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January 7, 1971 To the Addressee: E nclosed is a reprint, in the new size, of Regulation M, as amended effective Ja n u a r y 7 , 1971- It replaces your small-size printing of the regulation, as revised effective M a r c h 15, 19&7* anc^ 'the amendments thereto, effective September 4, 19&9 an(^ Ja n u a r y 7, 1971- Circulars Division Federal Reserve Bank of New York BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM FOREIGN ACTIVITIES OF NATIONAL BANKS R E G U L A T IO N M (12 CFR 213) As amended effective January 7, 1971 Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve district in which the inquiry arises. CONTENTS Page Page S e c . 2 1 3 .1 — A u t h o r it y S e c . 2 1 3 .2 — D e f in it io n s and Sc o p e .............. ........3 (c ) R equired in fo r m a t io n ............................. ...... 5 ( d ) R eports ........................................................ ...... 5 .................................... ........3 S e c . 2 1 3 .5 — L o a n s S e c . 2 1 3 .3 — F o r e ig n Br anch es ...................... ........4 E x t e n s io n s or of C r e d it t o F o r e ig n B a n k s . . 5 (a ) Establishing foreign b r a n c h e s ............ .......4 ( b ) Further pow ers o f foreign branches . 4 ( c ) Lim itations ................................................. .......4 (d ) Suspending operations during dis S e c . 2 1 3 .6 — C o n d i t i o n s S e c . 2 1 3 .7 — R e s e r v e s Branch turbed c o n d i t io n s .......................................4 .............................................. 5 A g a in s t F o r e ig n D .............................. 6 e p o s it s (a ) Transactions with parent b a n k .......... .......6 S e c . 2 1 3 .4 — A c q u is it io n and H o l d in g of S t o c k in F o r e ig n B a n k s . . ( b ) Credit 5 (a ) G eneral ........................................................ .......5 ( b ) Lim itations ........................................................5 extended residents St a t u t o r y to United States ........................................................6 A p p e n d ix ............................................... .....7 REGULATION M (12 CFR 213) As amended effective January 7, 1971 FO R EIG N AC TIV ITIE S OF N A T IO N A L B AN K S * S E C T IO N 213.1— A U T H O R IT Y A N D S C O P E 1 (b) any Pursuant to authority conferred upon it by section 25 o f the Federal Reserve A c t (the “ Foreign country” foreign nation or or colon y , “ country” means dependency, or possession thereof, any overseas territory, depen dency, or insular possession o f the United States, or the C om m onw ealth o f Puerto R ico. “ A c t ” ), as am ended (12 U .S.C. 601-604a), the Board o f G overnors o f the Federal Reserve Sys (c) “ Foreign bank” means a bank organized under the law o f a foreign country and not en gaged, directly or indirectly, in any activity in the United States except as, in the judgm ent o f the tem (the “ B oard” ) prescribes the follow in g regu lations 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.2 Board, shall be incidental to the international or foreign business o f such foreign bank. * This text corresponds to the Code of Federal Regula tions, Title 12, Chapter II, Part 213, cited as 12 CFR 213. The words “ this Part,” as used herein, mean Regula S E C T IO N 21 3.2— D E F IN IT IO N S tion M. 1 Insofar as provisions of Federal law are concerned, F or the purposes o f this Part— the provisions of this Part apply to State member banks (a ) “ Foreign branch” means any branch es of the Federal Reserve System as well as to national banks. tablished by a national bank pursuant to section 2The subject matter of this Part is in addition to that 25 o f the A ct. contained in 12 CFR Part 211 (Reg. K ). 3 REGULATION M § 213.3 S E C T IO N 21 3.3— F O R E IG N (a) Establishing foreign BRANCHES branches. A foreign branch m ay be established with prior Board per mission. I f a national bank has established a branch in a foreign country, it may, unless other wise advised by the Board, establish other branches in that coun try after thirty days’ notice to the B oard 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 far as usual in connection with the transaction of the business of banking in the places where it shall transact business: ( 1 ) Guarantee custom ers’ debts or otherwise agree fo r their benefit to make paym ents on the occu rren ce o f readily ascertainable events,3 if the guarantee or agreement specifies its m axim um m onetary liability thereunder; but, except to the extent secured with respect thereto, n o national bank m ay have such liabilities outstanding ( i) in an aggregate am ount exceeding 50 per cent o f its capital and surplus or (ii) for any custom er in excess o f the am ount by w hich 10 per cent o f its capital and surplus exceeds the aggregate o f such custom er’s “ obligations” to it w hich are subject to any limitation under section 5200 o f the R e vised Statutes (1 2 U .S.C 8 4 ); ( 2 ) A cce p t drafts o i bills o f exchange drawn upon it, w hich 