Full text of Federal Reserve Bank of New York Circulars : Regulation K, International Banking Operations

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

*

J
s t(A

■

•

(04

f t
October 23, 1991

To a l l D e p o s i to r y I n s t i t u t i o n s in th e S eco n d
F ed era l R eserv e D i s t r i c t , and O th ers
M a in ta in in g S e ts o f Board R e g u la tio n s :

Enclosed is a copy of a revised Regulation K pamphlet,
"International Banking Operations," as amended effective May 24, 1991, by the
Board of Governors of the Federal Reserve System.
The revised pamphlet supersedes the previous printing of this
regulation and any subsequent amendments thereto.




Circulars Division
FEDERAL RESERVE BANK OF NEW YORK

Board o f Governors o? the fed era l Reserve System

Regulation K
International Banking Operations
12 CFR 211; as amended effective May 24. 1991




Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the
Federal Reserve District in which the inquiry arises.
July 1991




Contents

Page
(d)

Subpart A—International Operations
of United States Banking
Organizations
Section 211.1—Authority, purpose, and
scope......................................................
(a) Authority......................................
(b) P urpose........................................
(c) Scope............................................
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 banks..............................
Section 211.4— Edge and agreement
corporations..........................................
(a) Organization................................
(b) Nature and ownership of shares .
(c) Domestic branches......................
(d) Reserve requirements and interest
rate lim itations............................
(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........
(f) Investment made through debtfor-equity conversions ................
Section 211.6—Lending limits and
capital requirem ents...............................
(a) Acceptances of Edge corporations
(b) Loans and extensions of credit to
one p erson....................................
(c) Capitalization..............................
Section 211.7—Supervision and
reporting ................................................
(a) Supervision..................................
(b) Exam inations..............................
(c) R e p o rts........................................




Filing and processingprocedures

Page
17

Subpart B—Foreign Banking
Organizations
1
1
1
1
2
3
3
3
4
5
5
5
5
7
7
8
8
8
8
9

11
13
13

Section 211.21—Authority, purpose, and
scope...................................................... 17
(a) Authority...................................... 17
(b) Purpose and scope ...................... 17
Section 211.22—Interstate banking
operations of foreign banking
organizations........................................ 17
(a) Definitions.................................... 17
(b) Determination of home state . . . . 18
(c) Change of home s ta te .................. 18
(d) Bank m erg ers.............................. 18
(e) Attribution of home state............ 19
Section 211.23—Nonbanking activities of
foreign banking organizations............ 19
(a) Definitions.................................... 19
(b) Qualifying foreign banking
organizations................................ 19
(c) Determining assets, revenues and
net income.................................... 20
(d) Loss of eligibility for exemptions . 20
(e) Specific determination of
eligibility for nonqualifying
foreign banking organizations . . . 20
(f) Permissible activities and
investments.................................. 21
(g) Exemptions under section
4(c) (9) of the Bank Holding
Company A c t .............................. 22
(h) R e p o rts........................................ 22
(i) Availability of information.......... 22
Subpart C—Export Trading
Companies

15
15 Section 211.31—Authority, purpose and
scope......................................................
(a) Authority......................................
15
(b) P urpose........................................
16
Section 211.32—Definitions................
16 Section 211.33—Investments and
extensions of c re d it..............................
16
(a) Amount of investm ents..............
17
17
(b) Extensions of credit ....................

23
23
23
23
23
23

Contents
Page

Section 211.34— Procedures for filing
and processing notices..........................
(a) Filing n o tic e ................................
,
(b) Time period for Board action
(c) Time period for investm ent........ ,
(d) Time period for calculating
revenues........................................ ,

24
24
24
24
24

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 reserve.............................
(b) Procedures and stan d ard s.......... .
(c) Accounting treatment of ATRR .
Section 211.44— Reporting and
disclosure of international a sse ts.........
(a) Requirem ents...............................
(b) Procedures.....................................
(c) Reservation of authority...............




25
25
25
25
25
25
26
26
27
27
27
27

Page

Section 211.45—Accounting for fees on
international loans................................
(a) Restrictions on fees for
restructured international loans..
(b) Amortizing fees............................
(c) Accounting treatment of
international loan or syndication
administrative costs and
corresponding f e e s ......................
(d) Fees received by managing
banking institutions in an
international syndicated loan . . . .
(e) Loan-commitment fees................
(f) Agency fees..................................

27
27
27

27

28
28
28

STATUTORY PROVISIONS
Federal Reserve Act
Section 25..........................................
Section 2 5 (a )....................................
Bank Holding Company Act
Section 2(h) (2 )-(5 ) ......................
Section 4 (c)(9), (13), and (14) . . .
International Banking A c t ..................
Bank Export Services Act
Section 202........................................
Section 206........................................
International Lending Supervision Act

29
31
38
39
42
48
48
49

Regulation K
International Banking Operations
12 C FR 211; as amended effective May 24, 1991

Subpart A—International Operations of
United States Banking Organizations

SECTION 211.1— Authority, Purpose,
and Scope

Section
211.1 Authority, purpose, and scope
211.2 Definitions
211.3 Foreign branches of U.S. banking
organizations
211.4 Edge and agreement corporations,*
211.5 Investments and activities abroad
211.6 Lending limits and capital
requirements
211.7 Supervision and reporting

(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”) (12 USC 3101 et seq.). Require­
ments for the collection of information con­
tained in this regulation have been approved
by the Office of Management and Budget un­
der the provisions of 44 USC 3501 et seq. and
have been assigned OMB Nos. 7100-0107;
7100-0109; 7100-0110; 7100-0069; 7100-0086,
and 7100-0073.

Subpart B—Foreign Banking Organizations
Section
211.21 Authority, purpose, and scope
211.22 Interstate banking operations of for­
eign banking organizations
211.23 Nonbanking activities of foreign
banking organizations
Subpart C—Export Trading Companies
Section
211.31
211.32
211.33
211.34

Authority, purpose, and scope
Definitions
Investments and extensions of credit
Procedures for filing and processing
notices

Subpart D—International Lending
Supervision
Section
211.41
211.42
211.43
211.44
211.45

Authority, purpose, and scope
Definitions
Allocated transfer risk reserve
Reporting and disclosure of interna­
tional assets
Accounting for fees on international
loans

SUBPART A — IN TER N A TIO N A L
OPERATIONS OF U N IT E D STATES
B A N K IN G O RG ANIZATIO NS




(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—
(1) corporations organized under section
25(a) of the FRA (12 USC 611-631),
“Edge corporations”;
(2) corporations having an agreement or
undertaking with the Board under section
25 of the FRA (12 USC 601-604a), “agree­
ment corporations”;
(3) member banks with respect to their
foreign branches and investments in foreign
banks under section 25 of the FRA (12
USC 601-604a);l and
(4) bank holding companies with respect
to the exemption from the nonbanking pro­
hibitions of the BHC Act afforded by sec­
tion 4 (c )(13) of the BHC Act (12 USC
1843(c )(13)).
1
Section 25 of the FRA, which refers to national bank­
ing associations, also applies to state member banks of the
Federal Reserve System by virtue of section 9 of the FRA
(12 USC 321).

1

§211.2
SEC T IO N 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 Adequacy Guidelines” means
the Capital Adequacy Guidelines for State
Member Banks: Risk-Based Measure (12
CFR 208, App. A) [at 3-1506.1].
(c) “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.
(d) “Directly or indirectly,” when used in
reference to activities or investments of an or­
ganization, means activities or investments of
the organization or of any subsidiary of the
organization.

Regulation K
loans should not be considered equity in the
circumstances of the particular investment.
(i) “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.
(j) “Foreign bank” means an organization
that—
(1) is organized under the laws of a foreign
country;
(2) engages in the business of banking;
(3) is recognized as a bank by the bank
supervisory or monetary authority of the
country of its organization or principal
banking operations;
(4) receives deposits to a substantial extent
in the regular course of its business; and
(5) has the power to accept demand
deposits.

(e) “Eligible country” means a country that,
since 1980, has restructured its sovereign debt
held by foreign creditors, and any other coun­
try that the Board deems to be eligible.

(k) “Foreign branch” means an office of an
organization (other than a representative of­
fice) 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.

(f) 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.

(/) “Foreign person” means an office or es­
tablishment located, or individual residing,
outside the United States.

(g) “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.
(h) “Equity” means an ownership interest in
an organization, whether through—
(1) voting or nonvoting shares;
(2) general
or
limited
partnership
interests;
(3) any other form of interest conferring
ownership rights, including warrants, debt,
or any other interests that are convertible
into shares or other ownership rights in the
organization; or
(4) loans that provide rights to participate
in the profits of an organization, unless the
investor receives a determination that such

2



(m) “Investment” means—
(1) the ownership or control of equity;
(2) binding commitments to acquire
equity;
(3) contributions to the capital and sur­
plus of an organization; and
(4) the holding of an organization’s subor­
dinated debt when the investor and the in­
vestor’s affiliates hold more than 5 percent
of the equity of the organization.
(n) “Investor” means an Edge corporation,
agreement corporation, bank holding compa­
ny, or member bank.
(o) “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.

Regulation K
(p) “Loans and extensions of credit” means
all direct and indirect advances of funds to a
person made on the basis of any obligation of
that person to repay funds.
(q) “Organization” means a corporation,
government, partnership, association, or any
other entity.
(r) “Person” means an individual or an
organization.
(s) “Portfolio investment” means an invest­
ment in an organization other than a subsidi­
ary or joint venture.
(t) “Representative office” means an office
that—
(1) engages solely in representational and
administrative functions such as solicitation
of new business for or liaison between the
organization’s head office and customers in
the United States, and
(2) does not have authority to make busi­
ness decisions for the account of the organi­
zation represented.
(u) “Subsidiary” means an organization
more than 50 percent of the voting shares of
which is held directly or indirectly, or which
is otherwise controlled or capable of being
controlled, by the investor or an affiliate of the
investor under any authority. Among other
circumstances, an investor is considered to
control an organization if the investor or an
affiliate is a general partner of the organiza­
tion or if the investor and its affiliates directly
or indirectly own or control more than 50 per­
cent of the equity of the organization.

§211.3
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.

SECTION 211.3— Foreign Branches of
U.S. Banking Organizations

(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
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

(a) Establishment o f foreign branches.
(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

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.

(v) “Tier 1 capital” has the same meaning as
provided under the Capital Adequacy Guide­
lines (12 CFR 208, app. A).




3

§211.3
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) Government obligations. Underwrite,
distribute, buy, sell, and hold obligations
of—
(i) the national government of the coun­
try in which the branch is located;
(ii) an agency or instrumentality of the
national government where supported by
the taxing authority, guarantee, or full
faith and credit of the national govern­
ment; and
(iii) a political subdivision of the
country;
Provided however that, no member bank
may hold, or be under commitment with
respect to, such obligations for its own ac­
count in an aggregate amount exceeding the
greater of:
(A ) 10 percent of its tier 1 capital; or
(B) 10 percent of the total deposits of
the bank’s branches in that country on
the preceding year-end call report date
(or the date of acquisition of the branch
in the case of a branch that has not been
so reported);
(3) Other investments. Invest in—
(i) the securities of the central bank,
clearinghouses, governmental entities
other than those authorized under para­
graph (b) (2) of this section, and govern­
ment-sponsored development banks of
the country in which the foreign branch
is located;
(ii) other debt securities eligible to meet
local reserve or similar requirements; and
(iii) shares of automated electronic pay­
ments networks, professional societies,
schools, and the like necessary to the
business of the branch;
Provided however that, the total invest­
ments of the bank’s branches in that coun­
try under this paragraph (exclusive of secu­
rities 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
4




Regulation K
the branch in the case of a branch that has
not so reported);
(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 howev­
er that—
(i) the credit extension is reported
promptly to the branch’s home office;
and
(ii) any extension of credit exceeding
$100,000 (or the equivalent in local cur­
rency) 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, acquire all of the
shares of a company (except where local
law requires other investors to hold direc­
tors’ qualifying shares or similar types of
instruments) that engages solely in activi­
ties—
(i) in which the member bank is permit­
ted to engage; or
(ii) that are incidental to the activities of
the foreign branch; 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. Member banks shall maintain reserves

Regulation K
against foreign branch deposits when required
by part 204 of this chapter (Regulation D).

SE C T IO N 211.4— Edge and A greem ent
C orporations
(a) Organization.
(1) Board authority. The Board shall have
the authority to approve—
(i) the establishment of Edge corpora­
tions; and
(ii) investments by member banks and
bank holding companies in agreement
corporations.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Authority to commence business.
(i) After the Board issues a permit, the
Edge corporation may elect officers and
otherwise complete its organization, in­
vest in obligations of the United States
government, and maintain deposits with
depository institutions, but it may not ex­
ercise any other powers until at least 25




§211.4
percent of the authorized capital stock
specified in the articles of association has
been paid in cash, and each shareholder
has paid in cash at least 25 percent of
that shareholder’s stock subscription.
(ii) Unexercised authority to commence
business as an Edge corporation shall ex­
pire one year after issuance of the permit,
unless the Board extends the period.
(7) Amendments to articles o f association.
No amendment to the articles of association
shall become effective until approved by the
Board.
(8) Shareholders meeting. An Edge corpo­
ration shall provide in its bylaws that—
(i) a shareholders meeting shall be con­
vened at the request of the Board within
five days after the Board gives notice of
the request to the Edge corporation;
(ii) any shareholder or group of share­
holders that owns or controls 25 percent
or more of the shares of the Edge corpo­
ration shall attend such a meeting in per­
son or by proxy; and
(iii) failure by a shareholder or autho­
rized representative to attend any such
meeting in person or by proxy may result
in removal or barring of such sharehold­
ers or any representatives from further
participation in the management or af­
fairs of the Edge corporation.
(b) Nature and ownership o f shares.
(1) Shares.
(i) Shares of stock in an Edge corpora­
tion may not include no par value shares
and shall be issued and transferred only
on its books and in compliance with sec­
tion 25(a) of the FRA and this subpart.
(ii) The share certificates of an Edge
corporation shall—
(A) name and describe each class of
shares, indicating its character and any
unusual attributes such as preferred
status or lack of voting rights; and
(B) conspicuously set forth the sub­
stance of—
( /) any limitations upon the rights
of ownership and transfer of shares
imposed by section 25(a) of the
FRA; and
(2) any rules that the Edge corpo­
5

§211.4
ration prescribes in its bylaws to
ensure
compliance
with
this
paragraph.
(iii) Any change in status of a share­
holder that causes a violation of sec­
tion 25(a) of the FRA shall be report­
ed to the Board as soon as possible,
and the Edge corporation shall take
such action 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 the Board may require;
(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;
(D ) invest no more than 10 percent of
the institution’s capital and surplus in
the aggregate amount of stock held in
all Edge corporations; and
(E) in the case of a foreign institution
4 For purposes of this paragraph, “affiliate” means any
organization that would be an “affiliate” under section 23A
of the FRA (12 USC 371c) if the Edge corporation were a
member bank.

6



Regulation K
not subject to section 4 of the BHC
Act—
(7) comply with any conditions
that the Board may impose that are
necessary to prevent undue concen­
tration of resources, decreased or
unfair competition, conflicts of in­
terest, or unsound banking practices
in the United States; and
(2) give the Board 45 days’ prior
written notice, in a form to be pre­
scribed by the Board, before engag­
ing in any nonbanking activity in the
United States, or making any initial
or additional investments in another
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 notice, the Board may impose
conditions necessary to prevent ad­
verse effects that may result from
such activity or investment.
(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. A
notice under this paragraph need not be
filed where a change in control is effected
through a transaction requiring the
Board’s approval under section 3 of the
BHC Act (12 USC 1842).
(ii) Board review. In reviewing a notice
filed under this paragraph, the Board
shall consider the factors set forth in par­
agraph (a)(5) 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.
(1) Prior notice, (i) An Edge corporation

Regulation K
m a y estab lish b ra n c h e s in th e U n ite d
S tates 45 d ay s a fte r th e E d g e c o rp o ra tio n
h a s given n o tic e to its R eserv e B an k , u n ­
less th e E d g e c o rp o ra tio n is notified to
th e c o n tra ry w ith in th a t tim e.
(ii) T h e n o tic e to th e R eserv e B a n k sh all
in c lu d e a co p y o f th e n o tic e o f th e p ro ­
p o sal p u b lish e d in a n e w sp a p e r o f gen eral
c irc u la tio n in th e co m m u n itie s to be
served by th e b ra n c h .
(iii) T h e n e w sp a p e r n o tic e m a y a p p e a r
n o e a rlie r th a n 90 c a le n d a r d a y s p rio r to
su b m issio n o f n o tice o f th e p ro p o sa l to
th e R eserv e B ank. T h e n e w sp a p e r n o tic e
m u s t p ro v id e a n o p p o rtu n ity fo r th e p u b ­
lic to give w ritte n c o m m e n t o n th e p ro ­
p o sal to th e a p p ro p ria te F e d e ra l R eserv e
B a n k fo r a t least 30 d ay s a fte r th e d a te o f
p u b lic a tio n .
( 2 ) T h e fa c to rs co n sid e re d in a c tin g u p o n
a p ro p o sa l to estab lish a b ra n c h a re e n u ­
m e ra te d in p a ra g ra p h ( a ) (4 ) o f th is
section.
( 3 ) Expiration o f authority. A u th o rity to
o p e n a b ra n c h u n d e r p rio r n o tic e sh a ll ex­
p ire o n e y e a r fro m th e e arliest d a te on
w h ic h th a t a u th o rity c o u ld h av e been e x e r­
cised, un less th e B o a rd e x te n d s th e perio d .
( d ) Reserve requirements and interest rate
limitations. T h e d ep o sits o f a n E d g e o r a g re e ­
m e n t c o rp o ra tio n a re subject to p a rts 204 a n d
217 o f th is c h a p te r (R e g u la tio n s D a n d Q ) in
th e sam e m a n n e r a n d to th e sam e e x te n t as if
th e E d g e o r ag re e m e n t c o rp o ra tio n w ere a
m e m b e r b ank.
(e ) Permissible activities in the United States.
A n E d g e c o rp o ra tio n m ay engage d ire c tly o r
in d ire c tly in a c tiv ities in th e U n ite d S tates
th a t a re p e rm itte d by th e six th p a ra g ra p h o f
sectio n 2 5 ( a ) o f th e F R A a n d a re in c id e n ta l
to in te rn a tio n a l o r foreign business, a n d in
su c h o th e r activ ities as th e B o a rd d e te rm in e s
a re in c id e n ta l to in te rn a tio n a l o r foreign b u si­
ness. T h e follow ing activities w ill o rd in a rily
be c o n sid e re d in c id e n ta l to an E d g e c o rp o ra ­
tio n ’s in te rn a tio n a l o r foreign business:
( 1 ) Deposit activities.
( i ) Deposits from foreign governments
and foreign persons. A n E d g e c o rp o ra tio n
m a y receive in th e U n ite d S tates tra n s a c ­
tio n a c c o u n ts, savings, a n d tim e d ep o sits




§211.4
(in c lu d in g issuing n eg o tiab le certificates
o f d e p o sits) fro m foreign g o v e rn m e n ts
a n d th e ir agencies a n d in stru m e n ta litie s,
a n d fro m foreign p ersons.
(ii) Deposits from other persons. A n
E d g e c o rp o ra tio n m a y receive fro m an y
o th e r p e rso n in th e U n ite d S tates tra n s a c ­
tio n a c c o u n ts, savings, a n d tim e d ep o sits
(in c lu d in g issuing n eg o tiab le certificates
o f d e p o sit) if su c h d ep o sits—
( A ) a re to be tra n s m itte d ab ro a d ;
(B ) c o n sist o f fu n d s to be u sed fo r
p a y m e n t o f o b lig a tio n s to th e E d g e
c o rp o ra tio n o r c o lla te ra l se c u rin g su ch
obligations;
( C ) co n sist o f th e p ro ceed s o f co llec­
tio n s a b ro a d th a t a re to be u sed to p ay
fo r ex p o rte d o r im p o rte d g o ods o r fo r
o th e r co sts o f e x p o rtin g o r im p o rtin g
o r th a t a re to be p erio d ically tr a n s ­
fe rre d to th e d e p o sito r’s a c c o u n t a t a n ­
o th e r financial in stitu tio n ;
( D ) c o n sist o f th e p ro c e e d s o f ex ­
ten sio n s o f c re d it by th e E d g e
c o rp o ra tio n ;
( E ) re p re se n t co m p e n sa tio n to th e
E d g e c o rp o ra tio n fo r e x ten sio n s o f
c re d it o r services to th e c u sto m er;
( F ) a re received fro m E dge o r a g re e ­
m e n t c o rp o ra tio n s, foreign b a n k s a n d
o th e r d e p o sito ry in s titu tio n s (a s d e ­
scrib ed in p a rt 204 o f th is c h a p te r
(R e g u la tio n D ) ) ;
( G ) a re received fro m a n o rg a n iz a tio n
th a t by its c h a rte r, license o r en ab lin g
law is lim ite d to b u sin ess th a t is o f an
in te rn a tio n a l c h a ra c te r, in c lu d in g fo r­
eign sales c o rp o ra tio n s (2 6 U S C 9 2 1 );
tra n s p o rta tio n o rg a n iz a tio n s engaged
exclusively in th e in te rn a tio n a l tr a n s ­
p o rta tio n o f p assen g ers o r in th e m o v e­
m e n t o f goods, w ares, c o m m o d itie s o r
m e rc h a n d ise in in te rn a tio n a l o r foreign
com m erce; a n d e x p o rt tra d in g c o m p a ­
nies th a t a re exclusively eng ag ed in a c ­
tivities re la te d to in te rn a tio n a l tra d e .
(2 ) Liquid funds. F u n d s o f a n E d g e o r
a g re e m e n t c o rp o ra tio n th a t a re n o t c u rr e n t­
ly e m p lo y ed in its in te rn a tio n a l o r foreign
business, if h e ld o r in v e ste d in th e U n ite d
S tates, sh all be in th e fo rm o f—
( i ) cash;

7

§211.4
(ii) d ep o sits w ith d ep o sito ry in s titu ­
tions, as d escrib ed in p a rt 204 o f th is
c h a p te r (R e g u la tio n D ) , a n d o th e r E dge
a n d a g re e m e n t c o rp o ra tio n s;
(iii) m o n ey m a rk e t in s tru m e n ts (in c lu d ­
ing re p u rc h a se a g reem en ts w ith resp ect
to su c h in s tru m e n ts ), su c h as b a n k e r’s
a c cep tan ces, fed eral fu n d s sold, a n d c o m ­
m e rc ia l p ap er; a n d
(iv ) sh o rt- o r lo n g -te rm o b lig atio n s of,
o r fully g u a ra n te e d by, federal, state,
and
local
g o v e rn m e n ts
and
th e ir
in stru m e n ta litie s.
( 3 ) Borrowings. A n E d g e c o rp o ra tio n
m ay—
( i ) b o rro w fro m offices o f o th e r E dge
a n d a g re e m e n t c o rp o ra tio n s, foreign
b a n k s, a n d d ep o sito ry in s titu tio n s (a s d e ­
scrib ed in p a rt 204 o f th is c h a p te r (R e g u ­
la tio n D ) o r issue o b lig atio n s to th e U n it­
ed S tates o r any o f its agencies o r
in stru m e n ta litie s;
(ii) in c u r in d eb ted n ess fro m a tra n sfe r
o f d ire c t o b lig atio n s of, o r o b lig atio n s
th a t a re fully g u a ra n te e d as to p rin c ip a l
a n d in te re st by, th e U n ite d S tates o r an y
ag en cy o r in s tru m e n ta lity th e re o f th a t
th e E d g e c o rp o ra tio n is o b lig a te d to
rep u rc h a se ;
(iii) issue lo n g -te rm su b o rd in a te d d eb t
th a t does n o t qualify as a “ d e p o sit” u n ­
d e r p a rt 204 o f th is c h a p te r (R e g u la tio n
D ).
(4 ) Credit activities. A n E d g e c o rp o ra tio n
m ay—
( i ) finance th e follow ing:
( A ) c o n tra c ts , projects, o r activ ities
p e rfo rm e d su b sta n tia lly ab ro a d ;
(B ) th e im p o rta tio n in to o r e x p o rta ­
tio n fro m th e U n ite d S tates o f goods,
w h e th e r d ire c t o r th ro u g h b ro k e rs o r
o th e r in term ed iaries;
( C ) th e d o m estic sh ip m e n t o r te m p o ­
ra ry sto ra g e o f goods being im p o rte d
o r e x p o rte d ( o r a c c u m u la te d fo r ex­
p o r t) ; a n d
( D ) th e assem bly o r re p a c k a g in g o f
g o o d s im p o rte d o r to be ex p o rted ;
(ii) finance th e costs o f p ro d u c tio n o f
g o ods a n d services fo r w h ic h e x p o rt o r ­
d e rs h av e b een received o r w h ic h a re
identifiable as being d ire c tly fo r ex p o rt;

8



Regulation K
(iii) a ssu m e o r a c q u ire p a rtic ip a tio n s in
ex ten sio n s o f c re d it, o r a c q u ire o b lig a­
tio n s arisin g fro m tra n sa c tio n s th e E dge
c o rp o ra tio n c o u ld h av e financed in c lu d ­
ing a c q u isitio n o f o b lig atio n s o f foreign
g o v ern m en ts;
(iv ) g u a ra n te e deb ts, o r o th e rw ise agree
to m ak e p a y m e n ts on th e o c c u rre n c e o f
read ily a sc e rta in a b le e v e n ts,5 if th e g u a r­
a n te e o r a g re e m e n t specifies th e m a x i­
m u m m o n e ta ry liab ility th e re u n d e r a n d
is re la te d to a ty p e o f tra n sa c tio n d e­
scrib ed in p a ra g ra p h s (e ) ( 4 ) ( i ) a n d (ii)
o f th is section; a n d
(v ) P ro v id e c re d it a n d o th e r b a n k in g
services fo r d o m e stic a n d foreign p u rp o s­
es to foreign g o v e rn m e n ts a n d th e ir ag en ­
cies
and
in s tru m e n ta litie s;
foreign
persons; a n d o rg a n iz a tio n s o f th e ty p e
d escrib ed in p a ra g ra p h ( e ) ( l ) ( i i ) ( G ) o f
th is section.
(5 ) Payments and collections. A n E dge
c o rp o ra tio n m a y receive checks, bills,
d ra fts, a c cep tan ces, no tes, b o n d s, co u p o n s,
a n d o th e r in s tru m e n ts fo r collectio n
a b ro a d , a n d c o llect su c h in s tru m e n ts in th e
U n ite d S tates fo r a c u sto m e r ab ro a d ; a n d
m ay tra n s m it a n d receive w ire tra n sfe rs o f
fu n d s a n d se c u ritie s fo r d ep o sito rs.
( 6 ) Foreign exchange. A n E d g e c o rp o ra ­
tio n m a y engage in fo reig n ex ch an g e
activities.
( 7 ) Fiduciary and investment advisory ac­
tivities. A n E d g e c o rp o ra tio n m a y —
(i) h o ld secu rities in safekeeping for, o r
b u y a n d sell se c u ritie s u p o n th e o rd e r a n d
fo r th e a c c o u n t a n d risk of, a p erso n , p ro ­
vid ed su c h services fo r U . S. p e rso n s sh all
be w ith re sp e c t to foreign secu rities only;
(ii) a c t as p a y in g a g e n t fo r secu rities is­
sued by foreign g o v e rn m e n ts o r o th e r e n ­
tities o rg a n iz e d u n d e r fo reig n law;
(iii) a c t as tru ste e , re g istra r, co n v ersio n
ag en t, o r p a y in g a g e n t w ith re sp e c t to
a n y class o f secu rities issued to finance
foreign activ ities a n d d is trib u te d solely
o u tsid e th e U n ite d States;
(iv ) m a k e p riv a te p la c e m e n ts o f p a rtic i­
5 “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 of shipping documents.

Regulation K
p a tio n s in its in v e stm e n ts a n d ex tensions
o f c red it; how ever, ex cep t to th e e x ten t
p erm issib le fo r m em b er b a n k s u n d e r sec­
tio n 5136 o f th e R evised S ta tu te s (1 2
U S C 24, S e v e n th ), n o E d g e c o rp o ra tio n
m ay o th e rw ise engage in th e b u sin ess o f
u n d e rw ritin g , d istrib u tin g , o r b u y in g o r
selling secu rities in th e U n ite d S tates;
(v ) a c t as in v e stm e n t o r financial ad v iser
by p ro v id in g p o rtfo lio in v e stm e n t advice
a n d p o rtfo lio m a n a g e m e n t w ith resp ect
to secu rities, o th e r financial in stru m e n ts,
real p ro p e rty in te re sts a n d o th e r in v e st­
m e n t a sse ts,6*a n d by p ro v id in g ad v ice on
m e rg e rs a n d a c q u isitio n s, p ro v id e d su c h
services fo r U .S. perso n s sh all be w ith re ­
sp ect to fo reig n assets only; a n d
(v i) p ro v id e gen eral eco n o m ic in fo rm a ­
tio n a n d advice, gen eral eco n o m ic sta tis ­
tic a l fo re c a stin g services a n d in d u s try
stu d ies, p ro v id e d su ch services fo r U .S.
p e rso n s sh all be w ith re sp e c t to foreign
eco n o m ies a n d in d u strie s only.
(8 ) Banking services for employees. P ro ­
vide b a n k in g services, in c lu d in g d ep o sit
services, to th e officers a n d em ployees o f th e
E d g e c o rp o ra tio n a n d its affiliates; how ever,
e x ten sio n s o f c re d it to su c h p e rso n s sh all be
su b ject to th e re stric tio n s o f p a rt 215 o f th is
c h a p te r (R e g u la tio n O ) as if th e E d g e c o r­
p o ra tio n w ere a m e m b e r b an k .
( 9 ) Other activities. W ith th e B o a rd ’s p rio r
a p p ro v a l, engage in o th e r a c tiv ities in th e
U n ite d S tates th a t th e B o a rd d e te rm in e s are
in c id e n ta l to th e in te rn a tio n a l o r foreign
b usiness o f E d g e c o rp o ra tio n s.
(f ) Agreement corporations. W ith th e p rio r
a p p ro v a l o f th e B o ard , a m e m b e r b a n k o r
b a n k h o ld in g c o m p a n y m ay in v est in a fe d e r­
ally o r s ta te -c h a rte re d c o rp o ra tio n th a t h as
e n te re d in to an a g re e m e n t o r u n d e rta k in g
w ith th e B o a rd th a t it w ill n o t exercise an y
p o w er th a t is im p erm issib le fo r a n E d g e c o r­
p o ra tio n u n d e r th is su b p a rt.

SECTION 211.5— Investments and
Activities Abroad
(a )

General policy. A ctiv ities a b ro a d , w h e th ­

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.




§211.5
e r c o n d u c te d d ire c tly o r in d ire c tly , sh all be
confined to a c tiv ities o f a b a n k in g o r financial
n a tu re a n d th o se th a t a re necessary to c a rry
on su c h activities. In d o in g so, in v e sto rs sh all
a t all tim es a c t in a c c o rd a n c e w ith h ig h s ta n ­
d a rd s o f b a n k in g o r financial p ru d e n c e ,
h a v in g d u e re g a rd fo r d iversification o f risks,
su itab le liq u id ity , a n d ad e q u a c y o f cap ital.
S ubject to th e se c o n sid e ra tio n s a n d th e o th e r
p ro v isio n s o f th is sectio n , it is th e B o a rd ’s
policy to allow a c tiv ities a b ro a d to be
o rg a n iz e d a n d o p e ra te d as b est m eets
c o rp o ra te policies.
( b ) Investment requirements.
(1 ) Eligible investments. S ubject to th e lim ­
ita tio n s in p a ra g ra p h ( b ) ( 2 ) o f th is section,
a n in v e sto r m a y d ire c tly o r in d ire c tly —
(i) invest in a su b sid ia ry th a t engages
solely in a c tiv ities listed in p a ra g ra p h ( d )
o f th is sectio n o r in su c h o th e r activ ities
as th e B o a rd h a s d e te rm in e d in th e c ir­
c u m sta n c e s o f a p a rtic u la r case a re p e r­
m issible; p ro v id e d h o w ev er th a t, in th e
case o f an ac q u isitio n o f a g oing c o n c e rn ,
ex istin g activ ities th a t a re n o t o th erw ise
perm issib le fo r a su b sid ia ry m ay a c c o u n t
fo r n o t m o re th a n 5 p e rc e n t o f e ith e r th e
c o n so lid a te d assets o r rev en u es o f th e a c ­
q u ire d o rg a n iz a tio n ;
(ii) invest in a jo in t v e n tu re p ro v id e d
th a t, u n less o th e rw ise p e rm itte d by th e
B o a rd , n o t m o re th a n 10 p e rc e n t o f th e
jo in t v e n tu re ’s c o n so lid a te d assets o r rev ­
enues a re a ttrib u ta b le to a c tiv ities n o t
listed in p a ra g ra p h ( d ) o f th is section;
and
(iii) m a k e p ro tfo lio in v e stm e n ts in an
o rg a n iz a tio n , p ro v id e d h o w ev er th a t—
(A )
th e to ta l d ire c t a n d in d ire c t p o rt­
folio in v e stm e n ts by th e in v e sto r a n d
its affiliates in o rg a n iz a tio n s engaged in
a c tiv ities th a t a re n o t p erm issib le for
jo in t v e n tu re s d o n o t exceed—
( 7 ) 40 p e rc e n t o f th e to ta l e q u ity o f
th e o rg a n iz a tio n , w h en co m b in ed
w ith sh a re s in th e o rg a n iz a tio n h eld
in tra d in g o r d ealin g a c c o u n ts p u r ­
s u a n t to p a ra g ra p h ( d ) ( 1 4 ) o f th is
sectio n a n d sh a re s in th e o rg a n iz a ­
tio n h e ld u n d e r a n y o th e r a u th o rity ;
or
( 2 ) 25 p e rc e n t o f th e in v e s to r’s tie r

9

§211.5

Regulation K
1 c a p ita l w h ere th e in v e sto r is a
b a n k h o ld in g c o m p a n y o r 100 p e r­
c e n t o f tie r 1 c a p ita l fo r an y o th e r
in v esto r, w hen c o m b in e d w ith u n ­
d e rw ritin g c o m m itm e n ts a n d sh ares
h e ld in tra d in g o r d ealin g a c c o u n ts
p u rs u a n t to p a ra g ra p h ( d ) (1 4 ) o f
th is se c tio n ;7 an d
(B ) a n y lo an s a n d e x ten sio n s o f cre d it
m a d e by an in v esto r o r its affiliates to
th e o rg a n iz a tio n a re on su b sta n tia lly
th e sam e te rm s, in c lu d in g in te re st rates
a n d c o lla te ra l, as th o se p rev ailin g a t
th e sam e tim e for c o m p a ra b le tra n s a c ­
tio n s betw een th e in v e s to r o r its affili­
ate s a n d nonaffiliated p ersons.

