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Home > News & Events > Financial Institution Letters




Financial Institution Letters

[Federal Register: April 6, 2005 (Volume 70, Number 65)]
[Rules and Regulations]               
[Page 17549-17572]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap05-15]                         


[[Page 17549]]

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Part III





Federal Deposit Insurance Corporation





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12 CFR Parts 303, 325, 327, and 347



International Banking; Final Rule


[[Page 17550]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 325, 327, and 347

RIN 3064-AC85

 
International Banking

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is amending its international banking regulations in 
subpart J of part 303 and revising subparts A and B of part 347. The 
amendments reorganize, clarify, and revise subparts A and B of part 
347, and address various issues raised as part of the FDIC's ongoing 
effort under the Economic Growth and Regulatory Paperwork Reduction Act 
of 1996 (12 U.S.C. 3311). Included in the revisions are amendments that 
address relocation of insured U.S. branches of foreign banks within and 
outside the state where such branches are presently located, adoption 
of a risk-based asset pledge requirement for insured U.S. branches of 
foreign banks, and information and examination requirements for foreign 
banks that own branches or depository institution subsidiaries seeking 
FDIC deposit insurance. The FDIC has also decided to maintain its 
existing position concerning the availability of FDIC deposit insurance 
for wholesale U.S. branches of foreign banks.

DATES: These revisions are effective July 1, 2005.

FOR FURTHER INFORMATION CONTACT: John Di Clemente, Chief, International 
Section, Division of Supervision and Consumer Protection, (202) 898-
3540 or jdiclemente@fdic.gov or Rodney D. Ray, Counsel, Legal Division, 
(202) 898-3556 or rray@fdic.gov, Federal Deposit Insurance Corporation, 
550 17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 19, 2004, the FDIC issued a notice of proposed rulemaking 
(``NPR'') in the Federal Register, with a 60 day comment period, 
regarding proposed amendments to its international banking regulations 
contained in subpart J of part 303, subpart B of part 325, subpart A of 
part 327, and subparts A and B of part 347 of title 12 of the Code of 
Federal Regulations. (69 FR 43060).
    The proposed amendments were intended to accomplish various goals. 
These included implementation of the ``plain language'' requirement 
contained in section 722 of the Gramm-Leach-Bliley Act of 1999 (12 
U.S.C. 4809); addressing certain regulatory burden issues raised in 
public comments as part of the FDIC's ongoing burden reduction effort 
under the Economic Growth and Regulatory Paperwork Reduction Act of 
1996 (EGRPRA)(12 U.S.C. 3311); maintaining parity with Regulation K, 
which was amended by the Board of Governors of the Federal Reserve 
System (``FRB'') in October, 2001; and updating and enhancing the 
FDIC's supervisory processes by revising existing rules and proposing 
certain new rules. In addition, although no amendments were proposed 
regarding the topics, the FDIC requested comments on whether deposits 
in wholesale U.S. branches of foreign banks should be insured by the 
FDIC and whether the accounting regulations contained in subpart C of 
part 347 should be revised.
    The comment period closed on September 17, 2004. Comments were 
received from the American Bankers Association (``ABA''), the Institute 
for International Bankers (``IIB''), and the Conference of State Bank 
Supervisors (``CSBS'') regarding issues addressed in the NPR. In 
addition, at the IIB's request, FDIC staff met with representatives of 
the IIB and representatives of its constituent foreign banks regarding 
the IIB's EGRPRA suggestions and issues addressed in its comment 
letter.\1\ No comments were received regarding subpart C of part 347 
and, therefore, none of the rules in that subpart are being amended in 
the final rule.
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    \1\ A meeting summary and list of participants is available on 
the FDIC's Web page at http://www.fdic.gov/regulations/laws/federal/04cMEETING.html
.

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    A discussion of the comments and changes to the proposal that are 
being adopted in this final rule are presented below.

