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itlarch 28, 1994 To All Depository Institutions in the Second Federal Reserve District, and Others Maintaining Sets o f Board Regulations: Enclosed is a copy of a revised Regulation K pamphlet, "International Banking Operations," as amended effective October 8, 1993 of 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 FED ER A L R E SE R V E B A N K OF N E W Y O R K Board of Governors of the Federal Reserve System M Regulation K International Banking Operations 12 CFR 211; as amended effective October 8, 1993 1 6 *10 I Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank o f the Federal Reserve District in which the inquiry arises. January 1994 /?V t o r o ) C o n ten ts Page Subpart A — International Operations of United States Banking Organizations Section 211.1— Authority, purpose, and s c o p e ............................................... (a) A u th o r ity .................................... (b) P u rp ose......................................... (c) S c o p e ............................................. Section 211.2— D efin ition s.................... Section 211.3— Foreign branches of U.S. banking organizations................ (a) Establishment o f foreign b ra n ch es...................................... (b) Further powers o f foreign branches o f member banks . . . (c) Reserves o f foreign branches of member banks............................. Section 211.4— Edge and agreement corporations........................................... (a) O rganization................................ (b) Nature and ownership of shares............................................. (c) Domestic branches.................... (d ) Reserve requirements and interest rate lim ita tio n s........... (e) Permissible activities in the United States................................ (f) Agreement co rp o ra tio n s......... Section 211.5— Investments and activities abroad.................................... (a) General policy ........................... (b) Investment requirem ents......... (c) Investment procedures.............. (d ) Permissible a c tiv itie s................ (e) Debts previously contracted . . (f) Investments made through debt-for-equity conversions . . Section 211.6— Lending limits and capital requirem ents........................... ( a) Acceptances of Edge corporation s................................ (b) Loans and extensions o f credit to one person................................ (c) C apitalization............................. Section 211.7— Supervision and re p o r tin g ........... ................................... (a) Supervision................................. 1 1 1 1 2 3 3 4 5 5 5 6 7 7 Page (b) E x a m in a tio n s.............................. (c ) R e p o r ts......................................... (d ) Filing and processing procedures.................................... 17 Section 211.8— Reports o f crimes and suspected c r im e s .................................. 17 Subpart B— Foreign Banking Organizations Section 211.20— Authority, purpose, and s c o p e ................................... 17 (a) A u th o r ity .................................... (b) Purpose and s c o p e .................... (c ) Additional requirem ents............. Section 211.21 — D efin ition s...... 18 Section 211.22— Interstate banking operations of foreign banking organizations............................ 20 (a) Determination o f home state . . (b) Change of home sta te ................ (c ) Bank m e r g e r s.............................. (d ) Attribution o f home state . . . . Section 211.23— Nonbanking activities o f foreign banking organizations . . . (a) 7 9 9 9 9 10 11 14 14 15 15 15 16 17 17 17 17 17 18 18 20 20 21 21 21 [Reserved] (b) Qualifying foreign banking organizations .............................. (c) Determining assets, revenues, and net in c o m e ........................... (d ) Loss o f eligibility for ex e m p tio n s.................................. (e) Specific determination of eligibility for nonqualifying foreign banking organizations . (f) Permissible activities and in vestm en ts.................................. (g ) Exemptions under section 4 (c ) (9) o f the BHC A c t ......... (h ) R e p o r ts......................................... (i) Availability of information . . . Section 211.24— Approval o f offices of foreign banks; procedures for applications; standards for approval; representative-office activities and standards for approval; preservation o f existing a u th o r ity ......................... 21 22 22 22 23 24 24 24 24 iii M loTO/ Contents Page (a) Board approval of offices of foreign banks ........................... (b) Procedures for application . . . (c ) Standards for approval........... (d ) Representative offices............. (e) Preservation o f existing 28 au th ority ........................... (f) Reports of crimes and suspected crim es.............. 28 Section 211.25— Termination o f offices o f foreign b an k s.................................. (a ) Grounds for term in ation ----(b) F a c t o r ...................................... (c) Consultation with relevant state supervisor....................... (d ) Termination procedures. . . . (e) Termination o f federal branch or federal agency .................. (f) Voluntary term ination......... Section 211.26— Examination of offices and affiliates o f foreign b a n k s .................................................... (a ) Conduct o f examinations . . . . (b) Coordination o f examinations (c ) Annual on-site examinations . Section 211.27— Disclosure of supervisory information to foreign supervisors........................................... (a) Disclosure by B oard....... 30 (b) C onfidentiality................ 30 Section 211.28— Limitation on loans to one borrow er.................................. (a) L im itation......................... 30 (b) Preexisting loans and extensions o f cred it......... 30 24 26 26 28 28 28 29 29 29 29 29 29 29 29 29 30 30 Section 211.29— Applications by statelicensed branches and agencies to conduct activities not permissible for federal b ranches......................... [Reserved] Section 211.30— Deposit insurance requirement for retail deposit taking by foreign b an k s......................... [Reserved] Subpart C— Export Trading Companies Section 211.31— Authority, purpose, and s c o p e ........................................... (a) A u th ority.................................. (b) Purpose and sc o p e.................. Section 211.32— D efinitions............. Page Section 211.33— Investments and extensions of c r e d it............................. (a) Amount o f investm ents.............. (b) Extensions o f cred it.................... Section 211.34— Procedures for filing and processing n otices....................... (a) Filing n o tic e.................................. (b) Time period for Board action . . (c ) Time period for investm ent. . . . (d ) Time period for calculating reven ues......................................... 31 31 31 32 32 32 32 32 Subpart D — International Lending Supervision Section 211.41— Authority, purpose, and s c o p e ................................................ (a) A u th o rity...................................... (b) Purpose and sc o p e....................... Section 211.42— D efin ition s.................. Section 211.43— Allocated transfer risk reserve............................................. (a) Establishment o f allocated transfer risk reserve.................... (b ) Procedures and standards......... (c ) Accounting treatment of A T R R ........................................... Section 211.44— Reporting and disclosure o f international assets . . . (a ) Requirem ents................................ (b ) Procedures.................................... (c ) Reservation o f au th ority........... Section 211.45— Accounting for fees on international lo a n s ......................... (a) Restrictions on fees for restructured international loans (b) Amortizing fe e s ........................... (c ) Accounting treatment o f 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 f e e s .............. (f) Agency fe e s.................................... 32 32 33 33 33 33 33 34 35 35 35 35 35 35 35 35 36 36 36 £ 3Q STATUTORY PROVISIONS 30 31 31 Federal Reserve Act Section 2 5 ...................................... Section 2 5 A ................................... 37 39 M tOtjOf Contents Page Bank Holding Company Act Section 2 (h ) ......................................... Section 4 ( c ) ( 9 ) , (1 3 ), and (1 4 ) . . . International Banking A c t .................... > 46 47 50 Bank Export Services Act Section 2 0 2 ............................................. Section 2 0 6 ............................................. International Lending Supervision A ct 65 65 66 ' M R e g u la tio n K In ter n a tio n a l B a n k in g O p era tio n s Ib^Dl 12 CFR 211; as amended effective October 8, 1993 Subpart A — International Operations of United States Banking Organizations Section 211.1 Authority, purpose, and scope 211.2 Definitions 211.3 Foreign branches o f 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 211.8 Reports o f crimes and suspected crimes Subpart B— Foreign Banking Organizations Section 211.20 Authority, purpose, and scope 211.21 Definitions 211.22 Interstate banking operations of foreign banking organizations 211.23 Nonbanking activities o f foreign banking organizations 211.24 Approval of offices of foreign banks; procedures for applications; standards for approval; representative-office activities and standards for approval; preservation of existing authority 211.25 Termination o f offices o f foreign banks 211.26 Examination o f offices and affiliates o f foreign banks 211.27 Disclosure of supervisory information to foreign supervisors 211.28 Limitation on loans to one borrower 211.29 Applications by state-licensed branches and agencies to conduct activities not permissible for federal branches [Reserved] 211.30 Deposit insurance requirement for retail deposit taking by foreign banks Subpart C— Export Trading Companies Section 211.31 Authority, purpose, and scope 211.32 Definitions 211.33 211.34 Investments and extensions o f 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 o f interna tional assets Accounting for fees on international loans SUBPART A—INTERNATIONAL OPERATIONS OF UNITED STATES BANKING ORGANIZATIONS SECTION 211.1—Authority, Purpose, and Scope (a) Authority. This subpart is issued by the Board o f Governors o f the Federal Reserve System ( “Board” ) under the authority o f the Federal Reserve A ct ( “F R A ” ) (12 USC 221 et seq.); the Bank Holding Company A ct of 1956 ( “BHC A ct” ) (12 USC 1841 et seq.); and the International Banking A ct o f 1978 ( “IB A ” ) (12 USC 3101 et seq.). Require ments for the collection o f information con tained in this regulation have been approved by the Office o f Management and Budget un der the provisions o f 44 USC 3501 et seq. and have been assigned OMB Nos. 7100-0107; 7100-0109; 7100-0110; 7100-0069; 7100-0086; and 7100-0073. (b) Purpose. This subpart sets out rules gov erning the international and foreign activities of U.S. banking organizations, including pro cedures for establishing foreign branches and Edge corporations to engage in international banking and for investments in foreign organizations. (c ) Scope. This subpart applies to— (1 ) corporations organized under section 1 4 1 ! 0 i10\ § 211.1 2 5(a) o f the F R A (12 USC 611-631), “Edge corporations”; (2 ) corporations having an agreement or undertaking with the Board under section 25 o f the F R A (12 USC 601-604a), “agree ment corporations”; (3 ) member banks with respect to their foreign branches and investments in foreign banks under section 25 o f the FR A (12 USC 601-604a);l and (4 ) bank holding companies with respect to the exemption from the nonbanking pro hibitions o f the BHC Act afforded by sec tion 4 (c ) (13) o f the BHC A ct (12 USC 1 8 4 3 (c )(1 3 )). SECTION 211.2— Definitions Unless otherwise specified, for the purposes of this subpart— (a ) An “affiliate” of an organization means— (1 ) any entity of which the organization is a direct or indirect subsidiary: or (2 ) any direct or indirect subsidiary of the organization or such entity. (b ) “Capital Adequacy Guidelines” means the Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure (12 CFR 208, App. A ). (c) “Capital and surplus” means paid-in and unimpaired capital and surplus, and includes undivided profits but does not include the pro ceeds o f capital notes or debentures. (d ) “Directly or indirectly,” when used in reference to activities or investments o f an or ganization, means activities or investments of the organization or of any subsidiary of the organization. (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. Regulation K business of accepting deposits in the United States from nonaffiliated persons. (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 o f 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 o f an organization, unless the investor receives a determination that such loans should not be considered equity in the circumstances o f the particular investment. (i) “Foreign” or “foreign country” refers to one or more foreign nations, and includes the overseas territories, dependencies, and insular possessions o f those nations and of the United States, and the Commonwealth o f Puerto Rico. (j) “Foreign bank” means an organization that— (1 ) is organized under the laws of a foreign country; (2 ) engages in the business o f 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 o f its business; and (5 ) has the power to accept demand deposits. (k ) “Foreign branch” means an office o f an organization (other than a representative of (f) A n Edge corporation is “engaged in fice) that is located outside the country under banking” if it is ordinarily engaged in the1 the laws o f which the organization is estab lished, at which a banking or financing busi 1 Section 25 o f the FRA, which refers to national bank ness is conducted. ing associations, also applies to state member banks o f the Federal Reserve System by virtue o f section 9 o f the FRA (12 USC 321). (/) “Foreign person” means an office or es- M 10701 Regulation K §21 1 .3 tablishment located, or individual residing, outside the United States. (m ) “Investment” means— (1 ) the ownership or control o f 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 o f the equity o f 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 o f the investor, but which is not a subsidiary of the investor. (p ) “Loans and extensions o f credit” means all direct and indirect advances o f funds to a person made on the basis o f 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 soliciting new business or acting as liaison between the organization’s head office and custom ers in the United States; and (2 ) does not have authority to make any business decision (other than decisions re lating to the premises or personnel of the representative office) for the account o f the organization it represents, including con tracting for any deposit or deposit-like lia bility on behalf of the organization. (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 o f the organiza tion or if the investor and its affiliates directly or indirectly own or control more than 50 per cent o f the equity o f the organization. (v ) “Tier 1 capital” has the same meaning as provided under the Capital Adequacy Guide lines (12 CFR 208, app. A ). SECTION 211.3— Foreign Branches of U.S. Banking Organizations (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 wise provided in this section, the establish ment o f a foreign branch requires the spe cific prior approval o f 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. A u 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. 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 M §211.3 (5 ) Reporting. Any organization that opens, closes, or relocates a branch shall re port such change in a manner prescribed by the Board. (b ) Further powers o f foreign branches o f member banks. In addition to its general banking powers, and to the extent consistent with its charter, a foreign branch o f 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 o f readily ascertainable events,34if 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 o f such guarantees or agreements which, when ag gregated with other unsecured obligations o f the same person, exceed the limit con tained in paragraph (a )( 1 ) o f section 5200 o f the Revised Statutes (12 USC 84) for loans and extensions o f credit; (2 ) Government obligations. Underwrite, distribute, buy, sell, and hold obligations of— (i) the national government o f the coun try in which the branch is located; (ii) an agency or instrumentality o f the national government where supported by the taxing authority, guarantee, or full faith and credit o f the national govern ment; and (iii) a political subdivision o f 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 o f its tier 1 capital; or (B ) 10 percent o f the total deposits of the bank’s branches in that country on the preceding year-end call report date 3 “Readily ascertainable events” include, but are not lim ited to, events such as nonpayment of taxes, rentals, cus toms duties, or costs o f transport and loss or nonconfor mance of shipping documents. 4 10*701 Regulation K (or the date o f acquisition o f the branch in the case o f a branch that has not been so reported); (3 ) Other investments. Invest in— (i) the securities o f the central bank, clearinghouses, governmental entities other than those authorized under para graph ( b ) ( 2 ) o f 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 o f automated electronic pay ments networks, professional societies, schools, and the like necessary to the business o f the branch; Provided however that, the total invest ments o f the bank’s branches in that coun try under this paragraph (exclusive o f secu rities held as required by the law o f that country or as authorized under section 5136 o f the Revised Statutes (12 USC 24, Seventh)) may not exceed 1 percent o f the total deposits o f the bank’s branches in that country on the preceding year-end call re port date (or on the date o f acquisition of the branch in the case o f a branch that has not so reported); (4 ) Credit extensions to bank's officers. Ex tend credit to an officer o f the bank residing in the country in which the foreign branch is located to finance the acquisition or con struction o f 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 o f credit exceeding $100,000 (or the equivalent in local cur rency) is reported also to the bank’s board o f directors; (5 ) Real estate loans. Take liens or other encumbrances on foreign real estate in con nection with its extensions o f credit, wheth er or not o f 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 o f the branch, as part o f an em- c § 2 1 1 .4 R e g u la tio n K Federal Register notice. T h e B o a rd w ill Federal Register n o tic e o f an y p lo y e e b en efits p rogram , a g reater rate o f (4 ) in terest th a n th a t p aid to o th e r d e p o sito r s p u b lish in th e p ro p o sa l to o r g a n ize an E d g e c o rp o ra tio n o f th e branch; (8 ) Repurchase agreements. p u rc h a se a g r ee m en ts E n g a g e in re in v o lv in g se c u r ities an d w ill g iv e in te re ste d p e r so n s an o p p o r tu n ity to e x p ress th eir v ie w s o n th e p ro p o sa l. Factors considered by the Board. a n d c o m m o d itie s th a t are th e fu n ctio n a l (5 ) e q u iv a len ts o f e x te n sio n s o f credit; fa c to r s c o n sid e r ed b y th e B o a rd in a ctin g (9 ) Investment in subsidiaries. W ith th e B o a r d ’s p rio r a p p ro v a l, a cq u ire all o f th e The o n a p ro p o sa l to o r g a n iz e an E d g e c o rp o ra tio n in c lu d e — sh a res o f a c o m p a n y (e x c e p t w h er e lo ca l ( i ) th e fin an cial c o n d itio n an d h isto r y o f la w req u ires o th er in v e sto r s to h o ld d ir e c th e ap p lican t; to r s’ q u a lify in g sh ares or sim ila r ty p e s o f ( i i ) th e in str u m e n ts ) th a t e n g a g e s s o le ly in a c tiv i m a n a g em en t; g en era l ch a r a cte r of its ( i ii ) th e c o n v e n ie n c e an d n e e d s o f th e ties— ( i ) in w h ic h th e m e m b er b a n k is p e r m it c o m m u n ity to be se r v ed w ith resp ect to ted to eng a g e; or in te rn a tio n a l b a n k in g a n d fin a n cin g serv ( i i ) th a t are in c id en ta l to th e a c tiv itie s o f ices; an d th e fo reig n branch; an d (1 0 ) Other activities. W ith th e B o a r d ’s p ri o r a p p ro v a l, en g a g e in o th e r a c tiv itie s th a t ( i v ) th e effects of th e p r o p o sa l on c o m p e titio n . (6 ) Authority to commence business. th e B o a rd d e te rm in e s are u su al in c o n n e c ( i ) A fte r th e B o a r d issu es a p erm it, th e tio n w ith th e tra n sa c tio n o f th e b u sin e ss o f E d g e c o rp o ra tio n m a y e le c t officers an d b a n k in g in th e p la c es w h ere th e m em b er o th e r w ise c o m p le te its o r g a n iza tio n , in b a n k ’s b ra n c h e s tra n sact b u sin ess. v e st in o b lig a tio n s o f th e U n ite d S ta tes Reserves of foreign branches of member banks. M em b er b a n k s sh a ll m a in ta in reserves (c ) a g a in st fo reig n b ra n ch d e p o sits w h e n req u ired b y part 2 0 4 o f th is ch a p ter (R e g u la tio n D ) . g o v e rn m en t, a n d m a in ta in d e p o sits w ith d e p o sito r y in stitu tio n s, b u t it m a y n o t e x ercise an y o th e r p o w er s u n til at least 25 p ercen t o f th e a u th o r iz e d c a p ita l sto c k sp ecified in th e a r tic le s o f a ss o c ia tio n h as b een p aid in c a sh , a n d e a ch sh a reh o ld er h a s p aid in c a sh at lea st 25 p ercen t o f SECTION 211.4— Edge and Agreement Corporations (a ) Organization. Board authority. (1 ) th a t sh a r e h o ld e r ’s s to c k su b scrip tio n . ( i i) U n e x e r c ise d a u th o rity to c o m m e n c e b u sin ess as an E d g e c o r p o r a tio n sh a ll e x pire o n e yea r after issu a n c e o f th e p erm it, T h e B oard sh a ll h a v e th e a u th o rity to a p p rove— ( i ) th e e sta b lish m e n t o f E d g e c o rp o ra u n less th e B o a rd e x te n d s th e p eriod . (7 ) Amendments to articles of association. N o a m e n d m e n t to th e a r tic le s o f a sso cia tio n tio n s; an d sh a ll b e c o m e e ffectiv e u n til a p p ro v ed b y th e ( i i ) in v e stm e n ts b y m em b er b an k s an d B oard . b an k h o ld in g c o m p a n ie s in a g reem en t co rp o ra tio n s. (2 ) Permit. (8 ) Shareholders meeting. A n E dge corp o ration sh a ll p r o v id e in its b y la w s th a t— A p ro p o sed E d g e c o rp o ra tio n ( i ) a sh a re h o ld e r s m e e tin g sh a ll b e c o n sh a ll b e c o m e a b o d y co rp o ra te w h en th e v en ed at th e req u est o f th e B oard w ith in B o a rd issu es a perm it a p p ro v in g its p r o five d a y s after th e B o a rd g iv es n o tic e o f p o sed n a m e, a rticles o f a ss o c ia tio n , an d o r th e req u est to th e E d g e co rp oration ; g a n iz a tio n certificate. (3 ) Name. ( i i) a n y sh a re h o ld e r o r g r o u p o f sh a re T h e n a m e sh a ll in c lu d e “ in te r h o ld er s th a t o w n s or c o n tr o ls 25 p ercen t n a tio n a l,” “ fo r e ig n ,” “ o v e r s e a s,” or so m e or m o r e o f th e sh a res o f th e E d g e c o r sim ila r w o rd , but m a y n o t resem b le th e p o ra tio n sh a ll a tten d su c h a m e etin g in n a m e o f a n o th er o r g a n iza tio n to an e x ten t p erso n or b y p roxy; an d th a t m ig h t m islea d or d e c eiv e th e p u b lic. ( i ii) fa ilu re b y a sh a re h o ld e r or a u th o - 5 A4 § 2 1 1 .4 10701 R e g u la tio n K rized rep resen ta tiv e to a tten d a n y su ch ( B ) en su re th a t an y tr a n sa c tio n b y an m e etin g in p erso n o r by p r o x y m a y resu lt E d g e co rp o ra tio n w ith an affiliate4 is in r em o v a l or barrin g o f su c h s h a r e h o ld o n su b sta n tia lly th e sa m e term s, in ers o r a n y rep resen ta tiv es from fu rth er c lu d in g in terest rates an d c o lla ter a l, as p a r ticip a tio n in th e m a n a g e m en t or a f th o s e p rev a ilin g at th e sa m e tim e for c o m p a r a b le tr a n sa c tio n s b y th e E d g e fairs o f th e E d g e c o rp o ra tio n . co rp o ra tio n w ith n o n a ffilia ted p erso n s, (b ) Nature and ownership of shares. Shares. n o rm a l risk o f rep a y m en t or p resen t ( i ) S h a res o f sto c k in an E d g e co rp o ra o th e r u n fa v o ra b le featu res; an d d o e s n o t in v o lv e m o r e th a n th e (1 ) tio n m a y n o t in c lu d e n o par v a lu e sh ares ( C ) en su re th a t th e E d g e c o rp o ra tio n a n d sh a ll b e issu ed an d tran sferred o n ly w ill n o t p r o v id e fu n d in g o n a c o n tin u a l o n its b o o k s a n d in c o m p lia n c e w ith se c or su b sta n tia l b a sis to a n y affiliate or tio n 2 5 ( a ) o f th e F R A a n d th is su b p art. office o f th e fo reig n in stitu tio n th r o u g h ( i i ) T h e sh a re c ertifica tes o f an E d g e tr a n sa c tio n s th a t w o u ld b e in c o n sis te n t c o rp o ra tio n sh a ll— w ith th e in te rn a tio n a l an d fo r eig n b u si ( A ) n a m e a n d d escrib e e a ch c la ss o f n ess p u rp o se s for w h ic h E d g e c o rp o ra sh a res, in d ic a tin g its c h a ra cter a n d an y tio n s are org a n ized ; u n u su a l a ttrib u tes su ch as preferred ( D ) in v e st n o m o re th a n 10 p e r ce n t o f sta tu s o r la ck o f v o tin g righ ts; an d th e in s titu tio n ’s c a p ita l a n d su rp lu s in ( B ) c o n sp ic u o u sly set fo r th th e su b th e a g g r eg a te a m o u n t o f sto c k h e ld in sta n c e o f — all E d g e c o rp o ra tio n s; an d ( 1 ) a n y lim ita tio n s u p o n th e rig h ts ( E ) in th e c a se o f a fo reig n in stitu tio n o f o w n er sh ip an d tra n sfer o f sh a res n o t su b ject to se c tio n 4 o f th e B H C im p o se d A ct— by se c tio n 2 5 (a ) o f th e F R A ; and (/) (2) a n y ru les th at th e E d g e c o r p o th a t th e B o a r d m a y im p o se th a t are ra tio n p rescrib es in its b y la w s to n e c essa ry to p rev en t u n d u e c o n c e n e n su re tr a tio n c o m p lia n c e w ith th is w ith an y c o n d itio n s o f r eso u r ce s, d e c re a se d or u n fa ir c o m p e titio n , c o n flic ts o f in paragrap h . ( i ii ) c o m p ly terest, or u n so u n d b a n k in g p ra ctices A n y c h a n g e in sta tu s o f a sh a re in th e U n ite d States; an d h o ld er th a t ca u se s a v io la tio n o f s e c tio n 2 5 ( a ) o f th e F R A sh a ll be r ep o rt ( 2 ) g iv e th e B o a r d 45 d a y s’ p rior ed to th e B o a rd as so o n as p o ssib le, w r itte n n o tic e , in a fo rm to b e p re a n d th e E d g e c o rp o ra tio n sh a ll ta k e scrib ed b y th e B o a rd , b e fo r e e n g a g su c h a c tio n as th e B oard m a y direct. in g in a n y n o n b a n k in g a c tiv ity in th e Ownership of Edge corporations by for eign institutions. ( i ) Prior Board approval. O n e or m o re U n ite d S tates, or m a k in g a n y in itia l fo reig n or fo r eig n -c o n tr o lle d d o m e stic in or B o a rd a p p ro v a l or n o tic e b y an stitu tio n s referred to in p aragrap h 13 o f o r g a n iza tio n su b ject to se c tio n 4 o f se c tio n 2 5 ( a ) o f th e F R A ( 1 2 U S C 6 1 9 ) th e B H C A ct; in c o n n e c tio n w ith (2 ) or a d d itio n a l in v e stm e n ts in a n o th er o rg a n iza tio n , th a t w o u ld req u ire p ri m a y a p p ly fo r th e B o a r d ’s prior a p p ro v a l su c h n o tic e, th e B o a rd m a y im p o se to a cq u ire d ir ec tly or in d irectly a m a jo ri c o n d itio n s n e c essa ry to p r e v en t a d ty o f th e sh a res o f th e ca p ita l sto c k o f an verse effects th a t m a y resu lt from su c h a c tiv ity or in v e stm e n t. E d g e co rp o ra tio n . ( i i) Conditions and requirements. S u ch an in stitu tio n sh a ll— ( A ) p ro v id e th e B oard rela ted to its fin an cial c o n d itio n an d as th e B o a r d m a y require; p erso n sh a ll g iv e in fo r m a tio n a c tiv itie s a n d su c h o th e r in fo r m a tio n 6 Change in control. ( i ) Prior notice. A n y (3 ) 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. \ Regulation K 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, o f 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 o f the BHC A ct (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 ) o f this section and may disapprove a notice or impose any condi tions that it finds necessary to assure the safe and sound operation o f the Edge cor poration, to assure the international character o f its operation, and to prevent adverse effects such as decreased or un fair competition, conflicts o f interest, or undue concentration o f resources. (c ) Domestic branches. (1 ) Prior notice, (i) An Edge corporation may establish branches in the United States 45 days after the Edge corporation has given notice to its Reserve Bank, un less the Edge corporation is notified to the contrary within that time. (ii) The notice to the Reserve Bank shall include a copy o f the notice o f the pro posal published in a newspaper o f general circulation in the communities to be served by the branch. (iii) The newspaper notice may appear no earlier than 90 calendar days prior to submission of notice of the proposal to the Reserve Bank. The newspaper notice must provide an opportunity for the pub lic to give written comment on the pro posal to the appropriate Federal Reserve Bank for at least 30 days after the date of publication. (2 ) The factors considered in acting upon a proposal to establish a branch are enu merated in paragraph ( a ) ( 4 ) o f this section. (3 ) Expiration of authority. Authority to M i o n cl § 2 1 1 .4 open a branch under prior notice shall ex pire one year from the earliest date on which that authority could have been exer cised, unless the Board extends the period. (d ) Reserve requirements and interest rate limitations. The deposits of an Edge or agree ment corporation are subject to parts 204 and 217 o f this chapter (Regulations D and Q) in the same manner and to the same extent as if the Edge or agreement corporation were a member bank. (e) Permissible activities in the United States. An Edge corporation may engage directly or indirectly in activities in the United States that are permitted by the sixth paragraph of section 2 5 (a ) o f the FR A and are incidental to international or foreign business, and in such other activities as the Board determines are incidental to international or foreign busi ness. The following activities will ordinarily be considered incidental to an Edge corpora tion’s international or foreign business: (1 ) Deposit activities. (i) Deposits from foreign governments and foreign persons. An Edge corporation may receive in the United States transac tion accounts, savings, and time deposits (including issuing negotiable certificates o f deposits) from foreign governments and their agencies and instrumentalities, and from foreign persons. (ii) Deposits from other persons. An Edge corporation may receive from any other person in the United States transac tion accounts, savings, and time deposits (including issuing negotiable certificates o f deposit) if such deposits— (A ) are to be transmitted abroad; (B ) consist o f funds to be used for payment o f obligations to the Edge corporation or collateral securing such obligations; (C ) consist o f the proceeds o f collec tions abroad that are to be used to pay for exported or imported goods or for other costs of exporting or importing or that are to be periodically trans ferred to the depositor’s account at an other financial institution; (D ) consist o f the proceeds o f ex- 7 /H- l o i o i §211.4 tensions of credit by the Edge corporation; (E ) represent compensation to the Edge corporation for extensions of credit or services to the customer; (F ) are received from Edge or agree ment corporations, foreign banks and other depository institutions (as de scribed in part 204 o f this chapter (Regulation D )); (G ) are received from an organization that by its charter, license or enabling law is limited to business that is o f an international character, including for eign sales corporations (26 USC 921); transportation organizations engaged exclusively in the international trans portation o f passengers or in the move ment o f goods, wares, commodities or merchandise in international or foreign commerce; and export trading compa nies that are exclusively engaged in ac tivities related to international trade. (2 ) Liquid funds. Funds o f an Edge or agreement corporation that are not current ly employed in its international or foreign business, if held or invested in the United States, shall be in the form of— (i) cash; (ii) deposits with depository institu tions, as described in part 204 o f this chapter (Regulation D ), and other Edge and agreement corporations; (iii) money market instruments (includ ing repurchase agreements with respect to such instruments), such as banker’s acceptances, federal funds sold, and com mercial paper; and (iv) short- or long-term obligations of, or fully guaranteed by, federal, state, and local governments and their instrumentalities. (3 ) Borrowings. An Edge corporation may— (i) borrow from offices of other Edge and agreement corporations, foreign banks, and depository institutions (as de scribed in part 204 o f this chapter (R egu lation D ) or issue obligations to the U nit ed States or any of its agencies or instrumentalities; (ii) incur indebtedness from a transfer 8 Regulation K o f direct obligations of, or obligations that are fully guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof that the Edge corporation is obligated to repurchase; (iii) issue long-term subordinated debt that does not qualify as a “deposit” un der part 204 o f this chapter (Regulation D ). (4 ) Credit activities. An Edge corporation may— (i) finance the following: (A ) contracts, projects, or activities performed substantially abroad; (B ) the importation into or exporta tion from the United States o f goods, whether direct or through brokers or other intermediaries; (C ) the domestic shipment or tempo rary storage o f goods being imported or exported (or accumulated for ex port); and (D ) the assembly or repackaging of goods imported or to be exported; (ii) finance the costs o f production of goods and services for which export or ders have been received or which are identifiable as being directly for export; (iii) assume or acquire participations in extensions o f credit, or acquire obliga tions arising from transactions the Edge corporation could have financed includ ing acquisition of obligations o f foreign governments; (iv ) guarantee debts, or otherwise agree to make payments on the occurrence of readily ascertainable events,5 if the guar antee or agreement specifies the maxi mum monetary liability thereunder and is related to a type o f transaction de scribed in paragraphs (e) (4 ) (i) and (ii) of this section; and (v ) Provide credit and other banking services for domestic and foreign purpos es to foreign governments and their agen cies and instrumentalities; foreign persons; and organizations o f the type 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. M Regulation K described in paragraph (e) (1 ) (ii) (G ) of this section. (5 ) Payments and collections. An Edge corporation may receive checks, bills, drafts, acceptances, notes, bonds, coupons, and other instruments for collection abroad, and collect such instruments in the United States for a customer abroad; and may transmit and receive wire transfers of funds and securities for depositors. (6 ) Foreign exchange. An Edge corpora tion may engage in foreign exchange activities. (7 ) Fiduciary and investment advisory ac tivities. An Edge corporation may— (i) hold securities in safekeeping for, or buy and sell securities upon the order and for the account and risk of, a person, pro vided such services for U.S. persons shall be with respect to foreign securities only; (ii) act as paying agent for securities is sued by foreign governments or other en tities organized under foreign law; (iii) act as trustee, registrar, conversion agent, or paying agent with respect to any class o f securities issued to finance foreign activities and distributed solely outside the United States; (iv) make private placements o f partici pations in its investments and extensions o f credit; however, except to the extent permissible for member banks under sec tion 5136 o f the Revised Statutes (12 USC 24, Seventh), no Edge corporation may otherwise engage in the business of underwriting, distributing, or buying or selling securities in the United States; (v ) act as investment or financial adviser by providing portfolio investment advice and portfolio management with respect to securities, other financial instruments, real property interests and other invest ment assets,6*and by providing advice on mergers and acquisitions, provided such services for U.S. persons shall be with re spect to foreign assets only; and (vi) provide general economic informa tion and advice, general economic statis tical forecasting services and industry 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. 