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F R eserve Ba N ederal , N.Y. ew Yo r k AREA CO DE 212 nk N of ew Yo rk 10045 RE 2 -5 7 0 0 April 12, 1967 To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Enclosed are copies of Regulation M, Revised effective March Amendments to Regulation K, also effective March 1 5 , and of 1 5 . The changes in both these documents were announced in a statement issued by the Board of Governors of the Federal Reserve System and set forth in our Circular No. 5958, dated March 1 5 , which was sent to you on that date. Additional copies of the enclosures will be furnished upon request. Circulars Division CORPORATIONS DOING FOREIGN BANKING OR OTHER FOREIGN FINANCING UNDER THE FEDERAL RESERVE ACT AMENDMENTS TO REGULATION K (1 2 CFR P art 2 1 1 ) I ssu e d by th e B oard of G overnors of t h e F ederal R eserve System E ffective M arch 15,1967, sections 211.8 and 211.9 are amended in the follow in g respects: ( a) Section 2 1 1 .8 (c) (2 ) is amended to read as follow s: (2 ) In com puting the amount w hich m ay be invested in the shares o f any corporation under section 2 5 (a ) o f the A ct or § 211.8 (a ), there shall be included any such investments in other corporations controlled by such corporation. Unless otherwise specified, “ shares” in this section include any rights to acquire shares, except that p rior Board consent is not required fo r the acquisition and exercise o f stock rights in lieu o f dividends which are declared on shares already held by a C orporation and which do not result in an increase in percentage ownership o f the cor poration. ( b) Section 2 1 1 .9 (d ) is deleted. (c ) The third sentence o f section 2 1 1 .9 (g ) is deleted. ( d) Sections 2 1 1 .9 (e ), ( f ) and (g ) are redesignated sections 2 1 1 .9 (d ), ( e ) , and ( f ) , respectively. BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM FOREIGN ACTIVITIES OF NATIONAL BANKS ▼ REGULATION M (1 2 CFR PART 213) As revised effective March 15, 1967 ****** INQUIRIES REGARDING THIS REGULATION Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the district in which the inquiry arises. REGULATION M (1 2 C F R P A R T 2 1 3 ) R evised e ffe c tiv e M arch 15, 1 9 6 7 FOREIGN ACTIVITIES OF NATIONAL BANKS * S E C T IO N 2 1 3 .1 — A U T H O R I T Y A N D S C O P E 1 Pursuant to authority con ferred upon it by section 25 o f the Federal R eserve A c t 2 (the “ A c t” ) , as amended (12 U.S.C. 601-604a), the Board o f G overnors o f the Federal Reserve Sys tem (the “ B oard” ) prescribes the follow in g regulations relating to (a ) foreign branches o f national banks, (b ) the acquisition and holding o f stock in foreign banks by national banks, and (c ) loans or extensions o f credit to or fo r the account o f such foreign banks by national banks. S E C T IO N 2 1 3 .2 — D E F I N I T I O N S F or the purposes o f this part— (a) “ F oreign branch” means any branch established by a na tional bank pursuant to section 25 o f the A ct. ( b) “ F oreign cou n try” or “ country” means any foreign na tion or colony, dependency, or possession thereof, any overseas territory, dependency, or insular possession o f the United States, or the Com m onwealth o f Puerto Rico. (c ) “ F oreign bank” means a bank organized under the law o f a foreign country and not engaged, directly or indirectly, in any activity in the United States except as, in the judgm ent o f the Board, shall be incidental to the international or foreign business o f such foreign bank. S E C T IO N 2 1 3 .3 — F O R E IG N B R A N C H E S (a.) Establishing foreign branches.— A foreign branch may be established with prior Board perm ission. I f a national bank * The text corresponds to the Code o f Federal Regulations, T itle 12, Chapter II, P a rt 213; cited as 12 C F R P a rt 213. The subject m atter o f this part is in addition to that contained in 12 C F R P a rt 211 (R eg. K ) . 1 In sofar as provisions o f Federal law are concerned, the provisions o f this part apply to State m em ber banks o f the Federal Reserve System as well as to national banks. 2 Pertinent portions o f this section are printed in the A ppendix. 1 2 REGULATION M Sec. 213.3 has established a branch in a foreign country, it may, unless otherw ise advised by the Board, establish other branches in that country a fter th irty days’ notice to the Board with respect to each such branch. ( b) Further powers of foreign branches.