar year does not exceed 10 percent of investor’s capital and surplus; and, (C) the total amount invested under part 211 in the current calendar year does not exceed cash dividends reinvested pursu ant to paragraph (iii) below plus the greater of (7) 10 percent of the investor’s (c) Investment procedures. 5 Direct and indi direct and indirect historical cost6 in rect investments shall be made in accordance such organization, or (2) 50 percent of with the general consent, notice, or specific the investor’s direct and indirect histori consent procedures contained in this section. cal cost in that organization less any The Board may at any time, upon notice, sus amounts invested in that organization pend the general consent and notification pro during the previous four calendar years cedures with respect to any investor or with respect to the acquisition of shares of compa 6 The “historical cost” of an investment consists of the nies engaged in particular kinds of activities. actual amounts paid for shares or otherwise contributed to the capital accounts, as measured in dollars at the exchange An investor must receive prior specific con- rate in effect at the time each investment was made. It does been exercised, unless extended by the Board. An investor shall inform the Board within 30 days of the opening, closing, or relocation of a branch and the address of a new or relocated foreign branch. (4) In computing the amount that may be invested in any organization under this sec tion there shall be included any unpaid amount for which the investor is liable and any investments by affiliates. (5) An investor shall dispose of an invest ment promptly (unless the Board autho rizes retention) if: (i) the organization invested in (A) en gages in the business of underwriting, selling or distributing securities in the United States; (B) engages in the general business of buying or selling goods, wares, merchandise, or commodities in the United States; or (C) transacts busi ness in the United States that is not inci dental to its international or foreign business; (ii) in the case of a subsidiary, it engages in an activity other than that which the Board has determined to be permissible; or in the case of joint venture, it engages in an impermissible activity beyond that described in paragraph (b) (1) (ii) of this section; or (iii) after notice and opportunity for hearing, the investor is advised by the Board that its investment is inappropri ate under the FRA, the BHCA, or this part. not include subordinated debt or unpaid commitments to invest even though these may be considered investments for other purposes of this part. For investments acquired indi 5 When necessary, the general consent and prior notificarectly as a result of acquiring a subsidiary, the historical tion provisions of this section constitute the Board’s ap cost to the investor is measured as of the date of acquisition proval under the eighth paragraph of section 25(a) of the of the subsidiary; at the net asset value of the equity interest FRA for investments in excess of the limitations therein in the case of subsidiaries and joint ventures, and in the based on capital and surplus. case of portfolio investments, at the book carrying value. 7 §211.5 (excluding dividends reinvested pursuant to paragraph (iii) below); or (iii) any additional investment in an or ganization in an amount equal to cash dividends received from that organiza tion during the preceding 12 calendar months so long as such investment does not cause the organization to be a direct or indirect subsidiary or joint venture of the investor; or (iv) any investment that is acquired from an affiliate at net asset value. (2) Prior notification. An investment in a subsidiary or joint venture that does not qualify under the general consent procedure may be made after the investor has given 45 days’ prior written notice to the Board un less the Board waives such period because it finds immediate action is required by the circumstances presented, if the total amount to be invested does not exceed 10 percent of the investor’s capital and sur plus. The notification period shall com mence at the time the notice is accepted. The Board may, during the notification pe riod, disapprove the investment, suspend the period, or require that an application be filed by the investor for the Board’s specific consent. (3) Specific consent. Any investment that does not qualify for either the general-con sent or the prior-notification procedure shall not be consummated without the spe cific consent of the Board. Regulation K (6) performing services for other direct or indirect operations of a United States bank ing organization, including representative functions, sale of long term debt, name sav ing, and holding assets acquired to prevent loss on a debt previously contracted in good faith; (7) holding the premises of a branch of an Edge corporation or member bank or the premises of a direct or indirect subsidiary; (8) providing investment, financial or eco nomic advisory services; (9) general insurance brokerage; (10) data processing; (11) managing a mutual fund if the fund’s shares are not sold or distributed in the United States or to United States residents and the fund does not exercise managerial control over the firms in which it invests; (12) performing management consulting services provided that such services when rendered with respect to the United States market shall be restricted to the initial entry; (13) underwriting, distributing, and deal ing in debt and equity securities outside the United States, provided that no underwrit ing commitment by a subsidiary of an in vestor for shares of an issuer may exceed $2 million or represent 20 percent of the capi tal and surplus or voting stock of an issuer unless the underwriter is covered by bind ing commitments from subunderwriters or other purchasers; (14) engaging in other activities that the Board has determined by regulation or or (d) Listed activities. The Board has deter der are closely related to banking under sec mined that the following activities are usual in tion 4(c)(8) of the BHCA. connection with the transaction of banking or An investor that is of the opinion that other other financial operations abroad: activities are usual in connection with the (1) commercial banking; (2) financing, including commercial fi transaction of the business of banking or other nancing, consumer financing, mortgage financial operations abroad and are consistent with the FRA or the BHCA may apply to the banking, and factoring; (3) leasing real or personal property if the Board for such a determination. lease serves as the functional equivalent of an extension of credit to the lessee of the (e) Debts previously contracted. Shares of stock or other evidences of ownership ac property; quired to prevent a loss upon a debt previous (4) acting as fiduciary; (5) underwriting credit life insurance and ly contracted in good faith shall not be subject credit accident and health insurance related to the limitations or procedures of this sec to extensions of credit by the investor or its tion; however, the shares or evidences of own ership shall be disposed of promptly, but in no affiliates; 8 Regulation K event later than two years after their acquisi tion unless the Board authorizes retention for a longer period. SECTION 211.6—Lending Limits and Capital Requirements (a) Acceptances o f Edge corporations. An Edge corporation shall be and remain fully se cured for (i) all acceptances outstanding in excess of twice its capital and surplus; and (ii) all acceptances outstanding for any one per son in excess of 10 percent of its capital and surplus. These limitations shall not apply (i) if the excess represents the international ship ment of goods and the Edge corporation is fully covered by primary obligations to reim burse it that are also guaranteed by banks or bankers, or (ii) if the Edge corporation is cov ered by participation agreements from other banks. (b) Liabilities o f one person. (1) Except as the Board may otherwise specify: (i) the liabilities of any person to an Edge corporation engaged in banking and to its direct or indirect subsidiaries shall not exceed 10 percent of the Edge corporation’s capital and surplus; (ii) the total liabilities of any person to a majority-owned foreign bank or Edge corporation subsidiary of a member bank, and to majority-owned subsidiaries of such foreign bank or Edge corporation when combined with liabilities of the same person to the member bank and its majority-owned subsidiaries, shall not ex ceed the member bank’s limitation on loans to one person. (2) “Liabilities” includes: ineligible ac ceptances outstanding; obligations for mon ey borrowed; investments in another orga nization (valued at original cost) except where that organization is a direct or indi rect subsidiary; unsecured obligations re sulting from the issuance of guarantees or similar agreements; underwiting commit ments to an issuer of securities; in the case of a partnership or firm, obligations of its members, in the case of a corporation, obli gations incurred for its benefit by other cor §211.6 porations that it controls; and in the case of a foreign government, the liabilities of its departments or agencies deriving their cur rent funds principally from general tax revenues. (3) The limitations of this paragraph do not apply to: (i) deposits of banks and federal funds purchased; (ii) bills or drafts drawn in good faith against actual goods and on which two or more parties are liable; (iii) any acceptance that has not ma tured and is not held by the acceptor; (iv) obligations to the extent secured by cash collateral; or (v) obligations to the extent supported by the full faith and credit of the follow ing: (A) the United States or any of its departments, agencies, establishments, or wholly owned corporations (including obligations to the extent insured against foreign political and credit risks by the Export-Import Bank of the United States or the Foreign Credit Insurance As sociation), the International Bank for Reconstruction and Development, the International Finance Corporation, the International Development Association, the Inter-American Development Bank, or the Asian Development Bank; (B) any organization if at least 25 percent of such an obligation or of the total credit is also supported by the full faith and credit of, or participated in by any institution designated in paragraph (b) (3) (v) (A) of this section in such manner that de fault to the lender will necessarily include default to that entity. The total liabilities of such person shall at no time exceed 100 percent of the capital and surplus of the lender or the parent Edge corporation. (c) Loans to foreign banks. A member bank that holds directly or indirectly shares in a foreign bank may make loans to that foreign bank without regard to section 23A of the FRA. (d) Capitalization. An Edge corporation shall at all times be capitalized in an amount 9 §211.6 that is adequate in relation to the scope and character of its activities. In the case of an Edge corporation engaged in banking, its cap ital and surplus shall be not less than 7 per cent of risk assets. For this purpose, subordi nated capital notes or debentures, in an amount not to exceed 50 percent of non-debt capital, may be included for determining capi tal adequacy in the same manner as for a member bank; risk assets shall be deemed to be all assets on a consolidated basis other than cash, amounts due from banking institutions in the United States, United States govern ment securities, and federal funds sold. SECTION 211.7—Supervision and Reporting (a) Supervision. (1) Investors shall supervise and administer their foreign branches and subsidiaries in such a manner as to ensure that their operations conform to high stan dards of