10*701 §211.5 studies, provided such services for U.S. persons shall be with respect to foreign economies and industries only. (8 ) Banking services for employees. Pro vide banking services, including deposit services, to the officers and employees o f the Edge corporation and its affiliates; however, extensions o f credit to such persons shall be subject to the restrictions o f part 215 o f this chapter (Regulation O ) as if the Edge cor poration were a member bank. (9 ) Other activities. With the Board’s prior approval, engage in other activities in the United States that the Board determines are incidental to the international or foreign business o f Edge corporations. (f) Agreement corporations. With the prior approval of the Board, a member bank or bank holding company may invest in a feder ally or state-chartered corporation that has entered into an agreement or undertaking with the Board that it will not exercise any power that is impermissible for an Edge cor poration under this subpart. SECTION 211.5— Investments and Activities Abroad (a ) General policy. Activities abroad, wheth er conducted directly or indirectly, shall be confined to activities o f a banking or financial nature and those that are necessary to carry on such activities. In doing so, investors shall at all times act in accordance with high stan dards o f banking or financial prudence, having due regard for diversification o f risks, suitable liquidity, and adequacy of capital. Subject to these considerations and the other provisions o f this section, it is the Board’s policy to allow activities abroad to be organized and operated as best meets corporate policies. (b) Investment requirements. (1 ) Eligible investments. Subject to the lim itations in paragraph ( b ) (2 ) o f this section, an investor may directly or indirectly— (i) invest in a subsidiary that engages solely in activities listed in paragraph (d) o f this section or in such other activities as the Board has determined in the cir- 9 A4 mo( Regulation K §211.5 cumstances of a particular case are per missible; provided however that, in the case o f an acquisition of a going concern, existing activities that are not otherwise permissible for a subsidiary may account for not more than 5 percent o f either the consolidated assets or revenues o f the ac quired organization; (ii) invest in a joint venture provided that, unless otherwise permitted by the Board, not more than 10 percent o f the joint venture’s consolidated assets or rev enues are attributable to activities not listed in paragraph (d) o f this section; and (iii) make protfolio investments in an organization, provided however that— (A ) the total direct and indirect port folio investments by the investor and its affiliates in organizations engaged in activities that are not permissible for joint ventures do not exceed— (7 ) 40 percent o f the total equity of the organization, when combined with shares in the organization held in trading or dealing accounts pur suant to paragraph ( d )(1 4 ) o f this section and shares in the organiza tion held under any other authority; or (2 ) 25 percent of the investor’s tier 1 capital where the investor is a bank holding company or 100 per cent of tier 1 capital for any other investor, when combined with un derwriting commitments and shares held in trading or dealing accounts pursuant to paragraph (d ) (14) of this section;7 and (B ) any loans and extensions of credit made by an investor or its affiliates to the organization are on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transac tions between the investor or its affili ates and nonaffiliated persons. (2 ) Direct investments by member banks. A member bank’s direct investments under section 25 o f the FR A shall be limited to— (i) foreign banks; (ii) foreign organizations formed for the sole purpose o f either holding shares o f a foreign bank or performing nominee, fi duciary, or other banking services inci dental to the activities of a foreign branch or foreign bank affiliate o f the member bank; and (iii) subsidiaries established pursuant to section 2 1 1 .3 (b )(9 ) of this subpart. (3 ) Investment limit. In computing the amount that may be invested in any organi zation under this section, there shall be in cluded any unpaid amount for which the investor is liable and any investments in the same organization held by affiliates under any authority. (4 ) Divestiture. An investor shall dispose of an investment promptly (unless the Board authorizes retention) if— (i) the organization invested in— (A ) engages in the general business of buying or selling goods, wares, mer chandise, or commodities in the U nit ed States; (B ) engages directly or indirectly in other business in the United States that is not permitted to an Edge corpora tion in the United States except that an investor may hold up to 5 percent of the shares o f a foreign company that engages directly or indirectly in busi ness in the United States that is not permitted to an Edge corporation; or (C ) engages in impermissible activi ties to an extent not permitted under paragraph ( b ) (1 ) o f this section; or (ii) after notice and opportunity for hearing, the investor is advised by the Board that its investment is inappropri ate under the FRA, the BHC Act, or this subpart. (c ) Investment procedures.* 108*Direct and indi rect investments shall be made in accordance with the general-consent, prior-notice, or 8 When necessary, the general-consent and prior-notice provisions of this section constitute the Board’s approval under the eighth paragraph of section 25(a) of the FRA 7 For this purpose, a direct subsidiary of a member bank for investments in excess of the limitations therein based on capital and surplus. is deemed to be an investor. 10 A4 Regulation K specific-consent procedures contained in this paragraph. Except as the Board may other wise determine, in order for an investor to make investments under the general consent procedure, the investor and any other investor o f which it is a subsidiary shall be in com pli ance with applicable minimum standards for capital adequacy. The Board may at any time, upon notice, modify or suspend the generalconsent and prior-notice procedures with re spect to any investor or with respect to the acquisition o f shares of organizations engaged in particular kinds of activities. An investor shall apply for and receive the prior specific consent o f the Board for its initial investment in its first subsidiary or joint venture unless an affiliate has made such an investment. A u thority to make investments under prior no tice or specific consent shall expire one year from the earliest date on which the authority could have been exercised, unless the Board extends the period. (1 ) General consent. Subject to the other limitations o f this section, the Board grants its general consent for the following:9 (i) any investment in a joint venture or subsidiary, and any portfolio investment, if the total amount invested (in one transaction or in a series o f transactions) does not exceed the lesser of— (A ) $25 million; or (B ) 5 percent of the investor’s tier 1 capital in the case o f a member bank, bank holding company, or Edge corpo ration engaged in banking, or 25 per cent of the investor’s tier 1 capital in the case o f an Edge corporation not en gaged in banking; (ii) any additional investment in an or ganization in any calendar year so long as— (A ) the total amount invested in that calendar year does not exceed 10 per cent of the investor’s tier 1 capital; and (B ) the total amount invested under section 211.5 (including investments l&fO( §211.5 made pursuant to specific consent or prior notice) in that calendar year does not exceed cash dividends reinvested under paragraph (c ) (1 ) (iii) of this section plus 10 percent o f the inves tor’s direct and indirect historical cost10 in the organization, which in vestment authority, to the extent unex ercised, may be carried forward and accumulated for up to five consecutive years; (iii) any additional investment in an or ganization in an amount equal to cash dividends received from that organiza tion during the preceding 12 calendar months; or (iv) any investment that is acquired from an affiliate at net asset value. (2 ) Prior notice. A n investment that does not qualify under the general-consent pro cedure may be made after the investor has given 45 days’ prior written notice to the Board. The Board may waive the 45-day period if it finds immediate action is re quired by the circumstances presented. The notice period shall commence at the time the notice is accepted. The Board may sus pend the period or act on the investment under the Board’s specific-consent procedures. (3 ) Specific consent. A ny investment that does not qualify for either the generalconsent or the prior-notice procedure shall not be consummated without the specific consent of the Board. (d ) Permissible activities. The Board has de termined that the following activities are usu al in connection with the transaction of bank ing or other financial operations abroad: (1 ) commercial and other banking activities; 10 The “historical cost” of an investment consists of the actual amounts paid for shares or otherwise contributed to the capital accounts, as measured in dollars at the exchange rate in effect at the time each investment was made. It does not include subordinated debt or unpaid commitments to invest even though these may be considered investments for 9 In determining compliance with these limits, an invesother purposes of this part. For investments acquired indi tor shall combine the value of all shares of an organization rectly as a result of acquiring a subsidiary, the historical held in trading or dealing accounts under paragraph cost to the investor is measured as of the date of acquisition of the subsidiary at the net asset value of the equity interest (d) (14) o f this section with investments in the same orga in the case of subsidiaries and joint ventures, and in the nization. Shares held in trading or dealing accounts are also case of portfolio investments, at the book carrying value. subject to the limits in paragraph (d ) (14) of this section. 11 A f / 0 7 o| §211.5 (2 ) financing, including commercial fi nancing, consumer financing, mortgage banking, and factoring; (3 ) leasing real or personal property, or acting as agent, broker, or advisor in leasing real or personal property, if the lease serves as the functional equivalent o f an extension o f credit to the lessee of the property; (4 ) acting as fiduciary; (5 ) underwriting credit life insurance and credit accident and health insurance; (6 ) performing services for other direct or indirect operations of a United States bank ing organization, including representative functions, sale o f long-term debt, name sav ing, holding assets acquired to prevent loss on a debt previously contracted in good faith, and other activities that are permissi ble domestically for a bank holding compa ny under sections 4 ( a ) ( 2 ) ( A ) and 4 ( c ) ( 1 ) ( C ) o f the BHC Act; (7 ) holding the premises o f a branch o f an Edge corporation or member bank or the premises of a direct or indirect subsidiary, or holding or leasing the residence o f an officer or employee o f a branch or subsidiary; (8 ) providing investment, financial, or eco nomic advisory services; (9 ) general insurance agency and brokerage; (10) data processing; (1 1 ) organizing, sponsoring, and manag ing a mutual fund if the fund’s shares are not sold or distributed in the United States or to U.S. residents and the fund does not exercise managerial control over the firms in which it invests; (12) performing management consulting services provided that such services when rendered with respect to the U.S. market shall be restricted to the initial entry; (13) underwriting, distributing, and deal ing in debt securities outside the United States; (14) underwriting, distributing, and deal ing in equity securities outside the United States as follows: (i) by an investor, or an affiliate, that had commenced such activities prior to March 27, 1991, and subject to limita12 Regulation K tions in effect at that time (12 CFR 211 (1 9 9 0 )); or (ii) with the approval o f the Board, un derwriting equity securities if— (A ) commitments by an investor and its affiliates for the shares of an organi zation do not in the aggregate exceed the lesser o f $60 million or 25 percent of the investor’s tier 1 capital unless the underwriter is covered by binding commitments from subunderwriters or other purchasers obtained by the inves tor or its affiliates; and (B ) commitments by an investor and its affiliates for the shares o f an organi zation in excess o f those permitted by paragraph ( d ) ( 1 4 ) ( ii) ( A ) o f this sec tion provided that— (7 ) the underwriting level approved by the Board for the investor and its affiliates in excess o f the limitations o f paragraph (d ) (1 4 ) (ii) (A ) o f this section is fully deducted from the capital o f the bank holding compa ny, and from the capital o f the bank where the securities activities are conducted by a subsidiary of a U.S. bank;11 and (2 ) in the Board’s judgment such bank holding company and bank would remain strongly capitalized after such deduction from capital; and (iii) with the approval o f the Board, dealing in the shares o f an organization (including the shares o f a U.S. organiza tion with respect to foreign persons only and subject to the limitations on owning or controlling shares o f a company in section 4 of the BHC A ct and the Board’s Regulation Y (12 C FR 2 2 5 )) where the shares held in the trading or dealing accounts o f an investor and its affiliates, when combined with any shares held pursuant to the authority provided under paragraph (b) o f this section, do not in the aggregate exceed the lesser o f $30 million or 10 percent o f the 11 Fifty percent of such capital deductions shall be from tier 1 capital. A+ Regulation K investor’s tier 1 capital, provided howev er that— (A ) for purposes o f determining com pliance with the limitations o f this par agraph (d ) (14) (iii) and paragraph (b) (1 ) (iii) (A ) (2 ) o f this section, long and short positions in the same security may be netted and positions in a security may be offset by futures, for wards, options, and similar instru ments referenced to the same security through hedging methods approved by the Board, except that any position in a security shall not be deemed to have been reduced by more than 75 percent; (B ) any shares held in trading or dealing accounts for longer that 90 days shall be reported to the senior management of the investor; (C ) any shares acquired pursuant to an underwriting commitment for up to 90 days after the payment date for such underwriting shall not be subject to the dollar and percentage limita tions o f paragraph (d ) (14) (iii) of this section or the investment provisions of paragraph (b) o f this section, other than the aggregate limits in paragraph (b) (1 ) (iii) (A ) (2 ) o f this section; and (D ) shares of an organization held in all trading and dealing accounts, when combined with all other equity inter ests in the organization held by the in vestor and its affiliates, other than un derwriting commitments for shares and shares held pursuant to an under writing for 90 days following the pay ment date for such shares, must con form to the permissible limits for investments in an organization under paragraph (b) o f this section.12 (iv) underwriting commitments for shares and shares held by an affiliate au thorized to underwrite equity securities under section 4 ( c ) ( 8 ) o f the BHC Act IOW | §211.5 shall not be included in determining com pliance with the aggregates limits in par agraph ( b ) (1 ) (iii) (A ) (2 ) and the limits o f paragraphs ( d ) ( 1 4 ) ( ii) ( A ) and (iii) o f this section, except that shares held by such an affiliate shall be included for pur poses o f determining compliance with paragraph (d ) (1 4 ) (iii) (D ) of this section. (15) operating a travel agency provided that the travel agency is operated in con nection with financial services offered abroad by the investor or others; (16) underwriting life, annuity, pension fund-related, and other types o f insurance, where the associated risks have been previ ously determined by the Board to be actuarially predictable, provided however that— (i) investments in, and loans and exten sions of credit (other than loans and ex tensions o f credit fully secured in accord ance with the requirements o f section 23A o f the F R A (12 USC 371c) or with such other standards as the Board may require) to, the company by the investor or its affiliates are deducted from the cap ital o f the investor;*lio13 and (ii) activities conducted directly or indi rectly by a subsidiary o f a U.S. insured bank are excluded from the authority of this paragraph. (17) acting as a futures commission mer chant for financial instruments o f the type, and on exchanges, that the Board has previ ously approved, provided however, that— (i) activities are conducted in accord ance with the standards set forth in sec tion 225.25(b) (1 8 ) o f the Board’s Regu lation Y (12 CFR 2 2 5 .2 5 (b )(1 8 )); and (ii) prior approval must be obtained for activities conducted on an exchange that requires members to guarantee or other wise contract to cover losses suffered by other members. (1 8 ) acting as principal or agent in swap transactions14 subject to any limitations ap plicable to state member banks under the 12 Underwriting commitments are combined with shares held by an investor and its affiliates (other than an affiliate 13 Fifty percent of such capital deduction shall be from authorized to deal in shares under section 4 (c )( 8 ) o f the tier 1 capital. BHC A ct) in dealing or trading accounts and with portfo 14 Swap transactions involving equity instruments are lio investments for purposes of determining compliance separately authorized under paragraph (d) (14) of this with the aggregate limits in paragraph (b )(1 ) (iii) (A ) (2) section. of this section. 13 M §211.5 Board’s Regulation H (12 CFR 208), ex cept that where such activities involve contracts related to a commodity, such con tracts must provide an option for cash set tlement and the option must be exercised upon settlement. (19) engaging in activities that the Board has determined in Regulation Y (12 CFR 2 2 5 .2 5 (b )) are closely related to banking under section 4 (c ) (8 ) of the BHC Act; and (20) with the Board’s specific approval, engaging in other activities that the Board determines are usual in connection with the transaction of the business of banking or other financial operations abroad and are consistent with the FRA or the BHC Act. (e) Debts previously contracted. Shares or other ownership interests acquired to prevent a loss upon a debt previously contracted in good faith are not subject to the limitations or procedures of this section; however, they shall be disposed o f promptly but in no event later than two years after their acquisition, unless the Board authorizes retention for a longer period. (f) Investments made through debt-for-equity conversions. (1 ) Permissible investments. A bank hold ing company may make investments through the conversion of sovereign or pri vate debt obligations of an eligible country, either through direct exchange o f the debt obligations for the investment or by a pay ment for the debt in local currency, the pro ceeds o f which, including an additional cash investment not exceeding in the aggre gate more than 10 percent of the fair value o f the debt obligations being converted as part o f such investment, are used to pur chase the following investments: (i) Public-sector companies. A bank holding company may acquire up to and including 100 percent of the shares o f (or other ownership interests in) any foreign company located in an eligible country if the shares are acquired from the govern ment o f the eligible country or from its agencies or instrumentalities. (ii) Private-sector companies. A bank holding company may acquire up to and including 40 percent o f the shares, in14 10701 Regulation K eluding voting shares, o f (or other own ership interests in) any other foreign company located in an eligible country subject to the following conditions: (A ) a bank holding company may ac quire more than 25 percent o f the vot ing shares o f the foreign company only if another shareholder or control group o f shareholders unaffiliated with the bank holding company holds a larger block o f voting shares of the company; (B ) the bank holding company and its affiliates may not lend or otherwise ex tend credit to the foreign company in amounts greater than 50 percent o f the total loans and extensions o f credit to the foreign company; and (C ) the bank holding company’s rep resentation on the board o f directors or on management committees o f the for eign company may be no more than proportional to its shareholding in the foreign company. (2 ) Investments by bank subsidiary o f bank holding company. Upon application, the Board may permit an indirect investment to be made pursuant to this paragraph through an insured bank subsidiary of the bank holding company where the bank holding company demonstrates that such ownership is consistent with the purposes of the FR A. In granting its consent, the Board may impose such conditions as it deems necessary or appropriate to prevent adverse effects, including prohibiting loans from the bank to the company in which the invest ment is made. (3 ) Divestiture. (i) Time limits for divestiture. The bank holding company shall divest the shares of, or other ownership interests in, any company acquired pursuant to this para graph (unless the retention of the shares or other ownership interest is otherwise permissible at the time required for dives titure) within the longer o f — (A ) ten years from the date o f acqui sition o f the investment except that the Board may extend such period if, in the Board’s judgment, such an exten- At Regulation K sion would not be detrimental to the public interest; or (B ) two years from the date on which the bank holding company is permitted to repatriate in full the investment in the foreign company; Provided however that, in either event di vestiture occurs within 15 years of the date o f the acquisition. (ii) Report to Board. The bank holding company shall report to the Board on its plans for divesting an investment made under this paragraph two years prior to the final date for divestiture, in a manner to be prescribed by the Board. (iii) Other conditions requiring divesti ture. A ll investments made pursuant to this paragraph are subject to paragraphs (b) (4 ) (i) (A ) and (B ) of this section re quiring prompt divestiture (unless the Board upon application authorizes reten tion) if the company invested in engages in impermissible business in the United States that exceeds in the aggregate 10 percent o f the company’s consolidated assets or revenues calculated on an annu al basis; provided however that, such company may not engage in activities in the United States that consist o f banking or financial operations (as defined in sec tion 2 1 1 .2 3 (f)( 5 ) (iii)(B ) o f this chap ter), or types of activities permitted by regulation or order under section 4 ( c ) ( 8 ) o f the BHC Act, except under regulations of the Board or with the prior approval o f the Board. (4 ) Investment procedures. (i) General consent. Subject to the other limitations o f this paragraph, the Board grants its general consent for investments made under this paragraph if the total amount invested does not exceed the greater of $25 million or 1 percent o f the tier 1 capital o f the investor. (ii) All other investment shall be made in accordance with the procedures of par agraph (c) o f this section requiring prior notice or specific consent. (5 ) Conditions. (i) Name. Any company acquired pur suant to this paragraph shall not bear a name similar to the name o f the acquir- totyo/ § 2 11.6 ing bank holding company or any o f its affiliates. (ii) Confidentiality. Neither the bank holding company nor its affiliates shall provide to any company acquired pursu ant to this paragraph any confidential business information or other informa tion concerning customers that are en gaged in the same or related lines of busi ness as the company. SECTION 211.6— Lending Limits and Capital Requirements (a) Acceptances o f Edge corporations. (1 ) Limitations. An Edge corporation shall be and remain fully secured for— (i) all acceptances outstanding in excess o f 200 percent o f its tier 1 capital; and (ii) all acceptances outstanding for any one person in excess o f 10 percent of its tier 1 capital; Provided however that, these limitations apply only to acceptances of the types de scribed in paragraph 7 o f section 13 of the FR A (12 USC 372). (2 ) Exceptions. These limitations do not apply if the excess represents the interna tional shipment o f goods and the Edge cor poration is— (i) fully covered by primary obligations to reimburse it that are guaranteed by banks or bankers; or (ii) covered by participation agreements from other banks, as such agreements are described in section 250.165 of this chapter. (b) Loans and extensions o f credit to one person. (1 ) Limitations. Except as the Board may otherwise specify: (i) the total loans and extensions of credit outstanding to any person by an Edge corporation engaged in banking and its direct or indirect subsidiaries may not exceed 15 percent o f the Edge corpo ration’s tier 1 capital;15 and 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. 15 M §211.6 (ii) the total loans and extensions of credit to any person by a foreign bank or Edge corporation subsidiary o f a member bank, and by majority-owned subsidiaries o f a foreign bank or Edge corporation, when combined with the total loans and extensions o f credit to the same person by the member bank and its majority-owned subsidiaries, may not exceed the member bank’s limitation on loans and extensions o f credit to one person. (2 ) “Loans and extensions o f credit ” has the meaning set forth in section 211.2 (p ) of this part16 and, for purposes o f this para graph, include— (i) acceptances outstanding that are not o f the types described in paragraph 7 of section 13 of the FRA (12 USC 372); (ii) any liability o f the lender to advance funds to or on behalf o f a person pursu ant to a guarantee, standby letter o f cred it, or similar agreements; (iii) investments in the securities o f an other organization except where the or ganization is a subsidiary, and (iv) any underwriting commitments to an issuer o f securities where no binding commitments have been secured from subunderwriters or other purchasers. (3 ) Exceptions. The limitations o f para graph ( b ) (1 ) o f this section do not apply to— (i) deposits with banks and federal funds sold; (ii) bills or drafts drawn in good faith against actual goods and on which two or more unrelated parties are liable; (iii) any banker’s acceptance of the kind described in paragraph 7 o f section 13 of the F R A that is issued and outstanding; (iv) obligations to the extent secured by cash collateral or by bonds, notes, certifi cates of indebtedness, or Treasury bills of the United States; io| Regulation K (v) loans and extensions o f credit that are covered by bona fide participation agreements; or (v i) obligations to the extent supported by the full faith and credit o f the following: (A ) the United States or any o f its de partments, agencies, establishments, or wholly owned corporations (including obligations to the extent insured against foreign political and credit risks by the Export-Import Bank o f the United States or the Foreign Credit In surance A ssociation), the Internation al Bank for Reconstruction and D evel opment, the International Finance Corporation, the International D evel opment Association, the Inter-Ameri can Development Bank, the African Development Bank, the Asian D evel opment Bank; or the European Bank for Reconstruction and Development; (B ) any organization if at least 25 percent o f such an obligation or o f the total credit is also supported by the full faith and credit of, or participated in by, any institution designated in para graph (b ) (3 ) (v i) (A ) o f this section in such manner that default to the lender will necessarily include default to that entity. The total loans and extensions o f credit under this paragraph ( b ) ( 3 ) ( v i) ( B ) to any person shall at no time exceed 100 percent o f the tier 1 capital o f the Edge corporation. (c ) Capitalization. An Edge corporation shall at all times be capitalized in an amount that is adequate in relation to the scope and charac ter o f its activities. In the case o f an Edge cor poration engaged in banking, after December 31, 1992, its minimum ratio o f qualifying total capital to weighted-risk assets, as determined under the Capital Adequacy Guidelines, shall 16 In the case of a foreign government, these include not be less than 10 percent, o f which at least loans and extensions of credit to the foreign government’s 50 percent shall consist o f tier 1 capital; pro departments or agencies deriving their current funds princi vided however that for purposes o f this para pally from general tax revenues. In the case of a partner graph, no limitation shall apply as to the in ship or firm, these include loans and extensions of credit to its members and, in the case of a corporation, these include clusion of subordinated debt that qualifies as loans and extensions o f credit to the corporation’s affiliates tier 2 capital under the Capital Adequacy where the affiliate incurs the liability for the benefit o f the Guidelines. corporation. 16 M io*1dl Regulation K S E C T IO N 2 1 1 .7 — S u p ervision and R ep ortin g (a) Supervision. (1 ) Foreign branches and subsidiaries. Organizations conducting international banking operations under this subpart shall supervise and administer their foreign branches and subsidiaries in such a manner as to ensure that their operations conform to high standards of banking and financial prudence. Effective systems o f records, con trols, and reports shall be maintained to keep management informed o f their activi ties and condition. Such systems shall pro vide, in particular, information on risk assets, liquidity management, operations, internal controls, and conformance to man agement policies. Reports on risk assets shall be sufficient to permit an appraisal of credit quality and assessment o f exposure to loss, and for this purpose provide full infor mation on the condition of material bor rowers. Reports on the operations and controls shall include internal and external audits o f the branch or subsidiary. (2 ) Joint ventures. Investors shall maintain sufficient information with respect to joint ventures to keep informed of their activities and condition. Such information shall in clude audits and other reports on financial performance, risk exposure, management policies, operations, and controls. Complete information shall be maintained on all transactions with the joint venture by the investor and its affiliates. (3 ) Availability o f reports to examiners. The reports and information specified in paragraphs ( a ) ( 1 ) and (2 ) of this section shall be made available to examiners o f the appropriate bank supervisory agencies. (b) Examinations. Examiners appointed by the Board shall examine each Edge corpora tion once a year. An Edge corporation shall make available to examiners sufficient infor mation to assess its condition and operations and the condition and activities o f any organi zation whose shares it holds. (c) Reports. (1 ) Reports o f condition. Each Edge corpo ration shall make reports o f condition to the Board at such times and in such form as §211.20 the Board may prescribe. The Board may require that statements o f condition or oth er reports be published or made available for public inspection. (2 ) Foreign operations. Edge and agree ment corporations, member banks, and bank holding companies shall file such re ports on their foreign operations as the Board may require. (3 ) Acquisition or disposition o f shares. A member bank, Edge or agreement corpora tion or a bank holding company shall re port, in a manner prescribed by the Board, any acquisition or disposition o f shares. (d ) Filing and processing procedures. (1 ) Unless otherwise directed by the Board, applications, notifications, and reports re quired by this part shall be filed with the Federal Reserve Bank o f the District in which the parent bank or bank holding company is located or, if none, the Reserve Bank o f the District in which the applying or reporting institution is located. Instruc tions and forms for such applications, noti fications and reports are available from the Reserve Banks. (2 ) The Board shall act on an application or notification under this subpart within 60 calendar days after the Reserve Bank has accepted the application or notification un less the Board notifies the investor that the 60-day period is being extended and states the reasons for the extension. S E C T IO N 2 1 1 .8 — R ep o rts o f C rim es and S u sp ected C rim es (a ) An Edge corporation or any branch or subsidiary thereof or an Agreement corpora tion or branch or any subsidiary thereof shall file a criminal referral form in accordance with the provisions o f section 208.20 of the Board’s Regulation H, 12 CFR 208.20. S U B P A R T B— F O R E IG N B A N K IN G O R G A N IZ A T IO N S S E C T IO N 2 1 1 .2 0 — A u th o r ity , P urpose, an d S cop e (a ) Authority. This subpart is issued by the 17 Af W §211.20 Board o f Governors of the Federal Reserve System ( “Board” ) under the authority o f the Bank Holding Company A ct o f 1956 (12 USC 1841 et seq.) ( “BH CA ” ); and the Inter national Banking A ct o f 1978 (12 USC 3101 et seq.) ( “IB A ” ). (b ) Purpose and scope. This subpart is in fur therance o f the purposes of the BHC A ct and the IBA. It applies to foreign banks and for eign banking organizations with respect to— (1 ) the limitations on interstate banking under section 5 of the IBA (12 USC 3103); (2 ) the exemptions from the nonbanking prohibitions of the BHC A ct and the IBA afforded by sections 2 (h ) and 4 ( c ) ( 9 ) o f the BHC Act (12 USC 1841(h) and 1 8 4 3 (c )(9 )); (3 ) Board approval of the establishment of an office o f a foreign bank in the United States under sections 7 (d ) and 10(a) o f the IBA (12 USC 3105(d), 3 1 0 7 (a )); (4 ) the termination by the Board o f a for eign bank’s representative office, state branch, state agency, or commercial lend ing company subsidiary under sections 7 (e ) and 10(b) o f the IBA (12 USC 3 1 0 5 (e), 3 1 0 7 (b )) and the transmission o f a recom mendation to the Office of the Comptroller of the Currency to terminate a federal branch or federal agency under section 7 ( e ) ( 5 ) o f the IBA (12 USC 3 1 0 5 (e )(5 )); (5 ) the examination of an office or affiliate o f a foreign bank in the United States as provided in sections 7 (c ) and 10(c) o f the IBA (12 USC 3105(c), 3 1 0 7 (c)); (6 ) the disclosure o f supervisory informa tion to a foreign supervisor under section 15 o f the IBA (12 USC 3109); (7 ) the limitations on loans to