— In addition to its other pow ers, a foreign branch may, subject to §§ 2 1 3 .3 (c) and 213.6 and so fa r as usual in connection with the transaction of the business of banking in the places w here it shall transact business: (1 ) Guarantee custom ers’ debts or otherw ise agree fo r their benefit to make payments on the occurrence o f readily ascertain able events,3 if the guarantee or agreem ent specifies its m axi mum m onetary liability thereunder; but, except to the extent secured with respect thereto, no national bank m ay have such liabilities outstanding (i) in an aggregate amount exceeding 50 per cent o f its capita] and surplus or (ii) fo r any custom er in excess o f the amount by which 10 per cent o f its capital and surplus exceeds the aggregate o f such custom er’s “ obligations” to it which are subject to any lim itation under section 5200 o f the Revised Statutes (12 U.S.C. 8 4 ); (2 ) A ccept drafts or bills o f exchange draw n upon it, which shall be treated as “ com m ercial drafts or bills” fo r the purposes o f paragraphs ( c ) , ( d ) , and (e ) o f § 203.1 o f Part 203 (R eg. C ) ; (3 ) A cquire and hold securities (including certificates or other evidences o f ow nership or participation) o f the central bank, clearing houses, governm ental entities, and developm ent banks o f the country in which it is located, unless a fter such an acquisition the aggregate am ount invested by the branch in such securities (exclusive o f securities held as required b y the law o f that country or as authorized under section 5136 o f the Revised Statutes (12 U.S.C. 2 4 ) ) would exceed one per cent o f its total deposits on the preceding year-end call report date (o r on the date o f such acquisition in the case o f a new ly established branch w hich has not so re p o r te d ); (4 ) U nderw rite, distribute, buy, and sell obligations o f the national governm ent o f the country in w hich it is located;4 but no bank may hold, or be under com m itm ent w ith respect to, obli gations o f such a governm ent as a result o f underw riting, deal ing in, or purchasing fo r its ow n account in an aggregate amount exceeding 10 per cent o f its capital and surplus; * Including, but not limited to, such types of events as nonpayment of taxes, rentals, cus toms duties, or costs of transport and loss or nonconformance of shipping documents. 4 Including obligations issued by any agency or instrumentality, and supported by the full faith and credit, of such government. Secs. 213.3-213.4 REGULATION M 3 (5 ) Take liens or other encum brances on foreign real estate in connection with its extensions o f credit, w hether or not o f first priority and whether or not such real estate is im proved or has been appraised, and without regard to the m aturity or amount lim itations or am ortization requirements o f section 24 o f the A ct (12 U.S.C. 3 7 1 ); (6 ) E xtend credit to an executive officer o f the branch in an amount not to exceed $50,000 or its equivalent in order to finance the acquisition or construction o f living quarters to be used as his residence abroad, provided each such credit extension is prom ptly reported to its home office; (7 ) Pay to any officer or em ployee o f the branch a greater rate o f interest on deposits than that paid to other depositors on sim ilar deposits with the branch. (c) Limitations.— N othing in § 2 1 3 .3 (b ) shall authorize a foreign branch to engage in the general business o f producing, distributing, buying, or selling goods, wares, or merchandise or, except as perm itted by § 2 1 3 .3 (b ) ( 4 ) , to engage or participate, directly or indirectly, in the business o f underw riting, selling, or distributing securities. ( d ) Suspending operations during disturbed conditions.— The officer in charge o f a foreign branch m ay suspend its operations during disturbed conditions which, in his judgm ent, make con duct o f such operations im practicable; but every effort shall be made b efore and during such suspension to serve its depositors and custom ers. Full inform ation concerning any such suspen sion shall be prom ptly reported to the branch’s home office, which shall im m ediately send a copy th ereof to the Board through the Federal Reserve Bank o f its district. S E C T IO N 2 1 3 .4 — A C Q U IS I T IO N A N D H O L D IN G O F ST O C K IN F O R E IG N B A N K S (a) General.