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December 17, 1985 To the Addressees Enclosed is a copy of the Board’s revised Regulation K pamphlet, as amended effective October 24, 1985, entitled "International Banking Operations0" The pamphlet, which is printed in the new smaller size, supersedes the July 8, 1983 pamphlet and all amendments thereto. Additional copies of the pamphlet are available on request (Tel„ No. 212=791=5216). Circulars Division FEDERAL RESERVE BANK OF NEW YORK 0584C ^ • >° # Board of Governors of the Federal Reserve System Regulation K International Banking Operations 12 CFR 211; as amended effective October 24, 1985 Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve District in which the inquiry arises. October 1985 Contents Page Section 211.1—Authority, purpose, and scope.......................................... (a) A uthority.................................. (b) P u rp o se .................................... (c) S co p e........................................ Section 211.2—Definitions.................. Section 211.3—Foreign branches of U.S. banking organizations.............. (a) Establishment of foreign branches.................................... (b) Further powers of foreign branches of member banks . . . . (c) Reserves of foreign branches of member b a n k s.......................... Section 211.4— Edge and agreement corporations...................................... (a) O rganization............................ (b) Nature and ownership of shares (c) Domestic branches.................. (d) Reserve requirements and interest rate limitations............ (e) Permissible activities in the United States............................ (f) Agreement corporations.......... Section 211.5—Investments and activities abroad................................ (a) General policy.......................... (b) Investment requirem ents........ (c) Investment procedures............ (d) Permissible activities................ (e) Debts previously contracted . . . Section 211.6—Lending limits and capital requirem ents........................ (a) Acceptances of Edge corporations.............................. (b) Loans and extensions of credit to one person............................ (c) C apitalization.......................... Section 211.7—Supervision and rep o rtin g .......................................... (a) Supervision .............................. (b) Examinations............................ (c) Reports...................................... Page (d) Subpart A—International Operations of United States Banking Organizations Filing and processing procedures................................ 12 Subpart B—Foreign Banking Organizations 1 1 1 1 1 2 2 2 3 3 3 4 5 5 5 7 7 7 8 8 9 10 10 10 10 11 11 11 12 12 Section 211.21—Authority, purpose, and scope.......................................... (a) A uthority.................................. (b) Purpose and scope.................... 12 12 13 Section 211.22—Interstate banking operations of foreign banking organizations.................................... (a) Definitions................................ (b) Determination of homestate .. (c) Change of home s ta te .............. (d) Bank mergers............................ (e) Attribution of home sta te ........ 12 12 13 13 14 14 Section 211.23—Nonbanking activities of foreign banking organizations . . . (a) Definitions................................ (b) Qualifying foreign banking organizations............................ (c) Determining assets, revenues and net in c o m e ........................ (d) Loss of eligibility for exemptions................................ (e) Specific determination of eligibility for nonqualifying foreign banking organizations . (f) Permissible activities and investm ents.............................. (g) Exemptions under section 4(c) (9) of the Bank Holding Company A c t .......................... (h) Reports...................................... 14 14 15 15 15 15 16 17 17 Subpart C—Export Trading Companies Section 211.31—Authority, purpose and scope.......................................... (a) A uthority.................................. (b) Purpose and scope.................... Section 211.32—Definitions................ Section 211.33—Investments and extensions of c re d it.......................... (a) Amount of investments........... 17 17 17 17 18 18 i Contents Page Page (b) Extensions of credit...... 18 Section 211.34— Procedures for filing and processing notices...................... (a) Filing notice................... 18 (b) Time period for Boardaction .. (c) Time period for investment . . . 18 18 19 Subpart D—International Lending Supervision Section 211.41—Authority, purpose, and scope.......................................... (a) A uthority.................................. (b) Purpose and scope.................... Section 211.42—Definitions................ Section 211.43—Allocated transfer risk reserve........................................ (a) Establishment of allocated risk transfer reserv e........................ (b) Procedures and standards........ (c) Accounting treatment of A T R R ...................................... Section 211.44— Reporting and disclosure of international assets . . . (a) Requirements....................... (b) Procedures....................... (c) Reservation of authority.......... n 19 19 19 19 Section 211.45—Accounting for fees on international lo an s............. (a) Restrictions on fees for restructured international loans (b) Amortizing fees........................ (c) Accounting treatment of international loan or syndication administrative costs and corresponding fees .. (d) Fees received by managing banking institutions in an international syndicated loan .. (e) Loan commitment fe e s............ (f) Agency fe e s .............................. 21 21 22 22 22 22 22 STATUTORY PROVISIONS 20 20 20 21 21 21 21 21 Federal Reserve Act Section 25.......................................... Section 2 5 (a ).................................... Bank Holding Company Act Section 2(h) .................................... Section 4 (c)(9), (13), and (14) . . . Bank Export Services Act section 205 . International Banking Act Section 3(a), (f), (g), and (h) . . . . Section 5 ............................................ International Lending Supervision Act 23 25 32 32 35 35 35 36 Regulation K International Banking Operations 12 CFR 211; as amended effective October 24, 1985 SUBPART A—INTERNATIONAL OPERATIONS OF UNITED STATES BANKING ORGANIZATIONS SECTION 211.1—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 Federal Reserve Act ( “FRA”) (12 USC 221 et seq.); the Bank Holding Company Act of 1956 (“BHC Act”) (12 USC 1841 et seq.); and the International Banking Act of 1978 (“IBA”) (92 Stat. 607; 12 USC 3101 et seq.). Requirements for the collection of informa tion contained in this regulation have been ap proved by the Office of Management and Bud get under the provisions of 44 USC 3501 et seq. and have been assigned OMB Nos. 71000107; 7100-0109; 7100-0110; 7100-0069; 71000086, and 7100-0073. (b) Purpose. This subpart sets out rules gov erning the international and foreign activities of U.S. banking organizations, including pro cedures for establishing foreign branches and Edge corporations to engage in international banking and for investments in foreign organizations. (c) Scope. This subpart applies to corpora tions organized under section 25(a) of the FRA (12 USC 611-631), “Edge corpora tions”; to corporations having an agreement or undertaking with the Board under section 25 of the FRA (12 USC 601-604a), “Agree ment corporations”; to member banks with respect to their foreign branches and invest ments in foreign banks under section 25 of the FRA (12 USC 601-6043);! and to bank hold ing companies with respect to the exemption from the nonbanking prohibitions of the BHC Act afforded by section 4(c) (13) of the BHC Act (12 USC 1843(c) (13)). 1 1 Section 25 of the FRA, which refers to national bank ing associations, also applies to state member banks o f the Federal Reserve System by virtue of section 9 o f the FRA (12 USC 321). SECTION 211.2—Definitions Unless otherwise specified, for the purposes of this subpart— (a) An “affiliate” of an organization means (1) any entity of which the organization is a direct or indirect subsidiary; or (2) any direct or indirect subsidiary of the organization or such entity. (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 banking” if it is ordinarily engaged in the business of accepting deposits in the United States from nonaffiliated persons. (e) “Engaged in business” or “engaged in ac tivities” in the United States means maintain ing and operating an office (other than a rep resentative 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. (h) “Foreign branch” means an office of an organization (other than a representative of1 §211.2 flee) that is located outside the country under the laws of which the organization is estab lished, at which a banking or financing busi ness is conducted. (i) “Investment” means the ownership or control of shares (including partnership inter ests and other interests evidencing owner ship), binding commitments to acquire shares, contributions to the capital and sur plus of an organization, and the holding of an organization’s subordinated debt when shares of the organization are also held by the inves tor or the investor’s affiliate. (j) “Investor” means an Edge corporation, agreement corporation, bank holding compa ny, or member bank. (k) “Joint venture” means an organization that has 20 percent or more of its voting shares held directly or indirectly by the inves tor or by an affiliate of the investor, but which is not a subsidiary of the investor. (/) “Organization” means a corporation, government, partnership, association, or any other entity. ( m ) “ P e r so n ” m ea n s an in d iv id u a l o r an o rg a n iza tio n . (n) “Portfolio investment” means an invest ment in an organization other than a subsidi ary or joint venture. (o) “Representative office” means an office that engages solely in representational and ad ministrative functions such as solicitation of new business for or liaison between the orga nization’s head office and customers in the United States, and does not have authority to make business decisions for the account of the organization represented. (p) “Subsidiary” means an organization more than 50 percent of the voting shares of which is held directly or indirectly by the in vestor, or which is otherwise controlled or ca pable of being controlled by the investor or an affiliate of the investor. SECTION 211.3—Foreign Branches of U.S. Banking Organizations (a) Establishment o f foreign branches. 2 Regulation K (1) Right to establish branches. Foreign branches may be established by any mem ber bank having capital and surplus of $1,000,000 or more, an Edge corporation, an agreement corporation, or a subsidiary held pursuant to this subpart. Unless other wise provided in this section, the establish ment of a foreign branch requires the spe cific prior approval of the Board. (2) Branching within a foreign country. Unless the organization has been notified otherwise, no prior Board approval is re quired for an organization to establish addi tional branches in any foreign country where it operates one or more branches.2 (3) Branching into additional foreign coun tries. After giving the Board 45 days’ prior written notice, an organization that oper ates branches in two or more foreign coun tries may establish a branch in an addition al foreign country, unless notified otherwise by the Board.2 (4) Expiration o f branching authority. Au thority to establish branches through prior approval or prior notice shall expire one year from the earliest date on which the au thority could have been exercised, unless the Board extends the period. (5) Reporting. Any organization that opens, closes, or relocates a branch shall re port such change in a manner prescribed by the Board. (b) Further powers o f foreign branches o f member banks. In addition to its general banking powers, and to the extent consistent with its charter, a foreign branch of a member bank may engage in the following activities so far as usual in connection with the business of banking in the country where it transacts business: (1) Guarantees. Guarantee debts, or other wise agree to make payments on the occur rence of readily ascertainable events,3 if the 2 For the purpose of this paragraph, a subsidiary other than a bank or an Edge or agreement corporation is consid ered to be operating a branch in a foreign country if it has an affiliate that operates an office (other than a representa tive office) in that country. 