one borrow er by state branches and state agencies o f a foreign bank under section 7 ( h ) (2 ) o f the IBA (12 USC 3 1 0 5 (h )(2 )); (8 ) the limitation o f a state branch and a state agency to conducting only activities that are permissible for a federal branch un der section (7 ) ( h ) ( 1 ) of the IBA (12 USC 3 1 0 5 (h )(1 )); and (9 ) the deposit insurance requirement for retail deposit taking by a foreign bank un der section 6 of the IBA (12 USC 3104). (c) Additional requirements. Compliance by 18 01 Regulation K a foreign bank with the requirements o f this subpart and the laws administered and en forced by the Board does not relieve the for eign bank o f responsibility to comply with the laws and regulations administered by the li censing authority. SECTION 211.21—Definitions The definitions contained in section 211.2 in subpart A o f this part apply to this subpart except as a term is otherwise defined in this section: (a) Affiliate, o f a foreign bank or o f a parent o f a foreign bank, means any company that controls, is controlled by, or is under common control with, the foreign bank or the parent of the foreign bank. (b) Agency means any place o f business o f a foreign bank, located in any state, at which credit balances are maintained, checks are paid, money is lent, or, to the extent not pro hibited by state or federal law, deposits are accepted from a person or entity that is not a citizen or resident o f the United States. Obli gations shall not be considered credit balances unless they are— (1 ) incidental to, or arise out o f the exer cise of, other lawful banking powers; (2 ) to serve a specific purpose; (3 ) not solicited from the general public; (4 ) not used to pay routine operating ex penses in the United States such as salaries, rent, or taxes; (5 ) withdrawn within a reasonable period o f time after the specific purpose for which they were placed has been accomplished; and (6 ) drawn upon in a manner reasonable in relation to the size and nature o f the account. (c ) Banking subsidiary, with respect to a specified foreign bank, means a bank that is a subsidiary as the terms bank and subsidiary are defined in section 2 o f the BHC A ct (12 USC 1841). (d) Branch means any place of business o f a foreign bank, located in any state, at which deposits are received and that is not an agen 4 f lovoi Regulation K cy, as that term is defined in paragraph (b) of this section. (e) Change the status of an office means con vert a representative office into a branch or an agency, an agency into a branch, a federal branch into a state branch, or a federal agency into a state agency, but does not include re newal o f the license of an existing office. (f) Commercial lending company means any organization, other than a bank or an organi zation operating under section 25 o f the Fed eral Reserve A ct (F R A ) (12 USC 601-6 0 4 a ), organized under the laws o f any state, that maintains credit balances permissible for an agency and engages in the business o f making commercial loans. Commercial lending com pany includes any company chartered under article X II o f the banking law of the state of New York. (g ) Comptroller means the Office o f the Comptroller o f the Currency. (h ) Control has the same meaning assigned to it in section 2 o f the BHC A ct (12 USC 1841), and the terms controlled and control ling shall be construed consistently with the term control. (i) Domestic branch means any place o f busi ness of a foreign bank, located in any state, that may accept domestic deposits and depos its that are incidental to or for the purpose of carrying out transactions in foreign countries. (j) A foreign bank engages directly in the business o f banking outside o f the United States if the foreign bank engages directly in banking activities usual in connection with the business o f banking in the countries where the foreign bank is organized or operating. (k ) To establish means to— (1 ) open and conduct business through an office; (2 ) acquire directly, through merger, con solidation, or similar transaction with an other foreign bank, the operations o f an of fice that is open and conducting business; (3 ) acquire an office through the acquisi tion o f a foreign bank subsidiary that will cease to operate in the same corporate form following the acquisition; §211.21 (4 ) change the status o f an office; or (5 ) relocate an office from one state to another. (/) Federal agency, federal branch, state agency and state branch have the same mean ings as in section 1 o f the IB A (12 USC 3101). (m ) Foreign bank means an organization that is organized under the laws o f a foreign country and that engages directly in the busi ness o f banking outside the United States. The term foreign bank does not include a central bank o f a foreign country that does not engage or seek to engage in a commercial banking business in the United States through an office. (n ) Foreign banking organization means a foreign bank, as defined in section 1 (b )(7 ) of the IBA (12 USC 3 1 0 1 (7 )), that operates a branch, agency, or commercial lending com pany subsidiary in the United States, or that controls a bank in the United States, and any company of which the foreign bank is a subsidiary. (o ) Home country, with respect to a foreign bank, means the country in which the foreign bank is chartered or incorporated. (p ) Home country supervisor, with respect to a foreign bank, means the governmental entity or entities in the foreign bank’s home country with responsibility for the supervision and regulation o f the foreign bank. (q ) Licensing authority means— (1 ) The relevant state supervisor, with re spect to an application to establish a state branch, state agency, commercial lending company, or representative office o f a for eign bank; or (2 ) The Comptroller, with respect to an application to establish a federal branch or federal agency. (r) Office or office o f a foreign bank means any branch, agency, representative office, or commercial lending company subsidiary o f a foreign bank in the United States. (s) The parent o f a foreign bank means any company o f which the foreign bank is a sub sidiary; the immediate parent o f a foreign 19 /H io Voi §211.21 bank is the company of which the foreign bank is a direct subsidiary; and the ultimate parent o f a foreign bank is the parent o f the foreign bank that is not the subsidiary o f any other company. (t) Regional administrative office means a representative office that— (1 ) is established by a foreign bank that operates one or more branches, agencies, commercial lending companies, or banks in the United States; (2 ) is located in the same city as one or more o f the foreign bank’s branches, agen cies, commercial lending companies, or banks in the United States; and (3 ) manages, supervises, or coordinates the operations o f the foreign bank or its af filiates, if any, in a particular geographic region. (u ) Relevant state supervisor means the state entity that is authorized to supervise and reg ulate a state branch, state agency, commercial lending company, or representative office. (v ) Representative office means any place of business o f a foreign bank, located in any state, that is not a branch, agency, or subsidi ary o f the foreign bank. (w ) State means any state o f the United States or the District o f Columbia. (x ) Subsidiary means any organization 25 percent or more o f whose voting shares is di rectly or indirectly owned, controlled, or held with the power to vote by a company, includ ing a foreign bank or foreign banking organi zation, or any organization that is otherwise controlled or capable o f being controlled by a foreign bank or foreign banking organization. SECTION 211.22—Interstate Banking Operations of Foreign Banking Organizations (a) Determination o f home state. (1 ) A foreign bank selecting its home state shall do so by filing with the Board a decla ration o f home state within 180 days o f the effective date o f this subpart. In the absence of such selection, the Board shall designate a foreign bank’s home state. Within one 20 Regulation K year after the home state o f a foreign bank has been determined, unless the Board au thorizes a longer period: (i) the foreign bank shall close domestic branches whose activities are not permis sible under section 5 (b ) o f the IB A, con vert such domestic branches to agencies, or enter into an agreement with the Board regarding the deposits o f such branches as prescribed in section 5 (a ) of the IBA; and (ii) the foreign bank shall divest voting shares o f interests in, or assets o f banks that are not permissible under section 5(b ) o f the IBA. (2 ) A foreign bank that currently does not operate a domestic branch or banking sub sidiary shall not be required to select a home state and shall not have its home state designated by the Board. (3 ) A foreign bank (except a foreign bank to which paragraph ( b ) (5 ) o f this section applies) that has any combination o f do mestic branches, banking subsidiaries, agencies, or commercial lending company subsidiaries that, before July 27, 1978, were established or applied for in more than one state may select its home state only from those states in which the foreign bank has continuously operated such offices. (4 ) A foreign bank that established or ap plied for one domestic branch or one bank ing subsidiary before July 27, 1978, and that was not otherwise engaged in banking in the United States on that date, shall have as its home state the state in which such domestic branch or banking subsidiary is located. (5 ) A foreign bank that before July 27, 1978, had no domestic branches or banking subsidiaries or had only agencies or com mercial lending companies, and, after that date, has established or establishes any do mestic branch or banking subsidiary shall have as its home state that state in which its initial domestic branch or banking subsidi ary is located. (b) Change o f home state. A foreign bank may change its home state once if: (1 ) 30 days’ prior notification o f the pro posed change is filed with the Board; and M ioyo( Regulation K (2 ) domestic branches established and in vestments in banks acquired in reliance on its original home state selection are con formed to those that would have been per missible had the new home state been se lected as its home state originally. (c ) Bank mergers. (1 ) A foreign bank with one or more banking subsidiaries that se lects as its home state a state other than that in which a banking subsidiary is locat ed, and that proposes to acquire through its subsidiary bank all or substantially all of the assets o f a bank larger than its subsidi ary bank (in terms o f deposits) located out side the foreign bank’s home state shall give 60 days’ notification to the Board prior to consummation o f the proposed transaction. (2 ) If, after receiving the notification, the Board makes a preliminary determination within that period that the proposed acqui sition would be inconsistent with the for eign bank’s home state selection, the foreign bank shall: (i) redesignate as its home state the state in which its subsidiary bank is located; or (ii) show cause why in the facts and cir cumstances o f its case its home state should not be redesignated (the foreign bank’s submission may include a request for a h earin g ). (3 ) On the basis of information available, the Board shall— (i) direct that the foreign bank redesig nate as its home state the state in which its subsidiary bank is located; or (ii) take no action with respect to the foreign bank’s home state. (4 ) Factors to be considered by the Board in making its preliminary and final determi nations include the size of the proposed ac quisition relative to the foreign bank’s other operations in the United States and the abil ity of the foreign bank to change its home state. (d ) Attribution o f home state. (1 ) A foreign bank or organization and the other foreign banks or organizations over which it exer cises actual control shall be regarded as one foreign bank and shall be entitled to one home state. (2 ) Actual control shall be conclusively § 211.23 presumed to exist in the case o f a bank or organization that owns or controls a major ity o f the voting shares o f another bank or organization. (3 ) Where it appears to the Board that a foreign bank or organization exercises actu al control over the management or policies of another foreign bank or organization, the Board may inform the parties that a prelim inary determination o f control has been made on the basis o f the facts summarized in the communication. In the event o f a pre liminary determination o f control by the Board, the parties shall within 30 days (or such longer period as may be permitted by the Board)— (i) indicate to the Board a willingness to terminate the control relationship; or (ii) set forth such facts and circum stances as may support the contention that actual control does not exist (and may request a hearing to contest the Board’s preliminary determination); or (iii) accede to the Board’s preliminary determination, in which event the parties shall be regarded as one foreign bank and shall be entitled to one home state. SECTION 211.23—Nonbanking Activities of Foreign Banking Organizations (a ) [Reserved] (b) Qualifying foreign banking organizations. Unless specifically made eligible for the ex emptions by the Board, a foreign banking or ganization shall qualify for the exemptions af forded by this section only if, disregarding its United States banking, more than half o f its worldwide business is banking; and more than half o f its banking business is outside the United States.1 In order to qualify, a foreign banking organization shall— 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.” 21 M- io*roi §211.23 (1 ) meet at least two of the following requirements: (i) banking assets held outside the U nit ed States exceed total worldwide non banking assets; (ii) revenues derived from the business o f banking outside the United States ex ceed total revenues derived from its worldwide nonbanking business; or (iii) net income derived from the busi ness o f banking outside the United States exceeds total net income derived from its worldwide nonbanking business; and (2 ) meet at least two o f the following requirements: (i) banking assets held outside the U nit ed States exceed banking assets held in the United States; (ii) revenues derived from the business o f banking outside the United States ex ceed revenues derived from the business o f banking in the United States; (iii) net income derived from the busi ness o f banking outside the United States exceeds net income derived from the business o f banking in the United States. (c) Determining assets, revenues, and net in come. (1 ) For purposes of paragraph (b ), the total assets, revenues, and net income o f an organization may be determined on a con solidated or combined basis. Assets, reve nues and net income o f companies in which the foreign banking organization owns 50 percent or more of the voting shares shall be included when determining total assets, revenues, and net income. The foreign banking organization may include assets, revenues, and net income o f companies in which it owns 25 percent or more of the voting shares if all such companies within the organization are included; (2 ) Assets devoted to, or revenues or net income derived from, activities listed in sec tion 211.5(d ) o f this part shall be consid ered banking assets, or revenues or net in come derived from the banking business, when conducted within the foreign banking organization by a foreign bank or its subsidiaries. (d ) Loss o f eligibility for exemptions. (1 ) A foreign banking organization that qualified 22 Regulation K under paragraph (b) o f this section shall cease to be eligible for the exemptions of this section if it fails to meet the require ments o f paragraph (b ) o f this section for two consecutive years as reflected in its annual reports (F R Y -7) filed with the Board. (2 ) A foreign banking organization that ceases to be eligible for the exemptions of this section may continue to engage in ac tivities or retain investments commenced or acquired prior to the end of the first fiscal year for which its annual report reflects nonconformance with paragraph (b) o f this section. Activities commenced or invest ments made after that date shall be termi nated or divested within three months o f the filing o f the second annual report unless the Board grants consent to continue the activity or retain the investment under par agraph (e ) o f this section. (3 ) A foreign banking organization that ceases to qualify under paragraph (b ) of this section, or an affiliate o f such foreign banking organization, that requests a spe cific determination o f eligibility under para graph (e ) of this section may, prior to the Board’s determination on eligibility, contin ue to engage in activities and make invest ments under the provisions o f paragraphs ( f ) ( 1 ) , (2 ) and (4 ) o f this section. (e ) Specific determination o f eligibility for nonqualifying foreign banking organizations. (1 ) A foreign banking organization that does not qualify under paragraph (b ) of this section for the exemptions afforded by this section, or that has lost its eligibility for the exemptions under paragraph (d ) o f this section, may apply to the Board for a spe cific determination o f eligibility for the exemptions. (2 ) A foreign banking organization may apply for a specific determination prior to the time it ceases to be eligible for the ex emptions afforded by this section. (3 ) In determining whether eligibility for the exemptions would be consistent with the purposes o f the BHC A ct and in the public interest, the Board shall consider— (i) the history and the financial and managerial resources o f the organization; M [010! Regulation K (ii) the amount of its business in the United States; (iii) the amount, type, and location of its nonbanking activities, including whether such activities may be conducted by U.S. banks or bank holding compa nies; and (iv) whether eligibility of the foreign banking organization would result in un due concentration of resources, decreased or unfair competition, conflicts of inter ests, or unsound banking practices. (4 ) Such determination shall be subject to any conditions and limitations imposed by the Board, including any requirements to cease activities or dispose o f investments. (5 ) Determinations o f eligibility would generally not be granted where a majority o f the business o f the foreign banking orga nization derives from commercial or indus trial activities or where the U.S. banking business of the organization is larger than the non-U.S. banking business conducted directly by the foreign bank or banks (as defined in section 21 1.2(j) o f this part) of the organization. (f) Permissible activities and investments. A foreign banking organization that qualifies un der paragraph (b) may— (1 ) engage in activities o f any kind outside the United States; (2 ) engage directly in activities in the United States that are incidental to its ac tivities outside the United States; (3 ) own or control voting shares o f any company that is not engaged, directly or in directly, in any activities in the United States other than those that are incidental to the international or foreign business of such company: (4 ) own or control voting shares of any company in a fiduciary capacity under cir cumstances that would entitle such share holding to an exemption under section 4 ( c ) ( 4 ) o f the BHC A ct if the shares were held or acquired by a bank; (5 ) own or control voting shares o f a for eign company that is engaged directly or indirectly in business in the United States other than that which is incidental to its §211.23 international or foreign business, subject to the following limitations: (i) More than 50 percent o f the foreign company’s consolidated assets shall be located, and consolidated revenues de rived from, outside the United States; provided however that, if the foreign company fails to meet the requirements of the paragraph for two consecutive years (as reflected in annual reports (FR Y -7 )) filed with the Board by the foreign banking organization, the foreign compa ny shall be divested or its activities termi nated within one year of the filing o f the second consecutive annual report that re flects nonconformance with the require ments o f this paragraph, unless the Board grants consent to retain the investment under paragraph (g ) o f this section; (ii) The foreign company shall not di rectly underwrite, sell, or distribute, nor own or control more than 5 percent of the voting shares o f a company that un derwrites, sells, or distributes securities in the United States except to the extent permitted bank holding companies; (iii) If the foreign company is a subsidi ary of the foreign banking organization, the foreign company must be, or must control, an operating company, and its direct or indirect activities in the United States shall be subject to the following limitations: (A ) The foreign company’s activities in the United States shall be the same kind o f activities or related to the ac tivities engaged in directly or indirectly by the foreign company abroad as measured by the “establishment” cate gories o f the Standard Industrial Clas sification (SIC ) (an activity in the United States shall be considered relat ed to an activity outside the United States if it consists o f supply, distribu tion, or sales in furtherance o f the activity); (B ) The foreign company may engage in activities in the United States that consist of banking securities, insurance or other financial operations, or types o f activities permitted by regulation or order under section 4 ( c ) ( 8 ) of the 23 m §211.23 BHC Act, only under regulations of the Board or with the prior approval of the Board. ( / ) Activities within Division H (Finance, Insurance, and Real Es tate) o f the SIC shall be considered banking or financial operations for this purpose, with the exception of acting as operators o f nonresidential buildings (SIC 6512), operators of apartment buildings (SIC 6513), operators of dwellings other than apartment buildings (SIC 6514), and operators o f residential mobile home sites (SIC 6515); and operat ing title abstract offices (SIC 6541); and (2 ) The following activities shall be considered financial activities and may be engaged in only with the ap proval o f the Board under subsec tion (g): credit reporting services (SIC 7323); computer and data pro cessing services (SIC 7371, 7372, 7373, 7374, 7375, 7376, 7377, 7378, and 7379); armored car services (SIC 7381); management consulting (SIC 8732, 8741, 8742, and 8748); certain rental and leasing activities (SIC 4741, 7352, 7353, 7359, 7513, 7514, 7515, and 7519); accounting, auditing and bookkeeping services (SIC 8721); courier services (SIC 4215 and 4513); and arrangement of passenger transportation (SIC 4724, 4725, and 4729). (g ) Exemptions under section 4(c)(9) o f the BHC Act. A foreign organization that is of the opinion that other activities or investments may, in particular circumstances, meet the conditions for an exemption under section 4 ( c ) ( 9 ) o f the BHC Act may apply to the Board for such a determination by submitting to the Reserve Bank o f the District in which its banking operations in the United States are principally conducted a letter setting forth the basis for that opinion. (h ) Reports. (1 ) The foreign banking organization shall inform the Board through the organiza tion’s Reserve Bank within 30 days after 24 iow i Regulation K the close o f each quarter o f all shares of companies engaged, directly or indirectly, in activities in the United States that were acquired during such quarter under the au thority o f this section. (2 ) The foreign banking organization shall also report any direct activities in the U nit ed States commenced during such quarter by a foreign subsidiary o f the foreign bank ing organization. This information shall (unless previously furnished) include a brief description of the nature and scope of each company’s business in the United States, including the 4-digit SIC numbers of the activities in which the company en gages. Such information shall also include the 4-digit SIC numbers o f the direct parent of any U.S. company acquired, together with a statement o f total assets and reve nues o f the direct parent. (i) Availability o f information. If any infor mation required under this section is un known and not reasonably available to the foreign banking organization, either because obtaining it would involve unreasonable effort or expense or because it rests peculiarly within the knowledge o f a company that is not con trolled by the organization, the organization shall— (1 ) give such information on the subject as it possesses or can reasonably acquire to gether with the sources thereof; and (2 ) include a statement either showing that unreasonable effort or expense would be involved or indicating that the company whose shares were acquired is not con trolled by the organization and stating the result o f a request for information. SECTION 211.24— Approval of Offices of Foreign Banks; Procedures for Applications; Standards for Approval; Representative-Office Activities and Standards for Approval; Preservation of Existing Authority (a) Board approval o f offices offoreign banks. (1 ) Prior Board approval o f branches, agen cies, or commercial lending companies o f foreign banks, (i) Except as otherwise pro vided in paragraph ( a ) ( 3 ) o f this sec- /H Regulation K tion, a foreign bank shall obtain the ap proval o f the Board before it— (A ) establishes a branch, agency, or commercial lending company subsidi ary in the United States; or (B ) acquires ownership or control of a commercial lending company subsidiary. (2 ) Prior Board approval o f representative offices o f foreign banks. Except as otherwise provided in paragraphs ( a ) ( 2 ) or ( a )( 3 ) o f this section, a foreign bank shall obtain the approval of the Board before it estab lishes a representative office in the United States. (i) Prior notice for regional administra tive offices. After providing 45 days’ prior written notice to the Board, a foreign bank may establish a regional adminis trative office. The Board may waive the 45-day period if it finds that immediate action is required by the circumstances presented. The notice period shall com mence at the time the notice is accepted. The Board may suspend the period or re quire Board approval prior to the estab lishment of such an office if the notifica tion raises significant policy, prudential, or supervisory concerns. (ii) General consent for representative offices. The Board grants its general con sent for a foreign bank to establish a rep resentative office that solely engages in limited administrative functions that are clearly defined, are performed in connection with the banking activities of the foreign bank, and that do not involve contact or liaison with customers or potential customers (such as separately maintaining back office support system s), provided that the foreign bank notifies the Board in writing within 30 days of the establishment o f the representative office. (3 ) After-the-fact Board approval. Where a foreign bank proposes to establish a branch, agency, representative office, or commercial lending company in the United States through the acquisition of, or merger or consolidation with, a foreign bank with an office in the United States, the Board may, in its discretion, allow the acquisition, i o v o i §211.24 merger, or consolidation to proceed before an application to establish the office has been filed or acted upon under this section if— (i) the foreign bank or banks resulting from the acquisition, merger, or consoli dation, will not directly or indirectly own or control more than 5 percent of any class of the voting securities of, or con trol, a U.S. bank; (ii) the Board is given reasonable ad vance notice o f the proposed acquisition, merger, or consolidation; (iii) prior to consummation of the ac quisition, merger, or consolidation, each of the relevant foreign banks commits in writing to comply with the procedures for an application under this section within a reasonable period o f time or has already filed an application; and (iv ) each of the relevant foreign banks commits in writing to abide by the Board’s decision on the application, in cluding, if necessary, a decision to termi nate the activities o f any such U.S. office, as the Board or the Comptroller may require. (4 ) Notice o f change in ownership or con trol or conversion o f existing office. A for eign bank with a U.S. office shall notify the Board in writing within 10 days o f either— (i) a change in the foreign bank’s owner ship or control where the foreign bank is acquired or controlled by another foreign bank or company and the acquired for eign bank with a U.S. office continues to operate in the same corporate form as prior to the change in ownership or con trol; or (ii) the conversion of a branch to an agency or representative office, an agency to a representative office, a state branch to a federal branch, or a state agency to a federal agency. (5 ) Transactions subject to approval under Regulation Y. Subpart B of the Board’s Regulation Y (12 CFR 225.11-225.14) governs the acquisition by a foreign bank ing organization o f direct or indirect owner ship or control o f any voting securities o f a bank or bank holding company in the U nit ed States if the acquisition results in the for- 25 I0V O I §211.24 eign banking organization’s ownership or control o f more than 5 percent o f any class o f voting securities of a U.S. bank or bank holding company, including through acqui sition o f a foreign bank or foreign banking organization that owns or controls more than 5 percent o f any class of the voting securities of a U.S. bank or bank holding company. (b ) Procedures for application. (1 ) Filing application. An application for the Board’s approval pursuant to this sec tion shall be filed in the manner prescribed by the Board. (2 ) Publication requirement. (i) General. Except with respect to a proposed transaction where more exten sive notice is required by statute or as otherwise provided in paragraphs (b ) (2 ) (ii) and (b) (2 ) (iii) o f this sec tion, the applicant shall publish a notice in a newspaper o f general circulation in the community in which the applicant proposes to engage in business. The no tice shall state that an application is be ing filed as of the date o f the notice and provide the name of the applicant, the subject matter of the application, the place where comments should be sent, and the date by which comments are due pursuant to paragraph ( b ) (3 ) o f this sec tion. The applicant shall furnish with its application to the Board a copy o f the notice, the date o f its publication, and the name and address o f the newspaper in which it was published. (ii) Exception. The Board may modify the publication requirement o f paragraph (b ) (2 ) (i) o f this secton in appropriate circumstances. (iii) Federal branch or federal agency. In the case of an application to establish a federal branch or federal agency, com pli ance with the publication procedures of the Comptroller shall satisfy the publica tion requirement of this section. Com ments regarding the application should be sent to the Board and the Comptroller. (3 ) Written comments. Within 30 days af ter publication as required in paragraph 26 Regulation K ( b ) (2 ) o f this section, any person may sub mit to the Board written comments and data on an application. The Board may ex tend the 30-day comment period if the Board determines that additional relevant information is likely to be provided by in terested persons or if other extenuating cir cumstances exist. (4 ) Board action on application. (i) Time limits. The Board shall act on an application from a foreign bank within 60 calendar days after the foreign bank has been notified that its application has been accepted, unless the Board deter mines that the public interest will be served by providing additional time to re view the application and notifies the ap plicant that the 60-day period is being extended. (ii) Additional information. The Board may request any information in addition to that supplied in the application when the Board believes that additional infor mation is necessary for its decision. (5 ) Coordination with other regulators. Upon receipt o f an application by a foreign bank under this section, the Board shall promptly notify, consult with, and consider the views o f the licensing authority. (c ) Standards for approval. (1 ) Mandatory standards, (i) General. As specified in section 7 (d ) o f the IB A (12 USC 3 1 0 5 (d )), the Board may not ap prove an application to establish a branch or an agency, or to establish or acquire ownership or control o f a commercial lending company, unless it determines that— (A ) each of the foreign bank and any parent foreign bank engages directly in the business of banking outside the United States and is subject to compre hensive supervision or regulation on a consolidated basis by its home country supervisor; and (B ) the foreign bank has furnished to the Board the information that the Board requires in order to assess the application adequately. (ii) Basis for determining comprehensive supervision or regulation on a consolidat Regulation K ed basis. In determining whether a for eign bank and any parent foreign bank is subject to comprehensive supervision or regulation on a consolidated basis, the Board will determine whether the foreign bank is supervised or regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations o f the foreign bank (including the relationships o f the bank to any affiliate) to assess the foreign bank’s overall financial condition and compliance with law and regulation. In making such a determination, the Board shall assess, among other factors, the ex tent to which the home country supervi sor— (A ) ensures that the foreign bank has adequate procedures for monitor ing and controlling its activities worldwide; (B ) obtains information on the condi tion o f the foreign bank and its subsidi aries and offices outside the home country through regular reports o f ex amination, audit reports, or otherwise; (C ) obtains information on the deal ings and relationship between the for eign bank and its affiliates, both foreign and domestic; (D ) receives from the foreign bank fi nancial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the foreign bank’s financial condition on a worldwide, consolidated basis; (E ) evaluates prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. (2 ) Discretionary standards. In acting on any application under this subpart, the Board may take into account— (i) Consent o f home country supervisor. Whether the home country supervisor of the foreign bank has consented to the proposed establishment o f a branch, agency, or commercial lending company subsidiary; (ii) Financial resources. The financial re sources o f the foreign bank (including the foreign bank’s capital position, pro jected capital position, profitability, level Ah iOW I §211.24 of indebtedness, and future prospects) and the condition o f any U.S. office o f the foreign bank; (iii) Managerial resources. The manage rial resources o f the foreign bank, includ ing the competence, experience, and integrity of the officers and directors; the integrity of its principal shareholders; management’s experience and capacity to engage in international banking; and the record of the foreign bank and its man agement o f complying with laws and reg ulations, and of fulfilling any commit ments to, and any conditions imposed by, the Board in connection with any prior application; (iv ) Sharing information with supervi sors. Whether the foreign bank’s home country supervisor and the home country supervisor o f any parent of the foreign bank share material information regard ing the operations o f the foreign bank with other supervisory authorities; (v ) Assurances to Board. Whether the foreign bank has provided the Board with adequate assurances that informa tion will be made available to the Board on the operations or activities o f the for eign bank and any o f its affiliates that the Board deems necessary to