II. International Banking Procedural, Capital Maintenance, Assessment 
Rules

    Subpart J of part 303 contains the FDIC application procedures that 
implement the international banking regulations in part 347, subparts A 
and B. Although the NPR contained several amendments to the subpart J 
regulations, most of them consisted of technical amendments because of 
the substantial restructuring being proposed for the regulations in 
part 347. There were no comments on those amendments and the FDIC is 
adopting them as proposed.
    In addition to the technical amendments, the FDIC proposed to amend 
section 303.184, which addresses moving an insured branch of a foreign 
bank (``grandfathered branch''),\2\ by specifying that expedited 
processing could be provided for applications involving intrastate 
relocations of eligible grandfathered branches. This amendment was 
added to address concerns expressed by the IIB that grandfathered 
branches would be precluded from moving or relocating from their 
existing locations if their proposed relocations were made subject to 
the ``immediate neighborhood'' geographic relocation requirement 
applied to proposed branch relocations of state nonmember banks in 
section 303.41(b). In their comments, the ABA and IIB expressed support 
for the proposed amendment but the IIB indicated that it assumed that 
the FDIC would subject a proposed interstate relocation to standard 
processing and requested that the FDIC clarify this point in the final 
rule. The FDIC has considered the IIB request and has added a new 
paragraph (e) to section 303.184 to address standard processing of 
applications to relocate a grandfathered state branch to another state. 
In doing so, the FDIC believes it is appropriate to address a state 
licensing issue raised by the IIB comment letter and to ensure that the 
rule will only be utilized for legitimate relocations of existing 
grandfathered state branches and not simply to recharacterize the 
establishment of a new foreign branch in another state as a ``move'' or 
``relocation'' of a grandfathered state branch to avoid compliance with 
the subsidiary requirement contained in section 6(d) of the IBA. 
Therefore, under section 303.184, as revised by this final rule, in 
addition to satisfying the criteria contained in paragraph (d), a 
foreign bank proposing to relocate a grandfathered state branch to 
another state without affecting its grandfathered status will be 
required, under paragraph (e), to comply with any applicable state laws 
and regulations of the states affected by the proposed relocation. In 
addition, because the foreign bank will be relocating its whole 
grandfathered branch operation from one state to another (not creating 
an additional out-of-state branch of the grandfathered branch, which 
would not be allowed), the existing license of the branch in the state 
from which it is moving may need to be surrendered or cancelled and a

[[Page 17551]]

new license obtained in the state to which the branch is relocating. To 
avoid a ``break'' in the existence of the grandfathered branch, which 
may create an issue regarding compliance with the subsidiary 
requirement contained in section 6(d) of the IBA, the rule also 
specifies that the foreign bank must obtain any required regulatory 
approvals from the appropriate state licensing authority of the state 
to which the insured branch proposes to relocate before relocating the 
existing branch operations and surrendering its existing license to the 
appropriate state licensing authority of the state from which the 
branch is relocating.
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    \2\ A grandfathered branch of a foreign bank is a U.S. branch of 
a foreign bank that obtained FDIC deposit insurance prior to 
December 19, 1991 and is authorized to accept or maintain domestic 
retail deposit accounts pursuant to section 6(d)(2) of the 
International Banking Act (``IBA'')(12 U.S.C. 3104(d)(2)).
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    In addition to the amendments proposed in subpart J of part 303, 
the FDIC also proposed revisions to sections 325.103 and 327.4, 
regarding capital maintenance and the annual assessment rate, 
respectively, for insured U.S. branches of foreign banks. The 
amendments were proposed to conform those sections with proposed 
amendments to the FDIC's asset pledge and asset maintenance 
requirements contained in subpart B of part 347. Because the FDIC has 
decided to maintain the existing quarterly calculation methodology for 
asset maintenance in the final rule, for the reasons discussed 
subsequently in connection with section 347.210, the reference to the 
``insured branch's daily third-party liabilities'' has been eliminated 
in the final rule.