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. Regulation K guarantee or agreement specifies a maxi mum monetary liability; but except to the extent that the member bank is fully secured, it may not have liabilities out standing for any person on account of such guarantees or agreements which when ag gregated with other unsecured obligations of the same person exceed the limit con tained in paragraph (a)(1 ) of section 5200 of the Revised Statutes (12 USC 84) for loans and extensions of credit; (2) Investments. Invest in: (i) the securi ties of the central bank, clearing houses, governmental entities, and governmentsponsored development banks of the coun try in which the foreign branch is located; (ii) other debt securities eligible to meet lo cal reserve or similar requirements; and (iii) shares of professional societies, schools, and the like necessary to the busi ness of the branch; however, the total in vestments of the bank’s branches in that country under this paragraph (exclusive of securities held as required by the law of that country or as authorized under section 5136 of the Revised Statutes (12 USC 24, Seventh)) may not exceed 1 percent of the total deposits of the bank’s branches in that country on the preceding year-end call re port date (or on the date of acquisition of the branch in the case of a branch that has not so reported); (3) Government obligations. Underwrite, distribute, buy, and sell obligations of: (i) the national government of the country in which the branch is located; (ii) an agency or instrumentality of the national govern ment; and (iii) a municipality or other local or regional governmental entity of the country; however, no member bank may hold, or be under commitment with respect to, such obligations for its own account in an aggregate amount exceeding 10 percent of its capital and surplus; (4) Credit extensions to bank's officers. Ex tend credit 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 the credit extension is reported promptly to the branch’s home office and any extension of §211.4 credit exceeding $100,000 (or the equiva lent in local currency) is reported also to the bank’s board of directors; (5) Real estate loans. Take liens or other encumbrances on foreign real estate in con nection with its extensions of credit, wheth er or not of first priority and whether or not the real estate has been improved. (6) Insurance. Act as insurance agent or broker; (7) Employee benefits program. Pay to an employee of the branch, as part of an em ployee benefits program, a greater rate of interest than that paid to other depositors of the branch; (8) Repurchase agreements. Engage in re purchase agreements involving securities and commodities that are the functional equivalents of extensions of credit; (9) Investment in subsidiaries. With the Board’s prior approval, establish or invest in a wholly owned subsidiary to engage solely in activities in which the member bank is permitted to engage or in activities that are incidental to the activities of the foreign branch, where required by local law or regulation; and (10) Other activities. With the Board’s pri or approval, engage in other activities that the Board determines are usual in connec tion with the transaction of the business of banking in the places where the member bank’s branches transact business. (c) Reserves o f foreign branches o f member banks. 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) Permit. A proposed Edge corporation shall become a body corporate when the Board issues a permit approving its pro posed name, articles of association, and or ganization certificate. (2) Name. The name shall include “inter national,” “foreign,” “overseas,” or some similar word, but may not resemble the name of another organization to an extent that might mislead or deceive the public. 3 §211.4 (3) Federal Register notice. The Board will publish in the Federal Register notice of any proposal to organize an Edge corporation and will give interested persons an opportu nity to express their views on the proposal. (4) Factors considered by the Board. The factors considered by the Board in acting on a proposal to organize an Edge corpora tion 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 competition. (5) Authority to commence business. After the Board issues a permit, the Edge corpo ration may elect officers and otherwise com plete its organization, invest in obligations of the United States government, and main tain deposits with depository institutions, but it may not exercise any other powers until at least 25 percent of the authorized capital stock specified in the articles of asso ciation has been paid in cash, and each shareholder has paid in cash at least 25 per cent of that shareholder’s stock subscrip tion. Unexercised authority to commence business as an Edge corporation shall expire one year after issuance of the permit, unless the Board extends the period. (6) Amendments to articles o f association. No amendment to the articles of association shall become effective until approved by the Board. (b) Nature and ownership o f shares. (1) Shares. Shares of stock in an Edge cor poration may 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 and this subpart. The share certificates of an Edge corpora tion shall— (i) name and describe each class of shares indicating its character and any unusual attributes such as preferred status or lack of voting rights; and (ii) conspicuously set forth the sub stance of— 4 Regulation K (A) limitations upon the rights of ownership and transfer of shares im posed by section 25(a) of the FRA; and (B) rules that the Edge corporation prescribes in its bylaws to ensure com pliance with this paragraph. Any change in status of a shareholder 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 ac tion as the Board may direct. (2) Ownership o f Edge corporations by for eign institutions. (i) Prior Board approval. One or more foreign or foreign-controlled domestic in stitutions referred to in paragraph 13 of section 25(a) of the FRA (12 USC 619) may apply for the Board’s prior approval to acquire directly or indirectly a majori ty of the shares of the capital stock of an Edge corporation. (ii) Conditions and requirements. Such an institution shall— (A) provide the Board information related to its financial condition and activities and such other information as may be required by the Board; (B) ensure that any transaction by an Edge corporation with an affiliate4 is on substantially the same terms, in cluding interest rates and collateral, as those prevailing at the same time for comparable transactions by the Edge corporation with nonaffiliated persons, and does not involve more than the normal risk of repayment or present other unfavorable features; (C) ensure that the Edge corporation will not provide funding on a continual or substantial basis to any affiliate or office of the foreign institution through transactions that would be inconsistent with the international and foreign busi ness purposes for which Edge corpora tions are organized; 4 For purposes of this paragraph, “affiliate” means any organization that would be an “affiliate” under section 23A o f the FRA (12 USC 371c) if the Edge corporation were a member bank. Regulation K (D) in the case of a foreign institution not subject to section 4 of the BHC Act: (i) comply with any conditions that the Board may impose that are necessary to prevent undue concentra tion of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices in the Unit ed States; and (ii) give the Board 45 days’ prior written notice, in a form to be prescribed by the Board, before en gaging in any nonbanking activity in the United States, or making any ini tial or additional investments in anoth er organization, that would require pri or Board approval or notice by an organization subject to section 4 of the BHC Act; in connection with such no tice, the Board may impose conditions necessary to prevent adverse effects that may result from such activity or investment; and (E) invest in Edge corporations no more than 10 percent of the institu tion’s capital and surplus. (3) Change in control. (i) Prior notice. Any person shall give the Board 60 days’ prior written notice, in a form to be prescribed by the Board, before acquiring, directly or indirectly, 25 percent or more of the voting shares, or otherwise acquiring control, of an Edge corporation; the Board may extend the 60-day period for an additional 30 days by notifying the acquiring party. (ii) Board review. In reviewing a notice filed under this paragraph, the Board shall consider the factors set forth in par agraph (a)(4 ) of this section and may disapprove a notice or impose any condi tions that it finds necessary to assure the safe and sound operation of the Edge cor poration, to assure the international character of its operation, and to prevent adverse effects such as decreased or un fair competition, conflicts of interest, or undue concentration of resources. (c) Domestic branches. An Edge corporation may establish branches in the United States 45 days after the Edge corporation has given no tice to its Reserve Bank, unless the Edge cor §211.4 poration is notified to the contrary within that time. The notice to the Reserve Bank shall include a copy of the notice of the proposal published in a newspaper of general circula tion in the communities to be served by the branch and may appear no earlier than 90 cal endar days prior to submission of notice of the proposal to the Reserve Bank. The newspaper notice must provide an opportunity for the public to give written comment on the propos al to the appropriate Federal Reserve Bank for at least 30 days after the date of publica tion. The factors considered in acting upon a proposal to establish a branch are enumerated in paragraph (a) (4) of this section. Authority to open a branch under prior notice shall ex pire one year from the earliest date on which that authority could have been exercised, un less the Board extends the period. (d) Reserve requirements and interest rate limitations. The deposits of an Edge or agree ment corporation 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 or agreement corporation were a member bank. (e) Permissible activities in the United States. An Edge corporation may engage directly or indirectly in activities in the United States that are permitted by the sixth paragraph of section 25(a) of the FRA and are incidental to international or foreign business, and in such other activities as the Board determines are incidental to international or foreign busi ness. The following activities will ordinarily be considered incidental to an Edge corpora tion’s international or foreign business: (1) Deposit activities. (i) Deposits from foreign governments and foreign persons. An Edge corporation may receive in the United States transac tion accounts, savings, and time deposits (including issuing negotiable certificates of deposits) from foreign governments and their agencies and instrumentalities; offices or establishments located, and in dividuals residing, outside the United States. (ii) Deposits from other persons. An Edge corporation may receive from any other person in the United States transac 5 §211.4 tion accounts, savings, and time deposits (including issuing negotiable certificates of deposit) if such deposits— (A) are to be transmitted abroad; (B) consist of funds to be used for payment of obligations to the Edge corporation or collateral securing such obligations; (C) consist of the proceeds of collec tions abroad that are to be used to pay for exported or imported goods or for other costs of exporting or importing or that are to be periodically trans ferred to the depositor’s account at an other financial institution; (D ) consist of the proceeds of ex tensions of credit by the Edge corporation; (E) represent compensation to the Edge corporation for extensions of credit or services to the customer; (F) are received from Edge or agree ment corporations, foreign banks and other depository institutions (as de scribed in part 204 of this chapter (Regulation D )); (G ) are received from an organization that by its charter, license or enabling law is limited to business that is of an international character, including for eign sales corporations (26 USC 921); transportation organizations engaged exclusively in the international trans portation of passengers or in the move ment of goods, wares, commodities or merchandise in international or foreign commerce; and export trading compa nies that are exclusively engaged in ac tivities related to international trade. (2) Liquid funds. Funds of an Edge or agreement corporation not currently em ployed in its international or foreign busi ness, if held or invested in the United States, shall be in the form of cash, deposits with depository institutions, as described in part 204 of this chapter (Regulation D), and other Edge and agreement corpora tions, and money market instruments (in cluding repurchase agreements with respect to such instruments) such as banker’s ac ceptances, obligations of or fully guaran teed by federal, state, and local govern 6 Regulation K ments and their instrumentalities, federal funds sold, and commercial paper. (3) Borrowings. An Edge corporation may— (i) Borrow from offices of other Edge and agreement corporations, foreign banks, and depository institutions (as de scribed in part 204 of this chapter, Regu lation D) or issue obligations to the Unit ed States or any of its agencies or instrumentalities; (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 or instrumentality 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). (4) Credit activities. An Edge corporation may— (i) Finance the following: (A) contracts, projects, or activities performed substantially