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frrr??? December 22, 1980 REGULATIONS K AND Y To the Addressee: As indicated in Circular No. 8974, dated December 15, 1980, enclosed are copies of the text of amendments to Regulation K, "International Banking Operations," and Regulation Y, "Bank Holding Companies and Change in Bank Control," effective January 3, 1981. The amendments deal with the nonbanking activities of foreign bank holding companies and foreign banks that have banking offices in the United States. Questions regarding the amendments may be directed to the Domestic Banking Applications Department of this Bank (Tel. No. 212-791-5865). Circulars Division FEDERAL RESERVE BANK OF NEW YORK Board of Governors of the Federal Reserve System B A N K H OLDING COMPANIES AND CH ANGE IN B A N K CONTROL A M E N D M E N T T O R E G U L A T IO N Y (effective January 3, 1981) Section follow s: 2 2 5 .4 (g) is amended to read as S E C T IO N 225.4— N O N B A N K IN G A C T IV IT IE S * * * (g ) Foreign banking organizations. In addition to the exemptions afforded by this Part, a foreign banking organization (as de fined in 12 C F R 211.23) may engage in ac tivities and make investments under Part 211 (Regulation K ). For this Regulation to be complete, retain: 1) Regulation Y pamphlet, as amended effective April 5, 1978. 2) Amendments effective January 1, 1979, March 10, 1979, April 2, 1979, October 24, 1979, December 5, 1979, and December 31, 1980. 3) This slip sheet. [Ref. Cir. No. 8974] PRINTED IN NEW YORK Board of Governors of the Federal Reserve System IN T ER N A T IO N A L B A N K IN G OPERATIONS AM ENDM ENTS TO R EG U LA TIO N K ( Effective January 3, 1981) 12 CFR Part 211 SUPPLEMENTARY INFORMATION: S e c t i o n [Reg. K; Docket No. R-0291] Nonbanking Activities o f Foreign Banking Organizations Board of Governors of the Federal Reserve System. ACTION: Final rule. SUMMARY: Foreign banks that have branches, agencies, or commercial lending company subsidiaries in the U.S., companies controlling such foreign banks, and foreign companies that have bank subsidiaries in the U.S. are subject to the nonbanking prohibitions of the Bank Holding Company Act (12 U.S.C. 1 8 4 1 et seq.). That Act also affords exemptions from the nonbanking prohibitions for qualifying foreign organizations. The Board has adopted amendments to Regulation K (International Banking Operations) to implement and interpret these exemptions. AGENCY: o n th e s e m o d if ic a t io n s to th e r e g u la tio n 1 9 7 8 (1 2 U .S .C . 3 1 0 1 e t s e q . ) ( “ I B A ” ) u n t il J a n u a r y 3 0 , 1 9 8 1 . In a d d i t i o n t o t h e p r o v id e s th a t a fo r e ig n b a n k th a t d o e s c h a n g e s r e fe r r e d to a b o v e , t e c h n ic a l b u s i n e s s in t h e U n i t e d S t a t e s t h r o u g h a m o d if ic a t io n s w e r e a ls o m a d e to th e p r o p o s a l. b r a n c h , a g e n c y o r c o m m e r c ia l le n d in g c o m p a n y s h a ll b e s u b j e c t t o t h e B o a r d p r o p o s e d th at a fo r e ig n C o m p a n y A c t ( “ B H C A ” ) in t h e s a m e o r g a n i z a t i o n w o u l d q u a l i f y f o r th e m a n n e r a n d to th e s a m e e x t e n t a s a e x e m p t i o n i f m o r e t h a n 5 0 p e r c e n t o f its b a n k h o l d i n g c o m p a n y . C o m p a n i e s th a t w o r ld w id e c o n s o lid a t e d b u s in e s s w e r e o w n s u c h fo r e ig n b a n k s a r e a l s o s u b je c t b a n k i n g a n d m o r e t h a n 5 0 p e r c e n t o f its to th e p r o v is i o n s o f th e B H C A . F o r e ig n b a n k in g b u s in e s s w e r e o u t s id e th e b a n k s a n d c o m p a n i e s t h a t c o n t r o l U .S . U n ite d S ta te s . T h e B o a r d w a s o f th e b a n k s a re “ b a n k h o ld in g c o m p a n ie s " o p i n i o n t h a t t h is i n t e r p r e t a t i o n o f a n d . t h e r e f o r e , s u b j e c t t o th e “ p r i n c i p a l l y e n g a g e d in t h e b a n k i n g n o n b a n k in g p r o h ib it io n s o f th e B H C A . b u s in e s s o u t s id e th e In o r d e r t o l i m i t it s e x t r a t e r r i t o r i a l e n s u r in g th a t a n o r g a n iz a t io n th a t q u a lifie d fo r th e e x e m p t io n s w a s e x e m p t io n s fr o m th e n o n b a n k in g p r in c ip a lly fo r e ig n a n d w o u ld s e r v e a s a s o u r c e o f s t r e n g t h t o its B o a r d d is c r e t io n to p e r m it a fo r e ig n o p e r a t io n s . c o m p a n y t o e n g a g e in a n y a c t i v i t y o r S o m e c o m m e n t s s ta t e d th a t th e B o a r d s h o u l d n o t i m p o s e t h e " e n g a g e d in m a k e a n y in v e s t m e n t th at th e B o a r d d e t e r m i n e s is in t h e p u b l i c i n t e r e s t a n d c o m m e n t s w ill b e a c c e p t e d o n th e is c u r r e n t l y i m p l e m e n t e d b y § 2 2 5 .4 ( g ) o f a m e n d m e n t s u n t il J a n u a r y 3 8 , 1 9 8 1 . t h e B o a r d 's R e g u l a t i o n Y (1 2 C F R ADDRESS: C o m m e n t s , w h i c h s h o u l d r e f e r 2 2 5 .4 ( g ) ) . S e c t i o n 2 ( h ) p e r m i t s a f o r e i g n to D o c k e t N o . R -0 2 9 1 , m a y b e m a ile d to i n s t i t u t i o n p r i n c i p a l l y e n g a g e d in t h e T h e o d o r e E. A l l i s o n , S e c r e t a r y , B o a r d o f b a n k in g b u s in e s s o u t s id e th e U n ite d G o v e r n o r s o f th e F e d e r a l R e s e r v e S ta te s to h o ld s h a r e s o f fo r e ig n S y s te m , 2 0th S tr e e t a n d C o n s t it u t io n n o n b a n k i n g c o m p a n i e s t h a t e n g a g e in A v e n u e , N W „ W a s h in g t o n , D C. 20551, b u s i n e s s in t h e U n i t e d S t a t e s . O n M a y 1 ,1 9 8 0 , t h e B o a r d r e q u e s t e d o r d e liv e r e d to R o o m B -2 2 2 3 b e t w e e n 8 :4 5 a .m . a n d 5 :1 5 p .m . C o m m e n t s p u b lic co m m e n t o n p r o p o s e d r e c