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 cqu ire 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 w hich it is located, unless after such an acquisition the aggregate am ount invested by the branch in such securities (e x clu sive o f securities held as required by the law o f that country or as authorized under section 5136 o f the Revised Statutes (1 2 U .S.C. 2 4 ) ) w ould exceed one per cent o f its total deposits on the preceding year-end call report date (o r on the 3 Including, but not limited to, such types of events as nonpayment of taxes, rentals, customs duties, or costs of transport and loss or nonconformance of shipping docu ments. date o f such acquisition in the case o f a newly established branch w hich has not so rep orted ); ( 4 ) Underwrite, distribute, buy, and sell obli gations o f the national governm ent o f the cou n try in w hich it is lo c a t e d ,4 but n o bank m ay hold, or be under com m itm ent with respect to, ob li gations o f such a governm ent as a result o f underwriting, dealing in, or purchasing fo r its ow n accoun t in an aggregate am ount exceeding 10 per cent o f its capital and surplus; (5 ) Take liens or other encum brances on fo r eign real estate in conn ection with its extensions o f credit, whether or not o f first priority and whether or not such real estate is im proved or has been appraised, and w ithout regard to the m a turity or am ount limitations or am ortization re quirements o f section 24 o f the A c t (1 2 U .S.C. 3 7 1 ); ( 6 ) Extend credit to an executive officer o f the branch in an am ount 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 hom e office; ( 7 ) Pay to any officer o r em ployee o f the branch a greater rate o f interest op deposits than that paid to other depositors on similar deposits with the branch. ( c ) Limitations. N othing in § 213.3(b) shall authorize a foreign branch to engage in the gen eral business o f producin g, distributing, buying, or selling goods, wares, or m erchandise or, except as permitted by § 213.3(b) (4), to engage or partic ipate, directly or indirectly, in the business o f underwriting, selling, or distributing securities. (d) Suspending operations during disturbed conditions. T h e officer in charge o f a foreign branch m ay suspend its operations during dis turbed conditions w hich, in his judgm ent, make con du ct o f such operations im practicable; but every effort shall be m ade b efore and during such suspension to serve its depositors and customers. Full inform ation concern in g any such suspension shall be prom ptly reported to the branch’s hom e office, w hich shall im m ediately send a cop y thereof to the Board through the Federal Reserve Bank o f its district. 4 Including obligations issued by any agency or instru mentality, and supported by the full faith and credit, of such government. REGULATION M §§ 213.4-213.6 S E C T IO N 21 3.4— A C Q U IS IT IO N A N D H O L D IN G O F S T O C K IN F O R E IG N B A N K S in a foreign bank pursuant to this section shall furnish full inform ation concern in g such foreign bank including (unless previously furnished): (1) the cost, num ber, and class o f shares to be ac (a) General. W ith the prior consent o f the Board, and subject to the provisions o f section 25 o f the A ct and this Part, a national bank may quired, and the proposed carrying value o f such shares on the b ook s o f the national bank; (2) recent balance sheet and in com e statement o f the foreign bank; (3) brief description o f the foreign acquire and hold directly or indirectly 5 the stock or other evidences o f ow nership in on e or m ore foreign banks: Provided, That the aggregate am ount invested directly or indirectly (other than through a corporation operating under section 25 bank’s business (including full inform ation c o n cerning any direct or indirect business transacted in the United States); (4) lists o f directors and o f the A ct o r organized under section 25(a) o f the A ct) in the stock o r other evidences o f ownership principal officers (with address and principal busi ness affiliation o f each) and o f all shareholders o f all foreign banks, taken together with invest know n to the issuing bank holding 10 per cent ments by the national bank in the shares o f corp orations operating under section 25 o f the A ct or organized under section 25(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 ow nership in a foreign bank where such acquisition is necessary to pre vent a loss upon a debt previously contracted in or m ore o f any class o f the foreign bank’s stock or other evidences o f ow nership, and the am ount held by each; and (5) inform ation con cern in g the rights and privileges o f shares outstanding. the various classes o f (d) Reports. A national bank shall im mediately inform 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 g ood faith; but such stock or other evidences o f ownership shall be disposed o f within twelve the cost and num ber o f shares acquired pursuant to this section. 