( 2 ) Direct investments by member banks.
A m e m b e r b a n k ’s d irect in v e stm e n ts u n d e r
sectio n 25 o f th e F R A sh all be lim ite d to—
( i ) foreign banks;
(ii) foreign o rg a n iz a tio n s fo rm e d fo r th e
sole p u rp o se o f e ith e r h o ld in g sh a re s o f a
foreign b a n k o r p e rfo rm in g n o m in ee, fi­
d u c ia ry , o r o th e r b a n k in g services in c i­
d e n ta l to th e activities o f a foreign b ra n c h
o r fo reig n b a n k affiliate o f th e m em b er
b an k ; a n d
(iii) su b sid iaries estab lish ed p u rs u a n t to
sectio n 2 1 1 .3 ( b ) ( 9 ) o f th is su b p a rt.
(3 ) Investment limit. In c o m p u tin g th e
a m o u n t th a t m a y be invested in a n y o rg a n i­
z a tio n u n d e r th is section, th e re sh all be in ­
clu d e d an y u n p a id a m o u n t fo r w h ic h th e
in v e sto r is liable a n d an y in v e stm e n ts in th e
sam e o rg a n iz a tio n held by affiliates u n d e r
a n y a u th o rity .
(4 ) Divestiture. A n in v e sto r sh all dispose
o f a n in v e stm e n t p ro m p tly (u n le ss th e
B o a rd a u th o riz e s re te n tio n ) if—
(i) th e o rg a n iz a tio n invested in —
( A ) engages in th e gen eral b u sin ess o f
b u y in g o r selling goods, w ares, m e r­
c h an d ise, o r c o m m o d ities in th e U n it­
ed States;
(B ) engages d ire c tly o r in d ire c tly in
o th e r b u sin ess in th e U n ite d S tates th a t
is n o t p e rm itte d to an E d g e c o rp o ra ­
tio n in th e U n ite d S tates ex cep t th a t an
in v e s to r m a y h o ld u p to 5 p e rc e n t o f

th e sh ares o f a foreign c o m p a n y th a t
engages d ire c tly o r in d ire c tly in b u si­
ness in th e U n ite d S tates th a t is n o t
p e rm itte d to an E d g e c o rp o ra tio n ; o r
(C )
engages in im p erm issib le a c tiv i­
ties to an e x te n t n o t p e rm itte d u n d e r
p a ra g ra p h ( b ) ( 1 ) o f th is section; o r
(ii) a fte r n o tic e a n d o p p o rtu n ity fo r
h e a rin g , th e in v e sto r is ad v ised by th e
B o ard th a t its in v e stm e n t is in a p p ro p ri­
a te u n d e r th e F R A , th e B H C A c t, o r th is
su b p a rt.
( c ) Investment procedures.8 D ire c t a n d in d i­
re c t in v e stm e n ts sh all be m a d e in a c c o rd a n c e
w ith th e g en era l-c o n se n t, p rio r-n o tic e , o r
specific-consent p ro c e d u re s c o n ta in e d in th is
p a ra g ra p h . E x c e p t as th e B o a rd m a y o th e r­
w ise d e te rm in e , in o rd e r fo r an in v e sto r to
m a k e in v e stm e n ts u n d e r th e g en eral c o n sen t
p ro c e d u re , th e in v e s to r a n d a n y o th e r in v esto r
o f w h ic h it is a su b sid ia ry sh all be in c o m p li­
an ce w ith ap p lic a b le m in im u m s ta n d a rd s fo r
c a p ita l ad eq u acy . T h e B o a rd m ay a t a n y tim e,
u p o n n o tice, m odify o r su sp e n d th e generalco n se n t a n d p rio r-n o tic e p ro c e d u re s w ith re ­
spect to a n y in v e sto r o r w ith resp ect to th e
a c q u isitio n o f sh a re s o f o rg a n iz a tio n s en gaged
in p a rtic u la r k in d s o f activities. A n in v e sto r
sh all a p p ly fo r a n d receive th e p rio r specific
c o n se n t o f th e B o a rd fo r its in itial in v e stm e n t
in its first su b sid ia ry o r jo in t v e n tu re unless an
affiliate h as m a d e su c h a n in v e stm e n t. A u ­
th o rity to m a k e in v e stm e n ts u n d e r p rio r n o ­
tice o r specific co n se n t sh a ll ex p ire o n e y ear
fro m th e earliest d a te on w h ic h th e a u th o rity
co u ld h av e been exercised, unless th e B o a rd
e x te n d s th e period.
( 1 ) General consent. S ubject to th e o th e r
lim ita tio n s o f th is sectio n , th e B o a rd g ra n ts
its gen eral co n se n t fo r th e follow ing:9
(i) an y in v e stm e n t in a jo in t v e n tu re o r
su b sid iary , a n d a n y p o rtfo lio in v estm en t,

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
for investments in excess of the limitations therein based on
capital and surplus.
9 In determining compliance with these limits, an inves­
tor shall combine the value of all shares of an organization
held in trading or dealing accounts under paragraph
(d) (14) of this section with investments in the same orga­
7
For this purpose, a direct subsidiary of a member bank nization. Shares held in trading or dealing accounts are also
is deemed to be an investor.
subject to the limits in paragraph (d)(14) of this section.

10



Regulation K
if th e to ta l a m o u n t invested (in one
tra n sa c tio n o r in a series o f tra n s a c tio n s )
d oes n o t exceed th e lesser o f—
( A ) $25 m illion; o r
(B ) 5 p e rc e n t o f th e in v e s to r’s tie r 1
c a p ita l in th e case o f a m e m b e r b an k ,
b a n k h o ld in g co m p an y , o r E dge c o rp o ­
ra tio n eng ag ed in b a n k in g , o r 25 p e r­
ce n t o f th e in v e sto r’s tie r 1 c a p ita l in
th e case o f a n E dge c o rp o ra tio n n o t e n ­
gaged in banking;
(ii) an y a d d itio n a l in v e stm e n t in an o r ­
g a n iz a tio n in a n y c a le n d a r y e a r so long
as—
( A ) th e to ta l a m o u n t inv ested in th a t
c a le n d a r y e a r does n o t exceed 10 p e r­
ce n t o f th e in v e s to r’s tie r 1 cap ita l; a n d
(B ) th e to ta l a m o u n t invested u n d e r
sectio n 211.5 (in c lu d in g in v e stm e n ts
m a d e p u rs u a n t to specific co n se n t o r
p rio r n o tic e ) in th a t c a le n d a r y e a r does
n o t exceed cash d iv id en d s rein v este d
u n d e r p a ra g ra p h ( c ) ( l ) ( i i i ) o f th is
se ctio n p lu s 10 p e rc e n t o f th e in v es­
to r ’s d ire c t a n d in d ire c t h isto ric a l
c o s t10 in th e o rg a n iz a tio n , w h ich in ­
v e stm e n t a u th o rity , to th e e x te n t u n e x ­
ercised, m ay be c a rrie d fo rw a rd a n d
a c c u m u la te d fo r u p to five c o n secu tiv e
years;
(iii) a n y a d d itio n a l in v e stm e n t in a n o r ­
g a n iz a tio n in a n a m o u n t eq u al to cash
d iv id en d s received fro m th a t o rg a n iz a ­
tio n d u rin g th e p reced in g 12 c a le n d a r
m o n th s; o r
(iv ) a n y in v e stm e n t th a t is a c q u ire d
fro m an affiliate a t n e t asset value.
( 2 ) Prior notice. A n in v e stm e n t th a t does
n o t q ualify u n d e r th e g e n e ra l-c o n se n t p ro ­
c e d u re m ay be m a d e a fte r th e in v e sto r h as
given 45 d a y s’ p rio r w ritte n n o tice to th e
B oard. T h e B o a rd m ay w aive th e 45-day
p erio d if it finds im m e d ia te a c tio n is re ­

§211.5
q u ire d by th e c irc u m sta n c e s p resen ted . T h e
n o tice p erio d sh all c o m m e n c e a t th e tim e
th e n o tice is a ccep ted . T h e B o a rd m a y su s­
p e n d th e p erio d o r a c t o n th e in v e stm e n t
under
th e
B o a rd ’s
sp ecific-consent
p ro c e d u re s.
( 3 ) Specific consent. A n y in v e stm e n t th a t
does n o t q u alify fo r e ith e r th e g en eralco n se n t o r th e p rio r-n o tic e p ro c e d u re sh all
n o t be c o n su m m a te d w ith o u t th e specific
c o n se n t o f th e B oard.

( d ) Permissible activities. T h e B o a rd h as d e ­
te rm in e d th a t th e follow ing a c tiv ities a re u su ­
al in c o n n e c tio n w ith th e tra n sa c tio n o f b a n k ­
ing o r o th e r financial o p e ra tio n s ab ro a d :
( 1 ) c o m m e rc ia l
and
o th e r
b a n k in g
activities;
(2 ) financing, in c lu d in g c o m m e rc ia l fi­
n an c in g , c o n su m e r financing, m o rtg a g e
b an k in g , a n d fa cto rin g ;
(3 ) leasing real o r p e rso n a l p ro p e rty , o r
ac tin g as ag en t, b ro k e r, o r a d v iso r in leasing
real o r p e rso n a l p ro p e rty , if th e lease serves
as th e fu n c tio n a l eq u iv a le n t o f an ex ten sio n
o f c re d it to th e lessee o f th e p ro p e rty ;
(4 ) a c tin g as fiduciary;
(5 ) u n d e rw ritin g c re d it life in s u ra n c e a n d
c re d it a c c id e n t a n d h e a lth in su ran ce;
(6 ) p e rfo rm in g services fo r o th e r d ire c t o r
in d ire c t o p e ra tio n s o f a U n ite d S tates b a n k ­
ing o rg a n iz a tio n , in c lu d in g re p re se n ta tiv e
fu n ctio n s, sale o f lo n g -te rm d eb t, n a m e sav ­
ing, h o ld in g assets a c q u ire d to p re v e n t loss
on a d e b t p rev io u sly c o n tra c te d in good
faith , a n d o th e r a c tiv ities th a t a re p e rm issi­
ble d o m e stic a lly fo r a b a n k h o ld in g c o m p a ­
ny
under
sectio n s
4 (a )(2 )(A )
and
4 ( c ) ( 1 ) ( C ) o f th e B H C A ct;
(7 ) h o ld in g th e p rem ises o f a b ra n c h o f an
E d g e c o rp o ra tio n o r m e m b e r b a n k o r th e
p rem ises o f a d ire c t o r in d ire c t su b sid iary ,
o r h o ld in g o r leasing th e resid en ce o f an
officer o r em p lo y ee o f a b ra n c h o r
subsidiary;
10 The “historical cost” of an investment consists of the
actual amounts paid for shares or otherwise contributed to
(8 ) p ro v id in g in v e stm e n t, financial, o r eco­
the capital accounts, as measured in dollars at the exchange
n o m ic a d v iso ry services;
rate iff effect at the time each investment was made. It does
not include subordinated debt or unpaid commitments to
(9 ) g en eral
in s u ra n c e
agency
and
invest even though these may be considered investments for
b ro k erag e;
other purposes of this part. For investments acquired indi­
(1 0 ) d a ta processing;
rectly as a result of acquiring a subsidiary, the historical
cost to the investor is measured as of the date of acquisition
(1 1 ) o rg a n iz in g , sp o n so rin g , a n d m a n a g ­
of the subsidiary at the net asset value of the equity interest
ing a m u tu a l fu n d if th e fu n d ’s sh a re s are
in the case of subsidiaries and joint ventures, and in the
case of portfolio investments, at the book carrying value.
n o t sold o r d is trib u te d in th e U n ite d S tates




11

§211.5

Regulation K

o r to U . S. re sid e n ts a n d th e fu n d d oes n o t
exercise m a n a g e ria l c o n tro l o v er th e firm s
in w h ich it invests;
(1 2 ) p e rfo rm in g m a n a g e m e n t co n su ltin g
services p ro v id e d th a t su c h services w hen
re n d e re d w ith resp ect to th e U .S. m a rk e t
sh all be re s tric te d to th e in itia l en try ;
(1 3 ) u n d e rw ritin g , d istrib u tin g , a n d d e a l­
ing in d e b t secu rities o u tsid e th e U n ite d
States;
(1 4 ) u n d e rw ritin g , d istrib u tin g , a n d d e a l­
in g in e q u ity secu rities o u tsid e th e U n ite d
S tates as follow s:
( i ) by an in v esto r, o r a n affiliate, th a t
h a d c o m m e n c e d su ch a c tiv ities p rio r to
M a rc h 27, 1991, a n d su b ject to lim ita ­
tio n s in effect a t th a t tim e (1 2 C F R 211
(1 9 9 0 ) ) ; o r
(ii) w ith th e a p p ro v a l o f th e B o ard , u n ­
d e rw ritin g e q u ity secu rities if—
( A ) c o m m itm e n ts by an in v e sto r a n d
its affiliates fo r th e sh a re s o f a n o rg a n i­
z a tio n d o n o t in th e ag g reg ate exceed
th e lesser o f $60 m illio n o r 25 p e rc e n t
o f th e in v e s to r’s tie r 1 c a p ita l unless
th e u n d e rw rite r is co v ered by b in d in g
c o m m itm e n ts fro m su b u n d e rw rite rs o r
o th e r p u rc h a s e rs o b ta in e d by th e in v es­
to r o r its affiliates; a n d
(B ) c o m m itm e n ts by an in v e s to r a n d
its affiliates fo r th e sh a re s o f an o rg a n i­
z a tio n in excess o f th o se p e rm itte d by
p a ra g ra p h ( d ) ( 1 4 ) ( i i ) ( A ) o f th is sec­
tio n p ro v id e d th a t—
( 7 ) th e u n d e rw ritin g level a p p ro v e d
by th e B o a rd fo r th e in v e sto r a n d its
affiliates in excess o f th e lim ita tio n s
o f p a ra g ra p h ( d ) ( 1 4 ) ( i i ) ( A ) o f th is
se ctio n is fully d e d u c te d fro m th e
c a p ita l o f th e b a n k h o ld in g c o m p a ­
ny, a n d fro m th e c a p ita l o f th e b a n k
w h e re th e secu rities a c tiv ities are
c o n d u c te d by a su b sid ia ry o f a U .S.
b a n k ;11 a n d
( 2 ) in th e B o a rd ’s ju d g m e n t su ch
b a n k h o ld in g c o m p a n y a n d b a n k
w o u ld re m a in stro n g ly c a p ita liz e d
a fte r su c h d e d u c tio n fro m c ap ital;
and
11 Fifty percent of such capital deductions shall be from
tier 1 capital.

12




(iii) w ith th e a p p ro v a l o f th e B o ard ,
d ealin g in th e sh a re s o f an o rg a n iz a tio n
(in c lu d in g th e sh a re s o f a U .S. o rg a n iz a ­
tio n w ith resp ect to foreign p erso n s only
a n d su b ject to th e lim ita tio n s on o w n in g
o r c o n tro llin g sh a re s o f a c o m p a n y in
sectio n 4 o f th e B H C A c t a n d th e
B o a rd ’s R e g u la tio n Y (1 2 C F R 2 2 5 ))
w h e re th e sh a re s h e ld in th e tra d in g o r
d ealin g a c c o u n ts o f a n in v e sto r a n d its
affiliates, w h en co m b in ed w ith a n y sh ares
h e ld p u rs u a n t to th e a u th o rity p ro v id ed
u n d e r p a ra g ra p h (b ) o f th is sectio n , do
n o t in th e ag g reg ate exceed th e lesser o f
$30 m illio n o r 10 p e rc e n t o f th e in v e s to r’s
tie r 1 cap ita l, p ro v id e d h o w e v e r th a t—
( A ) fo r p u rp o se s o f d e te rm in in g c o m ­
p lia n c e w ith th e lim ita tio n s o f th is p a r­
a g ra p h ( d ) (1 4 ) (iii) a n d p a ra g ra p h
( b ) ( 1 ) ( iii) ( A ) (2 ) o f th is section,
long a n d sh o rt p o sitio n s in th e sam e
se c u rity m ay be n e tte d a n d p o sitio n s in
a se c u rity m ay be offset by fu tu re s, fo r­
w a rd s, o p tio n s, a n d sim ila r in s tru ­
m e n ts referen ced to th e sam e secu rity
th ro u g h h ed g in g m e th o d s a p p ro v e d by
th e B o ard , ex cep t th a t a n y p o sitio n in
a se c u rity sh all n o t be d eem e d to h av e
been re d u c e d by m o re th a n 75 p ercen t;
(B ) a n y sh a re s h e ld in tra d in g o r
d ealin g a c c o u n ts fo r lo n g e r th a t 90
d ay s sh all be re p o rte d to th e sen io r
m a n a g e m e n t o f th e investor;
( C ) a n y sh a re s a c q u ire d p u rs u a n t to
an u n d e rw ritin g c o m m itm e n t fo r u p to
90 d ay s a fte r th e p a y m e n t d a te fo r
su c h u n d e rw ritin g sh all n o t be subject
to th e d o lla r a n d p e rc e n ta g e lim ita ­
tio n s o f p a ra g ra p h ( d ) ( 1 4 ) (iii) o f th is
se ctio n o r th e in v e stm e n t p ro v isio n s o f
p a ra g ra p h (b ) o f th is sectio n , o th e r
th a n th e ag g reg ate lim its in p a ra g ra p h
( b ) ( 1 ) (iii) ( A ) (2 ) o f th is section; a n d
( D ) sh a re s o f an o rg a n iz a tio n h e ld in
all tra d in g a n d d ealin g a c c o u n ts, w hen
c o m b in e d w ith all o th e r e q u ity in te r­
ests in th e o rg a n iz a tio n h e ld by th e in ­
v e sto r a n d its affiliates, o th e r th a n u n ­
d e rw ritin g c o m m itm e n ts fo r sh a re s
a n d sh a re s h e ld p u rs u a n t to a n u n d e r­
w ritin g fo r 90 d ay s follow ing th e p a y ­
m e n t d a te fo r su c h sh ares, m u s t con-

Regulation K
fo rm to th e p erm issib le lim its fo r
in v e stm e n ts in an o rg a n iz a tio n u n d e r
p a ra g ra p h (b ) o f th is se c tio n .12
(iv ) u n d e rw ritin g
c o m m itm e n ts
for
sh a re s a n d sh a re s h eld by a n affiliate a u ­
th o riz e d to u n d e rw rite e q u ity secu rities
u n d e r sectio n 4 ( c ) ( 8 ) o f th e B H C A c t
sh all n o t be in c lu d e d in d e te rm in in g c o m ­
p lia n c e w ith th e ag g reg ates lim its in p a r­
a g ra p h ( b ) ( l ) ( i i i ) ( A ) ( 2 ) a n d th e lim its
o f p a ra g ra p h s ( d ) ( 1 4 ) ( i i ) ( A ) a n d (iii)
o f th is sectio n , except th a t sh a re s h e ld by
su c h a n affiliate shall be in c lu d e d fo r p u r­
poses o f d e te rm in in g c o m p lia n c e w ith
p a ra g ra p h
( d ) (1 4 ) (iii) ( D )
o f th is
section.
(1 5 ) o p e ra tin g a tra v e l agency p ro v id ed
th a t th e tra v e l agency is o p e ra te d in c o n ­
n e c tio n w ith financial services offered
a b ro a d by th e in v esto r o r o th ers;
(1 6 ) u n d e rw ritin g life, a n n u ity , p ension
fu n d -re la te d , a n d o th e r ty p es o f in su ran ce,
w h e re th e asso c ia te d risks h av e been p re v i­
o usly d e te rm in e d by th e B o a rd to be a c tu a rially p re d ic ta b le , p ro v id e d h o w ev er th a t—
(i) in v e stm e n ts in, a n d lo an s a n d e x te n ­
sions o f c re d it (o th e r th a n lo a n s a n d ex­
te n sio n s o f c re d it fully secu red in a c c o rd ­
a n c e w ith th e re q u ire m e n ts o f sectio n
23 A o f th e F R A (12 U S C 371c) o r w ith
su c h o th e r s ta n d a rd s as th e B o a rd m ay
re q u ire ) to, th e c o m p a n y by th e in v esto r
o r its affiliates a re d e d u c te d fro m th e c a p ­
ita l o f th e in v e s to r;13 a n d
(ii) a c tiv ities c o n d u c te d d ire c tly o r in d i­
re c tly by a su b sid iary o f a U .S. in su re d
b a n k a re ex clu d e d fro m th e a u th o rity o f
th is p a ra g ra p h .
(1 7 ) a c tin g as a fu tu re s c o m m issio n m e r­
c h a n t fo r financial in s tru m e n ts o f th e type,
a n d on ex ch an g es, th a t th e B o a rd h a s p re v i­
o usly ap p ro v e d , p ro v id e d how ever, th a t—
(i) a c tiv ities a re c o n d u c te d in a c c o rd ­
a n ce w ith th e s ta n d a rd s set fo rth in sec­
12 Underwriting commitments are combined with shares
held by an investor and its affiliates (other than an affiliate
authorized to deal in shares under section 4(c)(8) of the
BHC Act) in dealing or trading accounts and with portfo­
lio investments for purposes of determining compliance
with the aggregate limits in paragraph (b)(1) (iii) (A) (2)
of this section.
13 Fifty percent of such capital deduction shall be from
tier 1 capital.




§211.5
tio n 2 2 5 .2 5 (b ) (1 8 ) o f th e B o a rd ’s R e g u ­
la tio n Y (1 2 C F R 2 2 5 .2 5 ( b ) ( 1 8 ) ) ; a n d
(ii) p rio r a p p ro v a l m u s t be o b ta in e d for
a c tiv ities c o n d u c te d o n a n ex ch an g e th a t
re q u ire s m e m b e rs to g u a ra n te e o r o th e r­
w ise c o n tra c t to co v er losses suffered by
o th e r m em bers.
(1 8 ) a c tin g as p rin c ip a l o r a g e n t in sw ap
tra n s a c tio n s 14 su b ject to an y lim ita tio n s a p ­
p licab le to sta te m e m b e r b a n k s u n d e r th e
B o a rd ’s R e g u la tio n H (1 2 C F R 2 0 8 ), ex­
ce p t th a t w h ere su c h a c tiv ities involve
c o n tra c ts re la te d to a c o m m o d ity , su c h c o n ­
tra c ts m u s t p ro v id e an o p tio n fo r c a sh se t­
tle m e n t a n d th e o p tio n m u s t be exercised
u p o n settlem en t.
(1 9 ) en gaging in a c tiv ities th a t th e B o a rd
h a s d e te rm in e d in R e g u la tio n Y (1 2 C F R
2 2 5 .2 5 (b ) ) a re closely re la te d to b a n k in g
u n d e r section 4 ( c ) ( 8 ) o f th e B H C A c t; a n d
(2 0 ) w ith th e B o a rd ’s specific a p p ro v a l,
en g ag in g in o th e r a c tiv ities th a t th e B o a rd
d e te rm in e s a re u su a l in c o n n e c tio n w ith th e
tra n s a c tio n o f th e b u sin ess o f b a n k in g o r
o th e r financial o p e ra tio n s a b ro a d a n d are
c o n siste n t w ith th e F R A o r th e B H C A ct.
(e ) Debts previously contracted. S h ares o r
o th e r o w n e rsh ip in te re sts a c q u ire d to p re v e n t
a loss u p o n a d e b t p rev io u sly c o n tra c te d in
good fa ith a re n o t su b ject to th e lim ita tio n s o r
p ro c e d u re s o f th is section; h o w ev er, th e y sh all
be d isp o sed o f p ro m p tly b u t in n o ev en t la te r
th a n tw o y ears a fte r th e ir a c q u isitio n , unless
th e B o a rd a u th o riz e s re te n tio n fo r a lo n g er
p eriod.
(f) Investments made through debt-for-equity
conversions.
(1 ) Permissible investments. A b a n k h o ld ­
ing c o m p a n y m a y m a k e in v e stm e n ts
th ro u g h th e c o n v e rsio n o f sovereign o r p ri­
vate d e b t o b lig a tio n s o f a n eligible c o u n try ,
e ith e r th ro u g h d ire c t ex ch an g e o f th e d e b t
o b lig atio n s fo r th e in v e stm e n t o r by a p a y ­
m e n t fo r th e d e b t in lo cal c u rre n c y , th e p ro ­
ceeds o f w h ich , in c lu d in g an a d d itio n a l
cash in v e stm e n t n o t exceeding in th e a g g re ­
g a te m o re th a n 10 p e rc e n t o f th e fa ir value
14
Swap transactions involving equity instruments are
separately authorized under paragraph (d) (14) of this
section.

13

§211.5

Regulation K

o f th e d e b t o b lig atio n s being c o n v e rte d as
p a rt o f su ch in v estm en t, a re u sed to p u r­
c h ase th e follow ing in v estm en ts:
(i) Public-sector companies. A b a n k
h o ld in g c o m p a n y m ay a c q u ire u p to a n d
in c lu d in g 100 p e rc e n t o f th e sh a re s o f (o r
o th e r o w n e rsh ip in te re sts in ) a n y foreign
c o m p a n y lo cated in an eligible c o u n try if
th e sh a re s a re a c q u ire d fro m th e g o v e rn ­
m e n t o f th e eligible c o u n try o r fro m its
agencies o r in stru m e n ta litie s.
(ii) Private-sector companies. A b a n k
h o ld in g c o m p a n y m ay a c q u ire u p to a n d
in c lu d in g 40 p erc e n t o f th e sh ares, in ­
clu d in g v o tin g shares, o f ( o r o th e r o w n ­
e rs h ip in te re sts in ) a n y o th e r foreign
c o m p a n y lo c a te d in a n eligible c o u n try
su b ject to th e follow ing co n d itio n s:
( A ) a b a n k h o ld in g c o m p a n y m ay a c ­
q u ire m o re th a n 25 p e rc e n t o f th e v o t­
in g sh a re s o f th e foreign c o m p a n y only
if a n o th e r sh a re h o ld e r o r c o n tro l
g ro u p o f s h a re h o ld e rs unaffiliated w ith
th e b a n k h o ld in g c o m p a n y h o ld s a
la rg e r b lo ck o f v o tin g sh a re s o f th e
c o m p an y ;
(B ) th e b a n k h o ld in g c o m p a n y a n d its
affiliates m a y n o t len d o r o th e rw ise ex­
te n d c re d it to th e fo reig n c o m p a n y in
a m o u n ts g re a te r th a n 50 p e rc e n t o f th e
to ta l lo an s a n d ex ten sio n s o f c re d it to
th e foreign co m p an y ; a n d
( C ) th e b a n k h o ld in g c o m p a n y ’s re p ­
re s e n ta tio n o n th e b o a rd o f d ire c to rs o r
o n m a n a g e m e n t co m m itte e s o f th e fo r­
eign c o m p a n y m ay be n o m o re th a n
p ro p o rtio n a l to its sh a re h o ld in g in th e
foreign co m p an y .

Investments by bank subsidiary o f bank
holding company. U p o n a p p lic a tio n , th e
(2 )

B o a rd m a y p e rm it an in d ire c t in v e stm e n t to
be m a d e p u rs u a n t to th is p a ra g ra p h
th ro u g h a n in s u re d b a n k su b sid ia ry o f th e
b a n k h o ld in g co m p a n y w h ere th e b a n k
h o ld in g c o m p a n y d e m o n stra te s th a t su ch
o w n e rsh ip is c o n siste n t w ith th e p u rp o se s o f
th e F R A . In g ra n tin g its co n se n t, th e B o a rd
m ay im pose su ch c o n d itio n s as it deem s
necessary o r a p p ro p ria te to p re v e n t ad v erse
effects, in c lu d in g p ro h ib itin g lo a n s fro m th e
b a n k to th e c o m p a n y in w h ic h th e in v e st­
m e n t is m ade.

14



(3 ) Divestiture.
(i) Time limits for divestiture. T h e b an k
h o ld in g c o m p a n y sh all d ivest th e sh ares
of, o r o th e r o w n e rsh ip in te re sts in, any
c o m p a n y a c q u ire d p u rs u a n t to th is p a ra ­
g ra p h (u n le ss th e re te n tio n o f th e sh ares
o r o th e r o w n e rsh ip in te re st is o th erw ise
p erm issib le a t th e tim e re q u ire d fo r dives­
titu r e ) w ith in th e lo n g e r o f —
( A ) ten y ears fro m th e d a te o f a c q u i­
sitio n o f th e in v e stm e n t except th a t th e
B o a rd m ay ex te n d su c h p erio d if, in
th e B o a rd ’s ju d g m e n t, su c h an e x te n ­
sion w o u ld n o t be d e trim e n ta l to th e
pu b lic in te re st; o r
(B ) tw o y ears fro m th e d a te o n w hich
th e b a n k h o ld in g c o m p a n y is p e rm itte d
to re p a tria te in full th e in v e stm e n t in
th e foreign c o m p an y ;
P ro v id e d h o w e v e r th a t, in e ith e r event d i­
v e stitu re o c c u rs w ith in 15 y ears o f th e
d a te o f th e acq u isitio n .
(ii) Report to Board. T h e b a n k h o ld in g
c o m p a n y sh all re p o rt to th e B o a rd on its
p lan s fo r d iv estin g an in v e stm e n t m ad e
u n d e r th is p a ra g ra p h tw o y ears p rio r to
th e final d a te fo r d iv e stitu re , in a m a n n e r
to be p rescrib ed by th e B oard.
(iii) Other conditions requiring divesti­
ture. A ll in v e stm e n ts m a d e p u rs u a n t to
th is p a ra g ra p h a re subject to p a ra g ra p h s
( b ) (4 ) ( i ) ( A ) a n d (B ) o f th is se ctio n re ­
q u irin g p ro m p t d iv e s titu re (u n le ss th e
B o a rd u p o n a p p lic a tio n a u th o riz e s re te n ­
tio n ) if th e c o m p a n y in v ested in engages
in im p erm issib le b u sin ess in th e U n ite d
S tates th a t exceeds in th e ag g re g a te 10
p e rc e n t o f th e c o m p a n y ’s co n so lid a te d
assets o r rev en u es c a lc u la te d on an a n n u ­
al basis; p ro v id e d h o w e v e r th a t, su ch
c o m p a n y m ay n o t en gage in a c tiv ities in
th e U n ite d S tates th a t co n sist o f b a n k in g
o r financial o p e ra tio n s (a s defined in sec­
tio n 2 1 1 .2 3 ( f ) ( 5 ) ( i i i ) ( B ) o f th is c h a p ­
te r ) , o r ty p es o f activ ities p e rm itte d by
re g u la tio n
o r o rd e r
u n d e r section
4 ( c ) ( 8 ) o f th e B H C A c t, ex cep t u n d e r
re g u la tio n s o f th e B o a rd o r w ith th e p rio r
a p p ro v a l o f th e B oard.
( 4 ) Investment procedures.
( i ) General consent. S ubject to th e o th e r
lim ita tio n s o f th is p a ra g ra p h , th e B o a rd

§ 2 1 1 .6

Regulation K
g ra n ts its g en eral c o n se n t fo r in v e stm e n ts
m a d e u n d e r th is p a ra g ra p h if th e to ta l
a m o u n t inv ested does n o t exceed th e
g re a te r o f $25 m illion o r 1 p e rc e n t o f th e
tie r 1 c a p ita l o f th e investor.
(ii) A ll o th e r in v estm en t sh all be m a d e
in a c c o rd a n c e w ith th e p ro c e d u re s o f p a r­
a g ra p h ( c ) o f th is section re q u irin g p rio r
n o tic e o r specific co nsent.
(5 ) Conditions.
( i ) Name. A n y c o m p a n y a c q u ire d p u r­
su a n t to th is p a ra g ra p h sh all n o t b e a r a
n a m e sim ila r to th e n a m e o f th e a c q u ir­
ing b a n k h o ld in g c o m p a n y o r a n y o f its
affiliates.
(ii) Confidentiality. N e ith e r th e b a n k
h o ld in g c o m p a n y n o r its affiliates shall
p ro v id e to a n y c o m p a n y a c q u ire d p u rs u ­
a n t to th is p a ra g ra p h a n y co nfidential
b u sin ess in fo rm a tio n o r o th e r in fo rm a ­
tio n c o n c e rn in g c u sto m e rs th a t a re e n ­
gaged in th e sam e o r re la te d lines o f b u si­
ness as th e com p an y .

SECTION 211.6— Lending Limits and
Capital Requirements
( a ) Acceptances o f Edge corporations.
( 1 ) Limitations. A n E dge c o rp o ra tio n sh all
be a n d re m a in fully secu red fo r—
( i ) all a c c e p ta n c e s o u ts ta n d in g in excess
o f 200 p e rc e n t o f its tie r 1 c ap ital; a n d
(ii) all acc e p ta n c e s o u ts ta n d in g fo r an y
o n e p e rso n in excess o f 10 p e rc e n t o f its
tie r 1 cap ital;
P ro v id e d h o w ev er th a t, th e se lim ita tio n s
ap p ly o n ly to acc e p ta n c e s o f th e types d e ­
scrib ed in p a ra g ra p h 7 o f sectio n 13 o f th e
F R A (1 2 U S C 3 7 2 ).
(2 ) Exceptions. T hese lim ita tio n s do n o t
ap p ly if th e excess re p re se n ts th e in te rn a ­
tio n a l sh ip m e n t o f goods a n d th e E d g e c o r­
p o ra tio n is—
( i ) fully co v ered by p rim a ry o b lig atio n s
to re im b u rse it th a t a re g u a ra n te e d by
b a n k s o r b an k ers; o r
(ii) co v ered by p a rtic ip a tio n ag re e m e n ts
fro m o th e r b an k s, as su ch a g re e m e n ts are
d escrib ed in section 250.165 o f th is
c h a p te r.




(b ) Loans and extensions o f credit to one
person.
(1 ) Limitations. E x cep t as th e B o a rd m ay
o th erw ise specify:
(i) th e to ta l lo an s a n d e x ten sio n s o f
c re d it o u ts ta n d in g to an y p erso n by an
E dge c o rp o ra tio n eng ag ed in b a n k in g
a n d its d ire c t o r in d ire c t su b sid iaries m ay
n o t exceed 15 p e rc e n t o f th e E dge c o rp o ­
ra tio n ’s tie r 1 c a p ita l;15 a n d
(ii) th e to ta l lo an s a n d e x ten sio n s o f
c re d it to an y p e rso n by a foreign b a n k o r
E d g e c o rp o ra tio n su b sid ia ry o f a m e m b e r
b a n k , a n d by m a jo rity -o w n e d su b sid iaries
o f a foreign b a n k o r E d g e c o rp o ra tio n ,
w h en co m b in ed w ith th e to ta l lo an s a n d
e x ten sio n s o f c re d it to th e sam e p erso n by
th e m e m b e r b a n k a n d its m a jo rity -o w n e d
su b sid iaries, m a y n o t exceed th e m e m b e r
b a n k ’s lim ita tio n o n lo an s a n d ex ten sio n s
o f c re d it to o n e p erso n .
(2 ) ‘Loans and extensions o f credit” h as
th e m e a n in g set fo rth in sectio n 211.2 ( p ) o f
th is p a r t 16 a n d , fo r p u rp o se s o f th is p a ra ­
g ra p h , in c lu d e —
(i) a c c e p ta n c e s o u ts ta n d in g th a t a re n o t
o f th e ty p es d e sc rib e d in p a ra g ra p h 7 o f
sectio n 13 o f th e F R A (1 2 U S C 3 7 2 );
(ii) an y liab ility o f th e le n d e r to a d v an ce
fu n d s to o r o n b e h a lf o f a p e rso n p u rs u ­
a n t to a g u a ra n te e , sta n d b y le tte r o f c re d ­
it, o r sim ila r a g reem en ts;
(iii) in v e stm e n ts in th e sec u ritie s o f a n ­
o th e r o rg a n iz a tio n ex cep t w h e re th e o r ­
g a n iz a tio n is a su b sid iary , a n d
(iv ) a n y u n d e rw ritin g c o m m itm e n ts to
an issu er o f secu rities w h ere n o b in d in g
c o m m itm e n ts h av e been secu red from
su b u n d e rw rite rs o r o th e r p u rc h a se rs.

15 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.
16 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.

15

§211.6

Regulation K

(3 ) Exceptions. T h e lim ita tio n s o f p a ra ­
g ra p h ( b ) ( 1 ) o f th is section do n o t ap p ly
to —
(i) d ep o sits
fu n d s sold;

w ith

banks

and

fed eral

(ii) bills o r d ra fts d ra w n in g o o d fa ith
ag a in st a c tu a l goods a n d o n w h ich tw o o r
m o re u n re la te d p a rtie s a re liable;
(iii) an y b a n k e r’s a c c e p ta n c e o f th e k in d
d escrib ed in p a ra g ra p h 7 o f sectio n 13 o f
th e F R A th a t is issued a n d o u tsta n d in g ;
(iv ) o b lig atio n s to th e e x te n t secu red by
cash c o lla te ra l o r by b o n d s, n o tes, certifi­
cate s o f in d eb ted n ess, o r T re a su ry bills o f
th e U n ite d States;
(v ) lo an s a n d ex tensions o f c re d it th a t
a re co v ered by b o n a fide p a rtic ip a tio n
a g reem en ts; o r
(v i) o b lig a tio n s to th e e x te n t s u p p o rte d
by th e full faith a n d c re d it o f th e
follow ing:
( A ) th e U n ite d S tates o r a n y o f its d e ­
p a rtm e n ts, agencies, esta b lish m e n ts, o r
w h o lly o w n ed c o rp o ra tio n s (in c lu d in g
o b lig a tio n s to th e e x te n t in s u re d
a g a in st foreign p o litical a n d c re d it
risk s by th e E x p o rt-Im p o rt B a n k o f th e
U n ite d S tates o r th e F o re ig n C re d it I n ­
su ra n c e A sso c ia tio n ), th e In te rn a tio n ­
al B a n k fo r R e c o n stru c tio n a n d D e v e l­
o p m e n t, th e In te rn a tio n a l F in a n c e
C o rp o ra tio n , th e In te rn a tio n a l D ev el­
o p m e n t A sso ciatio n , th e In te r-A m e ri­
c a n D e v e lo p m e n t B an k , th e A fric a n
D e v e lo p m e n t B ank, th e A sian D ev el­
o p m e n t B ank; o r th e E u ro p e a n B an k
fo r R e c o n stru c tio n a n d D e v elo p m e n t;
(B ) a n y o rg a n iz a tio n if a t least 25
p e rc e n t o f su c h an o b lig atio n o r o f th e
to ta l c re d it is also su p p o rte d by th e full
fa ith a n d c re d it of, o r p a rtic ip a te d in
by, a n y in s titu tio n d esig n ated in p a ra ­
g ra p h (b ) (3 ) (v i) ( A ) o f th is sectio n in
su ch m a n n e r th a t d e fa u lt to th e le n d e r
w ill n ecessarily in clu d e d e fa u lt to th a t
e n tity . T h e to ta l lo an s a n d ex ten sio n s
o f c re d it
under
th is
p a ra g ra p h
( b ) ( 3 ) ( v i ) ( B ) to an y p erso n sh all a t
n o tim e exceed 100 p e rc e n t o f th e tie r 1
c a p ita l o f th e E dge c o rp o ra tio n .

16



(c ) Capitalization. A n E d g e c o rp o ra tio n sh all
a t all tim es be c a p ita liz e d in an a m o u n t th a t is
a d e q u a te in re la tio n to th e scope a n d c h a ra c ­
te r o f its activities. In th e case o f an E dge c o r­
p o ra tio n eng ag ed in b a n k in g , a fte r D e c e m b e r
31, 1992, its m in im u m ra tio o f q u alify in g to ta l
c a p ita l to w eig h ted -risk assets, as d e te rm in e d
u n d e r th e C a p ita l A d e q u a c y G u id elin es, sh all
n o t b e less th a n 10 p e rc e n t, o f w h ic h a t least
50 p e rc e n t sh all co n sist o f tie r 1 cap ita l; p ro ­
vided h o w ev er th a t fo r p u rp o se s o f th is p a ra ­
g ra p h , n o lim ita tio n sh all a p p ly as to th e in ­
clu sio n o f su b o rd in a te d d e b t th a t qualifies as
tie r 2 c a p ita l u n d e r th e C a p ita l A d e q u a c y
G u id elin es.