abroad; (B) the importation into or exporta tion from the United States of goods, whether direct or through brokers or other intermediaries; (C) the domestic shipment or tempo rary storage of goods being imported or exported (or accumulated for ex port); and (D) the assembly or repackaging of goods imported or to be exported; (ii) 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; (iii) Assume or acquire participations in extensions of credit, or acquire obliga tions arising from transactions the Edge corporation could have financed; (iv) Guarantee debts, or otherwise agree to make payments on the occurrence of readily ascertainable events,5 if the guar antee or agreement specifies the maxi5 “Readily ascertainable events” include, but are not lim ited to, events such as nonpayment of taxes, rentals, cus toms duties, or cost of transport and loss or nonconfor mance o f shipping documents. Regulation K mum monetary liability thereunder and is related to a type of transaction de scribed in paragraphs (e) (4) (i) and (ii) of this section; and (v) Provide credit and other banking services for domestic and foreign purpos es to organizations of the type described in section 211 .4 (e )(l)(ii)(G ) of this part. (5) P aym en ts a n d collections. An Edge corporation may receive checks, bills, drafts, acceptances, notes, bonds, coupons, and other instruments for collection abroad, and collect such instruments in the United States for a customer abroad; and may transmit and receive wire transfers of funds and securities for depositors. (6) Foreign exchange. An Edge corpora tion may engage in foreign exchange activities. (7) F iduciary a n d investm ent advisory ac tivities. An Edge corporation may— (i) hold securities in safekeeping for, or buy and sell securities upon the order and for the account and risk of, a person, pro vided such services for U. S. persons shall be with respect to foreign securities only; (ii) act as paying agent for securities is sued by foreign governments or other en tities organized under foreign law; (iii) 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; (iv) 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, Seventh), no Edge corporation may otherwise engage in the business of underwriting, distributing, or buying or selling securities in the United States; (v) act as investment or financial adviser by providing portfolio investment advice and portfolio management with respect to securities, other financial instruments, real property interests and other invest §211.5 ment assets,6*and by providing advice on mergers and acquisitions, provided such services for U. S. persons shall be with respect to foreign assets only; and (vi) 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. (8) B an kin g services f o r em ployees. Pro vide banking services, including deposit services, to the officers and employees of the Edge corporation and its affiliates; however, extensions of credit to such persons shall be subject to the restrictions of part 215 of this chapter (Regulation O) as if the Edge cor poration were a member bank. (9) O ther activities. With the Board’s prior approval, engage in other activities in the United States that the Board determines are incidental to the international or foreign business of Edge corporations. (f) A greem en t 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 subpart. SECTION 211.5—Investments and Activities Abroad (a) G eneral policy. Activities abroad, wheth er conducted directly or indirectly, shall be confined to those of a banking or financial na ture and those that are necessary to carry on such activities. In doing so, investors shall at all times act in accordance with high stan dards of banking or financial prudence, having due regard for diversification 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 6 For purposes of this section, management of an invest ment portfolio does not include operational management of real property, or industrial or commercial assets. 7 §211.5 organized and operated as best meets corpo rate policies. (b) In vestm en t requirements. (1) E ligible investm ents. (i) An investor may directly or indirectly— (A ) invest in a subsidiary that en gages solely in activities listed in para graph (d) of this section or in such other activities as the Board has deter mined in the circumstances of a partic ular case are permissible except that, in the case of an acquisition of a going concern, existing activities that are not otherwise permissible for a subsidiary may account for not more than 5 per cent of either the consolidated assets or revenues of the acquired organization; (B) 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 revenues shall be attributable to activi ties not listed in paragraph (d) of this section; and (C) make portfolio investments (in cluding 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 ex ceed 100 percent of the investor’s capi tal and surplus.7 (ii) A member bank’s direct investments under section 25 of the FRA shall be lim ited to foreign banks and to foreign orga nizations formed for the sole purpose of either holding shares of a foreign bank or performing nominee, fiduciary, or other banking services incidental to the activi ties of a foreign branch or foreign bank affiliate of the member bank. (2) In vestm en t lim it. In computing the amount that may be invested in any organi zation under this section, there shall be in cluded any unpaid amount for which the investor is liable and any investments by affiliates. Regulation K (3) D ivestiture. An investor shall dispose of an investment promptly (unless the Board authorizes retention) if— (i) the organization invested in— (A ) engages in the general business of buying or selling goods, wares, mer chandise, or commodities in the Unit ed States; (B) engages directly or indirectly in other business in the United States that is not permitted to an Edge corpora tion in the United States except that an investor may hold up to 5 percent of the shares of a foreign company that engages directly or indirectly in busi ness in the United States that is not permitted to an Edge corporation; or (C) engages in impermissible activi ties to an extent not permitted under paragraph (b )(1 ) of this section; or (ii) after notice and opportunity for hearing, the investor is advised by the Board that its investment is inappropri ate under the FRA, the BHC Act, or this subpart. (c) In vestm en t procedu res.8 Direct and indi rect investments shall be made in accordance with the general-consent, prior-notice, or specific-consent procedures contained in this paragraph. The Board may at any time, upon notice, suspend the general-consent and priornotice procedures with respect to any investor or with respect to the acquisition of shares of organizations engaged in particular kinds of activities. An investor shall apply for and re ceive the prior specific consent of the Board for its initial investment in its first subsidiary or joint venture unless an affiliate has made such an investment. Authority to make invest ments under prior notice or specific consent shall expire one year from the earliest date on which the authority could have been exer cised, unless the Board extends the period. (1) G eneral consent. Subject to the other limitations of this section, the Board grants its general consent for the following: 8 When necessary, the general-consent and prior-notice provisions of this section constitute the Board’s approval under the eighth paragraph of section 25(a) of the FRA 7 For this purpose, a direct subsidiary of a member bankfor investments in excess of the limitations therein based on is deemed to be an investor. capital and surplus. 8 Regulation K (i) any investment in a joint venture or subsidiary, and any portfolio investment, if the total amount invested (in one transaction or in a series of transactions) does not exceed the lesser of— (A ) $15 million; or (B) 5 percent of the investor’s capital and surplus 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 corpora tion not engaged in banking; (ii) any additional investment in an or ganization in any calendar year so long as— (A ) the total amount invested in that calendar year does not exceed 10 per cent of the investor’s capital and sur plus; and (B) the total amount invested under section 211.5 (including investments made pursuant to specific consent or prior notice) in that calendar year does not exceed cash dividends reinvested under paragraph (c )(1 ) (iii) of this section plus 10 percent of the inves tor’s direct and indirect historical cost9 in the organization, which investment authority, to the extent unexercised, §211.5 given 45 days’ prior written notice to the Board if the total amount to be invested does not exceed 10 percent of the investor’s capital and surplus. The Board may waive the 45-day period if it finds immediate ac tion is required by the circumstances pre sented. The notice period shall commence at the time the notice is accepted. The Board may suspend the period or act on the investment under the Board’s specificconsent procedures. (3) Specific consent. Any investment that does not qualify for either the generalconsent or the prior-notice procedure shall not be consummated without the specific consent of the Board. (d) P erm issible activities. The Board has de termined that the following activities are usu al in connection with the transaction of bank ing or other financial operations abroad: (1) commercial and other banking activities; (2) financing, including commercial fi nancing, consumer financing, mortgage banking, and factoring; (3) leasing real or personal property, or acting as agent, broker, or advisor in leasing real or personal property, if the lease serves as the functional equivalent of an extension of credit to the lessee of the property; m a y b e ca rried forw ard an d a c c u m u (4) acting as fiduciary; lated for up to five consecutive years; (5) underwriting credit life insurance and (iii) any additional investment in an or credit accident and health insurance; ganization in an amount equal to cash (6) performing services for other direct or dividends received from that organiza indirect operations of a United States bank tion during the preceding 12 calendar ing organization, including representative months; or functions, sale of long-term debt, name sav (iv) any investment that is acquired ing, holding assets acquired to prevent loss from an affiliate at net asset value. on a debt previously contracted in good (2) P rior notice. An investment that does faith, and other activities that are permissi not qualify under the general-consent pro ble domestically for a bank holding compa cedure may be made after the investor has ny under sections 4 (a )(2 )(A ) and 4 (c )(1 )(C ) of the BHC Act; 9 The “historical cost” of an investment consists of the actual amounts paid for shares or otherwise contributed to (7) holding the premises of a branch of an the capital accounts, as measured in dollars at the exchange Edge corporation or member bank or the rate in effect at the time each investment was made. It does not include subordinated debt or unpaid commitments to premises of a direct or indirect subsidiary, invest even though these may be considered investments for or holding or leasing the residence of an other purposes of this part. For investments acquired indi officer or employee of a branch or rectly as a result of acquiring a subsidiary, the historical cost to the investor is measured as of the date of acquisition subsidiary; of the subsidiary at the net asset value of the equity interest (8) providing investment, financial, or eco in the case of subsidiaries and joint ventures, and in the nomic advisory services; case of portfolio investments, at the book carrying value. §211.5 (9) general insurance agency and 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 shares of an issuer unless the underwriter is covered by bind ing commitments from subunderwriters or other purchasers; (14) operating a travel agency provided that the travel agency is operated in con nection with financial services offered abroad by the investor or others; (15) engaging in activities that the Board has determined by regulation in 12 CFR 225.25(b) are closely related to banking under section 4 (c )(8 ) of the BHC Act; and (16) with the Board’s specific approval, engaging in other activities that the Board determines are usual in connection with the transaction of the business of banking or other financial operations abroad and are consistent with the FRA or the BHC Act. (e) D eb ts previously contracted. Shares or other ownership interests acquired to prevent a loss upon a debt previously contracted in good faith shall not be subject to the limita tions or procedures of this section; however, they shall be disposed of promptly but in no 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) A cceptances o f E dge corporations. (1) L im itations. An Edge corporation shall be and remain fully secured for (i) all ac 10 Regulation K ceptances outstanding in excess of 200 per cent of its capital and surplus; and (ii) all acceptances outstanding for any one person in excess of 10 percent of its capital and surplus. These limitations apply only to ac ceptances of the types described in para graph 7 of section 13 of the FRA (12 USC 372). (2) Exceptions. These limitations do not apply if the excess represents the interna tional shipment of goods and the Edge cor poration (i) is fully covered by primary ob ligations to reimburse it that are guaranteed by banks or bankers, or (ii) is covered by participation agreements from other banks, as such agreements are described in section 250.165 of this chapter. (b) L oan s a n d extensions o f credit to one person. (1) L im itation s. Except as the Board may otherwise specify: (i) the total loans and extensions of credit outstanding to any person by an Edge corporation engaged in banking and its direct or indirect subsidiaries may not exceed 15 percent of the Edge corpo ration’s capital and surplus;101and (ii) the total loans and extensions of credit to any person by a foreign bank or Edge corporation subsidiary of a member bank, and by majority-owned subsidiaries of a foreign bank or Edge corporation, when combined with the total loans and extensions of credit to the same person by the member bank and its majority-owned subsidiaries, may not exceed the member bank’s limitation on loans and extensions of credit to one person. (2) “L oan s a n d extensions o f c r e d it” means all direct or indirect advances of funds to a person11 made on the basis of 10 For purposes of this subsection, “subsidiary” includes subsidiaries controlled by the Edge corporation but does not include companies otherwise controlled by affiliates of the Edge corporation. 