III. Foreign Banking and Investment by Insured State Nonmember Banks

    Subpart A of part 347 primarily addresses branching, investments, 
and permissible activities of state nonmember banks in foreign 
countries. The FDIC proposed various amendments in the NPR that 
reorganized the existing sections in the subpart and clarified their 
coverage. For example, the FDIC proposed to divide particularly complex 
sections, such as existing section 347.104 into sections 347.104 
through 347.110, which are less complex sections but accomplish a 
similar result. The FDIC also proposed to move and consolidate existing 
sections based on the subject matter addressed to make the requirements 
easier to locate and understand. For example, existing sections 
347.103, addressing foreign branch powers and FDIC consent 
requirements, and 347.108, addressing FDIC consent requirements for 
foreign investments, were made sections 347.115 (permissible activities 
for foreign branches), and 347.117 (general consent for foreign 
branches and investments), 347.118 (expedited processing for foreign 
branches and investments, and 347.119 (specific consent). The 
discussion that follows is provided to explain a few of the more 
significant amendments to the subpart.
    The FDIC proposed to revise existing sections 347.103 and 347.104 
in the NPR to better address the interplay between the FDIC's part 362 
and part 347. This revision was accomplished in two ways. First we 
separated the substance of existing section 347.104(f), dealing with 
direct and indirect investments in foreign organizations, into section 
347.104 in the proposed rule.\3\ Second, we created ``permissible 
activities'' sections for state nonmember banks and their subsidiaries 
in section 347.105(b) out of existing section 347.104(a)-(b) and for 
foreign branches of state nonmember banks in section 347.115(a)-(g) out 
of existing section 347.103(a). In addition, the order and list of 
activities authorized for state nonmember banks and their subsidiaries 
and foreign branches of state nonmember banks were revised to more 
closely track the order of the activities listed as permissible for 
member banks and their subsidiaries or foreign branches of member banks 
under the corresponding provision in Regulation K. This revision will 
make the comparison easier between activities authorized under subpart 
A of part 347 and those authorized under Regulation K for branches of 
member banks or member banks and their subsidiaries. The FDIC also 
added paragraph (d) to proposed section 347.105 and paragraph (h) to 
proposed section 347.115, for clarification, to generally address when 
activities, other than those authorized by the respective sections, may 
be authorized by specific consent under part 347 or when authorization 
for the activities must be obtained under part 362 as well as subpart A 
of part 347.
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    \3\ Like existing section 347.104(f), section 347.104 recognizes 
that the FDIC's treatment of direct and indirect investments by 
state nonmember banks in foreign organizations differs from the 
treatment such investments are provided in Regulation K for member 
banks. This is because of differences in the underlying statutory 
provisions governing member and state nonmember banks. Unlike member 
banks, whose investments are constrained by the language of section 
25 of the Federal Reserve Act (12 U.S.C. 601), section 18(l) of the 
FDI Act permits state nonmember banks to invest in foreign ``banks 
and other entities,'' to the extent authorized by state law. Thus, 
considering the legislative history of section 18(l), and the 
language of the statute, the FDIC has interpreted section 18(l) as 
not restricting the types of foreign organizations in which a state 
nonmember bank can invest.
    The ability of insured state nonmember banks to invest in other 
types of foreign organizations, however, raises issues under section 
24 of the FDI Act (12 U.S.C. 1831a) and part 362 because national 
banks are unable to invest directly in nonbank foreign 
organizations. Section 24 prohibits an insured state nonmember bank 
from acquiring an equity investment that a national bank is not 
permitted to acquire. Such an investment may be made under section 
24, subject to FDIC approval, however, if the investment is made 
through a majority-owned subsidiary of the bank. It may also be made 
if a company becomes majority-owned by the bank as a result of the 
investment and the ``as principal'' activities of the company are 
ones in which a subsidiary of a national bank could engage. 
Ownership of more than 50 percent of the equity in a nonbank foreign 
organization makes that organization a majority-owned subsidiary 
and, thus, no section 24 analysis is required because such a 
subsidiary is authorized only to engage in the same activities that 
the FRB has authorized for subsidiaries of member banks (and thus 
national banks) under Regulation K. In addition, while it is 
unnecessary for insured state nonmember bank investments of 50 
percent or less of the equity of a nonbank foreign organization to 
be held through an intermediate foreign bank subsidiary or Edge 
subsidiary as required under Regulation K, those investments are 
required to be held through some form of U.S. or foreign majority-
owned subsidiary in order to comply with the requirements of section 
24 and part 362.
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    The ABA commented on the proposed amendment to section 347.115, 
including another FDIC proposal adopting the same definition of 
``investment grade'' that had been adopted by the FRB and the OCC. In 
its comment, the ABA noted that the adoption of the same approach to 
``investment grade'' was a substantive improvement, which it supported. 
It also expressed support for the addition of section 347.115(h), 
discussed above.
    The FDIC also proposed to amend its authorization for ``general 
consent'' in two ways. The first way was to allow insured state 
nonmember banks to branch into a foreign country under general consent 
in circumstances covered by proposed section 347.117(a)(1)(ii) or 
(iii). This change would allow an eligible state nonmember bank to 
establish additional branches in a country in which the bank's holding 
company operates a foreign bank subsidiary, or in which an affiliated 
bank or Edge or Agreement corporation operates one or more foreign 
branches or foreign bank subsidiaries and allow for an after-the-fact 
notification to the FDIC in those circumstances, rather than requiring 
prior approval under expedited processing, as is presently required 
under section 347.103(c)(1). The second way was to grant general 
consent to invest in a foreign organization, under proposed section 
347.117(b)(2), when at least one insured state nonmember bank operates 
a foreign branch in the relevant foreign country where the organization 
will be located because of the FDIC's familiarity with the banking laws 
and practices of that country. The ABA commented on this amendment and 
expressed support for the proposed change in general consent for 
foreign branches.