e iv e d m a y b e in s p e c t e d at R o o m B - a m e n d m e n ts to R e g u la t io n K to 1 1 2 2 b e t w e e n 8 :4 5 a .m . a n d 5 :1 5 p .m ., im p le m e n t a n d in te r p r e t t h e s e e x c e p t a s p r o v i d e d in § 2 6 1 .6 ( a ) o f t h e p r o v i s i o n s o f t h e B H C A (4 5 F R 3 0 0 8 2 ). B o a r d 's R u l e s R e g a r d i n g A v a i l a b i l i t y o f T h e p e r io d fo r p u b lic co m m e n t e x p ir e d o n J u ly 3 1 , 1 9 8 0 . A f t e r c o n s i d e r a t i o n o f A t t o r n e y (2 0 2 /4 5 2 -3 7 8 6 ), L e g a l D iv is io n ; o r M ic h a e l G . M a r tin s o n , S e n io r F in a n c ia l A n a ly s t , D iv is io n o f B a n k in g S u p e r v is io n a n d R e g u la t io n ( 2 0 2 /4 5 2 3 6 2 1 ), B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y ste m . U.S. b a n k i n g p r o h ib it io n s . S e c t io n 4 (c )(9 ) g r a n ts th e p u r p o s e s o f th e B H C A . T h is e x e m p t io n (2 0 2 /4 5 2 -3 2 6 9 ), K a th le e n M . O ’D a y , th e 29 c o m m e n t s r e c e iv e d , in c lu d in g s o m e re p r e s e n tin g a n u m b e r o f b a n k s, th e B o a r d a d o p t e d th e a m e n d m e n t s w it h s o m e m o d i f i c a t i o n s t o t h e r u le s a s p r o p o s e d . T h e s e m o d ific a t io n s r e la te to th e d e fin it io n o f “ q u a lify in g fo r e ig n b a n k in g o r g a n iz a t io n ,” th e te s t fo r d e t e r m in in g e lig ib ilit y fo r q u a lifie d s ta tu s , a n d th e t y p e s o f a c t iv it ie s th at m a y b e e n g a g e d in in t h e U n i t e d S t a t e s . b a n k i n g ” t e s t , w h i c h is d e r i v e d f r o m s e c t i o n 2 ( h ) , in o r d e r f o r a n o r g a n i z a t i o n to q u a lify fo r e x e m p t io n s g r a n te d u n d e r s e c t i o n 4 ( c ) ( 9 ) s i n c e t h e r e is n o s t a t u t o r y r e q u ir e m e n t fo r s o d o in g . H o w e v e r , s in c e th e p u r p o s e s o f th e t w o s e c t io n s a r e th e s a m e a n d th e B o a r d h a s th e s a m e s u p e r v i s o r y o b j e c t i v e s in in te r p r e t in g th e e x c e p t i o n s , th e B o a r d h a s a d o p t e d th e p r o p o s a l t o r e q u ir e th e s a m e te st fo r e lig ib ilit y fo r b o t h e x e m p t iv e p r o v is io n s . One comment strongly objected to the inclusion of U.S. banking operations in determining whether an organization is principally engaged in banking. This comment stated that an otherwise ineligible institution could “bootstrap" itself into qualification for the exemptions by acquisition of a U.S. subsidiary bank. Although the Board believes that this particular situation could be scrutinized in connection with the approval procedure under the BHCA, the Board also is of the view that the comment has merit from a supervisory standpoint. There may be circumstances in which an organization that must rely on its U.S. banking For this Regulation to be complete retain: 1) Printed regulation pamphlet dated June 14, 1979. 2) Amendments dated November 28, 1979, October 2, 1980, and November 13, 1980. 3) This slip sheet. P R IN T E D IN NEW YORK, FROM FEDERAL REGISTER, V O L . 45, N O . 240 LRef. Cir. No. 8974] th e B H C A a ffo r d s th e s e o r g a n iz a t io n s t w o m o d if i c a t i o n s m a d e t o th e p r o p o s a l, FOR FURTHER INFORMATION CONTACT: U.S." s e r v e d B o a r d ’ s s u p e r v i s o r y p u r p o s e s in e f f e c t o n fo r e ig n o r g a n iz a t io n s , th e n o t s u b s t a n t ia lly a t v a r ia n c e w it h th e C . K e e f e H u r l e y , Jr., S e n i o r C o u n s e l Qualifying foreign organizations. T h e p r o v i s i o n s o f t h e BaTik H o l d i n g DATE: J a n u a r y 3, 1 9 8 1 . In v i e w o f t h e I n f o r m a t i o n (1 2 C F R 2 6 1 .6 ( a ) ) . T h e B o a r d w ill a c c e p t p u b lic c o m m e n t 8 (a ) o f th e I n t e r n a t io n a l B a n k in g A c t o f ( over ) business to qualify under the "principally engaged in banking" test should not be entitled to the use of the exemptions without closer scrutiny by the Board. Therefore, the Board has adopted the proposal that, in order to be considerd principally engaged in the banking business outside the United States, more than half of an organization’s worldwide business, exclusive of its U.S. banking business, must derive from banking outside the United States. Those organizations that fail to qualify under this standard may apply for a specific determination of eligibility, described below. The Board also will accept comment on this amendment from interested parties. Definition o f “banking business". U n d e r th e IBA, a f o r e i g n b a n k w ith a r e v e n u e s o r n e t i n c o m e o f a U .S . b a n k , b r a n c h , a g e n c y , c o m m e r c ia l le n d in g c o m p a n y , o r o t h e r c o m p a n y e n g a g e d in a p p lic a t io n o f th e q u a lify in g t e s ts w o u ld t h e b u s i n e s s o f b a n k i n g in t h e U .S . s h a ll p r e v e n t s o u n d a n d r e p u t a b le fo r e ig n b e c o n s id e r e d a s h e ld o r d e r iv e d fro m b a n k s f r o m d o i n g b u s i n e s s in t h e U .S . o u t s id e th e U n ite d S ta te s . T h is a p p r o a c h T h e B o a r d w ill e x a m in e th e p a r t ic u la r w o u l d a v o i d t h e b i a s in f a v o r o f o n e fa c ts a n d c ir c u m s ta n c e s o f e a c h c a s e to ty p e o f o r g a n iz a t io n o v e r a n o t h e r th at d e t e r m i n e i f g r a n t i n g t h e e x e m p t i o n is u s in g a s s e t s or r e v e n u e s w o u ld p r o d u c e . th e B o a r d d e t e r m in e s th a t a p o t e n t ia l fo r r e q u ir e m e n t th at m o r e th a n h a lf o f a n a b u s e e x is t s , th e B o a r d w ill d e n y th e o r g a n iz a t io n ’ s w o r ld w id e b a n k in g e x e m p t io n o r a p p r o v e th e a p p lic a t io n b u s in e s s