determine and enforce compliance with the IBA, the BHC Act, and other applicable federal banking statutes; these assurances shall include a statement from the foreign bank describing the laws that would re strict the foreign bank or any o f its par ents from providing information to the Board; and (v i) Compliance with U.S. law. Whether the foreign bank and its U.S. affiliates are in compliance with applicable U.S. law, and whether the applicant has estab lished adequate controls and procedures in each of its offices to ensure continuing compliance with U.S. law, including con trols directed to detection o f money laun dering and other unsafe or unsound banking practices. (3 ) Additional factor. In acting on an ap plication, the Board may consider the needs o f the community and the history of opera tion o f the foreign bank and its relative size 27 f\+ § 211.24 in its home country, provided, however, that the size of the foreign bank shall not be the sole factor in determining whether an office o f a foreign bank should be approved. (4 ) Board conditions on approval. The Board may impose such conditions on its approval as it deems necessary, including a condition which may permit future termi nation o f any activities by the Board or, in the case o f a federal branch or a federal agency, by the Comptroller, based on the inability o f the foreign bank to provide in formation on its activities or those o f its af filiates that the Board deems necessary to determine and enforce compliance with U.S. banking laws. (d ) Representative offices. (1 ) Activities. A representative office may engage in— (i) representational and administrative functions in connection with the banking activities of the foreign bank which may include soliciting new business for the foreign bank, conducting research, acting as liaison between the foreign bank’s head office and customers in the United States, performing any o f the activities described in 12 CFR 250.141(h ), or per forming back-office functions, but shall not include contracting for any deposit or deposit-like liability, lending money, or engaging in any other banking activity for the foreign bank; and (ii) other functions for or on behalf of the foreign bank or its affiliates, such as operating as a regional administrative of fice o f the foreign bank, but only to the extent that such other functions are not banking activities and are not prohibited by applicable federal or state law or by ruling or order o f the Board. (2 ) Standards for approval o f representative offices. As specified in section 1 0 (a )(2 ) of the IBA (12 USC 3 1 0 7 (a )(2 )), in acting on the application of a foreign bank to es tablish a representative office, the Board shall take into account to the extent it deems appropriate the standards for approval set out in paragraph (c) o f this section. (3 ) Additional requirements. The Board may impose any additional requirements 28 m Regulation K that it determines to be necessary to carry out the purposes o f the IBA. (e) Preservation o f existing authority. N oth ing in this subpart shall be construed to re lieve any foreign bank or foreign banking organization from any otherwise applicable requirement of federal or state law, including any applicable licensing requirement. (f) Reports o f crimes and suspected crimes. Except for a federal branch or a federal agen cy or a state branch that is insured by the Federal Deposit Insurance Corporation, a branch or agency or a representative office of a foreign bank operating in the United States shall file a criminal referral form in accord ance with the provisions of section 208.20 of the Board’s Regulation H, 12 CFR 208.20. SECTION 211.25—Termination of Offices of Foreign Banks (a) Grounds for termination. (1 ) General. Under sections 7 (e ) and 10(b) o f the IBA (12 USC 3 105(d ), 3 1 0 7 (b )), the Board may order a foreign bank to terminate the activities of its repre sentative office, state branch, state agency, or commercial lending company subsidiary if the Board finds that— (i) The foreign bank is not subject to comprehensive supervision or regulation on a consolidated basis by its home coun try supervisor in accordance with section 2 1 1 .2 4 (c )(1 ) o f this subpart; or (ii) (A ) There is reasonable cause to be lieve that the foreign bank or any o f its affiliates has committed a violation of law or engaged in an unsafe or un sound banking practice in the United States; and (B ) As a result o f such violation or practice, the continued operation of the foreign bank’s representative office, state branch, state agency, or commer cial lending company subsidiary would not be consistent with the public inter est or with the purposes o f the IBA, the BHC Act, or the Federal Deposit Insurance A ct (F D I A ct) (12 USC 1811 et seq.). Regulation K (2 ) Additional ground. The Board may also enforce any condition imposed in con nection with an order issued under section 211.24 o f this subpart. (b) Factor. In making its findings under this section, the Board may take into account the needs o f the community as well as the history o f operation o f the foreign bank and its rela tive size in its home country, provided, how ever, that the size o f the foreign bank shall not be the sole determining factor in a decision to terminate an office. (c) Consultation with relevant state supervi sor. Except in the case o f termination pursu ant to paragraph ( d ) (3 ) o f this section, be fore issuing an order terminating the activities o f a state branch, state agency, representative office, or commercial lending company subsid iary under this section, the Board shall re quest and consider the views of the relevant state supervisor. (d ) Termination procedures. (1 ) Notice and hearing. Except as other wise provided in paragraph ( d ) ( 3 ) o f this section, an order issued under paragraph ( a ) ( 1 ) of this section shall be issued only after notice to the relevant state supervisor and the foreign bank and after an opportu nity for a hearing. (2 ) Procedures fo r hearing. Hearings under this section shall be conducted pursuant to the Board’s Rules of Practice for Hearings (12 CFR 263). (3 ) Expedited procedure. The Board may act without providing an opportunity for a hearing if it determines that expeditious ac tion is necessary in order to protect the public interest. When the Board finds that it is necessary to act without providing an op portunity for a hearing, the Board, solely in its discretion, may provide the foreign bank that is the subject of the termination order with notice of the intended termination or der, grant the foreign bank an opportunity to present a written submission opposing is suance o f the order, or take any other ac tion designed to provide the foreign bank with notice and an opportunity to present its views concerning the order. (e) Termination o f federal branch or federal M 10H01 §211.26 agency. The Board may transmit to the Comptroller a recommendation that the li cense o f a federal branch or federal agency be terminated if the Board has reasonable cause to believe that the foreign bank or any affiliate of the foreign bank has engaged in conduct for which the activities of a state branch or state agency may be terminated pursuant to this section. (f) Voluntary termination. A foreign bank shall notify the Board at least 30 days prior to terminating the activities of any office. Notice pursuant to this paragraph is in addition to, and does not satisfy, any other federal or state requirements relating to the termination of an office or the requirement for prior notice of the closing of a branch pursuant to section 39 o f the F D I Act (12 USC 1831p). SECTION 211.26— Examination of Offices and Affiliates of Foreign Banks (a ) Conduct o f examinations. (1 ) Examination o f branches, agencies, commercial lending companies, and affili ates. The Board may examine any branch or agency of a foreign bank, any commer cial lending company or bank controlled by one or more foreign banks or one or more foreign companies that control a foreign bank, and any other office or affiliate o f a foreign bank conducting business in any state. (2 ) Examination o f representative offices. The Board may examine any representative office in the manner and with the frequency it deems appropriate. (b) Coordination o f examinations. To the ex tent possible, the Board shall coordinate its examinations of the U.S. offices and U.S. affili ates o f a foreign bank with the licensing au thority and, in the case o f an insured branch, the Federal Deposit Insurance Corporation (F D IC ), including through simultaneous ex aminations of such U.S. offices and U.S. affili ates o f a foreign bank. (c ) Annual on-site examinations. Each branch, agency, or commercial lending com pany subsidiary o f a foreign bank shall be ex29 41 §211.26 amined on-site at least once during each 12month period (beginning on the date the most recent examination of the office ended) by— (1 ) the Board; (2 ) the FDIC, if the branch of the foreign bank accepts or maintains insured deposits; (3 ) the Comptroller, if the branch or agen cy o f the foreign bank is licensed by the Comptroller; or (4 ) the state supervisor, if the office of the foreign bank is licensed or chartered by the state. SECTION 211.27—Disclosure of Supervisory Information to Foreign Supervisors (a) Disclosure by Board. The Board may dis close information obtained in the course of exercising its supervisory or examination au thority to a foreign bank regulatory or super visory authority if the Board determines that disclosure is appropriate for bank supervisory or regulatory purposes and will not prejudice the interests o f the United States. (b) Confidentiality. Before making any dis closure o f information pursuant to paragraph (a) of this section, the Board shall obtain, to the extent necessary, the agreement o f the for eign bank regulatory or supervisory authority to maintain the confidentiality o f such infor mation to the extent possible under applicable law. ioyo/ Regulation K that extensions o f credit by a federal branch or federal agency are subject to section 4 (b ) o f the IBA (12 USC 3 1 0 2 (b )) as if such state branches and agencies were federal branches and agencies. (b) Preexisting loans and extensions o f credit. Any loans or extensions o f credit to a single borrower that were originated prior to D e cember 19, 1991, by a state branch or state agency of the same foreign bank and that, when aggregated with loans and extensions of credit by all other branches and agencies of the foreign bank, exceed the limits set forth in paragraph (a ) of this section, may be brought into compliance with such limitations through routine repayment, provided that any new loans or extensions o f credit, including renew als o f existing unfunded credit lines or exten sions of the dates o f maturity of existing loans, to the same borrower shall comply with the limits set forth in paragraph (a ) o f this section. SECTION 211.29—Applications by State-Licensed Branches and Agencies to Conduct Activities Not Permissible for Federal Branches [Reserved] SECTION 211.30— Deposit Insurance Requirement for Retail Deposit Taking by Foreign Banks [Reserved] SECTION 211.28—Limitation on Loans to One Borrower (a) Limitation. Except as otherwise provided in paragraph (b ) o f this section, the total loans and extensions o f credit by all the state branches and agencies of a foreign bank out standing to a single borrower at one time shall be aggregated with the total loans and exten sions o f credit by all federal branches and fed eral agencies o f the same foreign bank out standing to such borrower at the time and shall be subject to the limitations and other provisions o f section 5200 of the Revised Stat utes (12 USC 84), and the regulations promulgated thereunder, in the same manner 30 SUBPART C—EXPORT TR A D IN G COMPANIES SECTION 211.31—Authority, Purpose, and Scope (a) Authority. This subpart is issued by the Board of Governors of the Federal Reserve System ( “Board” ) under the authority of the Bank Holding Company A ct of 1956, as amended (12 USC 1841 et seq.) ( “BHC A ct” ), the Bank Export Services Act (title II, Pub. L. 97-290, 96 Stat. 1235 (1 9 8 2 )) ( “BESA” ), and the Export Trading Compa- £HRegulation K l o f o i §211.33 ny A ct Amendments of 1988 (title III, Pub. L. 100-418, 102 Stat. 1384 (1 9 8 8 )) ( “ETC A ct Amendments” ). by the export trading company for its own ac count and gross revenues derived from all oth er activities of the export trading company. (b) Purpose and scope. This subpart is in fur therance o f the purposes o f the BHC Act, the BESA, and the ETC A ct Amendments, the latter two statutes being designed to increase U.S. exports by encouraging investments and participation in export trading companies by bank holding companies and the specified investors. The provisions of this subpart apply to the following (hereinafter referred to as “eligible investors” ): (1 ) bank holding companies as defined in section 2 of the BHC A ct (12 USC 1841(a)); (2 ) Edge and agreement corporations, as described in section 2 11.1(c) o f this part, that are subsidiaries o f bank holding com panies but are not subsidiaries o f banks; (3 ) banker’s banks as described in section 4 (c ) (14) (F ) (iii) of the BHC A ct (12 USC 1843(c) (14) (F ) (iii) ); and (4 ) foreign banking organizations as de fined in section 211.21 (n ) o f this part. (b) The terms “bank,” “company,” and “subsidiary” have the same meanings as those contained in section 2 of the BHC Act (12 USC 1841). SECTION 211.32—Definitions The definitions o f section 211.2 in subpart A apply to this subpart subject to the following: (a) “Export trading company” means a com pany that is exclusively engaged in activities related to international trade and, by engag ing in one or more export trade services, derives— (1 ) at least one-third o f its revenues in each consecutive four-year period from the export of, or from facilitating the export of, goods and services produced in the United States by persons other than the export trading company or its subsidiaries; and (2 ) more revenues in each four-year period from export activities as described in para graph ( a ) ( 1 ) o f this section than it derives from the import, or facilitating the import, into the United States o f goods or services produced outside the United States. For purposes o f this subsection, “revenues” shall include net sales revenues from export ing, importing, or third-party trade in goods SECTION 211.33— Investments and Extensions of Credit (a ) Amount o f investments. In accordance with the procedures o f section 211.34 o f this subpart, an eligible investor may invest no more than 5 percent o f its consolidated capital and surplus in one or more export trading companies, except that an Edge or agreement corporation not engaged in banking may in vest as much as 25 percent o f its consolidated capital and surplus but no more than 5 per cent o f the consolidated capital and surplus of its parent bank holding company. (b ) Extensions o f credit. (1 ) Amount. An eligible investor in an ex port trading company or companies may extend credit directly or indirectly to the export trading company or companies in a total amount that at no time exceeds 10 percent of the investor’s consolidated capi tal and surplus. (2 ) Terms. (i) An eligible investor in an export trading company may not extend credit directly or indirectly to the export trad ing company or any o f its customers or to any other investor holding 10 percent or more o f the shares o f the export trading company on terms more favorable than those afforded similar borrowers in simi lar circumstances, and such extensions of credit shall not involve more than the normal risk o f repayment or present oth er unfavorable features. (ii) For the purposes o f this provision, an investor in an export trading company includes any affiliate o f the investor. (3 ) Collateral requirements. Covered transactions between a bank and an affiliat ed export trading company in which a bank holding company has invested pursuant to 31 M §211.33 this subpart are subject to the collateral re quirements of section 23A of the Federal Reserve Act (12 USC 371c), except where a bank issues a letter of credit or advances funds to an affiliated export trading compa ny solely to finance the purchase o f goods for which— (i) the export trading company has a bona fide contract for the subsequent sale o f the goods; and (ii) the bank has a security interest in the goods or in the proceeds from their sale at least equal in value to the letter of credit or the advance. SECTION 211.34— Procedures for Filing and Processing Notices (a) Filing notice. (1 ) Prior notice o f investment. An eligible investor shall give the Board 60 days’ prior written notice of any investment in an ex port trading company. (2 ) Subsequent notice. (i) An eligible investor shall give the Board 60 days’ prior written notice of changes in the activities o f an export trading company that is a subsidiary of the investor if the export trading compa ny expands its activities beyond those de scribed in the initial notice to include— (A ) taking title to goods where the export trading company does not have a firm order for the sale of those goods; (B ) product research and design; (C ) product modification; or (D ) activities not specifically covered by the list o f activities contained in sec tion 4 (c ) (14) (F ) (ii) of the BHC Act. (ii) Such an expansion of activities shall be regarded as a proposed investment un der this subpart. (b) Time period for Board action. (1 ) A proposed investment that has not been disapproved by the Board may be made 60 days after the Reserve Bank ac cepts the notice for processing. A proposed investment may be made before the expira tion o f the 60-day period if the Board noti fies the investor in writing of its intention not to disapprove the investment. 32 i d o l Regulation K (2 ) The Board may extend the 60-day pe riod for an additional 30 days if the Board determines that the investor has not fur nished all necessary information or that any material information furnished is substan tially inaccurate. The Board may disap prove an investment if the necessary infor mation is provided within a time insufficient to allow the Board reasonably to consider the information received. (3 ) Within three days o f a decision to dis approve an investment, the Board shall no tify the investor in writing and state the rea sons for the disapproval. (c ) Time period for investment. An invest ment in an export trading company that has not been disapproved shall be made within one year from the date o f the notice not to disapprove, unless the time period is extended by the Board or by the appropriate Federal Reserve Bank. (d ) Time period for calculating revenues. For any export trading company that commenced operations two years or more prior to August 23, 1988, the four-year period within which to calculate revenues derived from its activities under section 211.32(a) o f this part shall be deemed to have commenced with the begin ning o f the 1988 fiscal year for that export trading company. For all other export trading companies, the four-year period shall com mence with the first fiscal year after the re spective export trading company has been in operation for two years. SUBPART D—IN TERN A TIO N A L L E N D IN G SUPERVISION SECTION 211.41—Authority, Purpose, and Scope (a ) Authority. This subpart is issued by the Board o f Governors o f the Federal Reserve System ( “Board” ) under the authority o f the International Lending Supervision A ct of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153) ( “International Lending Supervision A ct” ); the Federal Reserve A ct (12 USC 221 et seq.) ( “F R A ” ), and the Bank Holding Company Regulation K A ct o f 1956, as amended (12 USC 1841 et seq.) ( “BHC A ct” ). (b) Purpose and scope. This subpart is issued in furtherance o f the purposes o f the Interna tional Lending Supervision Act. It applies to state banks that are members o f the Federal Reserve System ( “state member banks” ); cor porations organized under section 2 5 (a ) of the F R A (12 USC 611-631) ( “Edge corpora tions” ); corporations operating subject to an agreement with the Board under section 25 of the F R A (12 USC 601-604a) ( “agreement corporations” ); and bank holding companies (as defined in section 2 o f the BHC A ct (12 USC 1841(a)) but not including a bank hold ing company that is a foreign banking organi zation as defined in section 211.21 (n ) o f this regulation. SECTION 211.42—Definitions For the purposes of this subpart— (a ) “Banking institution” means a state member bank; bank holding company; Edge corporation and agreement corporation en gaged in banking. “Banking institution” does not include a “foreign banking organization” as defined in section 211.21(n ) o f this regulation. (b) “Federal banking agencies” means the Board o f Governors o f the Federal Reserve System, the Comptroller o f the Currency, and the Federal Deposit Insurance Corporation. (c) “International assets” means those assets required to be included in banking institu tions’ Country Exposure Report forms (FFIE C No. 009). (d ) “International loan” means a loan as de fined in the instructions to the Report of Con dition and Income for the respective banking institution (FF IE C Nos. 031, 032, 033 and 034) and made to a foreign government, or to an individual, a corporation, or other entity not a citizen of, resident in, or organized or incorporated in the United States. (e) “International syndicated loan” means a loan characterized by the formation o f a group o f “managing” banking institutions A-f IQ t/o l § 211.43 and, in the usual case, assumption by them of underwriting commitments and participation in the loan by other banking institutions. (f) “Loan agreement” means the documents signed by all o f the parties to a loan, contain ing the amount, terms and conditions o f the loan, and the interest and fees to be paid by the borrower. (g ) “Restructured international loan” means a loan that meets the following criteria: (1 ) The borrower is unable to service the existing loan according to its terms and is a resident o f a foreign country in which there is a generalized inability o f public and pri vate-sector obligors to meet their external debt obligations on a timely basis because of a lack of, or restraints on the availability of, needed foreign exchange in the country; and (2 ) the terms o f the existing loan are amended to reduce stated interest or extend the schedule o f payments; or (3 ) a new loan is made to, or for the bene fit of, the borrower, enabling the borrower to service or refinance the existing debt. (h ) “Transfer risk” means the possibility that an asset cannot be serviced in the curren cy o f payment because o f a lack of, or re straints on the availability of, needed foreign exchange in the country o f the obligor. SECTION 211.43—Allocated Transfer Risk Reserve (a ) Establishment o f allocated transfer risk reserve. A banking institution shall establish an allocated transfer risk reserve (A T R R ) for specified international assets when required by the Board in accordance with this section. (b) Procedures and standards. (1 ) Joint agency determination. At least annually, the federal banking agencies shall determine jointly, based on the standards set forth in subparagraph ( b ) (2 ) o f this section, the following: (i) which international assets subject to transfer risk warrant establishment o f an ATRR; 33 M §211.43 (ii) the amount o f the A TRR for the specified assets; and (iii) whether an A TR R established for specified assets may be reduced. (2 ) Standards for requiring ATRR. (i) Evaluation o f assets. The federal banking agencies shall apply the follow ing criteria in determining whether an A TR R is required for particular interna tional assets: (A ) whether the quality of a banking institution’s assets has been impaired by a protracted inability of public or private obligors in a foreign country to make payments on their external in debtedness as indicated by such fac tors, among others, as whether— (7 ) such obligors have failed to make full interest payments on ex ternal indebtedness; (2 ) such obligors have failed to comply with the terms o f any re structured indebtedness; or (3 ) a foreign country has failed to comply with any International M on etary Fund or other suitable adjust ment program; or (B ) whether no definite prospects ex ist for the orderly restoration o f debt service. (ii) Determination of amount o f ATRR. (A ) In determining the amount of the ATR R , the federal banking agencies shall consider— (7 ) the length of time the quality of the asset has been impaired; (2 ) recent actions taken to restore debt-service capability; (3 ) prospects for restored asset quality; and ( 4 ) such other factors as the federal banking agencies may consider rele vant to the quality o f the asset. (B ) The initial year’s provision for the A TR R shall be 10 percent o f the prin cipal amount of each specified interna tional asset, or such greater or lesser percentage determined by the federal banking agencies. Additional provi sion, if any, for the A TR R in subse quent years shall be 15 percent o f the 34 10*10! Regulation K principal amount of each specified in ternational asset, or such greater or lesser percentage determined by the federal banking agencies. (3 ) Board notification. Based on the joint agency determinations under subparagraph (1 ) of this paragraph, the Board shall noti fy each banking institution holding assets subject to an A T R R — (i) o f the amount o f the A T R R to be established by the institution for specified international assets; and (ii) that an A T R R established for speci fied assets may be reduced. (c ) Accounting treatment o f ATRR. (1 ) Charge to current income. A banking institution shall establish an A T R R by a charge to current income and the amounts so charged shall not be included in the banking institution’s capital or surplus. (2 ) Separate accounting. A banking insti tution shall account for an A TR R separate ly from the “allowance for possible loan losses,” and shall deduct the A T R R from “gross loans and leases” to arrive at “net loans and leases.” The A TR R must be es tablished for each asset subject to the A TR R in the percentage amount specified. (3 ) Consolidation. A banking institution shall establish an ATR R , as required, on a consolidated basis. For banks, consolida tion should be in accordance with the pro cedures and tests o f significance set forth in the instructions for preparation o f Consoli dated Reports o f Condition and Income (FFIE C Nos. 031, 032, 033 and 034). For bank holding companies, the consolidation shall be in accordance with the principles set forth in the instructions to the Bank Holding Company Financial Supplement to Report FR Y-6 (Form FR Y -9). Edge and agreement corporations engaged in banking shall report in accordance with instructions for preparation of the Report o f Condition for Edge and Agreement Corporations (Form FR 2886b). (4 ) Alternative accounting treatment. A banking institution need not establish an A TR R if it writes down in the period in which the A TR R is required, or has written down in prior periods, the value o f the spec- 1 Regulation K ified international assets in the requisite amount for each such asset. For purposes of this paragraph, international assets may be written down by a charge to the allowance for possible loan losses or a reduction in the principal amount of the asset by application of interest payments or other collections on the asset. However, the allowance for possi ble loan losses must be replenished in such amount necessary to restore it to a level which adequately provides for the estimat ed losses inherent in the banking institu tion’s loan portfolio. (5 ) Reduction o f ATRR. A banking insti tution may reduce an A TR R when notified by the Board or, at any time, by writing down such amount o f the international as set for which the A TR R was established. SECTION 211.44— Reporting and Disclosure of International Assets (a ) Requirements. (1 ) Pursuant to section 907(a) o f the In ternational Lending Supervision A ct of 1983 (title IX, Pub. L. 98-181, 97 Stat. 1153) (IL S A ), a banking institution shall submit to the Board, at least quarterly, in formation regarding the amounts and com position o f its holdings o f international assets. (2 ) Pursuant to section 9 07(b ) o f ILSA, a banking institution shall submit to the Board information regarding concentra tions in its holdings o f international assets that are material in relation to total assets and to capital o f the institution, such infor mation to be made publicly available by the Board on request. (b) Procedures. The format, content and re porting and filing dates o f the reports required under paragraph (a) o f this section shall be determined jointly by the federal banking agencies. The requirements to be prescribed by the agencies may include changes to exist ing reporting forms (such as the Country Ex posure Report, Form FFIEC No. 009) or such other requirements as the agencies deem appropriate. The agencies also may determine to exempt from the requirements o f paragraph (a) o f this section banking institutions that, in t H 10 V O / §211.45 the agencies’ judgment, have de minimis hold ings of international assets. (c ) Reservation o f authority. Nothing con tained in this rule shall preclude the Board from requiring from a banking institution such additional or more frequent information on the institution’s holdings o f international assets as the Board may consider necessary. SECTION 211.45—Accounting for Fees on International Loans (a) Restrictions on fees for restructured inter national loans. N o banking institution shall charge any fee in connection with a restruc tured international loan unless all fees exceed ing the banking institution’s administrative costs, as described in subsection (c ) (2 ) of this section, are deferred and recognized over the term o f the loan as an interest-yield adjustment. (b ) Amortizing fees. Except as otherwise pro vided by this section, fees received on interna tional loans shall be deferred and amortized over the term o f the loan. The interest method should be used during the loan period to rec ognize the deferred fee revenue in relation to the outstanding loan balance. If it is not prac ticable to apply the interest method during the loan period, the straight-line method shall be used. (c ) Accounting treatment o f international loan or syndication administrative costs and corresponding fees. (1 ) Administrative costs o f originating, re structuring or syndicating an international loan shall be expensed as incurred. A por tion o f the fee income equal to the banking institution’s administrative costs may be recognized as income in the same period such costs are expensed. (2 ) The administrative costs o f originat ing, restructuring, or syndicating an inter national loan include those costs which are specifically identified with negotiating, pro cessing and consummating the loan. These costs include, but are not necessarily limit ed to: legal fees; costs o f preparing and pro cessing loan documents; and an allocable portion of salaries and related benefits of 35 §211.45 employees engaged in the international lending function and, where applicable, the syndication function. N o portion o f super visory and administrative expenses or other indirect expenses such as occupancy and other similar overhead costs shall be included. (d ) Fees received by managing banking insti tutions in an international syndicated loan. Fees received on international syndicated loans representing an adjustment o f the yield on the loan shall be recognized over the loan period using the interest method. If the inter est-yield portion o f a fee received on an inter national syndicated loan by a managing bank ing institution is unstated or differs materially from the pro rata portion o f fees paid other participants in the syndication, an amount necessary for an interest-yield adjustment shall be recognized. This amount shall at least be equivalent (on a pro rata basis) to the larg est fee received by a loan participant in the syndication that is not a managing banking institution. The remaining portion o f the syn dication fee may be recognized as income at the loan closing date to the extent that it is identified and documented as compensation for services in arranging the loan. Such docu mentation shall include the loan agreement. Otherwise, the fee shall be deemed an adjust ment o f yield. (e) Loan commitment fees. (1 ) Fees which are based upon the unfund ed portion of a credit for the period until it M 10*701 Regulation K is drawn and represent compensation for a binding commitment to provide funds or for rendering a service in issuing the com mitment shall be recognized as income over the term of the commitment period using the straight-line method o f amortization. Such fees for revolving-credit arrange ments, where the fees are received periodi cally in arrears and are based on the amount o f the unused loan commitment, may be recognized as income when received provided the income result would not be materially different. < (2 ) If it is not practicable to separate the commitment portion from other com po nents o f the fee, the entire fee shall be amor tized over the term o f the combined com mitment and expected loan period. The straight-line method o f amortization should be used during the commitment period to recognize the fee revenue. The interest method should be used during the loan pe riod to recognize the remaining fee revenue in relation to the outstanding loan balance. If the loan is funded before the end o f the commitment period, any unamortized com mitment fees shall be recognized as revenue at that time. (f) Agency fees. Fees paid to an agent bank ing institution for administrative services in an international syndicated loan shall be rec ognized at the time o f the loan closing or as the service is performed, if later. c 36 4 + i o ir o ( Statutory Provisions FED ER A L RESERVE ACT SECTION 25— Foreign Branches 1. Capital and Surplus Required to Exercise Powers Any national banking association possessing a capital and surplus o f $1,000,000 or more may file application with the Board o f Governors of the Federal Reserve System for permission to exercise, upon such conditions and under such regulations as may be prescribed by the said board, the following powers: [12 USC 601. As amended by act o f Sept. 7, 1916 (39 Stat. 755), which completely revised this section, and by act of July 1, 1966 (80 Stat. 241).] rectly, stock or other evidences o f ownership in one or more banks organized under the law o f a foreign country or a dependency or insu lar possession o f the United States and not engaged, directly or indirectly, in any activity in the United States except as, in the judgment o f the Board o f Governors of the Federal Re serve System, shall be incidental to the inter national or foreign business o f such foreign bank; and, notwithstanding the provisions of section 23A o f this Act, to make loans or ex tensions o f credit to or for the account o f such bank in the manner and within the limits pre scribed by the Board by general or specific regulation or ruling. [12 USC 601. As added by act of July 1, 1966 (80 Stat. 241).] 2. Establishment o f Foreign Branches First. To establish branches in foreign coun tries or dependencies or insular possessions of the United States for the furtherance o f the foreign commerce o f the United States, and to act if required to do so as fiscal agents o f the United States. [12 USC 601. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 3. Purchase o f Stock in Corporations Engaged in Foreign Banking Second. To invest an amount not exceeding in the aggregate ten per centum of its paid-in capital stock and surplus in the stock o f one or more banks or corporations chartered or incorporated under the laws o f the United States or of any State thereof, and principally engaged in international or foreign banking, or banking in a dependency or insular posses sion o f the United States either directly or through the agency, ownership, or control o f local institutions in foreign countries, or in such dependencies or insular possessions. [12 USC 601. As added by act o f 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 Until January 1, 1921, any national banking association, without regard to the amount of its capital and surplus, may file application with the Board o f Governors o f the Federal Reserve System for permission, upon such conditions and under such regulations as may be prescribed by said board, to invest an amount not exceeding in the aggregate 5 per centum o f its paid-in capital and surplus in the stock o f one or more corporations char tered or incorporated under the laws o f the United States or o f any State thereof and, re gardless o f its location, principally engaged in such phases o f international or foreign finan cial operations as may be necessary to facili tate the export o f goods, wares, or merchan dise from the United States or any o f its dependencies or insular possessions to any foreign country: Provided, however, That in no event shall the total investments authorized by this section by any one national bank ex ceed 10 per centum o f its capital and surplus. 4. Acquisition o f Ownership o f Foreign Banks Third. To acquire and hold, directly or indi [12 USC 601. As added by act of Sept. 17, 1919 (41 Stat. 285). This paragraph, by its terms, is now obsolete.] 37 JH- /o7oi Regulation K Statutory Provisions 6. Application for Permission to Exercise Powers Such application shall specify the name and capital o f the banking association filing it, the powers applied for, and the place or places where the banking or financial operations pro posed are to be carried on. The Board o f G ov ernors o f the Federal Reserve System shall have power to approve or to reject such appli cation in whole or in part if for any reason the granting o f such application is deemed inexpe dient, and shall also have power from time to time to increase or decrease the number of places where such banking operations may be carried on. [12 USC 601. As amended by act o f Sept. 7, 1916 (39 Stat. 755), which completely revised this section; and by act of Sept. 17, 1919 (41 Stat. 286).] nors of the Federal Reserve System shall as certain that the regulations prescribed by it are not being complied with, said board is hereby authorized and empowered to institute an investigation o f the matter and to send for persons and papers, subpoena witnesses, and administer oaths in order to satisfy itself as to the actual nature o f the transactions referred to. Should such investigation result in estab lishing the failure o f the corporation in ques tion, or o f the national bank or banks which may be stockholders therein, to comply with the regulations laid down by the said Board of Governors o f the Federal Reserve System, such national banks may be required to dis pose of stock holdings in the said corporation upon reasonable notice. [12 USC 603. Added by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 7. Examinations and Reports o f Condition 9. Accounts o f Foreign Branches Every national banking association operating foreign branches shall be required to furnish information concerning the conditions o f such branches to the Comptroller o f the Currency upon demand, and every member bank invest ing in the capital stock of banks or corpora tions described above shall be required to fur nish information concerning the condition o f such banks or corporations to the Board of Governors o f the Federal Reserve System upon demand, and the Board o f Governors of the Federal Reserve System may order special examinations o f the said branches, banks, or corporations at such time or times as it may deem best. [12 USC 602. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section; and by act of Sept. 17, 1919 (41 Stat. 286).] 8 8. Agreement to Restrict Operations Before any national bank shall be permitted to purchase stock in any such corporation the said corporation shall enter into an agreement or undertaking with the Board of Governors of the Federal Reserve System to restrict its operations or conduct its business in such manner or under such limitations and restric tions as the said board may prescribe for the place or places wherein such business is to be conducted. If at any time the Board o f Gover38 Every national banking association operating foreign branches shall conduct the accounts of each foreign branch independently of the ac counts o f other foreign branches established by it and of its home office, and shall at the end o f each fiscal period transfer to its general ledger the profit or loss accrued at each branch as a separate item. [12 USC 604. As amended by act of Sept. 7, 1916 (39 Stat. 755), which completely revised this section.] 10. Additional Banking Powers Authorized Regulations issued by the Board o f Governors o f the Federal Reserve System under this sec tion, in addition to regulating powers which a foreign branch may exercise under other pro visions of law, may authorize such a foreign branch, subject to such conditions and re quirements as such regulations may prescribe, to exercise such further powers as may be usu al in connection with the transaction o f the business o f banking in the places where such foreign branch shall transact business. Such regulations shall not authorize a foreign branch to engage in the general business of producing, distributing, buying or selling goods, wares, or merchandise; nor, except to such limited extent as the Board may deem to be necessary with respect to securities issued A 4 Regulation K by any “foreign state” as defined in section 25(b ) o f this Act, shall such regulations au thorize a foreign branch to engage or partici pate, directly or indirectly, in the business of underwriting, selling, or distributing securities. [12 USC 604a. As added by act o f Aug. 15, 1962 (76 Stat. 388).] SECTION 2 5A* —Banking Corporations Authorized to Do Foreign Banking Business 1. Organization Corporations to be organized for the purpose o f engaging in international or foreign bank ing or other international or foreign financial operations, or in banking or other financial operations in a dependency or insular posses sion o f the United States, either directly or through the agency, ownership, or control of local institutions in foreign countries, or in such dependencies or insular possessions as provided by this section, and to act when re quired by the Secretary o f the Treasury as fis cal agents o f the United States, may be formed by any number o f natural persons, not less in any case than five: Provided, That nothing in this section shall be construed to deny the right o f the Secretary o f the Treasury to use any corporation organized under this section as depositaries in Panama and the Panama Canal Zone, or in the Philippine Islands and other insular possessions and dependencies o f the United States. The congress hereby declares that it is the purpose o f this section to provide for the es tablishment of international banking and fi nancial corporations operating under Federal supervision with powers sufficiently broad to enable them to compete effectively with simi lar foreign-owned institutions in the United States and abroad; to afford to the United States exporter and importer in particular, and to United States commerce, industry, and agriculture in general, at all times a means of financing international trade, especially U nit * Previously section 2 5(a), this section was redesignated by act of Dec. 19, 1991 (105 Stat. 2281). (OVD/ Statutory Provisions ed States exports; to foster the participation by regional and smaller banks throughout the United States in the provision o f international banking and financing services to all segments o f United States agriculture, commerce, and industry, and, in particular small business and farming concerns; to stimulate competition in the provision o f international banking and fi nancing services, throughout the United States; and, in conjunction with each o f the preceding purposes, to facilitate and stimulate the export o f United Stated goods, wares, merchandise, commodities, and services to achieve a sound United States international trade position. The Board o f Governors o f the Federal Reserve System shall issue rules and regulations under this section consistent with and in furtherance o f the purposes described in the preceding sentence, and, in accordance therewith, shall review and revise any such rules and regulations at least once every five years, the first such period commencing with the effective date o f rules and regulations is sued pursuant to section 3 (a ) o f the Interna tional Banking A ct o f 1978, in order to ensure that such purposes are being served in light of prevailing economic conditions and banking practices. [12 USC 611. As added by act of Dec. 24, 1919 (41 Stat. 378); and amended by act of Feb. 27, 1921 (41 Stat. 1145) and Sept. 17, 1978 (92 Stat. 609). Presidential Proclama tion No. 2695 of July 4, 1946 (60 Stat. 1352; 12 USC 1394 note) recognizes the independence of the Philippine Is lands. Therefore, the words “in the Philippine Islands and” have been omitted from the U.S. Code.] 2. Articles o f Association Such persons shall enter into articles o f associ ation which shall specify in general terms the objects for which the association is formed and may contain any other provisions not in consistent with law which the association may see fit to adopt for the regulation o f its busi ness and the conduct 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 Such articles o f association shall be signed by all o f the persons intending to participate in 39 M i&roi Statutory Provisions the organization o f the corporation and, thereafter, shall be forwarded to the Board of Governors o f the Federal Reserve System and shall be filed and preserved in its office. The persons signing the said articles o f association shall, under their hands, make an organiza tion certificate which shall specifically state: First. The name assumed by such corpora tion, which shall be subject to the approval of the Board o f Governors of the Federal R e serve System. Second. The place or places where its oper ations are to be carried on. Third. The place in the United States where its home office is to be located. Fourth. The amount of its capital stock and the number o f shares into which the same shall be divided. Fifth. The names and places of business or residence o f the persons executing the certifi cate and the number of shares to which each has subscribed. Sixth. The fact that the certificate is made to enable the persons subscribing the same, and all other persons, firms, companies, and corporations, who or which may thereafter subscribe to or purchase shares of the capital stock o f such corporation, to avail themselves of the advantages of this section. [12 USC 613. As added by act of Dec. 24, 1919 (41 Stat. 379).] 4. Filing Organization Certificate; Issuance o f Permit The persons signing the organization certifi cate shall duly acknowledge the execution thereof before a judge o f some court o f record or notary public, who shall certify thereto un der the seal o f such court or notary, and thereafter the certificate shall be forwarded to the Board of Governors o f the Federal R e serve System to be filed and preserved in its office. Upon duly making and filing articles of association and an organization certificate, and after the Board o f Governors o f the Fed eral Reserve System has approved the same and issued a permit to begin business, the as sociation shall become and be a body corpo rate, and as such and in the name designated therein shall have power to adopt and use a corporate seal, which may be changed at the 40 Regulation K pleasure of its board of directors; to have suc cession for a period of twenty years unless sooner dissolved by the act o f the shareholders owning two-thirds o f the stock or by an A ct of Congress or unless its franchises become for feited by some violation of law; to make con tracts; to sue and be sued, complain, and de fend in any court o f law or equity; to elect or appoint directors; and, by its board o f direc tors, to appoint such officers and employees as may be deemed proper, define their authority and duties, require bonds of them, and fix the penalty thereof, dismiss such officers or em ployees, or any thereof, at pleasure and ap point others to fill their places; to prescribe, by its board o f directors, by-laws not incon sistent with law or with the regulations o f the Board o f Governors o f the Federal Reserve System regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers and employees ap pointed, its property transferred, and the priv ileges granted to it by law exercised and enjoyed. [12 USC 614. As added by act of Dec. 24, 1919 (41 Stat. 379) and Sept. 17, 1978 (92 Stat. 609).] 5. Powers; Regulations o f Board o f Governors o f the Federal Reserve System Each corporation so organized shall have power, under such rules and regulations as the Board of Governors o f the Federal Reserve System may prescribe: [12 USC 615. As added by act of Dec. 24, 1919 (41 Stat. 379).] 6. Banking Powers (a ) To purchase, sell, discount, and negoti ate, with or without its indorsement or guar anty, notes, drafts, checks, bills o f exchange, acceptances, including bankers’ acceptances, cable transfers, and other evidences of indebt edness; to purchase and sell with or without its indorsement or guaranty, securities, in cluding the obligations o f the United States or o f any State thereof but not including shares o f stock in any corporation except as herein provided; to accept bills or drafts drawn upon it subject to such limitations and restrictions as the Board o f Governors o f the Federal Re- M Regulation K serve System may impose; to issue letters of credit; to purchase and sell coin, bullion, and exchange; to borrow and to lend money; to issue debentures, bonds, and promissory notes under such general conditions as to security and such limitations as the Board o f Gover nors of the Federal Reserve System may pre scribe; to receive deposits outside of the U nit ed States and to receive only such deposits within the United States as may be incidental to or for the purpose o f carrying out transac tions in foreign countries or dependencies or insular possessions of the United States; and generally to exercise such powers as are inci dental to the powers conferred by this A ct or as may be usual, in the determination o f the Board o f Governors o f the Federal Reserve System, in connection with the transaction of the business o f banking or other financial op erations in the countries, colonies, dependen cies, or possessions in which it shall transact business and not inconsistent with the powers specifically granted herein. Nothing contained in this section shall be construed to prohibit the Board o f Governors o f the Federal R e serve System, under its power to prescribe rules and regulations, from limiting the aggre gate amount o f liabilities o f any or all classes incurred by the corporation and outstanding at any one time. Whenever a corporation or ganized under this section receives deposits in the United States authorized by this section it shall carry reserves in such amounts as the Board o f Governors o f the Federal Reserve System may prescribe for member banks o f the Federal Reserve System. [12 USC 615. As added by act o f Dec. 24, 1919 (41 Stat. 379); and amended by act of Sept. 17, 1978 (92 Stat. 609).] 7. Branches (b) To establish and maintain for the trans action o f its business branches or agencies in foreign countries, their dependencies or colo nies, and in the dependencies or insular pos sessions of the United States, at such places as may be approved by the Board o f Governors of the Federal Reserve System and under such rules and regulations as it may prescribe, in cluding countries or dependencies not speci fied in the original organization certificate. /O'VO/ Statutory Provisions [12 USC 615(b). As added by act of Dec. 24, 1919 (41 Stat. 379).] 8. Ownership o f Stock in Other Corporations (c ) With the consent o f the Board o f Gover nors o f the Federal Reserve System to pur chase and hold stock or other certificates of ownership in any other corporation organized under the provisions o f this section, or under the laws o f any foreign country or a colony or dependency thereof, or under the laws o f any State, dependency, or insular possession o f the United States but not engaged in the general business of buying or selling goods, wares, merchandise or commodities in the United States, and not transacting any business in the United States except such as in the judgment of the Board o f Governors o f the Federal Re serve System may be incidental to its interna tional or foreign business: Provided, however, That, except with the approval o f the Board of Governors of the Federal Reserve System, no corporation organized hereunder shall invest in any one corporation an amount in excess of 10 per centum o f its own capital and surplus, except in a corporation engaged in the busi ness o f banking, when 15 per centum o f its capital and surplus may be so invested: Pro vided further, That no corporation organized hereunder shall purchase, own, or hold stock or certificates o f ownership in any other cor poration organized hereunder or under the laws o f any State which is in substantial com petition therewith, or which holds stock or certificates o f ownership in corporations which are in substantial competition with the purchasing corporation. [12 USC 615(c). As added by act of Dec. 24, 1919 (41 Stat. 380).] 9. Purchase o f Stock to Prevent Loss on Debt Previously Contracted Nothing contained herein shall prevent corpo rations organized hereunder from purchasing and holding stock in any corporation where such purchase shall be necessary to prevent a loss upon a debt previously contracted in good faith; and stock so purchased or acquired in corporations organized under this section shall within six months from such purchase be sold or disposed o f at public or private sale 41 M Statutory Provisions unless the time to so dispose o f same is ex tended by the Board o f Governors o f the Fed eral Reserve 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 corporation organized under this section shall carry on any part of its business in the United States except such as, in the judgment o f the Board o f Governors o f the Federal R e serve System, shall be incidental to its interna tional or foreign business: And provided fu r ther, That except such as is incidental and preliminary to its organization no such corpo ration shall exercise any o f the powers con ferred by this section until it has been duly authorized by the Board of Governors o f the Federal Reserve System to commence busi ness as a corporation organized under the pro visions o f this section. [12 USC 616. As added by act of Dec. 24, 1919 (41 Stat. 381).] 12 11. Corporation Trading in Commodities or Attempting to Control Prices N o corporation organized under this section shall engage in commerce or trade in com modities except as specifically provided in this section, nor shall it either directly or indirect ly control or fix or attempt to control or fix the price o f an such commodities. The charter o f any corporation violating this provision shall be subject to forfeiture in the manner hereinafter provided in this section. It shall be unlawful for any director, officer, agent, or employee o f any such corporation to use or to conspire to use the credit; the funds, or the power o f the corporation to fix or control the price of any such commodities, and any such person violating this provision shall be liable to a fine o f not less than $1,000 and not ex ceeding $5,000 or imprisonment not less than one year and not exceeding five years, or both, in the discretion o f the court. [12 USC 617. As added by act of Dec. 24, 1919 (41 Stat. 81).] 12. Capital Stock N o corporation shall be organized under the 42 to Regulation K provisions o f this section with a capital stock of less than $2,000,000, one-quarter o f which must be paid in before the corporation may be authorized to begin business, and the remain der of the capital stock o f such corporation shall be paid in installments o f at least 10 per centum on the whole amount to which the corporation shall be limited as frequently as one installment at the end o f each succeeding two months from the time o f the commence ment o f it business operations until the whole o f the capital stock shall be paid in: Provided, however, That whenever $2,000,000 o f the capital stock o f any corporation is paid in the remainder o f the corporation’s capital stock or any unpaid part o f such remainder may, with the consent o f the Board o f Governors of the Federal Reserve System and subject to such regulations and conditions as it may pre scribe, be paid in upon call from the board of directors; such unpaid subscriptions, however, to be included in the maximum o f 10 per cen tum o f the national bank’s capital and surplus which a national bank is permitted under the provisions o f this A ct to hold in stock o f cor porations engaged in business o f the kind de scribed in this section and in section 25 o f the Federal Reserve A ct as amended. The capital stock of any such corporation may be in creased at any time, with the approval o f the Board o f Governors o f the Federal Reserve System, by a vote o f two-thirds o f its share holders or by unanimous consent in writing of the shareholders without a meeting and with out a formal vote, but any such increase of capital shall be fully paid in within ninety days after such approval; and may be reduced in like manner, provided that in no event shall it be less than $2,000,000. N o corporation, ex cept as herein provided, shall during the time it shall continue its operations, withdraw or permit to be withdrawn, either in the form of dividends or otherwise, any portion o f its cap ital. Any national banking association may in vest in the stock o f any corporation organized under the provisions of this section, but the aggregate amount o f stock held in all corpora tions engaged in business o f the kind de scribed in this section and in section 25 o f the Federal Reserve A ct as amended shall not ex ceed 10 per centum o f the subscribing bank’s capital and surplus. I- Regulation K [12 USC 618. As added by act o f Dec. 24, 1919 (41 Stat. 381); and amended by act of June 14, 1921 (42 Stat. 28).] 13. Citizenship o f Stockholders Except as otherwise provided in this section, a majority o f the shares o f the capital stock of any such corporation shall at all times be held and owned by citizens of the United States, by corporations the controlling interest in which is owned by citizens o f the United States, chartered under the laws of the United States or o f a State o f the United States, or by firms or companies, the controlling interest in which is owned by citizens o f the United States. Notwithstanding any other provisions o f this section, one or more foreign banks, in stitutions organized under the laws o f foreign countries which own or control foreign banks, or banks organized under the laws o f the United States, the States of the United States, or the District o f Columbia, the controlling interests in which are owned by any such for eign banks or institutions, may, with the prior approval o f the Board of Governors o f the Federal Reserve System and upon such terms and conditions and subject to such rules and regulations as the Board o f Governors o f the Federal Reserve System may prescribe, own and hold 50 per centum or more o f the shares of the capital stock of any corporation orgaized under this section, and any such corpo ration shall be subject to the same provisions o f law as any other corporation organized un der this section, and the terms ‘controls’ and ‘controlling interest’ shall be construed con sistently with the definition o f ‘control’ in sec tion 2 of the Bank Holding Company A ct of 1956. For the purposes o f the preceding sen tence o f this paragraph the term ‘foreign bank’ shall have the meaning assigned to it in the International Banking A ct o f 1978. Any company, other than a bank as defined in sec tion 2 o f the Bank Holding Company A ct of 1956, that after March 5, 1987, directly or in directly acquires control o f a corporation or ganized or operating under the provisions of this section or section 25 shall be subject to the provisions of the Bank Holding Company A ct o f 1956 in the same manner and to the same extent that bank holding companies are subject thereto, except that such company A+ tofo Statutory Provisions shall not by reason of this paragraph be deemed a bank holding company for the pur pose o f section 3 o f the Bank Holding Compa ny A ct of 1956. [12 use 619. As added by act of Dec. 24, 1919 (41 Stat. 378) and amended by acts of Aug. 23, 1935 (49 Stat. 717); Sept. 17, 1978 (92 Stat. 609); and 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 member o f the Board o f Governors o f the Federal Reserve System shall be an officer or director o f any corporation organized under the provisions o f this section, or o f any corpo ration engaged in similar business organized under the laws o f any State, nor hold stock in any such corporation, and before entering upon his duties as a member o f the Board of Governors of the Federal Reserve System he shall certify under oath to the Secretary of the Treasury that he has complied with this requirement. [12 USC 620. As added by act of Dec. 24, 1919 (41 Stat. 382).] 15. Shareholders' Liability; Corporation Not to Become Member o f Federal Reserve Bank Shareholders in any corporation organized under the provision o f this section shall be lia ble for the amount o f their unpaid stock sub scriptions. N o such corporation shall become a member o f any Federal reserve bank. [12 USC 621. As added by act of Dec. 24, 1919 (41 Stat. 382).] 16. Forfeiture o f Charter fo r Violation o f Law Should any corporation organized hereunder violate or fail to comply with any o f the provi sions o f this section, all o f its rights, privileges, and franchises derived herefrom may thereby be forfeited. Before any such corporation shall be declared dissolved, or its rights, privileges, and franchises forfeited, any noncompliance with, or violation o f such laws shall, however, be determined and adjudged by a court o f the United States o f competent jurisdiction, in a suit brought for that purpose in the district or territory in which the home office o f such cor poration is located, which suit shall be 43 M- Statutory Provisions brought by the United States at the insistence o f the Board of Governors for the Federal R e serve System or the Attorney General. Upon adjudication of such noncompliance or viola tion, each director and officer who participat ed in, or assented to, the illegal act or acts, shall be liable in his personal or individual ca pacity for all damages which the said corpora tion shall have sustained in consequence thereof. N o dissolution shall take away or im pair any remedy against the corporation, its stockholders, or officers for any liability or penalty previously incurred. [12 USC 622. As added by act of Dec. 24, 1919 (41 Stat. 382).] 1 7. Voluntary Liquidation 10 Regulation K and the names and addresses of the members of its board o f directors, together with copies o f all reports made by it to the Board o f G ov ernors of the Federal Reserve System. Every such corporation shall make reports to the Board o f Governors o f the Federal Reserve System at such times and in such form as it may require; and shall be subject to examina tion once a year and at such other times as may be deemed necessary by the Board of Governors o f the Federal Reserve System by examiners appointed by the Board o f Gover nors o f the Federal Reserve System, the cost o f such examinations, including the compen sation o f the examiners, to be fixed by the Board of Governors o f the Federal Reserve System and to be paid by the corporation examined. A ny such corporation may go into voluntary liquidation and be closed by a vote of its shareholders owning two-third o f its stock. [12 USC 625. As added by act of Dec. 24, 1919 (41 Stat. 382).] [12 USC 623. As added by act of Dec. 24, 1919 (41 Stat. 382.)] 20. Dividends and Surplus Fund 18. Insolvency; Appointment o f Receiver Whenever the Board of Governors of the Fed eral Reserve System shall become satisfied of the insolvency o f any such corporation, it may appoint a receiver who shall take possession of all the property and assets of the corporation and exercise the same rights, privileges, pow ers, and authority with respect thereto as are now exercised by receivers o f national banks appointed by the Comptroller o f the Currency of the United States: Provided, however, That the assets o f the corporation subject to the laws of other countries or jurisdictions shall be dealt with in accordance with the terms of such laws. [12 USC 624. As added by act o f Dec. 24, 1919 (41 Stat. 382.)] 19 19. Stockholders' Meetings; Records; Reports; Examinations Every corporation organized under the provi sions o f this section shall hold a meeting o f its stockholders annually upon a date fixed in its bylaws, such meeting to be held at its home office in the United States. Every such corpo ration shall keep at its home office books con taining the names of all stockholders thereof, 44 The directors o f any corporation organized under the provisions o f this section may, semi annually, declare a dividend of so much o f the net profits o f the corporation as they shall judge expedient; but each corporation shall, before the declaration of a dividend, carry one-tenth of its net profits o f the preceding half year to its surplus fund until the same shall amount to 20 per centum o f its capital stock. [12 USC 626. As added by act of Dec. 24, 1919 (41 Stat. 383).] 21. Taxation Any corporation organized under the provi sions of this section shall be subject to tax by the State within which its home office is locat ed in the same manner and to the same extent as other corporations organized under the laws o f that State which are transacting a sim ilar character o f business. The shares o f stock in such corporation shall also be subject to tax as the personal property of the owners or holders thereof in the same manner and to the same extent as the shares o f stock in similar State corporations. [12 USC 627. As added by act of Dec. 24, 1919 (41 Stat. 383).] A+ iQfO( Regulation K 22. Extension o f Corporate Existence Any corporation organized under the provi sions o f this section may at any time within the two years next previous to the date o f the expiration of its corporate existence, by a vote o f the shareholders owning two-thirds o f its stock, apply to the Board o f Governors o f the Federal Reserve System for its approval to ex tend the period of its corporate existence for a term of not more than twenty years, and upon certified approval of the Board o f Governors o f the Federal Reserve System such corpora tion shall have its corporate existence for such extended period unless sooner dissolved by the act of the shareholders owning two-thirds o f its stock, or by an A ct o f Congress or unless its franchise becomes forfeited by some viola tion 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 Any bank or banking institution, principally engaged in foreign business, incorporated by special law o f any State or of the United States or organized under the general laws o f any State or o f the United States and having an unimpaired capital sufficient to entitle it to be come a corporation under the provisions of this section may, by the vote o f the sharehold ers owning not less than two-thirds o f the cap ital stock o f such bank or banking association, with the approval of the Board of Governors o f the Federal Reserve System, be converted into a Federal corporation o f the kind autho rized by this section with any name approved by the Board o f Governors o f the Federal R e serve System: Provided, however, That said conversion shall not be in contravention o f the State law. In such case the articles o f associa tion and organization certificate may be exe cuted by a majority o f the directors o f the bank or banking institution, and the certificate shall declare that the owners of at least twothirds o f the capital stock have authorized the directors to make such certificate and to change or convert the bank or banking institu tion into a Federal corporation. A majority of the directors, after executing the articles o f as sociation and the organization certificate shall Statutory Provisions have power to execute all other papers and to do whatever may be required to make its or ganization perfect and complete as a Federal corporation. The shares of any such corpora tion may continue to be for the same amount each as they were before the conversion, and the directors may continue to be directors of the corporation until others are elected or ap pointed in accordance with the provisions of this section. When the Board o f Governors of the Federal Reserve System has given to such corporation a certificate that the provisions of this section have been complied with, such corporation and all its stockholders, officers, and employees, shall have the same powers and privileges, and shall be subject to the same duties, liabilities, and regulations, in all respects, as shall have been prescribed by this section for corporations originally organized hereunder. [12 USC 629. As added by act of Dec. 24, 1919 (41 Stat. 383).] 24. Criminal Offenses o f Directors, Officers, and Employees Every officer, director, clerk, employee, or agent of any corporation organized under this section who embezzles, abstracts, or willfully misapplies any o f the moneys, funds, credits, securities, evidences o f indebtedness or assets o f any character o f such corporation; or who, without authority from the directors, issues or puts forth any certificate o f deposit, draws any order or bill o f exchange, makes any accept ance, assigns any note, bond, debenture, draft, bill o f exchange, mortgage, judgment, or de cree; or who makes any false entry in any book, report, or statement o f such corporation with intent, in either case, to injure or defraud such corporation or any other company, body politic or corporate, or any individual person, or to deceive any officer o f such corporation, the Board o f Governors o f the Federal Reserve System, or any agent or examiner ap pointed to examine the affairs o f any such cor poration; and every receiver o f any such cor poration and every clerk or employee o f such receiver who shall embezzle, abstract, or will fully misapply or wrongfully convert to his own use any moneys, funds, credits, or assets o f any character which may come into his 45 M Statutory Provisions [12 USC 630. As added by act of Dec. 24, 1919 (41 Stat. 384).] 