banking and financial prudence. Effective systems of records, controls, and reports shall be maintained to keep man agement informed of their activities and condition. Such systems should provide, in particular, information on risk assets, li quidity management, and operations of controls and conformance to management policies. Reports on risk assets should be sufficient to permit an appraisal of credit quality and assessment of exposure to loss, and for this purpose provide full informa tion on the condition of material borrowers. Reports on the operations of controls should include the internal and external au dits of the branch or subsidiary. (2) Investors shall maintain sufficient in formation with respect to joint ventures to keep informed of their activities and condi tion. Such information shall include audits and other reports on financial performance, risk exposure, management policies, and operations of controls. Complete informa tion shall be maintained on all transactions with the joint venture by the investor and its affiliates. (3) The reports and information specified in paragraphs (1) and (2) shall be made 10 Regulation K available to examiners of the appropriate bank supervisory agencies. (b) Examinations. Examiners appointed by the Board shall examine each Edge corpora tion once a year. An Edge corporation shall make available to examiners sufficient infor mation to assess its condition and operations and the condition and activities of any organi zation whose shares it holds. (c) Reports. (1) Each Edge corporation shall make at least two reports of condition annually to the Board at such times and in such form as the Board may prescribe. The Board may require that statements of con dition or other reports be published or made available for public inspection. (2) Edge corporations, member banks, and bank holding companies shall file such re ports on their foreign operations as the Board may require. (3) A member bank, Edge corporation or a bank holding company shall report within 30 days any acquisition or disposition of shares in a manner prescribed by the Board. (d) Filing procedures. Unless otherwise di rected by the Board, applications, notifica tions, and reports required by this part shall be filed with the Federal Reserve Bank of the district in which the parent bank or bank holding company is located, or if none, the Federal Reserve Bank of the district in which the applying or reporting institution is locat ed. Instructions and forms for such applica tions, notifications and reports are available from the Federal Reserve Bank. (e) Transition. (1) Transactions that have been consummated or activities engaged in pursuant to the Board’s general or specific consent prior to June 8, 1979, may be re tained or continued. Conditions imposed or undertakings in connection with such in vestments that are inconsistent with this part shall be superseded by this part. (2) Extensions of credit in excess of the limitations of section 211.6(b) that were outstanding on June 8, 1979, may remain outstanding until the date of maturity. (3) Edge corporations whose accounts or investments do not conform to sections 211.6(d) or 211.5(b) of this part on June Regulation K 14, 1979, shall conform such accounts and investments by June 14, 1981. SUBPART B—FOREIGN BANKING ORGANIZATIONS SECTION 211.21—Authority, Purpose, and Scope (a) Authority. This subpart is issued by the Board of Governors of the Federal Reserve System (“Board”) under the authority of the Bank Holding Company Act of 1956 (12 USC 1841 et seq.) (“BHCA”); and the Inter national Banking Act of 1978 (92 Stat. 607) (“IBA”). (b) Purpose and Scope. This subpart is in fur therance of the purposes of the BHCA and the IBA. It applies to foreign banks and for eign banking organizations with respect to the limitations on interstate banking under sec tion 5 of the IBA (12 USC 3103); and to for eign banks and foreign bank holding compa nies with respect to the exemptions from the nonbanking prohibitions of the BHCA and the IBA afforded by sections 2(h) and 4(c)(9) of the BHCA (12 USC 1841(h) and 1843(c)(9)). SECTION 211.22—Interstate Banking Operations of Foreign Banking Organizations (a) Definitions. The definitions of section 211.2 in subpart A apply to this section sub ject to the following: (1) “Agency ” means any office or any place of business of a foreign bank located in any state of the United States or the Dis trict of Columbia at which credit balances are maintained, checks are paid, or money is lent, but at which deposits may not be accepted from a citizen or resident of the United States. Obligations shall not be con sidered credit balances unless they: (i) are incidental to, or arise out of the exercise of other lawful banking powers; §211.22 (ii) are to serve a specific purpose; (iii) are not solicited from the general public; (iv) are not used to pay routine operat ing expenses in the United States such as salaries, rent, or taxes; (v) are with drawn within a reasonable period of time after the specific purpose for which they were placed has been accomplished; and (vi) are drawn upon in a manner reason able in relation to the size and nature of the account. (2) “Banking subsidiary, ” with respect to a specified foreign bank, means a bank that is a subsidiary as the terms “bank” and “subsidiary” are defined in section 2 of the BHCA (12 USC 1841). (3) “Commercial lending company ” means any organization, other than a bank or an organization operating under section 25 of the FRA, organized under the laws of any state of the United States or the District of Columbia, that maintains credit balances as may be maintained by an agency and en gages in the business of making commercial loans. (4) “Domestic branch ” means any office or any place of business of a foreign bank lo cated in any state of the United States or the District of Columbia that may accept domestic deposits and deposits that are in cidental to or for the purpose of carrying out transactions in foreign countries. (5) “Foreign Bank,” for purposes of this section, is an organization that is organized under the laws of a foreign country and that engages in the business of banking. (b) Determination o f home state. (1) A foreign bank selecting its home state shall do so by filing with the Board a decla ration of home state within 180 days of the effective date of this subpart. In the absence of such selection, the Board shall designate a foreign bank’s home state. Within one year after the home state of a foreign bank has been determined, unless the Board au thorizes a longer period: (i) the foreign bank shall close domestic branches whose activities are not permis sible under section 5(b) of the IBA, con vert such domestic branches to agencies, or enter into an agreement with the 11 §211.22 Board regarding the deposits of such branches as prescribed in section 5(a) of the IBA; and (ii) the foreign bank shall divest voting shares of interests in, or assets of banks that are not permissible under section 5(b) of the IBA. (2) A foreign bank that currently does not operate a domestic branch or banking sub sidiary shall not be required to select a home state and shall not have its home state designated by the Board. (3) A foreign bank (except a foreign bank to which paragraph (b)(5) of this section applies) that has any combination of do mestic branches, banking subsidiaries, agencies, or commercial lending company subsidiaries that, before July 27, 1978, were established or applied for in more than one state may select its home state only from those states in which the foreign bank has continuously operated such offices. (4) A foreign bank that established or ap plied for one domestic branch or one bank ing subsidiary before July 27, 1978, and that was not otherwise engaged in banking in the United States on that date, shall have as its home state the state in which such domestic branch or banking subsidiary is located. (5) A foreign bank that before July 27, 1978, had no domestic branches or banking subsidiaries or had only agencies or com mercial lending companies, and, after that date, has established or establishes any do mestic branch or banking subsidiary shall have as its home state that state in which its initial domestic branch or banking subsidi ary is located. (c) Change o f home state. A foreign bank may change its home state once if: (1) 30 days’ prior notification of the pro posed change is filed with the Board; and (2) domestic branches established and in vestments in banks required in reliance on its original home state selection are con formed to those that would have been per missible had the new home state been se lected as its home state originally. (d) Bank mergers. (1) A foreign bank with one or more banking subsidiaries that se 12 Regulation K lects as its home state a state other than that in which a banking subsidiary is locat ed, and that proposes to acquire through its subsidiary bank all or substantially all of the assets of a bank larger than its subsidi ary bank (in terms of deposits) located out side the foreign bank’s home state shall give 60 days’ notification to the Board prior to consummation of the proposed transaction. (2) If, after receiving the notification, the Board makes a preliminary determination within that period that the proposed acqui sition would be inconsistent with the for eign bank’s home state selection, the foreign bank shall: (i) redesignate as its home state the state in which its subsidiary bank is located; or (ii) show cause why in the facts and cir cumstances of its case its home state should not be redesignated (the foreign bank’s submission may include a request for a hearing). (3) On the basis of information available, the Board shall: (i) direct that the foreign bank redesig nate as its home state the state in which its subsidiary bank is located; or (ii) take no action with respect to the foreign bank’s home state. (4) Factors to be considered by the Board in making its preliminary and final determi nations include the size of the proposed ac quisition relative to the foreign bank’s other operations in the United States and the abil ity of the foreign bank to change its home state. (e) Attribution o f home state. (1) A foreign bank or organization and the other foreign banks or organizations over which it exer cises actual control shall be regarded as one foreign bank and shall be entitled to one home state. (2) Actual control shall be conclusively presumed to exist in the case of a bank or organization that owns or controls a major ity of the voting shares of another bank or organization. (3) Where it appears to the Board that a foreign bank or organization exercises actu al control over the management or policies Regulation K §211.23 (b) Qualifying foreign banking organizations. Unless specifically made eligible for the ex emptions by the Board, a foreign banking or ganization shall qualify for the exemptions af forded by this section only if, disregarding its United States banking, more than half of its worldwide business is banking; and more than half of its banking business is outside the United States. In order to qualify, a foreign banking organization shall: (1) meet at least two of the following requirements: (i) banking assets held outside the Unit ed States1 exceed total worldwide non banking assets; (ii) revenues derived from the business of banking outside the United States ex ceed total revenues derived from its worldwide nonbanking business; (iii) net income derived from the busi ness of banking outside the United States exceeds total net income derived from its worldwide nonbanking business; and (2) meet at least two of the following requirements: SECTION 211.23—Nonbanking (i) banking assets held outside the Unit Activities of Foreign Banking ed States exceed banking assets held in Organizations the United