m u s t b e d e r iv e d fr o m o u t s id e c o n d i t i o n e d in a m a n n e r t o p r e v e n t t h e t h e U n i t e d S t a t e s . T h e s a m e c r it e r i a occu rren ce o f su ch abu ses. d e s c r ib e d a b o v e w ill b e u s e d to m e a s u r e f o r e i g n a n d U .S . b a n k i n g b u s i n e s s . C o m m e n t w ill a ls o b e a c c e p t e d o n th e c r it e r ia u s e d fo r m e a s u r in g “ b a n k in g n o n b a n k in g p r o h ib it io n s o f th e a c c o u n t in g c o n v e n t i o n s th e f in a n c ia l s ta te m e n ts o f th e t w o ty p e s o f 1 (b )(7 ) o f th e o r g a n iz a t io n s a r e n o t o r d in a r ily t h e U .S . t h r o u g h a f o r e i g n n o n b a n k i n g b u s in e s s r e la t e d t o th a t o f th e fo r e ig n n o n b a n k in g c o m p a n y . T h e fo r e ig n c o m p a n y m u s t b e p r i n c i p a l l y e n g a g e d in b u s i n e s s o u t s i d e t h e U .S . a n d t h e e x e m p t i o n m a y n o t b e u s e d t o e n g a g e in t h e s e c u r i t i e s b u s i n e s s in t h e U .S . c o n s o lid a te d ; m o re o v e r , c o n s o lid a tio n b u s in e s s o f b a n k in g , " f o r e ig n o c c u r s at o w n e r s h ip le v e ls a b o v e 50 p e r c o m m e r c ia l b a n k s , fo r e ig n m e rch a n t c e n t , w h i l e c o n t r o l is a s s u m e d a t 2 5 p e r and other foreign institutions that engage in banking activities usual in connection with the business o f banking in the countries where such foreign institutions are organized. ” ( E m p h a s i s c e n t le v e ls o f o w n e r s h ip u n d e r th e banks o r g a n i z a t i o n t o e n g a g e i n a c t i v i t i e s in t h e s a m e g e n e r a l l i n e o f b u s i n e s s o r in a M e a s u r e m e n t o f b a n k in g a n d n o n b a n k in g b u s in e s s p o s e s p r o b le m s " F o r e i g n b a n k ” is d e f i n e d in s e c t i o n a d d i t i o n t o c o m p a n i e s t h a t e n g a g e in t h e Nonbanking activities in the United States — S e c t i o n 2 (h ) p e r m i t s a f o r e i g n c o m p a n y w h e r e t h e U .S . a c t i v i t i e s a r e in b u s in e s s .” p r im a r ily b e c a u s e u n d e r m o s t IBA a s i n c l u d i n g , in a p p r o p r ia te u n d e r s e c t io n 4 (c )(9 ), a n d if T h e a m e n d m e n t a ls o r e t a in s th e U .S . b r a n c h o r a g e n c y is s u b j e c t t o t h e BHCA. T h e B o a r d w o u l d e x e r c i s e t h is a u th o r ity u n d e r s e c t io n 4 (c )(9 ) w h e r e B H C A . T h e p r o p o s e d r e g u la tio n B a n k in g a n d f in a n c ia l a c t iv it ie s a n d a c t iv itie s p e r m is s ib le u n d e r s e c t io n 4 (c )(8 ) o f th e B H C A m a y o n ly b e e n g a g e d in w i t h t h e B o a r d ’ s a p p r o v a l . It is c l e a r f r o m t h e l e g i s l a t i v e h i s t o r y p r o v id e d th at a s s e ts a n d r e v e n u e s c o u ld o f th e I B A th a t C o n g r e s s in t e n d e d th e b e d e t e r m in e d o n a c o n s o lid a t e d o r B o a r d to u s e th e S t a n d a r d I n d u s tr ia l c o m b in e d b a s is . T h e p r o p o s a l a s C la s s if ic a t io n s y s te m f o r d e t e r m in in g a d d e d ) . B e c a u s e t h is d e f i n i t i o n i n c l u d e s a d o p t e d l e a v e s it t o t h e f o r e i g n t h e c o m p a r a b i l i t y o f U .S . a n d f o r e i g n o r g a n iz a t io n s c o n s id e r e d " b a n k s " b y o r g a n iz a t io n to c h o o s e th e le v e l o f n o n b a n k in g a c t iv itie s . T h e S IC s y s te m v ir tu e o f a c t iv it ie s c o n d u c t e d th a t a r e o w n e r s h i p (2 5 o r 5 0 p e r c e n t ) a t w h i c h c a t e g o r ie s a re n o t p r e c is e a n d th e B o a r d u s u a l in c o n n e c t i o n w i t h b a n k i n g c o n s o lid a t io n o r c o m b in in g w ill ta k e in v it e d c o m m e n t s o n th e fe a s ib ilit y o f a c t i v i t i e s in t h e i r h o m e c o u n t r i e s , t h e p la c e . b o a r d p r o p o s e d to trea t a s " b a n k in g ” t h e a c t i v i t i e s in § 2 1 1 .5 ( d ) o f R e g u l a t i o n K (1 2 C F R 2 1 1 . 5 ( d ) ) t h a t h a v e b e e n d e t e r m i n e d t o b e u s u a l in c o n n e c t i o n w ith b a n k in g o r fin a n c ia l o p e r a tio n s a b r o a d . T h i s p r o v i s i o n o c c a s i o n e d lit t le c o m m e n t a n d t h e r e f o r e is a d o p t e d a s p roposed. Measurement o f banking business. Under the proposed amendments, a foreign institution would have had to meet two tests in order to qualify for the nonbanking exemptions; first, more than half of its worldwide business must be banking; and second, more than half of its banking business must be outside the U.S. The first test involved a measurement of banking versus nonbanking business; the second, foreign banking versus U.S. banking. Under both tests, the foreign banking organization could choose as its measurement either total assets or total revenues. The Board recognized that the use of solely assets or solely revenues provides an imperfect measure for comparing banking and nonbanking activities, and therefore adopted a revised test of measuring relative sizes of an organization’s banking and nonbanking business. On the basis of at least two of three criteria, i.e., assets, revenues, and net income, an organization must derive more than half of its business, excluding U.S. banking business, from banking outside the United States. No assets, u s in g th e S IC fo r d e t e r m in in g w h e t h e r Change in status and specific determinations o f eligibility. T h e U .S . a n d f o r e i g n n o n b a n k i n g a c t i v i t i e s B oard p r o p o s e d th a t a n o r g a n iz a t io n th at fa ile d to q u a lify u n d e r th e te s t fo r t w o c o n s e c u t i v e y e a r s , a s r e f l e c t e d in it s a n n u a l r e p o r t file