SECTION 211.7—Supervision and
Reporting
( a ) Supervision.
(1 ) Foreign branches and subsidiaries.
O rg a n iz a tio n s
c o n d u c tin g
in te rn a tio n a l
b a n k in g o p e ra tio n s u n d e r th is su b p a rt shall
su p erv ise a n d a d m in is te r th e ir foreign
b ra n c h e s a n d su b sid iaries in su c h a m a n n e r
as to e n su re th a t th e ir o p e ra tio n s c o n fo rm
to h ig h s ta n d a rd s o f b a n k in g a n d financial
p ru d e n c e . E ffective sy stem s o f re c o rd s, c o n ­
tro ls, a n d re p o rts sh all be m a in ta in e d to
keep m a n a g e m e n t in fo rm e d o f th e ir a c tiv i­
ties a n d co n d itio n . S u ch system s sh all p ro ­
vide, in p a rtic u la r, in fo rm a tio n o n risk
assets, liq u id ity m a n a g e m e n t, o p e ra tio n s,
in te rn a l c o n tro ls, a n d c o n fo rm a n c e to m a n ­
a g e m e n t policies. R e p o rts on risk assets
sh all be sufficient to p e rm it a n a p p ra isa l o f
c re d it q u a lity a n d assessm en t o f ex p o su re to
loss, a n d fo r th is p u rp o se p ro v id e full in fo r­
m a tio n o n th e c o n d itio n o f m a te ria l b o r­
row ers. R e p o rts on th e o p e ra tio n s a n d c o n ­
tro ls sh a ll in c lu d e in te rn a l a n d e x te rn a l a u ­
d its o f th e b ra n c h o r su b sid iary .
(2 ) Joint ventures. In v e s to rs sh all m a in ta in
sufficient in fo rm a tio n w ith resp ect to jo in t
v e n tu re s to keep in fo rm e d o f th e ir a c tiv ities
a n d co n d itio n . S uch in fo rm a tio n sh all in ­
c lu d e a u d its a n d o th e r re p o rts on financial
p e rfo rm a n c e , risk e x p o su re, m a n a g e m e n t
policies, o p e ra tio n s, a n d c o n tro ls. C o m p le te
in fo rm a tio n sh a ll be m a in ta in e d o n all

Regulation K
tra n s a c tio n s w ith th e jo in t v e n tu re by th e
in v e sto r a n d its affiliates.
(3 ) Availability o f reports to examiners.
T h e re p o rts a n d in fo rm a tio n specified in
p a ra g ra p h s ( a ) ( 1 ) an d ( 2 ) o f th is sectio n
sh all be m a d e available to ex a m in e rs o f th e
a p p ro p ria te b a n k su p erv iso ry agencies.
( b ) Examinations. E x a m in e rs a p p o in te d by
th e B o a rd sh all exam ine each E d g e c o rp o ra ­
tio n o n ce a year. A n E dge c o rp o ra tio n sh all
m a k e availab le to ex am in ers sufficient in fo r­
m a tio n to assess its c o n d itio n a n d o p e ra tio n s
a n d th e c o n d itio n a n d activities o f an y o rg a n i­
z a tio n w hose sh a re s it holds.
(c )

Reports.

(1 ) Reports o f condition. E a c h E d g e c o rp o ­
ra tio n sh all m a k e re p o rts o f c o n d itio n to
th e B o a rd a t su c h tim es a n d in su c h fo rm as
th e B o a rd m a y p rescrib e. T h e B o a rd m ay
re q u ire th a t sta te m e n ts o f c o n d itio n o r o th ­
e r re p o rts be p u b lish ed o r m a d e available
fo r p u b lic in sp ectio n .
(2 ) Foreign operations. E d g e a n d a g re e ­
m e n t c o rp o ra tio n s, m em b er b an k s, a n d
b a n k h o ld in g c o m p an ies sh all file su c h re ­
p o rts on th e ir foreign o p e ra tio n s as th e
B o a rd m a y req u ire.
( 3 ) Acquisition or disposition o f shares. A
m e m b e r b a n k , E d g e o r a g re e m e n t c o rp o ra ­
tio n o r a b a n k h o ld in g c o m p a n y sh all re ­
p o rt, in a m a n n e r p re sc rib e d by th e B o ard ,
an y a c q u isitio n o r d isp o sitio n o f shares.
(d )

Filing and processing procedures.

( 1 ) U n less o th e rw ise d ire c te d by th e B o ard ,
a p p lic a tio n s, n o tifications, a n d re p o rts re ­
q u ire d by th is p a rt sh all be filed w ith th e
F e d e ra l R eserv e B ank o f th e D is tric t in
w h ich th e p a re n t b a n k o r b a n k h o ld in g
c o m p a n y is lo c a te d or, if n one, th e R eserv e
B an k o f th e D is tric t in w h ic h th e a p p ly in g
o r re p o rtin g in s titu tio n is lo cated . In s tru c ­
tio n s a n d fo rm s fo r su ch a p p lic a tio n s, n o ti­
fications a n d re p o rts are available fro m th e
R eserv e B anks.
(2 ) T h e B o a rd sh all a c t o n a n a p p lic a tio n
o r n o tificatio n u n d e r th is su b p a rt w ith in 60
c a le n d a r d ay s a fte r th e R eserv e B an k h as
a c c e p te d th e a p p lic a tio n o r n o tificatio n u n ­
less th e B o a rd notifies th e in v e sto r th a t th e




§ 2 1 1 .2 2
60-day p e rio d is being e x te n d e d a n d states
th e re a so n s fo r th e extension.

SUBPART B—FOREIGN BANKING
ORGANIZATIONS
SECTION 211.21—Authority, Purpose,
and Scope
( a ) Authority. T h is su b p a rt is issued by th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserv e
System ( “ B o a rd ” ) u n d e r th e a u th o rity o f th e
B an k H o ld in g C o m p a n y A c t o f 1956 (1 2
U S C 1841 et se q .) ( “ B H C A ” ); a n d th e I n te r ­
n a tio n a l B a n k in g A c t o f 1978 (1 2 U S C 3101
et seq .) ( “ IB A ” ).
(b ) Purpose and Scope. T h is su b p a rt is in fu r­
th e ra n c e o f th e p u rp o se s o f th e B H C A c t a n d
th e IB A . It ap p lies to foreign b a n k s a n d fo r­
eign b a n k in g o rg a n iz a tio n s w ith re sp e c t to —
(1 ) th e lim ita tio n s o n in te rsta te b a n k in g
u n d e r sectio n 5 o f th e IB A (1 2 U S C 3 1 0 3 );
and
(2 ) th e e x e m p tio n s fro m th e n o n b a n k in g
p ro h ib itio n s o f th e B H C A c t a n d th e IB A
afforded by sectio n s 2 ( h )
and 4 (c )
(9 ) o f th e B H C A c t (1 2 U S C 1 8 4 1 (h ) a n d
1 8 4 3 (c )(9 )).

SECTION 211.22—Interstate Banking
Operations of Foreign Banking
Organizations
( a ) Definitions. T h e defin itio n s o f section
211.2 in su b p a rt A a p p ly to th is sectio n su b ­
je c t to th e follow ing:
(1 ) “Agency” m e a n s a n y office o r any
place o f b usiness o f a foreign b a n k lo cated
in any sta te o f th e U n ite d S tates o r th e D is­
tric t o f C o lu m b ia a t w h ich c re d it balan c es
a re m a in ta in e d , ch e c k s a re p aid, o r m o n ey
is lent, b u t a t w h ic h d ep o sits m ay n o t be
accep ted fro m a citiz e n o r re sid e n t o f th e
U n ite d States. O b lig a tio n s sh a ll n o t be c o n ­
sid ered c re d it b a la n c e s u n less they:
( i ) a re in c id e n ta l to , o r arise o u t o f th e
exercise o f o th e r law ful b a n k in g pow ers;
(ii) a re to serve a specific pu rp o se; (iii)
17

§ 2 1 1 .2 2
a re n o t so licited from th e g en eral public;
(iv ) a re n o t used to p ay ro u tin e o p e ra t­
ing expenses in th e U n ite d S tates su ch as
salaries, re n t, o r taxes; (v ) a re w ith ­
d ra w n w ith in a reaso n ab le p erio d o f tim e
a fte r th e specific p u rp o se fo r w h ich they
w ere p lace d h a s been a c co m p lish ed ; a n d
(v i) a re d ra w n u p o n in a m a n n e r re a s o n ­
able in re la tio n to th e size a n d n a tu re o f
th e a c c o u n t.
(2 ) “Banking subsidiary, ” w ith resp ect to
a specified foreign b ank, m ean s a b a n k th a t
is a su b sid ia ry as th e te rm s “ b a n k ” a n d
“ su b s id ia ry ” a re defined in sectio n 2 o f th e
B H C A c t (1 2 U S C 1841).
(3 ) “ Commercial lending company ” m ean s
an y o rg a n iz a tio n , o th e r th a n a b a n k o r an
o rg a n iz a tio n o p e ra tin g u n d e r se ctio n 25 o f
th e F R A , o rg a n iz e d u n d e r th e law s o f an y
sta te o f th e U n ite d S tates o r th e D is tric t o f
C o lu m b ia, th a t m a in ta in s c re d it b ala n c e s as
m ay be m a in ta in e d by a n agency a n d e n ­
gages in th e b usiness o f m a k in g c o m m e rc ia l
loans.
(4 ) “ Domestic branch ” m ean s an y office o r
a n y p lace o f business o f a foreign b a n k lo ­
c a te d in an y sta te o f th e U n ite d S ta te s o r
th e D is tric t o f C o lu m b ia th a t m ay a c cep t
d o m e stic d e p o sits an d d ep o sits th a t a re in ­
c id e n ta l to o r fo r th e p u rp o se o f c a rry in g
o u t tra n sa c tio n s in foreign co u n tries.
(5 ) “Foreign bank,” fo r p u rp o se s o f th is
section, is an o rg a n iz a tio n th a t is o rg a n iz e d
u n d e r th e law s o f a foreign c o u n try a n d th a t
engages in th e business o f ban k in g .
( b ) Determination o f home state.
( 1 ) A foreign b a n k selecting its h o m e sta te
sh all d o so by filing w ith th e B o a rd a d e c la ­
ra tio n o f h o m e sta te w ith in 180 d ay s o f th e
effective d a te o f th is su b p a rt. In th e absence
o f su c h selection, th e B o ard shall d esig n ate
a foreign b a n k ’s h o m e state. W ith in one
y e a r a fte r th e h o m e sta te o f a foreign b a n k
h a s been d e te rm in e d , unless th e B o a rd a u ­
th o riz e s a lo n g er period:
(i) th e foreign b a n k sh all close d o m estic
b ra n c h e s w hose activities a re n o t p e rm is­
sible u n d e r section 5 ( b ) o f th e IB A , c o n ­
v e rt su c h d o m estic b ra n c h e s to agencies,
o r e n te r in to an ag re e m e n t w ith th e
B o a rd re g a rd in g th e d ep o sits o f su ch

18



Regulation K
b ra n c h e s as p re sc rib e d in sectio n 5 ( a ) o f
th e IB A ; a n d
(ii) th e foreign b a n k sh all divest voting
sh a re s o f in te re sts in, o r assets o f b an k s
th a t a re n o t perm issib le u n d e r section
5 ( b ) o f th e IB A .
(2 ) A foreign b a n k th a t c u rre n tly d oes n o t
o p e ra te a d o m e stic b ra n c h o r b a n k in g su b ­
sid iary sh all n o t be re q u ire d to select a
h o m e sta te a n d sh all n o t h av e its h o m e sta te
d e sig n a te d by th e B o ard .
(3 ) A foreign b a n k (e x c e p t a foreign b a n k
to w h ic h p a ra g ra p h ( b ) ( 5 ) o f th is section
a p p lie s) th a t h a s an y c o m b in a tio n o f d o ­
m estic b ra n c h e s, b a n k in g subsidiaries,
agencies, o r c o m m e rc ia l len d in g c o m p a n y
su b sid iaries th a t, before Ju ly 27, 1978, w ere
estab lish ed o r ap p lied fo r in m o re th a n one
sta te m ay select its h o m e sta te o n ly fro m
th o se sta te s in w h ic h th e foreign b a n k h as
c o n tin u o u sly o p e ra te d su ch offices.
( 4 ) A foreign b a n k th a t esta b lish e d o r a p ­
plied fo r o n e d o m estic b ra n c h o r o n e b a n k ­
ing su b sid ia ry before Ju ly 27, 1978, a n d
th a t w as n o t o th e rw ise eng ag ed in b a n k in g
in th e U n ite d S tates o n th a t d a te , sh all have
as its h o m e sta te th e sta te in w h ic h su ch
d o m e stic b ra n c h o r b a n k in g su b sid ia ry is
lo cated .
( 5 ) A foreign b a n k th a t before Ju ly 27,
1978, h a d n o d o m e stic b ra n c h e s o r b a n k in g
su b sid iaries o r h a d only agencies o r c o m ­
m ercial len d in g co m p an ies, a n d , a fte r th a t
d a te , h a s esta b lish e d o r e stab lish es an y d o ­
m estic b ra n c h o r b a n k in g su b sid ia ry sh all
h av e as its h o m e sta te th a t sta te in w h ic h its
in itial d o m e stic b ra n c h o r b a n k in g su b sid i­
a ry is lo cated .
(c )

Change o f home state. A foreign b a n k

m ay c h a n g e its h o m e sta te o n ce if:
(1 ) 30 d a y s’ p rio r n o tificatio n o f th e p ro ­
posed c h a n g e is filed w ith th e B o ard ; a n d
(2 ) d o m estic b ra n c h e s estab lish ed a n d in ­
v e stm e n ts in b a n k s a c q u ire d in re lia n c e o n
its o rig in al h o m e sta te selectio n a re c o n ­
fo rm ed to th o se th a t w o u ld h av e b een p e r­
m issible h a d th e new h o m e sta te been se­
lected as its h o m e sta te orig in ally .
( d ) Bank mergers. ( 1 ) A foreign b a n k w ith
o n e o r m o re b a n k in g su b sid ia rie s th a t se­
lects as its h o m e sta te a sta te o th e r th a n

§211.23

Regulation K
th a t in w h ich a b an k in g su b sid ia ry is lo c a t­
ed, a n d th a t p ro p o ses to a c q u ire th ro u g h its
su b sid ia ry b a n k all o r su b sta n tia lly all o f
th e assets o f a b a n k larg er th a n its su b sid i­
a ry b a n k (in te rm s o f d e p o sits) lo cated o u t­
side th e foreign b a n k ’s h o m e sta te sh all give
60 d a y s’ n o tificatio n to th e B o a rd p rio r to
c o n su m m a tio n o f th e p ro p o se d tra n sa c tio n .
( 2 ) If, a fte r receiving th e n o tificatio n , th e
B o a rd m ak es a p re lim in a ry d e te rm in a tio n
w ith in th a t p e rio d th a t th e p ro p o se d a c q u i­
sitio n w o u ld be in c o n siste n t w ith th e fo r­
eign b a n k ’s h o m e sta te selection, th e foreign
b a n k shall:
( i ) red esig n ate as its h o m e sta te th e sta te
in w h ich its su b sid iary b a n k is located; o r
(ii) show cau se w hy in th e facts a n d c ir­
c u m sta n c e s o f its case its h o m e sta te
sh o u ld n o t be re d esig n ated (th e foreign
b a n k ’s subm ission m ay in c lu d e a req u est
fo r a h e a rin g ).
( 3 ) O n th e basis o f in fo rm a tio n available,
th e B o a rd shall:
( i) d ire c t th a t th e foreign b a n k red esig ­
n a te as its h o m e sta te th e sta te in w h ich
its su b sid ia ry b a n k is located; o r
(ii) ta k e n o a c tio n w ith resp ect to th e
foreign b a n k ’s h o m e state.
( 4 ) F a c to rs to be co n sid e re d by th e B o a rd
in m a k in g its p re lim in a ry a n d final d e te rm i­
n a tio n s in c lu d e th e size o f th e p ro p o se d a c ­
q u isitio n relativ e to th e foreign b a n k ’s o th e r
o p e ra tio n s in th e U n ite d S tates a n d th e a b il­
ity o f th e foreign b a n k to c h a n g e its h o m e
state.
(e ) Attribution o f home state. (1 ) A foreign
b a n k o r o rg a n iz a tio n a n d th e o th e r foreign
b a n k s o r o rg a n iz a tio n s o v e r w h ich it ex e r­
cises a c tu a l c o n tro l sh all be re g a rd e d as one
foreign b a n k a n d shall be e n title d to one
h o m e state.
(2 ) A c tu a l c o n tro l sh all be conclusively
p re su m e d to exist in th e case o f a b a n k o r
o rg a n iz a tio n th a t ow ns o r c o n tro ls a m a jo r­
ity o f th e v o tin g sh ares o f a n o th e r b a n k o r
o rg a n iz a tio n .
( 3 ) W h e re it a p p e a rs to th e B o a rd th a t a
foreign b a n k o r o rg a n iz a tio n exercises a c tu ­
al c o n tro l o v er th e m a n a g e m e n t o r policies
o f a n o th e r foreign b a n k o r o rg a n iz a tio n , th e
B o a rd m ay in fo rm th e p a rtie s th a t a p re lim ­




in a ry d e te rm in a tio n o f c o n tro l h a s been
m a d e on th e basis o f th e facts su m m a riz e d
in th e c o m m u n ic a tio n . In th e event o f a p re ­
lim in a ry d e te rm in a tio n o f c o n tro l by th e
B o ard , th e p a rtie s sh all w ith in 30 d ay s (o r
su c h lo n g e r p e rio d as m ay be p e rm itte d by
th e B o a rd ):
( i) in d ic a te to th e B o a rd a w illingness to
te rm in a te th e c o n tro l re la tio n sh ip ; o r
(ii) set fo rth su c h facts a n d c irc u m ­
sta n c e s as m a y su p p o rt th e c o n te n tio n
th a t a c tu a l c o n tro l d o es n o t exist (a n d
m a y re q u e st a h e a rin g to c o n te s t th e
B o a rd ’s p re lim in a ry d e te rm in a tio n ); o r
(iii) acced e to th e B o a rd ’s p re lim in a ry
d e te rm in a tio n , in w h ic h ev en t th e p a rtie s
sh all be re g a rd e d as o n e foreign b a n k a n d
sh all be e n title d to one h o m e state.

SECTION 211.23—Nonbanking
Activities of Foreign Banking
Organizations
( a ) Definitions. T h e defin itio n s o f section
211.2 in su b p a rt A a p p ly to th is se ctio n su b ­
je c t to th e follow ing:
(1 ) “Directly or indirectly ” w h en u sed in
reference to a c tiv ities o r in v e stm e n ts o f a
foreign b a n k in g o rg a n iz a tio n m e a n s a c tiv i­
ties o r in v e stm e n ts o f th e foreign b a n k in g
o rg a n iz a tio n o r o f an y su b sid ia ry o f th e fo r­
eign b a n k in g o rg a n iz a tio n .
(2 ) “Foreign banking organization ” m ean s
a foreign b a n k (a s defined in section
1 ( b ) ( 7 ) o f th e IB A ) th a t o p e ra te s a
b ra n c h , agency, o r c o m m e rc ia l len d in g
c o m p a n y su b sid ia ry in th e U n ite d S tates o r
th a t c o n tro ls a b a n k in th e U n ite d States;
a n d a c o m p a n y o f w h ic h su c h foreign b a n k
is a su bsidiary.
(3 ) “Subsidiary” m ean s a n y o rg a n iz a tio n
25 p e rc e n t o r m o re o f w h o se v o tin g sh ares
is d ire c tly o r in d ire c tly ow n ed , c o n tro lle d
o r held w ith p o w e r to v o te by a foreign
b an k in g o rg a n iz a tio n , o r w h ic h is o th erw ise
co n tro lle d o r cap a b le o f being c o n tro lle d by
a foreign b a n k in g o rg a n iz a tio n .
(b )

Qualifying foreign banking organizations.

U n less specifically m a d e eligible fo r th e ex­
e m p tio n s by th e B o a rd , a foreign b a n k in g o r­
g a n iz a tio n sh all q u alify fo r th e ex e m p tio n s a f­

19

§211.23
fo rd e d by th is sectio n only if, d isre g a rd in g its
U n ite d S tates b an k in g , m o re th a n h a lf o f its
w o rld w id e b u sin ess is ban k in g ; a n d m o re th a n
h a lf o f its b a n k in g business is o u tsid e th e
U n ite d S ta te s .1 In o rd e r to qualify, a foreign
b a n k in g o rg a n iz a tio n sh all—
(1 ) m eet a t least tw o o f th e follow ing
re q u ire m e n ts:
(i) b a n k in g assets h e ld o u tsid e th e U n it­
ed S tates exceed to ta l w o rld w id e n o n ­
b a n k in g assets;
(ii) rev en u es d eriv ed fro m th e business
o f b a n k in g o u tsid e th e U n ite d S tates ex­
ceed to ta l revenues d eriv ed fro m its
w o rld w id e n o n b a n k in g business; o r
(iii) n e t in co m e d eriv ed fro m th e b u si­
ness o f b a n k in g o u tsid e th e U n ite d S tates
exceeds to ta l n e t incom e d eriv ed fro m its
w o rld w id e n o n b a n k in g business; a n d
(2 ) m eet a t least tw o o f th e follow ing
req u ire m e n ts:
(i) b a n k in g assets h eld o u tsid e th e U n it­
ed S tates exceed b a n k in g assets h e ld in
th e U n ite d States;
(ii) rev en u es deriv ed fro m th e b usiness
o f b a n k in g o u tsid e th e U n ite d S ta te s ex­
ceed rev en u es derived fro m th e b usiness
o f b a n k in g in th e U n ite d States;
(iii) n e t in co m e derived fro m th e b u si­
ness o f b a n k in g o u tsid e th e U n ite d S tates
exceeds n e t in co m e d eriv ed fro m th e
b u sin ess o f b an k in g in th e U n ite d S tates.
( c ) Determining assets, revenues, and net in­
come. (1 ) F o r p u rp o ses o f p a ra g ra p h ( b ) , th e
to ta l assets, revenues, a n d n e t in co m e o f an
o rg a n iz a tio n m a y be d e te rm in e d on a c o n ­
so lid a te d o r c o m b in ed basis. A ssets, reve­
n ues a n d n et in co m e o f co m p an ies in w h ich
th e foreign b a n k in g o rg a n iz a tio n o w ns 50
p e rc e n t o r m o re o f th e vo tin g sh a re s shall
be in c lu d e d w h en d e te rm in in g to ta l assets,
revenues, a n d n e t incom e. T h e foreign
b a n k in g o rg a n iz a tio n m ay in clu d e assets,

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.”

20




Regulation K
revenues, a n d n e t in co m e o f c o m p a n ie s in
w h ich it o w ns 25 p e rc e n t o r m o re o f th e
v o tin g sh a re s if all su c h c o m p an ies w ith in
th e o rg a n iz a tio n a re in clu d ed ;
(2 ) A ssets d ev o ted to, o r rev en u es o r n e t
in co m e d eriv ed fro m , a c tiv ities listed in sec­
tio n 2 1 1 .5 (d ) o f th is p a rt sh all be c o n sid ­
ered b a n k in g assets, o r rev en u es o r n e t in ­
co m e d eriv ed fro m th e b a n k in g business,
w h en c o n d u c te d w ith in th e foreign b a n k in g
o rg a n iz a tio n by a fo reig n b a n k o r its
subsidiaries.
( d ) Loss o f eligibility for exemptions. (1 ) A
foreign b a n k in g o rg a n iz a tio n th a t qualified
u n d e r p a ra g ra p h ( b ) o f th is sectio n sh all
cease to be eligible fo r th e ex e m p tio n s o f
th is se ctio n if it fails to m e e t th e re q u ire ­
m e n ts o f p a ra g ra p h ( b ) o f th is sectio n fo r
tw o co n se c u tiv e y ears as reflected in its a n ­
n u a l re p o rts ( F R Y -7 ) filed w ith th e B o ard .
(2 ) A foreign b a n k in g o rg a n iz a tio n th a t
ceases to be eligible fo r th e ex e m p tio n s o f
th is sectio n m a y c o n tin u e to en gage in a c ­
tivities o r re ta in in v e stm e n ts c o m m e n c e d o r
a c q u ire d p rio r to th e e n d o f th e first fiscal
y e a r fo r w h ic h its a n n u a l re p o rt reflects
n o n c o n fo rm a n c e w ith p a ra g ra p h ( b ) o f th is
section. A c tiv itie s c o m m e n c e d o r in v e st­
m e n ts m a d e a fte r th a t d a te sh all be te rm i­
n a te d o r d iv ested w ith in th re e m o n th s o f
th e filing o f th e seco n d a n n u a l re p o rt unless
th e B o a rd g ra n ts co n se n t to c o n tin u e th e
activ ity o r re ta in th e in v e stm e n t u n d e r p a r­
a g ra p h (e ) o f th is section.
(3 ) A foreign b a n k in g o rg a n iz a tio n th a t
ceases to q u alify u n d e r p a ra g ra p h ( b ) o f
th is sectio n , o r an affiliate o f su c h foreign
b a n k in g o rg a n iz a tio n , th a t req u ests a sp e­
cific d e te rm in a tio n o f eligibility u n d e r p a ra ­
g ra p h ( e ) o f th is sectio n m ay , p rio r to th e
B o a rd ’s d e te rm in a tio n on eligibility, c o n tin ­
ue to engage in a c tiv ities a n d m a k e in v e st­
m e n ts u n d e r th e p ro v isio n s o f p a ra g ra p h s
( f ) ( 1 ) , (2 ) a n d (4 ) o f th is section.
(e ) Specific determination o f eligibility for
nonqualifying foreign banking organizations.
( 1 ) A foreign b a n k in g o rg a n iz a tio n th a t
does n o t qu alify u n d e r p a ra g ra p h ( b ) o f
th is sectio n fo r th e ex e m p tio n s afforded by
th is sectio n , o r th a t h a s lo st its eligibility fo r
th e ex e m p tio n s u n d e r p a ra g ra p h ( d ) o f th is

Regulation K
section, m ay ap p ly to th e B o a rd fo r a sp e ­
cific d e te rm in a tio n o f eligibility fo r th e
ex em p tio n s.
(2 ) A foreign b a n k in g o rg a n iz a tio n m ay
a p p ly fo r a specific d e te rm in a tio n p rio r to
th e tim e it ceases to be eligible fo r th e ex­
e m p tio n s afforded by th is section.
(3 ) In d e te rm in in g w h e th e r eligibility for
th e ex e m p tio n s w ould be c o n siste n t w ith
th e p u rp o se s o f th e B H C A c t a n d in th e
p u b lic in te re st, th e B o ard sh all c o n sid e r—
(i) th e h is to ry a n d th e financial a n d
m a n a g e ria l reso u rces o f th e o rg a n iz a tio n ;
(ii) th e a m o u n t o f its business in th e
U n ite d S tates;
(iii) th e a m o u n t, type, a n d lo c a tio n o f
its
n o n b a n k in g
activities,
in c lu d in g
w h e th e r su c h activities m ay be c o n d u c te d
by U .S. b a n k s o r b a n k h o ld in g c o m p a ­
nies; a n d
(iv ) w h e th e r eligibility o f th e foreign
b a n k in g o rg a n iz a tio n w o u ld re su lt in u n ­
d u e c o n c e n tra tio n o f reso u rces, d ecreased
o r u n fa ir co m p e titio n , conflicts o f in te r­
ests, o r u n so u n d b a n k in g practices.
( 4 ) S uch d e te rm in a tio n sh all be subject to
a n y c o n d itio n s a n d lim ita tio n s im p o sed by
th e B o ard , in c lu d in g an y re q u ire m e n ts to
cease activ ities o r dispose o f in v estm en ts.
(5 ) D e te rm in a tio n s o f eligibility w ould
g en erally n o t be g ra n te d w h ere a m a jo rity
o f th e b u sin ess o f th e foreign b a n k in g o rg a ­
n iz a tio n d erives fro m co m m e rc ia l o r in d u s­
tria l a c tiv ities o r w h ere th e U .S. b a n k in g
b u sin ess o f th e o rg a n iz a tio n is la rg e r th a n
th e non-U .S . b an k in g b usiness c o n d u c te d
d ire c tly by th e foreign b a n k o r b a n k s (a s
defined in section 2 1 1 .2 (j) o f th is p a rt) o f
th e o rg a n iz a tio n .
(f) Permissible activities and investments. A
foreign b a n k in g o rg a n iz a tio n th a t qualifies u n ­
d e r p a ra g ra p h (b ) m ay —
(1 ) engage in activities o f any k in d o u tsid e
th e U n ite d States;
(2 ) engage d ire c tly in activ ities in th e
U n ite d S tates th a t are in c id e n ta l to its a c ­
tivities o u tsid e th e U n ite d S tates;
( 3 ) ow n o r c o n tro l v o tin g sh ares o f an y
c o m p a n y th a t is n o t engaged, d ire c tly o r in ­
d ire c tly , in an y activities in th e U n ite d
S tates o th e r th a n th o se th a t a re in c id e n ta l




§211.23
to th e in te rn a tio n a l o r foreign business o f
su ch co m p an y :
(4 ) ow n o r c o n tro l v o tin g sh a re s o f any
c o m p a n y in a fid u ciary c a p a c ity u n d e r c ir­
cu m sta n c e s th a t w o u ld e n title su ch sh a re ­
h o ld in g to an e x e m p tio n u n d e r section
4 ( c ) ( 4 ) o f th e B H C A c t if th e sh a re s w ere
h eld o r a c q u ire d by a bank;
(5 ) ow n o r c o n tro l v o tin g sh a re s o f a fo r­
eign c o m p a n y th a t is en gaged d ire c tly o r
in d ire c tly in b u sin ess in th e U n ite d S tates
o th e r th a n th a t w h ich is in c id e n ta l to its
in te rn a tio n a l o r foreign business, subject to
th e follow ing lim itatio n s:
(i) M o re th a n 50 p e rc e n t o f th e foreign
c o m p a n y ’s c o n so lid a te d assets sh all be
lo cated , a n d c o n so lid a te d rev en u es d e ­
rived fro m , o u tsid e th e U n ite d S tates;
p ro v id e d h o w ev er th a t, if th e foreign
c o m p a n y fails to m eet th e re q u ire m e n ts
o f th e p a ra g ra p h fo r tw o co n secu tiv e
y ears (a s reflected in a n n u a l re p o rts ( F R
Y - 7 ) ) filed w ith th e B o a rd by th e foreign
b a n k in g o rg a n iz a tio n , th e foreign c o m p a ­
ny sh all be d iv ested o r its activ ities te rm i­
n a te d w ith in o n e y e a r o f th e filing o f th e
seco n d co n secu tiv e a n n u a l re p o rt th a t re ­
flects n o n c o n fo rm a n c e w ith th e re q u ire ­
m e n ts o f th is p a ra g ra p h , unless th e B o a rd
g ra n ts co n se n t to re ta in th e in v e stm e n t
u n d e r p a ra g ra p h (g ) o f th is section;
(ii) T h e foreign c o m p a n y sh all n o t d i­
re c tly u n d e rw rite , sell, o r d is trib u te , n o r
ow n o r c o n tro l m o re th a n 5 p e rc e n t o f
th e vo tin g sh a re s o f a c o m p a n y th a t u n ­
d erw rites, sells, o r d is trib u te s secu rities
in th e U n ite d S tates except to th e e x ten t
p e rm itte d b a n k h o ld in g com panies;
(iii) I f th e foreign c o m p a n y is a su b sid i­
ary o f th e foreign b a n k in g o rg a n iz a tio n ,
th e foreign c o m p a n y m u st be, o r m u st
c o n tro l, an o p e ra tin g co m p a n y , a n d its
d ire c t o r in d ire c t a c tiv ities in th e U n ite d
S tates sh all be su b ject to th e follow ing
lim itatio n s:
( A ) T h e foreign c o m p a n y ’s activities
in th e U n ite d S tates sh all be th e sam e
k in d o f a c tiv ities o r re la te d to th e a c ­
tivities en gaged in d ire c tly o r in d ire c tly
by th e foreign c o m p a n y a b ro a d as
m e a su re d by th e “ e sta b lish m e n t” c a te ­
gories o f th e S ta n d a rd In d u s tria l C las-

21

Regulation K

§211.23
sification (S IC ) (a n activ ity in th e
U n ite d S tates shall be c o n sid ered re la t­
ed to an a ctiv ity o u tsid e th e U n ite d
S tates if it co n sists o f su p p ly , d is trib u ­
tio n , o r sales in fu rth e ra n c e o f th e
a c tiv ity );
(B ) T h e foreign c o m p a n y m ay engage
in a c tiv ities in th e U n ite d S tates th a t
co n sist o f b a n k in g securities, in su ra n c e
o r o th e r financial o p e ra tio n s, o r types
o f a c tiv ities p e rm itte d by re g u la tio n o r
o rd e r u n d e r section 4 ( c ) ( 8 ) o f th e
B H C A c t, o n ly u n d e r re g u la tio n s o f
th e B o a rd o r w ith th e p rio r a p p ro v a l o f
th e B o ard .
( 7 ) A ctiv ities w ith in D iv isio n H
(F in a n c e , In su ra n c e , a n d R e a l E s ­
ta te ) o f th e S IC sh all be c o n sid e re d
b a n k in g o r financial o p e ra tio n s for
th is p u rp o se, w ith th e ex cep tio n o f
a c tin g as o p e ra to rs o f n o n re sid e n tia l
b u ild in g s (S IC 6 5 1 2 ), o p e ra to rs o f
a p a rtm e n t b u ildings (S IC 6 5 1 3 ),
o p e ra to rs o f dw ellings o th e r th a n
a p a rtm e n t b u ildings (S IC 6 5 1 4 ),
a n d o p e ra to rs o f resid e n tia l m obile
home sites (S IC 6 5 1 5 ); and operat­
ing title a b stra c t offices (S IC 6 5 4 1 );
and
(2 ) T h e follow ing activ ities sh all be
c o n sid e re d financial a c tiv ities a n d
m ay be engaged in o nly w ith th e a p ­
p ro v a l o f th e B o ard u n d e r su b sec­
tio n (g ) : cre d it re p o rtin g services
(S IC 7 3 2 3 ); c o m p u te r a n d d a ta p ro ­
cessing services (S IC 7371, 7372,
7373, 7374, 7375, 7376, 7377, 7378,
a n d 7 3 7 9 ); a rm o re d c a r services
(S IC 7 3 8 1 ); m a n a g e m e n t c o n su ltin g
(S IC 8732, 8741, 8742, a n d 8 748);
c e rta in re n ta l a n d leasing activ ities
(S IC 4741, 7352, 7353, 7359, 7513,
7514, 7515, an d 7 5 1 9 ); a c c o u n tin g ,
a u d itin g a n d boo k k eep in g services
(S IC 8 7 2 1 ); c o u rie r services (S IC
4215 a n d 4 5 1 3 ); a n d a rra n g e m e n t o f
p assen g er tra n s p o rta tio n (S IC 4724,
4725, a n d 4 7 2 9 ).
(g ) Exemptions under section 4(c)(9) o f the
BHC Act. A foreign o rg a n iz a tio n th a t is o f th e
o p in io n th a t o th e r activities o r in v e stm e n ts
22




m ay, in p a rtic u la r c irc u m sta n c e s, m eet th e
c o n d itio n s fo r a n ex em p tio n u n d e r section
4 ( c ) ( 9 ) o f th e B H C A c t m ay a p p ly to th e
B o ard fo r su c h a d e te rm in a tio n by su b m ittin g
to th e R eserv e B an k o f th e D is tric t in w hich
its b a n k in g o p e ra tio n s in th e U n ite d S tates are
p rin c ip a lly c o n d u c te d a le tte r se ttin g fo rth th e
basis fo r th a t o p in io n .
( h ) Reports.
(1 ) T h e foreign b a n k in g o rg a n iz a tio n shall
in fo rm th e B o a rd th ro u g h th e o rg a n iz a ­
tio n ’s R eserv e B ank w ith in 30 d ay s a fte r
th e close o f e ach q u a rte r o f all sh a re s o f
c o m p an ies engaged, d ire c tly o r in d irectly ,
in a c tiv ities in th e U n ite d S tates th a t w ere
a c q u ire d d u rin g su ch q u a rte r u n d e r th e a u ­
th o rity o f th is section.
(2 ) T h e foreign b a n k in g o rg a n iz a tio n shall
also re p o rt an y d ire c t activ itie s in th e U n it­
ed S tates co m m e n c e d d u rin g su ch q u a rte r
by a foreign su b sid ia ry o f th e foreign b a n k ­
ing o rg a n iz a tio n . T h is in fo rm a tio n shall
(u n le ss p rev io u sly fu rn ish e d ) in clu d e a
b rie f d e sc rip tio n o f th e n a tu re a n d scope o f
each c o m p a n y ’s b usiness in th e U n ite d
S tates, in c lu d in g th e 4-digit S IC n u m b e rs o f
th e a c tiv ities in w h ic h th e c o m p a n y e n ­
gages. S uch in fo rm a tio n sh all also in clu d e
th e 4-digit S IC n u m b e rs o f th e d ire c t p a re n t
o f an y U .S. c o m p a n y a c q u ire d , to g e th e r
w ith a sta te m e n t o f to ta l assets a n d rev e­
n ues o f th e d ire c t p a re n t.
( i ) Availability o f information. I f a n y in fo r­
m a tio n re q u ire d u n d e r th is section is u n ­
k n o w n a n d n o t re aso n ab ly availab le to th e
foreign b a n k in g o rg a n iz a tio n , e ith e r because
o b ta in in g it w o u ld involve u n re a so n a b le effort
o r expense o r b ecau se it rests p ecu liarly w ith in
th e know led g e o f a c o m p a n y th a t is n o t c o n ­
tro lle d by th e o rg a n iz a tio n , th e o rg a n iz a tio n
sh all—
(1 ) give su ch in fo rm a tio n o n th e subject as
it possesses o r c a n re aso n ab ly a c q u ire to ­
g e th e r w ith th e so u rc e s th ereo f; a n d
(2 ) in c lu d e a sta te m e n t e ith e r show ing
th a t u n re a so n a b le effort o r expense w ould
be involved o r in d ic a tin g th a t th e c o m p a n y
w hose sh a re s w ere a c q u ire d is n o t c o n ­
tro lle d by th e o rg a n iz a tio n a n d sta tin g th e
resu lt o f a req u est fo r in fo rm a tio n .