11 In the case of a foreign government, these include loans and extensions of credit to the foreign government’s departments or agencies deriving their current funds princi pally from general tax revenues. In the case of a partner ship or firm, these include loans and extensions of credit to its members and, in the case of a corporation, these include loans and extensions of credit to the corporation’s affiliates where the affiliate incurs the liability for the benefit of the corporation. Regulation K any obligation of that person to repay the funds. These shall include acceptances out standing not of the types described in para graph 7 of section 13 of the FRA (12 USC 372); any liability of the lender to advance funds to or on behalf of a person pursuant to a guarantee, standby letter of credit, or similar agreements; investments in the secu rities of another organization except where the organization is a subsidiary, and any underwriting commitments to an issuer of securities where no binding commitments have been secured from subunderwriters or other purchasers. (3) Exceptions. The limitations of para graph (b )(1 ) of this section do not apply to--(i) deposits with banks and federal funds sold; (ii) bills or drafts drawn in good faith against actual goods and on which two or more unrelated parties are liable; (iii) any banker’s acceptance of the kind described in paragraph 7 of section 13 of the FRA that is issued and outstanding; (iv) obligations to the extent secured by cash collateral or by bonds, notes, certifi cates of indebtedness, or Treasury bills of the United States; (v) loans and extensions of credit that are covered by bona fide participation agreements; or (vi) obligations to the extent supported by the full faith and credit of the following: (A ) the United States or any of its de partments, 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 In surance Association), the Internation al Bank for Reconstruction and Devel opment, the International Finance Corporation, the International Devel opment Association, the Inter-Ameri can Development Bank, the African Development Bank, or the Asian De velopment Bank; (B) any organization if at least 25 percent of such an obligation or of the §211.7 total credit is also supported by the full faith and credit of, or participated in by, any institution designated in para graph (b ) (3 ) ( v )( A ) of this section in such manner that default to the lender will necessarily include default to that entity. The total loans and extensions of credit under this subparagraph to any person shall at no time exceed 100 percent of the capital and surplus of the Edge corporation. (c) C apitalization. An Edge corporation shall at all times be capitalized in an amount that is adequate in relation to the scope and charac ter of its activities. In the case of an Edge cor poration engaged in banking, its capital and surplus shall be not less than 7 percent of risk assets. For this purpose, subordinated capital notes or debentures, in an amount not to ex ceed 50 percent of non-debt capital, may be included for determining capital 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 government securities, and federal funds sold. SECTION 211.7—Supervision and R eporting (a) Supervision. (1) Foreign branches a n d subsidiaries. Organizations conducting international banking operations under this subpart shall supervise and administer their foreign branches and subsidiaries in such a manner as to ensure that their operations conform to high standards of banking and financial prudence. Effective systems of records, con trols, and reports shall be maintained to keep management informed of their activi ties and condition. Such systems should provide, in particular, information on risk assets, liquidity management, and opera tions of controls and conformance to man agement 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 in formation on the condition of material bor rowers. Reports on the operations of con 11 §211.7 trols should include internal and external audits of the branch or subsidiary. (2) Join t ventures. Investors shall maintain sufficient information with respect to joint ventures to keep informed of their activities and condition. Such information shall in clude audits and other reports on financial performance, risk exposure, management policies, and operations of controls. Com plete information shall be maintained on all transactions with the joint venture by the investor and its affiliates. (3) A vailability o f reports to exam iners. The reports and information specified in paragraphs (a )(1 ) and (2) of this section shall be made available to examiners of the appropriate bank supervisory agencies. (b) E xam inations. 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) R eports o f condition. Each Edge corpo ration shall make reports of condition to the Board at such times and in such form as the Board may prescribe. The Board may require that statements of condition or oth er reports be published or made available for public inspection. (2) Foreign operations. Edge and agree ment corporations, member banks, and bank holding companies shall file such re ports on their foreign operations as the Board may require. (3) A cquisition or disposition o f shares. A member bank, Edge or agreement corpora tion or a bank holding company shall re port in a manner prescribed by the Board any acquisition or disposition of shares. (d) Filing a n d processing procedures. (1) Unless otherwise directed by the Board, applications, notifications, and reports re quired 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 12 Regulation K applying or reporting institution is located. Instructions and forms for such applica tions, notifications and reports are available from the Federal Reserve Banks. (2) The Board shall act on an application or notification under this subpart within 60 calendar days after the Reserve Bank has accepted the application or notification un less the Board notifies the investor that the 60-day period is being extended and states the reasons for the extension. SUBPART B—FOREIGN BANKING ORGANIZATIONS SECTION 211.21—Authority, Purpose, and Scope (a) A uthority. 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 a n d 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) “A g en cy ” 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 Regulation K 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; (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) “B an kin g 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) “C om m ercial lending com pany ” 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) “D om estic 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 B a n k ,” 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) D eterm in ation o f hom e 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 §211.22 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 IB A, con vert such domestic branches to agencies, or enter into an agreement with the 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 hom e 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 13 §211.22 vestments in banks acquired 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) B a n k mergers. (1) A foreign bank with one or more banking subsidiaries that se 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) A ttribu tion o f hom e 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 14 Regulation K 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 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. SECTION 211.23—Nonbanking Activities 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) “D irectly or in directly ” when used in reference to activities or investments of a foreign banking organization means activi ties or investments of the foreign banking organization or of any subsidiary of the for eign banking organization. (2) “Foreign ban kin g organ ization ” means a foreign bank (as defined in section 1(b )(7) of the IBA) that operates a branch, agency, or commercial lending company subsidiary in the United States or that controls a bank in the United States; and a company of which such foreign bank is a subsidiary. (3) “S u b sid ia ry ” means any organization 25 percent or more of whose voting shares is directly or indirectly owned, controlled Regulation K or held with power to vote by a foreign banking organization, or which is otherwise controlled or capable of being controlled by a foreign banking organization. (b) Q ualifying foreign ban kin g 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.1 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 States 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; or (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: (i) banking assets held outside the Unit ed States exceed banking assets held in the United States; (ii) revenues derived from the business of banking outside the United States ex ceed revenues derived from the business of banking in the United States; (iii) net income derived from the busi ness of banking outside the United States exceeds net income derived from the business of banking in the United States. (c) D eterm in in g assets, revenues, a n d n et in come. (1) For purposes of paragraph (b), the total assets, revenues, and net income of an organization may be determined on a con 1 None of the assets, revenues, ■or net income, whether held or derived directly or indirectly, of a subsidiary bank, branch, agency, commercial lending company, or other company engaged in the business of banking in the United States (including any territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands) shall be considered held or derived from the business of banking “outside the United States.” §211.23 solidated or combined basis. Assets, reve nues and net income of companies in which the foreign banking organization owns 50 percent or more of the voting shares shall be included when determining total assets, 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) L oss o f eligibility f o r exem ptions. 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 (FR Y-7) filed with the Board. A foreign banking organiza tion that ceases to be eligible for the ex emptions 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 determ in ation o f eligibility fo r nonqualifying foreign ban kin g organizations. A foreign banking organization that does not qualify under paragraph (b) for the exemp 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)). 15 §211.23 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 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) P erm issible activities a n d investm ents. 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 16 Regulation K located, and consolidated revenues de rived from, outside the United States; (ii) the foreign company shall not di rectly underwrite, sell, or distribute, nor own or control more than 5 percent of the voting shares of a company that un derwrites, sells, or distributes 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, the foreign company must be, or control, an operating company and its direct or indirect activities in the United 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 Clasification (SIC) (an activity in the Unit ed States shall be considered related to an activity outside the United States if it consists of supply, distribution 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- §211.32 Regulation K 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 of passenger transportation (SIC 4722). (g) E xem ption s u n der section 4(c)(9) o f the B H C A . 