d w it h th e B o a r d , w o u l d l o s e it s e l i g i b i l i t y f o r t h e e x e m p tio n s . S u ch a n o r g a n iz a t io n c o u ld a p p ly fo r a s p e c i f i c d e t e r m in a t io n . a r e in t h e s a m e g e n e r a l l i n e s o f b u s in e s s . T h e c o m m e n t s o n t h e u s e o f t h e S IC f o r d e t e r m i n i n g w h e t h e r U .S . a c t i v i t i e s o f a n e x e m p t f o r e i g n c o m p a n y a r e in t h e s a m e lin e o f b u s in e s s a lle g e d th a t th e 4d ig it e s t a b l i s h m e n t c a t e g o r i e s o f t h e S I C w e r e n a r r o w a n d o v e r l y r e s t r ic t iv e . A c t iv it ie s a n d in v e s t m e n ts u n d e r ta k e n S e v e r a l s u g g e s t e d th at th e B o a r d in s te a d w h ile a fo r e ig n o r g a n iz a t io n q u a lifie d e m p lo y th e E n te r p r is e S IC w h ic h g r o u p s fo r th e e x e m p t io n s c o u ld b e r e t a in e d b u s i n e s s e s t o g e t h e r a c c o r d i n g t o t h e ir a fte r th e lo s s o f q u a lifie d s ta tu s . o w n e r s h i p s t r u c t u r e . A n e n t e r p r i s e u n it H o w e v e r , a c tiv itie s o r in v e s tm e n ts c o n s i s t s o f a ll e s t a b l i s h m e n t s u n d e r u n d e r t a k e n a f t e r t h e e n d o f t h e fir s t c o m m o n o w n e r s h i p a n d it is t h e f i s c a l y e a r in w h i c h t h e o r g a n i z a t i o n d i d p l u r a l i t y c o n t r i b u t i o n in t e r m s o f v a l u e n o t m e e t th e c r it e r ia w o u ld n o t b e a d d e d to g o o d s a n d s e r v ic e s , o f an g r a n d fa t h e r e d . S u c h a n o r g a n iz a t io n o r g a n iz a t io n ’ s c o m p o n e n t w o u l d , in e f f e c t , b e o n n o t i c e o f th e e s t a b l i s h m e n t s t h a t d e t e r m i n e s its p o s s ib le lo s s o f q u a lifie d sta tu s . S e v e r a l c o m m e n t s s ta t e d th a t th e u n c e r t a in tie s a s to q u a lific a t io n u n d e r E n te r p r is e S IC d e s ig n a t io n . H o w e v e r , b e c a u s e E n t e r p r i s e S I C u n it s e n g a g e in a b r o a d e r r a n g e o f a c t iv it ie s th a n S IC th e te st fr o m y e a r to y e a r w o u ld m a k e e s t a b l i s h m e n t u n it s , u s e o f t h is m e a s u r e b u s in e s s p la n n in g d iffic u lt. T h e s e o f " s a m e g e n e r a l lin e o f b u s in e s s " c o m m e n t s p r o p o s e th at a n o r g a n iz a t io n w o u ld s im ila r ly a l lo w e x e m p t fo r e ig n c o n c e r n e d a b o u t th e p o s s i b le fu tu r e lo s s c o m p a n i e s t o e n g a g e in a b r o a d e r r a n g e o f q u a lific a t io n c o u ld a p p ly fo r a o f n o n b a n k a c t i v i t i e s in t h e U .S . In v i e w s p e c i f i c d e t e r m i n a t i o n o f e l i g i b i l i t y at o f t h e e x p l i c i t d i r e c t i v e in t h e l e g i s l a t i v e a n y t im e . T h e B o a r d f o u n d t h a t t h is h i s t o r y o f t h e I B A a n d b e c a u s e t h e 4- p r o c e d u r e w o u l d p r o v e u s e f u l in a d m in is te r in g th e r e g u la tio n a n d , w ith d ig it c l a s s i f i c a t i o n a p p e a r s t o th e a d d it io n o f th e p r o c e d u r e fo r n o n b a n k in g a c t iv it ie s c o n s is t e n t w ith a p p ly in g fo r a s p e c i fi c d e t e r m in a t io n th e p u r p o s e s o f th e s ta tu te , th e B o a r d s a t i s f a c t o r i l y lim it a c o m p a n y ’ s U .S . p r io r to lo s s o f e lig ib ilit y , a d o p t e d th e a d o p t e d th is p a r t o f t h e r e g u l a t i o n a s r e g u la tio n a s p r o p o s e d . A s p r o p o s e d , proposed. o t h e r fo r e ig n o r g a n iz a t io n s th a t d o n ot q u a lify fo r a u t o m a t ic e x e m p t io n m a y a ls o a p p ly to th e B o a r d to r d e t e r m i n a t i o n s o n t h e ir e l i g i b il i t y . In keeping with the intent of section 2(h) to limit U.S. activities to those types that an exempt company engages in abroad, the Board proposed that an o r g a n iz a t io n g iv e 60 d a y s p r io r n e c e s s a r i l y b a n k i n g o r f i n a n c i n g in s u b s id ia r y o f th e fo r e ig n b a n k in g n o t if ic a t io n to th e B o a r d b e f o r e e n g a g in g n a t u r e . A t t h e s a m e t im e , c e r t a i n o t h e r o r g a n iz a t io n . i n a n a c t i v i t y in t h e a c t iv it ie s o u t s id e th e s c o p e o f D iv is io n U.S. w h e r e th e U.S. (2 ) “ F o r e i g n b a n k i n g o r g a n i z a t i o n ” m e a n s a f o r e i g n b a n k ( a s d e f i n e d in a c t iv ity w o u ld e x c e e d th e fo r e ig n H s h o u ld b e c o n s id e r e d b a n k in g o r a c t i v i t y in t h e s a m e 4 - d ig i t f i n a n c i a l o p e r a t i o n s . In o t h e r i n s t a n c e s , s e c t io n c la s s if ic a t io n . T h e c o m m e n t s n o t e d th a t t h e s e a c t iv itie s m a y b e th e s a m e ty p e o f a b r a n c h , a g e n c y , o r c o m m e r c ia l le n d in g 1 ( b ) ( 7 ) o f the IBA) t h a t o p e r a t e s t h is i s n o t r e q u i r e d b y t h e s t a t u t e a n d a c t iv it y p e r m itt e d u n d e r s e c t io n 4 (c )(8 ) c o m p a n y s u b s d i a r y in t h e U n i t e d S t a t e s w o u ld b e b u r d e n s o m e to th e fo r e ig n a n d , in o r d e r t o p r e s e r v e c o m p e t it iv e o r th a t c o n t r o ls a b a n k in th e U n it e d b a n k i n g o r g a n i z a t i o n s . It w a s s u g g e s t e d e q u a lit y , s h o u ld b e c o n d u c t e d b y fo r e ig n S ta te s: a n d a c o m p a n y o f w h ic h s u ch th a t th e B o a r d in s t e a d u s e th e q u a r te r ly o r g a n iz a t io n s o n ly to th e e x t e n t a l lo w e d f o r e i g n b a n k is a s u b s i d i a r y . rep orts o f d o m e s t i c b a n k i n g o r g a n i z a t i o n s . In v i e w U.S. a c q u i s i t i o n s t o m o n i t