Regulation K

SUBPART C—EXPORT TRADING
COMPANIES
SECTION 211.31—Authority, Purpose,
and Scope
( a ) Authority. T h is su b p a rt is issued by th e
B o ard o f G o v e rn o rs o f th e F e d e ra l R eserve
System ( “ B o a rd ” ) u n d e r th e a u th o rity o f th e
B ank H o ld in g C o m p a n y A c t o f 1956, as
a m e n d e d (1 2 U S C 1841 et se q .) ( “ B H C
A c t” ), th e B an k E x p o rt Services A c t (title II,
P u b . L. 97-290, 96 S tat. 1235 (1 9 8 2 ) )
( “ B E S A ” ), a n d th e E x p o rt T ra d in g C o m p a ­
ny A c t A m e n d m e n ts o f 1988 (title II I, P u b .
L. 100-418, 102 S tat. 1384 (1 9 8 8 ) ) ( “ E T C
A c t A m e n d m e n ts” ).
( b ) Purpose and scope. T h is su b p a rt is in fu r­
th e ra n c e o f th e p u rp o ses o f th e B H C A c t, th e
B E S A , a n d th e E T C A ct A m e n d m e n ts, th e
la tte r tw o sta tu te s being designed to increase
U .S. e x p o rts by en co u ra g in g in v e stm e n ts an d
p a rtic ip a tio n in e x p o rt tra d in g c o m p a n ie s by
b a n k h o ld in g co m p an ies a n d th e specified
investors. T h e p ro v isio n s o f th is su b p a rt ap p ly
to th e follow ing (h e re in a fte r re fe rre d to as
“ eligible in v e sto rs” ):
( 1 ) b a n k h o ld in g co m p an ies as defined in
sectio n 2 o f th e B H C A c t (1 2 U S C
1 8 4 1 (a ) );
( 2 ) E d g e a n d a g reem en t c o rp o ra tio n s, as
d escrib ed in section 2 1 1 .1 (c ) o f th is p a rt,
th a t a re su b sid iaries o f b a n k h o ld in g c o m ­
pan ies b u t a re n o t su b sid iaries o f banks;
( 3 ) b a n k e r’s b a n k s as d escrib ed in section
4 ( c ) ( 1 4 ) ( F ) (iii) o f th e B H C A c t (1 2 U S C
1 8 4 3 (c ) (1 4 ) ( F ) ( i ii ) ) ; a n d
( 4 ) foreign b a n k in g o rg a n iz a tio n s as d e ­
fined in sectio n 2 1 1 .2 3 ( a ) ( 2 ) o f th is p art.

SECTION 211.32—Definitions
T h e definitions o f section 211.2 in su b p a rt A
ap p ly to th is su b p a rt subject to th e follow ing:
( a ) “ E x p o rt tra d in g c o m p a n y ” m ean s a c o m ­
p an y th a t is exclusively engaged in activities
re la te d to in te rn a tio n a l tra d e a n d , by en gag­
ing in one o r m o re e x p o rt tra d e services,
d erives—
(1 ) A t least o n e -th ird o f its rev en u es in
e ach con secu tiv e fo u r-y ear p erio d fro m th e




§211.33
e x p o rt of, o r fro m fa c ilita tin g th e ex p o rt of,
goods a n d services p ro d u c e d in th e U n ite d
S tates by p erso n s o th e r th a n th e ex p o rt
tra d in g c o m p a n y o r its su b sid iaries; an d
( 2 ) M o re rev en u es in each fo u r-y e a r p e ri­
od fro m e x p o rt a c tiv ities as d escrib ed in
p a ra g ra p h ( a ) ( 1 ) o f th is sectio n th a n it d e ­
rives fro m th e im p o rt, o r fa c ilita tin g th e im ­
p o rt, in to th e U n ite d S tates o f g o ods o r
services p ro d u c e d o u ts id e th e U n ite d States.
F o r p u rp o se s o f th is su b sectio n , “ re v e n u e s”
sh all in clu d e n et sales rev en u es fro m e x p o rt­
ing, im p o rtin g , o r th ird -p a rty tra d e in goods
by th e e x p o rt tra d in g c o m p a n y fo r its ow n a c ­
c o u n t a n d gross rev en u es d eriv ed fro m all o th ­
e r a c tiv ities o f th e e x p o rt tra d in g co m p an y .
(b ) T h e te rm s “ b a n k ,” “ c o m p a n y ,” a n d
“ su b s id ia ry ” h av e th e sam e m ean in g s as th o se
c o n ta in e d in sectio n 2 o f th e B H C A c t (1 2
U S C 1841).

SECTION 211.33— Investments and
Extensions of Credit
( a ) Amount o f investments. In a c c o rd a n c e
w ith th e p ro c e d u re s o f sectio n 211.34 o f th is
su b p a rt, an eligible in v e sto r m ay invest no
m o re th a n 5 p e rc e n t o f its co n so lid a te d c a p ita l
a n d su rp lu s in o n e o r m o re e x p o rt tra d in g
co m p an ies, except th a t an E d g e o r a g re e m e n t
c o rp o ra tio n n o t eng ag ed in b a n k in g m a y in ­
vest as m u c h as 25 p e rc e n t o f its co n so lid a te d
c a p ita l a n d su rp lu s b u t n o m o re th a n 5 p e r­
cen t o f th e c o n so lid a te d c a p ita l a n d su rp lu s o f
its p a re n t b a n k h o ld in g co m p an y .
( b ) Extensions o f credit.
(1 ) Amount. A n eligible in v e sto r in a n ex­
p o rt tra d in g c o m p a n y o r c o m p an ies m ay
ex te n d c re d it d ire c tly o r in d ire c tly to th e
ex p o rt tra d in g c o m p a n y o r c o m p a n ie s in a
to ta l a m o u n t th a t a t n o tim e exceeds 10
p erc e n t o f th e in v e s to r’s co n so lid a te d c a p i­
ta l a n d su rp lu s.
(2 ) Terms.
(i) A n eligible in v e sto r in an ex p o rt
tra d in g c o m p a n y m a y n o t ex te n d cred it
d ire c tly o r in d ire c tly to th e e x p o rt tr a d ­
ing c o m p a n y o r an y o f its c u sto m e rs o r to
an y o th e r in v e sto r h o ld in g 10 p e rc e n t o r
m o re o f th e sh a re s o f th e e x p o rt tra d in g

23

§ 211.33
c o m p a n y on te rm s m o re fav o rab le th a n
th o se afforded sim ilar b o rro w e rs in sim i­
la r c irc u m sta n c e s, an d su ch ex tensions o f
cre d it sh all n o t involve m o re th a n th e
n o rm a l risk o f re p a y m e n t o r p re se n t o th ­
e r u n fa v o ra b le features.
(ii) F o r th e p u rp o ses o f th is provision,
an in v e sto r in an ex p o rt tra d in g c o m p an y
in c lu d e s an y affiliate o f th e investor.
(3 ) Collateral
requirements.
C overed
tra n sa c tio n s betw een a b a n k a n d an affiliat­
ed e x p o rt tra d in g co m p a n y in w h ich a b a n k
h o ld in g c o m p a n y has in v ested p u rs u a n t to
th is su b p a rt a re subject to th e c o lla te ra l re ­
q u ire m e n ts o f section 23A o f th e F e d e ra l
R eserv e A c t (1 2 U S C 3 7 1 c ), except w h ere
a b a n k issues a le tte r o f c re d it o r a d v an ces
fu n d s to an affiliated ex p o rt tra d in g c o m p a ­
ny solely to finance th e p u rc h a s e o f goods
fo r w h ic h —
( i) th e e x p o rt tra d in g c o m p a n y h a s a
b o n a fide c o n tra c t for th e su b se q u e n t sale
o f th e goods; a n d
(ii) th e b a n k h as a se c u rity in te re st in
th e goods o r in th e p ro c e e d s fro m th e ir
sale a t least eq u al in value to th e le tte r o f

credit or the advance.

SECTION 211.34— Procedures for Filing
and Processing Notices
( a ) Filing notice.
(1 ) Prior notice o f investment. A n eligible
in v e sto r sh all give th e B o ard 60 d a y s’ p rio r
w ritte n n o tice o f any in v e stm e n t in an ex ­
p o rt tra d in g co m p an y .
(2 ) Subsequent notice.
(i) A n eligible in v esto r shall give th e
B o a rd 60 d a y s’ p rio r w ritte n n o tic e o f
ch an g es in th e activities o f an ex p o rt
tra d in g co m p a n y th a t is a su b sid ia ry o f
th e in v e sto r if th e ex p o rt tra d in g c o m p a ­
ny ex p an d s its activities bey o n d th o se d e ­
scribed in th e initial n o tice to in c lu d e —
( A ) ta k in g title to g o ods w h ere th e
e x p o rt tra d in g c o m p an y does n o t have
a firm o rd e r fo r th e sale o f th o se goods;
(B ) p ro d u c t research a n d design;
( C ) p ro d u c t m odification; o r
( D ) activ ities not specifically co vered

24




Regulation K
by th e list o f a ctiv ities c o n ta in e d in sec­
tion 4 ( c ) ( 1 4 ) ( F ) ( i i ) o f th e B H C A ct.
(ii) S uch an ex p a n sio n o f a c tiv ities sh all
be re g a rd e d as a p ro p o se d in v e stm e n t u n ­
d er th is su b p a rt.
( b ) Time period for Board action.
( 1 ) A p ro p o se d in v e stm e n t th a t h a s n o t
been d is a p p ro v e d by th e B o a rd m ay be
m ad e 60 d ays a fte r th e R eserv e B ank a c ­
cep ts th e n o tic e fo r p rocessing. A p ro p o sed
in v e stm e n t m ay be m a d e before th e e x p ira ­
tio n o f th e 60-day p e rio d if th e B o a rd n o ti­
fies th e in v e sto r in w ritin g o f its in te n tio n
n o t to d isa p p ro v e th e in v estm en t.
(2 ) T h e B o a rd m a y ex te n d th e 60-day p e­
rio d fo r an a d d itio n a l 30 d ay s if th e B o ard
d e te rm in e s th a t th e in v e sto r h as n o t fu r­
nish ed all necessary in fo rm a tio n o r th a t any
m a te ria l in fo rm a tio n fu rn ish e d is su b s ta n ­
tially in a c c u ra te . T h e B o a rd m ay d isa p ­
p ro v e an in v e stm e n t if th e n ecessary in fo r­
m a tio n is p ro v id e d w ith in a tim e insufficient
to allow th e B o a rd rea so n a b ly to co n sid er
th e in fo rm a tio n received.
(3 ) W ith in th re e d ay s o f a decision to d is­
a p p ro v e an in v e stm e n t, th e B o a rd sh all n o ­
tify th e in v e sto r in w ritin g a n d sta te th e re a ­
sons fo r th e d isap p ro v al.
(c ) Time period for investment. A n in v e st­
m e n t in an ex p o rt tra d in g c o m p a n y th a t has
n o t been d isa p p ro v e d sh all be m a d e w ith in
on e y ear fro m th e d a te o f th e n o tic e n o t to
d isap p ro v e, unless th e tim e p e rio d is ex ten d e d
by th e B o a rd o r by th e a p p ro p ria te F e d e ra l
R eserv e B ank.
( d ) Time period for calculating revenues. F o r
an y ex p o rt tra d in g c o m p a n y th a t c o m m en ced
o p e ra tio n s tw o y ears o r m o re p rio r to A u g u st
23, 1988, th e fo u r-y e a r p e rio d w ith in w h ich to
c a lc u la te revenues d eriv ed fro m its activ ities
u n d e r section 2 1 1 .3 2 (a ) o f th is p a rt sh all be
d eem ed to h av e co m m e n c e d w ith th e b eg in ­
ning o f th e 1988 fiscal y e a r fo r th a t ex p o rt
tra d in g co m p an y . F o r all o th e r e x p o rt tra d in g
com p an ies, th e fo u r-y e a r p e rio d sh all c o m ­
m en ce w ith th e first fiscal y e a r a fte r th e re ­
spective ex p o rt tra d in g c o m p a n y h a s been in
o p e ra tio n fo r tw o years.

§ 211.43

Regulation K
S U B P A R T D — IN T E R N A T IO N A L
L E N D IN G S U P E R V IS IO N
S E C T I O N 2 1 1 .4 1 — A u t h o r i t y , P u r p o s e ,
an d Scope
( a ) Authority. T h is su b p a rt is issued by th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserve
S ystem ( “ B o a rd ” ) u n d e r th e a u th o rity o f th e
In te rn a tio n a l L e n d in g S u pervision A c t o f
1983 (P u b . L. 98-181, title IX , 97 S tat. 1153)
( “ In te rn a tio n a l L en d in g S u pervision A c t” );
th e F e d e ra l R eserv e A c t (1 2 U S C 221 et seq .)
( “ F R A ” ), a n d th e B an k H o ld in g C o m p a n y
A c t o f 1956, as a m e n d e d (1 2 U S C 1841 et
se q .) ( “ B H C A c t” ).
( b ) Purpose and scope. T h is su b p a rt is issued
in fu rth e ra n c e o f th e p u rp o ses o f th e I n te rn a ­
tio n a l L e n d in g S upervision A ct. It ap p lies to
sta te b a n k s th a t a re m em b ers o f th e F e d e ra l
R eserv e System ( “ sta te m em b er b a n k s” ); c o r­
p o ra tio n s o rg a n iz e d u n d e r sectio n 2 5 ( a ) o f
th e F R A (1 2 U S C 6 1 1 -6 3 1 ) ( “ E d g e c o rp o ra ­
tio n s” ); c o rp o ra tio n s o p e ra tin g subject to an
a g re e m e n t w ith th e B o a rd u n d e r sectio n 25 o f
th e F R A (1 2 U S C 6 0 1 -6 0 4 a ) ( “ ag re e m e n t
c o rp o ra tio n s ” ); a n d b a n k h o ld in g c o m p an ies
(a s defined in sectio n 2 o f th e B H C A c t (1 2
U S C 1 8 4 1 (a )) b u t n o t in clu d in g a b a n k h o ld ­
in g c o m p a n y th a t is a foreign b a n k in g o rg a n i­
z a tio n as defined in section 2 1 1 .2 3 ( a ) ( 2 ) o f
th is re g u latio n .

S E C T I O N 2 1 1 .4 2 — D e f in itio n s
F o r th e p u rp o se s o f th is s u b p a rt—
( a ) “ B a n k in g in s titu tio n ” m ean s a sta te
m e m b e r ban k ; b a n k h o ld in g co m p an y ; E dge
c o rp o ra tio n a n d a g reem en t c o rp o ra tio n e n ­
gaged in b a n k in g . “ B an k in g in s titu tio n ” does
n o t in clu d e a “ foreign b an k in g o rg a n iz a tio n ”
as defined in sectio n 2 1 1 .2 3 ( a ) ( 2 ) o f th is
reg u latio n .

tio n s’ C o u n try E x p o su re
( F F I E C N o. 0 0 9 ).

R e p o rt

fo rm s

( d ) “ In te rn a tio n a l lo a n ” m ean s a lo an as d e ­
fined in th e in s tru c tio n s to th e R e p o rt o f C o n ­
d itio n a n d In c o m e fo r th e resp ectiv e b a n k in g
in s titu tio n ( F F I E C N os. 031, 032, 033 a n d
0 3 4 ) a n d m a d e to a foreign g o v e rn m e n t, o r to
an in d iv id u a l, a c o rp o ra tio n , o r o th e r en tity
n o t a c itizen of, re sid e n t in, o r o rg a n iz e d o r
in c o rp o ra te d in th e U n ite d States.
(e ) “ In te rn a tio n a l sy n d ic a te d lo a n ” m ean s a
loan c h a ra c te riz e d by th e fo rm a tio n o f a
g ro u p o f “ m a n a g in g ” b a n k in g in s titu tio n s
an d , in th e u su a l case, a ssu m p tio n by th e m o f
u n d e rw ritin g c o m m itm e n ts a n d p a rtic ip a tio n
in th e lo a n by o th e r b a n k in g in stitu tio n s.
(f ) “ L o a n a g re e m e n t” m e a n s th e d o c u m e n ts
signed by all o f th e p a rtie s to a loan, c o n ta in ­
ing th e a m o u n t, te rm s a n d c o n d itio n s o f th e
loan, a n d th e in te re st a n d fees to be p a id by
th e b o rro w e r.
(g ) “ R e s tru c tu re d in te rn a tio n a l lo a n ” m ean s
a lo an th a t m eets th e follow ing crite ria :
(1 ) T h e b o rro w e r is u n a b le to service th e
existing lo a n a c c o rd in g to its te rm s a n d is a
re sid e n t o f a foreign c o u n try in w h ic h th e re
is a g en eralized in ab ility o f pu b lic a n d p ri­
v a te -se c to r ob lig o rs to m eet th e ir e x te rn a l
d e b t o b lig atio n s on a tim ely basis becau se o f
a la c k of, o r re s tra in ts o n th e a v ailab ility of,
n eeded foreign ex ch an g e in th e c o u n try ;
an d
(2 ) th e te rm s o f th e existing lo an are
a m e n d e d to re d u c e sta te d in te re st o r ex te n d
th e sc h ed u le o f p ay m en ts; o r
(3 ) a new lo an is m a d e to, o r fo r th e b en e­
fit of, th e b o rro w e r, e n a b lin g th e b o rro w e r
to service o r refinance th e existing debt.
( h ) “ T ra n sfe r ris k ” m ean s th e possibility
th a t an asset c a n n o t be serviced in th e c u rre n ­
cy o f p a y m e n t b ecause o f a lack of, o r re ­
stra in ts on th e av ailab ility of, n eeded foreign
exchange in th e c o u n try o f th e obligor.

(b ) “ F e d e ra l b a n k in g agencies” m eans th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserve
System , th e C o m p tro lle r o f th e C u rre n c y , a n d
th e F e d e ra l D e p o sit In s u ra n c e C o rp o ra tio n .

SECTION 211.43—Allocated Transfer
Risk Reserve

(c ) “ In te rn a tio n a l assets” m ean s th o se assets
re q u ire d to be in c lu d ed in b a n k in g in s titu ­

( a ) Establishment o f allocated transfer risk
reserve. A b a n k in g in s titu tio n sh all estab lish




25

Regulation K

§211.43

(2 ) p ro sp e c ts fo r re s to re d asset
q u ality ; a n d
( 4 ) su ch o th e r fa c to rs as th e federal
b a n k in g agencies m ay c o n sid e r rele­
v an t to th e q u a lity o f th e asset.

an a llo c a te d tra n sfe r risk reserve ( A T R R ) for
specified in te rn a tio n a l assets w h en re q u ire d by
th e B o a rd in a c c o rd a n c e w ith th is section.

(b )

Procedures and standards.

(B ) T h e in itial y e a r’s p ro v isio n fo r th e
A T R R sh all be 10 p e rc e n t o f th e p rin ­
cipal a m o u n t o f e ach specified in te rn a ­
tio n a l asset, o r su ch g re a te r o r lesser

(1 ) Joint agency determination. A t least
an n u a lly , th e fed eral b a n k in g agencies shall
d e te rm in e jo in tly , based on th e s ta n d a rd s
set fo rth in s u b p a ra g ra p h ( b ) ( 2 ) o f th is
sectio n , th e follow ing:
(i) w h ich in te rn a tio n a l assets subject to
tra n sfe r risk w a rra n t esta b lish m e n t o f an

p e rc e n ta g e d e te rm in e d by th e federal
b a n k in g agencies. A d d itio n a l p ro v i­
sion, if any, fo r th e A T R R in su b se­
q u e n t y ears sh all be 15 p e rc e n t o f th e
p rin c ip a l a m o u n t o f e ach specified in ­
te rn a tio n a l asset, o r su ch g re a te r o r
lesser p e rc e n ta g e d e te rm in e d by th e
fed eral b a n k in g agencies.

ATRR;
(ii) th e a m o u n t o f th e A T R R fo r th e
specified assets; an d
(iii) w h e th e r an A T R R estab lish ed for
specified assets m ay be red u ced .

Standards for requiring ATRR.
( i ) Evaluation o f assets. T h e federal

(2 )

b a n k in g agencies shall a p p ly th e follow ­
ing c rite ria in d e te rm in in g w h e th e r an
A T R R is re q u ire d fo r p a rtic u la r in te rn a ­
tio n a l assets:
( A ) w h e th e r th e q u a lity o f a b a n k in g
in s titu tio n ’s assets h a s been im p a ire d
by a p ro tra c te d in ab ility o f p u b lic o r
p riv a te ob lig o rs in a foreign c o u n try to
m ak e p a y m e n ts on th e ir e x te rn a l in ­
d eb ted n e ss as in d ic a te d by su c h fac­
to rs, a m o n g o th ers, as w h e th e r—
(7 ) su c h obligors h av e failed to
m a k e full in te re st p a y m e n ts o n ex­
te rn a l indebtedness;
(2 ) su c h obligors h av e failed to
c o m p ly w ith th e te rm s o f an y re ­
stru c tu re d indebtedness; o r
( 2 ) a foreign c o u n try h a s failed to
c o m p ly w ith any In te rn a tio n a l M o n ­
e ta ry F u n d o r o th e r su itab le a d ju s t­
m e n t p ro g ra m ; o r
(B ) w h e th e r no definite p ro sp e c ts ex­
ist fo r th e o rd e rly re s to ra tio n o f debt
service.
(ii) Determination

o f amount o f ATRR.

( A ) In d e te rm in in g th e a m o u n t o f th e
A T R R , th e federal b a n k in g agencies
sh all c o n sid e r—
( 7 ) th e len g th o f tim e th e q u a lity o f
th e asset h as been im p aired ;
(2 ) recen t actio n s ta k e n to re sto re
d eb t-serv ice capability;

26



(3 ) Board notification. B ased o n th e jo in t
agency d e te rm in a tio n s u n d e r su b p a ra g ra p h
(1 ) o f th is p a ra g ra p h , th e B o a rd sh all n o ti­
fy each b a n k in g in s titu tio n h o ld in g assets
subject to an A T R R —
(i) o f th e a m o u n t o f th e A T R R to be
esta b lish e d by th e in s titu tio n fo r specified
in te rn a tio n a l assets; a n d
(ii) th a t an A T R R esta b lish e d fo r speci­
fied assets m ay be red u ced .
(c )

Accounting treatment o f ATRR.

(1 ) Charge to current income. A b a n k in g
in s titu tio n sh all estab lish a n A T R R by a
c h a rg e to c u rre n t in co m e a n d th e a m o u n ts
so c h a rg e d sh all n o t be in c lu d e d in th e
b a n k in g in s titu tio n ’s c a p ita l o r su rp lu s.
(2 ) Separate accounting. A b a n k in g in s ti­
tu tio n sh all a c c o u n t fo r an A T R R se p a ra te ­
ly fro m th e “ a llo w an c e fo r possible loan
losses,” a n d sh all d e d u c t th e A T R R fro m
“ gross loans a n d leases” to a rriv e a t “ net
loans a n d leases.” T h e A T R R m u s t be es­
tab lish ed fo r each asset subject to th e
A T R R in th e p e rc e n ta g e a m o u n t specified.
(3 ) Consolidation. A b a n k in g in s titu tio n
sh all establish an A T R R , as re q u ire d , o n a
c o n so lid a te d basis. F o r b a n k s, c o n so lid a ­
tio n sh o u ld be in a c c o rd a n c e w ith th e p ro ­
c e d u re s a n d tests o f significance set fo rth in
th e in s tru c tio n s fo r p re p a ra tio n o f C o n so li­
d a te d R e p o rts o f C o n d itio n a n d In c o m e
(F F I E C N os. 031, 032, 033 a n d 0 3 4 ). F o r
b a n k h o ld in g c o m p an ies, th e co n so lid a tio n
sh all be in a c c o rd a n c e w ith th e p rin cip les

Regulation K
set fo rth in th e in s tru c tio n s to th e B ank
H o ld in g C o m p a n y F in a n c ia l S u p p le m e n t to
R e p o rt F R Y -6 (F o rm F R Y -9 ). E dge a n d
ag re e m e n t c o rp o ra tio n s engaged in b an k in g
sh all re p o rt in a c c o rd a n c e w ith in s tru c tio n s
fo r p re p a ra tio n o f th e R e p o rt o f C o n d itio n
fo r E d g e a n d A g reem en t C o rp o ra tio n s
(F o r m F R 2 8 8 6 b ).
(4 ) Alternative accounting treatment. A
b a n k in g in stitu tio n need n o t estab lish an
A T R R if it w rites d o w n in th e p e rio d in
w h ich th e A T R R is req u ired , o r h a s w ritte n
d o w n in p rio r periods, th e value o f th e sp ec­
ified in te rn a tio n a l assets in th e re q u isite
a m o u n t fo r e ach su ch asset. F o r p u rp o se s o f
th is p a ra g ra p h , in te rn a tio n a l assets m ay be
w ritte n d o w n by a ch a rg e to th e allo w an c e
fo r possible loan losses o r a re d u c tio n in th e
p rin c ip a l a m o u n t o f th e asset by a p p lic a tio n
o f in te re st p a y m e n ts o r o th e r c o llectio n s on
th e asset. H ow ever, th e a llo w an c e fo r p o ssi­
ble loan losses m u st be re p len ish e d in su ch
a m o u n t n ecessary to re s to re it to a level
w h ich a d e q u a te ly provides fo r th e e s tim a t­
ed losses in h e re n t in th e b a n k in g in s titu ­
tio n ’s lo an portfolio.
( 5 ) Reduction o f ATRR. A b a n k in g in sti­
tu tio n m ay re d u c e an A T R R w hen notified
by th e B o a rd or, a t any tim e, by w ritin g
d o w n su ch a m o u n t o f th e in te rn a tio n a l a s­
set fo r w h ich th e A T R R w as estab lish ed .

SECTION 211.44— Reporting and
Disclosure of International Assets
( a ) Requirements.
(1 ) P u rs u a n t to section 9 0 7 (a ) o f th e I n ­
te rn a tio n a l L e n d in g S upervision A c t o f
1983 (title IX , P u b . L. 98-181, 97 S tat.
1153) (I L S A ), a b an k in g in s titu tio n sh all
su b m it to th e B o ard , at least q u a rte rly , in ­
fo rm a tio n re g a rd in g th e a m o u n ts a n d c o m ­
p o sitio n o f its h o ld in g s o f in te rn a tio n a l
assets.
(2 ) P u rs u a n t to section 9 0 7 (b ) o f IL S A , a
b a n k in g in stitu tio n shall su b m it to th e
B o ard in fo rm a tio n re g a rd in g c o n c e n tra ­
tio n s in its h o ld in g s o f in te rn a tio n a l assets
th a t are m a te ria l in re latio n to to ta l assets
a n d to cap ita l o f th e in stitu tio n , su ch in fo r­




§211.45
m a tio n to be m a d e p u b licly availab le by th e
B o a rd on request.
(b ) Procedures. T h e fo rm a t, c o n te n t a n d re ­
p o rtin g a n d filing d a te s o f th e re p o rts re q u ire d
u n d e r p a ra g ra p h ( a ) o f th is se ctio n sh all be
d e te rm in e d jo in tly by th e fed eral b a n k in g
agencies. T h e re q u ire m e n ts to be p rescrib ed
by th e agencies m ay in c lu d e ch an g es to e x ist­
ing re p o rtin g fo rm s (s u c h as th e C o u n try E x ­
p o su re R e p o rt, F o rm F F I E C N o . 0 0 9 ) o r
such o th e r re q u ire m e n ts as th e agencies deem
a p p ro p ria te . T h e agencies also m ay d e te rm in e
to ex e m p t fro m th e re q u ire m e n ts o f p a ra g ra p h
(a ) o f th is sectio n b a n k in g in s titu tio n s th a t, in
th e ag en cies’ ju d g m e n t, h av e de m in im is h o ld ­
ings o f in te rn a tio n a l assets.
( c ) Reservation o f authority. N o th in g c o n ­
ta in e d in th is ru le sh all p re c lu d e th e B o ard
fro m re q u irin g fro m a b a n k in g in stitu tio n
su ch a d d itio n a l o r m o re fre q u e n t in fo rm a tio n
on th e in s titu tio n ’s h o ld in g s o f in te rn a tio n a l
assets as th e B o ard m ay c o n sid e r necessary.

SECTION 211.45—Accounting for Fees
on International Loans
( a ) Restrictions on fees for restructured inter­
national loans. N o b a n k in g in s titu tio n shall
c h a rg e an y fee in co n n e c tio n w ith a re s tru c ­
tu re d in te rn a tio n a l lo an unless all fees exceed­
ing th e b a n k in g in s titu tio n ’s a d m in is tra tiv e
costs, as d escrib ed in su b sectio n ( c ) ( 2 ) o f th is
sectio n , a re d efe rre d a n d reco g n ized o v er th e
te rm o f th e loan as an in terest-y ield
a d ju stm e n t.
( b ) Amortizing fees. E x c e p t as o th e rw ise p ro ­
vided by th is section, fees received on in te rn a ­
tio n a l loans sh all be d e fe rre d a n d a m o rtiz e d
o v er th e term o f th e loan. T h e in te re st m e th o d
sh o u ld be used d u rin g th e lo an p e rio d to re c ­
ognize th e d efe rre d fee rev en u e in re la tio n to
th e o u ts ta n d in g loan b alance. I f it is n o t p ra c ­
ticab le to ap p ly th e in te re st m e th o d d u rin g th e
loan perio d , th e stra ig h t-lin e m e th o d sh all be
used.
( c ) Accounting treatment o f international
loan or syndication administrative costs and
corresponding fees.
(1 ) A d m in istra tiv e co sts o f o rig in a tin g , re-

27

§ 211.45
stru c tu rin g o r sy n d icatin g an in te rn a tio n a l
loan sh all be expensed as in c u rre d . A p o r­
tio n o f th e fee in co m e eq u al to th e b an k in g
in s titu tio n ’s a d m in istra tiv e co sts m ay be
reco g n ized as incom e in th e sam e period
su ch c o sts a re expensed.
(2 ) T h e a d m in istra tiv e co sts o f o rig in a t­
ing, re s tru c tu rin g , o r sy n d ic a tin g an in te r­
n a tio n a l lo an in clu d e th o se co sts w h ich are
specifically identified w ith n eg o tiatin g , p ro ­
cessing a n d c o n su m m a tin g th e loan. T hese
co sts in clu d e, b u t are n o t n ecessarily lim it­
ed to: legal fees; costs o f p re p a rin g a n d p ro ­
cessing lo an d o cu m en ts; a n d an allocable
p o rtio n o f salaries a n d re la te d benefits o f
em ployees engaged in th e in te rn a tio n a l
len d in g fu n c tio n and, w h ere ap p licab le, th e
sy n d ic a tio n fu nction. N o p o rtio n o f su p e r­
visory a n d a d m in istra tiv e expenses o r o th e r
in d ire c t expenses such as o c c u p a n c y an d
o th e r sim ila r o v e rh e a d co sts sh all be
in clu d ed .
( d ) Fees received by managing banking insti­
tutions in an international syndicated loan.
Fees received on in te rn a tio n a l sy n d ic a te d
lo an s re p re se n tin g an a d ju stm e n t o f th e yield
on th e lo a n sh all be reco g n ized o v er th e loan
p erio d u sing th e in te re st m e th o d . I f th e in te r­
est-yield p o rtio n o f a fee received on an in te r­
n a tio n a l sy n d ic a te d loan by a m a n a g in g b a n k ­
ing in s titu tio n is u n sta te d o r differs m a te ria lly
fro m th e p ro ra ta p o rtio n o f fees p a id o th e r
p a rtic ip a n ts in th e sy n d icatio n , an a m o u n t
n ecessary fo r an in terest-y ield a d ju stm e n t
sh all be recognized. T h is a m o u n t sh all a t least
be e q u iv alen t (o n a p ro ra ta b asis) to th e la rg ­
est fee received by a loan p a rtic ip a n t in th e
sy n d ic a tio n th a t is not a m an ag in g b an k in g
in s titu tio n . T h e rem ain in g p o rtio n o f th e sy n ­
d ic a tio n fee m ay be recognized as in co m e at
th e loan closing d a te to th e e x ten t th a t it is
identified a n d d o c u m e n te d as c o m p e n sa tio n

28




Regulation K
fo r services in a rra n g in g th e loan. S uch d o c u ­
m e n ta tio n sh all in clu d e th e lo an ag reem en t.
O th erw ise, th e fee sh all be d eem e d an a d ju s t­
m e n t o f yield.
(e ) Loan-commitment fees.
(1 ) F ees w h ich a re b a se d u p o n th e u n fu n d ­
ed p o rtio n o f a c re d it fo r th e p erio d u n til it
is d ra w n a n d re p re se n t c o m p e n sa tio n fo r a
b in d in g c o m m itm e n t to p ro v id e fu n d s o r
for re n d e rin g a service in issuing th e c o m ­
m itm e n t sh all be reco g n iz e d as in co m e over
th e te rm o f th e c o m m itm e n t p e rio d using
th e stra ig h t-lin e m e th o d o f a m o rtiz a tio n .
S uch fees fo r rev o lv in g -c re d it a rra n g e ­
m en ts, w h ere th e fees a re received p e rio d i­
cally in a rre a rs a n d a re based on th e
a m o u n t o f th e u n u se d lo an c o m m itm e n t,
m ay be reco g n ized as in co m e w h en received
p ro v id ed th e in co m e re su lt w o u ld n o t be
m a te ria lly different.
(2 ) I f it is n o t p ra c tic a b le to se p a ra te th e
c o m m itm e n t p o rtio n fro m o th e r c o m p o ­
n e n ts o f th e fee, th e e n tire fee sh all be a m o r­
tized o v er th e te rm o f th e c o m b in ed c o m ­
m itm e n t a n d ex p ected lo a n p eriod. T h e
stra ig h t-lin e m e th o d o f a m o rtiz a tio n sh o u ld
be used d u rin g th e c o m m itm e n t p e rio d to
reco g n ize th e fee revenue. T h e in te re st
m e th o d sh o u ld be u sed d u rin g th e lo an p e­
rio d to reco g n ize th e re m a in in g fee rev en u e
in rela tio n to th e o u ts ta n d in g lo an balance.
I f th e lo an is fu n d e d before th e en d o f th e
c o m m itm e n t p erio d , a n y u n a m o rtiz e d c o m ­
m itm e n t fees sh all be reco g n ized as rev en u e
at th a t tim e.
(f) Agency fees. F ees p a id to an ag en t b a n k ­
ing in s titu tio n fo r a d m in is tra tiv e services in
an in te rn a tio n a l sy n d ic a te d lo an sh all be re c ­
o g nized a t th e tim e o f th e loan closing o r as
th e service is p e rfo rm e d , if later.

Statutory Provisions

FED ER A L RESERVE A CT
S E C T IO N 25— F o r e i g n B r a n c h e s

1. Capital and Surplus Required to Exercise
Powers
A n y n a tio n a l b a n k in g asso ciatio n possessing a
c a p ita l a n d su rp lu s o f $1,000,000 o r m o re m ay
file a p p lic a tio n w ith th e B o a rd o f G o v e rn o rs
o f th e F e d e ra l R eserv e S ystem fo r p erm issio n
to exercise, u p o n su c h c o n d itio n s a n d u n d e r
su c h re g u la tio n s as m ay be p re sc rib e d by th e
said b o a rd , th e follow ing pow ers:
[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).]

rectly, sto c k o r o th e r evidences o f o w n e rsh ip
in o n e o r m o re b a n k s o rg a n iz e d u n d e r th e law
o f a foreign c o u n try o r a d e p e n d e n c y o r in s u ­
la r possession o f th e U n ite d S tates a n d n o t
engaged, d ire c tly o r in d ire c tly , in a n y activ ity
in th e U n ite d S tates ex cep t as, in th e ju d g m e n t
o f th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e ­
serve System , sh all be in c id e n ta l to th e in te r­
n a tio n a l o r foreign b u sin ess o f su c h foreign
ban k ; a n d , n o tw ith sta n d in g th e p ro v isio n s o f
section 23 A o f th is A c t, to m a k e lo a n s o r ex­
ten sio n s o f c re d it to o r fo r th e a c c o u n t o f su ch
b a n k in th e m a n n e r a n d w ith in th e lim its p re ­
scrib ed by th e B o a rd by g en eral o r specific
re g u la tio n o r ru lin g .
[12 USC 601. As added by act of July 1, 1966 (80 Stat.
241).]