States; (ii) revenues derived from the business (a) Definitions. The definitions of section 211.2 in subpart A apply to this section sub of banking outside the United States ex ject to the following: ceed revenues derived from the business (1) “Directly or indirectly ” when used in of banking in the United States; (iii) net income derived from the busi reference to activities or investments of a foreign banking organization means activi ness of banking outside the United States ties or investments of the foreign banking exceeds net income derived from the organization or of any subsidiary of the for business of banking in the United States. eign banking organization. (2) “Foreign banking organization ” means (c) Determining assets, revenues, and net in a foreign bank (as defined in section come. (1) For purposes of paragraph (b), the 1(b)(7) of the IBA) that operates a total assets, revenues, and net income of an branch, agency, or commercial lending organization may be determined on a con company subsidiary in the United States or solidated or combined basis. Assets, reve that controls a bank in the United States; nues and net income of companies in which and a company of which such foreign bank the foreign banking organization owns 50 is a subsidiary. percent or more of the voting shares shall (3) Subsidiary ” means any organization be included when determining total assets, 25 percent or more of whose voting shares is directly or indirectly owned, controlled 1 None of the direct or indirect assets, revenues, or net or held with power to vote by a foreign income of a United States subsidiary bank, branch, agency, banking organization, or which is otherwise commercial lending company, or other company engaged in the business of banking in the United States shall be controlled or capable of being controlled by considered held or derived from the business of banking a foreign banking organization. “outside the United States.” of another foreign bank or organization, the Board may inform the parties that a prelim inary determination of control has been made on the basis of the facts summarized in the communication. In the event of a pre liminary determination of control by the Board, the parties shall within 30 days (or such longer period as may be permitted by the Board): (i) indicate to the Board a willingness to terminate the control relationship; or (ii) set forth such facts and circum stances as may support the contention that actual control does not exist (and may request a hearing to contest the Board’s preliminary determination); or (iii) accede to the Board’s preliminary determination, in which event the parties shall be regarded as one foreign bank and shall be entitled to one home state. 13 §211.23 revenues, and net income. The foreign banking organization may include assets, revenues, and net income of companies in which it owns 25 percent or more of the voting shares if all such companies within the organization are included; (2) Assets devoted to, or revenues or net income derived from, activities listed in sec tion 211.5(d) of this part shall be consid ered banking assets, or revenues or net in come derived from the banking business, when conducted within the foreign banking organization by a foreign bank or its subsidiaries. (d) Loss o f eligibility for exemptions. A for eign banking organization that qualified under paragraph (b) of this section or an organiza tion that qualified as a “foreign bank holding company” under section 225.4(g) of Regula tion Y (12 CFR 225.4(g) (1980)) 2 shall cease to be eligible for the exemptions of this section if it fails to meet the requirements of paragraph (b) for two consecutive years as reflected in its annual reports (F.R. Y-7) filed with the Board. A foreign banking organiza tion that ceases to be eligible for the exemp tions may continue to engage in activities or retain investments commenced or acquired prior to the end of the first fiscal year for which its annual report reflects nonconfor mance with paragraph (b). Activities com menced or investments made after that date shall be terminated or divested within three months of the filing of the second annual re port unless the Board grants consent to con tinue the activity or retain the investment un der paragraph (e). (e) Specific determination o f eligibility for nonqualifying foreign banking organizations. A foreign banking organization that does not qualify under paragraph (b) for the exemp tions afforded by this section, or that has lost its eligibility for the exemptions under para graph (d), may apply to the Board for a spe cific determination of eligibility for the exemp tions. A foreign banking organization may 2 “ ‘[F]oreign bank holding company’ means a bank holding company organized under the laws of a foreign country, more than half of whose consolidated assets are located or consolidated revenues derived, outside the Unit ed States” (12 CFR 225.4(g)(iii) (1980)). 14 Regulation K apply for a specific determination prior to the time it ceases to be eligible for the exemptions afforded by this section. In determining whether eligibility for the exemptions would be consistent with the purposes of the BHCA and in the public interest, the Board shall con sider the history and the financial and mana gerial resources of the organization; the amount of its business in the United States; the amount, type and location of its nonbank ing activities; and whether eligibility of the foreign banking organization would result in undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. Such determina tion shall be subject to any conditions and limitations imposed by the Board. (f) Permissible activities and investments. A foreign banking organization that qualifies un der paragraph (b) may: (1) Engage in activities of any kind outside the United States; (2) Engage directly in activities in the United States that are incidental to its ac tivities outside the United States; (3) Own or control voting shares of any company that is not engaged, directly or in directly, in any activities in the United States other than those that are incidental to the international or foreign business of such company: (4) Own or control voting shares of any company in a fiduciary capacity under cir cumstances that would entitle such share holding to an exemption under section 4(c)(4) of the BHCA if the shares were held or acquired by a bank; (5) Own or control voting shares of a for eign company that is engaged directly or indirectly in business in the United States other than that which is incidental to its international or foreign business, subject to the following limitations: (i) more than 50 percent of the foreign company’s consolidated assets shall be located, and consolidated revenues de rived from, outside the United States; (ii) the foreign company shall not en gage directly, nor own or control more than 5 percent of the voting shares of a company that engages, in the business Regulation K of underwriting, selling, or distributing securities in the United States except to the extent permitted bank holding companies; (iii) if the foreign company is a subsidi ary of the foreign banking organization, its direct or indirect activities in the Unit ed States shall be subject to the following limitations: (A) the foreign company’s activities in the United States shall be the same kind of activities or related to the ac tivities engaged in directly or indirectly by the foreign company abroad as measured by the “establishment” cate gories of the Standard Industrial Clas sification (SIC) (an activity in the United States shall be considered relat ed to an activity outside the United States if it consists of supply, distribu tion or sales in furtherance of the activity); (B) the foreign company may engage in activities in the United States that consist of banking or financial opera tions, or types of activities permitted by regulation or order under section 4(c)(8) of the BHCA, only with the prior approval of the Board. Activities within Division H (Finance, Insur ance, and Real Estate) of the SIC shall be considered banking or financial op erations for this purpose, with the exception of acting as operators of nonresidential buildings (SIC 6512), operators of apartment buildings (SIC 6513), operators of dwellings other than apartment buildings (SIC 6514), and operators of residential mobile home sites (SIC 6515); and operating title abstract offices (SIC 6541). In ad dition, the following activities shall be considered banking or financial opera tions and may be engaged in only with the approval of the Board under sub section (g): computer and data proc essing services (SIC 7372, 7374 and 7379); management consulting (SIC 7392); certain rental and leasing activ ities (SIC 7394, 7512, 7513 and 7519); accounting, auditing and bookkeeping services (SIC 8931); and arrangement §211.23 of passenger transportation 4722). (SIC (g) Exemptions under section 4(c)(9) o f the BHCA. A foreign organization that is of the opinion that other activities or investments may, in particular circumstances, meet the conditions for an exemption under section 4(c)(9) of the BHCA may apply to the Board for such a determination by submitting to the Reserve Bank of the District in which its banking operations in the United States are principally conducted a letter setting forth the basis for that opinion. (h) Reports. (1) The foreign banking organization shall inform the Board through the organiza tion’s Reserve Bank within 30 days after the close of each quarter of all shares of companies engaged, directly or indirectly, in activities in the United States that were acquired during such quarter under the au thority of this section. The foreign banking organization shall also report any direct ac tivities in the United States commenced during such quarter by a foreign subsidiary of the foreign banking organization. This information shall (unless previously fur nished) include a brief description of the nature and scope of each company’s busi ness in the United States, including the 4digit SIC numbers of the activities in which the company engages. Such information shall also include the 4-digit SIC numbers of the direct parent of any U.S. company acquired, together with a statement of total assets and revenues of the direct parent. (2) If any required information is un known and not reasonably available to the foreign banking organization, either be cause obtaining it would involve unreason able effort or expense or because it rests pe culiarly within the knowledge of a company that is not controlled by the organization, the organization shall (i) give such infor mation on the subject as it possesses or can reasonably acquire together with the sourc es thereof; and (ii) include a statement ei ther showing that unreasonable effort or ex pense would be involved or indicating that the company whose shares were acquired is not controlled by the organization and stat15 §211.23 ing the result of a request for information. SUBPART C—EXPORT TRADING COMPANIES SECTION 211.31—Authority, Purpose, and Scope (a) Authority. This subpart is issued by the Board of Governors of the Federal Reserve System (“Board”) under the authority of the Bank Holding Company Act of 1956, as amended (12 USC 1841 et seq.) (BHC Act), and the Bank Export Services Act (title II, Pub. L. 97-290, 96 Stat. 1235 (1982)) (BESA). (b) Purpose and scope. This subpart is in fur therance of the purposes of the BHC Act and the BESA, the latter statute being designed to increase U.S. exports by encouraging invest ments and participation in export trading companies by bank holding companies and the specified investors. The provisions of this subpart apply to: (1) bank holding companies as defined in section 2 of the BHC Act (12 USC 1841(a)); (2) Edge and agreement cor porations, as described in section 211.1(b) of