25. Representation that United States Is Liable for Obligations Whoever being connected in any capacity with any corporation organized under this section represents in any way that the United States is liable for the payment o f any bond or other obligation, or the interest thereon, issued or incurred by any corporation orga nized hereunder, or that the United States in curs any liability in respect of any act or om is sion o f the corporation, shall be punished by a fine of not more than $10,000 and by impris onment for not more than five years. [12 USC 631. As added by act of Dec. 24, 1919 (41 Stat. 384).] BANK H O LD IN G COMPANY ACT OF 1956 SECTION 2—Definitions * * * * ( h ) ( 1 ) Except as provided by paragraph (2 ), the application o f this Act and of section 23A of the Federal Reserve A ct (12 U.S.C. 46 o i Regulation K possession or under his control in the execu tion o f his trust or the performance o f the du ties o f his employment; and every such receiv er or clerk or employee of such receiver who shall, with intent to injure or defraud any per son, body politic or corporate, or to deceive or mislead the Board of Governors o f the Feder al Reserve System, or any agent or examiner appointed to examine the affairs o f such re ceiver, shall make any false entry in any book, report, or record o f any matter connected with the duties o f such receiver; and every person who with like intent aids or abets any officer, director, clerk, employee, or agent of any corporation organized under this section, or receiver or clerk or employee o f such re ceiver as aforesaid in any violation of this sec tion, shall upon conviction thereof be impris oned for not less than two years nor more than ten years, and may also be fined not more than $5,000, in the discretion o f the court. * w 371), as amended, shall not be affected by the fact that a transaction takes place whol ly or partly outside the United States or that a company is organized or operates outside the United States. (2 ) Except as provided in paragraph (3 ), the prohibitions o f section 4 o f this Act shall not apply to shares of any company organized under the laws of a foreign coun try (or to shares held by such company in any company engaged in the same general line of business as the investor company or in a business related to the business o f the investor com pany) that is principally en gaged in business outside the United States if such shares are held or acquired by a bank holding company organized under the laws o f a foreign country that is principally engaged in the banking business outside the United States. For the purpose o f this sub section, the term “section 2 ( h ) ( 2 ) compa ny” means any company whose shares are held pursuant to this paragraph. (3 ) N othing in paragraph (2 ) authorizes a section 2 ( h ) ( 2 ) company to engage in (or acquire or hold more than 5 percent of the outstanding shares o f any class o f voting se curities o f a company engaged in) any banking, securities, insurance, or other fi nancial activities, as defined by the Board, in the United States. This paragraph does not prohibit a section 2 ( h ) ( 2 ) company from holding shares that were lawfully ac quired before the date of enactment of the Competitive Equality Banking A ct o f 1987. (4 ) N o domestic office or subsidiary o f a bank holding company or subsidiary there of holding shares of a section 2 ( h ) ( 2 ) com pany may extend credit to a domestic office or subsidiary of such section 2 ( h ) ( 2 ) com pany on terms more favorable than those afforded similar borrowers in the United States. (5 ) N o domestic banking office or bank subsidiary of a bank holding company that controls a section 2 ( h ) ( 2 ) company may offer or market products or services of such section 2 ( h ) ( 2 ) company, or permit its products or services to be offered or mar keted by or through such section 2 ( h ) ( 2 ) company, unless such products or services were being so offered or marketed as of M - 1OYd/ Regulation K Statutory Provisions March 5, 1987, and then only in the same manner in which they were being offered or marketed as o f that date. * * * * * [12 USC 1841(h). As added by act o f July 1, 1966 (80 Stat. 236) and amended by acts of Sept. 17, 1978 (92 Stat. 623) and Aug. 10, 1987 (101 Stat. 584).] * * * * * SECTION 4— Interests in Nonbanking Organizations * * * * * (c ) Exemptions. The prohibitions in this sec tion shall not apply to (i) any company that was on January 4, 1977, both a bank holding company and a labor, agricultural, or horti cultural organization exempt from taxation under section 501 of the Internal Revenue Code o f 1954, or to any labor, agricultural, or horticultural organization to which all or sub stantially all o f the assets o f such company are hereafter transferred, or (ii) a company cov ered in 1970 more than 85 per centum o f the voting stock o f which was collectively owned on June 30, 1968, and continuously thereafter, directly or indirectly, by or for members of the same family, or their spouses, who are lin eal descendants o f common ancestors: and such prohibitions shall not, with respect to any other bank holding company, apply to— * * * * * (9 ) shares held or activities conducted by any company organized under the laws o f a foreign country the greater part o f whose business is conducted outside the United States, if the Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be substantially at variance with the purposes of this Act and would be in the public interest; * * * * * (13) shares of, or activities conducted by, any company which does no business in the United States except as an incident to its international or foreign business, if the Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be sub stantially at variance with the purposes of this Act and would be in the public interest; or (1 4 ) shares of any company which is an export trading company whose acquisition (including each acquisition o f shares) or formation by a bank holding company has not been disapproved by the Board pursu ant to this paragraph, except that such in vestments, whether direct or indirect, in such shares shall not exceed 5 per centum o f the bank holding company’s consolidated capital and surplus. (A ) (i) N o bank holding company shall invest in an export trading company under this paragraph unless the Board has been given sixty days’ prior written notice o f such proposed investment and within such period has not issued a notice disapproving the proposed in vestment or extending for up to anoth er thirty days the period during which such disapproval may be issued. (ii) The period for disapproval may be extended for such additional thirtyday period only if the Board deter mines that a bank holding company proposing to invest in an export trad ing company has not furnished all the information required to be submitted or that in the Board’s judgment any material information submitted is sub stantially inaccurate. (iii) The notice required to be filed by a bank holding company shall contain such relevant information as the Board shall require by regulation or by specif ic request in connection with any par ticular notice. (iv ) The Board may disapprove any proposed investment only if— (I) such disapproval is necessary to prevent unsafe or unsound banking practices, undue concentration o f re sources, decreased or unfair compe tition, or conflicts o f interest; (II) the Board finds that such in vestment would affect the financial or managerial resources o f a bank 47 Statutory Provisions holding company to an extent which is likely to have a materially adverse effect on the safety and soundness of any subsidiary bank o f such bank holding company, or (III) the bank hoding company fails to furnish the information re quired under clause (iii). (v ) The Board may not disapprove any proposed investment solely on the basis o f the anticipated or proposed asset-to-equity ratio o f the export trad ing company with respect to which such investment is proposed, unless the anticipated or proposed annual aver age asset-to-equity ratio is greater than 20-to-l. (vi) Within three days after a decision to disapprove an investment, the Board shall notify the bank holding company in writing o f the disapproval and shall provide a written statement o f the basis for the disapproval. (vii) A proposed investment may be made prior to the expiration o f the dis approval period if the Board issues written notice o f its intent not to disap prove the investment. ( B ) ( i) The total amount of extensions o f credit by a bank holding company which invests in an export trading company, when combined with all such extensions o f credit by all the sub sidiaries o f such bank holding com pa ny, to an export trading company shall not exceed at any one time 10 per cen tum o f the bank holding company’s consolidated capital and surplus. For purposes of the preceding sentence, an extension o f credit shall not be deemed to include any amount invested by a bank holding company in the shares of an export trading company. (ii) N o provision o f any other Federal law in effect on October 1, 1982, relat ing specifically to collateral require ments shall apply with respect to any such extension o f credit. (iii) N o bank holding company or subsidiary of such company which in vests in an export trading company may extend credit to such export trad 48 M- io*101 Regulation K ing company or to customers o f such export trading company on terms more favorable than those afforded similar borrowers in similar circum stances, and such extension o f credit shall not involve more than the normal risk of repayment or present other un favorable features. (C ) For purposes o f this paragraph, an export trading company— (i) may engage in or hold shares o f a company engaged in the business of underwriting, selling, or distributing securities in the United States only to the extent that any bank holding com pany which invests in such export trading company may do so under ap plicable Federal and State banking laws and regulations; and (ii) may not engage in agricultural production activities or in manufactur ing, except for such incidental product modification including repackaging, reassembling or extracting byproducts, as is necessary to enable United States goods or services to conform with re quirements o f a foreign country and to facilitate their sale in foreign countries. (D ) A bank holding company which in vests in an export trading company may be required, by the Board, to terminate its investment or may be made subject to such limitations or conditions as may be imposed by the Board, if the Board deter mines that the export trading company has taken positions in commodities or commodity contracts, in securities, or in foreign exchange, other than as may be necessary in the course o f the export trading company’s business operations. (E ) Notwithstanding any other provi sion o f law, an Edge A ct corporation, or ganized under section 2 5 (a ) o f the Fed eral Reserve A ct (12 U.S.C. 611 -6 3 1 ), which is a subsidiary o f a bank holding company, or an agreement corporation, operating subject to section 25 o f the Federal Reserve A ct (12 U.S.C. 6 0 1 -6 0 4 (a )), which is a subsidiary o f a bank holding company, may invest di rectly and indirectly in the aggregate up M Regulation K to 5 per centum o f its consolidated capi tal and surplus (25 per centum in the case of a corporation not engaged in banking) in the voting stock or other evi dences o f ownership in one or more ex port trading companies. (F ) For purposes o f this paragraph— (i) the term “export trading compa ny” means a company which does business under the laws o f the United States or any State, which is exclusive ly engaged in activities related to inter national trade, and which is organized and operated principally for purposes o f exporting goods or services pro duced in the United States or for pur poses o f facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. (ii) the term “export trade services” includes, but is not limited to, consult ing, international market research, ad vertising, marketing, insurance (other than acting as principal, agent or bro ker in the sale o f insurance on risks resident or located, or activities per formed, in the United States, except for insurance covering the transporta tion o f cargo from any point o f origin in the United States to a point o f final destination outside the United States), product research and design, legal assistance, transportation, including trade documentation and freight forwarding, communication and pro cessing o f foreign orders to and for ex porters and foreign purchasers, ware housing, foreign exchange, financing, and taking title to goods, when provid ed in order to facilitate the export of goods or services produced in the United States; (iii) the term “bank holding compa ny” shall include a bank which (I) is organized solely to do business with other banks and their officers, direc tors, or employees; (II) is owned pri marily by the banks with which it does business; and (III) does not do busi io *10( Statutory Provisions ness with the general public. N o such other bank, owning stock in a bank de scribed in this clause that invests in an export trading company, shall extend credit to an export trading company in an amount exceeding at any one time 10 per centum of such other bank’s capital and surplus; and (iv ) the term “extension of credit” shall have the same meaning given such term in the fourth paragraph of section 23A of the Federal Reserve Act. ( G ) (i) For purposes o f determining whether an export trading company is operated principally for the purposes described in subparagraph (F ) ( i) — (I) the operations o f such company during the 2-year period beginning on the date such company com mences operations shall not be taken into account in making any such de termination; and (II) not less than 4 consecutive years o f operations o f such company (not including any portion o f the pe riod referred to in subclause ( I ) ) shall be taken into account in mak ing any such determination. (ii) A company shall not be treated as operated principally for the purposes described in subparagraph ( F ) ( i) un less— (I) the revenues o f such company from the export, or facilitating the export, o f goods or services pro duced in the United States exceed the revenues o f such company from the import, or facilitating the im port, into the United States o f goods or services produced outside the United States; and (II) at least ^ o f such company’s total revenues are revenues from the export, or facilitating the export, of goods or services produced in the United States by persons not affiliat ed with such company. ( H ) (i) The Board may not prescribe by regulation any maximum dollar amount limitation on the value of goods which an export trading compa49 fH- I D V O I Statutory Provisions Regulation K ny may maintain in inventory at any time. (ii) Notwithstanding clause (i), the Board may issue an order establishing a maximum dollar amount limitation on the value o f goods which a particu lar export trading company may main tain in inventory at any time (after such company has been operating for a reasonable period of time) if the Board finds that, under the facts and circum stances, such limitation is necessary to prevent risks that would affect the fi nancial or managerial resources o f an investor bank holding company to an extent which would be likely to have a materially adverse effect on the safety and soundness o f any subsidiary bank o f such bank holding company. In the event o f the failure o f the Board to act on any application for an order under paragraph (8 ) o f this subsection within the ninety-one-day period which begins on the date o f submission to the Board o f the com plete record on that application, the appli cation shall be deemed to have been grant ed. The Board shall include in its annual report to the Congress a description and a statement o f the reasons for approval of each activity approved by it by order or reg ulation under such paragraph during the period covered by the report. * * * * * [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 T ERN A TIO N A L BAN K IN G ACT OF 1978 SECTION 1— Short Title; Definitions and Rules of Construction (a) Short title. This Act may be cited as the “International Banking Act o f 1978” . (b) Definitions. For the purposes o f this A ct— (1 ) “agency” means any office or any place o f business o f a foreign bank located in any 50 State of the United States at which credit balances are maintained incidental to or arising out o f the exercise of banking pow ers, checks are paid, or money is lent but at which deposits may not be accepted from citizens or residents of the United States; (2 ) “Board” means the Board of Gover nors o f the Federal Reserve System; (3 ) “branch” means any office or any place of business o f a foreign bank located in any State o f the United States at which deposits are received; (4 ) “Comptroller” means the Comptroller o f the Currency; (5 ) “Federal agency” means an agency of a foreign bank established and operating under section 4 o f this Act; (6 ) “Federal branch” means a branch o f a foreign bank established and operating un der section 4 o f this Act; (7 ) “foreign bank” means any company organized under the laws o f a foreign coun try, a territory o f the United States, Puerto Rico, Guam, American Samoa, or the Vir gin Islands, which engages in the business of banking, or any subsidiary or affiliate, or ganized under such laws, o f any such com pany. For the purposes o f this A ct the term; “foreign bank” includes, without limitation, foreign commercial banks, foreign mer chant banks and other foreign institutions that engage in banking activities usual in connection with the business o f banking in the countries where such foreign institu tions are organized or operating; (8 ) “foreign country” means any country other than the United States, and includes any colony, dependency, or possession of any such country; (9 ) “commercial lending company” means any institution, other than a bank or an or ganization operating under section 25 o f the Federal Reserve Act, organized under the laws of any State o f the United States, or the District o f Columbia which maintains credit balances incidental to or arising out of the exercise o f banking powers and en gages in the business of making commercial loans; (1 0 ) “State” means any State o f the U nit ed States or the District of Columbia; (1 1 ) “State agency” means an agency o f a M i Regulation K foreign bank established and operating un der the laws o f any State; (12) “State branch” means a branch o f a foreign bank established and operating un der the laws o f any State; (13) the terms “affiliate”, “bank”, “bank holding company”, “company”, “control”, and “subsidiary” have the same meanings assigned to those terms in the Bank H old ing Company A ct o f 1956, and the terms “controlled” and “controlling” shall be construed consistently with the term “con trol” as defined in section 2 of the Bank Holding Company A ct o f 1956; (14) “consolidated” means consolidated in accordance with generally accepted ac counting principles in the United States consistently applied; (15) the term “representative office” means any office of a foreign bank which is located in any State and is not a Federal branch, Federal agency, State branch, State agency, or subsidiary of a foreign bank; (16) the term “office” means any branch, agency, or representative office; and (17) the term “State bank supervisor” has the meaning given to such term in section 3 o f the Federal Deposit Insurance Act. [12 u s e 3101. As amended by act o f Dec. 19, 1991 (105 Stat. 2291).] * o Statutory Provisions * * * * SECTION 3—Edge Act Corporations (a ) It is the purpose o f this section to elimi nate or modify provisions in section 2 5 (a ) o f the Federal Reserve Act that (1 ) discriminate against foreign-owned banking institutions, (2 ) disadvantage or unnecessarily restrict or limit corporations organized under section 2 5 (a ) o f the Federal Reserve A ct in compet ing with foreign-owned banking institutions in the United States or abroad or (3 ) impede the attainment o f the Congressional purposes set forth in section 2 5 (a ) o f the Federal Reserve A ct as amended by subsection (b) o f this sec tion. In furtherance of such purpose, the Congrees believes that the Board should review and revise its rules, regulations, and interpre tations issued pursuant to section 2 5 (a ) o f the Federal Reserve A ct to eliminate or modify any restrictions, conditions, or limitations not required by section 2 5 (a ) of the Federal Re serve Act, as amended, that (1 ) discriminate against foreign-owned banking institutions, (2 ) disadvantage or unnecessarily restrict or limit corporations organized under section 2 5 (a ) o f the Federal Reserve Act in compet ing with foreign-owned banking institutions in the United States or abroad, or (3 ) impede the attainment o f the Congressional purposes set forth in section 2 5 (a ) o f the Federal R e serve A ct as amended by subsection (b ) of this section. Rules and regulations pursuant to this subsection and section 2 5 (a ) o f the Fed eral Reserve A ct shall be issued not later than 150 days after the date o f enactment o f this section and shall be issued in final form and become effective not later than 120 days after they are first issued. [12 USC 611a note.] * * * * * [Paragraph (f) amended Federal Reserve Act section 2 5 (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 part o f its annual report pursuant to section 10 o f the Federal Reserve Act, the Board shall include its assessment o f the ef fects o f the amendments made by this A ct on the capitalization and activities o f corpora tions organized or operating under section 25 or 2 5 (a ) o f the Federal Reserve Act, and on commercial banks and the banking system. [12 USC 247 note.] SECTION 4— Federal Branches and Agencies (a) Establishment and operation o f Federal branches and agencies. (1 ) Except as provided in section 5, a foreign bank which engages directly in a banking business outside the United States may, with the approval o f the Comptroller, establish one or more Federal branches or agencies in any State in which (1 ) it is not operating a branch or agency pursuant to State law and (2 ) the establish51 M 10*101 Statutory Provisions ment of a branch or agency, as the case may be, by a foreign bank is not prohibited by State law. (2 ) In considering any application for ap proval under this subsection, the Comptrol ler o f the Currency shall include any condi tion imposed by the Board under section 7 ( d ) ( 5 ) as a condition for the approval of such application by the agency. (b) In establishing and operating a Federal branch or agency, a foreign bank shall be sub ject to such rules, regulations, and orders as the Comptroller considers appropriate to car ry out this section, which shall include provi sions for service o f process and maintenance o f branch and agency accounts separate from those of the parent bank. Except as otherwise specifically provided in this A ct or in rules, regulations, or orders adopted by the Comp troller under this section, operations o f a for eign bank at a Federal branch or agency shall be conducted with the same rights and privi leges as a national bank at the same location and shall be subject to all the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply under the National Bank A ct to a national bank doing business at the same location, except that (1 ) the requirements o f section 5240 o f the R e vised Statutes (12 U.S.C. 481) shall be met with respect to a Federal branch or agency if it is examined at least once in each calendar year; (2 ) any limitation or restriction based on the capital stock and surplus o f a national bank shall be deemed to refer, as applied to a Federal branch or agency, to the dollar equiv alent o f the capital stock and surplus o f the foreign bank, and if the foreign bank has more than one Federal branch or agency the busi ness transacted by all such branches and agen cies shall be aggregated in determining com pliance with the limitation; (3 ) a Federal branch or agency shall not be required to be come a member bank, as that term is defined in section 1 o f the Federal Reserve Act; and (4 ) a Federal agency shall not be required to become an insured bank as that term is de fined in section 3 (h ) o f the Federal Deposit Insurance Act. The Comptroller o f the Cur rency shall coordinate examinations of Feder al branches and agencies of foreign banks with 52 Regulation K examinations conducted by the Board under section 7 ( c ) ( 1 ) and, to the extent possible, shall participate in any simultaneous examina tions o f the United States operations of a for eign bank requested by the Board under such section. (c ) In acting on any application to establish a Federal branch or agency, the Comptroller shall take into account the effects of the pro posal on competition in the domestic and for eign commerce o f the United States, the finan cial and managerial resources and future pros pects of the applicant foreign bank and the branch or agency, and the convenience and needs o f the community to be served. (d ) Notwithstanding any other provision of this section, a foreign bank shall not receive deposits or exercise fiduciary powers at any Federal agency. A foreign bank may, howev er, maintain at a Federal agency for the ac count o f others credit balances incidental to, or arising out of, the exercise o f its lawful powers. (e) N o foreign bank may maintain both a Federal branch and a Federal agency in the same State. (f) Any branch or agency operated by a for eign bank in a State pursuant to State law and any commercial lending company controlled by a foreign bank may be converted into a Federal branch or agency with the approval of the Comptroller. In the event of any conver sion pursuant to this subsection, all of the lia bilities o f such foreign bank previously pay able at the State branch or agency, or all of the liabilities o f the commercial lending com pany, shall thereafter be payable by such for eign bank at the branch or agency established under this subsection. ( g ) (1 ) Upon the opening o f a Federal branch or agency in any State and thereaf ter, a foreign bank, in addition to any depo sit requirements imposed under section 6 of this Act, shall keep on deposit, in accord ance with such rules and regulations as the Comptroller may prescribe, with a member bank designated by such foreign bank, dol lar deposits or investment securities of the type that may be held by national banks for A4 R e g u la tio n K their own accounts p u rsu an t to paragraph “ Seventh” o f section 5136 o f the Revised Statutes, as am ended, in an am ount as here inafter set forth. Such depository bank shall be located in the State w here such branch o r agency is located and shall be approved by the C om ptroller if it is a national bank and by the B oard of G overnors o f the F ed eral Reserve System if it is a State Bank. (2 ) T he aggregate am ount o f deposited in vestm ent securities (calculated on the basis o f principal am ount or m arket value, w hichever is low er) and dollar deposits for each branch o r agency established and op erating un d er this section shall be not less than the greater of (1 ) th a t am ount of capi tal (b u t not surplus) w hich w ould be re quired o f a national bank being organized at this location, o r (2 ) 5 per centum o f the total liabilities o f such branch or agency, including acceptances, b u t excluding (A ) accrued expenses, and (B ) am ounts due and other liabilities to offices, branches, agencies, and subsidiaries o f such foreign bank. T he C om ptroller m ay require th a t the assets deposited p u rsu an t to this subsec tion shall be m aintained in such am ounts as he m ay from tim e to tim e deem necessary o r desirable, for the m aintenance of a sound financial condition, th e protection o f depos itors, and the public interest, b u t such ad d i tional am ount shall in no event be greater th an w ould be required to conform to gen erally accepted banking practices as m ani fested by banks in the area in w hich the branch o r agency is located. (3 ) T he deposit shall be m aintained w ith any such m em ber bank p u rsu an t to a depo sit agreem ent in such form and containing such lim itations and conditions as the C om ptroller m ay prescribe. So long as it continues business in th e ordinary course such foreign bank shall, however, be p er m itted to collect incom e on the securities and funds so deposited and from tim e to tim e exam ine an d exchange such securities. (4 ) Subject to such conditions and require m ents as m ay be prescribed by the C om p troller, each foreign bank shall hold in each State in w hich it has a Federal bran ch or agency, assets o f such types and in such am ount as the C om ptroller m ay prescribe /o^f S ta tu to ry P ro v isio n s by general or specific regulation or ruling as necessary or desirable for the m aintenance of a sound financial condition, the p rotec tion o f depositors, creditors and the public interest. In determ ining com pliance w ith any such prescribed asset requirem ents, the C om ptroller shall give credit to (A ) assets required to be m aintained p u rsu an t to p ara graphs (1 ) and (2 ) o f this subsection, (B ) reserves required to be m aintained pursuant to section 7 (a ) o f this A ct, and (C ) assets pledged, and surety bonds payable, to the Federal D eposit Insurance C orporation to secure the paym ent o f dom estic deposits. T he C om ptroller m ay prescribe different as set requirem ents for branches o r agencies in different States, in o rd er to ensure com peti tive equality o f F ederal branches and agen cies w ith State branches and agencies and dom estic banks in those States. (h ) A dditional branches or agencies. (1 ) A foreign bank w ith a F ederal bran ch or agen cy operating in any S tate m ay (A ) w ith the p rio r approval o f th e C om ptroller establish and operate additional branches or agencies in the State in w hich such branch or agency is located on the sam e term s and conditions and subject to th e sam e lim itations and re strictions as are applicable to th e establish m ent o f branches by a national bank if the principal office o f such national bank were located a t th e sam e place as th e initial b ranch or agency in such S tate o f such for eign bank and (B ) change th e designation o f its initial bran ch o r agency to any other b ranch o r agency subject to th e sam e lim i tations and restrictions as are applicable to a change in th e designation o f the principal office o f a national ban k if such principal office were located at th e sam e place as such initial bran ch or agency. (2 ) T he C om ptroller o f th e C urrency shall provide th e B oard w ith notice and an op p ortunity for com m ent on any application to establish an additional F ederal bran ch or Federal agency u n d er this subsection. (i) A u th o rity to operate a Federal b ran ch or agency shall term inate w hen the paren t for eign bank voluntarily relinquishes it or when such paren t foreign bank is dissolved o r its au th o rity or existence is otherw ise term inated 53 fH S ta tu to ry P ro v isio n s or canceled in the country of its organization. I f (1 ) at any tim e the C om ptroller is o f the opinion or has reasonable cause to believe th at such foreign bank has violated or failed to com ply w ith any o f the provisions o f this sec tion o r any of the rules, regulations, o r orders o f the C om ptroller m ade pursuant to this sec tion, o r (2 ) a conservator is appointed for such foreign bank or a sim ilar proceeding is initiated in the foreign ban k ’s co untry o f orga nization, the C om ptroller shall have th e pow er, after opportunity for hearing, to revoke the foreign b ank’s authority to operate a F ederal branch or agency. T he C om ptroller m ay, in his discretion, deny such oppo rtu n ity for hearing if he determ ines such denial to be in the public interest. T he C om ptroller m ay re store any such auth o rity upon due p ro o f of com pliance w ith the provisions o f this section and the rules, regulations, or orders o f the C om ptroller m ade pursuant to this section. ( j ) ( l ) W henever the C om ptroller revokes a foreign b ank’s auth o rity to operate a F ed er al branch or agency or w henever any credi to r of any such foreign bank shall have ob tained a judgm ent against it arising out o f a transaction w ith a F ederal bran ch o r agen cy in any court o f record o f the U nited States or any State o f the U nited States and m ade application, accom panied by a certifi cate from the clerk of the co u rt stating th a t such judgm ent has been rendered and has rem ained unpaid for the space o f th irty days, or w henever the C om ptroller shall be com e satisfied th a t such foreign b ank is in solvent, he may, after due consideration of its affairs, in any such case, appoint a re ceiver w ho shall take possession of all the property and assets o f such foreign bank in the U nited States and exercise the same rights, privileges, powers, and authority w ith respect thereto as are now exercised by receivers of national banks appointed by the C om ptroller. (2 ) In any receivership proceeding ordered pursuant to this subsection (j), whenever there has been paid to each and every de positor and creditor of such foreign bank whose claim o r claims shall have been proved or allow ed,.the full am ount o f such claim s arising out of transactions had by 54 m o i R egulation K them w ith any branch or agency o f such foreign bank located in any State o f the U nited States, except (A ) claim s th a t would not represent an enforceable legal obligation against such bran ch o r agency if such branch or agency were a separate legal entity, and (B ) am ounts due and o th er lia bilities to o th er offices or branches o r agen cies of, and wholly ow ned (except for a nom inal num ber o f directors’ shares) sub sidiaries of, such foreign bank, and all expenses o f th e receivership, the C o m p tro l ler o r the Federal D eposit Insurance C o r poration, w here th a t C orporation has been appointed receiver o f the foreign bank, shall tu rn over the rem ainder, if any, o f the assets and proceeds of such foreign bank to the head office o f such foreign bank, or to the duly appointed dom iciliary liquidator or re ceiver o f such foreign bank. [12 USC 3102. As amended by act of Dec. 19, 1991 (105 Stat. 2290, 2291).] SECTION 5—Interstate Banking by Foreign Banks (a ) Except as provided by subsection (b ), (1 ) no foreign bank m ay directly or indirectly establish and operate a Federal bran ch outside of its hom e State unless (A ) its operation is expressly perm itted by the State in w hich it is to be operated, and (B ) the foreign bank shall enter into an agreem ent o r undertaking w ith the B oard to receive only such deposits at the place o f operation o f such F ederal b ranch as w ould be perm issible for a corporation orga nized under section 2 5 (a ) o f the F ederal R e serve A ct under rules and regulations ad m in istered by the Board; (2 ) no foreign bank m ay directly or indirectly establish and operate a State branch outside o f its hom e State unless (A ) it is approved by the bank regulatory au thority o f the State in which such bran ch is to be operated, and (B ) the foreign ban k shall enter into an agreem ent o r undertaking w ith the B oard to receive only such deposits at the place o f operation o f such State bran ch as w ould be perm issible for a corporation orga nized u n d er section 2 5 (a ) o f the F ederal R e serve A ct u n d er rules and regulations ad m in istered by the Board; (3 ) no foreign bank m ay - M R e g u la tio n K directly o r indirectly establish and operate a Federal agency outside o f its hom e State un less its operation is expressly p erm itted by the State in which it is to be operated; (4 ) no foreign bank may directly or indirectly estab lish and operate a State agency or com m ercial lending com pany subsidiary outside o f its hom e State, unless its establishm ent and oper ation is approved by the bank regulatory au thority o f the State in w hich it is to be o p erat ed; and (5 ) no foreign bank m ay directly or indirectly acquire any voting shares of, in ter est in, or substantially all of the assets o f a bank located outside o f its hom e State if such acquisition would be prohibited under section 3 (d ) o f the Bank H olding C om pany A ct of 1956 if the foreign bank w ere a bank holding com pany the operations o f whose banking subsidiaries were principally conducted in the foreign bank ’s hom e State. N otw ithstanding any o ther provisions o f Federal or State law, deposits received by any F ederal or State branch subject to the lim itations o f an agree m ent o r undertaking im posed under this sub section shall not be subject to any requirem ent o f m andatory insurance by the Federal D epo sit Insurance C orporation. (b ) U nless its authority to do so is lawfully revoked otherw ise th an p u rsu an t to this section, a foreign bank, notw ithstanding any restriction or lim itation im posed u n d er sub section (a ) o f this section, m ay establish and operate, outside its hom e State, any State branch, State agency, or bank or com m ercial lending com pany subsidiary which com m enced lawful operation or for which an application to com m ence business had been lawfully filed with the appropriate State or Federal authority, as the case m ay be, on or before July 27, 1978. (c) F o r the purposes of this section, the hom e State o f a foreign bank th at has b ran c h