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 stat ing the result of a request for information. SUBPART C—EXPORT TR A D IN G COMPANIES SECTION 211.31—Authority, Purpose, and Scope (a) A uthority. 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 A ct), and the Bank Export Services Act (title II, Pub. L. 97-290, 96 Stat. 1235 (1982)) (BESA). (b) Purpose a n d 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 corporations, 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)(1 4 )(F )(iii)); and (4) foreign banking organizations as defined in section 211.23(a)(2) of this part. These entities are hereinafter referred to as “eligible investors.” SECTION 211.32—Definitions The definitions of section 211.2 in subpart A apply to this subpart subject to the following: (a) “Export trading company” means a com pany that is exclusively engaged in activities related to international trade and, by engaging 17 §211.32 in one or more export trade services, derives more than one-half its revenues in each con secutive two-year period from the export of, or from facilitating the export of, goods and services produced in the United States by per sons other than the export trading company 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). Regulation K investor in an export trading company in cludes any affiliate of the investor. (3) C ollateral requirem ents. Covered transactions between a bank and an affiliat 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 211.33—Investments and Extensions of Credit (a) A m o u n t o f investm ents. 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) E xtensions o f credit. (1) A m ount. 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 other investor holding 10 percent or more of the shares of the export trading company on terms more favorable than those afford ed similar borrowers in similar circum stances, and such extensions of credit shall not involve more than the normal risk of repayment or present other unfavorable fea tures. For the purposes of this provision, an 18 SECTION 211.34—Procedures for Filing and Processing Notices (a) F iling notice. (1) P rior notice o f investm ent. An eligible investor shall give the Board 60 days’ prior written notice of any investment in an ex port trading company. (2) Su bsequ en t 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 scribed in the initial notice to include: (i) taking title to goods where the export trad ing company does not have a firm order for the sale of those goods; (ii) product re search and design; (iii) product modifica tion; or (iv) activities not specifically cov ered by the list of activities contained in section 4 (c )(1 4 )(F )(ii) of the BHC Act. Such an expansion of activities shall be re garded as a proposed investment under this subpart. (b) T im e p e rio d f o r B oard 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- Regulation K lies 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. (c) T im e p e rio d f o r investm ent. An invest ment in an export trading company that has not been disapproved shall be made within one year from the date of the notice not to disapprove, unless the time period is extended by the Board or by the appropriate Federal Reserve Bank. SUBPART D—INTERNATIONAL LENDING SUPERVISION SECTION 211.41—Authority, Purpose, and Scope (a) A uthority. This subpart is issued by the Board of Governors of the Federal Reserve System ( “Board”) under the authority of the International Lending Supervision Act of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153) ( “International Lending Supervision Act”); the Federal Reserve Act (12 USC 221 et seq.) ( “FRA”), and the Bank Holding Company Act of 1956, as amended (12 USC 1841 et seq.) ( “BHC Act”). (b) Purpose a n d scope. This subpart is issued in furtherance of the purposes of the Interna tional Lending Supervision Act. It applies to state banks that are members of the Federal Reserve System ( “state member banks”); cor porations organized under section 25(a) of the FRA (12 USC 611-631) ( “Edge corpora tions”); corporations operating subject to an agreement with the Board under section 25 of the FRA (12 USC 601-604a) ( “agreement corporations”); and bank holding companies §211.42 (as defined in section 2 of the BHC Act (12 USC 1841 (a )) but not including a bank hold ing company that is a foreign banking organi zation as defined in section 211.23(a)(2) of this regulation. SECTION 211.42—Definitions For the purposes of this subpart— (a) “Banking institution” means a state member bank; bank holding company; Edge corporation and agreement corporation en gaged in banking. “Banking institution” does not include a “foreign banking organization” as defined in section 211.23(a)(2) of this regulation. (b) “Federal banking agencies” means the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. (c) “International assets” means those assets required to be included in banking institu tions’ Country Exposure Report forms (FFIEC No. 009). (d) “International loan” means a loan as de fined in the instructions to the Report of Con dition and Income for the respective banking institution (FFIEC Nos. 031, 032, 033 and 034) and made to a foreign government, or to an individual, a corporation, or other entity not a citizen of, resident in, or organized or incorporated in the United States. (e) “International syndicated loan” means a loan characterized by the formation of a group of “managing” banking institutions and, in the usual case, assumption by them of underwriting commitments and participation in the loan by other banking institutions. (f) “Loan agreement” means the documents signed by all of the parties to a loan, contain ing the amount, terms and conditions of the loan, and the interest and fees to be paid by the borrower. (g) “Restructured international loan” means a loan that meets the following criteria: (1) The borrower is unable to service the existing loan according to its terms and is a resident of a foreign country in which there 19 §211.42 Regulation K is a generalized inability of public and pri vate-sector obligors to meet their external debt obligations on a timely basis because of a lack of, or restraints on the availability of, needed foreign exchange in the country; and (2) the terms of the existing loan are amended to reduce stated interest or extend the schedule of payments; or (3) a new loan is made to, or for the bene fit of, the borrower, enabling the borrower to service or refinance the existing debt. debtedness as indicated by such fac tors, among others, as whether— ° such obligors have failed to make full interest payments on exter nal indebtedness; ° such obligors have failed to com ply with the terms of any re structured indebtedness; or ° a foreign country has failed to comply with any International Monetary Fund or other suitable adjustment program; or (h) “Transfer risk” means the possibility that an asset cannot be serviced in the curren cy of payment because of a lack of, or re straints on the availability of, needed foreign exchange in the country of the obligor. (B) whether no definite prospects ex ist for the orderly restoration of debt service. (ii) D eterm in ation o f a m o u n t o f A T R R . (A ) In determining the amount of the ATRR, the federal banking agencies shall consider— » the length of time the quality of the asset has been impaired; ° recent actions taken to restore debt-service capability; ° prospects for restored asset qual ity; and ° such other factors as the federal banking agencies may consider relevant to the quality of the asset. (B) The initial year’s provision for the ATRR shall be 10 percent of the prin cipal amount of each specified interna tional asset, or such greater or lesser percentage determined by the federal banking agencies. Additional provi sion, if any, for the ATRR in subse quent years shall be 15 percent of the principal amount of each specified in ternational asset, or such greater or lesser percentage determined by the federal banking agencies. SECTION 211.43—Allocated Transfer Risk Reserve (a) E stablish m en t o f allocated transfer risk reserve. A banking institution shall establish an allocated transfer risk reserve (ATRR) for specified international assets when required by the Board in accordance with this section. (b) P rocedures a n d standards. (1) Join t agency determ ination. At least annually, the federal banking agencies shall determine jointly, based on the standards set forth in subparagraph (b )(2 ) of this section, the following: (i) which international assets subject to transfer risk warrant establishment of an ATRR; (ii) the amount of the ATRR for the specified assets; and (iii) whether an ATRR established for specified assets may be reduced. (2) S ta n d a rd s f o r requiring A T R R . (i) E valuation o f assets. The federal banking agencies shall apply the follow ing criteria in determining whether an ATRR is required for particular interna tional assets: (A ) whether the quality of a banking institution’s assets has been impaired by a protracted inability of public or private obligors in a foreign country to make payments on their external in 20 (3) B o a rd notification. Based on the joint agency determinations under subparagraph (1) of this paragraph, the Board shall noti fy each banking institution holding assets subject to an ATRR— (i) of the amount of the ATRR to be established by the institution for specified international assets; and (ii) that an ATRR established for speci fied assets may be reduced. Regulation K (c) A ccounting trea tm en t o f A T R R . (1) Charge to current income. A banking institution shall establish an ATRR by a charge to current income and the amounts so charged shall not be included in the banking institution’s capital or surplus. (2) Separate accounting. A banking insti tution shall account for an ATRR separate ly from the “allowance for possible loan losses,” and shall deduct the ATRR from “gross loans and leases” to arrive at “net loans and leases.” The ATRR must be es tablished for each asset subject to the ATRR in the percentage amount specified. (3) Consolidation. A banking institution shall establish an ATRR, as required, on a consolidated basis. For banks, consolida tion should be in accordance with the pro cedures and tests of significance set forth in the instructions for preparation of Consoli dated Reports of Condition and Income (FFIEC Nos. 031, 032, 033 and 034). For bank holding companies, the consolidation shall be in accordance with the principles set forth in the instructions to the Bank Holding Company Financial Supplement to Report FR Y-6 (Form FR Y-9). Edge and agreement corporations engaged in banking shall report in accordance with instructions for preparation of the Report of Condition for Edge and Agreement Corporations (Form FR 2886b). (4) A ltern ative accounting treatm ent. A banking institution need not establish an ATRR if it writes down in the period in which the ATRR is required, or has written down in prior periods, the value of the spec ified international assets in the requisite amount for each such asset. For purposes of this paragraph, international assets may be written down by a charge to the allowance for possible loan losses or a reduction in the principal amount of the asset by application of interest payments or other collections on the asset. However, the allowance for possi ble loan losses must be replenished in such amount necessary to restore it to a level which adequately provides for the estimat ed losses inherent in the banking institu tion’s loan portfolio. (5) R edu ction o f A T R R . A banking insti tution may reduce an ATRR when notified by the Board or, at any time, by writing §211.45 down such amount of the international as set for which the ATRR was established. SECTION 211.44—Reporting and Disclosure of International Assets (a) R equirem ents. (1) Pursuant to section 907 (a) of the Inter national Lending Supervision Act of 1983 (title IX, Pub. L. 98-181, 97 Stat. 1153) (ILSA), a banking institution shall submit to the Board, at least quarterly, information regarding the amounts and composition of its holdings of international assets. (2) Pursuant to section 907(b) of ILSA, a banking institution shall submit to the Board information regarding concentra tions in its holdings of international assets that are material in relation to total assets and to capital of the institution, such infor mation to be made publicly available by the Board on request. (b) Procedures. The format, content and re porting and filing dates of the reports required under paragraph (a) of this section shall be determined jointly by the federal banking agencies. The requirements to be prescribed by the agencies may include changes to ex isting reporting forms (such as the Country Exposure Report, Form FFIEC No. 009) or such other requirements as the agencies deem appropriate. The agencies also may determine to exempt from the requirements of paragraph (a) of this section banking institutions that, in the agencies’ judgment, have de minimis hold ings of international assets. (c) R eservation o f authority. Nothing con tained in this rule shall preclude the Board from requiring from a banking institution such additional or more frequent information on the institution’s holdings of international assets as the Board may consider