this part, that are subsidiaries of bank holding companies but are not subsidiaries of banks; (3) bankers’ banks as described in section 4(c)(14)(F)(iii) of the BHC Act (12 USC 1843(c) (14) (F) (iii) ); and (4) foreign bank ing organizations as defined in section 211.23(a)(2) of this part. These entities are hereinafter referred to as “eligible investors.” Regulation K or its subsidiaries. For purposes of this subsec tion, revenues shall include net sales revenues from exporting, importing, or third-party trade in goods by the export trading company for its own account and gross revenues de rived from all other activities of the export trading company. (b) The terms “bank,” “company,” and “subsidiary” have the same meanings as those contained in section 2 of the BHC Act (12 USC 1841). SECTION 211.33—Investments and Extensions of Credit (a) Amount o f investments. In accordance with the procedures of section 211.34 of this subpart, an eligible investor may invest no more than 5 percent of its consolidated capital and surplus in one or more export trading companies, except that an Edge or agreement corporation not engaged in banking may in vest as much as 25 percent of its consolidated capital and surplus but no more than 5 per cent of the consolidated capital and surplus of its parent bank holding company. (b) Extensions o f credit. (1) Amount. An eligible investor in an ex port trading company or companies may extend credit directly or indirectly to the export trading company or companies in a total amount that at no time exceeds 10 percent of the investor’s consolidated capi tal and surplus. (2) Terms. An eligible investor in an ex port trading company may not extend cred it directly or indirectly to the export trading company or any of its customers or to any SECTION 211.32—Definitions other investor holding 10 percent or more The definitions of section 211.2 in subpart A of the shares of the export trading company apply to this subpart subject to the following: on terms more favorable than those afford ed similar borrowers in similar circum (a) “Export trading company” means a com stances, and such extensions of credit shall pany that is exclusively engaged in activities not involve more than the normal risk of related to international trade and, by engaging repayment or present other unfavorable fea in one or more export trade services, derives tures. For the purposes of this provision, an more than one-half its revenues in each con investor in an export trading company in secutive two-year period from the export of, or from facilitating the export of, goods and cludes any affiliate of the investor. (3) Collateral requirements. Covered services produced in the United States by per sons other than the export trading company transactions between a bank and an affiliat- 16 Regulation K ed export trading company in which a bank holding company has invested pursuant to this subpart are subject to the collateral re quirements of section 23A of the Federal Reserve Act (12 USC 371c), except where a bank issues a letter of credit or advances funds to an affiliated export trading compa ny solely to finance the purchase of goods for which: (i) the export trading company has a bona fide contract for the subsequent sale of the goods; and (ii) the bank has a security interest in the goods or in the proceeds from their sale at least equal in value to the letter of credit or the advance. SECTION 211.34—Procedures for Filing and Processing Notices (a) Filing notice. (1) Prior notice o f investment. An eligible investor shall give the Board 60 days’ prior written notice of any investment in an ex port trading company. (2) Subsequent notice. An eligible investor shall give the Board 60 days’ prior written notice of changes in the activities of an ex port trading company that is a subsidiary of the investor if the export trading company expands its activities beyond those de §211.34 scribed in the initial notice to include: (i) taking title to goods; (ii) product research and design; (iii) product modification; or (iv) activities not specifically covered by the list of services contained in section 4(c)(14)(F)(ii) of the BHC Act. Such an expansion of activities shall be regarded as a proposed investment under this subpart. (b) Time period for Board action. (1) A proposed investment that has not been disapproved by the Board may be made 60 days after the Reserve Bank ac cepts the notice for processing. A proposed investment may be made before the expira tion of the 60-day period if the Board noti fies the investor in writing of its intention not to disapprove the investment. (2) The Board may extend the 60-day pe riod for an additional 30 days if the Board determines that the investor has not fur nished all necessary information or that any material information furnished is substan tially inaccurate. The Board may disap prove an investment if the necessary infor mation is provided within a time insufficient to allow the Board reasonably to consider the information received. (3) Within three days of a decision to dis approve an investment, the Board shall no tify the investor in writing and state the rea sons for the disapproval. 17 ( ( Statutory Provisions FEDERAL RESERVE ACT SECTION 25—Foreign Branches 1. Capital and Surplus Required to Exercise Powers Any national banking association possessing a capital and surplus of $1,000,OCX) or more may file application with the Board of Governors of the Federal Reserve System for permission to exercise, upon such conditions and under such regulations as may be prescribed by the said board, the following powers: [12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section, and by act of M y 1, 1966 (80 Stat. 241).] 2. Establishment o f Foreign Branches First. To establish branches in foreign coun tries or dependencies or insular possessions of the United States for the furtherance of the foreign commerce of the United States, and to act if required to do so as fiscal agents of the United States. [12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 3. Purchase o f Stock in Corporations Engaged in Foreign Banking Second. To invest an amount not exceeding in the aggregate ten per centum of its paid-in capital stock and surplus in the stock of one or more banks or corporations chartered or incorporated under the laws of the United States or of any State thereof, and principally engaged in international or foreign banking, or banking in a dependency or insular posses sion of 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. [12 USC 601. As added by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 4. Acquisition o f Ownership o f Foreign Banks Third. To acquire and hold, directly or indi rectly, stock or other evidences of ownership in one or more banks organized under the law of a foreign country or a dependency or insu lar possession of the United States and not engaged, directly or indirectly, in any activity in the United States except as, in the judgment of the Board of Governors of the Federal Re serve System, shall be incidental to the inter national or foreign business of such foreign bank; and, notwithstanding the provisions of section 23A of this Act, to make loans or ex tensions of credit to or for the account of such bank in the manner and within the limits pre scribed by the Board by general or specific regulation or ruling. [12 USC 601. As added by act of July 1, 1966 (80 Stat. 241).] 5. Right o f National Banks to Invest in Foreign Banking Corporations until January 1, 1921 Until January 1, 1921, any national banking association, without regard to the amount of its capital and surplus, may file application with the Board of Governors of the Federal Reserve System for permission, upon such conditions and under such regulations as may be prescribed by said board, to invest an amount not exceeding in the aggregate 5 per centum of its paid-in capital and surplus in the stock of one or more corporations char tered or incorporated under the laws of the United States or of any State thereof and, re gardless of its location, principally engaged in such phases of international or foreign finan cial operations as may be necessary to facili tate the export of goods, wares, or merchan dise from the United States or any of its dependencies or insular possessions to any foreign country: Provided, however, That in no event shall the total investments authorized by this section by any one national bank ex ceed 10 per centum of its capital and surplus. 19 Statutory Provisions [12 USC 601. As added by act of Sept. 17, 1919 (41 Stat. 285). This paragraph, by its terms, is now obsolete.] 6. Application for Permission to Exercise Powers Such application shall specify the name and capital of the banking association filing it, the powers applied for, and the place or places where the banking or financial operations pro posed are to be carried on. The Board of Gov ernors of the Federal Reserve System shall have power to approve or to reject such appli cation in whole or in part if for any reason the granting of such application is deemed inexpe dient, and shall also have power from time to time to increase or decrease the number of places where such banking operations may be carried on. [12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section; and by act of Sept. 17, 1919 (41 Stat. 286).] Regulation K tions as the said board may prescribe for the place or places wherein such business is to be conducted. If at any time the Board of Gover nors of the Federal Reserve System shall as certain that the regulations prescribed by it are not being complied 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 satisfy itself as to the actual nature of the transactions referred to. Should such investigation result in estab lishing the failure of the corporation in ques tion, or of the national bank or banks which may be stockholders therein, to comply with the regulations laid down by the said Board of Governors of the Federal Reserve System, such national banks may be required to dis pose of stock holdings in the said corporation upon reasonable notice. [12 USC 603. Added by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 7. Examinations and Reports o f Condition Every national banking association operating foreign branches shall be required to furnish information concerning the conditions of such branches to the Comptroller of the Currency upon demand, and every member bank invest ing in the capital stock of banks or corpora tions described above shall be required to fur nish information concerning the 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. [12 USC 602. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section; and by act of Sept. 17, 1919 (41 Stat. 286).] 8. 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 of the Federal Reserve System to restrict its operations or conduct its business in such manner or under such limitations and restric 20 9. Accounts o f Foreign Branches Every national banking association operating foreign branches shall conduct the accounts of each foreign branch independently of the ac counts of other foreign branches established by it and of its home office, and shall at the end of each fiscal period transfer to its general ledger the profit or loss accrued at each branch as a separate item. [12 USC 604. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 10. Additional Banking Powers Authorized Regulations issued by the Board of Governors of the Federal Reserve System under this sec tion, in addition to regulating powers which a foreign branch may exercise under other pro visions of law, may authorize such a foreign branch, subject to such conditions and re quirements as such regulations may prescribe, to exercise such further powers as may be usu al in connection with the transaction of the business of banking in the places where such foreign branch shall transact business. Such regulations shall not authorize a foreign branch to engage in the general business of producing, distributing, buying or selling Regulation K goods, wares, or merchandise; nor, except to such limited extent as the Board may deem to be necessary with respect to securities issued by any “foreign state” as defined in section 25(b) of this Act, shall such regulations au thorize a foreign branch to engage or partici pate, directly or indirectly, in the business of underwriting, selling, or distributing securities. [12 USC 604a. As added by act of Aug. 15, 1962 (76 Stat. 388).] SECTION 25(a)—Banking Corporations Authorized to Do Foreign Banking Business 1. Organization Statutory Provisions States exports; to foster the participation by regional and smaller banks throughout the United States in the provision of international banking and financing services to all segments of United States agriculture, commerce, and industry, and, in particular small business and farming concerns; to stimulate competition in the provision of international banking and fi nancing services, throughout the United States; and, in conjunction with each of the preceding purposes, to facilitate and stimulate the export of United Stated goods, wares, merchandise, commodities, and services to achieve a sound United States international trade position. The Board of Governors of the Federal Reserve System shall issue rules and regulations under this section consistent with and in furtherance of the purposes described in the preceding sentence, and, in accordance therewith, shall review and revise any such rules and regulations at least once every five years, the first such period commencing with the effective date of rules and regulations is sued pursuant to section 3(a) of the Interna tional Banking Act of 1978, in order to ensure that such purposes are being served in light of prevailing economic conditions and banking practices. Corporations to be organized for the purpose of engaging in international or foreign bank ing or other international or foreign financial operations, or in banking or other financial operations in a dependency or insular posses sion of 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 provided by this section, and to act when re [12 USC 611. As added by act of Dec. 24, 1919 (41 Stat. quired by the Secretary of the Treasury as fis 378); and amended by act of Feb. 27, 1921 (41 Stat. 1145) cal agents of the United States, may be formed and Sept. 17, 1978 (92 Stat. 609). Presidential Proclama tion No. 2695 of July 4, 1946 (60 Stat. 1352; 12 USC 1394 by any number of natural persons, not less in note) recognizes the independence of the Philippine Is any case than five: Provided, That nothing in lands. Therefore, the words “in the Philippine Islands and” this section shall be construed to deny the have been omitted from the U.S. Code.] right of the Secretary of the Treasury to use any corporation organized under this section 2. Articles o f Association as depositaries in Panama and the Panama Canal Zone, or in the Philippine Islands and Such persons shall enter into articles of associ other insular possessions and dependencies of ation which shall specify in general terms the objects for which the association is formed the United States. The congress hereby declares that it is the and may contain any other provisions not in purpose of this section to provide for the es consistent with law which the association may tablishment of international banking and fi see fit to adopt for the regulation of its busi nancial corporations operating under Federal ness and the conduct of its affairs. supervision with powers sufficiently broad to [12 USC 612. As added by act of Dec. 24, 1919 (41 Stat. enable them to compete effectively with simi 378).] lar foreign-owned institutions in the United States and abroad; to afford to the United States exporter and importer in particular, 3. Execution o f Articles o f Association; Contents o f Organization Certificate and to United States commerce, industry, and agriculture in general, at all times a means of Such articles of association shall be signed by financing international trade, especially United all of the persons intending to participate in 21 Regulation K Statutory Provisions the organization of the corporation and, thereafter, shall be forwarded to the Board of Governors of the Federal Reserve System and shall be filed and preserved in its office. The persons signing the said articles of association shall, under their hands, make an organiza tion certificate which shall specifically state: First. The name assumed by such corpora tion, which shall be subject to the approval of the Board of Governors of the Federal Re serve System. Second. The place or places where its oper ations are to be carried on. Third. The place in the United States where its home office is to be located. Fourth. The amount of its capital stock and the number of shares into which the same shall be divided. Fifth. The names and places of business or residence of the persons executing the certifi cate and the number of shares to which each has subscribed. Sixth. The fact that the certificate is made to enable the persons subscribing the same, and all other persons, firms, companies, and corporations, who or which may thereafter subscribe to or purchase shares of the capital stock of such corporation, to avail themselves of the advantages of this section. pleasure of its board of directors; to have suc cession for a period of twenty years unless sooner dissolved by the act of the shareholders owning two-thirds of the stock or by an Act of Congress or unless its franchises become for feited by some violation of law; to make con tracts; to sue and be sued, complain, and de fend in any court of law or equity; to elect or appoint directors; and, by its board of direc tors, to appoint such officers and employees as may be deemed proper, define their authority and duties, require bonds of them, and fix the penalty thereof, dismiss such officers or em ployees, or any thereof, at pleasure and ap point others to fill their places; to prescribe, by its board of directors, by-laws not incon sistent with law or with the regulations of the Board of Governors of the Federal Reserve System regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers and employees ap pointed, its property transferred, and the priv ileges granted to it by law exercised and enjoyed. [12 USC 613. As added by act of Dec. 24, 1919 (41 Stat. 379).] Each corporation so organized shall have power, under such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe: 4. Filing Organization Certificate; Issuance o f Permit The persons signing the organization certifi cate shall duly acknowledge the execution thereof before a judge of some court of record or notary public, who shall certify thereto un der the seal of such court or notary, and thereafter the certificate shall be forwarded to the Board of Governors of the Federal Re serve System to be filed and preserved in its office. Upon duly making and filing articles of association and an organization certificate, and after the Board of Governors of the Fed eral Reserve System has approved the same and issued a permit to begin business, the as sociation shall become and be a body corpo rate, and as such and in the name designated therein shall have power to adopt and use a corporate seal, which may be changed at the 22 [12 USC 614. As added by act of Dec. 24, 1919 (41 Stat. 379) and Sept. 17, 1978 (92 Stat. 609).] 5. Powers; Regulations o f Board o f Governors o f the Federal Reserve System [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 379).] 6. Banking Powers (a) To purchase, sell, discount, and negoti ate, with or without its indorsement or guar anty, notes, drafts, checks, bills of exchange, acceptances, including bankers’ acceptances, cable transfers, and other evidences of indebt edness; to purchase and sell with or without its indorsement or guaranty, securities, in cluding the obligations of the United States or of any State thereof but not including shares of stock in any corporation except as herein provided; to accept bills or drafts drawn upon it subject to such limitations and restrictions as the Board of Governors of the Federal Re Regulation K Statutory Provisions serve System may impose; to issue letters of [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. credit; to purchase and sell coin, bullion, and 379) .] exchange; to borrow and to lend money; to issue debentures, bonds, and promissory notes 8. Ownership o f Stock in Other Corporations under such general conditions as to security (c) With the consent of the Board of Gover and such limitations as the Board of Gover nors of the Federal Reserve System to pur nors of the Federal Reserve System may pre chase and hold stock or other certificates of scribe; to receive deposits outside of the United ownership in any other corporation organized States and to receive only such deposits within under the provisions of this section, or under the United States as may be incidental to or the laws of any foreign country or a colony or for the purpose of carrying out transactions in dependency thereof, or under the laws of any foreign countries or dependencies or insular State, dependency, or insular possession of the possessions of the United States; and generally United States but not engaged in the general to exercise such powers as are incidental to business of buying or selling goods, wares, the powers conferred by this Act or as may be merchandise or commodities in the United usual, in the determination of the Board of States, and not transacting any business in the Governors of the Federal Reserve System, in United States except such as in the judgment connection with the transaction of the busi of the Board of Governors of the Federal Re ness of banking or other financial operations serve System may be incidental to its interna in the countries, colonies, dependencies, or tional or foreign business: Provided, however, possessions in which it shall transact business That, except with the approval of the Board of and not inconsistent with the powers specifi Governors of the Federal Reserve System, no cally granted herein. Nothing contained in corporation organized hereunder shall invest this section shall be construed to prohibit the in any one corporation an amount in excess of Board of Governors of the Federal Reserve 10 per centum of its own capital and surplus, System, under its power to prescribe rules and except in a corporation engaged in the busi regulations, from limiting the aggregate ness of banking, when 15 per centum of its amount of liabilities of any or all classes in capital and surplus may be so invested: Pro curred by the corporation and outstanding at vided further, That no corporation organized any one time. Whenever a corporation orga hereunder shall purchase, own, or hold stock nized under this section receives deposits in or certificates of ownership in any other cor the United States authorized by this section it poration organized hereunder or under the shall carry reserves in such amounts as the laws of any State which is in substantial com Board of Governors of the Federal Reserve petition therewith, or which holds stock or System may prescribe for member banks of certificates of ownership in corporations the Federal Reserve System. which are in substantial competition with the purchasing corporation. [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 379); and amended by act of Sept. 17, 1978 (92 Stat. 609).] 