— W ith the prior consent o f the Board, and sub ject to the provisions o f section 25 o f the A ct and this part, a national bank may acquire and hold directly or indirectly 5 the stock or other evidences o f ow nership in one or m ore foreign banks: Provided, That the aggregate amount invested directly or indirectly (other than through a corporation operating under section 25 o f the A ct or organized under section 2 5 (a ) o f the A ct) in the stock or other evidences o f ow nership o f all foreign banks, taken together with investments by the national bank in the shares o f corporations operating under section 25 o f the A ct However, p rior consent o f the Board is not required hereunder fo r indirect acquisitions in the stock o f foreign banks made pursuant to the general consent provisions o f P art 211 8 (R eg. K ). 4 REGULATION M Sec. 213.4 or organized under section 2 5 (a ) o f the A ct, shall not exceed 25 per cent o f the national bank’s capital and surplus. N othing contained in this part shall prevent the acquisition and holding o f stock or other evidences o f ownership in a foreign bank where such acquisition is necessary to prevent a loss upon a debt pre viously contracted in good faith; but such stock or other evi dences o f ow nership shall be disposed o f within tw elve months from the date o f acquisition unless such time is extended by the Board. ( b ) Limitations.— Stock or other evidences o f ow nership in a foreign bank shall be disposed o f as prom ptly as practicable if (1 ) such bank should engage in the business o f underw riting, selling, or distributing securities in the United States or (2 ) the national bank is advised by the Board that its holding is inappropriate under section 25 o f the A ct or this part. The term s “ stock” , “ shares” , and “ evidences o f ow nership” in this section include any righ t to acquire stock, shares, or evidences o f ownership, except that p rior Board consent is not required fo r the acquisition and exercise o f stock rights in lieu o f divi dends w hich are declared on shares already held by a national bank and w hich do not result in an increase in percentage ow n ership o f the foreign bank. (c ) Required information.— A national bank applying fo r the consent o f the Board to acquire and hold stock or other evidences o f ow nership in a foreign bank pursuant to this section shall furnish full inform ation concerning such foreign bank including (unless previously furnished) : (1 ) the cost, number, and class o f shares to be acquired, and the proposed carryin g value o f such shares on the books o f the national bank; (2 ) recent balance sheet and incom e statement o f the foreign bank; (3 ) b rie f de scription o f the foreign bank’s business (including full in fo r m ation concerning any direct or indirect business transacted in the United S ta tes); (4 ) lists o f directors and principal officers (w ith address and principal business affiliation o f each) and o f all shareholders known to the issuing bank holding 10 per cent or m ore o f any class o f the foreign bank’s stock or other evi dences o f ow nership, and the amount held by each; and (5 ) in form ation concerning the rights and privileges o f the various classes o f shares outstanding. ( d ) Reports.— A national bank shall imm ediately in form the Board through the Federal Reserve Bank o f its district with respect to any acquisition or disposition o f stock in a foreign bank including the cost and number o f shares acquired pursuant to this section. Secs. 213.5-213.6 REGULATION M 5 S E C T IO N 2 1 3 .5 — L O A N S OR E X T E N S I O N S O F C R E D IT TO F O R E IG N B A N K S A national bank w hich holds directly or in d ire ctly 6 stock or other evidences o f ow nership in a foreign bank m ay make loans or extensions o f credit to or fo r the account o f such foreign bank w ithout regard to the provisions o f section 23A o f the A ct (12 U.S.C. 3 7 1 c). S E C T IO N 2 1 3 .6 — C O N D IT IO N S (a) The continued or prospective exercise o f any pow er under this part shall be subject to any notice interpreting or applying it that a national bank m ay receive from the Board, and such bank shall im m ediately com ply therewith. ( b) The Board may fro m time to tim e require a national bank to make reports at such tim e and in such form as the Board may prescribe regarding the exercise o f any pow er hereunder and to submit inform ation regarding com pliance with this part. 6 W hether through a corporation operatin g under section 25 o f the A ct o r organized under section 2 5 (a ) o f the A ct, or otherwise. 