2. Establishment o f Foreign Branches
F irst. T o estab lish b ra n c h e s in foreign c o u n ­
trie s o r d ep en d en cies o r in s u la r possessions o f
th e U n ite d S tates fo r th e fu rth e ra n c e o f th e
foreign c o m m e rc e o f th e U n ite d S tates, a n d to
a c t if re q u ire d to d o so as fiscal a g en ts o f th e
U n ite d States.
[12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat.
755), which completely revised this section.]

3. Purchase o f Stock in Corporations Engaged
in Foreign Banking
S econd. T o invest a n a m o u n t n o t exceeding in
th e ag g reg ate te n p e r c e n tu m o f its p aid -in
c a p ita l sto c k a n d su rp lu s in th e sto c k o f one
o r m o re b a n k s o r c o rp o ra tio n s c h a rte re d o r
in c o rp o ra te d u n d e r th e law s o f th e U n ite d
S tates o r o f a n y S tate th ereo f, a n d p rin c ip a lly
engaged in in te rn a tio n a l o r foreign b a n k in g ,
o r b a n k in g in a d ep e n d e n c y o r in s u la r posses­
sion o f th e U n ite d S tates e ith e r d ire c tly o r
th ro u g h th e agency, o w n ersh ip , o r c o n tro l o f
local in s titu tio n s in foreign c o u n trie s, o r in
su c h d ep en d en cies o r in s u la r possessions.
[12 USC 601. As added by act of Sept. 7, 1916 (39 Stat.
755), which completely revised this section.]

5. Right o f National Banks to Invest in
Foreign Banking Corporations until January 1,
1921
U n til J a n u a ry 1, 1921, a n y n a tio n a l b a n k in g
asso ciatio n , w ith o u t re g a rd to th e a m o u n t o f
its c a p ita l a n d su rp lu s, m a y file a p p lic a tio n
w ith th e B o a rd o f G o v e rn o rs o f th e F e d e ra l
R eserv e S ystem fo r p erm issio n , u p o n su ch
c o n d itio n s a n d u n d e r su c h re g u la tio n s as m ay
be p re sc rib e d by said b o a rd , to invest an
a m o u n t n o t ex ceed in g in th e ag g reg ate 5 p e r
c e n tu m o f its p a id -in c a p ita l a n d su rp lu s in
th e sto c k o f o n e o r m o re c o rp o ra tio n s c h a r­
te re d o r in c o rp o ra te d u n d e r th e law s o f th e
U n ite d S tates o r o f a n y S tate th e re o f a n d , re ­
gardless o f its lo c a tio n , p rin c ip a lly eng ag ed in
su c h p h ases o f in te rn a tio n a l o r foreign fin an ­
cial o p e ra tio n s as m a y be necessary to facili­
ta te th e e x p o rt o f goods, w ares, o r m e rc h a n ­
dise fro m th e U n ite d S tates o r a n y o f its
d ep en d en cies o r in s u la r possessions to an y
foreign c o u n try : Provided, however, T h a t in no
event sh all th e to ta l in v e stm e n ts a u th o riz e d
by th is sectio n by a n y o n e n a tio n a l b a n k ex­
ceed 10 p e r c e n tu m o f its c a p ita l a n d su rp lu s.

4. Acquisition o f Ownership o f Foreign Banks
T h ird . T o a c q u ire a n d h o ld , d ire c tly o r in d i­




[12 USC 601. As added by act of Sept. 17, 1919 (41 Stat.
285). This paragraph, by its terms, is now obsolete.]

29

Regulation K

Statutory Provisions
6. Application for Permission to Exercise
Powers
S uch a p p lic a tio n sh all specify th e n am e a n d
c ap ital o f th e b a n k in g asso ciatio n filing it, th e
pow ers ap p lied for, an d th e place o r places
w h ere th e b a n k in g o r financial o p e ra tio n s p ro ­
posed a re to be c a rrie d on. T h e B o ard o f G o v ­
e rn o rs o f th e F e d e ra l R eserv e System shall
h av e p o w er to a p p ro v e o r to reject su ch a p p li­
catio n in w hole o r in p a rt if fo r any reaso n th e
g ra n tin g o f such a p p lic a tio n is deem ed in e x p e ­
d ien t, a n d sh all also have po w er fro m tim e to
tim e to in crease o r decrease th e n u m b e r o f
places w h ere su ch b a n k in g o p e ra tio n s m ay be
c a rrie d 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).]

7.

Examinations and Reports o f Condition

E very n a tio n a l b a n k in g asso ciatio n o p e ra tin g
foreign b ra n c h e s sh all be re q u ire d to fu rn ish
in fo rm a tio n c o n c e rn in g th e c o n d itio n s o f such
b ra n c h e s to th e C o m p tro lle r o f th e C u rre n c y
u p o n d e m a n d , a n d every m e m b e r b a n k in v e st­
ing in th e c a p ita l sto ck o f b a n k s o r c o rp o ra ­
tio n s d escrib ed above shall be re q u ire d to fu r­
nish in fo rm a tio n co n c e rn in g th e c o n d itio n o f
su ch b a n k s o r c o rp o ra tio n s to th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserve System
up o n d e m a n d , a n d th e B o ard o f G o v e rn o rs o f
th e F e d e ra l R eserv e S ystem m ay o rd e r special
e x a m in a tio n s o f th e said b ra n c h e s, b an k s, o r
c o rp o ra tio n s a t su c h tim e o r tim es as it m ay
deem best.
[12 USC 602. As amended by act of Sept. 7, 1916 (39 Stat.
755). which completely revised this section; and by act of
Sept. 17, 1919 (41 Stat. 286).]

8. Agreement to Restrict Operations
B efore an y n a tio n a l b an k sh all be p e rm itte d to
p u rc h a se sto c k in an y su ch c o rp o ra tio n th e
said c o rp o ra tio n sh all en te r in to an a g reem en t
o r u n d e rta k in g w ith th e B o ard o f G o v e rn o rs
o f th e F e d e ra l R eserv e System to re s tric t its
o p e ra tio n s o r c o n d u c t its b usiness in such
m a n n e r o r u n d e r su ch lim ita tio n s a n d re s tric ­
tio n s as th e said b o a rd m ay p re sc rib e fo r th e
place o r places w h erein su ch b usiness is to be
c o n d u c te d . I f at an y tim e th e B o a rd o f G o v er30




n o rs o f th e F e d e ra l R eserv e System sh all a s­
c e rta in th a t th e re g u la tio n s p rescrib ed by it
are no t being co m p lie d w ith , said b o a rd is
hereby a u th o riz e d a n d em p o w e re d to in s titu te
an in v estig atio n o f th e m a tte r a n d to send fo r
perso n s a n d p ap ers, su b p o e n a w itnesses, a n d
a d m in is te r o a th s in o rd e r to satisfy itse lf as to
th e a c tu a l n a tu re o f th e tra n s a c tio n s referred
to. S h o u ld su ch in v estig atio n re su lt in e sta b ­
lishing th e failu re o f th e c o rp o ra tio n in q u e s­
tio n , o r o f th e n a tio n a l b a n k o r b a n k s w h ich
m ay be sto c k h o ld e rs th e re in , to co m p ly w ith
th e re g u la tio n s laid do w n by th e said B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserv e System ,
such n a tio n a l b a n k s m ay be re q u ire d to d is­
pose o f sto c k h o ld in g s in th e said c o rp o ra tio n
u p o n re a so n a b le notice.
[12 USC 603. Added by act of Sept. 7, 1916 (39 Stat. 755),
which completely revised this section.]

9. Accounts o f Foreign Branches
E v ery n a tio n a l b a n k in g asso c ia tio n o p e ra tin g
foreign b ra n c h e s sh all c o n d u c t th e a c c o u n ts o f
each foreign b ra n c h in d e p e n d e n tly o f th e a c ­
c o u n ts o f o th e r foreign b ra n c h e s estab lish ed
by it a n d o f its h o m e office, a n d sh all a t th e
e n d o f each fiscal p e rio d tra n s fe r to its gen eral
ledger th e profit o r loss a c c ru e d a t each
b ra n c h as a se p a ra te item .
[12 USC 604. As amended by act of Sept. 7, 1916 (39 Stat.
755), which completely revised this section.]

10. Additional Banking Powers Authorized
R e g u la tio n s issued by th e B o a rd o f G o v e rn o rs
o f th e F e d e ra l R eserv e S ystem u n d e r th is sec­
tio n , in a d d itio n to re g u la tin g p o w ers w h ich a
foreign b ra n c h m ay exercise u n d e r o th e r p ro ­
visions o f law , m ay a u th o riz e su ch a foreign
b ra n c h , subject to su ch c o n d itio n s a n d re ­
q u ire m e n ts as su ch re g u la tio n s m a y p rescrib e,
to exercise su ch fu rth e r p ow ers as m ay be u s u ­
al in co n n e c tio n w ith th e tra n sa c tio n o f th e
b usiness o f b a n k in g in th e places w h ere su c h
foreign b ra n c h sh all tra n s a c t business. S uch
re g u la tio n s sh all n o t a u th o riz e a foreign
b ra n c h to engage in th e g en eral b usiness o f
p ro d u c in g , d is trib u tin g , b u y in g o r selling
goods, w ares, o r m e rc h a n d ise ; n o r, ex cep t to
su ch lim ited e x ten t as th e B o a rd m ay deem to
be n ecessary w ith resp ect to secu rities issued

Regulation K
by an y “ foreign sta te ” as defined in section
2 5 (b ) o f th is A c t, shall su c h re g u la tio n s a u ­
th o riz e a foreign b ra n c h to engage o r p a rtic i­
p ate, d ire c tly o r in d irectly , in th e b usiness
o f u n d e rw ritin g , selling, o r d istrib u tin g
securities.
[12 USC 604a. As added by act o f Aug. 15, 1962 (76 Stat.
388).]

SECTION 25(a)—Banking
Corporations Authorized to Do Foreign
Banking Business
1. Organization
C o rp o ra tio n s to be o rg a n iz e d fo r th e p u rp o se
o f en gaging in in te rn a tio n a l o r foreign b a n k ­
ing o r o th e r in te rn a tio n a l o r foreign financial
o p e ra tio n s, o r in b a n k in g o r o th e r financial
o p e ra tio n s in a d ep en d en cy o r in s u la r p osses­
sion o f th e U n ite d S tates, e ith e r d ire c tly o r
th ro u g h th e agency, o w n ersh ip , o r c o n tro l o f
local in s titu tio n s in foreign co u n trie s, o r in
su ch d ep en d en cies o r in s u la r possessions as
p ro v id e d by th is section, a n d to a c t w h en re ­
q u ire d by th e S ecretary o f th e T re a su ry as fis­
cal a g en ts o f th e U n ite d S tates, m ay be fo rm ed
by an y n u m b e r o f n a tu ra l p ersons, n o t less in
an y case th a n five: Provided, T h a t n o th in g in
th is sectio n sh all be c o n stru e d to d en y th e
rig h t o f th e S e c re ta ry o f th e T re a su ry to use
an y c o rp o ra tio n o rg a n iz e d u n d e r th is section
as d e p o sita rie s in P a n a m a a n d th e P a n a m a
C a n a l Z one, o r in th e P h ilip p in e Is la n d s a n d
o th e r in s u la r possessions a n d d ep en d en cies o f
th e U n ite d S tates.
T h e co n g ress h ereb y d ecla res th a t it is th e
p u rp o se o f th is section to p ro v id e fo r th e es­
ta b lish m e n t o f in te rn a tio n a l b a n k in g a n d fi­
n a n c ia l c o rp o ra tio n s o p e ra tin g u n d e r F e d e ra l
su p erv isio n w ith pow ers sufficiently b ro a d to
en ab le th e m to c o m p ete effectively w ith sim i­
la r foreig n -o w n ed in s titu tio n s in th e U n ite d
S tates a n d ab ro a d ; to afford to th e U n ite d
S tates e x p o rte r a n d im p o rte r in p a rtic u la r,
a n d to U n ite d S tates co m m erce, in d u s try , a n d
a g ric u ltu re in general, at all tim es a m ean s o f
financing in te rn a tio n a l tra d e , especially U n it­
ed S tates ex p o rts; to fo ster th e p a rtic ip a tio n
by reg io n al a n d sm aller b a n k s th ro u g h o u t th e
U n ite d S tates in th e pro v isio n o f in te rn a tio n a l




Statutory Provisions
b a n k in g a n d fin an cin g services to all seg m en ts
o f U n ite d S tates a g ric u ltu re , c o m m erce, a n d
in d u stry , a n d , in p a rtic u la r sm all b usiness a n d
fa rm in g co n cern s; to stim u la te c o m p e titio n in
th e p ro v isio n o f in te rn a tio n a l b a n k in g a n d fi­
n a n c in g services, th r o u g h o u t th e U n ite d
S tates; an d , in c o n ju n c tio n w ith e ach o f th e
p reced in g p u rp o ses, to fac ilita te a n d stim u la te
th e e x p o rt o f U n ite d S ta te d goods, w ares,
m e rc h a n d ise , co m m o d itie s, a n d services to
achieve a so u n d U n ite d S tates in te rn a tio n a l
tra d e po sitio n . T h e B o a rd o f G o v e rn o rs o f th e
F e d e ra l R eserv e S ystem sh all issue ru le s a n d
re g u la tio n s u n d e r th is sectio n c o n siste n t w ith
a n d in fu rth e ra n c e o f th e p u rp o se s d escrib ed
in th e p reced in g sen ten ce, a n d , in a c c o rd a n c e
th e re w ith , sh a ll review a n d revise a n y su ch
ru les a n d re g u la tio n s a t least o n ce every five
years, th e first su c h p e rio d co m m e n c in g w ith
th e effective d a te o f ru le s a n d re g u la tio n s is­
sued p u rs u a n t to sectio n 3 ( a ) o f th e In te rn a ­
tio n a l B an k in g A c t o f 1978, in o rd e r to e n su re
th a t su c h p u rp o se s a re being served in lig h t o f
p re v ailin g eco n o m ic c o n d itio n s a n d b a n k in g
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. Articles o f Association
S uch p e rso n s sh all e n te r in to artic le s o f asso ci­
a tio n w h ich sh all specify in g en eral te rm s th e
objects fo r w h ic h th e asso c ia tio n is fo rm ed
a n d m ay c o n ta in a n y o th e r p ro v isio n s n o t in ­
co n siste n t w ith law w h ic h th e asso c ia tio n m ay
see fit to a d o p t fo r th e re g u la tio n o f its b u si­
ness a n d th e c o n d u c t o f its affairs.
[12 USC 612. As added by act of Dec. 24, 1919 (41 Stat.
378).]

3. Execution o f Articles o f Association;
Contents o f Organization Certificate
S uch artic le s o f asso c ia tio n sh all be signed by
all o f th e p erso n s in te n d in g to p a rtic ip a te in
th e o rg a n iz a tio n o f th e c o rp o ra tio n and,
th e re a fte r, sh all be fo rw a rd e d to th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserv e System a n d
31

Statutory Provisions
sh all be filed a n d p reserved in its office. T h e
p erso n s signing th e said articles o f asso ciatio n
shall, u n d e r th e ir h an d s, m ak e an o rg a n iz a ­
tio n certificate w h ic h shall specifically state:
F irst. T h e n a m e assu m ed by su ch c o rp o ra ­
tio n , w h ich sh all be subject to th e a p p ro v a l o f
th e B o ard o f G o v e rn o rs o f th e F e d e ra l R e ­
serve System .
Second. T h e p lace o r places w h ere its o p e r­
a tio n s are to be c a rrie d on.
T h ird . T h e p lace in th e U n ite d S tates w h ere
its h o m e office is to be located.
F o u rth . T h e a m o u n t o f its c a p ita l sto c k a n d
th e n u m b e r o f sh a re s in to w h ich th e sam e
sh all be divided.
F ifth . T h e n am es a n d places o f b u sin ess o r
resid en ce o f th e p e rso n s e x ecu tin g th e certifi­
ca te a n d th e n u m b e r o f sh ares to w h ich each
h as su b scrib ed .
S ixth. T h e fact th a t th e certificate is m a d e
to enable th e p erso n s sub scrib in g th e sam e,
a n d all o th e r p erso n s, firm s, co m p an ies, a n d
c o rp o ra tio n s, w ho o r w hich m ay th e re a fte r
su b scrib e to o r p u rc h a se sh a re s o f th e c a p ita l
sto c k o f su c h c o rp o ra tio n , to avail them selves
o f th e a d v a n ta g e s o f this section.
[12 USC 613. As added by act of Dec. 24, 1919 (41 Stat.
379).]

4. Filing Organization Certificate; Issuance o f
Permit
T h e p erso n s signing th e o rg a n iz a tio n c ertifi­
c a te sh all d u ly ack now ledge th e e x ecu tio n
th e re o f b efore a ju d g e o f som e c o u rt o f re c o rd
o r n o ta ry p ublic, w h o shall certify th e re to u n ­
d e r th e seal o f su ch c o u rt o r n o ta ry , a n d
th e re a fte r th e certificate sh all be fo rw a rd e d to
th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e ­
serve S ystem to be filed a n d p reserv ed in its
office. U p o n d u ly m ak in g a n d filing artic le s o f
asso ciatio n a n d an o rg a n iz a tio n certificate,
a n d a fte r th e B o a rd o f G o v e rn o rs o f th e F e d ­
e ral R eserv e S ystem has ap p ro v e d th e sam e
a n d issued a p e rm it to begin business, th e as­
so ciatio n sh all beco m e a n d be a b o d y c o rp o ­
ra te , a n d as su c h a n d in th e n am e d e sig n ated
th e re in sh all h av e po w er to a d o p t a n d use a
c o rp o ra te seal, w h ic h m ay be c h a n g e d a t th e
p le a su re o f its b o a rd o f d ire c to rs; to h av e su c ­
cession fo r a p erio d o f tw e n ty y ears unless
so o n e r dissolved by th e act o f th e sh a re h o ld e rs
32




Regulation K
o w n in g tw o -th ird s o f th e sto c k o r by an A c t o f
C o n g ress o r unless its fra n c h ise s b ecom e fo r­
feited by som e v io latio n o f law ; to m a k e c o n ­
tra c ts; to sue a n d be sued, co m p la in , a n d d e ­
fend in an y c o u rt o f law o r eq u ity ; to elect o r
a p p o in t d ire c to rs; a n d , by its b o a rd o f d ire c ­
to rs, to a p p o in t su ch officers a n d em ployees as
m ay be deem e d p ro p e r, define th e ir a u th o rity
a n d d u ties, re q u ire b o n d s o f th e m , a n d fix th e
p e n a lty th e re o f, dism iss su c h officers o r e m ­
ployees, o r a n y th ereo f, a t p le a su re a n d a p ­
p o in t o th e rs to fill th e ir places; to prescribe,
by its b o a rd o f d ire c to rs, b y -law s n o t in c o n ­
siste n t w ith law o r w ith th e re g u la tio n s o f th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserve
S ystem re g u la tin g th e m a n n e r in w h ic h its
sto c k sh all be tra n sfe rre d , its d ire c to rs elected
o r a p p o in te d , its officers a n d em ployees a p ­
p o in ted , its p ro p e rty tra n sfe rre d , a n d th e p riv ­
ileges g ra n te d to it by law exercised a n d
enjoyed.
[12 USC 614. As added by act of Dec. 24, 1919 (41 Stat.
379) and Sept. 17, 1978 (92 Stat. 609).]

5. Powers; Regulations o f Board o f Governors
o f the Federal Reserve System
E a c h c o rp o ra tio n so o rg a n iz e d sh all have
p ow er, u n d e r su c h ru les a n d re g u la tio n s as th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserv e
S ystem m a y prescribe:
[12 USC 615. As added by act of Dec. 24, 1919 (41 Stat.
379).]

6. Banking Powers
( a ) T o p u rc h a se , sell, d isc o u n t, a n d n e g o ti­
ate, w ith o r w ith o u t its in d o rse m e n t o r g u a r­
a n ty , notes, d ra fts, ch ecks, bills o f exchange,
a ccep tan ces, in c lu d in g b a n k e rs ’ accep tan ces,
cable tra n sfe rs, a n d o th e r evidences o f in d e b t­
edness; to p u rc h a s e a n d sell w ith o r w ith o u t
its in d o rse m e n t o r g u a ra n ty , secu rities, in ­
clu d in g th e o b lig atio n s o f th e U n ite d S tates o r
o f any S tate th e re o f b u t n o t in c lu d in g sh a re s
o f sto ck in any c o rp o ra tio n except as h erein
pro v id ed ; to a c cep t bills o r d ra fts d ra w n u p o n
it subject to su ch lim ita tio n s a n d re stric tio n s
as th e B o ard o f G o v e rn o rs o f th e F e d e ra l R e ­
serve System m ay im pose; to issue le tte rs o f
cred it; to p u rc h a s e a n d sell coin, b u llio n , a n d
exchange; to b o rro w a n d to len d m oney; to

Regulation K
issue d e b e n tu re s, b o n d s, a n d p ro m isso ry notes
u n d e r su ch gen eral c o n d itio n s as to secu rity
a n d su c h lim ita tio n s as th e B o a rd o f G o v e r­
n o rs o f th e F e d e ra l R eserve S ystem m ay p re ­
scribe; to receive d ep o sits o u tsid e o f th e U n it­
ed S tates a n d to receive o n ly su ch d ep o sits
w ith in th e U n ite d S tates as m ay be in c id e n ta l
to o r fo r th e p u rp o se o f c a rry in g o u t tra n s a c ­
tio n s in foreign c o u n trie s o r d ep en d en cies o r
in s u la r possessions o f th e U n ite d States; a n d
g en erally to exercise such p o w ers as a re in c i­
d e n ta l to th e p o w ers c o n fe rre d by th is A c t o r
as m ay be u su al, in th e d e te rm in a tio n o f th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserv e
System , in c o n n e c tio n w ith th e tra n s a c tio n o f
th e b usiness o f b a n k in g o r o th e r financial o p ­
e ra tio n s in th e co u n tries, colonies, d e p e n d e n ­
cies, o r possessions in w hich it sh all tra n s a c t
b usiness a n d n o t in c o n siste n t w ith th e p ow ers
specifically g ra n te d herein. N o th in g c o n ta in e d
in th is sectio n sh all be c o n stru e d to p ro h ib it
th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e ­
serve S ystem , u n d e r its p o w e r to p rescrib e
ru le s a n d re g u la tio n s, from lim itin g th e a g g re ­
g ate a m o u n t o f liabilities o f a n y o r all classes
in c u rre d by th e c o rp o ra tio n a n d o u ts ta n d in g
a t a n y on e tim e. W h en ev er a c o rp o ra tio n o r ­
gan ize d u n d e r th is section receives d e p o sits in
th e U n ite d S tates a u th o riz e d by th is sectio n it
sh all c a rry reserves in su c h a m o u n ts as th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserv e
S ystem m ay p rescrib e for m e m b e r b a n k s o f
th e F e d e ra l R eserv e System .
[12 USC 615(a). As added by act of Dec. 24, 1919 (41
Stat. 379); and amended by act of Sept. 17, 1978 (92 Stat.
609).]

7.

Statutory Provisions
8. Ownership o f Stock in Other Corporations
( c ) W ith th e co n se n t o f th e B o a rd o f G o v e r­
n o rs o f th e F e d e ra l R eserv e S ystem to p u r­
c h ase a n d h o ld sto c k o r o th e r certificates o f
o w n e rsh ip in an y o th e r c o rp o ra tio n o rg a n iz e d
u n d e r th e p ro v isio n s o f th is sectio n , o r u n d e r
th e law s o f an y foreign c o u n try o r a co lo n y o r
d e p e n d e n c y th ereo f, o r u n d e r th e law s o f any
S tate, dep en d en cy , o r in s u la r possession o f th e
U n ite d S tates b u t n o t en g ag ed in th e gen eral
b usiness o f b u y in g o r selling goods, w ares,
m e rc h a n d ise o r co m m o d itie s in th e U n ite d
S tates, a n d n o t tra n s a c tin g an y b usiness in th e
U n ite d S tates ex cep t su c h as in th e ju d g m e n t
o f th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e ­
serve S ystem m ay be in c id e n ta l to its in te rn a ­
tio n a l o r foreign business: Provided, however,
T h a t, ex cep t w ith th e a p p ro v a l o f th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserv e System , no
c o rp o ra tio n o rg a n iz e d h e re u n d e r sh all invest
in a n y o n e c o rp o ra tio n a n a m o u n t in excess o f
10 p e r c e n tu m o f its ow n c a p ita l a n d su rp lu s,
ex cep t in a c o rp o ra tio n engaged in th e b u si­
ness o f b a n k in g , w h en 15 p e r c e n tu m o f its
c a p ita l a n d su rp lu s m a y be so invested: Pro­
vided further, T h a t n o c o rp o ra tio n o rg a n iz e d
h e re u n d e r sh all p u rc h a se , ow n, o r h o ld sto ck
o r certificates o f o w n e rsh ip in an y o th e r c o r­
p o ra tio n o rg a n iz e d h e re u n d e r o r u n d e r th e
law s o f a n y S tate w h ich is in su b s ta n tia l c o m ­
p e titio n th e re w ith , o r w h ich h o ld s sto c k o r
certificates o f o w n e rsh ip in c o rp o ra tio n s
w h ich a re in su b s ta n tia l c o m p e titio n w ith th e
p u rc h a s in g c o rp o ra tio n .
[12 USC 615(c). As added by act of Dec. 24, 1919 (41
Stat. 380).]

Branches

(b ) T o estab lish a n d m a in ta in fo r th e tr a n s ­
a c tio n o f its b usiness b ra n c h e s o r agencies in
foreign co u n trie s, th e ir dep en d en cies o r co lo ­
nies, a n d in th e d ep en d en cies o r in s u la r p o s­
sessions o f th e U n ite d S tates, a t su ch places as
m ay be ap p ro v e d by th e B o a rd o f G o v e rn o rs
o f th e F e d e ra l R eserv e System a n d u n d e r such
ru les a n d re g u la tio n s as it m ay p rescrib e, in ­
clu d in g c o u n trie s o r dep en d en cies n o t speci­
fied in th e o rig in al o rg a n iz a tio n certificate.
[12 USC 615(b). As added by act of Dec. 24, 1919 (41
Stat. 379).]




9. Purchase o f Stock to Prevent Loss on Debt
Previously Contracted
N o th in g co n ta in e d h erein sh all p re v e n t c o rp o ­
ra tio n s o rg an ized h e re u n d e r fro m p u rc h a sin g
a n d h o ld in g sto ck in a n y c o rp o ra tio n w h ere
su ch p u rc h a se sh all be n ecessary to p re v e n t a
loss u p o n a d eb t p rev io u sly c o n tra c te d in good
faith ; a n d sto c k so p u rc h a s e d o r a c q u ire d in
c o rp o ra tio n s o rg a n iz e d u n d e r th is section
sh all w ith in six m o n th s fro m such p u rc h a se be
sold o r disp o sed o f a t pu b lic o r p riv a te sale
unless th e tim e to so d isp o se o f sam e is ex­

33

Regulation K

Statutory Provisions
te n d e d by th e B o ard o f G o v e rn o rs o f th e F e d ­
eral R eserv e System .
[12 USC 615(c). As added by act of Dec. 24, 1919 (41
Stat. 380).]

10. Restrictions on Business in United Sates
N o c o rp o ra tio n o rg an ized u n d e r th is section
sh all c a rry o n an y p a rt o f its b usiness in th e
U n ite d S ta te s except such as, in th e ju d g m e n t
o f th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e ­
serve S ystem , sh all be in c id e n ta l to its in te rn a ­
tio n a l o r foreign business: And provided fu r­
ther, T h a t except su ch as is in c id e n ta l a n d
p re lim in a ry to its o rg a n iz a tio n n o su c h c o rp o ­
ra tio n sh all exercise any o f th e p o w ers c o n ­
fe rre d by th is section u n til it h as been d u ly
a u th o riz e d by th e B o ard o f G o v e rn o rs o f th e
F e d e ra l R eserv e S ystem to c o m m en ce b u si­
ness as a c o rp o ra tio n o rg an ized u n d e r th e p ro ­
visions o f th is section.
[12 USC 616. As added by act of Dec. 24, 1919 (41 Stat.
381).]

11. Corporation Trading in Commodities or
Attempting to Control Prices
N o c o rp o ra tio n o rg an ized u n d e r th is section
sh all engage in c o m m erce o r tra d e in c o m ­
m o d ities except as specifically p ro v id e d in th is
section, n o r sh all it e ith e r d ire c tly o r in d ire c t­
ly c o n tro l o r fix o r a tte m p t to c o n tro l o r fix
th e p rice o f an su c h co m m o d ities. T h e c h a rte r
o f an y c o rp o ra tio n vio latin g th is provision
sh all be su b ject to fo rfeitu re in th e m a n n e r
h e re in a fte r p ro v id e d in th is section. It sh all be
u n law fu l fo r an y d ire c to r, officer, a g en t, o r
em ployee o f an y su ch c o rp o ra tio n to use o r to
co n sp ire to use th e credit; th e fu n d s, o r th e
p o w er o f th e c o rp o ra tio n to fix o r c o n tro l th e
p rice o f an y such co m m o d ities, a n d an y such
p erso n v io latin g th is provision sh all be liable
to a fine o f n o t less th a n $1,000 a n d n o t ex­
ceeding $5,000 o r im p riso n m e n t n o t less th a n
one y e a r a n d n o t exceeding five years, o r b o th ,
in th e d isc re tio n o f th e c o u rt.
[12 USC 617. As added by act of Dec. 24, 1919 (41 Stat.
81).]
34




12. Capital Stock
N o c o rp o ra tio n sh all be o rg a n iz e d u n d e r th e
p ro v isio n s o f th is sectio n w ith a c a p ita l sto ck
o f less th a n $2,000,000, o n e -q u a rte r o f w h ich
m u st be p a id in before th e c o rp o ra tio n m ay be
a u th o riz e d to begin business, a n d th e re m a in ­
d e r o f th e c a p ita l sto c k o f su c h c o rp o ra tio n
sh all be p aid in in s ta llm e n ts o f a t least 10 p er
c e n tu m on th e w h o le a m o u n t to w h ich th e
c o rp o ra tio n sh all be lim ite d as fre q u e n tly as
o n e in sta llm e n t a t th e en d o f e ach su cceeding
tw o m o n th s fro m th e tim e o f th e c o m m e n c e ­
m e n t o f it b usiness o p e ra tio n s u n til th e w hole
o f th e c a p ita l sto c k sh all be p a id in: Provided,
however, T h a t w h en ev er $2,000,000 o f th e
c a p ita l sto c k o f a n y c o rp o ra tio n is p a id in th e
re m a in d e r o f th e c o rp o ra tio n ’s c a p ita l sto ck
o r a n y u n p a id p a rt o f su c h re m a in d e r m ay,
w ith th e co n se n t o f th e B o a rd o f G o v e rn o rs o f
th e F e d e ra l R eserv e S ystem a n d subject to
su c h re g u la tio n s a n d c o n d itio n s as it m ay p re ­
scribe, be p a id in u p o n call fro m th e b o a rd o f
d ire c to rs; su c h u n p a id su b sc rip tio n s, how ever,
to be in c lu d e d in th e m a x im u m o f 10 p e r c e n ­
tu m o f th e n a tio n a l b a n k ’s c a p ita l a n d su rp lu s
w h ich a n a tio n a l b a n k is p e rm itte d u n d e r th e
p ro v isio n s o f th is A c t to h o ld in sto c k o f c o r­
p o ra tio n s en g ag ed in b u sin ess o f th e k in d d e­
scrib ed in th is sectio n a n d in sectio n 25 o f th e
F e d e ra l R eserv e A c t as am en d e d . T h e c a p ita l
sto c k o f an y su ch c o rp o ra tio n m a y be in ­
cre a se d a t an y tim e, w ith th e a p p ro v a l o f th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserv e
System , by a vote o f tw o -th ird s o f its s h a re ­
h o ld e rs o r by u n a n im o u s co n se n t in w ritin g o f
th e sh a re h o ld e rs w ith o u t a m eetin g a n d w ith ­
o u t a fo rm a l vote, b u t an y su ch in crease o f
c a p ita l sh all be fully p a id in w ith in n in e ty
d ays a fte r su ch ap p ro v al; a n d m ay be re d u c e d
in like m a n n e r, p ro v id e d th a t in n o event shall
it be less th a n $2,000,000. N o c o rp o ra tio n , ex­
cep t as h erein p ro v id ed , sh all d u rin g th e tim e
it sh all c o n tin u e its o p e ra tio n s, w ith d ra w o r
p e rm it to be w ith d ra w n , e ith e r in th e fo rm o f
d iv id en d s o r o th erw ise, a n y p o rtio n o f its c a p ­
ital. A n y n a tio n a l b a n k in g asso c ia tio n m ay in ­
vest in th e sto c k o f any c o rp o ra tio n o rg a n iz e d
u n d e r th e p ro v isio n s o f th is sectio n , b u t th e
a g g reg ate a m o u n t o f sto c k h e ld in all c o rp o ra ­
tio n s engaged in b u sin ess o f th e k in d d e ­
scribed in th is sectio n a n d in sectio n 25 o f th e

Regulation K
F e d e ra l R eserv e A c t as a m e n d e d sh all n o t ex­
ceed 10 p e r c e n tu m o f th e su b scrib in g b a n k ’s
c a p ita l a n d su rp lu s.
[12 USC 618. As added by act of Dec. 24, 1919 (41 Stat.
381); and amended by act of June 14, 1921 (42 Stat. 28).]

13. Citizenship o f Stockholders
E x cep t as o th erw ise p ro v id ed in th is sectio n , a
m a jo rity o f th e sh a re s o f th e c a p ita l sto ck o f
an y su ch c o rp o ra tio n shall a t all tim es be h eld
a n d o w n ed by citizen s o f th e U n ite d S tates, by
c o rp o ra tio n s th e co n tro llin g in te re st in w h ich
is o w n ed by c itizen s o f th e U n ite d States,
c h a rte re d u n d e r th e law s o f th e U n ite d S tates
o r o f a S ta te o f th e U n ite d S tates, o r by firm s
o r co m p an ies, th e co n tro llin g in te re st in
w h ich is o w n ed by citizens o f th e U n ited
States. N o tw ith s ta n d in g an y o th e r p ro v isio n s
o f th is sectio n , o n e o r m o re foreign b an k s, in ­
s titu tio n s o rg a n iz e d u n d e r th e law s o f foreign
c o u n trie s w h ic h ow n o r c o n tro l foreign b an k s,
o r b a n k s o rg a n iz e d u n d e r th e law s o f th e
U n ite d S tates, th e S tates o f th e U n ite d States,
o r th e D istric t o f C o lu m b ia, th e c o n tro llin g
in te re sts in w h ich a re ow ned by an y su c h fo r­
eign b a n k s o r in stitu tio n s, m ay, w ith th e p rio r
a p p ro v a l o f th e B o a rd o f G o v e rn o rs o f th e
F e d e ra l R eserv e System a n d u p o n su ch term s
a n d c o n d itio n s a n d subject to su c h ru les a n d
re g u la tio n s as th e B o ard o f G o v e rn o rs o f th e
F e d e ra l R eserv e System m ay p rescrib e, ow n
a n d h o ld 50 p e r c e n tu m o r m o re o f th e sh ares
o f th e c a p ita l sto ck o f a n y c o rp o ra tio n orgaized u n d e r th is section, a n d an y su ch c o rp o ­
ra tio n sh all be subject to th e sam e p rovisions
o f law as an y o th e r c o rp o ra tio n o rg a n iz e d u n ­
d e r th is sectio n , a n d th e te rm s ‘c o n tro ls ’ an d
‘c o n tro llin g in te re s t’ sh all be c o n stru e d c o n ­
sisten tly w ith th e d efinition o f ‘c o n tro l’ in sec­
tio n 2 o f th e B an k H o ld in g C o m p a n y A c t o f
1956. F o r th e p u rp o se s o f th e p reced in g sen ­
ten ce o f th is p a ra g ra p h th e te rm ‘foreign
b a n k ’ sh all h av e th e m ean in g assigned to it in
th e In te rn a tio n a l B anking A c t o f 1978. A n y
co m p a n y , o th e r th a n a b a n k as defined in sec­
tion 2 o f th e B ank H o ld in g C o m p a n y A c t o f
1956, th a t a fte r M a rc h 5, 1987, d ire c tly o r in ­
d irectly acq u ire s c o n tro l o f a c o rp o ra tio n o r­
gan ize d o r o p e ra tin g u n d e r th e p ro v isio n s o f
th is section o r section 25 shall be subject to
th e p ro v isio n s o f th e B ank H o ld in g C o m p a n y




Statutory Provisions
A c t o f 1956 in th e sam e m a n n e r a n d to th e
sam e e x ten t th a t b a n k h o ld in g c o m p a n ie s are
subject th e re to , except th a t su ch c o m p a n y
sh all n o t by reaso n o f th is p a ra g ra p h be
deem e d a b a n k h o ld in g c o m p a n y for th e p u r­
pose o f section 3 o f th e B an k H o ld in g C o m p a ­
ny A c t o f 1956.
[12 USC 619. As added by act of Sept. 17, 1978 (92 Stat.
609) and amended by act of Aug. 10, 1987 (101 Stat.
566).]