7. Branches (b) To establish and maintain for the trans action of its business branches or agencies in foreign countries, their dependencies or colo nies, and in the dependencies or insular pos sessions of the United States, at such places as may be approved by the Board of Governors of the Federal Reserve System and under such rules and regulations as it may prescribe, in cluding countries or dependencies not speci fied in the original organization certificate. [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 380) .] 9. Purchase o f Stock to Prevent Loss on Debt Previously Contracted Nothing contained herein shall prevent corpo rations organized hereunder from purchasing and holding stock in any corporation where such purchase shall be necessary to prevent a loss upon a debt previously contracted in good faith; and stock so purchased or acquired in corporations organized under this section shall within six months from such purchase be sold or disposed of at public or private sale 23 Statutory Provisions unless the time to so dispose of same is ex tended by the Board of Governors of the Fed eral Reserve System. [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 380).] 10. Restrictions on Business in United Sates No corporation organized under this section shall carry on any part of its business in the United States except such as, in the judgment of the Board of Governors of the Federal Re serve System, shall be incidental to its interna tional or foreign business: And provided fu r ther, That except such as is incidental and preliminary to its organization no such corpo ration shall exercise any of the powers con ferred by this section until it has been duly authorized by the Board of Governors of the Federal Reserve System to commence busi ness as a corporation organized under the pro visions of this section. [12 USC 616. As added by act of Dec. 24, 1919 (41 Stat. 381).] 11. Corporation Trading in Commodities or Attempting to Control Prices No corporation organized under this section shall engage in commerce or trade in com modities except as specifically provided in this section, nor shall it either directly or indirect ly control or fix or attempt to control or fix the price of an such commodities. The charter of any corporation violating this provision shall be subject to forfeiture in the manner hereinafter provided in this section. It shall be unlawful for any director, officer, agent, or employee of any such corporation to use or to conspire to use the credit; the funds, or the power of the corporation to fix or control the price of any such commodities, and any such person violating this provision shall be liable to a fine of not less than $1,000 and not ex ceeding $5,000 or imprisonment not less than one year and not exceeding five years, or both, in the discretion of the court. [12 USC 617. As added by act of Dec. 24, 1919 (41 Stat. 81).] 24 Regulation K 12. Capital Stock No corporation shall be organized under the provisions of this section with a capital stock of less than $2,000,000, one-quarter of which must be paid in before the corporation may be authorized to begin business, and the remain der of the capital stock of such corporation shall be paid in installments of at least 10 per centum on the whole amount to which the corporation shall be limited as frequently as one installment at the end of each succeeding two months from the time of the commence ment of it business operations until the whole of the capital stock shall be paid in: Provided, however, That whenever $2,000,000 of the capital stock of any corporation is paid in the remainder of the corporation’s capital stock or any unpaid part of such remainder may, with the consent of the Board of Governors of the Federal Reserve System and subject to such regulations and conditions as it may pre scribe, be paid in upon call from the board of directors; such unpaid subscriptions, however, to be included in the maximum of 10 per cen tum of the national bank’s capital and surplus which a national bank is permitted under the provisions of this Act to hold in stock of cor porations engaged in business of the kind de scribed in this section and in section 25 of the Federal Reserve Act as amended. The capital stock of any such corporation may be in creased at any time, with the approval of the Board of Governors of the Federal Reserve System, by a vote of two-thirds of its share holders or by unanimous consent in writing of the shareholders without a meeting and with out a formal vote, but any such increase of capital shall be fully paid in within ninety days after such approval; and may be reduced in like manner, provided that in no event shall it be less than $2,000,000. No corporation, ex cept as herein provided, shall during the time it shall continue its operations, withdraw or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its cap ital. Any national banking association may in vest in the stock of any corporation organized under the provisions of this section, but the aggregate amount of stock held in all corpora tions engaged in business of the kind de scribed in this section and in section 25 of the Regulation K Federal Reserve Act as amended shall not ex ceed 10 per centum of the subscribing bank’s capital and surplus. [12 USC 618. As added by act of Dec. 24, 1919 (41 Stat. 381); and amended by act of June 14, 1921 (42 Stat. 28).] 13. Citizenship o f Stockholders Except as otherwise provided in this section, a majority of the shares of the capital stock of any such corporation shall at all times be held and owned by citizens of the United States, by corporations the controlling interest in which is owned by citizens of the United States, chartered under the laws of the United States or of a State of the United States, or by firms or companies, the controlling interest in which is owned by citizens of the United States. Notwithstanding any other provisions of this section, one or more foreign banks, in stitutions organized under the laws of foreign countries which own or control foreign banks, or banks organized under the laws of the United States, the States of the United States, or the District of Columbia, the controlling interests in which are owned by any such for eign banks or institutions, may, with the prior approval of the Board of Governors of the Federal Reserve System and upon such terms and conditions and subject to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe, own and hold 50 per centum or more of the shares of the capital stock of any corporation orga nized under this section, and any such corpo ration shall be subject to the same provisions of law as any other corporation organized un der this section, and the terms ‘controls’ and ‘controlling interest’ shall be construed consis tently with the definition of ‘control’ in sec tion 2 of the Bank Holding Company Act of 1956. For the purposes of the preceding sen tence of this paragraph the term ‘foreign bank’ shall have the meaning assigned to it in the International Banking Act of 1978. [12 USC 619. As added by act of Sept. 17, 1978 (92 Stat. 609).] Statutory Provisions 14. Members o f Board o f Governors o f the Federal Reserve System as Directors, Officers or Stockholders No member of the Board of Governors of the Federal Reserve System shall be an officer or director of any corporation organized under the provisions of this section, or of any corpo ration engaged in similar business organized under the laws of any State, nor hold stock in any such corporation, and before entering upon his duties as a member of the Board of Governors of the Federal Reserve System he shall certify under oath to the Secretary of the Treasury that he has complied with this requirement. [12 USC 620. As added by act of Dec. 24, 1919 (41 Stat. 382).] 15. Shareholders' Liability; Corporation Not to Become Member o f Federal Reserve Bank Shareholders in any corporation organized under the provision of this section shall be lia ble for the amount of their unpaid stock sub scriptions. No such corporation shall become a member of any Federal reserve bank. [12 USC 621. As added by act of Dec. 24, 1919 (41 Stat. 382).] 16. Forfeiture of Charter for Violation of Law Should any corporation organized hereunder violate or fail to comply with any of the provi sions of this section, all of its rights, privileges, and franchises derived herefrom may thereby be forfeited. Before any such corporation shall be declared dissolved, or its rights, privileges, and franchises forfeited, any noncompliance with, or violation of such laws shall, however, be determined and adjudged by a court of the United States of competent jurisdiction, in a suit brought for that purpose in the district or territory in which the home office of such cor poration is located, which suit shall be brought by the United States at the insistence of the Board of Governors for the Federal Re serve System or the Attorney General. Upon adjudication of such noncompliance or viola tion, each director and officer who participat ed in, or assented to, the illegal act or acts, shall be liable in his personal or individual ca pacity for all damages which the said corpora25 Regulation K Statutory Provisions tion shall have sustained in consequence thereof. No dissolution shall take away or im pair any remedy against the corporation, its stockholders, or officers for any liability or penalty previously incurred. [12 use 622. As added by act of Dec. 24, 1919 (41 Stat. 382).] 17. Voluntary Liquidation Any such corporation may go into voluntary liquidation and be closed by a vote of its shareholders owning two-third of its stock. [12 USC 623. As added by act of Dec. 24, 1919 (41 Stat. 382.)] 18. Insolvency; Appointment o f Receiver Whenever the Board of Governors of the Fed eral Reserve System shall become satisfied of the insolvency of any such corporation, it may appoint a receiver who shall take possession of all the property and assets of the corporation and exercise the same rights, privileges, pow ers, and authority with respect thereto as are now exercised by receivers of national banks appointed by the Comptroller of the Currency of the United States: Provided, however, That the assets of the corporation subject to the laws of other countries or jurisdictions shall be dealt with in accordance with the terms of such laws. [12 USC 624. As added by act of Dec. 24, 1919 (41 Stat. 382.)] 19. Stockholders' Meetings; Records; Reports; Examinations Every corporation organized under the provi sions of this section shall hold a meeting of its stockholders annually upon a date fixed in its bylaws, such meeting to be held at its home office in the United States. Every such corpo ration shall keep at its home office books con taining the names of all stockholders thereof, and the names and addresses of the members of its board of directors, together with copies of all reports made by it to the Board of Gov ernors of the Federal Reserve System. Every such corporation shall make reports to the Board of Governors of the Federal Reserve System at such times and in such form as it 26 may require; and shall be subject to examina tion once a year and at such other times as may be deemed necessary by the Board of Governors of the Federal Reserve System by examiners appointed by the Board of Gover nors of the Federal Reserve System, the cost of such examinations, including the compen sation of the examiners, to be fixed by the Board of Governors of the Federal Reserve System and to be paid by the corporation examined. [12 USC 625. As added by act of Dec. 24, 1919 (41 Stat. 382) .] 20. Dividends and Surplus Fund The directors of any corporation organized under the provisions of this section may, semi annually, declare a dividend of so much of the net profits of the corporation as they shall judge expedient; but each corporation shall, before the declaration of a dividend, carry one-tenth of its net profits of the preceding half year to its surplus fund until the same shall amount to 20 per centum of its capital stock. [12 USC 626. As added by act of Dec. 24, 1919 (41 Stat. 383) .] 