[[Page 17552]]

    Although the FDIC received no comments on the proposed revision for 
foreign investments, an additional clarification to proposed section 
347.117(b)(2) is included in this final rule. As indicated in the 
discussion contained in the NPR, when the FDIC amended its foreign 
banking regulations in 1998, it declined to adopt a suggestion that the 
FDIC grant general consent to invest in a foreign organization when at 
least one insured state nonmember bank operates a foreign branch in the 
relevant foreign country. This was due to concerns that ``nameplate'' 
branches being operated in foreign countries might fall within the 
scope of the authorization. In the discussion of the proposed amendment 
in the NPR, the FDIC indicated that it believed most nameplate branches 
would be operated in jurisdictions where authority to invest in foreign 
organizations by general consent would be inapplicable under section 
347.119(a). Although the FDIC believes the discussion in the NPR was 
correct, it is concerned that the standard may be somewhat imprecise. 
Therefore, the text contained in section 347.117(b)(2) has been revised 
in the final rule to clearly indicate that the existence of a ``shell 
branch'' (a term that the FDIC intends to be synonymous with the term 
``nameplate branch'') in a foreign country will not provide a basis for 
investment by general consent under section 347.117(b).
    Finally, the proposal contained a new section 347.122, which was 
intended to enhance the FDIC's existing supervisory authority. The 
section recognizes that the FDIC may, under section 18(d)(2) and 18(l) 
of the FDI Act, condition the authority granted under subpart A as it 
considers appropriate and provide for termination of activities or 
divestiture of investments permitted under the subpart, after giving 
the bank notice and a reasonable opportunity to be heard, if a bank is 
unable or fails to comply with the requirements of the subpart or any 
conditions imposed by the FDIC regarding transactions under the 
subpart. The only comment on the section was submitted by the ABA, 
which expressed no opposition to the new section.
    After considering the proposed amendments contained in the NPR and 
the comments submitted thereon, except as otherwise stated above, the 
FDIC is adopting all of the amendments to subpart A of part 347 in this 
final rule as they were proposed.