o r (3 ) " S u b s i d i a r y " m e a n s a n a n o r g a n i z a t i o n 's a c t i v i t i e s . I f it b e c a m e o f th e s e c o n s id e r a t io n s th e B o a r d a p p a r e n t t h a t a n o r g a n i z a t i o n is a b u s i n g a d o p t e d th e p r o p o s a l t o u s e D iv is io n H t h e v o t i n g s t o c k o f w h i c h is h e l d d i r e c t l y th e e x e m p t io n , fo r e x a m p le b y a s a g e n e r a l c a t e g o r y o f im p e r m is s ib le u n d e r ta k in g a t o k e n a c t iv it y a b r o a d (e x c e p t w ith B o a r d a p p r o v a l) b a n k in g o r o r in d ir e c tly b y a fo r e ig n b a n k in g o r g a n i z a t i o n o r w h i c h is o t h e r w i s e s o l e l y t o e n g a g e in t h e s a m e a c t i v i t y in fin a n c ia l o p e r a t io n s w ith th e e x c e p t io n c o n tr o lle d o r c a p a b le o f b e in g c o n tr o lle d t h e U .S ., t h e B o a r d c o u l d r e q u i r e o f c e r ta in r e a l e s t a t e a c t iv itie s . T h e b y a fo r e ig n b a n k in g o r g a n iz a t io n . c e s s a t i o n o f t h e U .S . a c t i v i t y . T h e B o a r d B o a r d a ls o a m e n d e d th e p r o p o s a l t o h a s d e le t e d th e r e q u ir e m e n t o f p r io r in c lu d e w ith in th e s c o p e o f Q ualifying foreign banking organizations. n o t i f i c a t i o n a n d i n s t e a d w i l l r e l y o n th e i m p e r m i s s i b l e a c t i v i t i e s c e r t a i n 4 - d ig i t q u a r t e r ly r e p o r t s s u b m it te d b y d m a c t iv it ie s fo u n d o u t s id e D iv is io n H o f f o r e i g n o r g a n i z a t i o n s t o m o n i t o r t h e ir U.S. a c t i v i t i e s . S e c t io n 2 (h ) r e q u ir e s th a t a fo r e ig n th e S IC , in c lu d in g c e r t a in d a ta p r o c e s s in g , le a s in g a n d m a n a g e m e n t c o n s u lt in g a c t iv it ie s . T h e B o a r d b a n k in g o r g a n iz a t io n m u s t r e c e iv e th e r e c o g n iz e s th at s o m e o f th e a c t iv itie s p r io r a p p r o v a l o f th e B o a r d b e fo r e in c lu d e d w ith in D iv is io n H m a y , e n g a g in g in “ b a n k in g o r f in a n c ia l d e p e n d i n g o n t h e c i r c u m s t a n c e s in o p e r a t io n s o r t y p e s o f a c t iv itie s w h ic h th e a c t iv itie s a r e p e r fo r m e d , b e p e r m itt e d u n d e r s e c t io n 4 (c ) ( 8 ) ." T h e p r im a r ily c o m m e r c ia l a s o p p o s e d to B o a r d p r o p o s e d th a t b a n k in g o r b a n k in g o r fin a n c ia l. F o r e x a m p le , th e f i n a n c i a l o p e r a t i o n s in t h e U .S . w o u l d b e p h y s ic a l d e v e lo p m e n t o f re a l e s ta te p e r m itt e d o n ly w h e r e t h e y a r e th e ty p e w o u ld n o t a p p e a r to b e a b a n k in g o r p e r m itt e d u n d e r s e c t io n 4 (c )(8 ) o r u p o n f in a n c ia l a c t iv it y . A d iffe r e n t r e s u lt r e c e ip t o f s p e c ific a p p r o v a l b y th e B o a r d w o u ld o b ta in , h o w e v e r , w h e r e th at u n d e r s e c t io n 4 (c)(9 )- T h e B o a r d a ls o a c t i v i t y is j o i n e d w i t h r e a l e s t a t e p r o p o s e d th a t a ll a c t iv it ie s e n c o m p a s s e d le a s in g , fin a n c in g , s y n d ic a t io n , e tc . b y D iv is io n H (F in a n c e , I n s u r a n c e a n d R e a l E s ta te ) o f th e S IC w o u ld b e c o n s id e r e d " b a n k in g o r fin a n c ia l o p e r a t io n s ” fo r p u r p o s e s o f th e r e g u la tio n . C o m m e n t s w e r e h ig h ly c r i t i c a l o f t h is a p p r o a c h . M o s t i n d i c a t e d th at th e b e tt e r in te r p r e ta tio n o f s e c t io n 2 ( h ) is t h a t it r e q u i r e s B o a r d a p p r o v a l o n ly fo r a c t iv it ie s p e r m itt e d b y s e c t io n Thus, the Board will consider applications to engage in activities that are contained in Division H, and may approve an application to engage in such activities where the facts and circumstances of the case indicate that the activity would not be banking or financial in nature. In t h e p r o p o s a l p u b l i s h e d f o r 4 ( c ) ( 8 ) . In e f f e c t , t h e c o m m e n t s r e a d t h e c o m m e n t , th e B o a r d r e q u e s t e d c o m m e n t p h r a s e " b a n k in g o r fin a n c ia l o p e r a t io n s o n a n y in t e r p r e t iv e is s u e s c o n c e r n in g o r t y p e s o f a c t iv itie s p e r m itt e d u n d e r th e g r a n d fa t h e r p r o v is io n s o f th e IB A . s e c t io n 4 ( c ) ( 8 ) ” to r e fe r o n ly to s e c t io n S e v e ra l c o m m e n ts w e r e r e c e iv e d a n d 4 ( c ) ( 8 ) a c t i v i t i e s , a n d c i t e in s u p p o r t o f t h e m a t t e r w i l l b e a d d r e s s e d in t h e n e a r t h is p o s i t i o n t h e t e c h n i c a l l a n g u a g e o f th e s ta tu te a n d th e la c k o f le g is la t iv e fu t u r e . P u r s u a n t t o it s a u t h o r i t y u n d e r t h e h is to r y in d ic a tin g th at “ b a n k in g o r I n t e r n a t i o n a l B a n k i n g A c t o f 1 9 7 8 (1 2 fin a n c ia l o p e r a t io n s " h a s a m e a n in g U .S .C . 3 1 0 1 et s e q .) a n d t h e B a n k in d e p e n d e n t o f s e c t io n 4 (c )(8 ) a c t iv itie s H o l d i n g C o m p a n y A c t (1 2 U .S .C . 