14. Members o f Board o f Governors o f the
Federal Reserve System as Directors, Officers
or Stockholders
N o m e m b e r o f th e B o a rd o f G o v e rn o rs o f th e
F e d e ra l R eserve System sh all be an officer o r
d ire c to r o f an y c o rp o ra tio n o rg an ized u n d e r
th e p ro v isio n s o f th is sectio n , o r o f an y c o rp o ­
ra tio n engaged in sim ila r b usiness o rg a n iz e d
u n d e r th e law s o f an y S tate, n o r h o ld sto c k in
an y su c h c o rp o ra tio n , a n d before e n te rin g
u p o n his d u tie s as a m e m b e r o f th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserve S ystem he
sh all certify u n d e r o a th to th e S ecretary o f th e
T re a su ry th a t he h as co m p lied w ith th is
re q u ire m e n t.
[12 USC 620. As added by act of Dec. 24, 1919 (41 Stat.
382).]

15. Shareholders' Liability; Corporation Not
to Become Member o f Federal Reserve Bank
S h a re h o ld e rs in an y c o rp o ra tio n o rg a n iz e d
u n d e r th e pro v isio n o f th is section sh all be lia­
ble fo r th e a m o u n t o f th e ir u n p a id sto c k su b ­
scrip tio n s. N o su c h c o rp o ra tio n sh all b ecom e
a m e m b e r o f an y F e d e ra l reserve b an k .
[12 USC 621. As added by act of Dec. 24, 1919 (41 Stat.
382).]

16. Forfeiture o f Charter for Violation o f Law
S h o u ld an y c o rp o ra tio n o rg a n iz e d h e re u n d e r
v io late o r fail to co m p ly w ith a n y o f th e p ro v i­
sions o f th is section, all o f its rig h ts, privileges,
a n d fran ch ises deriv ed h e re fro m m ay th ereb y
be forfeited. B efore an y su ch c o rp o ra tio n sh all
be d ecla red dissolved, o r its rig h ts, privileges,
a n d fran ch ises forfeited, a n y n o n c o m p lia n c e
w ith, o r vio latio n o f su ch law s shall, how ever,
be d e te rm in e d a n d a d ju d g e d by a c o u rt o f th e
U n ite d S tates o f c o m p e te n t ju risd ic tio n , in a
35

Statutory Provisions
su it b ro u g h t fo r th a t p u rp o se in th e d is tric t o r
te rrito ry in w h ich th e h o m e office o f su ch c o r­
p o ra tio n is lo cated , w hich su it sh all be
b ro u g h t by th e U n ite d S tates a t th e insistence
o f th e B o a rd o f G o v e rn o rs fo r th e F e d e ra l R e ­
serve System o r th e A tto rn e y G e n e ra l. U p o n
a d ju d ic a tio n o f su ch n o n c o m p lia n c e o r v io la­
tio n , each d ire c to r a n d officer w h o p a rtic ip a t­
ed in, o r a ssen ted to, th e illegal a c t o r acts,
sh all be liable in his p erso n al o r in d iv id u a l c a ­
p a c ity fo r all d am ag e s w hich th e said c o rp o ra ­
tio n sh all h av e su stain ed in co n seq u en ce
th ereo f. N o d isso lu tio n shall ta k e aw ay o r im ­
p a ir a n y re m e d y against th e c o rp o ra tio n , its
sto c k h o ld e rs, o r officers fo r an y liability o r
p e n a lty p rev io u sly in cu rred .
[12 USC 622. As added by act of Dec. 24, 1919 (41 Stat.
382).]

17. Voluntary Liquidation
A n y su ch c o rp o ra tio n m ay go in to v o lu n ta ry
liq u id a tio n a n d be closed by a v o te o f its
sh a re h o ld e rs ow n in g tw o -th ird o f its stock.
[12 USC 623. As added by act of Dec. 24, 1919 (41 Stat.
382.)]

18. Insolvency; Appointment o f Receiver
W h e n e v e r th e B o a rd o f G o v e rn o rs o f th e F e d ­
e ral R eserv e System shall beco m e satisfied o f
th e insolvency o f an y such c o rp o ra tio n , it m ay
a p p o in t a receiver w ho shall ta k e possession o f
all th e p ro p e rty a n d assets o f th e c o rp o ra tio n
a n d exercise th e sam e rig h ts, privileges, p o w ­
ers, a n d a u th o rity w ith resp ect th e re to as are
now exercised by receivers o f n a tio n a l b a n k s
a p p o in te d by th e C o m p tro lle r o f th e C u rre n c y
o f th e U n ite d States: Provided, however, T h a t
th e assets o f th e c o rp o ra tio n subject to th e
law s o f o th e r c o u n trie s o r ju risd ic tio n s sh all
be d e a lt w ith in a c c o rd a n c e w ith th e te rm s o f
su c h law s.
[12 USC 624. As added by act of Dec. 24, 1919 (41 Stat.
382.)]

19. Stockholders' Meetings; Records; Reports;
Examinations
E very c o rp o ra tio n o rg an ized u n d e r th e p ro v i­
sions o f th is sectio n shall h o ld a m eetin g o f its
sto c k h o ld e rs a n n u a lly up o n a d a te fixed in its
36




Regulation K
bylaw s, su ch m eetin g to be h e ld a t its h o m e
office in th e U n ite d States. E v ery su ch c o rp o ­
ra tio n sh all keep a t its h o m e office b o o k s c o n ­
ta in in g th e nam es o f all sto c k h o ld e rs th ereo f,
a n d th e nam es a n d ad d resses o f th e m em b ers
o f its b o a rd o f d ire c to rs, to g e th e r w ith copies
o f all re p o rts m a d e by it to th e B o a rd o f G o v ­
e rn o rs o f th e F e d e ra l R eserv e System . E v ery
su ch c o rp o ra tio n sh all m a k e re p o rts to th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserv e
System a t su ch tim es a n d in su c h fo rm as it
m ay req u ire; a n d sh all be su b ject to e x a m in a ­
tio n o n ce a y e a r a n d a t su ch o th e r tim es as
m ay be d eem ed n ecessary by th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserv e S ystem by
ex a m in e rs a p p o in te d by th e B o a rd o f G o v e r­
n o rs o f th e F e d e ra l R eserv e S ystem , th e cost
o f su ch e x a m in a tio n s, in c lu d in g th e c o m p e n ­
sa tio n o f th e e x am in ers, to be fixed by th e
B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserve
S ystem a n d to be p aid by th e c o rp o ra tio n
ex am in ed .
[12 USC 625. As added by act of Dec. 24, 1919 (41 Stat.
382) .]

20. Dividends and Surplus Fund
T h e d ire c to rs o f a n y c o rp o ra tio n o rg a n iz e d
u n d e r th e p ro v isio n s o f th is sectio n m ay , sem i­
an n u a lly , d e c la re a d iv id e n d o f so m u c h o f th e
n et pro fits o f th e c o rp o ra tio n as th e y sh all
ju d g e exp ed ie n t; b u t e ach c o rp o ra tio n shall,
befo re th e d e c la ra tio n o f a d iv id en d , c a rry
o n e -te n th o f its n e t profits o f th e p reced in g
h a lf y e a r to its su rp lu s fu n d u n til th e sam e
sh all a m o u n t to 20 p e r c e n tu m o f its c a p ita l
stock.
[12 USC 626. As added by act of Dec. 24, 1919 (41 Stat.
383) .]

21. Taxation
A n y c o rp o ra tio n o rg a n iz e d u n d e r th e p ro v i­
sions o f th is section sh all be subject to ta x by
th e S ta te w ith in w h ich its h o m e office is lo c a t­
ed in th e sam e m a n n e r a n d to th e sam e e x ten t
as o th e r c o rp o ra tio n s o rg a n iz e d u n d e r th e
law s o f th a t S tate w h ich a re tra n sa c tin g a sim ­
ila r c h a ra c te r o f business. T h e sh a re s o f sto ck
in su ch c o rp o ra tio n sh all also be subject to tax
as th e p e rso n a l p ro p e rty o f th e o w n ers o r
h o ld e rs th e re o f in th e sam e m a n n e r a n d to th e

Regulation K
sam e e x te n t as th e sh ares o f sto c k in sim ilar
S tate c o rp o ra tio n s.
[12 USC 627. As added by act o f Dec. 24, 1919 (41 Stat.
383).]

22. Extension o f Corporate Existence
A n y c o rp o ra tio n o rg an ized u n d e r th e p ro v i­
sions o f th is sectio n m ay a t a n y tim e w ith in
th e tw o y e a rs n e x t p rev io u s to th e d a te o f th e
e x p ira tio n o f its c o rp o ra te existence, by a vote
o f th e sh a re h o ld e rs ow n in g tw o -th ird s o f its
sto ck , ap p ly to th e B o ard o f G o v e rn o rs o f th e
F e d e ra l R eserv e S ystem fo r its a p p ro v a l to ex­
te n d th e p e rio d o f its c o rp o ra te existen ce fo r a
te rm o f n o t m o re th a n tw e n ty years, a n d u p o n
certified a p p ro v a l o f th e B o a rd o f G o v e rn o rs
o f th e F e d e ra l R eserv e S ystem su c h c o rp o ra ­
tio n sh all h av e its c o rp o ra te ex isten ce fo r su ch
e x te n d e d p e rio d un less so o n e r dissolved by
th e a c t o f th e sh a re h o ld e rs o w n in g tw o -th ird s
o f its sto ck , o r by an A c t o f C o n g ress o r unless
its fra n c h ise becom es forfeited by som e v io la ­
tio n o f law .
[12 USC 628. As added by act of Dec. 24, 1919 (41 Stat.
383).]

23. Conversion o f State Corporation into
Federal Corporation
A n y b a n k o r b a n k in g in stitu tio n , p rin cip a lly

engaged in foreign business, in c o rp o ra te d by
special law o f a n y S tate o r o f th e U n ite d S tates
o r o rg a n iz e d u n d e r th e g en e ra l law s o f an y
S tate o r o f th e U n ite d S tates a n d h a v in g an
u n im p a ire d c a p ita l sufficient to e n title it to b e ­
co m e a c o rp o ra tio n u n d e r th e p ro v isio n s o f
th is sectio n m ay, by th e vote o f th e s h a re h o ld ­
ers o w n in g n o t less th a n tw o -th ird s o f th e c a p ­
ita l sto c k o f su c h b a n k o r b a n k in g asso ciatio n ,
w ith th e a p p ro v a l o f th e B o a rd o f G o v e rn o rs
o f th e F e d e ra l R eserv e System , be c o n v e rte d
in to a F e d e ra l c o rp o ra tio n o f th e k in d a u th o ­
rized by th is sectio n w ith an y n a m e ap p ro v e d
by th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e ­
serve System : Provided, however, T h a t said
co n v ersio n sh all n o t be in c o n tra v e n tio n o f th e
S ta te law . In su c h case th e artic le s o f a sso cia­
tio n a n d o rg a n iz a tio n certificate m ay be exe­
c u te d by a m a jo rity o f th e d ire c to rs o f th e
b a n k o r b a n k in g in s titu tio n , a n d th e certificate
sh all d e c la re th a t th e o w ners o f a t least tw o-




Statutory Provisions
th ird s o f th e c a p ita l sto c k h av e a u th o riz e d th e
d ire c to rs to m a k e su c h c ertificate a n d to
c h a n g e o r c o n v e rt th e b a n k o r b a n k in g in s titu ­
tio n in to a F e d e ra l c o rp o ra tio n . A m a jo rity o f
th e d ire c to rs, a fte r ex ecu tin g th e artic le s o f as­
so c ia tio n a n d th e o rg a n iz a tio n c e rtificate sh all
h av e p o w er to e x ecu te all o th e r p a p e rs a n d to
d o w h a te v e r m a y be re q u ire d to m a k e its o r ­
g a n iz a tio n p e rfe c t a n d c o m p le te as a F e d e ra l
c o rp o ra tio n . T h e sh a re s o f a n y su c h c o rp o ra ­
tio n m ay c o n tin u e to be fo r th e sam e a m o u n t
e ach as th e y w ere befo re th e co n v ersio n , a n d
th e d ire c to rs m ay c o n tin u e to be d ire c to rs o f
th e c o rp o ra tio n u n til o th e rs a re elected o r a p ­
p o in te d in a c c o rd a n c e w ith th e p ro v isio n s o f
th is section. W h e n th e B o a rd o f G o v e rn o rs o f
th e F e d e ra l R eserv e S ystem h a s given to su ch
c o rp o ra tio n a c ertificate th a t th e p ro v isio n s o f
th is se ctio n h av e been co m p lie d w ith , su ch
c o rp o ra tio n a n d all its sto c k h o ld e rs, officers,
a n d em ployees, sh all h av e th e sam e p o w ers
a n d privileges, a n d sh all be subject to th e
sam e d u tie s, liabilities, a n d re g u la tio n s, in all
resp ects, as sh all h av e been p re sc rib e d by th is
sectio n fo r c o rp o ra tio n s o rig in a lly o rg a n iz e d
h e re u n d e r.
[12 USC 629. As added by act of Dec. 24, 1919 (41 Stat.
383).]

24. Criminal Offenses o f Directors, Officers,
and Employees
E v ery officer, d ire c to r, cle rk , em ployee, o r
ag en t o f an y c o rp o ra tio n o rg a n iz e d u n d e r th is
sectio n w h o em bezzles, a b stra c ts, o r w illfully
m isap p lies an y o f th e m oneys, fu n d s, cred its,
securities, evidences o f in d e b te d n e ss o r assets
o f an y c h a ra c te r o f su c h c o rp o ra tio n ; o r w ho,
w ith o u t a u th o rity fro m th e d ire c to rs, issues o r
p u ts fo rth an y c e rtificate o f d ep o sit, d ra w s an y
o rd e r o r bill o f ex change, m ak es a n y a c c e p t­
ance, assigns an y n o te, b o n d , d e b e n tu re , d ra ft,
bill o f exchange, m o rtg a g e , ju d g m e n t, o r d e ­
cree; o r w h o m ak es a n y false e n try in any
b ook, re p o rt, o r sta te m e n t o f su ch c o rp o ra tio n
w ith in te n t, in e ith e r case, to in ju re o r d e fra u d
su ch c o rp o ra tio n o r an y o th e r co m p a n y , body
p o litic o r c o rp o ra te , o r a n y in d iv id u a l p erso n ,
o r to deceive a n y officer o f su c h c o rp o ra tio n ,
th e B o a rd o f G o v e rn o rs o f th e F e d e ra l
R eserv e System , o r a n y ag en t o r e x a m in e r a p ­
p o in te d to exam in e th e affairs o f a n y su c h c o r­

37

Statutory Provisions
p o ra tio n ; a n d every receiver o f an y su ch c o r­
p o ra tio n a n d every clerk o r em ployee o f such
receiver w ho sh all em bezzle, a b stra c t, o r w ill­
fully m isap p ly o r w rongfully c o n v e rt to his
ow n use a n y m oneys, funds, cre d its, o r assets
o f an y c h a ra c te r w hich m ay co m e in to his
possession o r u n d e r his c o n tro l in th e ex ecu ­
tio n o f his tru s t o r th e p e rfo rm a n c e o f th e d u ­
ties o f h is em p lo y m e n t; a n d every su ch receiv­
e r o r c lerk o r em ployee o f su c h receiv er w ho
sh all, w ith in te n t to in ju re o r d e fra u d an y p e r­
son, b o d y p o litic o r c o rp o ra te , o r to deceive o r
m islead th e B o a rd o f G o v e rn o rs o f th e F e d e r­
al R eserv e S ystem , o r any a g e n t o r ex a m in e r
a p p o in te d to ex am in e th e affairs o f su c h re ­
ceiver, sh all m ak e an y false e n try in a n y book,
re p o rt, o r re c o rd o f any m a tte r co n n e c te d
w ith th e d u tie s o f such receiver; a n d every
p erso n w h o w ith like in te n t aid s o r a b e ts any
officer, d ire c to r, clerk, em ployee, o r ag en t o f
an y c o rp o ra tio n o rg an ized u n d e r th is section,
o r receiv er o r cle rk o r em ployee o f su c h re ­
ceiver as afo resaid in any v io latio n o f th is sec­
tio n , sh all u p o n co n v ictio n th e re o f be im p ris­
on ed fo r n o t less th a n tw o y ears n o r m o re
th a n ten years, a n d m ay also be fined n o t
m o re th a n S5,000, in th e d isc re tio n o f th e
c o u rt.

[12 USC 630. As added by act of Dec. 24. 1919 (41 Stat.
384).]

25. Representation that United States is Liable
for Obligations
W h o ev er being c o n n ected in a n y cap a c ity
w ith any c o rp o ra tio n o rg a n iz e d u n d e r th is
section re p re se n ts in any w ay th a t th e U n ite d
S tates is liable fo r th e p ay m en t o f an y b o n d o r
o th e r o b lig atio n , o r th e in te re st th e re o n ,
issued o r in c u rre d by an y c o rp o ra tio n o rg a ­
n ized h e re u n d e r, o r th a t th e U n ite d S ta te s in ­
c u rs a n y liability in respect o f a n y a ct o r o m is­
sion o f th e c o rp o ra tio n , sh all be p u n ish e d by a
fine o f n o t m o re th a n $10,000 a n d by im p ris­
o n m e n t fo r n o t m o re th a n five years.

[12 USC 631. As added by act of Dec. 24, 1919 (41 Stat.
384).] 38

38




Regulation K

BANK HOLDING COMPANY ACT
OF 1956
SECTION 2—Definitions
*

*

*

*

*

(h ) * * *
(2 ) E x cep t as p ro v id e d in p a ra g ra p h (3 ) ,
th e p ro h ib itio n s o f se ctio n 4 o f th is A c t
sh all n o t ap p ly to sh a re s o f a n y co m p a n y
o rg a n iz e d u n d e r th e law s o f a foreign c o u n ­
try (o r to sh a re s h e ld by su c h c o m p a n y in
any c o m p a n y eng ag ed in th e sam e gen eral
line o f b usiness as th e in v e sto r c o m p a n y o r
in a b usiness re la te d to th e b u sin ess o f th e
in v e sto r c o m p a n y ) th a t is p rin c ip a lly e n ­
gaged in b u sin ess o u tsid e th e U n ite d S tates
if su c h sh a re s a re h eld o r a c q u ire d by a
b a n k h o ld in g c o m p a n y o rg a n iz e d u n d e r th e
law s o f a foreign c o u n try th a t is p rin c ip a lly
engaged in th e b a n k in g b u sin ess o u tsid e th e
U n ite d S tates. F o r th e p u rp o s e o f th is su b ­
sectio n , th e te rm “ sectio n 2 ( h ) ( 2 ) c o m p a ­
n y ” m ean s an y c o m p a n y w hose sh a re s are
h e ld p u rs u a n t to th is p a ra g ra p h .
(3 ) N o th in g in p a ra g ra p h (2 ) a u th o riz e s a
sectio n 2 ( h ) ( 2 ) c o m p a n y to engage in (o r
a c q u ire o r h o ld m o re th a n 5 p e rc e n t o f th e
o u ts ta n d in g sh a re s o f an y class o f vo tin g se­
c u ritie s o f a c o m p a n y eng ag ed in ) an y
b an k in g , securities, in su ra n c e , o r o th e r fi­
n a n c ia l activities, as defined by th e B o ard ,
in th e U n ite d S tates. T h is p a ra g ra p h does
n o t p ro h ib it a se ctio n 2 ( h ) ( 2 ) c o m p a n y
fro m h o ld in g sh a re s th a t w ere law fully a c ­
q u ire d before th e d a te o f e n a c tm e n t o f th e
C o m p e titiv e E q u a lity B a n k in g A c t o f 1987.
(4 ) N o d o m e stic office o r su b sid ia ry o f a
b a n k h o ld in g c o m p a n y o r su b sid ia ry th e re ­
o f ho ld in g sh ares o f a se ctio n 2 ( h ) ( 2 ) c o m ­
p an y m ay ex te n d c re d it to a d o m e stic office
o r su b sid iary o f su c h sectio n 2 ( h ) ( 2 ) c o m ­
p an y on te rm s m o re fav o rab le th a n th o se
afforded sim ila r b o rro w e rs in th e U n ite d
States.
(5 ) N o d o m estic b a n k in g office o r b a n k
su b sid ia ry o f a b a n k h o ld in g c o m p a n y th a t
c o n tro ls a sectio n 2 ( h ) ( 2 ) c o m p a n y m ay
offer o r m a rk e t p ro d u c ts o r services o f s u ch
sectio n 2 ( h ) ( 2 ) co m p a n y , o r p e rm it its
p ro d u c ts o r services to be offered o r m a r­
k eted by o r th ro u g h su c h se ctio n 2 ( h ) ( 2 )

Statutory Provisions

Regulation K
co m p a n y , un less such p ro d u c ts o r services
w ere being so offered o r m a rk e te d as o f
M a rc h 5, 1987, a n d th e n o n ly in th e sam e
m a n n e r in w h ich th ey w ere being offered o r
m a rk e te d as o f th a t date.
[12 USC 1841(h). As added by act of July 1, 1966 (80
Stat. 236) and amended by act of Aug. 10, 1987 (101 Stat.
584).]

SECTION 4— Interests in Nonbanking
Organizations
*

*

*

*

*

(c ) Exemptions. T h e p ro h ib itio n s in th is sec­
tio n sh all n o t ap p ly to ( i) a n y c o m p a n y th a t
w as o n J a n u a ry 4, 1977, b o th a b a n k h o ld in g
c o m p a n y a n d a lab o r, a g ric u ltu ra l, o r h o rti­
c u ltu ra l o rg a n iz a tio n ex em p t fro m ta x a tio n
u n d e r sectio n 501 o f th e In te rn a l R ev en u e
C o d e o f 1986, o r to a n y lab o r, a g ric u ltu ra l, o r
h o rtic u ltu ra l o rg a n iz a tio n to w h ic h all o r su b ­
sta n tia lly all o f th e assets o f su c h c o m p a n y are
h e re a fte r tra n sfe rre d , o r (ii) a c o m p a n y co v ­
e re d in 1970 m o re th a n 85 p e r c e n tu m o f th e
vo tin g sto c k o f w h ich w as collectively o w ned
o n J u n e 30, 1968, a n d co n tin u o u sly th e re a fte r,
d ire c tly o r in d ire c tly , by o r fo r m e m b e rs o f
th e sam e fam ily, o r th e ir spouses, w h o a re lin ­
eal d e sc e n d a n ts o f co m m o n an c e sto rs: a n d
su c h p ro h ib itio n s sh all n o t, w ith resp ect to
a n y o th e r b a n k h o ld in g co m p a n y , a p p ly to —
*

*

*

*

*

(9 ) sh a re s h e ld o r activities c o n d u c te d by
a n y c o m p a n y o rg an ized u n d e r th e law s o f a
foreign c o u n try th e g re a te r p a rt o f w hose
b usiness is c o n d u c te d o u tsid e th e U n ite d
S tates, if th e B o a rd by re g u la tio n o r o rd e r
d e te rm in e s th a t, u n d e r th e c irc u m sta n c e s
a n d subject to th e co n d itio n s set fo rth in th e
re g u la tio n o r o rd e r, th e ex em p tio n w o u ld
n o t be su b sta n tia lly a t v a ria n c e w ith th e
p u rp o se s o f th is A c t a n d w o u ld be in th e
p u b lic in terest;

*

*

*

*

*

(1 3 ) sh a re s of, o r activities c o n d u c te d by,
a n y c o m p a n y w h ic h does no b u sin ess in th e
U n ite d S tates ex cep t as a n in c id e n t to its
in te rn a tio n a l o r foreign business, if th e
B o a rd by re g u la tio n o r o rd e r d e te rm in e s
th a t, u n d e r th e c irc u m sta n c e s a n d subject
to th e c o n d itio n s set fo rth in th e re g u la tio n




o r o rd e r, th e e x e m p tio n w o u ld n o t be su b ­
sta n tia lly a t v aria n c e w ith th e p u rp o se s o f
th is A c t a n d w o u ld be in th e p u b lic in terest;
or
(1 4 ) sh a re s o f a n y c o m p a n y w h ich is an
e x p o rt tra d in g c o m p a n y w h o se a c q u isitio n
(in c lu d in g e ach a c q u isitio n o f sh a re s) o r
fo rm a tio n by a b a n k h o ld in g c o m p a n y has
n o t been d isa p p ro v e d by th e B o a rd p u rs u ­
a n t to th is p a ra g ra p h , except th a t su c h in ­
v estm en ts, w h e th e r d ire c t o r in d ire c t, in
su c h sh a re s sh all n o t exceed 5 p e r c e n tu m
o f th e b a n k h o ld in g c o m p a n y ’s c o n so lid a te d
c a p ita l a n d su rp lu s.
( A ) (i) N o b a n k h o ld in g c o m p a n y sh all
invest in an e x p o rt tra d in g c o m p a n y
u n d e r th is p a ra g ra p h u n less th e B o a rd
h a s been given six ty d a y s’ p rio r w ritte n
n o tic e o f su c h p ro p o se d in v e stm e n t
a n d w ith in su c h p e rio d h a s n o t issued
a n o tice d isa p p ro v in g th e p ro p o se d in ­
v e stm e n t o r ex te n d in g fo r u p to a n o th ­
e r th irty d ay s th e p e rio d d u rin g w h ich
su c h d isa p p ro v a l m ay be issued.
(ii) T h e p erio d fo r d isa p p ro v a l m ay
be e x te n d e d fo r su c h a d d itio n a l th irty d a y p e rio d o n ly if th e B o a rd d e te r­
m ines th a t a b a n k h o ld in g c o m p a n y
p ro p o sin g to invest in an e x p o rt tr a d ­
ing c o m p a n y h a s n o t fu rn ish e d all th e
in fo rm a tio n re q u ire d to be su b m itte d
o r th a t in th e B o a rd ’s ju d g m e n t any
m a te ria l in fo rm a tio n su b m itte d is su b ­
sta n tia lly in a c c u ra te .
(iii) T h e n o tic e re q u ire d to be filed by
a b a n k h o ld in g c o m p a n y sh a ll c o n ta in
su c h relev an t in fo rm a tio n as th e B o ard
sh all re q u ire by re g u la tio n o r by specif­
ic re q u e st in c o n n e c tio n w ith an y p a r­
tic u la r notice.
(iv ) T h e B o a rd m ay d isa p p ro v e any
p ro p o se d in v e stm e n t o n ly if—
( I ) su c h d is a p p ro v a l is necessary to
p re v e n t u nsafe o r u n so u n d b an k in g
p ractices, u n d u e c o n c e n tra tio n o f re ­
sources, d e creased o r u n fa ir co m p e ­
titio n , o r conflicts o f in terest;
( I I ) th e B o a rd finds th a t su ch in ­
v estm en t w o u ld affect th e financial
o r m a n a g e ria l reso u rces o f a b a n k
h o ld in g c o m p a n y to a n e x te n t w h ich
is likely to h av e a m a te ria lly ad v erse

39

Statutory Provisions
effect on th e safety a n d so u n d n e ss o f
an y su b sid iary b a n k o f su c h b a n k
h o ld in g co m p an y , o r
( I I I ) th e b a n k h o d in g c o m p a n y
fails to fu rn ish th e in fo rm a tio n re ­
q u ire d u n d e r clause (iii).
(v ) T h e B o a rd m ay n o t d isa p p ro v e
a n y p ro p o se d in v e stm e n t solely o n th e
basis o f th e a n tic ip a te d o r p ro p o sed
asse t-to -e q u ity ra tio o f th e e x p o rt tr a d ­
ing c o m p a n y w ith re sp e c t to w hich
su c h in v e stm e n t is p ro p o se d , unless th e
a n tic ip a te d o r p ro p o sed a n n u a l a v e r­
age a sset-to -eq u ity ra tio is g re a te r th a n
2 0 -to -l.
(v i) W ith in th re e d ay s a fte r a decision
to d isa p p ro v e an in v e stm e n t, th e
B o a rd sh all notify th e b a n k h o ld in g
c o m p a n y in w ritin g o f th e d isa p p ro v a l
a n d sh all provide a w ritte n sta te m e n t
o f th e basis fo r th e d isa p p ro v a l.
(v ii) A p ro p o sed in v e stm e n t m ay be
m a d e p rio r to th e e x p ira tio n o f th e d is­
a p p ro v a l p erio d if th e B o a rd issues
w ritte n n o tice o f its in te n t n o t to d is a p ­
p ro v e th e in vestm ent.
( B ) ( i ) T h e to ta l a m o u n t o f ex ten sio n s
o f c re d it by a b an k h o ld in g c o m p a n y
w h ich invests in an e x p o rt tra d in g
co m p a n y , w h en c o m b in e d w ith all
su c h e x ten sio n s o f c re d it by all th e su b ­
sidiaries o f su c h b a n k h o ld in g c o m p a ­
ny, to an e x p o rt tra d in g c o m p a n y sh all
n o t exceed a t any o n e tim e 10 p e r c e n ­
tu m o f th e b a n k h o ld in g c o m p a n y ’s
c o n so lid a te d c a p ita l a n d su rp lu s. F o r
p u rp o se s o f th e preced in g sen ten ce, an
ex ten sio n o f c re d it sh all n o t be deem e d
to in clu d e an y a m o u n t inv ested by a
b a n k h o ld in g co m p a n y in th e sh a re s o f
a n e x p o rt tra d in g co m p an y .
(ii) N o provision o f an y o th e r F e d e ra l
law in effect on O c to b e r 1, 1982, re la t­
ing specifically to c o lla te ra l re q u ire ­
m e n ts sh all apply w ith resp ect to an y
su ch e x ten sio n o f cred it.
(iii) N o b a n k h o ld in g c o m p a n y o r
su b sid ia ry o f such c o m p a n y w h ich in ­
vests in a n ex p o rt tra d in g c o m p a n y
m a y ex te n d c re d it to su c h e x p o rt tr a d ­
ing c o m p a n y o r to c u sto m e rs o f such
e x p o rt tra d in g c o m p a n y on te rm s

40




Regulation K
m o re fav o rab le th a n th o se afforded
sim ila r b o rro w e rs in sim ila r c irc u m ­
stances, a n d su c h ex te n sio n o f c re d it
sh all n o t involve m o re th a n th e n o rm a l
risk o f re p a y m e n t o r p re se n t o th e r u n ­
fav o rab le featu res.
( C ) F o r p u rp o se s o f th is p a ra g ra p h , an
e x p o rt tra d in g c o m p a n y —
(i) m ay engage in o r h o ld sh a re s o f a
c o m p a n y en g ag ed in th e b u sin ess o f
u n d e rw ritin g , selling, o r d istrib u tin g
secu rities in th e U n ite d S tates only to
th e e x te n t th a t a n y b a n k h o ld in g c o m ­
p a n y w h ic h in v ests in su c h e x p o rt
tra d in g c o m p a n y m a y d o so u n d e r a p ­
p licab le F e d e ra l a n d S tate b a n k in g
law s a n d re g u la tio n s; a n d
(ii) m ay n o t engage in a g ric u ltu ra l
p ro d u c tio n activ itie s o r in m a n u fa c tu r­
ing, except fo r su c h in c id e n ta l p ro d u c t
m o d ificatio n in c lu d in g rep ack ag in g ,
reassem b lin g o r e x tra c tin g b y p ro d u c ts,
as is n ecessary to en ab le U n ite d S tates
g o ods o r services to c o n fo rm w ith re ­
q u ire m e n ts o f a foreign c o u n try a n d to
facilita te th e ir sale in foreign co u n trie s.
( D ) A b a n k h o ld in g c o m p an y w h ich in ­
vests in a n e x p o rt tra d in g c o m p a n y m ay
be re q u ire d , by th e B o ard , to te rm in a te
its in v e stm e n t o r m a y be m a d e su b ject to
su c h lim ita tio n s o r c o n d itio n s as m ay be
im p o sed by th e B o a rd , if th e B o a rd d e te r­
m ines th a t th e e x p o rt tra d in g c o m p a n y
h a s ta k e n p o sitio n s in c o m m o d itie s o r
c o m m o d ity c o n tra c ts , in secu rities, o r in
foreign exchange, o th e r th a n as m ay be
n ecessary in th e c o u rse o f th e ex p o rt
tra d in g c o m p a n y ’s b u sin ess o p eratio n s.
( E ) N o tw ith s ta n d in g an y o th e r p ro v i­
sion o f law , an E d g e A c t c o rp o ra tio n , o r ­
gan ize d u n d e r sectio n 2 5 ( a ) o f th e F e d ­
e ral R eserv e A c t (1 2 U .S .C . 6 1 1 -6 3 1 ),
w h ich is a su b sid ia ry o f a b a n k h o ld in g
co m p a n y , o r an a g re e m e n t c o rp o ra tio n ,
o p e ra tin g su b ject to sectio n 25 o f th e
F e d e ra l
R eserv e
A ct
(1 2
U .S .C .
6 0 1 -6 0 4 ( a ) ) , w h ic h is a su b sid ia ry o f a
b a n k h o ld in g co m p a n y , m ay invest d i­
rectly a n d in d ire c tly in th e ag g reg ate up
to 5 p e r c e n tu m o f its c o n so lid a te d c a p i­
ta l a n d su rp lu s (25 p e r c e n tu m in th e
case o f a c o rp o ra tio n n o t eng ag ed in

Regulation K
b a n k in g ) in th e voting sto c k o r o th e r evi­
d en ces o f o w n e rsh ip in o n e o r m o re ex­
p o rt tra d in g com panies.
( F ) F o r p u rp o se s o f th is p a ra g ra p h —
(i) th e te rm “ ex p o rt tra d in g c o m p a ­
n y ” m ean s a c o m p a n y w h ich does
b u sin ess u n d e r th e law s o f th e U n ite d
S tates o r a n y State, w h ic h is exclusive­
ly eng ag ed in activ ities re la te d to in te r­
n a tio n a l tra d e , a n d w h ic h is o rg a n iz e d
a n d o p e ra te d p rin c ip a lly fo r p u rp o ses
o f e x p o rtin g goods o r services p ro ­
d u c e d in th e U n ite d S tates o r fo r p u r ­
poses o f fa c ilitatin g th e e x p o rta tio n o f
g o ods o r services p ro d u c e d in th e
U n ite d S tates by unaffiliated p erso n s
by p ro v id in g one o r m o re e x p o rt tra d e
services.
(ii) th e te rm “ e x p o rt tra d e serv ices”
in clu d es, b u t is n o t lim ited to , c o n s u lt­
ing, in te rn a tio n a l m a rk e t re se a rc h , a d ­
vertising, m ark e tin g , in s u ra n c e (o th e r
th a n a c tin g as p rin cip al, a g e n t o r b ro ­
k e r in th e sale o f in s u ra n c e o n risk s
re sid e n t o r lo cated , o r a c tiv ities p e r­
fo rm ed , in th e U n ite d S tates, ex cep t
fo r in s u ra n c e co vering th e tra n s p o rta ­
tio n o f c a rg o fro m an y p o in t o f o rigin
in th e U n ite d S tates to a p o in t o f final
d e stin a tio n o u tsid e th e U n ite d S ta te s),
p ro d u c t re se a rc h a n d design, legal a s­
sistance,
tra n s p o rta tio n ,
in c lu d in g
tra d e d o c u m e n ta tio n a n d fre ig h t fo r­
w a rd in g , c o m m u n ic a tio n a n d p ro c e ss­
ing o f foreign o rd e rs to a n d fo r e x p o rt­
ers a n d foreign p u rc h a se rs, w a re h o u s­
ing, foreign exchange, financing, a n d
ta k in g title to goods, w hen p ro v id e d in
o rd e r to facilita te th e e x p o rt o f goods
o r services p ro d u c e d in th e U n ite d
S tates;
(iii) th e te rm “ b a n k h o ld in g c o m p a ­
n y ” sh all in c lu d e a b a n k w h ic h ( I ) is
o rg a n iz e d solely to d o b u sin ess w ith
o th e r b a n k s a n d th e ir officers, d ire c ­
to rs, o r em ployees; ( I I ) is o w n ed p ri­
m a rily by th e b an k s w ith w h ich it does
business; a n d ( I I I ) does n o t d o b u si­
ness w ith th e gen eral public. N o such
o th e r b a n k , ow ning sto c k in a b a n k d e ­
scrib ed in th is clause th a t invests in an
e x p o rt tra d in g co m p an y , sh all e x ten d




Statutory Provisions
c re d it to an e x p o rt tra d in g c o m p a n y in
an a m o u n t ex ceed in g a t a n y o n e tim e
10 p e r c e n tu m o f su c h o th e r b a n k ’s
c a p ita l a n d su rp lu s; a n d
(iv )
th e te rm “ ex ten sio n o f c re d it”
sh all h av e th e sam e m e a n in g given
su ch te rm in th e fo u rth p a ra g ra p h o f
section 23 A o f th e F e d e ra l R eserv e
A ct.
( G ) (i) F o r p u rp o se s o f d e te rm in in g
w h e th e r a n e x p o rt tra d in g c o m p a n y is
o p e ra te d p rin c ip a lly fo r th e p u rp o se s
d escrib ed in su b p a ra g ra p h ( F ) ( i ) —
( I ) th e o p e ra tio n s o f su c h c o m p a n y
d u rin g th e 2 -y ear p e rio d b e g in n in g
on th e d a te su c h c o m p a n y c o m ­
m ences o p e ra tio n s sh all n o t be ta k e n
in to a c c o u n t in m a k in g an y su c h d e ­
te rm in a tio n ; a n d
( I I ) n o t less th a n 4 co n secu tiv e
y ears o f o p e ra tio n s o f su c h c o m p a n y
(n o t in c lu d in g a n y p o rtio n o f th e p e­
rio d re fe rre d to in su b clau se ( I ) )
sh all be ta k e n in to a c c o u n t in m a k ­
ing a n y su c h d e te rm in a tio n .
(ii) A c o m p a n y sh a ll n o t be tre a te d as
o p e ra te d p rin c ip a lly fo r th e p u rp o se s
d escrib ed in su b p a ra g ra p h ( F ) ( i ) u n ­
less—
( I ) th e rev en u es o f su c h c o m p a n y
fro m th e e x p o rt, o r fa c ilita tin g th e
ex p o rt, o f g o o d s o r services p ro ­
d u c e d in th e U n ite d S tates exceed
th e rev en u es o f su c h c o m p a n y fro m
th e im p o rt, o r fa c ilita tin g th e im ­
p o rt, in to th e U n ite d S tates o f g oods
o r services p ro d u c e d o u tsid e th e
U n ite d S tates; a n d
( I I ) a t least ^ o f su c h c o m p a n y ’s
to ta l rev en u es a re rev en u es fro m th e
ex p o rt, o r fa c ilita tin g th e e x p o rt, o f
goods o r services p ro d u c e d in th e
U n ite d S tates by p e rso n s n o t affiliat­
ed w ith su c h co m p an y .
( H ) (i) T h e B o a rd m ay n o t p rescrib e
by re g u la tio n a n y m a x im u m d o lla r
a m o u n t lim ita tio n on th e valu e o f
goods w h ic h a n e x p o rt tra d in g c o m p a ­
ny m ay m a in ta in in in v e n to ry a t an y
tim e.
(ii) N o tw ith s ta n d in g clau se ( i ) , th e
B o a rd m ay issue an o rd e r estab lish in g

41

Statutory Provisions

Regulation K

a m a x im u m d o lla r a m o u n t lim ita tio n
on th e v alu e o f goods w h ich a p a rtic u ­
la r e x p o rt tra d in g c o m p a n y m ay m a in ­
ta in in in v e n to ry a t a n y tim e (a fte r
su c h c o m p a n y has been o p e ra tin g fo r a
re a so n a b le perio d o f tim e ) if th e B o ard
finds th a t, u n d e r th e facts a n d c irc u m ­
stan ces, su c h lim ita tio n is necessary to
p re v e n t risk s th a t w o u ld affect th e fi­
n a n c ia l o r m an a g e ria l reso u rces o f an
in v e s to r b a n k h o ld in g c o m p a n y to an
e x te n t w h ic h w o u ld be likely to h av e a
m a te ria lly ad v erse effect on th e safety
a n d so u n d n e ss o f an y su b sid ia ry b a n k
o f su c h b a n k h o ld in g co m p an y .
In th e ev en t o f th e failure o f th e B o a rd to
a c t o n a n y a p p lic a tio n fo r a n o rd e r u n d e r
p a ra g ra p h ( 8 ) o f th is su b se c tio n w ith in th e
n in e ty -o n e -d a y p erio d w h ic h begins o n th e
d a te o f su b m issio n to th e B o a rd o f th e c o m ­
p le te re c o rd on th a t a p p lic a tio n , th e a p p li­
c a tio n sh all be d eem ed to h av e been g ra n t­
ed. T h e B o a rd sh all in c lu d e in its a n n u a l
re p o rt to th e C o ngress a d e sc rip tio n a n d a
sta te m e n t o f th e reaso n s fo r a p p ro v a l o f
e ach activ ity ap p ro v e d by it by o rd e r o r reg ­
u la tio n u n d e r su ch p a ra g ra p h d u rin g th e
p e rio d co v ered by th e re p o rt.