21. Taxation Any corporation organized under the provi sions of this section shall be subject to tax by the State within which its home office is locat ed in the same manner and to the same extent as other corporations organized under the laws of that State which are transacting a sim ilar character of business. The shares of stock in such corporation shall also be subject to tax as the personal property of the owners or holders thereof in the same manner and to the same extent as the shares of stock in similar State corporations. [12 USC 627. As added by act of Dec. 24, 1919 (41 Stat. 383).] 22. Extension o f Corporate Existence Any corporation organized under the provi sions of this section may at any time within the two years next previous to the date of the expiration of its corporate existence, by a vote Regulation K of the shareholders owning two-thirds of its stock, apply to the Board of Governors of the Federal Reserve System for its approval to ex tend the period of its corporate existence for a term of not more than twenty years, and upon certified approval of the Board of Governors of the Federal Reserve System such corpora tion shall have its corporate existence for such extended period unless sooner dissolved by the act of the shareholders owning two-thirds of its stock, or by an Act of Congress or unless its franchise becomes forfeited by some viola tion of law. [12 USC 628. As added by act of Dec. 24, 1919 (41 Stat. 383).] 23. Conversion o f State Corporation into Federal Corporation Any bank or banking institution, principally engaged in foreign business, incorporated by special law of any State or of the United States or organized under the general laws of any State or of the United States and having an unimpaired capital sufficient to entitle it to be come a corporation under the provisions of this section may, by the vote of the sharehold ers owning not less than two-thirds of the cap ital stock of such bank or banking association, with the approval of the Board of Governors of the Federal Reserve System, be converted into a Federal corporation of the kind autho rized by this section with any name approved by the Board of Governors of the Federal Re serve System: Provided, however, That said conversion shall not be in contravention of the State law. In such case the articles of associa tion and organization certificate may be exe cuted by a majority of the directors of the bank or banking institution, and the certificate shall declare that the owners of at least twothirds of the capital stock have authorized the directors to make such certificate and to change or convert the bank or banking institu tion into a Federal corporation. A majority of the directors, after executing the articles of as sociation and the organization certificate shall have power to execute all other papers and to do whatever may be required to make its or ganization perfect and complete as a Federal corporation. The shares of any such corpora tion may continue to be for the same amount Statutory Provisions each as they were before the conversion, and the directors may continue to be directors of the corporation until others are elected or ap pointed in accordance with the provisions of this section. When the Board of Governors of the Federal Reserve System has given to such corporation a certificate that the provisions of this section have been complied with, such corporation and all its stockholders, officers, and employees, shall have the same powers and privileges, and shall be subject to the same duties, liabilities, and regulations, in all respects, as shall have been prescribed by this section for corporations originally organized hereunder. [12 USC 629. As added by act of Dec. 24, 1919 (41 Stat. 383).] 24. Criminal Offenses o f Directors, Officers, and Employees Every officer, director, clerk, employee, or agent of any corporation organized under this section who embezzles, abstracts, or willfully misapplies any of the moneys, funds, credits, securities, evidences of indebtedness or assets of any character of such corporation; or who, without authority from the directors, issues or puts forth any certificate of deposit, draws any order or bill of exchange, makes any accept ance, assigns any note, bond, debenture, draft, bill of exchange, mortgage, judgment, or de cree; or who makes any false entry in any book, report, or statement of such corporation with intent, in either case, to injure or defraud such corporation or any other company, body politic or corporate, or any individual person, or to deceive any officer of such corporation, the Board of Governors of the Federal Reserve System, or any agent or examiner ap pointed to examine the affairs of any such cor poration; and every receiver of any such cor poration and every clerk or employee of such receiver who shall embezzle, abstract, or will fully misapply or wrongfully convert to his own use any moneys, funds, credits, or assets of any character which may come into his possession or under his control in the execu tion of his trust or the performance of the du ties of his employment; and every such receiv er or clerk or employee of such receiver who shall, with intent to injure or defraud any per27 Statutory Provisions son, body politic or corporate, or to deceive or mislead the Board of Governors of the Feder al Reserve System, or any agent or examiner appointed to examine the affairs of such re ceiver, shall make any false entry in any book, report, or record of any matter connected with the duties of such receiver; and every person who with like intent aids or abets any officer, director, clerk, employee, or agent of any corporation organized under this section, or receiver or clerk or employee of such re ceiver as aforesaid in any violation of this sec tion, shall upon conviction thereof be impris oned for not less than two years nor more than ten years, and may also be fined not more than $5,000, in the discretion of the court. [12 USC 630. As added by act of Dec. 24, 1919 (41 Stat. 384).] 25. Representation that United States is Liable for Obligations Whoever being connected in any capacity with any corporation organized under this section represents in any way that the United States is liable for the payment of any bond or other obligation, or the interest thereon, issued or incurred by any corporation orga nized hereunder, or that the United States in curs any liability in respect of any act or omis sion of the corporation, shall be punished by a fine of not more than $10,000 and by impris onment for not more than five years. Regulation K of the investor company) that is principally engaged in business outside the United States if such shares are held or acquired by a bank holding company organized under the laws of a foreign country that is princi pally engaged in the banking business out side the United States, except that (1) such exempt foreign company (A) may engage in or hold shares of a company engaged in the business of underwriting, selling or dis tributing securities in the United States only to the extent that a bank holding com pany may do so under this Act and under regulations or orders issued by the Board under this Act, and (B) may engage in the United States in any banking or financial operations or types of activities permitted under section 4(c)(8) or in any order or regulation issued by the Board under such section only with the Board’s prior approv al under that section, and (2) no domestic office or subsidiary of a bank holding com pany or subsidiary thereof holding shares of such company may extend credit to a do mestic office or subsidiary of such exempt company on terms more favorable than those afforded similar borrowers in the United States. [12 USC 1841(h)(2). As added by act of Sept. 17, 1978 (92 Stat. 623).] SECTION 4 * * * (c) The prohibitions in this section shall not apply to any bank holding company which is (i) a labor, agricultural, or horticultural orga [12 USC 631. As added by act of Dec. 24, 1919 (41 Stat. nization and which is exempt from taxation 384).] under section 501 of the Internal Revenue Code of 1954, or (ii) a company covered in 1970 more than 85 per centum of the voting stock of which was collectively owned on June 30, 1968, and continuously thereafter, directly BANK HOLDING COMPANY ACT or indirectly, by or for members of the same OF 1956 family, or their spouses, who are lineal de scendants of common ancestors; and such SECTION 2 * * * prohibitions shall not, with respect to any oth (h) * * * (2) The prohibitions of section 4 of this er bank holding company, apply to— Act shall not apply to shares of any compa * * * * * ny organized under the laws of a foreign (9) shares held or activities conducted by country (or to shares held by such compa any company organized under the laws of a ny in any company engaged in the same foreign country the greater part of whose general line of business as the investor com business is conducted outside the United pany or in a business related to the business 28 Statutory Provisions Regulation K States, if the Board by regulation or order de termines that, under the circumstances and subject to the conditions set forth in the regu lation or order, the exemption would not be substantially at variance with the purposes of this Act and would be in the public interest; * * * * * (13) shares of, or activities conducted by, any company which does no business in the United States except as an incident to its international or foreign business, if the Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be sub stantially at variance with the purposes of this Act and would be in the public interest. (14) shares of any company which is an export trading company whose acquisition (including each acquisition of shares) or formation by a bank holding company has not been disapproved by the Board pursu ant to this paragraph, except that such in vestments, whether direct or indirect, in such shares shall not exceed 5 per centum of the bank holding company’s consolidated capital and surplus. (A)(i) No bank holding company shall invest in an export trading company under this paragraph unless the Board has been given sixty days’ prior written notice of such proposed investment and within such period has not issued a notice disapproving the proposed in vestment or extending for up to anoth er thirty days the period during which such disapproval may be issued. (ii) The period for disapproval may be extended for such additional thirtyday period only if the Board deter mines that a bank holding company proposing to invest in an export trad ing company has not furnished all the information required to be submitted or that in the Board’s judgment any material information submitted is sub stantially inaccurate. (iii) The notice required to be filed by a bank holding company shall contain such relevant information as the Board shall require by regulation or by specif ic request in connection with any par ticular notice. (iv) The Board may disapprove any proposed investment only if— (I) such disapproval is necessary to prevent unsafe or unsound banking practices, undue concentration of re sources, decreased or unfair compe tition, or conflicts of interest; (II) the Board finds that such in vestment would alfect the financial or managerial resources of a bank holding company to an extent which is likely to have a materially adverse effect on the safety and soundness of any subsidiary bank of such bank holding company, or (III) the bank holding company fails to furnish the information re quired under clause (iii). (v) Within three days after a decision to disapprove an investment, the Board shall notify the bank holding company in writing of the disapproval and shall provide a written statement of the basis for the disapproval. (vi) A proposed investment may be made prior to the expiration of the dis approval period if the Board issues written notice of its intent not to disap prove the investment. (B)(i) The total amount of extensions of credit by a bank holding company which invests in an export trading company, when combined with all such extensions of credit by all the sub sidiaries of such bank holding compa ny, to an export trading company shall not exceed at any one time 10 per cen tum of the bank holding company’s consolidated capital and surplus. For purposes of the preceding sentence, an extension of credit shall not be deemed to include any amount invested by a bank holding company in the shares of an export trading company. (ii) No provision of any other Federal law in effect on October 1, 1982, relat ing specifically to collateral require ments shall apply with respect to any such extension of credit. 