1 8 4 1 et T h e B o a r d , h o w e v e r , c o n t in u e s to b e o f seq.), t h e B o a r d h a s a m e n d e d R e g u l a t i o n t h e v i e w t h a t t h is p o s i t i o n c o n f l i c t s w i t h K (1 2 C F R P a r t 2 1 1 ) a n d R e g u l a t i o n Y (1 2 th e le g is la t iv e h is t o r y o f th e IB A w h ic h G IT ? P a r t 2 2 5 ) a s f o l l o w s : * s h o w s a c l e a r in t e n t t o e s t a b l i s h c o m p e t it iv e e q u a lit y b e t w e e n fo r e ig n * * 2. R e g u l a t i o n K is a m e n d e d b y a d d i n g a n d d o m e s t ic b a n k in g o r g a n iz a t io n s , w i t h i n S u b p a r t B— F o r e i g n B a n k i n g a n d w o u l d r e s u l t in r e a d i n g t h e w o r d s O r g a n i z a t i o n s , n e w § 2 1 1 .2 3 , " b a n k in g o r fin a n c ia l o p e r a t io n s ” ou t o f N o n b a n k in g A c t iv it ie s o f F o r e ig n t h e s t a t u t e . In t h e a b s e n c e o f c l e a r B a n k i n g O r g a n i z a t i o n s . N e w § 2 1 1 .2 3 is l e g i s l a t i v e i n t e n t t o t h e c o n t r a r y o n th is a d d e d a s fo llo w s : p o in t, th e B o a r d , e x c e p t a s d is c u s s e d b e l o w , h a s a d o p t e d th e r e g u la tio n a s p rop osed . W ith r e s p e c t to th e t y p e s o f a c t iv itie s th a t th e B o a r d c o n s i d e r s to b e " b a n k in g o r fin a n c ia l o p e r a t io n s ," th e c o m m e n t s (b) Unless specifically made eligible for the exemptions by the Board, a foreign banking organization shall qualify for the exemptions afforded by this section only if, disregarding its United States banking, more than half of its worldwide business is banking: and more than half of its banking business is outside the United States. In order to qualify, a foreign banking organization shall: (1 ) M e e t a t le a s t t w o o f th e f o l l o w i n g r e q u ir e m e n ts : (1) B a n k i n g a s s e t s h e l d o u t s i d e t h e U n ite d S ta te s 1 e x c e e d to ta l w o r ld w id e n o n b a n k in g a s s e t s : (ii) Revenues derived from the business of banking outside the United States exceed total revenues derived from its worldwide nonbanking business: (iii) Net income derived from the business of banking outside the United States exceeds total net income derived from its worldwide nonbanking business; and (2 ) M e e t a t l e a s t t w o o f t h e f o l l o w i n g re q u ir e m e n ts : (i) B a n k i n g a s s e t s h e l d o u t s i d e t h e U n ite d S ta te s e x c e e d b a n k in g a s s e t s h e l d in t h e U n i t e d S t a t e s : (ii) Revenues derived from the business of banking outside the United States exceed revenues derived from the business of banking in the United States: (iii) Net income derived from the business of banking outside the United States exceeds net income derived from the business of banking in the United States. ( c ) D eterm ining a ssets, rev en u es, a nd n et in com e. (1 ) F o r p u r p o s e s o f p a r a g r a p h ( b ) o f t h is s e c t i o n , t h e t o t a l a s s e ts , re v e n u e s , a n d n e t in c o m e o f a n o r g a n iz a t io n m a y b e d e t e r m in e d o n a c o n s o lid a t e d o r c o m b in e d b a s is . A s s e ts , re v e n u e s a n d n et in c o m e o f c o m p a n ie s in w h i c h t h e f o r e i g n b a n k i n g Subpart B—Foreign Banking Organizations o r g a n iz a t io n o w n s 50 p e r c e n t o r m o r e o f § 211.23 Non banking activities of foreign banking organizations. d e t e r m in in g to ta l a s s e t s , r e v e n u e s , a n d (a ) D efinitions. T h e d e f i n i t i o n s o f w e r e e q u a lly c r it ic a l o f th e u s e o f § 2 1 1 .2 in S u b p a r t A a p p l y t o th is D iv is io n H a s a g e n e r a l d e fin itio n . T h e c o m m e n t s fo u n d th e c o v e r a g e o f s e c t i o n s t i b je c t t o t h e f o l l o w i n g : (1 ) "D ir e c tly o r in d ir e c tly ” w h e n u s e d D iv is io n H to b e t o o b r o a d . T h e B o a r d in r e f e r e n c e t o a c t i v i t i e s o r i n v e s t m e n t s r e e x a m in e d th e a c t iv it ie s e n c o m p a s s e d o f a fo r e ig n b a n k in g o r g a n iz a t io n m e a n s b y D i v i s i o n H a n d c o n c l u d e d t h a t n o t a ll a c t iv itie s o r in v e s t m e n ts o f th e fo r e ig n o f th e a c t iv it ie s i n c lu d e d th e r e in a r e b a n k in g o r g a n iz a t io n o r o f a n y o r g a n iz a t io n m o r e th a n 25 p e r c e n t o f th e v o t in g s h a r e s s h a ll b e i n c lu d e d w h e n n e t in c o m e . T h e fo r e ig n b a n k in g o r g a n iz a t io n m a y in c lu d e a s s e t s , r e v e n u e s , a n d n et in c o m e o f c o m p a n ie s 1None of the direct or indirect assets, revenues, or net income of a United States subsidiary bank, branch, agency, commercial lending company, or other company engaged in the business of banking in the United States shall be considered held or derived from the business of banking “outside the United States.” in w h i c h it o w n s 2 5 p e r c e n t o r m o r e o f o r g a n iz a t io n th at q u a lifie s u n d e r th e v o t in g s h a r e s i f a ll s u c h c o m p a n i e s p a ra g ra p h (b ) m a y : w it h in th e o r g a n iz a t io n a r e in c lu d e d ; w it h th e a p p r o v a l o f th e B o a r d u n d e r * s u b s e c t i o n (g ): c o m p u t e r a n d d a t a (1 ) E n g a g e in a c t i v i t i e s o f a n y k i n d A s s e t s d e v o t e d to, o r r e v e n u e s o r o u t s id e th e U n ite d S ta te s ; n e t in c o m e d e r iv e d fr o m , a c t iv it ie s lis t e d (2 ) E n g a g e d i r e c t l y in a c t i v i t i e s in t h e p r o c e s s i n g s e r v i c e s (S I C 7 3 7 2 , 7 3 7 4 a n d in § 2 1 1 .5 ( d ) s h a l l b e c o n s i d e r e d b a n k i n g U n i t e d S t a t e s t h a t a r e i n c i d e n t i a l t o its a c t i v i t i e s ( S I C 7 3 9 4 , 7 5 1 2 , 7 5 1 3 a n d 7 5 1 9 ); a s s e ts , o r r e v e n u e s o r n et in c o m e a c t iv it ie s o u t s id e th e U n ite d S ta te s; a c c o u n t in g , a u d itin g a n d b o o k k e e p in g (2 ) d e r iv e d fr o m th e b a n k in g b u s in e s s , (3 ) O w n o r c o n t r o l v o t i n g s h a r e s o f 7 3 7 9 ); m a n a g e m e n t c o n s u l t i n g ( S I C 7 3 9 2 ); c e r t a i n r e n t a l a n d l e a s i n g s e r v i c e s (S I C 8 9 3 1 ); a n d a r r a n g e m e n t o f w h e n c o n d u c t e d w it h in th e fo r e ig n a n y c o m p a n y t h a t is n o t e