*

*

*

*

*

[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); Oct. 22,
1986 (100 Stat. 2095); and Aug. 23, 1988 (102 Stat.
1384).]

IN TER N A TIO N A L B A N K IN G ACT
OF 1978
SECTION 1— Short Title; Definitions
and Rules o f Construction
( a ) T h is A c t m a y be cited as th e “ I n te rn a ­
tio n a l B an k in g A c t o f 1978” .
(b ) F o r th e p u rp o se s o f th is A c t—
(1 ) “ a g e n c y ” m ean s a n y office o r an y place
o f b usiness o f a foreign b a n k lo c a te d in an y
S ta te o f th e U n ite d S tates a t w h ic h c re d it
b a la n c e s a re m a in ta in e d in c id e n ta l to o r
arisin g o u t o f th e exercise o f b a n k in g p o w ­
ers, ch e c k s a re p aid, o r m o n ey is lent b u t a t
w h ic h d ep o sits m ay n o t be acc e p te d fro m

42




c itizen s o r resid e n ts o f th e U n ite d S tates;
(2 ) “ B o a rd ” m ean s th e B o a rd o f G o v e r­
n o rs o f th e F e d e ra l R eserv e System ;
( 3 ) “ b ra n c h ” m ean s an y office o r any
p lace o f b usiness o f a foreign b a n k lo cated
in an y S tate o f th e U n ite d S tates a t w h ich
d ep o sits a re received;
( 4 ) “ C o m p tro lle r” m ean s th e C o m p tro lle r
o f th e C u rre n c y ;
(5 ) “ F e d e ra l a g e n c y ” m ean s an agency o f
a foreign b a n k estab lish ed a n d o p e ra tin g
u n d e r sectio n 4 o f th is A ct;
(6 ) “ F e d e ra l b ra n c h ” m ean s a b ra n c h o f a
foreign b a n k estab lish ed a n d o p e ra tin g u n ­
d e r sectio n 4 o f th is A ct;
(7 ) “ foreign b a n k ” m e a n s an y c o m p an y
o rg a n iz e d u n d e r th e law s o f a foreign c o u n ­
try , a te rrito ry o f th e U n ite d S tates, P u e rto
R ico, G u a m , A m e ric a n S am oa, o r th e V ir­
gin Islan d s, w h ic h engages in th e business
o f b a n k in g , o r a n y su b sid ia ry o r affiliate, o r­
gan ize d u n d e r su c h law s, o f an y su ch c o m ­
p any. F o r th e p u rp o se s o f th is A c t th e te rm
“ foreign b a n k ” in clu d es, w ith o u t lim ita tio n ,
foreign c o m m e rc ia l b a n k s, foreign m e r­
c h a n t b a n k s a n d o th e r foreign in s titu tio n s
th a t engage in b a n k in g a c tiv ities u su a l in
c o n n e c tio n w ith th e b u sin ess o f b a n k in g in
th e c o u n trie s w h e re su c h foreign in s titu ­
tio n s a re o rg a n iz e d o r o p eratin g ;
(8 ) “ foreign c o u n try ” m ean s an y c o u n try
o th e r th a n th e U n ite d S tates, a n d in clu d es
a n y co lony, d ep en d en cy , o r possession o f
a n y su ch c o u n try ;
(9 ) “ c o m m e rc ia l len d in g c o m p a n y ” m ean s
an y in s titu tio n , o th e r th a n a b a n k o r an o r­
g a n iz a tio n o p e ra tin g u n d e r sectio n 25 o f th e
F e d e ra l R eserv e A c t, o rg a n iz e d u n d e r th e
law s o f an y S tate o f th e U n ite d S tates, o r
th e D is tric t o f C o lu m b ia w h ic h m a in ta in s
c re d it balan c es in c id e n ta l to o r a risin g o u t
o f th e exercise o f b a n k in g p o w ers a n d e n ­
gages in th e b u sin ess o f m a k in g co m m e rc ia l
loans;
(1 0 ) “ S ta te ” m ean s an y S ta te o f th e U n it­
ed S tates o r th e D is tric t o f C o lu m b ia;
(1 1 ) “ S tate a g e n c y ” m e a n s an agency o f a
foreign b a n k esta b lish e d a n d o p e ra tin g u n ­
d e r th e law s o f an y State;
(1 2 ) “ S tate b ra n c h ” m e a n s a b ra n c h o f a
foreign b a n k esta b lish e d a n d o p e ra tin g un-

Regulation K
d e r th e law s o f a n y State;
(1 3 ) th e te rm s “ b a n k ” , “ b a n k h o ld in g
c o m p a n y ” , “ c o m p a n y ” , “ c o n tro l” , a n d
“ su b s id ia ry ” h av e th e sam e m ean in g s a s­
signed to th o se te rm s in th e B a n k H o ld in g
C o m p a n y A c t o f 1956, a n d th e te rm s “ c o n ­
tro lle d ” a n d “ c o n tro llin g ” sh all be c o n ­
s tru e d c o n siste n tly w ith th e te rm “ c o n tro l”
as defined in sectio n 2 o f th e B a n k H o ld in g
C o m p a n y A c t o f 1956; a n d
(1 4 ) “ c o n so lid a te d ” m ean s c o n so lid a te d in
a c c o rd a n c e w ith g enerally acc e p te d a c ­
c o u n tin g p rin cip les in th e U n ite d S tates
co n siste n tly applied.
[12 USC 3101.]

SECTION 3— Purpose
( a ) It is th e p u rp o se o f th is se ctio n to e lim i­
n a te o r m odify p ro v isio n s in se ctio n 2 5 ( a ) o f
th e F e d e ra l R eserv e A c t th a t (1 ) d isc rim in a te
a g a in st fo reig n -o w n ed b a n k in g in s titu tio n s,
(2 ) d isa d v a n ta g e o r u n n ecessarily re s tric t o r
lim it c o rp o ra tio n s o rg an ized u n d e r sectio n
2 5 ( a ) o f th e F e d e ra l R eserv e A c t in c o m p e t­
ing w ith fo reig n -o w n ed b a n k in g in s titu tio n s in
th e U n ite d S tates o r a b ro a d o r ( 3 ) im p ed e th e
a tta in m e n t o f th e C o n g ressio n al p u rp o se s set
fo rth in section 2 5 ( a ) o f th e F e d e ra l R eserv e
A c t as a m e n d e d by su b sectio n ( b ) o f th is sec­
tio n . In fu rth e ra n c e o f su ch p u rp o se , th e C ongrees believes th a t th e B o ard sh o u ld review
a n d revise its rules, reg u latio n s, a n d in te rp re ­
ta tio n s issu ed p u rs u a n t to se ctio n 2 5 ( a ) o f th e
F e d e ra l R eserv e A c t to e lim in a te o r m odify
a n y re stric tio n s, co n d itio n s, o r lim ita tio n s n o t
re q u ire d by sectio n 2 5 (a ) o f th e F e d e ra l R e ­
serve A c t, as am en d e d , th a t (1 ) d isc rim in a te
ag a in st fo reig n -o w n ed b a n k in g in s titu tio n s,
(2 ) d is a d v a n ta g e o r u n n ecessarily re s tric t o r
lim it c o rp o ra tio n s o rg a n iz e d u n d e r section
2 5 ( a ) o f th e F e d e ra l R eserv e A c t in c o m p e t­
ing w ith fo reig n -o w n ed b a n k in g in s titu tio n s in
th e U n ite d S tates o r a b ro a d , o r ( 3 ) im p ed e
th e a tta in m e n t o f th e C o n g ressio n al p u rp o ses
set fo rth in sectio n 2 5 ( a ) o f th e F e d e ra l R e ­
serve A c t as am e n d e d by su b sectio n (b ) o f
th is
th is
e ral
150

section. R u le s a n d re g u la tio n s p u rs u a n t to
su b sectio n a n d section 2 5 ( a ) o f th e F e d ­
R eserv e A c t sh all be issued n o t la te r th a n
d a y s a fte r th e d a te o f e n a c tm e n t o f th is




Statutory Provisions
section a n d sh all be issued in final fo rm an d
b ecom e effective n o t la te r th a n 120 d ay s a fte r
th ey a re first issued.
[12 USC 61 la note.]

*

*

*

*

*

[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.]

( h ) A s p a rt o f its a n n u a l re p o rt p u rs u a n t to
section 10 o f th e F e d e ra l R eserv e A c t, th e
B o ard sh all in clu d e its assessm en t o f th e ef­
fects o f th e a m e n d m e n ts m a d e by th is A c t on
th e c a p ita liz a tio n a n d a c tiv ities o f c o rp o ra ­
tio n s o rg a n iz e d o r o p e ra tin g u n d e r sectio n 25
o r 2 5 ( a ) o f th e F e d e ra l R eserv e A c t, a n d on
c o m m e rc ia l b a n k s a n d th e b an k in g system .
[12 USC 247 note.]

*

*

*

*

*

SECTION 5— Interstate Banking by
Foreign Banks
( a ) E x c e p t as p ro v id e d by su b sectio n ( b ) ,
(1 ) n o foreign b a n k m ay d ire c tly o r in d ire c tly
estab lish a n d o p e ra te a F e d e ra l b ra n c h o u tsid e
o f its h o m e S tate un less ( A ) its o p e ra tio n is
expressly p e rm itte d by th e S tate in w h ich it is
to be o p e ra te d , a n d (B ) th e foreign b a n k sh all
e n te r in to an a g re e m e n t o r u n d e rta k in g w ith
th e B o a rd to receive o n ly su ch d e p o sits a t th e
p lace o f o p e ra tio n o f su c h F e d e ra l b ra n c h as
w o u ld be p erm issib le fo r a c o rp o ra tio n o rg a ­
nized u n d e r section 2 5 ( a ) o f th e F e d e ra l R e ­
serve A c t u n d e r ru les a n d re g u la tio n s a d m in ­
istered by th e B o ard ; (2 ) no foreign b a n k m ay
d ire c tly o r in d ire c tly estab lish a n d o p e ra te a
S tate b ra n c h o u tsid e o f its h o m e S tate unless
( A ) it is ap p ro v e d by th e b a n k re g u la to ry a u ­
th o rity o f th e S ta te in w h ic h su ch b ra n c h is to
be o p e ra te d , a n d (B ) th e foreign b a n k shall
e n te r in to an ag re e m e n t o r u n d e rta k in g w ith
th e B o ard to receive o n ly su ch d ep o sits at th e
p lace o f o p e ra tio n o f su ch S tate b ra n c h as
w o u ld be p erm issib le fo r a c o rp o ra tio n o rg a ­
n ized u n d e r section 2 5 ( a ) o f th e F e d e ra l R e ­
serve A c t u n d e r ru les a n d re g u la tio n s a d m in ­

43

Statutory Provisions
istered by th e B o ard ; (3 ) no foreign b a n k m ay
d ire c tly o r in d ire c tly estab lish a n d o p e ra te a
F e d e ra l agency o u tsid e o f its h o m e S tate u n ­
less its o p e ra tio n is expressly p e rm itte d by th e
S tate in w h ich it is to be o p e ra te d ; ( 4 ) no
foreign b a n k m ay d ire c tly o r in d ire c tly e sta b ­
lish a n d o p e ra te a S tate agency o r co m m e rc ia l
len d in g c o m p a n y su b sid iary o u tsid e o f its
h o m e S tate, unless its e sta b lish m e n t a n d o p e r­
a tio n is a p p ro v e d by th e b a n k re g u la to ry a u ­
th o rity o f th e S tate in w h ich it is to be o p e ra t­
ed; a n d (5 ) n o foreign b a n k m a y d ire c tly o r
in d ire c tly a c q u ire an y vo tin g sh a re s of, in te r­
est in, o r su b sta n tia lly all o f th e assets o f a
b a n k lo c a te d o u tsid e o f its h o m e S tate if su ch
a c q u isitio n w o u ld be p ro h ib ite d u n d e r section
3 ( d ) o f th e B a n k H o ld in g C o m p a n y A c t o f
1956 if th e foreign b a n k w ere a b a n k h o ld in g
c o m p a n y th e o p e ra tio n s o f w h o se b a n k in g
su b sid iaries w ere p rin c ip a lly c o n d u c te d in th e
foreign b a n k ’s h o m e S tate. N o tw ith s ta n d in g
an y o th e r p ro v isio n s o f F e d e ra l o r S tate law ,
d ep o sits received by a n y F e d e ra l o r S tate
b ra n c h su b ject to th e lim ita tio n s o f a n a g re e ­
m e n t o r u n d e rta k in g im p o sed u n d e r th is su b ­
sectio n sh all n o t be subject to a n y re q u ire m e n t
o f m a n d a to ry in su ra n c e by th e F e d e ra l D e p o ­
sit In s u ra n c e C o rp o ra tio n .
( b ) U n less its a u th o rity to d o so is law fully
rev o k ed o th erw ise th a n p u rs u a n t to th is sec­
tio n , a foreig n b a n k , n o tw ith sta n d in g a n y re ­
stric tio n o r lim ita tio n im p o sed u n d e r su b sec­
tio n ( a ) o f th is section, m ay e sta b lish a n d o p ­
erate, o u tsid e its h o m e S tate, a n y S tate
b ra n c h , S tate agency, o r b a n k o r co m m e rc ia l
len d in g c o m p a n y su b sid iary w h ic h c o m ­
m e n c e d law ful o p e ra tio n o r fo r w h ic h a n a p ­
p lic a tio n to c o m m en ce b usiness h a d been la w ­
fully filed w ith th e a p p ro p ria te S tate o r F e d e r­
al a u th o rity , as th e case m ay be, o n o r before
Ju ly 27, 1978.
( c ) F o r th e p u rp o ses o f th is sectio n , th e
h o m e S ta te o f a foreign b a n k th a t h a s b ra n c h ­
es, agencies, su b sid ia ry c o m m e rc ia l len d in g
co m p an ies, o r su b sid iary b an k s, o r a n y c o m b i­
n a tio n th e re o f, in m o re th a n o n e S tate, is
w h ic h e v e r o f su c h S tate is so d e te rm in e d by
elec tio n o f th e foreign b a n k , o r, in d e fa u lt o f
su c h elec tio n , by th e B oard.
[12 USC 3103.]
44




Regulation K
SECTION 7— Authority of Federal
Reserve System
( a ) ( 1 ) ( A ) E x c e p t as p ro v id e d in p a ra g ra p h
(2 ) o f th is su b sectio n , su b sectio n s ( a ) ,
(b ), (c ), (d ) , ( 0 , (g ), (i), (j), (k ), and
th e seco n d se n ten ce o f su b sectio n (e ) o f
section 19 o f th e F e d e ra l R eserv e A c t
sh all ap p ly to every F e d e ra l b ra n c h a n d
F e d e ra l agency o f a foreign b a n k in th e
sam e m a n n e r a n d to th e sam e e x te n t as if
th e F e d e ra l b ra n c h o r F e d e ra l agency
w ere a m e m b e r b a n k as th a t te rm is d e ­
fined in sectio n 1 o f th e F e d e ra l R eserv e
A ct; b u t th e B o a rd e ith e r by g en e ra l o r
specific re g u la tio n o r ru lin g m ay w aive
th e m in im u m a n d m a x im u m reserve r a ­
tio s p re sc rib e d u n d e r sectio n 19 o f th e
F e d e ra l R eserv e A c t a n d m ay p rescrib e
an y ra tio , n o t m o re th a n 22 p e r ce n tu m ,
fo r an y o b lig a tio n o f a n y su c h F e d e ra l
b ra n c h o r F e d e ra l ag en cy th a t th e B o ard
m ay deem re a so n a b le a n d a p p ro p ria te ,
ta k in g in to c o n sid e ra tio n th e c h a ra c te r o f
b usiness c o n d u c te d by su c h in s titu tio n s
a n d th e n eed to m a in ta in v ig o ro u s a n d
fa ir c o m p e titio n b etw een a n d am o n g
su c h in s titu tio n s a n d m e m b e r b an k s. T h e
B o a rd m ay im p o se reserv e re q u ire m e n ts
on F e d e ra l b ra n c h e s a n d F e d e ra l a g e n ­
cies in su c h g ra d u a te d m a n n e r as it
deem s re a so n a b le a n d a p p ro p ria te .
(B ) A fte r c o n su lta tio n a n d in c o o p e ra ­
tio n w ith th e S ta te b a n k su p erv iso ry a u ­
th o ritie s, th e B o a rd m a y m a k e a p p licab le
to an y S ta te b ra n c h o r S ta te agency an y
re q u ire m e n t m a d e ap p lic a b le to , o r
w h ich th e B o a rd h a s a u th o rity to im pose
u p o n , a n y F e d e ra l b ra n c h o r ag ency u n ­
d e r su b p a ra g ra p h ( A ) o f th is p a ra g ra p h .
(2 ) A b ra n c h o r agency sh all be subject to
th is su b sectio n o n ly if ( A ) its p a re n t fo r­
eign b a n k h as to ta l w o rld w id e co n so lid a te d
b a n k assets in excess o f $1,000,000,000; (B )
its p a re n t foreign b a n k is c o n tro lle d by a
foreign c o m p a n y w h ic h o w ns o r c o n tro ls
foreign b a n k s th a t in th e a g g re g a te h av e to ­
ta l w o rld w id e c o n so lid a te d b a n k assets in
excess o f $1,000,000,000; o r ( C ) its p a re n t
foreign b a n k is c o n tro lle d by a g ro u p o f fo r­
eign c o m p a n ie s th a t ow n o r c o n tro l foreign
b a n k s th a t in th e a g g re g a te h av e to ta l

Regulation K

Statutory Provisions

loans to affiliates o r c a p ita l ad e q u a c y re q u ire ­
m e n ts w h ich sh o u ld be im p o sed on foreign
b a n k s to c a rry o u t th e p u rp o se s o f th is A ct.
[12 USC 3105(a).]
N o t la te r th a n o n e h u n d re d a n d e ig h ty d ays
a fte r th e e n a c tm e n t o f th is A c t, th e B o ard
[Subsection (b) added a new paragraph to the end of Fed­
eral Reserve Act section 13.]
shall re p o rt to su c h C o m m itte e s th e steps
w hich h av e been ta k e n to c o n su lt a n d c o o p e r­
( c ) (1 ) T h e B o a rd m ay m a k e e x a m in a tio n s o f a te w ith S tate b a n k su p erv iso ry a u th o ritie s as
re q u ire d by su b sectio n ( a ) ( 1 ) ( B ) .
e ach b ra n c h o r agency o f a foreign b an k ,
a n d o f e ach c o m m ercial len d in g c o m p a n y
[12 USC 3105(c).]
o r b a n k c o n tro lle d by one o r m o re foreign
b a n k s o r by o n e o r m o re foreign c o m p an ies
th a t c o n tro l a foreign b a n k , th e co st o f
w h ic h sh all be assessed a g a in st a n d p a id by
SECTION 8— Nonbanking Activities
su c h foreign b a n k o r co m p a n y , as th e case
( a ) E x c e p t as o th e rw ise p ro v id e d in th is sec­
m ay be. T h e B o a rd sh all, in so fa r as p o ssi­
tio n (1 ) an y fo reig n b a n k th a t m a in ta in s a
ble, use th e re p o rts o f e x a m in a tio n s m a d e
b ra n c h o r ag en cy in a S tate, (2 ) an y foreign
by th e C o m p tro lle r, th e F e d e ra l D e p o sit I n ­
b a n k o r foreign c o m p a n y c o n tro llin g a foreign
su ra n c e C o rp o ra tio n , o r th e a p p ro p ria te
b a n k th a t c o n tro ls a c o m m e rc ia l len d in g c o m ­
S ta te b a n k su p erv iso ry a u th o rity fo r th e
p an y o rg a n iz e d u n d e r S ta te law , a n d ( 3 ) an y
p u rp o se s o f th is subsection.
c o m p a n y o f w h ic h a n y foreign b a n k o r c o m ­
(2 ) E a c h b ra n c h o r agency o f a foreign
p an y re fe rre d to in (1 ) a n d ( 2 ) is a su b sid ia ry
b a n k , o th e r th a n a F e d e ra l b ra n c h o r a g e n ­
sh all be su b ject to th e p ro v isio n s o f th e B an k
cy, sh all be su b ject to p a ra g ra p h 20 a n d th e
H o ld in g C o m p a n y A c t o f 1956, a n d to sec­
p ro v isio n re q u irin g th e re p o rts o f c o n d itio n
tio n s 105 a n d 106 o f th e B a n k H o ld in g C o m ­
c o n ta in e d in p a ra g ra p h 6 o f sectio n 9 o f th e
p an y A c t A m e n d m e n ts o f 1970 in th e sam e
F e d e ra l R eserv e A c t (1 2 U .S .C . 335 a n d
m a n n e r a n d to th e sam e e x te n t th a t b a n k
3 24) to th e sam e e x te n t a n d in th e sam e
h o ld in g c o m p a n ie s a re su b ject th e re to , except
m a n n e r as if th e b ra n c h o r agency w ere a
th a t an y su c h fo reig n b a n k o r c o m p a n y sh all
S ta te m e m b e r b a n k . In a d d itio n to a n y re ­
n o t by re a so n o f th is su b sectio n be deem e d a
q u ire m e n ts im p o sed u n d e r sectio n 4 o f th is
b a n k h o ld in g c o m p a n y fo r p u rp o se s o f section
A c t, e ach F e d e ra l b ra n c h a n d agency sh all
3 o f th e B a n k H o ld in g C o m p a n y A c t o f 1956.
be su b ject to s u b p a ra g ra p h ( a ) o f sectio n
w o rld w id e c o n so lid a te d b a n k assets in ex­
cess o f $1,000,000,000.

11 o f th e F e d e ra l R eserv e A c t (1 2 U .S .C .
2 4 8 ( a ) ) a n d to p a ra g ra p h 5 o f se ctio n 21 o f
th e F e d e ra l R eserv e A c t (1 2 U .S .C . 4 8 3 ) to
th e sam e e x te n t a n d in th e sam e m a n n e r as
if it w ere a m e m b e r bank.
[12 USC 3105(b).]

( d ) O n o r before tw o y ears a fte r e n a c tm e n t
o f th is A c t, th e B o a rd a fte r c o n su lta tio n w ith
th e a p p ro p ria te S tate b a n k su p erv iso ry a u ­
th o ritie s sh all re p o rt to th e C o m m itte e on
B an k in g , F in a n c e a n d U rb a n A ffairs o f th e
U n ite d S tates H o u se o f R e p re se n ta tiv e s a n d
th e C o m m itte e o n B an k in g , H o u sin g , a n d
U rb a n A ffairs o f th e U n ite d S tates S en ate its
re c o m m e n d a tio n s w ith re sp e c t to th e im p le ­
m e n ta tio n o f th is A c t, in c lu d in g a n y re c o m ­
m e n d e d re q u ire m e n ts su ch as lim ita tio n s on




( b ) U n til D e c e m b e r 31, 1985, a foreign b a n k
o r o th e r c o m p a n y to w h ic h su b sectio n ( a ) a p ­
plies on th e d a te o f e n a c tm e n t o f th is A c t m ay
re ta in d ire c t o r in d ire c t o w n e rsh ip o r c o n tro l
o f an y v o tin g sh a re s o f a n y n o n b a n k in g c o m ­
p a n y in th e U n ite d S tates th a t it ow ned, c o n ­
tro lle d , o r h e ld w ith p o w e r to v o te on th e d a te
o f e n a c tm e n t o f th is A c t o r engage in an y n o n ­
b a n k in g activ ities in th e U n ite d S tates in
w h ich it w as engaged o n su c h date.
( c ) (1 ) A fte r D e c e m b e r 31, 1985, a foreign
b a n k o r o th e r c o m p a n y to w h ich su b sectio n
( a ) applies on th e d a te o f e n a c tm e n t o f th is
A c t o r o n th e d a te o f th e e sta b lish m e n t o f a
b ra n c h in a S ta te an a p p lic a tio n fo r w h ich
w as filed o n o r b efo re Ju ly 26, 1978 m ay
c o n tin u e to engage in n o n b a n k in g activities
in th e U n ite d S tates in w h ich d ire c tly o r
45

Statutory Provisions
th ro u g h an affiliate it w as law fully engaged
on Ju ly 26. 1978 (o r on a d a te su b seq u en t
to Ju ly 26. 1978, in th e case o f activities
c a rrie d on as th e resu lt o f th e d ire c t o r in d i­
rect acq u isitio n , p u rs u a n t to a b in d in g w rit­
ten c o n tra c t e n te re d into on o r before Ju ly
26, 1978, o f a n o th e r c o m p a n y engaged in
su ch a ctiv ities a t th e tim e o f a c q u is itio n ),
a n d m ay engage d ire c tly o r th ro u g h an affil­
iate in n o n b a n k in g activities in th e U n ite d
S tates w h ich a re covered by an a p p lic a tio n
to engage in su c h activities w h ich w as filed
on o r before Ju ly 26, 1978; except th a t th e
B o ard by o rd e r, a fte r o p p o rtu n ity fo r h e a r­
ing, m ay te rm in a te th e a u th o rity c o n fe rre d
by th is su b sectio n (c ) on an y su ch foreign
b a n k o r c o m p a n y to engage d ire c tly o r
th ro u g h an affiliate in an y activ ity o th e r­
w ise p e rm itte d by th is su b sectio n ( c ) if it
d e te rm in e s h a v in g d u e re g a rd to th e p u r­
poses o f th is A c t an d th e B ank H o ld in g
C o m p a n y A c t o f 1956, th a t su ch a c tio n is
n ecessary to p re v e n t u n d u e c o n c e n tra tio n
o f reso u rces, decreased o r u n fa ir c o m p e ti­
tio n , conflicts o f in terest, o r u n so u n d b a n k ­
ing p ra c tic e s in th e U n ite d S tates. N o tw ith ­
sta n d in g su b sectio n (a ) o f th is sectio n , a
foreign b a n k o r co m p a n y referred to in th is
su b sectio n m ay re ta in o w n e rsh ip o r c o n tro l
o f an y voting sh a re s (o r, w h ere n ecessary to
p re v e n t d ilu tio n o f its voting in te re st, a c ­
q u ire a d d itio n a l voting s h a re s) o f an y d o ­
m e stic a lly -c o n tro lle d affiliate co vered in
1978 w h ich since Ju ly 26, 1978, h a s e n ­
gaged in th e b usiness o f u n d e rw ritin g , d is­
trib u tin g , o r o th erw ise bu y in g o r selling
sto ck s, b o n d s, a n d o th e r secu ri-ties in th e
U n ite d S tates, n o tw ith sta n d in g th a t su ch
affiliate a c q u ire d a fte r Ju ly 26, 1978, an in ­
terest in, o r an y o r all o f th e assets of, a
going c o n c e rn , o r co m m ences to engage in
a n y new activ ity o r activities. E x c e p t in th e
case o f affiliates d escrib ed in th e p reced in g
sentence, n o th in g in th is su b sectio n (c )
sh all be c o n stru e d to a u th o riz e an y foreign
b a n k o r c o m p a n y referred to in th is su b sec­
tio n ( c ) , o r a n y affiliate th ereo f, to engage
in activ itie s a u th o riz e d by th is su b sectio n
( c ) th ro u g h th e acq u istio n , p u rs u a n t to a
c o n tra c t e n te re d in to a fte r Ju ly 26, 1978, o f
a n y in te re st in o r th e assets o f a going c o n ­
c e rn eng ag ed in su ch activities. A n y foreign

46




Regulation K
b a n k o r c o m p a n y th a t is a u th o riz e d to e n ­
gage in any a c tiv itiy p u rs u a n t to th is su b ­
section ( c ) b u t, as a re su lt o f ac tio n o f th e
B oard, is re q u ire d to te rm in a te su ch a c tiv i­
ty m ay re ta in th e o w n e rsh ip o f c o n tro l o f
sh ares in an y c o m p a n y c a rry in g on su ch a c ­
tivity fo r a p e rio d o f tw o years fro m th e
d a te on w h ich its a u th o rity w as so te rm i­
n a te d by th e B o ard . A s used in th is su b sec­
tio n , th e te rm “ affiliate” sh all m ean any
c o m p a n y m o re th a n 5 p e r c e n tu m o f w hose
vo tin g sh a re s is d ire c tly o r in d ire c tly o w ned
o r c o n tro lle d o r h e ld w ith p o w e r to vote by
th e specified foreign b a n k o r co m p a n y , a n d
th e te rm “ d o m e stic a lly -c o n tro lle d affiliate
co vered in 1978” sh all m ean an affiliate o r ­
g a n ize d u n d e r th e law s o f th e U n ite d S tates
o r an y S tate th e re o f if ( i ) no foreign b an k
o r g ro u p o f foreign b a n k s a c tin g in c o n c e rt
ow ns o r c o n tro ls, d ire c tly o r in d ire c tly , 45
p e r c e n tu m o r m o re o f its v o tin g shares,
a n d (ii) n o m o re th a n 20 p e r c e n tu m o f th e
n u m b e r o f d ire c to rs as esta b lish e d fro m
tim e to tim e to c o n stitu te th e w h o le b o a rd
o f d ire c to rs a n d 20 p e r c e n tu m o f th e ex ecu ­
tive officers o f su c h affiliate a re p erso n s affil­
iated w ith a n y su c h foreign b an k . F o r th e
p u rp o se o f th e p reced in g sentence, th e te rm
“ p erso n s affiliated w ith an y su ch foreign
b a n k ” sh all m ean ( A ) a n y p e rso n w h o is o r
w as an em ployee, officer, ag en t, o r d ire c to r
o f su ch foreign b a n k o r w h o o th e rw ise h as
o r h a d su ch a re la tio n sh ip w ith su ch foreign
b a n k th a t w o u ld lead su c h p erso n to re p re ­
sen t th e in te re sts o f su c h foreign b a n k , a n d
(B ) in th e case o f an y d ire c to r o f su c h d o ­
m estically c o n tro lle d affiliate co v ered in
1978, an y p erso n in fa v o r o f w hose election
as a d ire c to r votes w ere ca st by less th a n
tw o -th ird s o f all sh ares v o tin g in c o n n e c tio n
w ith su ch election o th e r th a n sh a re s ow ned
o r c o n tro lle d , d ire c tly o r in d ire c tly , by any
su c h foreign bank.
(2 ) T h e a u th o rity c o n fe rre d by th is su b sec­
tio n on a foreign b a n k o r o th e r c o m p a n y
sh all te rm in a te 2 y ears a fte r th e d a te on
w h ich su c h foreign b a n k o r o th e r c o m p a n y
becom es a “ b a n k h o ld in g c o m p a n y ” as d e ­
fined in se ctio n 2 ( a ) o f th e B an k H o ld in g
C om pany
A ct
o f 1956
(1 2
U .S .C .
1 8 4 1 (a ) ); except th a t th e B o ard m ay , u p o n
a p p lic a tio n o f su ch foreign b a n k o r o th e r

Regulation K

Statutory Provisions

co m p a n y , ex te n d th e 2 -y ear p erio d fo r n o t
m o re th a n o n e y e a r at a tim e, if, in its ju d g ­
m en t, su ch an ex ten sio n w o u ld n o t be d e tri­
m e n ta l to th e public in te re st, b u t n o such
e x ten sio n s sh all exceed 3 y ears in th e
aggregate.
( d ) N o th in g in th is section sh all be c o n stru e d
to define a b ra n c h o r agency o f a foreign b a n k
o r a c o m m e rc ia l len d in g c o m p a n y c o n tro lle d
by a foreign b a n k o r foreign c o m p a n y th a t
c o n tro ls a foreign b an k as a “ b a n k ” fo r th e
p u rp o se s o f a n y p ro v isio n s o f th e B a n k H o ld ­
ing C o m p a n y A c t o f 1956, o r sectio n 105 o f
th e B an k H o ld in g C o m p a n y A c t A m e n d ­
m e n ts o f 1970, ex cep t th a t a n y su c h b ra n c h ,
agency o r c o m m e rc ia l len d in g c o m p a n y su b ­
sid ia ry ” sh all be deem ed a “ b a n k ” o r “ b a n k ­
ing su b s id ia ry ” , as th e case m ay be, fo r th e
p u rp o se s o f ap p ly in g th e p ro h ib itio n s o f sec­
tio n 106 o f th e B an k H o ld in g C o m p a n y A c t
A m e n d m e n ts o f 1970 a n d th e e x e m p tio n s p ro ­
vided in sectio n s 4 ( c ) ( 1 ) , 4 ( c ) ( 2 ) , 4 ( c ) ( 3 ) ,
a n d 4 ( c ) ( 4 ) o f th e B an k H o ld in g C o m p a n y
A c t o f 1956 (1 2 U .S .C . 1 8 4 3 (c ) ( 1 ) , (2 ) ,
( 3 ) , a n d ( 4 ) ) to an y foreign b a n k o r o th e r
c o m p a n y to w h ich su b sectio n ( a ) applies.
[12 USC 3106. As amended by acts of Oct. 15, 1982 (96
Stat. 1539) and Aug. 10, 1987 (101 Stat. 584).]
[Subsection (e) amended section 2(h) of the Bank Hold­
ing Company Act and provided an exemption from the
Bank Holding Company Act for foreign banks’ nonbanking
activities.]