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 S E C T IO N 21 3.5— L O A N S as prom ptly as practicable if (1) such bank should engage in the business o f underwriting, selling, or distributing securities in the United States or (2) A national bank w hich holds directly or indi rectly 6 stock or other evidences o f ow nership in a foreign bank m ay make loans or extensions o f the national bank is advised by the Board that its credit to or fo r the accoun t o f such foreign bank holding is inappropriate under section 25 o f the without regard to the provisions o f section 2 3 A A c t or this Part. The terms “ stock ” , “ shares” , and “ evidences o f ow nership” in this section in o f the A ct (1 2 U .S.C . 3 7 1 c ). E X T E N S IO N S BANKS S E C T IO N 213.6— C O N D IT IO N S clude any right to acquire stock, shares, or evi dences o f ow nership, except that prior Board (a ) T h e 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 consent is not required for the acquisition and exercise o f stock rights in lieu o f dividends w hich are declared on shares already held by a national bank and w hich do not result in an in crease in percentage ow nership o f OR O F C R E D IT T O F O R E IG N shall im m ediately com ply therewith. ( b ) T he Board m ay from time to time re the foreign quire a national bank to make reports at such time and in such form as the Board m ay prescribe re garding the exercise o f any pow er hereunder and to submit inform ation regarding com plian ce with bank. (c) Required information. A national bank ap plying for the consent o f the Board to acquire and hold stock or other evidences o f ow nership this Part. 5 However, prior consent of the Board is not required hereunder for indirect acquisitions in the stock of foreign banks made pursuant to the general consent provisions of § 211.8 of Part 211 (Reg. K ). 5 6 Whether through a corporation operating under sec tion 25 of the Act or organized under section 25(a) of the Act, or otherwise. REGULATION M § 213.7 Provided, S E C T IO N 213.7— R E S E R V E S A G A IN S T F O R E IG N B R A N C H D E P O S IT S (a) Transactions with parent bank. D uring each week o f the fou r-w eek period beginning O ctober 16, 1969, and during each w eek o f each successive fou r-w eek (“ m aintenance” ) period, a m em ber bank having on e or m ore foreign branches shall maintain with the Reserve Bank o f its district, as a reserve against its foreign branch deposits, a daily average balance equal to 20 per cent o f the am ount by w hich the daily average total o f (1) net balances due from its dom estic offices to such branches, and (2) assets (including participations) held such branches w hich w ere acquired from by its dom estic offices,7 during the fou r-w eek (“ com pu tation ” ) period ending on the W ednesday fifteen days before the beginning o f the m aintenance period, exceeds the greater o f (i) the correspon din g daily average t o t a l8 for That the applicable base com puted under ( i ) or (ii) shall be reduced by the daily average am ount o f any deposits o f the m em ber bank subject to § 2 0 4 .5 (c ) o f this chapter (R eg u lation D ) during the com putation period. (b) Credit extended to United States residents. During each w eek o f the four-w eek period be ginning O ctober 16, 1969, and during each week o f each successive four-w eek maintenance period, a m em ber bank having one or m ore foreign branches shall maintain with the Reserve Bank o f its district, as a reserve against its foreign branch deposits, a daily average balance equal to 20 per cent o f the am ount by w hich daily average credit outstanding from such branches to United States residen ts9 (other than assets acquired and net balances due fr o m its dom estic offices), during the four-w eek com putation period ending on W ednes day fifteen days before the beginning o f the m ain tenance period, exceeds the corresponding daily average total during the four-w eek period ending the com pu tation period ending N ovem b er 25, 1970, o r the lowest corresponding daily average total fo r any com putation period beginning after on N ov em b er 25, 1970: Provided, That this para graph does not apply to credit extended ( 1 ) by a foreign branch w hich at no time during the c o m putation period had credit outstanding to United States residents exceeding $5 m illion, ( 2 ) to that date, w hichever am ount is the lesser, or (ii) 3 per cent o f the m em ber bank’s daily enable the borrow er to com p ly with requirements o f the Office o f Foreign D irect Investments, D e average deposits subject to § 204.5(a) o f this chapter (Regulation D ) during the current c o m partment o f C om m erce,10 or ( 3 ) putation period, or, if the bank has had a foreign branch in operation for m ore than 90 days, the lowest correspon din g daily average total fo r any com putation period beginning on or after D ecem ber 24, 1970, w hichever am ount is the lesser: 7Excluding (1) assets so held on June 26, 1969, repre senting credit extended to persons not residents of the United States and (2) credit extended or renewed by a domestic office after June 26, 1969, to persons not resi dents of the United States to the extent such credit was not extended in order to replace credit outstanding on that date which was paid prior to its original maturity (see definition of United States resident in footnote 9). 