n g a g e d , p a s s e n g e r t r a n s p o r t a t i o n ( S I C 4 7 2 2 ). b a n k in g o r g a n iz a t io n b y a fo r e ig n b a n k d i r e c t l y o r i n d i r e c t l y , in a n y a c t i v i t i e s in o r its s u b s i d i a r i e s . ( d ) L o s s o f elig ib ility f o r ex em p tio n s. th e U n ite d S ta te s o th e r th a n t h o s e th at (g ) E x em p tio n s under s ec tio n 4(c)(9) o f the B H C A . A f o r e i g n o r g a n i z a t i o n a r e in c id e n t a l to th e in t e r n a t io n a l o r A fo r e ig n b a n k in g o r g a n iz a t io n th at t h a t is o f t h e o p i n i o n t h a t o t h e r a c t i v i t i e s fo r e ig n b u s in e s s o f s u c h c o m p a n y ; o r i n v e s t m e n t s m a y , in p a r t i c u l a r q u a l i f i e d u n d e r p a r a g r a p h ( b ) o f t h is s e c t io n o r a n o r g a n iz a t io n th at q u a lifie d a s a “ fo r e ig n b a n k h o ld in g c o m p a n y " u n d e r § 2 2 5 .4 (g ) o f R e g u l a t i o n Y (1 2 C F R 2 2 5 .4 ( g ) (1 9 8 0 ) ) 1 s h a ll c e a s e t o b e e l i g i b l e f o r t h e e x e m p t i o n s o f t h is s e c t i o n i f it f a i l s t o m e e t t h e r e q u ir e m e n t s o f p a r a g r a p h (b ) fo r t w o c o n s e c u t i v e y e a r s a s r e f l e c t e d in its A n n u a l R e p o r t s (F .R . Y - 7 ) f i l e d w i t h t h e B o a r d . A fo r e ig n b a n k in g o r g a n iz a t io n th a t c e a s e s to b e e lig ib le f o r th e e x e m p t i o n s m a y c o n t i n u e t o e n g a g e in a c t i v i t i e s o r r e t a in i n v e s t m e n t s c o m m e n c e d o r a c q u ir e d p r io r to th e e n d o f t h e f i r s t f i s c a l y e a r f o r w h i c h its A n n u a l R e p o rt r e fle c ts n o n c o n fo r m a n c e w i t h p a r a g r a p h ( b ) o f t h is s e c t i o n . A c t iv it ie s c o m m e n c e d o r in v e s t m e n ts m a d e a f t e r t h a t d a t e s h a ll b e t e r m i n a t e d o r d i v e s t e d w it h in th r e e m o n t h s o f th e f i l in g o f t h e s e c o n d A n n u a l R e p o r t u n le s s th e B o a r d g r a n ts c o n s e n t to c o n t i n u e t h e a c t i v i t y o r r e t a in t h e i n v e s t m e n t u n d e r p a r a g r a p h ( e ) o f th is s e c t io n . ( e ) S p e c ific determ ination o f (4 ) O w n o r c o n t r o l v o t i n g s h a r e s o f c ir c u m s ta n c e s , m e e t th e c o n d it io n s fo r a n y c o m p a n y in a f i d u c i a r y c a p a c i t y a n e x e m p t io n u n d e r s e c t io n 4 (c )(9 ) o f u n d e r c ir c u m s t a n c e s th a t w o u ld e n title th e B H C A m a y a p p ly to th e B o a r d fo r s u c h s h a r e h o ld in g to a n e x e m p tio n s u c h a d e t e r m in a t io n b y s u b m ittin g to u n d e r s e c t io n 4 (c )(4 ) o f th e B H C A if th e t h e R e s e r v e B a n k o f t h e d i s t r i c t in w h i c h s h a re s w e r e h e ld o r a c q u ir e d b y a b a n k ; it s b a n k i n g o p e r a t i o n s i n t h e U n i t e d (5 ) O w n o r c o n t r o l v o t i n g s h a r e s o f a f o r e i g n c o m p a n y t h a t is e n g a g e d d i r e c t l y o r i n d i r e c t l y in b u s i n e s s in t h e U n i t e d S t a t e s o t h e r t h a n t h a t w h i c h is S ta t e s a r e p r in c ip a lly c o n d u c t in g a le tte r s e ttin g fo r th th e b a s is fo r th a t o p in io n . ( h ) R eports. (1 ) T h e f o r e i g n b a n k i n g o r g a n iz a t io n s h a ll in fo r m th e B o a r d i n c i d e n t a l t o it s i n t e r n a t i o n a l o r f o r e i g n th ro u g h th e o r g a n iz a t io n ’ s R e s e r v e B a n k b u s in e s s , s u b je c t to th e fo llo w in g w it h in 30 d a y s a fte r th e c l o s e o f e a c h lim ita tio n s : q u a r t e r o f a ll s h a r e s o f c o m p a n ie s (i) M o r e t h a n 5 0 p e r c e n t o f t h e f o r e i g n e n g a g e d , d i r e c t l y o r i n d i r e c t l y , in c o m p a n y ’ s c o n s o l i d a t e d a s s e t s s h a ll b e a c t i v i t i e s in t h e U n i t e d S t a t e s t h a t w e r e lo c a te d , a n d c o n s o lid a t e d r e v e n u e s a c q u ir e d d u r in g s u c h q u a r t e r u n d e r th e d e r iv e d fr o m , o u t s id e th e U n ite d S ta te s; (i i ) T h e f o r e i g n c o m p a n y s h a l l n o t a u t h o r i t y o f t h is s e c t i o n . T h e f o r e i g n b a n k i n g o r g a n i z a t i o n s h a ll a l s o r e p o r t e n g a g e d ir e c tly , n o r o w n o r c o n tr o l m o re a n y d i r e c t a c t i v i t i e s in t h e U n i t e d S t a t e s th a n 5 p e r c e n t o f th e v o t in g s h a r e s o f a c o m m e n c e d d u r in g s u c h q u a r t e r b y a c o m p a n y th a t e n g a g e s , in th e b u s in e s s fo r e ig n s u b s id ia r y o f th e fo r e ig n b a n k in g o f u n d e r w r it in g , s e llin g , o r d is t r ib u t in g o r g a n i z a t i o n . T h i s i n f o r m a t i o n s h a ll s e c u r it ie s in th e U n it e d S ta t e s e x c e p t to (u n le s s p r e v io u s ly fu r n is h e d ) in c lu d e a th e e x te n t p e r m itte d b a n k h o ld in g b r i e f d e s c r ip t io n o f th e n a tu r e a n d s c o p e c o m p a n ie s ; o f e a c h c o m p a n y ’ s b u s i n e s s in t h e ( i i i ) I f t h e f o r e i g n c o m p a n y is a U n i t e d S t a t e s , i n c l u d i n g t h e 4 - d ig i t S I C eligibility f o r nonqualifying foreign banking organizations. A f o r e i g n s u b s id ia r y o f th e fo r e ig n b a n k in g n u m b e r s o f t h e a c t i v i t i e s in w h i c h t h e o r g a n i z a t i o n , it s d i r e c t o r i n d i r e c t c o m p a n y e n g a g e s . S u ch in fo r m a tio n b a n k in g o r g a n iz a t io n th a t d o e s n o t a c t iv it ie s in th e U n it e d S ta t e s s h a ll b e s h a l l a l s o i n c l u d e t h e 4 - d ig i t S I C q u a l i f y u n d e r p a r a g r a p h ( b ) o f th is