es, agencies, subsidiary com m ercial lending com panies, or subsidiary banks, or any com bi nation thereof, in m ore th an one State, is w hichever o f such State is so determ ined by election o f th e foreign bank, or, in default of such election, by the Board. [12 USC 3103.] lo ty o f S tatutory Provisions SECTION 6— Insurance of Deposits (a ) N o foreign bank m ay establish or operate a Federal branch w hich receives deposits of less th a n $100,000 unless the branch is an insured branch as defined in section 3 (s) of the Federal D eposit Insurance A ct, o r unless the C om ptroller determ ines by o rd er o r regu lation th a t the branch is not engaged in d o m estic retail deposit activities requiring depo sit insurance protection, taking account o f the size and n atu re o f depositors and deposit accounts. ( b ) (1 ) A fter Septem ber 17, 1978, no foreign bank m ay establish a branch, and after one year following such date no foreign bank m ay operate a branch, in any S tate in w hich the deposits o f a bank organized an d exist ing u n d er the laws o f th a t S tate w ould be required to be insured, unless the bran ch is an insured branch as defined in section 3 (s) o f th e F ederal D eposit Insurance A ct, or unless the branch will not thereafter accept deposits o f less th an $100,000, o r unless the Federal D eposit Insurance C o rp o ratio n d e term ines by o rder or regulation th a t the branch is not engaged in dom estic retail d e posit activities requiring deposit insurance protection, taking account o f th e size and n atu re o f depositors and deposit accounts. (2 ) N ow ithstanding the previous p ara graph, a branch o f a foreign bank in opera tion on Septem ber 17, 1978 w hich has applied for F ederal deposit insurance p u r suant to section 5 o f the F ederal D eposit Insurance A ct by Septem ber 17, 1979, and has not had such application denied, may continue to accept dom estic retail deposits until January 31, 1980. (c ) R etail deposit-taking by foreign banks. (1 ) A fter the date o f enactm ent o f this sub section, notw ithstanding any o th er provi sion of this A ct or any provision o f the F ed eral D eposit Insurance A ct, in o rder to accept or m aintain dom estic retail deposit accounts having balances o f less than $100,000, and requiring deposit insurance protection, a foreign bank shall— (A ) establish 1 o r m ore banking subsidi aries in the U nited States for th a t p u r pose; and (B ) obtain Federal deposit insurance for 55 l^r i0*f0l S ta tu to ry P ro v isio n s any such subsidiary in accordance with the Federal D eposit Insurance Act. (2 ) D om estic retail deposit accounts w ith balances of less than $100,000 th a t require deposit insurance protection m ay be accept ed or m aintained in a branch o f a foreign bank only if such branch was an insured branch on the date o f the enactm ent o f this subsection. [12 USC 3104. As amended by acts of Sept. 14, 1979 (93 Stat. 412); Dec. 19, 1991 (105 Stat. 2303); and Oct. 28, 1992 (106 Stat. 4082, 4083, 4224, 4226).] SECTION 7—Authority of Federal Reserve System ( a ) ( 1 ) ( A ) Except as provided in paragraph (2 ) o f this subsection, subsections (a ), (b ), (c ), (d ), (f), (g ), ( i), (j), ( k ), and the second sentence of subsection (e) of section 19 o f the F ederal Reserve A ct shall apply to every F ederal branch and Federal agency of a foreign bank in the same m anner and to the sam e extent as if the Federal branch or Federal agency were a m em ber bank as th a t term is de fined in section 1 o f the Federal Reserve A ct; but the B oard either by general or specific regulation o r ruling m ay waive the m inim um and m axim um reserve ra tios prescribed under section 19 o f the Federal Reserve A ct and m ay prescribe any ratio, not m ore than 22 per centum , for any obligation o f any such F ederal branch or Federal agency th a t th e B oard m ay deem reasonable and appropriate, taking into consideration th e character of business conducted by such institutions and the need to m aintain vigorous and fair com petition between and am ong such institutions and m em ber banks. The B oard m ay im pose reserve requirem ents on Federal branches and Federal agen cies in such graduated m anner as it deems reasonable and appropriate. (B ) A fter consultation and in coopera tion w ith the State bank supervisory au thorities, the B oard may m ake applicable to any State branch or State agency any requirem ent m ade applicable to, or w hich the B oard has authority to impose 56 R e g u la tio n K upon, any Federal branch or agency un der subparagraph (A ) o f this paragraph. (2 ) A branch or agency shall be subject to this subsection only if (A ) its parent for eign bank has total w orldw ide consolidated bank assets in excess o f $1,000,000,000; (B ) its parent foreign bank is controlled by a foreign com pany w hich owns or controls foreign banks th a t in th e aggregate have to tal w orldw ide consolidated bank assets in excess of $1,000,000,000; or (C ) its parent foreign bank is controlled by a group o f for eign com panies th a t own or control foreign banks th a t in the aggregate have total w orldw ide consolidated bank assets in ex cess o f $1,000,000,000. [12 USC 3105(a).] [Subsection (b) added a new paragraph to the end of Fed eral Reserve Act section 13.] (c ) Authority o f Board to conduct and coordi nate examinations. (1 ) ( A ) T he B oard may exam ine each branch or agency o f a for eign bank, each com m ercial lending com pany or bank controlled by 1 or m ore foreign banks o r 1 o r m ore foreign com panies th a t control a foreign bank, and o th er office or affiliate o f a foreign bank conducting business in any State. ( B ) (i) T he B oard shall coordinate ex am inations un d er this p aragraph w ith the C om ptroller o f the C urrency, the Federal D eposit In su ran ce C o rp o ra tion, and ap p ro p riate State bank super visors to the extent such coordination is possible. (ii) T he B oard m ay request sim ulta neous exam inations o f each office o f a foreign bank and each affiliate o f such bank operating in the U nited States. (C ) Each bran ch o r agency o f a foreign bank shall be exam ined at least once d u r ing each 12-m onth period (beginning on the date the m ost recent exam ination of such branch or agency ended) in an on site exam ination. (D ) T he cost o f any exam ination under subparagraph (A ) shall be assessed against and collected from the foreign bank or th e foreign com pany th a t con trols the foreign bank, as th e case m ay be. o f ■ R egulation K (2 ) Each branch o r agency o f a foreign bank, o ther th an a Federal branch or agen cy, shall be subject to parag rap h 20 and the provision requiring the reports o f condition contained in paragraph 6 o f section 9 o f the F ederal Reserve A ct (12 U.S.C. 335 and 324) to the same extent and in the same m anner as if the branch or agency were a State m em ber bank. In addition to any re quirem ents im posed un d er section 4 o f this A ct, each F ederal branch and agency shall be subject to subparagraph (a ) of section 11 of the F ederal Reserve A ct (12 U.S.C. 2 4 8 (a )) and to paragraph 5 o f section 21 of the Federal Reserve A ct (12 U.S.C. 483) to the same extent and in the same m anner as if it were a m em ber bank. [12 USC 3105(b). As amended by act o f Dec. 19, 1991 (105 Stat. 2291).] (d ) Establishment o f foreign bank offices in the United States. (1 ) N o foreign bank m ay establish a branch or an agency, o r acquire ow nership or control o f a com m ercial lending com pa ny, w ithout the prior approval o f the Board. (2 ) T he B oard may n o t approve an appli cation under parag rap h (1 ) unless it d eter m ines th a t— (A ) the foreign b ank engages directly in the business o f banking outside o f the U nited States and is subject to com pre hensive supervision o r regulation on a consolidated basis by the appropriate au thorities in its hom e country; and (B ) the foreign bank has furnished to the B oard the inform ation it needs to ad equately assess the application. (3 ) In acting on any application under paragraph (1 ), the B oard m ay take into ac count— (A ) w hether the appropriate authorities in the hom e country o f the foreign bank have consented to th e proposed establish m ent o f a branch, agency or com m ercial lending com pany in th e U nited States by the foreign bank; (B ) the financial and m anagerial re sources o f the foreign bank, including the b ank’s experience and capacity to engage in international banking; (C ) w hether the foreign bank has p ro A4 lofo ( S ta tu to ry P r o v isio n s vided the B oard w ith adequate assur ances th a t th e ban k will m ake available to th e B oard such inform ation on th e op erations o r activities o f the foreign bank and any affiliate o f the ban k th a t the B oard deems necessary to determ ine and enforce com pliance w ith this A ct, the B ank H olding C om pany A ct o f 1956, and o ther applicable F ederal law; and (D ) w hether th e foreign bank and the U nited States affiliates o f the bank are in com pliance w ith applicable U nited States law. (4 ) In acting on an application un d er p ara graph (1 ), th e B oard shall not m ake the size o f the foreign bank the sole determ i n an t factor, and m ay take into account the needs o f th e com m unity as well as the length of operation o f the foreign bank and its relative size in its hom e country. N o th ing in this parag rap h shall affect the ability o f the B oard to o rder a State branch, agen cy, or com m ercial lending com pany subsid iary to term inate its activities in th e U nited States p u rsu an t to any stan d ard set fo rth in this Act. (5 ) Consistent w ith the standards for ap proval in parag rap h (2 ), the B oard m ay im pose such conditions on its approval u n der this subsection as it deem s necessary. [12 USC 3105(c). As amended by act of Dec. 19, 1991 (105 Stat 2286).] (e) Termination o f foreign bank offices in the United States. (1 ) T he B oard, after notice and o p p o rtu n i ty for hearing and notice to any appropriate S tate bank supervisor, m ay o rd er a foreign bank th a t operates a S tate branch or agency or com m ercial lending com pany subsidiary in the U nited States to term inate th e activi ties o f such branch, agency, o r subsidiary if the B oard finds th a t— (A ) the foreign ban k is no t subject to com prehensive supervision or regulation on a consolidated basis by the ap p ro p ri ate authorities in its hom e country; or ( B ) (i) th ere is reasonable cause to be lieve th a t such foreign bank, or any af filiate o f such foreign bank, has com m itted a violation o f law or engaged in 57 4V (0^0/ S ta tu to ry P ro v isio n s an unsafe or unsound banking practice in the U nited States; and (ii) as a result of such violation or practice, the continued operation of the foreign b an k ’s branch, agency or com m ercial lending com pany subsidi ary in the U nited States w ould not be consistent w ith the public interest or w ith the purposes of this A ct, the Bank H olding Com pany A ct o f 1956, o r the Federal D eposit Insurance A ct. H ow ever, in m aking findings u n d er this paragraph, the B oard shall not m ake size the sole determ inant factor, and m ay take into account the needs of th e com m unity as well as the length o f operation o f the for eign bank and its relative size in its hom e country. N othing in this parag rap h shall af fect the ability of the B oard to o rd er a State branch, agency, o r com m ercial lending com pany subsidiary to term inate its activi ties in the U nited States p u rsu an t to any stan d ard set forth in this A ct. (2 ) T he B oard m ay issue an o rd er under paragraph (1 ) w ithout providing for an op p ortunity for a hearing if th e B oard d eter m ines th a t expeditious action is necessary in order to protect the public interest. (3 ) A n order issued under parag rap h (1 ) shall take effect before the end o f the 120day period beginning on the date such order is issued unless the Board extends such period. (4 ) A ny foreign bank required to term i nate activities conducted at offices o r sub sidiaries in the U nited States p u rsu an t to this subsection shall com ply w ith the re quirem ents of applicable F ederal and State law w ith respect to procedures for the clo sure or dissolution of such offices or subsidiaries. (5 ) T he B oard m ay transm it to the C om p troller o f the C urrency a recom m endation th a t the license o f any Federal bran ch or Federal agency o f a foreign bank be term i nated in accordance with section 4 (i) if the B oard has reasonable cause to believe th at such foreign bank or any affiliate o f such foreign bank has engaged in conduct for w hich the activities o f any State branch or agency m ay be term inated un d er paragraph (1 ). 58 R e g u la tio n K (6 ) (A ) In th e case of contum acy o f any office or subsidiary of th e foreign bank against w hich— (i) the B oard has issued an o rder u n der parag rap h (1 ); or (ii) the C om ptroller of the C urrency has issued an o rder u n d er section 4 (i) o r a refusal by such office or subsidiary to com ply w ith such order, th e B oard or the C om ptroller o f the C urrency m ay invoke the aid o f the d istrict court o f th e U nited States w ithin the jurisdiction o f which the office o r subsidiary is located. (B ) A ny co u rt referred to in su b p ara graph (A ) m ay issue an o rder requiring com pliance w ith an o rder referred to in subparagraph (A ). (7 ) N ot later th an 1 year after the date of enactm ent o f this subsection, th e Board, in consultation w ith th e Secretary o f th e T rea sury, shall develop and publish criteria to be used in evaluating the operation o f any foreign bank in the U nited States th a t the B oard has determ ined is not subject to com prehensive supervision or regulation on a consolidated basis. In developing such crite ria, the B oard shall allow reasonable o p por tu n ity for public review and com m ent. [12 USC 3105(d). As added by act of Dec. 19, 1991 (105 Stat. 2286) and amended by act of Oct. 28, 1992 (106 Stat. 4081, 4082).] (f) Judicial review. (1 ) A ny foreign bank— (A ) whose application u n d er subsection (d ) or section 10(a) has been disap proved by th e Board; (B ) against w hich th e B oard has issued an o rder un d er subsection (e) o r section 1 0 (b ); or (C ) against w hich the C om ptroller of the C urrency has issued an o rder under section 4 (i) o f this A ct, m ay obtain a review of such o rd er in the U nited States co u rt o f appeals for any cir cuit in w hich such foreign bank operates a branch, agency, or com m ercial lending com pany th a t has been required by such o r der to term inate its activities, or in the U nited States C o u rt o f A ppeals for the Distrist of Colum bia C ircuit, by filing a peti tion for review in the court before th e end R e g u la tio n K o f the 30-day period beginning on the date the order was issued. (2 ) Section 706 of title 5, U nited States Code (o th er than paragraph ( 2 ) ( F ) of such section) shall apply w ith respect to any review under paragraph (1 ). [12 USC 3105(e). As added by act o f Dec. 19, 1991 (105 Stat. 2286).] (g ) Consultation with state bank supervisor. T he B oard shall request and consider any views o f the appropriate State bank supervisor w ith respect to any application or action u n der subsection (d ) or (e). [12 USC 3105(0- As added by act o f Dec. 19, 1991 (105 Stat. 2286).] (h ) Lim itations on powers o f state branches and agencies. (1 ) A fter the end o f the 1-year period be ginning on the date o f enactm ent o f the Federal D eposit Insurance C orporation Im provem ent A ct o f 1991, a State branch or State agency m ay not engage in any type of activity th a t is no t perm issible for a F ederal branch unless— (A ) the B oard has determ ined th a t such activity is consistent w ith sound banking practice; and (B ) in the case of an insured branch, the F ederal D eposit Insurance C orporation has determ ined th a t th e activity w ould pose no significant risk to the deposit in surance fund. (2 ) A State branch or State agency shall be subject to the sam e lim itations w ith respect to loans m ade to a single borrow er as are applicable to a F ederal branch or F ederal agency under section 4 (b ). (3 ) This section does not lim it the a u th o ri ty o f the B oard or any State supervisory au thority to impose m ore stringent restrictions. [12 USC 3105(g). As added by act of Dec. 19, 1991 (105 Stat. 2286).] (i) Proceedings related to conviction fo r mon ey laundering offenses. (1 ) I f the B oard finds o r receives w ritten notice from the A ttorney G eneral th a t— (A ) any foreign bank w hich operates a State agency, a State bran ch w hich is not S ta tu to ry P ro v isio n s an insured branch, or a S tate com m ercial lending com pany subsidiary; (B ) any State agency; (C ) any State branch w hich is not an in sured branch; or (D ) any State com m ercial lending sub sidiary, has been found guilty of any money laun dering offense, the B oard shall issue a no tice to the agency, branch, or subsidiary of the B oard’s intention to com m ence a term i nation proceeding u n d er subsection (e). (2 ) F o r purposes o f this subsection— (A ) T he term “ insured branch” has the m eaning given such term in section 3 (s) o f the Federal D eposit Insurance Act. (B ) The term “ money laundering of fen se” m eans any crim inal offense under section 1956 or 1957 o f title 18, U nited States Code, or u n d er section 5322 of ti tle 31, U nited States Code. [12 USC 3105(i). As added by act of Oct. 28, 1992 (106 Stat. 4056).] (j) S tudy on equivalence o f foreign bank capi tal. N ot later th an 180 days after enactm ent of this subsection, the B oard and th e Secretary o f the T reasury shall jointly subm it to the C om m ittee on Banking, H ousing, and U rban Affairs o f the Senate and th e C om m ittee on Banking, Finance and U rb an Affairs o f the H ouse o f R epresentatives a rep o rt— (1 ) analyzing th e capital standards con tained in the fram ew ork for m easurem ent o f capital adequacy established by the Su pervisory C om m ittee o f the B ank for In ter national Settlem ents, foreign regulatory capital standards th a t apply to foreign banks conducting banking operations in the U nited States, and th e relationship o f the Basle and foreign stan d ard s to risk-based capital and leverage requirem ents for U n it ed States banks; and (2 ) establishing guidelines for th e adjust m ents to be used by th e B oard in converting d ata on the capital o f such foreign banks to the equivalent risk-based capital and lever age requirem ents for U nited States banks for purposes o f determ ining w hether a for eign b an k ’s capital level is equivalent to th a t im posed on U nited States banks for purposes o f determ inations u n d er section 7 59 M l o Y o j S ta tu to ry P r o v isio n s o f the International Banking A ct o f 1978 and sections 3 and 4 of the Bank H olding C om pany A ct of 1956. A n update shall be prepared annually explain ing any changes in the analysis under p ara graph (1 ) and resulting changes in the guide lines pursuant to paragraph (2 ). [12 use 3105(h). As added by act of Dec. 19, 1991 (105 Stat. 2304).] SECTION 8—Nonbanking Activities (a ) Except as otherw ise provided in this sec tion (1 ) any foreign bank th a t m aintains a branch or agency in a State, (2 ) any foreign bank or foreign com pany controlling a foreign bank th a t controls a com m ercial lending com pany organized under State law, and (3 ) any com pany o f w hich any foreign bank o r com pany referred to in (1 ) and (2 ) is a subsidiary shall be subject to the provisions o f the Bank H olding C om pany A ct of 1956, and to sec tions 105 and 106 o f the Bank H olding C om pany A ct A m endm ents of 1970 in th e sam e m anner and to the same extent th a t bank holding com panies are subject to such provisions. (b ) U ntil D ecem ber 31, 1985, a foreign bank or other com pany to which subsection (a ) ap plies on the date of enactm ent o f this A ct m ay retain direct or indirect ow nership o r control o f any voting shares of any nonbanking com pany in the U nited States th a t it owned, con trolled, or held w ith power to vote on the date o f enactm ent o f this A ct or engage in any n o n banking activities in the U nited States in which it was engaged on such date. ( c ) (1 ) A fter D ecem ber 31, 1985, a foreign bank or other com pany to w hich subsection (a ) applies on the date o f enactm ent o f this A ct o r on the date of the establishm ent o f a branch in a State an application for w hich was filed on or before July 26, 1978 m ay continue to engage in nonbanking activities in the U nited States in w hich directly or through an affiliate it was lawfully engaged on July 26, 1978 (o r on a date subsequent to July 26, 1978, in the case o f activities carried on as the result of the direct o r indi rect acquisition, pursuant to a binding w rit 60 R egulation K ten co n tract entered into on or before July 26, 1978, o f an o th er com pany engaged in such activities a t th e tim e o f acquisition), and m ay engage directly or th ro u g h an affil iate in nonbanking activities in the U nited States w hich are covered by an application to engage in such activities w hich was filed on o r before July 26, 1978; except th a t the B oard by order, after opp o rtu n ity for h ea r ing, m ay term inate th e au th o rity conferred by this subsection (c ) on any such foreign bank o r com pany to engage directly or th ro u g h an affiliate in any activity o th e r wise perm itted by this subsection (c ) if it determ ines having due regard to the p u r poses o f this A ct an d th e B ank H olding C om pany A ct o f 1956, th a t such action is necessary to prevent undue concentration o f resources, decreased or unfair com peti tion, conflicts o f interest, o r unsound b an k ing practices in th e U nited States. N o tw ith standing subsection (a ) o f this section, a foreign ban k o r com pany referred to in this subsection m ay retain ow nership or control o f any voting shares (o r, w here necessary to prevent d ilution o f its voting interest, ac quire additional voting shares) o f any do m estically-controlled affiliate covered in 1978 w hich since Ju ly 26, 1978, has en gaged in th e business o f underw riting, dis tributing, o r otherw ise buying o r selling stocks, bonds, an d o th er securities in the U nited States, n otw ithstanding th a t such affiliate acquired after July 26, 1978, an in terest in, o r any o r all o f th e assets of, a going concern, o r com m ences to engage in any new activity o r activities. E xcept in the case o f affiliates described in the preceding sentence, nothing in this subsection (c) shall be construed to au thorize any foreign ban k o r com pany referred to in this subsec tion (c ), o r any affiliate thereof, to engage in activities authorized by this subsection (c ) th ro u g h th e acquistion, p u rsu an t to a co n tract entered in to after July 26, 1978, of any interest in o r th e assets o f a going con cern engaged in such activities. A ny foreign bank o r com pany th a t is authorized to en gage in any activitiy p u rsu an t to this sub section (c ) but, as a result o f action o f the B oard, is required to term in ate such activi ty m ay retain th e ow nership o f control of M R egulation K shares in any com pany carrying on such ac tivity for a period o f tw o years from the date on w hich its au th o rity was so term i nated by the Board. As used in this subsec tion, the term “ affiliate” shall m ean any com pany m ore than 5 per centum o f whose voting shares is directly or indirectly owned or controlled or held w ith pow er to vote by the specified foreign bank or com pany, and the term “ dom estically-controlled affiliate covered in 1978” shall m ean an affiliate o r ganized under the laws o f the U nited States or any State thereof if (i) no foreign bank or group o f foreign banks acting in concert owns o r controls, directly or indirectly, 45 per centum or m ore of its voting shares, and (ii) no m ore th an 20 per centum o f the num ber o f directors as established from tim e to tim e to constitute the whole board o f directors and 20 per centum o f th e execu tive officers o f such affiliate are persons affil iated w ith any such foreign bank. F o r the purpose o f the preceding sentence, th e term “ persons affiliated w ith any such foreign b ank” shall m ean (A ) any person who is or was an em ployee, officer, agent, o r director of such foreign bank or w ho otherw ise has or had such a relationship w ith such foreign bank th a t w ould lead such person to repre sent the interests of such foreign bank, and (B ) in the case o f any d irector o f such do m estically controlled affiliate covered in 1978, any person in favor o f whose election as a director votes w ere cast by less th an tw o-thirds o f all shares voting in connection w ith such election other th an shares owned o r controlled, directly o r indirectly, by any such foreign bank. (2 ) T he auth o rity conferred by this subsec tion on a foreign bank or other com pany shall term inate 2 years after the date on w hich such foreign ban k or other com pany becomes a “bank holding com pany” as de fined in section 2 (a ) o f th e Bank H olding Com pany A ct of 1956 (12 U.S.C. 1 8 4 1 (a)); except th a t the B oard may, upon application o f such foreign bank o r other com pany, extend the 2-year period for not m ore th an one year at a time, if, in its ju d g m ent, such an extension w ould not be d etri m ental to the public interest, b u t no such m o l S tatutory Provisions extensions shall exceed 3 years in the aggregate. (d ) N othing in this section shall be construed to define a branch or agency o f a foreign bank o r a com m ercial lending com pany controlled by a foreign ban k or foreign com pany th at controls a foreign bank as a “b an k ” for the purposes of any provisions of the Bank H old ing C om pany A ct o f 1956, or section 105 of th e Bank H olding C om pany A ct A m end m ents o f 1970, except th a t any such branch, agency o r com m ercial lending com pany sub sidiary” shall be deem ed a “b an k ” or “ban k ing subsidiary” , as th e case m ay be, for the purposes o f applying th e prohibitions o f sec tion 106 o f the B ank H olding C om pany A ct A m endm ents o f 1970 and the exem ptions p ro vided in sections 4 ( c ) ( 1 ) , 4 ( c ) ( 2 ) , 4 ( c ) ( 3 ) , and 4 ( c ) ( 4 ) o f th e B ank H olding C om pany A ct o f 1956 (12 U.S.C. 1843(c) (1 ), (2 ), (3 ), and ( 4 )) to any foreign ban k o r o ther com pany to w hich subsection (a ) applies. [12 USC 3106. As amended by acts of Oct. 15, 1982 (96 Stat. 1539); Aug. 10, 1987 (101 Stat. 584); and Dec. 19, 1991 (105 Stat. 2295).] [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 ) Every b ranch o r agency o f a foreign bank and every com m ercial lending com pa ny controlled by one o r m ore foreign banks o r by one or m ore foreign com panies th a t control a foreign bank shall co n d u ct its op erations in th e U nited States in full com pli ance w ith provisions o f any law o f th e U n it ed States or any state th ereo f w hich— (A ) prohibit discrim ination against any individual o r o th er person on th e basis of the race, color, religion, sex, m arital status, age, o r national origin o f (i) such individual o r o th er person or (ii) any of ficer, director, em ployee, or creditor of, or any ow ner o f any interest in, such in dividual or o th er person; and (B ) apply to national banks or Statechartered banks doing business in the 61 M S ta tu to ry P ro v isio n s State in w hich such branch or agency or com m ercial lending com pany, as the case m ay be, is doing business. (2 ) N o application for a branch o r agency shall be approved by the C om ptroller or by a State bank supervisory authority, as the case m ay be, unless the entity m aking the application has agreed to conduct all o f its operations in the U nited States in full com pliance w ith provisions o f any law of the U nited States or any State th ereo f w hich— (A ) prohibit discrim ination against indi viduals or other persons on th e basis o f the race, color, religion, sex, m arital status, age, or national origin o f (i) such individual or other person o r (ii) any o f ficer, director, employee, or creditor of, o r any ow ner o f any interest in, such in dividual or other person; and (B ) apply to national banks o r Statechartered banks doing business in the State in which the entity to be established is to do business. [12 USC 3106a.] SECTION 10— Representative Offices (a ) Prior approval to establish representative offices. (1 ) N o foreign bank may establish a repre sentative office w ithout the p rio r approval o f the Board. (2 ) In acting on any application un d er this paragraph to establish a representative of fice, the B oard shall take into account the standards contained in section 7 ( d ) ( 2 ) and m ay im pose any additional requirem ents th a t the B oard determ ines to be necessary to carry out the purposes o f this A ct. (b ) Termination o f representative offices. T he B oard m ay order th e term ination o f the activi ties o f a representative office o f a foreign bank on the basis of the standards, procedures, and requirem ents applicable u n d er section 7 (e ) w ith respect to branches and agencies. (c) Examinations. T he B oard m ay m ake ex am inations o f each representative office o f a foreign bank, the cost of w hich shall be as sessed against and paid by such foreign bank. 62 /o*ro / R e g u la tio n K (d ) Compliance with state law. T his A ct does not authorize th e establishm ent o f a represenative office in any S tate in contravention of State law. [12 USC 3107. A s amended by acts of Dec. 19, 1991 (105 Stat. 2292) and Oct. 28, 1992 (106 Stat. 4082).] * * * * * SECTION 13—Regulation and Enforcement (a ) T he C om ptroller, th e B oard, and the F ederal D eposit In surance C orporation, are authorized an d em pow ered to issue such rules, regulations, a n d orders as each o f them m ay deem necessary in o rd er to perform their respective duties an d functions under this A ct and to adm inister a n d carry ou t the provisions and purposes o f this A ct an d prevent evasions thereof. (b ) E nforcem ent (1 ) In addition to any powers, rem edies, o r sanctions otherw ise provided by law, com pliance w ith the re quirem ents im posed u n d er this A ct o r any am endm ent m ade by this A ct m ay be en forced u n d er section 8 o f th e F ederal D epo sit In surance A ct by any ap p ro p riate F ed er al banking agency as defined in th a t A ct. (2 ) In th e course of, o r in connection with, an application, exam ination, investigation, o r o th e r proceeding u n d er this A ct, the B oard, th e C om ptroller o f th e C urrency, an d th e F ederal D eposit In surance C orpo ration, as th e case m ay be, any m em ber of th e B oard o r o f th e B oard o f D irectors of th e C orporation, an d any designated repre sentative o f th e B oard, C om ptroller, or C orporation (including any person desig nated to conduct any hearing u n d er this A c t) m ay— (A ) adm inister oaths and affirmations and take o r cause to be taken depositions; and (B ) issue, revoke, quash, o r m odify any subpoena, including any subpoena re quiring th e atten d an ce and testim ony o f a witness o r any subpoenas duces tecum. (3 ) (A ) T he atten d an ce o f any w itness and th e p ro duction o f any docum ent p u rsu an t to a subpoena u n d er p arag rap h (2 ) M ioVo | R e g u la tio n K m ay be required a t the place designated in the subpoena from any place in any State (as defined in section 3 ( a ) ( 3 ) of the Federal D eposit Insurance A c t) or other place subject to th e jurisdiction of the U nited States. (B ) Service o f a subpoena issued under this subsection may be m ade by regis tered mail, o r in such other m anner rea sonably calculated to give actual notice as the B oard, C om ptroller o f th e C u rren cy, or F ederal D eposit Insurance C orpo ration m ay by regulation or otherw ise provide. (C ) W itnesses subpoenaed u n d er this subsection shall be paid the same fees and mileage th a t are paid witnesses in th e dis trict courts o f the U nited States. (4 ) (A ) In the case o f contum acy o f any person issued a subpoena under this sub section or a refusal by such person to com ply w ith such subpoena, the Board, C om ptroller o f the C urrency, or Federal D eposit Insurance C orporation, or any o ther party to proceedings in connection w ith w hich subpoena was issued m ay in voke the aid of— (i) the U nited States D istrict C o u rt for the D istrict o f Colum bia, or (ii) any district co u rt of th e U nited States w ithin the jurisdiction o f w hich the proceeding is being conducted or the w itness resides or carries on business. (B ) A ny cou rt referred to in su b p ara graph (A ) m ay issue an order requiring com pliance w ith a subpoena issued under this subsection. (5 ) A ny court having jurisdiction o f any proceeding instituted u n d er this subsection m ay allow any p arty to such proceeding such reasonable expenses and atto rn ey s’ fees as the court deems ju st and proper. (6 ) A ny person who willfully fails or re fuses to atten d and testify o r to answ er any lawful inquiry or to produce books, papers, correspondence, m em oranda, contracts, agreem ents, o r o ther records in accordance w ith any subpoena u n d er this subsection shall be fined under title 18, U nited States Code, im prisoned not m ore th an 1 year, or both. Each day during w hich any such fail- S ta tu to ry P ro v isio n s ure or refusal continues shall be treated as a separate offense. (c ) In the case o f any provision of the F eder al Reserve A ct to w hich a foreign bank or branch th ereo f is subject un d er this A ct, and which is m ade applicable to nonm em ber in sured banks by the F ederal D eposit Insurance A ct, w hether by cross-reference to the F ederal Reserve A ct or by a provision in substantially the sam e term s in th e F ederal D eposit In su r ance A ct, the adm inistration, interpretation, and enforcem ent o f such provision, insofar as it relates to any foreign bank or bran ch th ere o f as to which the B oard is an appropriate Federal banking agency, are vested in the B oard, b u t w here th e m aking o f any report to th e B oard or a F ederal Reserve bank is re quired u n d er any such provision, the Federal D eposit Insurance C o rp o ratio n m ay require th a t a duplicate o f any such rep o rt be sent directly to it. This subsection shall not be con strued to im pair any pow er o f th e F ederal D e posit Insurance C orporation to m ake regular or special exam inations or to require special reports. [12 USC 3108. As amended by act of Dec. 19, 1991 (105 Stat. 2297).] * * * * * SECTION 15—Cooperation with Foreign Supervisors (a ) Disclosure o f supervisory information to foreign supervisors. N o tw ith stan d in g any other provision o f law, th e B oard, C om ptroller of the C urrency, F ederal D eposit In su ran ce C or poration, and D irecto r o f the Office o f T hrift Supervision m ay disclose inform ation ob tained in the course o f exercising supervisory or exam ination au th o rity to any foreign bank regulatory or supervisory au th o rity if the B oard, C om ptroller, C orporation, or D irector determ ines th a t such disclosure is appropriate and will n o t prejudice the interests of the U nited States. (b ) Requirem ent o f confidentiality. Before m aking any disclosure of any inform ation to a foreign authority, th e B oard, C om ptroller of the C urrency, Federal D eposit Insurance C orpora63 /H /oyo/ S ta tu to ry P ro v isio n s tion, and D irector of the Office o f T h rift Super vision shall obtain, to the extent necessary, the agreem ent of such foreign authority to m aintain the confidentiality of such inform ation to the extent possible und er applicable law. [12 use 3109. As added by act of Dec. 19, 1991 (105 Stat. 2294).] SECTION 16— Penalties (a ) Civil money penalty. (1 ) A ny foreign bank, and any office or subsidiary o f a for eign bank, th a t violates, and any individual who participates in a violation of, any p ro vision o f this A ct, or any regulation p re scribed or order issued u n d er this A ct, shall forfeit and pay a civil penalty o f n o t m ore than $25,000 