8Excluding assets representing credit extended to per sons not residents of the United States. com m itm ents 1970. under binding entered into before D ecem ber 1, 9 (a) Any individual residing (at the time the credit is extended) in any State of the United States or the Dis trict of Columbia; (b) any corporation, partnership, association or other entity organized therein (“ domestic corporation” ); and (c) any branch or office located therein of any other entity wherever organized. Credit extended to a foreign branch, office, subsidiary, affiliate or other foreign establishment (“ foreign affiliate” ) controlled by one or more such domestic corporations will not be deemed to be credit extended to a United States resident if the proceeds will be used in its foreign business or that of other foreign affiliates of the controlling domestic cor poration (s). 10The branch may in good faith rely on the borrower’s certification that the funds will be so used. STATUTORY APPENDIX REGULATION M STATUTORY APPENDIX Section 25 o f the Federal Reserve A ct provides in part as follow s: S e c . 25. A n y national banking association possessing a capital and surplus o f $1,000 ,0 00 or m ore m ay file application with the Board o f G o v ernors o f the Federal Reserve System for permis sion to exercise, upon such conditions and under such regulations as may be prescribed by the said board, the follow in g pow ers: First. T o establish branches in foreign cou n tries or dependencies 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 re quired to d o so as fiscal agents o f the United Every national banking association operating foreign branches shall be required to furnish in form ation concerning the condition o f such branches to the C om ptroller o f the C urrency upon dem and, 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 concern in g the condition o f such banks or c o rp orations to the Board o f G overn ors o f the Federal Reserve System upon demand, and the Board o f G overnors o f the Federal Reserve System m ay order special examinations o f the said branches, banks, or corporation s at such time or times as it m ay deem best. [U.S.C., title 12, sec. 602.] States. * * * Third. T o acquire and hold, directly or indi rectly, stock or other evidences o f ow nership in on e or m ore banks organized under the law o f a foreign coun try or a dependency or insular pos session o f the United States and not engaged, directly or indirectly, in any activity in the United States except as, in the judgm ent o f the Board o f G overnors o f the Federal Reserve System, shall be incidental to the international or foreign business o f such foreign bank; and, notwithstand ing the provisions o f section 2 3 A o f this A ct, to make loans or extensions o f credit to or fo r the accoun t o f such bank in the m anner and within the limits prescribed by the Board by general or specific regulation or ruling. * * * * pow ers applied for, and the place or places where the banking or financial operations proposed are to be carried on. The Board o f G overnors o f the Federal Reserve System shall have pow er to ap prove or to reject such application in w hole or in part if fo r any reason the granting o f such appli cation is deem ed inexpedient, and shall also have pow er from time to time to increase or decrease the num ber o f places where such banking opera [U.S.C., title 12, sec. 601.] branches established by it and o f its hom e 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. [U.S.C., title 12, sec. 604.] Regulations issued by the Board o f G overnors o f the Federal Reserve System under this section, in addition to regulating pow ers w hich a foreign branch m ay exercise under other provisions o f law, m ay authorize such a foreign branch, sub ject to such conditions and requirements as such regulations m ay prescribe, to exercise such further pow ers as m ay be usual in con n ection with the * Such application shall specify the name and capital o f the banking association filing it, the tions may be carried on. E very such national banking association shall con d u ct the accounts o f each foreign branch independently o f the accounts o f other foreign transaction o f the business o f banking in the places where such foreign branch shall transact busi ness. Such regulations shall not authorize a foreign branch to engage in the general business o f p ro ducing, distributing, buying o r selling goods, wares, or m erchandise; nor, except to such lim ited extent as the Board m ay deem to be neces sary with respect to securities issued by any “ fo r eign state” as defined in section 2 5 (b ) o f this A ct, shall such regulations authorize a foreign branch to engage or participate, directly or indi rectly, in the business o f underwriting, selling, or distributing securities. [U.S.C., title 12, sec 604a.]
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