necessary. SECTION 211.45—Accounting for Fees on International Loans (a) R estriction s on fe e s f o r restructured inter nation al loans. No banking institution shall charge any fee in connection with a restruc tured international loan unless all fees exceed 21 §211.45 ing the banking institution’s administrative costs, as described in subsection (c) (2) of this section, are deferred and recognized over the term of the loan as an interest-yield adjustment. (b) A m o rtizin g fees. Except as otherwise pro vided by this section, fees received on interna tional loans shall be deferred and amortized over the term of the loan. The interest method should be used during the loan period to rec ognize the deferred fee revenue in relation to the outstanding loan balance. If it is not prac ticable to apply the interest method during the loan period, the straight-line method shall be used. (c) A ccounting treatm en t o f in tern ation al loan or syndication adm in istrative costs a n d corresponding fees. (1) Administrative costs of originating, re structuring or syndicating an international loan shall be expensed as incurred. A por tion of the fee income equal to the banking institution’s administrative costs may be recognized as income in the same period such costs are expensed. (2) The administrative costs of originat ing, restructuring, or syndicating an inter national loan include those costs which are specifically identified with negotiating, processing and consummating the loan. These costs include, but are not necessarily limited to: legal fees; costs of preparing and processing loan documents; and an alloca ble portion of salaries and related benefits of employees engaged in the international lending function and, where applicable, the syndication function. No portion of super visory and administrative expenses or other indirect expenses such as occupancy and oth er similar overhead costs shall be included. (d) Fees received by m anaging ban kin g in sti tutions in an international syn d ica ted loan. Fees received on international syndicated loans representing an adjustment of the yield on the loan shall be recognized over the loan period using the interest method. If the inter est-yield portion of a fee received on an inter national syndicated loan by a managing bank ing institution is unstated or differs materially from the pro rata portion of fees paid other 22 Regulation K participants in the syndication, an amount necessary for an interest-yield adjustment shall be recognized. This amount shall at least be equivalent (on a pro rata basis) to the larg est fee received by a loan participant in the syndication that is not a managing banking institution. The remaining portion of the syn dication fee may be recognized as income at the loan closing date to the extent that it is identified and documented as compensation for services in arranging the loan. Such docu mentation shall include the loan agreement. Otherwise, the fee shall be deemed an adjust ment of yield. (e) L oan co m m itm e n t fees. (1) Fees which are based upon the unfund ed portion of a credit for the period until it is drawn and represent compensation for a binding commitment to provide funds or for rendering a service in issuing the com mitment shall be recognized as income over the term of the commitment period using the straight-line method of amortization. Such fees for revolving-credit arrange ments, where the fees are received periodi cally in arrears and are based on the amount of the unused loan commitment, may be recognized as income when received provided the income result would not be materially different. (2) If it is not practicable to separate the commitment portion from other compo nents of the fee, the entire fee shall be amor tized over the term of the combined com mitment and expected loan period. The straight-line method of amortization should be used during the commitment period to recognize the fee revenue. The interest method should be used during the loan pe riod to recognize the remaining fee revenue in relation to the outstanding loan balance. If the loan is funded before the end of the commitment period, any unamortized com mitment fees shall be recognized as revenue at that time. (f) A gency fees. Fees paid to an agent bank ing institution for administrative services in an international syndicated loan shall be rec ognized at the time of the loan closing or as the service is performed, if later. Statutory Provisions FEDERAL RESERVE ACT SECTION 25—Foreign Branches 1. C apital a n d Su rplu s R eq u ired to Exercise Powers Any national banking association possessing a capital and surplus of $1,000,000 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 July 1, 1966 (80 Stat. 241).] 4. Acquisition o f Ownership o f Foreign B an ks 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).] 2. E stablish m en t o f Foreign B ranches 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. 5. R ig h t o f N a tio n a l B a n k s to In vest in Foreign B an kin g Corporations u n til January 1, 1921 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. 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. [12 USC 601. As added by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] [12 USC 601. As added by act of Sept. 17, 1919 (41 Stat. 285). This paragraph, by its terms, is now obsolete.] [12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 3. Purchase o f S to ck in Corporations E n gaged in Foreign B an kin g 23 Regulation K Statutory Provisions 6. A pplication f o r Perm ission to E xercise 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).] 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. E xam in ation s a n d R eports o f C ondition 9. A ccou n ts o f Foreign B ranches 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. A greem en t to R e strict 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 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 Gover24 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. A d d itio n a l B an kin g Powers A u th orized 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 goods, wares, or merchandise; nor, except to such limited extent as the Board may deem to be necessary with respect to securities issued Regulation K 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. O rganization 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 quired by the Secretary of the Treasury as fis cal agents of the United States, may be formed by any number of natural persons, not less in any case than five: Provided, That nothing in this section shall be construed to deny the right of the Secretary of the Treasury to use any corporation organized under this section as depositaries in Panama and the Panama Canal Zone, or in the Philippine Islands and other insular possessions and dependencies of the United States. The congress hereby declares that it is the purpose of this section to provide for the es tablishment of international banking and fi nancial corporations operating under Federal supervision with powers sufficiently broad to enable them to compete effectively with simi lar foreign-owned institutions in the United States and abroad; to afford to the United States exporter and importer in particular, and to United States commerce, industry, and agriculture in general, at all times a means of financing international trade, especially United States exports; to foster the participation by regional and smaller banks throughout the United States in the provision of international Statutory Provisions 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. [12 USC 611. As added by act of Dec. 24, 1919 (41 Stat. 378); and amended by act of Feb. 27, 1921 (41 Stat. 1145) and Sept. 17, 1978 (92 Stat. 609). Presidential Proclama tion No. 2695 of July 4, 1946 (60 Stat. 1352; 12 USC 1394 note) recognizes the independence of the Philippine Is lands. Therefore, the words “in the Philippine Islands and” have been omitted from the U.S. Code.] 2. A rticles o f Association Such persons shall enter into articles of associ ation which shall specify in general terms the objects for which the association is formed and may contain any other provisions not in consistent with law which the association may see fit to adopt for the regulation of its busi ness and the conduct of its affairs. [12 USC 612. As added by act of Dec. 24, 1919 (41 Stat. 378).] 3. E xecution o f A rticles o f Association; Contents o f O rganization C ertificate Such articles of association shall be signed by all of the persons intending to participate in the organization of the corporation and, thereafter, shall be forwarded to the Board of Governors of the Federal Reserve System and 25 Regulation K Statutory Provisions 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. [12 USC 613. As added by act of Dec. 24, 1919 (41 Stat. 379).] 4. Filing O rganization Certificate; Issuance o f P erm it 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 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 26 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 614. As added by act of Dec. 24, 1919 (41 Stat. 379) and Sept. 17, 1978 (92 Stat. 609).] 5. Powers; R egu lation s o f B o a rd o f Governors o f the F ederal R eserve S ystem Each corporation so organized shall have power, under such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe: [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 379).] 6. B an kin g 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 serve System may impose; to issue letters of credit; to purchase and sell coin, bullion, and exchange; to borrow and to lend money; to Statutory Provisions Regulation K issue debentures, bonds, and promissory notes under such general conditions as to security and such limitations as the Board of Gover nors of the Federal Reserve System may pre scribe; to receive deposits outside of the United States and to receive only such deposits within the United States as may be incidental to or for the purpose of carrying out transactions in foreign countries or dependencies or insular possessions of the United States; and generally to exercise such powers as are incidental to the powers conferred by this Act or as may be usual, in the determination of the Board of Governors of the Federal Reserve System, in connection with the transaction of the busi ness of banking or other financial operations in the countries, colonies, dependencies, or possessions in which it shall transact business and not inconsistent with the powers specifi cally granted herein. Nothing contained in this section shall be construed to prohibit the Board of Governors of the Federal Reserve System, under its power to prescribe rules and regulations, from limiting the aggregate amount of liabilities of any or all classes in curred by the corporation and outstanding at any one time. Whenever a corporation orga nized under this section receives deposits in the United States authorized by this section it shall carry reserves in such amounts as the Board of Governors of the Federal Reserve System may prescribe for member banks of the Federal Reserve System. [12 use 615. As added by act of Dec. 24, 1919 (41 Stat. 379); and amended by act of Sept. 17, 1978 (92 Stat. 609).] 8. Ownership o f S to c k in O ther C orporations (c) With the consent of the Board of Gover nors of the Federal Reserve System to pur chase and hold stock or other certificates of ownership in any other corporation organized under the provisions of this section, or under the laws of any foreign country or a colony or dependency thereof, or under the laws of any State, dependency, or insular possession of the United States but not engaged in the general business of buying or selling goods, wares, merchandise or commodities in the United States, and not transacting any business in the United States except such as in the judgment of the Board of Governors of the Federal Re serve System may be incidental to its interna tional or foreign business: Provided, however, That, except with the approval of the Board of Governors of the Federal Reserve System, no corporation organized hereunder shall invest in any one corporation an amount in excess of 10 per centum of its own capital and surplus, except in a corporation engaged in the busi ness of banking, when 15 per centum of its capital and surplus may be so invested: Pro vided fu rth er, That no corporation organized hereunder shall purchase, own, or hold stock or certificates of ownership in any other cor poration organized hereunder or under the laws of any State which is in substantial com petition therewith, or which holds stock or certificates of ownership in corporations which are in substantial competition with the purchasing corporation. [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 380).] 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. 379).] 9. Purchase o f S to ck to P revent Loss on D e b t P reviously C on tracted 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 unless the time to so dispose of same is ex27 Statutory Provisions 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. R estriction s on Business in U nited 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: A n d p ro v id e d f u 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 T radin g in C om m odities or A tte m p tin g to C ontrol 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).] 