s u b je c t to th e f o llo w in g lim ita tio n s : n u m b e r s o f t h e d i r e c t p a r e n t o f a n y U .S . s e c t io n fo r th e e x e m p t io n s a ffo r d e d b y (A ) T h e fo r e ig n c o m p a n y ’ s a c t iv itie s t h is s e c t i o n , o r t h a t h a s l o s t it s e l i g i b i l i t y in t h e U n i t e d S t a t e s s h a l l b e t h e s a m e fo r th e e x e m p t io n s u n d e r p a r a g r a p h (d ) k in d o f a c t iv it ie s o r r e la t e d to th e o f t h is s e c t i o n , m a y a p p l y t o t h e B o a r d f o r a s p e c i f i c d e t e r m in a t io n o f e lig ib ilit y a c t iv it ie s e n g a g e d in d ir e c t ly o r fo r th e e x e m p t io n s . A fo r e ig n b a n k in g a b r o a d a s m e a s u r e d b y th e o r g a n iz a t io n m a y a p p ly fo r a s p e c ific “ e s t a b l i s h m e n t ” c a t e g o r i e s o f th e d e t e r m i n a t i o n p r i o r t o t h e t im e it c e a s e s S t a n d a r d I n d u s tr ia l C la s s if ic a t io n (S IC ) to b e e lig ib le fo r th e e x e m p t io n s w h e t h e r e lig ib ilit y fo r th e e x e m p t io n s ( a n a c t i v i t y in the U nited S t a t e s s h a ll b e considered related to an activity o u t s i d e t h e United S tates if it consists o f s u p p l y , w o u ld b e c o n s is t e n t w ith th e p u r p o s e s d i s t r i b u t i o n o r s a l e s in f u r t h e r a n c e o f o f t h e B H C A a n d in t h e p u b l i c i n t e r e s t , th e a c t iv ity ); a f f o r d e d b y t h is s e c t i o n . In d e t e r m i n i n g th e B o a r d s h a ll c o n s i d e r th e h is t o r y a n d in d ir e c t ly b y th e fo r e ig n c o m p a n y (B ) T h e f o r e i g n c o m p a n y m a y e n g a g e c o m p a n y a c q u ir e d , to g e th e r w ith a sta te m e n t o f to ta l a s s e ts a n d re v e n u e s o f th e d ir e c t p a re n t. (2 ) I f a n y r e q u i r e d i n f o r m a t i o n is u n k n o w n a n d n o t r e a s o n a b ly a v a ila b le to th e fo r e ig n b a n k in g o r g a n iz a t io n , e i t h e r b e c a u s e o b t a i n i n g it w o u l d in v o lv e u n r e a s o n a b le e ffo rt o r e x p e n s e o r b e c a u s e it r e s t s p e c u l i a r l y w i t h i n t h e k n o w l e d g e o f a c o m p a n y t h a t is n o t c o n t r o lle d b y th e o r g a n iz a t io n s , th e o r g a n i z a t i o n s h a ll (i) g i v e s u c h i n f o r m a t i o n o n t h e s u b j e c t a s it p o s s e s s e s o r c a n r e a s o n a b ly a c q u ir e th e fin a n c ia l a n d m a n a g e r ia l r e s o u r c e s in a c t i v i t i e s in t h e U n i t e d S t a t e s t h a t to g e t h e r w it h th e s o u r c e s th e r e o f; a n d o f t h e o r g a n i z a t i o n ; t h e a m o u n t o f its c o n s is t o f b a n k in g o r fin a n c ia l (ii) i n c l u d e a s t a t e m e n t e i t h e r s h o w i n g b u s i n e s s in t h e U n i t e d S t a t e s ; th e o p e r a t io n s , o r t y p e s o f a c t iv itie s th at u n r e a s o n a b le e ffo r t o r e x p e n s e a m o u n t , t y p e a n d l o c a t i o n o f its p e r m itte d b y r e g u la tio n o r o r d e r u n d e r w o u ld b e i n v o lv e d o r in d ic a t in g th a t th e n o n b a n k in g a c t iv itie s ; a n d w h e th e r s e c t io n 4 (c )(8 ) o f th e B H C A , o n ly w ith c o m p a n y w h o s e s h a r e s w e r e a c q u i r e d is e l i g i b i l i t y o f th e f o r e i g n b a n k i n g th e p r io r a p p r o v a l o f th e B o a r d . n o t c o n t r o ll e d b y th e o r g a n iz a t io n a n d o r g a n iz a t io n w o u ld r e s u lt in u n d u e A c t iv it ie s w ith in D iv is io n H (F in a n c e , s t a t in g t h e r e s u l t o f a r e q u e s t f o r c o n c e n t r a t io n o f r e s o u r c e s , d e c r e a s e d o r In s u r a n c e , a n d R e a l E s ta te ) o f th e S IC in fo rm a tio n . u n fa ir c o m p e t it io n , c o n f li c t s o f in te r e s ts , s h a ll b e c o n s i d e r e d b a n k i n g o r f i n a n c i a l o r u n s o u n d b a n k in g p r a c t ic e s . S u c h o p e r a t i o n s f o r t h is p u r p o s e , w i t h t h e d e t e r m i n a t i o n s h a ll b e s u b j e c t t o a n y e x c e p t i o n o f a c t in g a s o p e r a t o r s o f a n y fo r e ig n g o v e r n m e n t, o r a n a g e n c y o r c o n d it io n s a n d lim it a tio n s im p o s e d b y n o n r e s i d e n t i a l b u i l d i n g s (S I C 6 5 1 2 ), i n s t r u m e n t a l i t y t h e r e o f , if, in t h e o p i n i o n o p e r a t o r s o f a p a r t m e n t b u i l d i n g s (S I C o f th e o r g a n iz a t io n , s u c h r e q u e s t w o u ld 6 5 1 3 ), o p e r a t o r s o f d w e l l i n g s o t h e r t h a n b e h a rm fu l to e x is tin g r e la tio n s h ip s . th e B o a r d . ( f ) P erm issib le a ctivities and in vestm en ts. A f o r e i g n b a n k i n g *“ ‘[FJoreign bank holding company' means a bank holding company organized under the laws of a foreign country, more than half of whose consolidated assets are located or consolidated revenues derived, outside the United States." (12 CFR 22S.4(g)(iii) (1980)). a p a r t m e n t b u i l d i n g s ( S I C 6 5 1 4 ), a n d o p e r a t o r s o f r e s id e n t ia l m o b ile h o m e s i t e s (S I C 6 5 1 5 ); a n d o p e r a t i n g t it le a b s t r a c t o f f i c e s ( S I C 6 5 4 1 ). In a d d i t i o n , th e f o l l o w i n g a c t iv it ie s s h a ll b e (3 ) A r e q u e s t f o r i n f o r m a t i o n r e q u i r e d b y t h is p a r a g r a p h n e e d n o t b e m a d e o f B o a r d o f G o v e r n o r s o f th e F e d e r a l R e s e r v e S y s t e m , D e c e m b e r 4, 1 9 8 0 . Theordore E. Allison, Secretary o f the Board. c o n s id e r e d b a n k in g o r fin a n c ia l (FR Doc. 80-38181 Filed 12-10-80; 8:45 am| o p e r a t i o n s a n d m a y b e e n g a g e d in o n l y BILLING CODE 6210-01-M
@FedFRASER