IV. Foreign Banks

    The existing rules in part 347, subpart B primarily implement 
provisions of the FDI Act and International Banking Act concerning 
insured and noninsured U.S. branches of foreign banks. The FDIC 
proposed reorganizing the subpart by grouping the existing sections 
that were applicable to insured State and Federal branches at the 
beginning of the subpart, followed by the sections applicable to only 
State branches. In addition to several minor revisions to the existing 
sections, the FDIC also proposed more substantive amendments. These 
included revising its existing rules to update its foreign examination 
and information rule and applying them to U.S. banking subsidiaries of 
foreign banks, addressing how a grandfathered branch could be 
transferred to a new foreign bank owner and retain the branch's 
grandfathered status, adopting a risk-based approach for its asset 
pledge rule, and revising its asset maintenance rule to compute asset 
maintenance requirements based on a daily calculation of the third-
party assets and liabilities. Finally, the FDIC proposed a new rule to 
facilitate cross-border supervision of insured U.S. branches of foreign 
banks and insured U.S. bank subsidiaries by providing for the sharing 
of supervisory information between the FDIC and foreign bank regulatory 
or supervisory authorities and addressing the confidentiality of such 
information. These more substantive amendments are discussed in greater 
detail below.
    Section 347.208 of the FDIC's existing rules addresses foreign bank 
agreements with the FDIC to be examined and provide information. The 
regulation implements section 10(b) of the FDI Act (12 U.S.C. 1820(b)) 
and was initially issued in 1979. Although the regulation addresses 
foreign banks applying for deposit insurance for U.S. branches, it does 
not address deposit insurance applications of U.S. depository 
institution subsidiaries of foreign banks.\4\
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    \4\ The statute requires a foreign bank, in connection with 
obtaining deposit insurance for a branch or depository institution 
subsidiary, to submit a binding written commitment to the FDIC to 
permit any examination of the affairs of any affiliate of the branch 
or depository institution subsidiary to the extent necessary to 
determine: (1) the relationship between the depository institution 
and the affiliate and (2) the effect of such relationship on such 
depository institution.
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    To update the rule and enhance the FDIC's supervisory authority, 
the FDIC proposed to redesignate the rule as section 347.204 and 
substantially amend it to make it more useful. As envisioned in the 
proposal, the amended rule would have addressed several issues. It 
would have made the rule applicable to U.S. depository institution 
subsidiaries, as well as U.S. branches, of a foreign bank seeking 
deposit insurance from the FDIC. It also would have required the 
foreign bank to provide the FDIC with a written commitment (including 
the foreign bank's consent to U.S. court jurisdiction and designation 
of agent for service of process, acceptable to the FDIC) to:
     Permit examination of the foreign bank and affiliates 
located outside the U.S.;
     Provide information regarding the foreign bank and 
affiliates located outside the U.S.; and
     Permit examination and provide information regarding the 
offices and affiliates of the foreign bank that are located in the U.S.
    In addition, the proposal would have allowed the FDIC to waive the 
foreign examination provision if the FRB had determined that the 
foreign bank was subject to comprehensive consolidated supervision 
(``CCS''). It also would have allowed for the FDIC, in its discretion 
and subject to the requirements specified in the regulation, to waive 
some or all of the commitment requirements imposed by the section in 
lieu of requiring its own separate commitment from the foreign bank.
    There were two comments on proposed section 347.204. The ABA 
expressed support for the proposed amendments to the section. The IIB 
expressed concerns, however, about what it viewed as exertion of 
``extraterritorial'' examination authority over non-U.S. offices and 
affiliates of foreign banks. The IIB also asserted that the proposal 
would reverse the FDIC's longstanding position, dating back to 1979, 
when the original rule was adopted, when the FDIC recognized that 
despite its broad statutory authority to conduct such examinations, 
home country laws typically would prohibit the FDIC from doing so. 
Therefore, the IIB observed, the FDIC adopted a compromise under which 
it asserted examination authority only over U.S. branches and 
affiliates and required an agreement to provide information concerning 
operations of non-U.S. offices and affiliates. The IIB also felt that 
the proposed foreign examination provision was largely unnecessary 
because the proposed rule contained waiver authority for foreign banks 
that had been determined to be subject to CCS. It noted that section 3 
of the Bank Holding Company Act (12 U.S.C. 1842) required a finding of 
comprehensive consolidated supervision by the FRB before a foreign bank 
could acquire or establish a U.S. commercial bank subsidiary and that 
the acquisition by a foreign bank of control of a savings

[[Page 17553]]

association was subject to a CCS determination by the OTS.
    The FDIC has reviewed and considered the comments on proposed 
section 347.204, as well as the information and an examination 
requirement contained in existing section 347.208, and has decided to 
make several revisions to section 347.204 in the final rule.
    Although the IIB did not specifically reference the 1979 statement 
mentioned in its comment, the FDIC believes that the reference was to a 
comment contained in the preamble to the proposed rule for the FDIC's 
initial foreign banking regulations. In that notice, the FDIC observed:

    The FDIC is aware that most foreign banks would be prohibited, 
or at least restricted, by law or policy of the country of the 
bank's domicile from providing such a commitment. Were the FDIC to 
require a commitment allowing the FDIC to conduct a full examination 
of the bank, it is probable that no foreign bank could operate an 
insured branch. This result clearly is not intended. Thus, the FDIC 
proposes that a foreign bank agree to provide the FDIC with 
information regarding the affairs of the bank and its affiliates 
which are located outside the United States. As to activities within 
the United States, the bank shall agree to allow the FDIC to examine 
the affairs of the bank and its affiliates. 44 FR 23869, 23871 
(April 23, 1979).