12. C apital S to ck No corporation shall be organized under the 28 Regulation K 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: P rovided, 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 Federal Reserve Act as amended shall not ex ceed 10 per centum of the subscribing bank’s capital and surplus. Regulation K [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. C itizenship o f S tockholders 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).] 14. M em bers o f B o a rd o f Governors o f the F ederal R eserve S ystem as Directors, Officers or S tockholders 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 Statutory Provisions 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. S h areh olders’ L ia b ility; Corporation N o t to B ecom e M e m b e r o f F ederal R eserve B an k 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. F orfeiture o f C h arter f o r Violation o f L a w 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 corpora 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 USC 622. As added by act of Dec. 24, 1919 (41 Stat. 382).] 29 Regulation K Statutory Provisions 17. Voluntary L iquidation 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; A ppoin tm en t o f R eceiver 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. S to ck h o ld ers ’M eetings; R ecords; R eports; E xam in ation s 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 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 30 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. D ividen ds a n d Surplu s F und 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. E xtension o f Corporate E xistence 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 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 Regulation K 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 S ta te Corporation into F ederal 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 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 Statutory Provisions 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. C rim in al Offenses o f D irectors, Officers, a n d E m ployees 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 per 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 31 Statutory Provisions 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. R epresentation th a t U nited S ta tes is L ia b le f o r O bligations 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. [12 USC 631. As added by act of Dec. 24, 1919 (41 Stat. 384).] BANK H O LD IN G COMPANY ACT OF 1956 SECTION 2 * * * (h) * * * (2) The prohibitions of section 4 of this Act shall not apply to shares of any compa ny organized under the laws of a foreign country (or to shares held by such compa ny in any company engaged in the same general line of business as the investor com pany or in a business related to the business 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 th at(l) such exempt foreign company (A ) may engage in or hold shares of a company engaged in the business of underwriting, selling or dis 32 Regulation K 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 nization and which is exempt from taxation 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 or indirectly, by or for members of the same family, or their spouses, who are lineal de scendants of common ancestors; and such prohibitions shall not, with respect to any oth er bank holding company, apply to— (9) shares held or activities conducted by any company organized under the laws of a foreign country the greater part of whose business is conducted outside the United States, 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 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 Regulation K 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 Statutory Provisions vestment would affect 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. (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 33 Statutory Provisions 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. 601604(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— 34 Regulation K (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 marily 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 Statutory Provisions Regulation K (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.] IN TERN A TIO N A L BAN K IN G ACT OF 1978 SECTION 3 (a) It is the purpose of this section to elimi nate or modify provisions in section 25(a) of the Federal Reserve Act 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 Reserve Act as amended by subsection (b) of this sec tion. In furtherance of such purpose, the Con gress 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. * * $ * * [Paragraph (f) amended Federal Reserve Act section 25(a), paragraph 13 by adding “Except as otherwise pro vided in sections 611 to 631 of this title” preceding “a ma jority of the shares” and by adding the provision relating to the ownership of 50 percent of the shares of capital stock by a foreign bank with prior approval of the Board of Gov ernors of the Federal Reserve System.] (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 fects of the amendments made by this Act on the capitalization and activities of corpora tions organized or operating under section 25 or 25(a) of the Federal Reserve Act, and on commercial banks and the banking system. [12 USC 611a note. The date of enactment referred to above is September 17, 1978.] SECTION 5 (a) Except as provided by subsection (b), (1) no foreign bank may directly or indirectly 35 Statutory Provisions 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 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 sec36 Regulation K tion, a foreign bank, notwithstanding any re striction or limitation imposed under subsec tion (a) of this section, may establish and operate, outside its home State, any State branch, State agency, or bank or commercial lending company subsidiary which com menced lawful operation or for which an application to commence business had been lawfully filed with the appropriate 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 USC 3103.] INTERNATIONAL LENDING SUPERVISION ACT T itle I X o f A c t o f N ovem ber 30, 1983 (9 7 Stat. 1278) SECTION 901—Short Title This title may be cited as the “International Lending Supervision Act of 1983”. [12 USC 3901 note.] SECTION 902—Declaration of Policy ( a ) (1) It is the policy of the Congress to as sure that the economic health and stability of the United States and the other nations of the world shall not be adversely affected or threatened in the future by imprudent lending practices or inadequate supervision. (2) This shall be achieved by strengthen ing the bank regulatory framework to en courage prudent private decisionmaking and by enhancing international coordina tion among bank regulatory authorities. (b) The Federal banking agencies shall con sult with the banking supervisory authorities of other countries to reach understandings aimed at achieving the adoption of effective Statutory Provisions Regulation K and consistent supervisory policies and prac tices with respect to international lending. banking institution examination and supervi sion. [12 USC 3901.] (b) Each such agency shall establish exami nation and supervisory procedures to assure that factors such as foreign country exposure and transfer risk are taken into account in evaluating the adequacy of the capital of banking institutions. SECTION 903—Definitions For purposes of this title— (1) the term “appropriate Federal banking agency” has the same meaning given such term in section 3 (q) of the Federal Deposit Insurance Act, except that for purposes of this title such term means the Board of Governors of the Federal Reserve System for— (A ) bank holding companies and any nonbank subsidiary thereof; (B) Edge Act corporations organized under section 25(a) of the Federal Re serve Act; and (C) Agreement Corporations operating under section 25 of the Federal Reserve Act; and (2) the term “banking institution” means— ( A ) (i) an insured bank as defined in section 3(h) of the Federal Deposit In surance Act or any subsidiary of an in sured bank; (ii) an Edge Act corporation orga nized under section 25(a) of the Fed eral Reserve Act; and (iii) an Agreement Corporation oper ating under section 25 of the Federal Reserve Act; and (B) to the extent determined by the ap propriate Federal banking agency, any agency or branch of a foreign bank, and any commercial lending company owned or controlled by one or more foreign banks or companies that control a foreign bank as those terms are defined in the International Banking Act of 1978. The term “banking institution” shall not in clude a foreign bank. [12 USC 3902.] SECTION 904—Strengthened Supervision of International Lending (a) Each appropriate Federal banking agen cy shall evaluate banking institution foreign country exposure and transfer risk for use in [12 USC 3903.] SECTION 905—Reserves ( a ) (1) Each appropriate Federal banking agency shall require a banking institution to establish and maintain a special reserve whenever, in the judgment of such appro priate Federal banking agency— (A ) the quality of such banking in stitution’s assets has been impaired by a protracted inability of public or private borrowers in a foreign country to make payments on their external indebtedness as indicated by such factors, among others, as— (i) a failure by such public or private borrowers to make full interest pay ments on external indebtedness; (ii) a failure to comply with the terms of any restructured indebtedness; or (iii) a failure by the foreign country to comply with any International Mone tary Fund or other suitable adjustment program; or (B) no definite prospects exist for the orderly restoration of debt service. (2) Such reserves shall be charged against current income and shall not be considered as part of capital and surplus or allowances for possible loan losses for regulatory, su pervisory, or disclosure purposes. (b) The appropriate Federal banking agen cies shall analyze the results of foreign loan rescheduling negotiations, assess the loan loss risk reflected in rescheduling agreements, and, using the powers set forth in section 908 (re garding capital adequacy), ensure that the capital and reserve positions of United States banks are adequate to accommodate potential losses on their foreign loans. (c) The appropriate Federal banking agen37 Statutory Provisions cies shall promulgate regulations or orders necessary to implement this section within one hundred and twenty days after the date of the enactment of this title. [12 USC 3904.] SECTION 906—Accounting for Fees on International Loans Regulation K dar year, information regarding such exposure in a format prescribed by such regulations. (b) Each appropriate Federal banking agen cy shall require, by regulation, banking insti tutions to disclose to the public information regarding material foreign country exposure in relation to assets and to capital. (c) The appropriate Federal banking agen cies shall promulgate regulations or orders ( a ) (1) In order to avoid excessive debt serv necessary to implement this section within ice burdens on debtor countries, no banking one hundred and twenty days after the date of institution shall charge, in connection with the enactment of this title. the restructuring of an international loan, any fee exceeding the administrative cost of [12 USC 3906.] the restructuring unless it amortizes such fee over the effective life of each such loan. SECTION 908—Capital Adequacy (2) (A ) Each appropriate Federal banking ( a ) (1) Each appropriate Federal banking agency shall promulgate such regulations agency shall cause banking institutions to as are necessary to further carry out the achieve and maintain adequate capital by provisions of this subsection. establishing minimum levels of capital for (B ) The requirement of paragraph (1) such banking institutions and by using such shall take effect on the date of the enact other methods as the appropriate Federal ment of this section. banking agency deems appropriate. ( b ) (1) Subject to subsection (a), the appro (2) Each appropriate Federal banking priate Federal banking agencies shall agency shall have the authority to establish promulgate regulations for accounting for such minimum level of capital for a banking agency, commitment, management and oth institution as the appropriate Federal bank er fees charged by a banking institution in ing agency, in its discretion, deems to be connection with an international loan. necessary or appropriate in light of the (2) Such regulations shall establish the ac particular circumstances of the banking counting treatment of such fees for regula institution. tory, supervisory, and disclosure purposes to assure that the appropriate portion of ( b ) (1) Failure of a banking institution to maintain capital at or above its minimum such fees is accrued in income over the ef level as established pursuant to subsection fective life of each such loan. (a) may be deemed by the appropriate Fed (3) The appropriate Federal banking agen eral banking agency, in its discretion, to cies shall promulgate regulations or orders constitute an unsafe and unsound practice necessary to implement this subsection within the meaning of section 8 of the Fed within one hundred and twenty days after eral Deposit Insurance Act. the date of the enactment of this title. (2) (A ) In addition to, or in lieu of, any [12 USC 3905.] other action authorized by law, including paragraph (1 ), the appropriate Federal banking agency may issue a directive to a SECTION 907—Collection and banking institution that fails to maintain Disclosure of Certain International capital at or above its required level as Lending Data established pursuant to subsection (a). (B )(i) Such directive may require the (a) Each appropriate Federal banking agen banking institution to submit and ad cy shall require, by regulation, each banking here to a plan acceptable to the appro institution with foreign country exposure to priate Federal banking agency describsubmit, no fewer than four times each calen38 Statutory Provisions Regulation K ing the means and timing by which the banking institution shall achieve its re quired capital level. (ii) Any such directive issued pursu ant to this paragraph, including plans submitted pursuant thereto, shall be enforceable under the provisions of section 8(i) of the Federal Deposit In surance Act to the same extent as an effective and outstanding order issued pursuant to section 8(b) of the Federal Deposit Insurance Act which has be come final. 