SECTION 9— Operations
*

*

*

*

*

( b ) ( 1 ) E v ery b ra n c h o r agency o f a foreign
b a n k a n d every c o m m e rc ia l len d in g c o m p a ­
ny c o n tro lle d by one o r m o re foreign b a n k s
o r by o n e o r m o re foreign c o m p a n ie s th a t
c o n tro l a foreign b a n k sh all c o n d u c t its o p ­
e ra tio n s in th e U n ite d S tates in full c o m p li­
a n ce w ith p ro v isio n s o f a n y law o f th e U n it­
ed S tates o r a n y sta te th e re o f w h ic h —
( A ) p ro h ib it d isc rim in a tio n ag a in st any
in d iv id u a l o r o th e r p e rso n o n th e basis o f
th e race, c o lo r, religion, sex, m a rita l
sta tu s, age, o r n a tio n a l o rig in o f ( i ) such
in d iv id u a l o r o th e r p e rso n o r (ii) an y of­
ficer, d ire c to r, em ployee, o r c re d ito r of,




o r an y o w n e r o f a n y in te re st in, su c h in ­
d iv id u al o r o th e r p erso n ; a n d
(B ) ap p ly to n a tio n a l b a n k s o r Statec h a rte re d b a n k s d o in g b usiness in th e
S tate in w h ich su ch b ra n c h o r agency o r
co m m e rc ia l len d in g co m p a n y , as th e case
m ay be, is d o in g business.
( 2 ) N o a p p lic a tio n fo r a b ra n c h o r agency
sh all be a p p ro v e d by th e C o m p tro lle r o r by
a S tate b a n k su p erv iso ry a u th o rity , as th e
case m ay be, unless th e e n tity m a k in g th e
a p p lic a tio n h a s a g reed to c o n d u c t all o f its
o p e ra tio n s in th e U n ite d S tates in full c o m ­
p lia n c e w ith p ro v isio n s o f an y law o f th e
U n ite d S tates o r a n y S ta te th e re o f w h ic h —
( A ) p ro h ib it d is c rim in a tio n ag a in st in d i­
v id u als o r o th e r p e rso n s on th e basis o f
th e race, c o lo r, religion, sex, m a rita l
sta tu s, age, o r n a tio n a l o rig in o f ( i ) such
in d iv id u a l o r o th e r p erso n o r (ii) a n y o f­
ficer, d ire c to r, em ployee, o r c re d ito r of,
o r an y o w n e r o f a n y in te re st in, su c h in ­
d iv id u a l o r o th e r perso n ; a n d
(B ) ap p ly to n a tio n a l b a n k s o r S tatec h a rte re d b a n k s d o in g b usiness in th e
S ta te in w h ic h th e e n tity to be estab lish ed
is to d o business.
[12 USC 3106a.]

SECTION 10— Representative Offices
( a ) A n y foreign b a n k th a t m a in ta in s a n office
o th e r th a n a b ra n c h o r agency in a n y S tate
sh all re g iste r w ith th e S e c re ta ry o f th e T re a ­
su ry in a c c o rd a n c e w ith ru le s p re sc rib e d by
h im , w ith in one h u n d re d a n d e ig h ty d ay s a fte r
th e d a te o f e n a c tm e n t o f th is A c t [e n a c te d
Sept. 17, 1978] o r th e d a te o n w h ich th e office
is established, w h ic h e v e r is later.
( b ) T h is A c t does n o t a u th o riz e th e e sta b ­
lish m e n t o f a n y su c h office in a n y S tate in c o n ­
tra v e n tio n o f S tate L aw .
[12 USC 3107.]

SECTION 13— Regulation and
Enforcement
(a )

T h e C o m p tro lle r, th e B o ard , a n d th e
47

Statutory Provisions
F e d e ra l D e p o sit In s u ra n c e C o rp o ra tio n , are
a u th o riz e d a n d em po w ered to issue su ch
rules, re g u la tio n s, a n d o rd e rs as e ach o f th e m
m a y d eem n ecessary in o rd e r to p e rfo rm th e ir
re sp ectiv e d u tie s a n d fu n c tio n s u n d e r th is A c t
a n d to a d m in is te r a n d c a rry o u t th e p ro v isio n s
a n d p u rp o se s o f th is A c t a n d p re v e n t evasions
th ereo f.
(b ) In a d d itio n to an y pow ers, rem edies, o r
sa n c tio n s o th e rw ise p ro v id ed by law , c o m p li­
a n c e w ith th e re q u ire m e n ts im p o sed u n d e r
th is A c t o r an y a m e n d m e n t m a d e by th is A c t
m ay be en fo rced u n d e r section 8 o f th e F e d e r­
al D e p o sit In s u ra n c e A c t by a n y a p p ro p ria te
F e d e ra l b a n k in g agency as defined in th a t A ct.
( c ) In th e case o f an y pro v isio n o f th e F e d e r­
al R eserv e A c t to w hich a foreign b a n k o r
b ra n c h th e re o f is subject u n d e r th is A c t, a n d
w h ich is m a d e applicab le to n o n m e m b e r in ­
su re d b a n k s by th e F e d e ra l D e p o sit In s u ra n c e
A c t, w h e th e r by cro ss-referen ce to th e F e d e ra l
R eserv e A c t o r by a p ro v isio n in su b sta n tia lly
th e sam e te rm s in th e F e d e ra l D e p o sit In s u r­
a n ce A c t, th e a d m in is tra tio n , in te rp re ta tio n ,
a n d e n fo rc e m e n t o f such p ro v isio n , in so fa r as
it relates to a n y foreign b a n k o r b ra n c h th e re ­
o f as to w h ic h th e B o ard is a n a p p ro p ria te
F e d e ra l b a n k in g agency, a re vested in th e
B o ard , b u t w h ere th e m a k in g o f a n y re p o rt to
th e B o a rd o r a F e d e ra l R eserv e b a n k is re ­
q u ire d u n d e r a n y su c h p ro v isio n , th e F e d e ra l
D e p o sit In s u ra n c e C o rp o ra tio n m a y re q u ire
th a t a d u p lic a te o f any su ch re p o rt be sen t
d ire c tly to it. T h is su bsection sh all n o t be c o n ­
s tru e d to im p a ir a n y po w er o f th e F e d e ra l D e ­
p o sit In s u ra n c e C o rp o ra tio n to m a k e re g u la r
o r sp ecial e x a m in a tio n s o r to re q u ire sp ecial
re p o rts.
[12 USC 3108.]

B A N K EXPORT SERVICES ACT
SECTION 202— Purpose
T h e C o n g ress h e re b y d ecla res th a t it is th e
p u rp o se o f th is title to p ro v id e fo r m e an in g fu l
a n d effective p a rtic ip a tio n by b a n k h o ld in g
co m p an ies, b a n k e rs ’ b an k s, a n d E d g e A c t c o r­
p o ra tio n s, in th e financing a n d d ev e lo p m e n t o f
e x p o rt tra d in g c o m p an ies in th e U n ite d
48




Regulation K
States. In fu rth e ra n c e o f su c h p u rp o se , th e
C o n g ress in te n d s th a t, in im p le m e n tin g its a u ­
th o rity u n d e r sectio n 4 ( c ) (1 4 ) o f th e B an k
H o ld in g C o m p a n y A c t o f 1956, th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserv e System
sh o u ld p u rsu e re g u la to ry policies th a t—
( 1 ) p ro v id e fo r th e e sta b lish m e n t o f ex p o rt
tra d in g c o m p an ies w ith p o w ers sufficiently
b ro a d to en ab le th e m to c o m p e te w ith sim i­
la r foreig n -o w n ed in s titu tio n s in th e U n ite d
S tates a n d ab ro a d ;
(2 ) afford to U n ite d S tates co m m erce, in ­
d u stry , a n d a g ric u ltu re , especially sm alla n d m ed iu m -size firm s, a m ean s o f e x p o rt­
ing a t all tim es;
( 3 ) fo ste r th e p a rtic ip a tio n by reg io n al a n d
sm a lle r b a n k s in th e d e v e lo p m e n t o f e x p o rt
tra d in g co m p an ies; a n d
( 4 ) fac ilita te th e fo rm a tio n o f jo in t v e n tu re
e x p o rt tra d in g c o m p a n ie s betw een b a n k
h o ld in g c o m p a n ie s a n d n o n b a n k firm s th a t
p ro v id e fo r th e efficient c o m b in a tio n o f
c o m p le m e n ta ry tra d e a n d financing services
desig n ed to c re a te e x p o rt tra d in g c o m p an ies
th a t c a n h a n d le all o f an ex p o rtin g c o m ­
p a n y ’s needs.
[12 USC 1843 note.]

SECTION 206— Guarantees for Export
Accounts Receivable and Inventory
T h e E x p o rt-Im p o rt B an k o f th e U n ite d S tates
is a u th o riz e d a n d d ire c te d to estab lish a p ro ­
g ra m to p ro v id e g u a ra n te e s fo r lo an s e x ten d e d
by financial in s titu tio n s o r o th e r p u b lic o r p ri­
vate c re d ito rs to e x p o rt tra d in g c o m p an ies as
defined in sectio n 4 ( c ) ( 1 4 ) ( F ) ( i ) o f th e
B an k H o ld in g C o m p a n y A c t o f 1956, o r to
o th e r e x p o rte rs, w h en su c h lo an s a re secu red
by e x p o rt a c c o u n ts receivable, in v en to ries o f
e x p o rta b le goods, a c c o u n ts receivable fro m
leases, p e rfo rm a n c e c o n tra c ts , g ra n t c o m m it­
m en ts, p a rtic ip a tio n fees, m e m b e r dues, rev e­
n u e fro m p u b lic a tio n s, o r su c h o th e r c o lla te ra l
as th e B o a rd o f D ire c to rs m ay deem a p p ro p ri­
ate, a n d w h en in th e ju d g m e n t o f th e B o a rd o f
D ire c to rs—
(1 ) th e p riv a te c re d it m a rk e t is n o t p ro v id ­
ing a d e q u a te financing to en a b le o th erw ise
c re d itw o rth y e x p o rt tra d in g c o m p a n ie s o r

Statutory Provisions

Regulation K
e x p o rte rs to c o n su m m a te e x p o rt tra n s a c ­
tions; a n d
(2 ) su c h g u a ra n te e s w o u ld fac ilita te ex­
p an sio n o f e x p o rts w h ich w o u ld n o t o th e r­
w ise o ccu r.
T h e B o a rd o f D ire c to rs sh all a tte m p t to in su re
th a t a m a jo r sh a re o f an y lo a n g u a ra n te e s u lti­
m a te ly serves to p ro m o te e x p o rts fro m sm all,
m ed iu m -size, a n d m in o rity businesses o r a g ri­
c u ltu ra l co n cern s. G u a ra n te e s p ro v id e d u n d e r
th e a u th o rity o f th is sectio n sh all be su b ject to
lim ita tio n s c o n ta in e d in a n n u a l a p p ro p ria tio n s
A cts.
[12 USC 635a-4. As amended by act of Nov. 30, 1983 (97
Stat. 1257). Section 203 of this act added paragraph (14)
to section 4(c) of the Bank Holding Company Act. Section
207 amended the seventh paragraph of section 13 of the
Federal Reserve Act.]

IN T E R N A T IO N A L L E N D IN G
SUPERVISION ACT

SECTION 901— Short Title
T h is title m a y be cited as th e “ In te rn a tio n a l
L e n d in g S u p erv isio n A c t o f 1983” .
[12 USC 3901 note.]

SECTION 902— Declaration of Policy
( a ) ( 1 ) It is th e policy o f th e C o n g ress to a s­
su re th a t th e eco n o m ic h e a lth a n d stab ility
o f th e U n ite d S tates a n d th e o th e r n a tio n s
o f th e w o rld sh all n o t be ad v ersely affected
o r th re a te n e d in th e fu tu re by im p ru d e n t
le n d in g p ra c tic e s o r in a d e q u a te supervision.
(2 ) T h is sh all be achieved by s tre n g th e n ­
ing th e b a n k re g u la to ry fra m e w o rk to e n ­
c o u ra g e p ru d e n t p riv a te d ecisio n m ak in g
a n d by e n h a n c in g in te rn a tio n a l c o o rd in a ­
tio n am o n g b a n k re g u la to ry a u th o ritie s.

SECTION 903— Definitions
F o r p u rp o ses o f th is title —
( 1 ) th e te rm “ a p p ro p ria te F e d e ra l b a n k in g
ag en cy ” h as th e sam e m e a n in g given su ch
te rm in section 3 (q ) o f th e F e d e ra l D e p o sit
In s u ra n c e A c t, ex cep t th a t fo r p u rp o se s o f
th is title su ch te rm m e a n s th e B o a rd o f
G o v e rn o rs o f th e F e d e ra l R eserv e S ystem
fo r—
( A ) b a n k h o ld in g c o m p an ies a n d an y
n o n b a n k su b sid ia ry thereof;
(B ) E d g e A c t c o rp o ra tio n s o rg a n iz e d
u n d e r sectio n 2 5 ( a ) o f th e F e d e ra l R e ­
serve A ct; a n d
( C ) A g re e m e n t C o rp o ra tio n s o p e ra tin g
u n d e r section 25 o f th e F e d e ra l R eserv e
A ct; a n d
(2 )
th e
te rm
“ b a n k in g
in s titu tio n ”
m e a n s—
( A ) ( i) a n in s u re d b a n k as defined in
sectio n 3 ( h ) o f th e F e d e ra l D e p o sit I n ­
su ra n c e A c t o r a n y su b sid ia ry o f an in ­
su re d ban k ;
(ii) an E d g e A c t c o rp o ra tio n o rg a ­
n ized u n d e r sectio n 2 5 ( a ) o f th e F e d ­
e ra l R eserv e A c t; a n d
(iii) a n A g re e m e n t C o rp o ra tio n o p e r­
a tin g u n d e r se ctio n 25 o f th e F e d e ra l
R eserv e A ct; a n d
(B ) to th e e x te n t d e te rm in e d by th e a p ­
p ro p ria te F e d e ra l b a n k in g agency, any
ag ency o r b ra n c h o f a fo reig n b a n k , a n d
a n y c o m m e rc ia l len d in g c o m p a n y ow ned
o r c o n tro lle d by one o r m o re foreign
b a n k s o r c o m p an ies th a t c o n tro l a foreign
b a n k as th o se te rm s a re defined in th e
In te rn a tio n a l B a n k in g A c t o f 1978. T h e
te rm “ b a n k in g in s titu tio n ” sh all n o t in ­
clu d e a foreign b an k .
[12 USC 3902.]

SECTION 904— Strengthened
Supervision of International Lending

( b ) T h e F e d e ra l b a n k in g agencies sh all c o n ­
su lt w ith th e b a n k in g su p erv iso ry a u th o ritie s
o f o th e r c o u n trie s to re a c h u n d e rs ta n d in g s
aim e d a t ach ie v in g th e a d o p tio n o f effective
a n d c o n siste n t su p erv iso ry policies a n d p ra c ­
tices w ith re sp e c t to in te rn a tio n a l lending.

( a ) E a c h a p p ro p ria te F e d e ra l b a n k in g a g en ­
cy sh all e v a lu a te b a n k in g in s titu tio n foreign
c o u n try ex p o su re a n d tra n s fe r risk fo r use
in b a n k in g in s titu tio n ex a m in a tio n a n d
supervision.

[12 USC 3901.]

(b ) E a c h su c h agency sh all estab lish exam i-




49

Statutory Provisions
n a tio n a n d su p erv iso ry p ro c e d u re s to assu re
th a t fa c to rs su c h as foreign c o u n try ex p o su re
a n d tra n s fe r risk a re ta k e n in to a c c o u n t in
ev a lu a tin g th e ad eq u acy o f th e c a p ita l o f
b a n k in g in stitu tio n s.

Regulation K
one h u n d re d a n d tw en ty d ay s a fte r th e d a te o f
th e e n a c tm e n t o f th is title.
[12 USC 3904.]

[12 u s e 3903.]

SECTION 906— Accounting for Fees on
International Loans
SECTION 905— Reserves
( a ) ( 1 ) E a c h a p p ro p ria te F e d e ra l b a n k in g
ag en cy sh a ll re q u ire a b a n k in g in s titu tio n to
esta b lish a n d m a in ta in a special reserve
w h en ev er, in th e ju d g m e n t o f su c h a p p ro ­
p ria te F e d e ra l b a n k in g ag en cy —
( A ) th e q u a lity o f su c h b a n k in g in s titu ­
tio n ’s assets h as been im p a ire d by a
p ro tra c te d in ab ility o f p u b lic o r p riv a te
b o rro w e rs in a foreign c o u n try to m ak e
p a y m e n ts o n th e ir e x te rn a l in d eb ted n ess
as in d ic a te d by such fa c to rs, am o n g o th ­
ers, as—
( i ) a failu re by su ch p u b lic o r p riv a te
b o rro w e rs to m ak e full in te re st p a y ­
m e n ts o n e x te rn a l in d eb ted n ess;
(ii) a failu re to c o m p ly w ith th e te rm s
o f a n y re s tru c tu re d in d eb ted n ess; o r
(iii) a failu re by th e fo reig n c o u n try to
c o m p ly w ith an y In te rn a tio n a l M o n e ­
ta ry F u n d o r o th e r su ita b le a d ju s tm e n t
p ro g ra m ; o r
(B ) n o definite p ro sp e c ts exist fo r th e
o rd e rly re s to ra tio n o f d e b t service.
(2 ) S u ch reserves sh all be c h a rg e d ag a in st
c u rre n t in co m e a n d sh all n o t be c o n sid e re d
as p a rt o f c a p ita l a n d su rp lu s o r allo w an c es
fo r possible lo a n losses fo r re g u la to ry , su ­
p erv iso ry , o r disclo su re p u rposes.
(b ) T h e a p p ro p ria te F e d e ra l b a n k in g a g e n ­
cies sh all an a ly z e th e resu lts o f foreign loan
re sc h e d u lin g n eg o tiatio n s, assess th e lo a n loss
risk reflected in resch ed u lin g a g reem en ts, an d ,
u sin g th e p o w ers set fo rth in section 908 (r e ­
g a rd in g c a p ita l a d e q u a c y ), e n su re th a t th e
c a p ita l a n d reserv e p o sitio n s o f U n ite d S tates
b a n k s a re a d e q u a te to a c c o m m o d a te p o te n tia l
losses on th e ir foreign loans.
( c ) T h e a p p ro p ria te F e d e ra l b a n k in g a g e n ­
cies sh all p ro m u lg a te re g u la tio n s o r o rd e rs
n ecessary to im p le m e n t th is sectio n w ith in
50




( a ) (1 ) In o rd e r to a v o id excessive d e b t serv ­
ice b u rd e n s o n d e b to r c o u n trie s, n o b a n k in g
in s titu tio n sh all ch a rg e , in c o n n e c tio n w ith
th e re s tru c tu rin g o f a n in te rn a tio n a l loan,
an y fee exceeding th e a d m in is tra tiv e co st o f
th e re s tru c tu rin g u n less it a m o rtiz e s su ch
fee o v er th e effective life o f e a c h su c h loan.
(2 ) ( A ) E a c h a p p ro p ria te F e d e ra l b a n k in g
agency sh a ll p ro m u lg a te su c h re g u la tio n s
as a re n ecessary to fu r th e r c a rry o u t th e
p ro v isio n s o f th is su b sectio n .
(B ) T h e re q u ire m e n t o f p a ra g ra p h (1 )
sh all ta k e effect o n th e d a te o f th e e n a c t­
m e n t o f th is section.
( b ) ( 1 ) S ubject to su b sectio n ( a ) , th e a p p ro ­
p ria te F e d e ra l b a n k in g agencies sh all
p ro m u lg a te re g u la tio n s fo r a c c o u n tin g for
agency, c o m m itm e n t, m a n a g e m e n t a n d o th ­
e r fees c h a rg e d by a b a n k in g in s titu tio n in
c o n n e c tio n w ith an in te rn a tio n a l loan.
( 2 ) S uch re g u la tio n s sh all estab lish th e a c ­
c o u n tin g tr e a tm e n t o f su c h fees fo r re g u la ­
to ry , su p erv iso ry , a n d d isc lo su re p u rp o se s
to a ssu re th a t th e a p p ro p ria te p o rtio n o f
su c h fees is a c c ru e d in in co m e o v e r th e ef­
fective life o f each su c h loan.
(3 ) T h e a p p ro p ria te F e d e ra l b a n k in g a g e n ­
cies sh all p ro m u lg a te re g u la tio n s o r o rd e rs
n ecessary to im p le m e n t th is su b sectio n
w ith in one h u n d re d a n d tw e n ty d a y s a fte r
th e d a te o f th e e n a c tm e n t o f th is title.
[12 USC 3905.]

SECTION 907— Collection and
Disclosure of Certain International
Lending Data
( a ) E a c h a p p ro p ria te F e d e ra l b a n k in g ag en ­
cy sh all re q u ire , by re g u la tio n , each b a n k in g
in s titu tio n w ith fo reig n c o u n try e x p o su re to
su b m it, n o few er th a n fo u r tim e s e a c h c a le n ­

Regulation K
d a r y ear, in fo rm a tio n re g a rd in g su ch ex p o su re
in a fo rm a t p rescrib ed by su ch re g u latio n s.
( b ) E a c h a p p ro p ria te F e d e ra l b a n k in g ag en ­
cy sh all req u ire , by reg u la tio n , b a n k in g in s ti­
tu tio n s to disclose to th e pu b lic in fo rm a tio n
re g a rd in g m a te ria l foreign c o u n try ex p o su re
in re la tio n to assets a n d to c ap ital.
( c ) T h e a p p ro p ria te F e d e ra l b a n k in g a g e n ­
cies sh all p ro m u lg a te re g u la tio n s o r o rd e rs
necessary to im p lem en t th is section w ith in
one h u n d re d a n d tw e n ty d ay s a fte r th e d a te o f
th e e n a c tm e n t o f th is title.
[12 USC 3906.]

SECTION 908— Capital Adequacy
( a ) (1 ) E a c h a p p ro p ria te F e d e ra l b a n k in g
agency sh all cau se b a n k in g in s titu tio n s to
achieve a n d m a in ta in a d e q u a te c a p ita l by
esta b lish in g m in im u m levels o f c a p ita l for
su c h b a n k in g in s titu tio n s a n d by u sing su ch
o th e r m e th o d s as th e a p p ro p ria te F e d e ra l
b a n k in g agency deem s a p p ro p ria te .
( 2 ) E a c h a p p ro p ria te F e d e ra l b a n k in g
agency sh all h av e th e a u th o rity to estab lish
su ch m in im u m level o f c a p ita l fo r a b a n k in g
in s titu tio n as th e a p p ro p ria te F e d e ra l b a n k ­
ing agency, in its d isc re tio n , deem s to be
n ecessary o r a p p ro p ria te in lig h t o f th e p a r­
tic u la r c irc u m sta n c e s o f th e b a n k in g
in s titu tio n .
( b ) (1 ) F a ilu re o f a b a n k in g in s titu tio n to
m a in ta in c a p ita l a t o r above its m in im u m
level as esta b lish e d p u rs u a n t to su b sectio n
( a ) m ay be deem e d by th e a p p ro p ria te F e d ­
eral b a n k in g agency, in its d isc re tio n , to
c o n s titu te an u nsafe a n d u n so u n d p ra c tic e
w ith in th e m e a n in g o f section 8 o f th e F e d ­
e ra l D e p o sit In s u ra n c e A ct.
(2 ) ( A ) In a d d itio n to, o r in lieu of, any
o th e r a c tio n a u th o riz e d by law , in clu d in g
p a ra g ra p h ( 1 ) , th e a p p ro p ria te F e d e ra l
b a n k in g agency m ay issue a d irectiv e to a
b a n k in g in s titu tio n th a t fails to m a in ta in
c a p ita l at o r above its re q u ire d level as
e stab lish ed p u rs u a n t to su b sectio n ( a ) .
( B ) ( i ) S uch d irectiv e m ay re q u ire th e
b a n k in g in stitu tio n to su b m it a n d a d ­




Statutory Provisions
h e re to a p la n ac c e p ta b le to th e a p p ro ­
p ria te F e d e ra l b a n k in g ag ency d e sc rib ­
ing th e m ean s a n d tim in g by w h ich th e
b a n k in g in s titu tio n sh all achieve its re ­
q u ire d c a p ita l level.
(ii) A n y su c h d ire c tiv e issued p u rs u ­
a n t to th is p a ra g ra p h , in c lu d in g p lan s
su b m itte d p u rs u a n t th e re to , sh all be
en fo rceab le u n d e r th e p ro v isio n s o f
sectio n 8 ( i ) o f th e F e d e ra l D e p o sit I n ­
su ra n c e A c t to th e sam e e x te n t as an
effective a n d o u ts ta n d in g o rd e r issued
p u rs u a n t to se ctio n 8 ( b ) o f th e F e d e ra l
D e p o sit In s u ra n c e A c t w h ic h h a s b e­
co m e final.
3 ( A ) E a c h a p p ro p ria te F e d e ra l b a n k in g
ag ency m ay c o n sid e r su c h b a n k in g in s ti­
tu tio n ’s p ro g re ss in a d h e rin g to a n y p lan
re q u ire d u n d e r th is su b sectio n w h en ev er
su ch b a n k in g in s titu tio n , o r a n affiliate
th ereo f, o r th e h o ld in g c o m p a n y w h ich
c o n tro ls su ch b a n k in g in s titu tio n , seeks
th e re q u isite a p p ro v a l o f su c h a p p ro p ri­
a te F e d e ra l b a n k in g agency fo r a n y p ro ­
posal w h ich w o u ld d iv ert earn in g s, d i­
m in ish cap ita l, o r o th e rw ise im p ed e su ch
b a n k in g in s titu tio n ’s p ro g ress in ach ie v ­
ing its m in im u m c a p ita l level.
(B ) S uch a p p ro p ria te F e d e ra l b a n k in g
agency m a y den y su ch a p p ro v a l w h e re it
d e te rm in e s th a t su c h p ro p o sa l w o u ld a d ­
versely affect th e a b ility o f th e b a n k in g
in s titu tio n to c o m p ly w ith such p lan.
( C ) T h e C h a irm a n o f th e B o a rd o f G o v ­
e rn o rs o f th e F e d e ra l R eserv e S ystem a n d
th e S e c re ta ry o f th e T re a su ry sh all e n ­
c o u ra g e g o v e rn m e n ts, c e n tra l b an k s, a n d
re g u la to ry a u th o ritie s o f o th e r m a jo r
b a n k in g c o u n trie s to w o rk to w a rd m a in ­
ta in in g a n d , w h ere a p p ro p ria te , s tre n g th ­
ening th e c a p ita l bases o f b a n k in g in s titu ­
tio n s involved in in te rn a tio n a l lending.
[12 USC 3907.]

SECTION 909— Foreign Loan
Evaluations
( a ) ( 1 ) In a n y case in w h ich on e o r m o re
b a n k in g in s titu tio n s ex te n d cre d it, w h e th e r
by loan, lease, g u a ra n te e , o r o th erw ise,

51

Statutory Provisions

Regulation K

w h ic h in d iv id u a lly o r in th e ag g re g a te ex­
ceeds $20,000,(XX), to finance an y p ro je c t
w h ic h h a s as a m a jo r objective th e c o n ­
s tru c tio n o r o p e ra tio n o f a n y m in in g o p e ra ­
tio n , an y m e ta l o r m in e ra l p rim a ry p ro c e ss­
ing o p e ra tio n , a n y fab ric a tin g facility o r o p ­
e ra tio n , o r a n y m e ta l-m a k in g o p e ra tio n s
(sem i a n d fin ish ed ) lo c a te d o u tsid e th e
U n ite d S tates o r its te rrito rie s a n d p osses­
sions, a w ritte n eco n o m ic feasibility e v a lu a ­
tio n o f su c h foreign p ro je c t sh all be p re ­
p a re d a n d a p p ro v e d in w ritin g by a sen io r
official o f th e b a n k in g in stitu tio n , o r, if
m o re th a n o n e b a n k in g in s titu tio n is in ­
volved, th e le a d b a n k in g in s titu tio n , p rio r
to th e ex ten sio n o f su ch c red it.
(2 ) S uch e v a lu a tio n sh all—
( A ) ta k e in to a c c o u n t th e p ro fit p o te n ­
tia l o f th e p ro ject, th e im p a c t o f th e p ro j­
ect on w o rld m a rk e ts, th e in h e re n t c o m ­
p etitiv e a d v a n ta g e s a n d d isa d v a n ta g e s o f
th e p ro je c t o v er th e e n tire life o f th e p ro j­
ect, a n d th e likely effect o f th e p ro je c t
u p o n th e o v erall lo n g -te rm e co n o m ic d e ­
v e lo p m e n t o f th e c o u n try in w h ic h th e
p ro je c t is lo cated ; an d
( B ) c o n sid e r w h eth er th e e x te n sio n o f
cred it ca n rea so n a b ly b e e x p e c te d to b e
rep a id fro m rev en u es gen era ted b y su ch
fo reig n p roject w ith o u t regard to an y
su b sid y , a s d efin ed in in te r n a tio n a l a g r e e ­
m en ts, p ro v id ed by th e g o v e r n m e n t in ­
v o lv e d

or any

in stru m e n ta lity

o f an y

co u n tr y .

( b ) S uch eco n o m ic feasibility ev a lu a tio n s
sh all be review ed by re p re se n ta tiv e s o f th e a p ­
p ro p ria te F e d e ra l b a n k in g agencies w h en ev er
a n e x a m in a tio n by su ch a p p ro p ria te F e d e ra l
b a n k in g agency is co n d u c te d .

( c ) (1 ) T h e a u th o ritie s o f th e F e d e ra l b a n k ­
ing agencies c o n ta in e d in section 8 o f th e
F e d e ra l D e p o sit In s u ra n c e A c t a n d in sec­
tio n 910 o f th is A c t, except th o se c o n ta in e d
in se ctio n 9 1 0 ( d ) , shall be ap p lic a b le to th is
section.
( 2 ) N o p riv a te rig h t o f a c tio n o r c laim fo r
re lie f m a y be p re d ic a te d u p o n th is section.
[12 USC 3908.]

52




SECTION 910— General Authorities
( a ) (1 ) T h e a p p ro p ria te F e d e ra l b a n k in g
agencies a re a u th o riz e d to in te rp re t a n d d e ­
fine th e te rm s u sed in th is title, a n d each
a p p ro p ria te F e d e ra l b a n k in g agency sh all
p re sc rib e ru les o r re g u la tio n s o r issue o r ­
d e rs as n ecessary to effectuate th e p u rp o se s
o f th is title a n d to p re v e n t evasions thereof.
( 2 ) T h e a p p ro p ria te F e d e ra l b a n k in g ag en ­
cy is a u th o riz e d to a p p ly th e p ro v isio n s o f
th is title to a n y affiliate o f a n in s u re d b a n k ,
b u t o n ly to affiliates fo r w h ic h it is th e a p ­
p ro p ria te F e d e ra l b a n k in g agency, in o rd e r
to p ro m o te u n ifo rm a p p lic a tio n o f th is title
o r to p re v e n t evasions th ereo f.
(3 ) F o r p u rp o se s o f th is sectio n , th e te rm
“ affiliate” sh a ll h av e th e sam e m e a n in g as
in se ctio n 23 A o f th e F e d e ra l R eserv e A c t,
ex cep t th a t th e te rm “ m e m b e r b a n k ” in
su c h sectio n sh a ll be d eem e d to refer to an
“ in s u re d b a n k ” , as su c h te rm is u sed in sec­
tio n 3 ( h ) o f th e F e d e ra l D e p o sit In s u ra n c e
A ct.
(b ) T h e a p p ro p ria te F e d e ra l b a n k in g a g en ­
cies sh all esta b lish u n ifo rm sy stem s to im p le ­
m e n t th e a u th o ritie s p ro v id e d u n d e r th is title.
( c ) (1 ) T h e p o w ers a n d a u th o ritie s g ra n te d in
th is title sh all be su p p le m e n ta l to a n d sh all
n o t be d eem e d in a n y m a n n e r to d e ro g a te
fro m o r re s tric t th e a u th o rity o f e a c h a p p ro ­
p ria te F e d e ra l b a n k in g ag en cy u n d e r sec­
tio n 8 o f th e F e d e ra l D e p o sit In s u ra n c e A c t
o r a n y o th e r law in c lu d in g th e a u th o rity to
re q u ire a d d itio n a l c a p ita l o r reserves.
(2 ) A n y su c h a u th o rity m a y be u sed by
an y a p p ro p ria te F e d e ra l b a n k in g agency to
e n su re co m p lia n c e by a b a n k in g in s titu tio n
w ith th e p ro v isio n s o f th is title a n d all rules,
re g u la tio n s, o r o rd e rs issued p u rs u a n t
th e re to .
( d ) (1 ) A n y b a n k in g in s titu tio n w h ic h vio ­
lates, o r any officer, d ire c to r, em ployee,
ag en t, o r o th e r p e rso n p a rtic ip a tin g in th e
c o n d u c t o f th e affairs o f su c h b a n k in g in s ti­
tu tio n , w h o v iolates a n y p ro v isio n o f th is
title, o r a n y ru le, re g u la tio n , o r o rd e r, is­
su ed u n d e r th is title , sh a ll fo rfeit a n d p ay a
civil p e n a lty o f n o t m o re th a n $1,000 p e r
d a y fo r e ach d a y d u rin g w h ic h su c h vio la­
tio n c o n tin u es.

Regulation K
(2) Such violations shall be deemed to be a
violation of a final order under section
8 (i) (2) of the Federal Deposit Insurance
Act and the penalty shall be assessed and
collected by the appropriate Federal bank­
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
tion activities of the appropriate Federal
banking agency, including the coordination
of such activities with similar activities of
regulatory authorities of a foreign govern­
ment or international organization.
(3) Audits of the Federal Reserve Board
and Federal Reserve banks may not in­
clude—
(A) transactions for, or with, a foreign
central bank, government of a foreign
country, or nonprivate international fi­
nancing organization;
(B) deliberations, decisions, or actions
on monetary policy matters, including
discount window operations, reserves of
member banks, securities credit, interest
on deposits, or open market operations;
(C) transactions made under the direc­
tion of the Federal Open Market Com­
mittee; or
(D ) a part of a discussion or communi­
cation among or between members of the
Board of Governors of the Federal Re­
serve System and officers and employees
of the Federal Reserve System related to
subparagraphs (A) through (C) of this
paragraph.




Statutory Provisions
(b ) (1)(A ) Except as provided in this sub­
section, an officer or employee of the
General Accounting Office may not dis­
close information identifying an open
bank, an open bank holding company, or
a customer of an open or closed bank or
bank holding company.
(B) The Comptroller General may dis­
close 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
53

Statutory Provisions
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
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 u s e 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 u s e 3911.]

SECTION 913— Reports
(a) Not later than six months after the date
of the enactment of this title, the Secretary of
the Treasury or the appropriate Federal bank­
ing 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
54




Regulation K
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
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
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.
(d)*T o ensure that Congress is fully in­
formed of the risks to our banking system
posed by troubled foreign loans, the Federal
banking agencies, before March 31, 1989, and
on April 30 of each succeeding year, shall
jointly submit to the Committee on Banking,
Housing, and Urban Affairs of the Senate and
Committee on Banking, Finance and Urban
Affairs of the House of Representatives a re­
port that shall include the following:
(1) the level of loan exposure of those
banking institutions under the jurisdiction
of each agency which is rated “valueimpaired”, “substandard”, “other transfer
risk problems”, or in any other troubled
debt category as may be established by the
banking agencies. This tabulation shall
clearly identify aggregate loan exposures of
the 9 largest United States banks under the
agencies’ jurisdiction, the aggregate loan ex­
posures of the next 13 largest banks, and
* So designated in original. There are no corresponding
subsections (b) and (c).

Regulation K
the aggregate exposure of all other such
banks which have significant country risk
exposures. This tabulation shall include a
separate section identifying, to the extent
feasible, new bank loans to countries with
debt service problems which were made
within the past year preceding the date on
which the report required under this sub­
section is due, and shall include the amount
of sovereign loans written off" or sold by
such banks during the preceding year.
(2) Progress that has been achieved by the
appropriate Federal banking agencies and
by banking institutions in reducing the risk
to the economy of the United States posed
by the exposure of banking institutions to
troubled international loans through appro­
priate voluntary or regulatory policies, in­
cluding increases in capital and reserves of
banking institutions.
(3) The relationship between lending ac­
tivity by the United States banks and for­
eign banks in countries experiencing debt
service difficulties and exports from the
United States and other lending countries
to these markets, and the extent to which
United States banking institutions can be
encouraged to continue to make credit
available to finance necessary growth in in­




Statutory Provisions
ternational trade, and particularly to fi­
nance United States exports.
(4) The response of regulatory agencies in
other countries to the international debt
problems, including measures which en­
courage the building of capital and reserves
by foreign banking institutions, tax treat­
ment of reserves, encouragement of new
lending to promote international trade, and
measures which may place United States
banking institutions at a competitive disad­
vantage when compared with foreign bank­
ing institutions.
(5) Steps that have been taken during the
previous year by countries experiencing
debt service difficulties to enhance condi­
tions for private direct investment (includ­
ing investment by United States persons)
and to eliminate production subsidies, at­
tain price stability, and undertake such oth­
er steps as will remove the causes of their
debt service difficulties.
Each appropriate Federal banking agency
may provide data in the aggregate to the ex­
tent necessary to preserve the integrity and
confidentiality of the regulatory and examina­
tion process.
[12 USC 3912. As amended by act of Aug. 23, 1988 (102
Stat. 1379).]

55