for each day during which such violation continues. (2 ) A ny penalty imposed u n d er p aragraph (1 ) m ay be assessed and collected by the B oard o r the C om ptroller o f th e C urrency in the m anner provided in subparagraphs ( E ), ( F ) , (G ) , (H ) , and ( I ) o f section 8 (i) (2 ) o f the F ederal D eposit Insurance A ct for penalties imposed (u n d er such sec tio n ), and any such assessments shall be subject to the provisions o f such section. (3 ) Section 8 (h ) of the F ederal D eposit Insurance A ct shall apply to any proceed ing under this section. (4 ) A ll penalties collected under au th o rity o f this section shall be deposited into the Treasury. (5 ) F o r purposes o f this section, th e term “violate” includes taking any action (alone or w ith others) for or tow ard causing, bringing about, participating in, counseling, or aiding or abetting a violation. (6 ) T he B oard and the C om ptroller of the C urrency shall each prescribe regulations establishing such procedures as m ay be nec essary to carry out this section. (b ) Notice under this section after separation from service. T he resignation, term ination of em ploym ent or participation, or separation of an institution-affiliated p arty (w ithin the m eaning of section 3 (u ) o f the Federal D epo sit Insurance A ct) w ith respect to a foreign bank, o r any office or subsidiary o f a foreign 64 R e g u la tio n K bank (including a separation caused by the term ination o f a location in the U nited S tates), shall not affect th e jurisdiction or au th o rity o f th e B oard o r th e C om ptroller o f the C urrency to issue any notice or to proceed un d er this section against any such party, if such notice is served before the end of the 6-year period beginning on th e date such p a r ty ceased to be an institution-affiliated party w ith respect to such foreign bank or such of fice o r subsidiary o f a foreign bank (w hether such date occurs on, before, or after the date o f the enactm ent o f th e F oreign B ank Supervi sion E nhancem ent A ct o f 1991). (c ) Penalty fo r failu re to m ake reports. (1 ) A ny foreign bank, o r any office o r sub sidiary o f a foreign bank, th a t— (A ) m aintains procedures reasonably adapted to avoid any inadvertent erro r and, unintentionally and as a result of such erro r— (i) fails to m ake, subm it, or publish such reports o r inform ation as m ay be required u n d er this A ct or u n d er regu lations prescribed by th e B oard or the C om ptroller o f the C urrency under this A ct, w ithin th e period o f tim e specified by th e agency; or (ii) subm its o r publishes any false or m isleading rep o rt o r inform ation; or (B ) inadvertently transm its or publishes any rep o rt th a t is m inim ally late, shall be subject to a penalty of not m ore th an $2,000 for each day during w hich such failure continues o r such false or m isleading inform ation is no t corrected. T he foreign bank, o r th e office o r subsidiary o f a foreign bank, shall have the b urden o f proving th a t an erro r was inadvertent and th a t a report was inadvertently tran sm itted or published late. (2 ) A ny foreign bank, o r any office or sub sidiary o f a foreign bank, th a t— (A ) fails to m ake, subm it, or publish such reports o r inform ation as m ay be re quired u n d er this A ct o r u n d er regula tions prescribed by th e B oard or the C om ptroller o f th e C urrency p u rsu an t to this A ct, w ithin th e tim e period specified by such agency; or / H ioVoi Regulation K Statutory Provisions (B ) subm its or publishes any false or BANK EXPORT SERVICES ACT m isleading report o r inform ation, in a m anner not described in p aragraph (1) A ct o f October 8, 1982 (96 Stat. 1235) shall be subject to a penalty o f n o t m ore than $20,000 for each day during w hich SECTION 202— Purpose such failure continues o r such false or m is T he Congress hereby declares th a t it is the leading inform ation is not corrected. purpose o f this title to provide for m eaningful (3 ) N otw ithstanding parag rap h (2 ), if any and effective participation by bank holding com pany know ingly or w ith reckless disre com panies, bankers’ banks, and Edge A ct cor gard for the accuracy of any inform ation or porations, in th e financing and developm ent of report described in paragraph (2 ) subm its export trading com panies in the U nited or publishes any false or m isleading report States. In furtherance o f such purpose, the or inform ation, th e B oard or the C o m p tro l Congress intends th at, in im plem enting its au ler o f the C urrency may, in the B oard’s or th o rity u n d er section 4 ( c ) ( 1 4 ) o f the Bank C om ptroller’s discretion, assess a penalty of H olding C om pany A ct o f 1956, the B oard of not m ore than $1,000,000 o r 1 percent of G overnors o f th e F ederal Reserve System total assets o f such foreign bank, or such should pursue regulatory policies th a t— office or subsidiary o f a foreign bank, (1 ) provide for th e establishm ent o f export w hichever is less, per day for each day d u r trading com panies w ith pow ers sufficiently ing w hich such failure continues or such bro ad to enable them to com pete w ith sim i false o r m isleading inform ation is not la r foreign-owned institutions in the U nited corrected. States and abroad; (4 ) A ny penalty im posed under p aragraph (2 ) afford to U nited States com m erce, in (1 ), (2 ), or (3 ) shall be assessed an d col dustry, and agriculture, especially smalllected by the B oard or the C om ptroller of and m edium -size firms, a m eans o f export the C urrency in the m anner provided in ing a t all times; subsection ( a ) ( 2 ) (fo r penalties im posed (3 ) foster the participation by regional and u nder such subsection) and any such as sm aller banks in the developm ent o f export sessm ent (including th e determ ination of trading com panies; and the am ount o f th e penalty) shall be subject (4 ) facilitate the form ation o f jo in t venture to the provisions of such subsection. export trading com panies between bank (5 ) Section 8 (h ) of th e Federal D eposit holding com panies and n onbank firms th a t Insurance A ct shall apply to any proceed provide for th e efficient com bination of ing under this subsection. com plem entary trad e and financing services [12 USC 3110. As added by act o f Dec. 19, 1991 (105 Stat. designed to create export trad in g com panies 2295).] th a t can handle all o f an exporting com pa ny’s needs. [12 USC 1843 note.] SECTION 17— Criminal Penalty W hoever, w ith the intent to deceive, to gain financially, o r to cause financial gain or loss to any person, know ingly violates any provision o f this A ct o r any regulation or order issued by the appropriate Federal banking agency under this A ct shall be im prisoned not m ore than 5 years o r fined not m ore th an $1,000,000 for each day during w hich a viola tion continues, or both. [12 USC 3111. As added by act of Dec. 19, 1991 (105 Stat. 2303).] * * * * * SECTION 206— Guarantees for Export Accounts Receivable and Inventory T he E x p o rt-Im p o rt B ank o f th e U nited States is authorized an d directed to establish a p ro gram to provide guarantees for loans extended by financial institutions o r o th er public o r p ri vate creditors to export trading com panies as defined in section 4 (c ) (14) ( F ) (i) o f the B ank H olding C om pany A ct o f 1956, or to 65 M iw o i Statutory Provisions other exporters, when such loans are secured by export accounts receivable, inventories of exportable goods, accounts receivable from leases, perform ance contracts, grant com m it m ents, participation fees, m em ber dues, reve nue from publications, or such o th er collateral as the B oard o f D irectors m ay deem ap p ro p ri ate, and w hen in the judgm ent o f the B oard o f D irectors— (1 ) the private credit m arket is not provid ing adequate financing to enable otherw ise creditw orthy export trading com panies or exporters to consum m ate export tran sac tions; and (2 ) such guarantees would facilitate ex pansion o f exports which w ould n o t o th e r wise occur. T he B oard o f D irectors shall attem p t to insure th a t a m ajor share o f any loan guarantees u lti m ately serves to prom ote exports from small, m edium -size, and m inority businesses o r agri cultural concerns. G uarantees provided under th e authority o f this section shall be subject to lim itations contained in annual appropriations Acts. [12 USC 635a-4. As amended by act o f 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 ERN A TIO N A L LEN D IN G SUPERVISION ACT Title IX o f A ct o f November 30, 1983 (97 Stat. 1278) SECTION 901—Short Title T his title m ay be cited as th e “ In tern atio n al L ending Supervision A ct of 1983” . [12 USC 3901 note.] SECTION 902— Declaration of Policy ( a ) ( 1 ) It is the policy of the C ongress to as sure th a t the econom ic health and stability of the U nited States and th e o th er nations o f the w orld shall not be adversely affected or threatened in the fu tu re by im prudent lending practices or inadequate supervision. 66 R egulation K (2 ) T his shall be achieved by stren g th en ing th e ban k regulatory fram ew ork to en courage p ru d en t private decisionm aking and by enhancing international coordina tion am ong b ank regulatory authorities. (b ) T he F ederal banking agencies shall con sult w ith the banking supervisory authorities o f o th er countries to reach understandings aim ed at achieving th e adoption o f effective and consistent supervisory policies and p rac tices w ith respect to international lending. [12 u s e 3901.] SECTION 903— Definitions F o r purposes o f this title— (1 ) th e term “ap p ro p riate Federal banking agency” has th e sam e m eaning given such term in section 3 (q ) o f th e F ederal D eposit In su ran ce A ct, except th a t for purposes of this title such term m eans th e B oard of G overnors o f th e F ederal Reserve System for— (A ) b an k holding com panies and any nonbank subsidiary thereof; (B ) E dge A ct corporations organized u n d er section 2 5 (a ) o f the Federal R e serve A ct; and (C ) A greem ent C orporations operating u n d er section 25 o f th e F ederal Reserve A ct; and (2 ) the term “ banking in stitu tio n ” m eans— ( A ) (i) an insured ban k as defined in section 3 (h ) o f th e F ederal D eposit In surance A ct o r any subsidiary o f an in sured bank; (ii) an Edge A ct corporation orga nized u n d er section 2 5 (a ) o f the F ed eral Reserve A ct; and (iii) an A greem ent C orporation oper ating un d er section 25 o f th e Federal Reserve A ct; and (B ) to th e extent determ ined by the ap p ro p riate F ederal banking agency, any agency o r b ran ch o f a foreign bank, and any com m ercial lending com pany owned o r controlled by one o r m ore foreign banks o r com panies th a t control a foreign bank as those term s are defined in the M R egulation K International Banking A ct o f 1978. The term “banking in stitu tio n ” shall not in clude a foreign bank. [12 USC 3902.] SECTION 904—Strengthened Supervision of International Lending (a ) Each appropriate F ederal banking agen cy shall evaluate banking institution foreign country exposure and transfer risk for use in banking institution exam ination and supervision. (b ) Each such agency shall establish exam i nation and supervisory procedures to assure th at factors such as foreign country exposure and transfer risk are taken into account in evaluating the adequacy o f the capital of banking institutions. [12 USC 3903.] SECTION 905—Reserves ( a ) ( 1 ) Each appropriate Federal banking agency shall require a banking institution to establish and m aintain a special reserve whenever, in the judgm ent of such ap p ro priate Federal banking agency— (A ) the quality o f such banking in stitution’s assets has been im paired by a protracted inability o f public or private borrow ers in a foreign country to m ake paym ents on their external indebtedness as indicated by such factors, am ong others, as— (i) a failure by such public or private borrow ers to m ake full interest pay m ents on external indebtedness; (ii) a failure to com ply w ith th e term s of any restru ctu red indebtedness; or (iii) a failure by th e foreign country to com ply w ith any In tern atio n al M one tary F u n d o r other suitable adjustm ent program ; or (B ) no definite prospects exist for the orderly restoration o f debt service. (2 ) Such reserves shall be charged against cu rren t incom e and shall not be considered as p art o f capital and surplus or allowances 10170/ S tatutory Provisions for possible loan losses for regulatory, su pervisory, or disclosure purposes. (b ) T he appropriate Federal banking agen cies shall analyze th e results of foreign loan rescheduling negotiations, assess the loan loss risk reflected in rescheduling agreem ents, and, using the powers set forth in section 908 (re garding capital ad equacy), ensure th a t the capital and reserve positions o f U nited States banks are adequate to accom m odate potential losses on their foreign loans. (c ) T he appropriate Federal banking agen cies shall prom ulgate regulations or orders necessary to im plem ent this section w ithin one hun d red and tw enty days after the date of the enactm ent o f this title. [12 USC 3904.] SECTION 905A—Additional Reserve Requirements (a ) In general. E ach ap p ro p riate F ederal banking agency shall review the exposure to risk o f U nited States banking institutions aris ing from the m edium - and long-term loans m ade by such institutions th a t are outstanding to any highly indebted country. E ach agency shall provide direction to such institutions re garding additions to general reserves m ain tained by each banking institution for poten tial loan losses and special reserves required by such agency arising from such review. (b ) Determination o f institutional exposure to risk In determ ining the exposure o f an institu tion to risk for purposes o f subsection (a ), the appropriate Federal banking agency— (1 ) shall determ ine w hether any country exposure th a t is, and has been for at least 2 years, rated in the category “O th er Transfer R isk P roblem s” o r th e category “ Substan d a rd ” by the Interagency C ountry E xpo sure Review C om m ittee should be reevaluated; (2 ) m ay exem pt, in full or in part, from reserve requirem ents established p u rsu an t to subsection (a ) , any loan— (A ) to a country th a t enters into a debt reduction, debt service reduction, or fi nancing program w ith its bank creditors 67 M Statutory Provisions th at is supported by the International Bank for R econstruction and D evelop m ent or the In tern atio n al M onetary Fund; or (B ) secured, in whole or in p art, by ap propriate collateral for paym ent o f in te r est or principal; (3 ) take into account any o th er factors w hich bear on such exposure and the p a r ticular circum stances o f the institution; and (4 ) shall consider as indicators o f risk, w here appropriate, the average reserve lev els m aintained by or required o f banking institutions in foreign countries and second ary m arket prices for such loans. (c) Timing and report. (1 ) Except as provided in parag rap h (3 ), each appropriate F ederal banking agency shall determ ine the tim ing o f any addition to reserves required by subsection (a ). (2 ) E ach appropriate F ederal banking agency shall include in each rep o rt required to be m ade under section 9 1 3 (d ) after 1989 a report on the actions taken p u rsu an t to this section. (3 ) Each Federal agency required to u n dertake a review described in subsection (a ) shall com plete the review no t later th an D ecem ber 31, 1990. (d ) Highly indebted country defined. A s used in this section, the term “ highly indebted cou n try ” m eans any country designated as a “ H ighly Indebted C o u n try ” in th e annual W orld D ebt Tables m ost recently published by the International B ank for R econstruction and D evelopm ent before the date o f the en act m ent o f this section. [12 USC 3904a. As added by act of Dec. 19, 1989 (103 Stat. 2502).] SECTION 906— Accounting for Fees on International Loans ( a ) ( 1 ) In order to avoid excessive debt serv ice burdens on debtor countries, no banking institution shall charge, in connection w ith the restructuring o f an international loan, any fee exceeding the adm inistrative cost of the restructuring unless it am ortizes such fee over the effective life of each such loan. 68 m o i R egulation K (2 ) (A ) E ach appropriate F ederal banking agency shall prom ulgate such regulations as are necessary to fu rth er carry o u t the provisions o f this subsection. (B ) T he requirem ent o f parag rap h (1 ) shall take effect on the date o f the enact m ent o f this section. ( b ) ( 1 ) Subject to subsection (a ) , the ap p ro priate F ederal banking agencies shall prom ulgate regulations for accounting for agency, com m itm ent, m anagem ent and o th er fees charged by a banking institution in connection w ith an international loan. (2 ) Such regulations shall establish the ac counting treatm en t o f such fees for regula tory, supervisory, and disclosure purposes to assure th a t th e appropriate portion of such fees is accrued in incom e over th e ef fective life o f each such loan. (3 ) T he appropriate Federal banking agen cies shall prom ulgate regulations or orders necessary to im plem ent this subsection w ithin one hu n d red and tw enty days after the date o f the enactm ent of this title. [12 USC 3905.] SECTION 907—Collection and Disclosure of Certain International Lending Data (a ) Each appropriate F ederal banking agen cy shall require, by regulation, each banking institution w ith foreign country exposure to subm it, no fewer th an four tim es each calen d ar year, inform ation regarding such exposure in a form at prescribed by such regulations. (b ) Each appropriate Federal banking agen cy shall require, by regulation, banking insti tutions to disclose to th e public inform ation regarding m aterial foreign country exposure in relation to assets and to capital. (c ) T he appropriate F ederal banking agen cies shall prom ulgate regulations o r orders necessary to im plem ent this section w ithin one h u n d red and tw enty days after the date of the enactm ent o f this title. [12 USC 3906.] Regulation K S E C T IO N 9 0 8 — C a p ita l A d e q u a c y ( a ) (1 ) Each appropriate Federal banking agency shall cause banking institutions to achieve and m aintain adequate capital by establishing m inim um levels of capital for such banking institutions and by using such o ther m ethods as the appropriate F ederal banking agency deems appropriate. (2 ) Each appropriate Federal banking agency shall have the au th o rity to establish such m inim um level of capital for a banking institution as the appropriate Federal b an k ing agency, in its discretion, deems to be necessary or appropriate in light o f th e p a r ticular circum stances o f the banking institution. Statutory Provisions required un d er this subsection whenever such banking institution, or an affiliate thereof, o r the holding com pany which controls such banking institution, seeks the requisite approval o f such ap p ro p ri ate Federal banking agency for any p ro posal w hich w ould divert earnings, di m inish capital, o r otherw ise im pede such banking in stitu tio n ’s progress in achiev ing its m inim um capital level. (B ) Such appropriate Federal banking agency m ay deny such approval where it determ ines th a t such proposal w ould ad versely affect the ability of th e banking institution to com ply w ith such plan. (C ) T he C hairm an o f th e B oard of G ov ernors o f the F ederal Reserve System and th e Secretary o f the T reasury shall en courage governm ents, central banks, and regulatory authorities o f o th er m ajor banking countries to w ork tow ard m ain taining and, w here appropriate, stren g th ening th e capital bases o f banking in stitu tions involved in in ternational lending. ( b ) (1 ) F ailure o f a banking institution to m aintain capital at o r above its m inim um level as established p u rsu an t to subsection (a ) m ay be deemed by th e appropriate F ed eral banking agency, in its discretion, to constitute an unsafe and unsound practice w ithin the m eaning o f section 8 o f the F ed eral D eposit Insurance Act. [12 USC 3907.] (2 ) (A ) In addition to, or in lieu of, any o ther action authorized by law, including paragraph (1 ), th e appropriate Federal SECTION 909—Foreign Loan banking agency m ay issue a directive to a Evaluations banking institution th a t fails to m aintain ( a ) ( 1 ) In any case in w hich one or m ore capital at or above its required level as banking institutions extend credit, w hether established pu rsu an t to subsection (a ). by loan, lease, guarantee, o r otherwise, ( B ) ( i) Such directive m ay require the w hich individually o r in th e aggregate ex banking institution to subm it and ad ceeds $20,000,000, to finance any project here to a plan acceptable to the ap p ro w hich has as a m ajor objective the con priate F ederal banking agency describ ing the m eans and tim ing by which the struction or operation o f any m ining opera tion, any m etal o r m ineral prim ary process banking institution shall achieve its re ing operation, any fabricating facility o r op quired capital level. eration, or any m etal-m aking operations (ii) A ny such directive issued p u rsu (sem i and finished) located outside the ant to this paragraph, including plans subm itted p u rsu an t thereto, shall be U nited States o r its territories and posses enforceable under the provisions of sions, a w ritten econom ic feasibility evalua section 8 (i) of the Federal D eposit In tion o f such foreign project shall be p re surance A ct to th e same extent as an pared and approved in w riting by a senior effective and outstanding o rder issued official o f th e banking institution, or, if m ore th an one banking institution is in pursuant to section 8 (b ) o f the F ederal volved, the lead banking institution, prior D eposit Insurance A ct which has be to the extension o f such credit. com e final. (2 ) Such evaluation shall— (3 ) (A ) E ach appropriate Federal banking agency m ay consider such banking insti (A ) take into account the profit poten tu tio n ’s progress in adhering to any plan tial o f th e project, the im pact of the proj- 69 M ' S tatutory Provisions ect on w orld m arkets, the inherent com petitive advantages and disadvantages of the project over the entire life o f the proj ect, and the likely effect of the project upon the overall long-term econom ic de velopm ent of the country in which the project is located; and (B ) consider w hether the extension of credit can reasonably be expected to be repaid from revenues generated by such foreign project w ithout regard to any subsidy, as defined in international agree m ents, provided by the governm ent in volved or any instrum entality o f any country. /W R egulation K such section shall be deem ed to refer to an “ insured b an k ” , as such term is used in sec tion 3 (h ) o f the Federal D eposit Insurance Act. (b ) The appropriate Federal banking agen cies shall establish uniform systems to im ple m ent the authorities provided u n d er this title. ( c ) (1 ) T he pow ers and authorities granted in this title shall be supplem ental to and shall not be deem ed in any m anner to derogate from or restrict the au th o rity o f each ap p ro priate Federal banking agency u n d er sec tion 8 of th e F ederal D eposit Insurance A ct or any o th er law including the au th o rity to require additional capital or reserves. (b ) Such econom ic feasibility evaluations (2 ) A ny such au th o rity m ay be used by shall be reviewed by representatives o f th e ap any ap p ro p riate Federal banking agency to propriate Federal banking agencies w henever ensure com pliance by a banking institution an exam ination by such appropriate F ederal w ith th e provisions o f this title and all rules, banking agency is conducted. regulations, or orders issued p u rsu an t thereto. ( c ) (1 ) T he authorities of the F ederal b an k ing agencies contained in section 8 o f the ( d ) (1 ) A ny banking institution w hich vio F ederal D eposit Insurance A ct and in sec lates, o r any officer, director, employee, tion 910 o f this A ct, except those contained agent, o r o th er person participating in the in section 9 1 0 (d ), shall be applicable to this conduct o f th e affairs o f such banking insti section. tution, w ho violates any provision o f this (2 ) N o private right of action o r claim for title, o r any rule, regulation, o r order, is relief m ay be predicated upon this section. sued un d er this title, shall forfeit and pay a [12 USC 3908.] civil penalty o f n o t m ore th a n $1,000 per day for each day during w hich such viola tion continues. (2 ) Such violations shall be deem ed to be a SECTION 910— General Authorities violation of a final o rd er u n d er section ( a ) ( 1 ) T he appropriate Federal banking 8 (i) (2 ) o f the Federal D eposit Insurance agencies are authorized to interpret and de A ct and th e penalty shall be assessed and fine the term s used in this title, and each collected by the appropriate F ederal b an k appropriate F ederal banking agency shall ing agency under the procedures estab prescribe rules or regulations or issue o r lished by, and subject to the rights afforded ders as necessary to effectuate the purposes to parties in, such section. o f this title and to prevent evasions thereof. [12 USC 3909.] (2 ) T he appropriate F ederal banking agen cy is authorized to apply the provisions of this title to any affiliate of an insured bank, but only to affiliates for w hich it is the ap SECTION 911— GAO Audit Authority propriate Federal banking agency, in order ( a ) ( 1 ) U n d er regulations o f th e C om ptroller to prom ote uniform application o f this title G eneral, the C om ptroller G eneral shall au o r to prevent evasions thereof. dit the appropriate F ederal banking agen (3 ) F o r purposes o f this section, the term cies (as defined in section 903 o f this title), “ affiliate” shall have the sam e m eaning as in section 23A of the F ederal Reserve A ct, but m ay carry o u t an onsite exam ination of except th a t the term “ m em ber b an k ” in an open insured ban k or bank holding com70 1\ \ ’ i \ \ Regulation K pany only if the appropriate Federal b an k ing agency has consented in writing. (2 ) A n audit under this subsection m ay in clude a review o r evaluation o f the in tern a tional regulation, supervision, and exam ina tion activities o f the appropriate F ederal banking agency, including the coordination o f such activities w ith sim ilar activities of regulatory authorities o f a foreign govern m ent or international organization. (3 ) A udits o f the Federal Reserve Board and Federal Reserve banks m ay not in clude— (A ) transactions for, or with, a foreign central bank, governm ent of a foreign country, o r nonprivate international fi nancing organization; (B ) deliberations, decisions, or actions on m onetary policy m atters, including discount w indow operations, reserves of m em ber banks, securities credit, interest on deposits, or open m arket operations; (C ) transactions m ade under the direc tion o f the F ederal O pen M arket C om mittee; or (D ) a p art o f a discussion or com m uni cation am ong or between m em bers o f the B oard o f G overnors of the F ederal R e serve System and officers and employees o f the F ederal Reserve System related to subparagraphs (A ) th rough (C ) o f this paragraph. ( b ) ( 1 ) ( A ) Except as provided in this sub section, an officer or em ployee o f the G eneral A ccounting Office m ay not dis close inform ation identifying an open bank, an open bank holding com pany, or a custom er of an open or closed bank or bank holding com pany. (B ) T he C om ptroller G eneral m ay dis close inform ation related to the affairs of a closed bank or closed bank holding com pany identifying a custom er o f the closed bank or closed bank holding com pany only if th e C om ptroller G eneral be lieves the custom er had a controlling in fluence in the m anagem ent o f the closed bank or closed bank holding com pany or was related to or affiliated w ith a person or group having a controlling influence. (2 ) A n officer or employee o f the G eneral dStatutory i f(MO I Provisions A ccounting Office m ay discuss a custom er, bank, or bank holding com pany w ith an of ficial of an appropriate Federal banking agency and m ay rep o rt an apparent crim i nal violation to an appropriate law enforce m ent au th o rity o f th e U nited States G ov ernm ent or a State. (3 ) This subsection does not authorize an officer or em ployee of an appropriate F eder al banking agency to w ithhold inform ation from a com m ittee o f the Congress au th o rized to have th e inform ation. ( c ) ( 1 ) ( A ) To carry out this section, all rec ords and property o f or used by an ap propriate F ederal banking agency, in cluding sam ples o f reports o f exam ina tions of a bank or bank holding com pany th e C om ptroller G eneral considers statis tically m eaningful and w orkpapers and correspondence related to the reports shall be m ade available to the C om ptrol ler G eneral, including such records and property pertaining to th e coordination o f international regulation, supervisor and exam ination activities o f an ap p ro priate Federal banking agency. (B ) T he C om ptroller G eneral shall give each appropriate F ederal banking agency a cu rren t list o f officers and em ployees to whom , w ith proper identification, records and property m ay be m ade available, and who m ay m ake notes o r copies necessary to carry o u t an audit. (C ) Each ap p ro p riate Federal banking agency shall give the C om ptroller G en er al suitable and lockable offices an d furni ture, telephones, and access to copying facilities. (2 ) Except for th e tem porary rem oval of w orkpapers o f the C om ptroller G eneral th a t do n o t identify a custom er o f an open or closed bank or ban k holding com pany, an open bank, o r an open bank holding com pany, all w orkpapers o f th e C om ptrol ler G eneral and records and property of or used by an appropriate Federal banking agency th a t the C om ptroller G eneral pos sesses during an audit, shall rem ain in such agency. The C om ptroller G eneral shall pre vent unauthorized access to records or property. 71 AV Statutory Provisions [ 1 2 U S C 3 9 1 0 .] S E C T I O N 9 1 2 — E q u a l R e p re s e n ta tio n fo r th e F e d e r a l D e p o s it In s u ra n c e C o r p o r a tio n As one o f the three Federal bank regulatory and supervisory agencies, and as th e insurer of the U nited States banks involved in in tern a tional lending, the F ederal D eposit Insurance C orporation shall be given equal representa tion w ith the B oard o f G overnors of the F ed eral Reserve System and the Office o f the C om ptroller o f the C urrency on the C om m it tee on Banking R egulations and Supervisory Practices o f the G ro u p of Ten C ountries and Switzerland. [ 1 2 U S C 3 9 1 1 .] S E C T I O N 9 1 3 — R e p o rts (a ) N ot later than six m onths after th e date o f the enactm ent o f this title, th e Secretary of the T reasury or the appropriate F ederal b an k ing agencies as specified below, shall tran sm it a report to the Congress regarding changes to im prove the international lending operations o f banking institutions. Such report shall— (1 ) review the laws, regulations, and ex am ination and supervisory procedures and practices, governing international banking in each of the G ro u p of Ten N ations and Sw itzerland w ith particular atten tio n to such m atters bearing on capital require m ents, lending limits, reserves, disclosure, exam iner access, and lender o f last resort resources, such report to be prepared by the C hairm an of the B oard o f G overnors o f the Federal Reserve System; (2 ) outline progress m ade in reaching the goal specified in section 9 0 8 (c ), such report to be prepared by the Secretary of the T re a sury and the C hairm an o f the B oard of G overnors of the Federal Reserve System; and (3 ) indicate actions taken to im plem ent this title by the appropriate F ederal b an k ing agencies, including a description o f the actions taken in carrying out the objectives o f the title and any actions taken by any 72 ic t f o R egulation K appropriate Federal banking agency th a t are inconsistent w ith the uniform im ple m entation by the appropriate F ederal b ank ing agencies o f their respective authorities under this title, and any recom m endations for am endm ents to this or o th er legislation, such rep o rt to be prepared by the ap p ro p ri ate Federal banking agencies. ( d ) * T o ensure th a t Congress is fully in form ed of the risks to o ur banking system posed by troubled foreign loans, the F ederal banking agencies, before M arch 31, 1989, and on A pril 30 o f each succeeding year, shall jointly subm it to th e C om m ittee on Banking, H ousing, and U rb an Affairs o f the Senate and C om m ittee on Banking, Finance and U rban Affairs o f the H ouse o f Representatives a re p o rt th a t shall include the following: (1 ) the level o f loan exposure o f those banking institutions under the jurisdiction o f each agency w hich is rated “ valueim paired” , “su b stan d ard ” , “ other transfer risk problem s” , or in any other troubled debt category as m ay be established by the banking agencies. This tabulation shall clearly identify aggregate loan exposures of the 9 largest U nited States banks un d er the agencies’ jurisdiction, the aggregate loan ex posures o f the next 13 largest banks, and the aggregate exposure o f all other such banks which have significant country risk exposures. This tabulation shall include a separate section identifying, to th e extent feasible, new bank loans to countries w ith debt service problem s w hich were m ade w ithin the past year preceding the date on w hich the report required u n d er this sub section is due, and shall include the am ount of sovereign loans w ritten off or sold by such banks during the preceding year. (2 ) Progress th a t has been achieved by the appropriate F ederal banking agencies and by banking institutions in reducing the risk to the econom y of the U nited States posed by the exposure of banking institutions to troubled international loans th ro u g h ap p ro priate voluntary or regulatory policies, in cluding increases in capital and reserves of banking institutions. * S o d e s ig n a te d in o r ig in a l. T h e r e a re n o c o rr e s p o n d in g s u b s e c tio n s ( b ) a n d ( c ) . or/ 0 / Regulation K (3 ) T he relationship between lending ac tivity by the U nited States banks and for eign banks in countries experiencing debt service difficulties and exports from the U nited States and other lending countries to these m arkets, and the extent to w hich U nited States banking institutions can be encouraged to continue to m ake credit available to finance necessary grow th in in ternational trade, and particularly to fi nance U nited States exports. (4 ) The response of regulatory agencies in other countries to the international debt problem s, including m easures w hich en courage the building o f capital and reserves by foreign banking institutions, tax tre a t m ent of reserves, encouragem ent of new lending to prom ote international trade, and m easures w hich m ay place U nited States Statutory Provisions banking institutions at a com petitive disad vantage w hen com pared w ith foreign b an k ing institutions. (5 ) Steps th a t have been taken during the previous year by countries experiencing debt service difficulties to enhance condi tions for private direct investm ent (in clu d ing investm ent by U nited States persons) and to elim inate production subsidies, a t tain price stability, and undertake such o th er steps as will rem ove the causes of their debt service difficulties. Each appropriate F ederal banking agency m ay provide d ata in th e aggregate to the ex tent necessary to preserve th e integrity and confidentiality o f th e regulatory and exam ina tion process. [1 2 U S C 3912. A s a m e n d e d b y a c t o f A u g . 23, 1988 (1 0 2 S t a t . 1 3 7 9 ) .] « 73
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