3(A) Each appropriate Federal banking agency may consider such banking insti tution’s progress in adhering to any plan required under this subsection whenever such banking institution, or an affiliate thereof, or the holding company which controls such banking institution, seeks the requisite approval of such appropri ate Federal banking agency for any pro posal which would divert earnings, di minish capital, or otherwise impede such banking institution’s progress in achiev ing its minimum capital level. (B) Such appropriate Federal banking agency may deny such approval where it determines that such proposal would ad versely affect the ability of the banking institution to comply with such plan. (C) The Chairman of the Board of Gov ernors of the Federal Reserve System and the Secretary of the Treasury shall en courage governments, central banks, and regulatory authorities of other major banking countries to work toward main taining and, where appropriate, strength ening the capital bases of banking institu tions involved in international lending. [12 USC 3907.] SECTION 909—Foreign Loan Evaluations (a)(1) In any case in which one or more banking institutions extend credit, whether by loan, lease, guarantee, or otherwise, which individually or in the aggregate ex ceeds $20,000,000, to finance any project which has as a major objective the con struction or operation of any mining opera tion, any metal or mineral primary process ing operation, any fabricating facility or op eration, or any metal-making operations (semi and finished) located outside the United States or its territories and posses sions, a written economic feasibility evalua tion of such foreign project shall be pre pared and approved in writing by a senior official of the banking institution, or, if more than one banking institution is in volved, the lead banking institution, prior to the extension of such credit. (2) Such evaluation shall— (A) take into account the profit poten tial of the project, the impact of the proj ect on world markets, the inherent com petitive advantages and disadvantages of the project over the entire life of the proj ect, and the likely effect of the project upon the overall long-term economic de velopment of the country in which the project is located; and (B) consider whether the extension of credit can reasonably be expected to be repaid from revenues generated by such foreign project without regard to any subsidy, as defined in international agree ments, provided by the government in volved or any instrumentality of any country. (b) Such economic feasibility evaluations shall be reviewed by representatives of the ap propriate Federal banking agencies whenever an examination by such appropriate Federal banking agency is conducted. ( c ) (1) The authorities of the Federal bank ing agencies contained in section 8 of the Federal Deposit Insurance Act and in sec tion 910 of this Act, except those contained in section 910(d), shall be applicable to this section. (2) No private right of action or claim for relief may be predicated upon this section. [12 USC 3908.] SECTION 910—General Authorities (a)(1) The appropriate Federal banking agencies are authorized to interpret and de fine the terms used in this title, and each appropriate Federal banking agency shall 39 Regulation K Statutory Provisions prescribe rules or regulations or issue or ders as necessary to effectuate the purposes of this title and to prevent evasions thereof. (2) The appropriate Federal banking agen cy is authorized to apply the provisions of this title to any affiliate of an insured bank, but only to affiliates for which it is the ap propriate Federal banking agency, in order to promote uniform application of this title or to prevent evasions thereof. (3) For purposes of this section, the term “affiliate” shall have the same meaning as in section 23A of the Federal Reserve Act, except that the term “member bank” in such section shall be deemed to refer to an “insured bank”, as such term is used in sec tion 3(h) of the Federal Deposit Insurance Act. ing agency under the procedures estab lished by, and subject to the rights afforded to parties in, such section. [12 USC 3909.] SECTION 911—GAO Audit Authority (a ) (1) Under regulations of the Comptroller General, the Comptroller General shall au dit the appropriate Federal banking agen cies (as defined in section 903 of this title), but may carry out an onsite examination of an open insured bank or bank holding com pany only if the appropriate Federal bank ing agency has consented in writing. (2) An audit under this subsection may in clude a review or evaluation of the interna tional regulation, supervision, and examina (b) The appropriate Federal banking agen tion activities of the appropriate Federal cies shall establish uniform systems to imple banking agency, including the coordination ment the authorities provided under this title. of such activities with similar activities of (c) (1) The powers and authorities granted in regulatory authorities of a foreign govern this title shall be supplemental to and shall ment or international organization. not be deemed in any manner to derogate (3) Audits of the Federal Reserve Board from or restrict the authority of each appro and Federal Reserve banks may not in priate Federal banking agency under sec clude— tion 8 of the Federal Deposit Insurance Act (A) transactions for, or with, a foreign or any other law including the authority to central bank, government of a foreign require additional capital or reserves. country, or nonprivate international fi (2) Any such authority may be used by nancing organization; any appropriate Federal banking agency to (B) deliberations, decisions, or actions ensure compliance by a banking institution on monetary policy matters, including with the provisions of this title and all rules, discount window operations, reserves of regulations, or orders issued pursuant member banks, securities credit, interest thereto. on deposits, or open market operations; (C) transactions made under the direc (d ) (1) Any banking institution which vio tion of the Federal Open Market Com lates, or any officer, director, employee, mittee; or agent, or other person participating in the (D) a part of a discussion or communi conduct of the affairs of such banking insti cation among or between members of the tution, who violates any provision of this Board of Governors of the Federal Re title, or any rule, regulation, or order, is serve System and officers and employees sued under this title, shall forfeit and pay a of the Federal Reserve System related to civil penalty of not more than $1,000 per subparagraphs (A) through (C) of this day for each day during which such viola paragraph. tion continues. (2) Such violations shall be deemed to be a (b ) (1)(A ) Except as provided in this sub section, an officer or employee of the violation of a final order under section General Accounting Office may not dis 8(i)(2) of the Federal Deposit Insurance close information identifying an open Act and the penalty shall be assessed and bank, an open bank holding company, or collected by the appropriate Federal bank 40 Regulation K a customer of an open or closed bank or bank holding company. (B) The Comptroller General may disclose information related to the affairs of a closed bank or closed bank holding company identifying a customer of the closed bank or closed bank holding com pany only if the Comptroller General be lieves the customer had a controlling in fluence in the management of the closed bank or closed bank holding company or was related to or affiliated with a person or group having a controlling influence. (2) An officer or employee of the General Accounting Office may discuss a customer, bank, or bank holding company with an of ficial of an appropriate Federal banking agency and may report an apparent crimi nal violation to an appropriate law enforce ment authority of the United States Gov ernment or a State. (3) This subsection does not authorize an officer or employee of an appropriate Feder al banking agency to withhold information from a committee of the Congress autho rized to have the information. (c)(1 )(A ) To carry out this section, all rec ords and property of or used by an ap propriate Federal banking agency, in cluding samples of reports of examina tions of a bank or bank holding company the Comptroller General considers statis tically meaningful and workpapers and correspondence related to the reports shall be made available to the Comptrol ler General, including such records and property pertaining to the coordination of international regulation, supervisor and examination activities of an appro priate Federal banking agency. (B) The Comptroller General shall give each appropriate Federal banking agency a current list of officers and employees to whom, with proper identification, records and property may be made available, and who may make notes or copies necessary to carry out an audit. (C) Each appropriate Federal banking agency shall give the Comptroller Gener al suitable and lockable offices and furni Statutory Provisions ture, telephones, and access to copying facilities. (2) Except for the temporary removal of workpapers of the Comptroller General that do not identify a customer of an open or closed bank or bank holding company, an open bank, or an open bank holding company, all workpapers of the Comptrol ler General and records and property of or used by an appropriate Federal banking agency that the Comptroller General pos sesses during an audit, shall remain in such agency. The Comptroller General shall pre vent unauthorized access to records or property. [12 USC 3910.] SECTION 912—Equal Representation for the Federal Deposit Insurance Corporation As one of the three Federal bank regulatory and supervisory agencies, and as the insurer of the United States banks involved in interna tional lending, the Federal Deposit Insurance Corporation shall be given equal representa-tion with the Board of Governors of the Fed eral Reserve System and the Office of the Comptroller of the Currency on the Commit tee on Banking Regulations and Supervisory Practices of the Group of Ten Countries and Switzerland. [12 USC 3911.] SECTION 913—Reports Not later than six months after the date of the enactment of this title, the Secretary of the Treasury or the appropriate Federal banking agencies as specified below, shall transmit a report to the Congress regarding changes to improve the international lending operations of banking institutions. Such report shall— (1) review the laws, regulations, and ex amination and supervisory procedures and practices, governing international banking in each of the Group of Ten Nations and Switzerland with particular attention to such matters bearing on capital require ments, lending limits, reserves, disclosure, examiner access, and lender of last resort resources, such report to be prepared by the 41 Regulation K Statutory Provisions Chairman of the Board of Governors of the Federal Reserve System; (2) outline progress made in reaching the goal specified in section 908(c), such report to be prepared by the Secretary of the Trea sury and the Chairman of the Board of Governors of the Federal Reserve System; and (3) indicate actions taken to implement this title by the appropriate Federal bank ing agencies, including a description of the 42 actions taken in carrying out the objectives of the title and any actions taken by any appropriate Federal banking agency that are inconsistent with the uniform imple mentation by the appropriate Federal bank ing agencies of their respective authorities under this title, and any recommendations for amendments to this or other legislation, such report to be prepared by the appropri ate Federal banking agencies. [12 USC 3912.]
@FedFRASER