6 APPENDIX ST A T U T O R Y PROVISIONS Section 25 o f the Federal Reserve Act (12 U.S.C. 601-604a) reads in part as follows: S ec . 25. A n y national banking association possessing a capital and surplus o f $1,000,000 or m ore m ay file application w ith the Board o f G overnors o f the Federal Reserve System fo r perm is sion to exercise, upon such conditions and under such regulations as m ay be prescribed by the said board, the follow in g pow ers: First. T o establish branches in foreign countries or de pendencies or insular possessions o f the United States fo r the furtherance o f the foreign com m erce o f the United States, and to act if required to do so as fiscal agents o f the United States. :Jc >}: sfc ^ ^ Third. T o acquire and hold, directly or indirectly, stock or other evidences o f ow nership in one or m ore banks organized under the law o f a foreign country or a dependency or insular possession o f the United States and not engaged, directly or in directly, in any activity in the United States except as, in the ju dgm ent o f the Board o f G overnors o f the Federal Reserve System, shall be incidental to the international or foreign busi ness o f such foreign bank; and, notw ithstanding the provisions o f section 23A o f this A ct, to make loans or extensions o f credit to or fo r the account o f such bank in the m anner and w ithin the lim its prescribed by the Board by general or specific regulation or ruling. Such application shall sp ecify the name and capital o f the banking association filing it, the pow ers applied fo r, and the place or places where the banking or financial operations pro posed are to be carried on. The Board o f G overnors o f the Fed eral Reserve System shall have pow er to approve or to reject such application in whole or in part if fo r any reason the gran t ing o f such application is deemed inexpedient, and shall also have pow er from tim e to tim e to increase or decrease the num ber o f places where such banking operations m ay be carried on. E very national banking association operating foreign branches shall be required to furnish in form ation concerning the condi tion o f such branches to the Com ptroller o f the Currency upon demand, and every m em ber bank investing in the capital stock o f banks or corporations described above shall be required to furnish inform ation concerning the condition o f such banks or corporations to the Board o f G overnors o f the Federal R eserve STATUTORY PROVISIONS 7 System upon demand, and the Board o f G overnors o f the Federal Reserve System m ay order special exam inations o f the said branches, banks, or corporations at such tim e or times as it may deem best. $ $ 5 jc E very such national banking association shall conduct the ac counts o f each foreign branch independently o f the accounts o f other foreign branches established by it and o f its home office, and shall at the end o f each fiscal period tran sfer to its general ledger the profit or loss accrued at each branch as a separate item. Regulations issued by the Board o f Governors o f the Federal Reserve System under this section, in addition to regulating pow ers w hich a fo re ig n branch m ay exercise under other provi sions o f law m ay authorize such a foreign branch, su bject to such conditions and requirem ents as such regulations m ay prescribe, to exercise such fu rth er pow ers as m ay be usual in connection w ith the transaction o f the business o f banking in the places where such foreign branch shall transact business. Such regu lations shall not authorize a foreign branch to engage in the general business o f producing, distributing, buying or selling goods, w ares, or m erchandise; nor, except to such limited extent as the Board m ay deem to be necessary w ith respect to securities issued by any "fo re ig n state” as defined in section 25 (b ) o f this A ct, shall such regulations authorize a foreign branch to engage or participate, directly or indirectly, in the business o f under w ritin g, selling, or distributing securities.
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