29 Statutory Provisions (iii) No bank holding company or subsidiary of such company which in vests in an export trading company may extend credit to such export trad ing company or to customers of such export trading company on terms more favorable than those afforded similar borrowers in similar circum stances, and such extension of credit shall not involve more than the normal risk of repayment or present other un favorable features. (C) For purposes of this paragraph, an export trading company— (i) may engage in or hold shares of a company engaged in the business of underwriting, selling, or distributing securities in the United States only to the extent that any bank holding com pany which invests in such export trading company may do so under ap plicable Federal and State banking laws and regulations; and (ii) may not engage in agricultural production activities or in manufactur ing, except for such incidental product modification including repackaging, reassembling or extracting byproducts, as is necessary to enable United States goods or services to conform with re quirements of a foreign country and to facilitate their sale in foreign countries. (D) A bank holding company which in vests in an export trading company may be required, by the Board, to terminate its investment or may be made subject to such limitations or conditions as may be imposed by the Board, if the Board deter mines that the export trading company has taken positions in commodities or commodity contracts, in securities, or in foreign exchange, other than as may be necessary in the course of the export trading company’s business operations. (E) Notwithstanding any other provi sion of law, an Edge Act corporation, or ganized under section 25(a) of the Fed eral Reserve Act (12 U.S.C. 611-631), which is a subsidiary of a bank holding company, or an agreement corporation, operating subject to section 25 of the Federal Reserve Act (12 U.S.C. 60130 Regulation K 604(a)), which is a subsidiary of a bank holding company, may invest directly and indirectly in the aggregate up to 5 per centum of its consolidated capital and surplus (25 per centum in the case of a corporation not engaged in banking) in the voting stock or other evidences of ownership in one or more export trading companies. (F) For purposes of this paragraph— (i) the term “export trading compa ny” means a company which does business under the laws of the United States or any State, which is exclusive ly engaged in activities related to inter national trade, and which is organized and operated principally for purposes of exporting goods or services pro duced in the United States or for pur poses of facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. (ii) the term “export trade services” includes, but is not limited to, consult ing, international market research, ad vertising, marketing, insurance (other than acting as principal, agent or bro ker in the sale of insurance on risks resident or located, or activities per formed, in the United States, except for insurance covering the transporta tion of cargo from any point of origin in the United States to a point of final destination outside the United States), product research and design, legal as sistance, transportation, including trade documentation and freight for warding, communication and process ing of foreign orders to and for export ers and foreign purchasers, warehous ing, foreign exchange, financing, and taking title to goods, when provided in order to facilitate the export of goods or services produced in the United States; (iii) the term “bank holding compa ny” shall include a bank which (I) is organized solely to do business with other banks and their officers, direc tors, or employees; (II) is owned pri- Regulation K rnarily by the banks with which it does business; and (III) does not do busi ness with the general public. No such other bank, owning stock in a bank de scribed in this clause that invests in an export trading company, shall extend credit to an export trading company in an amount exceeding at any one time 10 per centum of such other bank’s capital and surplus; and (iv) the term “extension of credit” shall have the same meaning given such term in the fourth paragraph of section 23A of the Federal Reserve Act. [12 USC 1843(c). As amended by Acts of July 1, 1966 (80 Stat. 238); Dec. 31, 1970 (84 Stat. 1763); Nov. 16, 1977 (91 Stat. 1389); Nov. 10, 1978 (92 Stat. 3671); and Oct. 8, 1982 (96 Stat. 1236).] BANK EXPORT SERVICES ACT SECTION 205 On or before two years after the date of the enactment of this Act, the Federal Reserve Board shall report to the Committee on Bank ing, Housing, and Urban Affairs of the Senate and the Committee on Banking, Finance and Urban Affairs of the House of Representatives the Board’s recommendations with respect to the implementation of this section, the Board’s recommendations on any changes in United States law to facilitate the financing of United States exports, especially by small, me dium-size, and minority business concerns, and the Board’s recommendations on the ef fects of ownership of United States banks by foreign banking organizations affiliated with trading companies doing business in the Unit ed States. [12 USC 1843 note. The date of enactment referred to above is October 8, 1982.] Statutory Provisions (2) disadvantage or unnecessarily restrict or limit corporations organized under section 25(a) of the Federal Reserve Act in compet ing with foreign-owned banking institutions in the United States or abroad or (3) impede the attainment of the Congressional purposes set forth in section 25(a) of the Federal Reserve Act as amended by subsection (b) of this sec tion. In furtherance of such purpose, the Congrees believes that the Board should review and revise its rules, regulations, and interpre tations issued pursuant to section 25(a) of the Federal Reserve Act to eliminate or modify any restrictions, conditions, or limitations not required by section 25(a) of the Federal Re serve Act, as amended, that (1) discriminate against foreign-owned banking institutions, (2) disadvantage or unnecessarily restrict or limit corporations organized under section 25(a) of the Federal Reserve Act in compet ing with foreign-owned banking institutions in the United States or abroad, or (3) impede the attainment of the Congressional purposes set forth in section 25(a) of the Federal Re serve Act as amended by subsection (b) of this section. Rules and regulations pursuant to this subsection and section 25(a) of the Fed eral Reserve Act shall be issued not later than 150 days after the date of enactment of this section and shall be issued in final form and become effective not later than 120 days after they are first issued. * * * * * (g) The Board shall report to the Congress not later than 270 days after the date of enact ment of this Act its recommendations with re spect to permitting corporations organized or operating under section 25 or 25(a) of the Federal Reserve Act, to become members of Federal Reserve Banks. (h) As part of its annual report pursuant to section 10 of the Federal Reserve Act, the Board shall include its assessment of the ef INTERNATIONAL BANKING ACT fects of the amendments made by this Act on OF 1978 the capitalization and activities of corpora tions organized or operating under section 25 SECTION 3 (a) It is the purpose of this section to elimi or 25(a) of the Federal Reserve Act, and on nate or modify provisions in section 25(a) of commercial banks and the banking system. the Federal Reserve Act that (1) discriminate [12 USC 611a note. The date of enactment referred to against foreign-owned banking institutions, above is September 17, 1978.] 31 Statutory Provisions SECTION 5 (a) Except as provided by subsection (b), (1) no foreign bank may directly or indirectly establish and operate a Federal branch outside of its home State unless (A) its operation is expressly permitted by the State in which it is to be operated, and (B) the foreign bank shall enter into an agreement or undertaking with the Board to receive only such deposits at the place of operation of such Federal branch as would be permissible for a corporation orga nized under section 25(a) of the Federal Re serve Act under rules and regulations admin istered by the Board; (2) no foreign bank may directly or indirectly establish and operate a State branch outside of its home State unless (A) it is approved by the bank regulatory au thority of the State in which such branch is to be operated, and (B) the foreign bank shall enter into an agreement or undertaking with the Board to receive only such deposits at the place of operation of such State branch as would be permissible for a corporation orga nized under section 25(a) of the Federal Re serve Act under rules and regulations admin istered by the Board; (3) no foreign bank may directly or indirectly establish and operate a Federal agency outside of its home State un less its operation is expressly permitted by the State in which it is to be operated; (4) no foreign bank may directly or indirectly estab lish and operate a State agency or commercial lending company subsidiary outside of its home State, unless its establishment and oper ation is approved by the bank regulatory au thority of the State in which it is to be operat ed; and (5) no foreign bank may directly or indirectly acquire any voting shares of, inter est in, or substantially all of the assets of a 32 Regulation K bank located outside of its home State if such acquisition would be prohibited under section 3(d) of the Bank Holding Company Act of 1956 if the foreign bank were a bank holding company the operations of whose banking subsidiaries were principally conducted in the foreign bank’s home State. Notwithstanding any other provisions of Federal or State law, deposits received by any Federal or State branch subject to the limitations of an agree ment or undertaking imposed under this sub section shall not be subject to any requirement of mandatory insurance by the Federal De posit Insurance Corporation. (b) Unless its authority to do so is lawfully revoked otherwise than pursuant to this sec tion, a foreign bank, notwithstanding any re striction or limitation imposed under subsec tion (a) of this section, may establish and op erate, outside its home State, any State branch, State agency, or bank or commercial lending company subsidiary which com menced lawful operation lending company subsidiary which commenced lawful opera tion or for which an application to commence business had been lawfully filed with the ap propriate State or Federal authority, as the case may be, on or before July 27, 1978. (c) For the purposes of this section, the home State of a foreign bank that has branch es, agencies, subsidiary commercial lending companies, or subsidiary banks, or any combi nation thereof, in more than one State, is whichever of such State is so determined by election of the foreign bank, or, in default of such election, by the Board. [12 u s e 3103.]