    The FDIC believes that this conservative approach may have been 
prudent in the context of foreign banks seeking deposit insurance for 
U.S. branches in the late 1970s but that the approach has become 
somewhat outdated and the rule should be more reflective of the 
supervisory structure that is currently in existence. In this regard, 
it is noted that the underlying statutory provision in the FDI Act and 
the initial regulation preceded the failure of the Bank of Credit and 
Commerce International (``BCCI'') in the early 1990s, which had an 
impact on certain insured depository institutions in the United States 
that had undisclosed relationships with BCCI. The underlying statutory 
provision and initial regulation also preceded the enactment of 
statutory amendments to the IBA, Bank Holding Company Act, and Home 
Owners Loan Act, as part of the Foreign Bank Supervision and 
Enforcement Act of 1991,\5\ that require comprehensive consolidated 
supervision determinations in certain circumstances by the appropriate 
Federal banking agency under those statutes, including the initial 
acquisition of control or establishment of a U.S. bank, savings 
association, branch, agency, or representative office. Because the 
appropriate Federal banking agencies consider, as part of their CCS 
determination, whether the foreign bank's home country supervisor 
receives sufficient information on the worldwide operations of the 
foreign bank to assess its overall financial condition and compliance 
with laws and regulations, as specified in 12 CFR 211.24(c)(ii), the 
FDIC believes acceptable commitments and assurances of cooperation by 
the foreign bank, coupled with appropriate supervisory coordination and 
communication with the home country regulator may be sufficient to 
satisfy the examination commitment for a foreign bank and its 
affiliates outside the U.S. Thus, a CCS determination from the 
appropriate Federal banking agency should reduce the need for foreign 
examination commitments. Therefore, the section has been rewritten to 
eliminate the foreign examination commitment requirement as a 
prerequisite for obtaining consideration of a deposit insurance 
application if the foreign bank has been determined to be subject to 
CCS by the appropriate Federal banking agency.\6\
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    \5\ Pub. L. 102-242, 105 Stat. 2236, 2286 (1991).
    \6\ In the event that the FDIC receives an application for 
deposit insurance for a U.S. banking subsidiary of a foreign bank 
that has not been determined to be subject to CCS by an appropriate 
Federal banking agency, the FDIC expects the foreign bank to provide 
the commitments required by section 347.204 and it may also require 
the foreign bank to provide the FDIC such additional commitments and 
assurances as the FDIC considers necessary under the circumstances.
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    The FDIC has also revised the final rule to eliminate the waiver 
provisions contained in paragraph (b) of the proposal. The first waiver 
provision concerned the foreign examination commitment, which is no 
longer addressed in paragraph (a) of the final rule. In addition, the 
other waiver provision, regarding waivers for commitments provided to 
other Federal banking agencies, has been deleted. Although the latter 
provision was intended to avoid the appearance of duplication, the FDIC 
is concerned that such waivers may create the potential for uncertainty 
regarding the FDIC's authority under the commitments. Thus the FDIC 
believes the potential enforcement difficulties attendant to such 
waivers outweigh the potential benefits of such waiver authority.
    The FDIC also has revised the consent to jurisdiction and 
designation of agent provisions in the final rule to clarify those 
provisions by eliminating the ``court'' and ``process'' references. The 
FDIC presently requires that foreign owners of insured depository 
institutions, including foreign banks, provide consents to personal 
jurisdiction that are acceptable to the FDIC; however, the consents are 
not limited merely to court proceedings.\7\ Thus, the consent to 
jurisdiction and designation of agent provisions have been revised in 
the final rule to avoid giving the erroneous impression that consents 
to jurisdiction and designations of agents that are limited to consent 
to jurisdiction of the U.S. courts and service of process in court 
proceedings will be acceptable to the FDIC.
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    \7\ The consents to jurisdiction and designation of agent that 
the FDIC presently uses also include consent to agency jurisdiction 
and investigations for various supervisory and enforcement purposes.
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    Section 347.204(b)(3) of the proposal has also been made paragraph 
(b) in the final rule and revised. Because the FDIC believes that an 
acceptable consent to U.S. jurisdiction and designation of agent for 
service are essential components needed to obtain binding commitments 
from the foreign bank, the final rule clarifies that the consent to 
jurisdiction and designation of agent for service (and any limitations 
on the FDIC's ability to utilize them) will be considered together with 
the commitments provided by the foreign bank. Additionally, as revised 
by the final rule, the section recognizes that the FDIC also has 
discretion to consider any additional commitments or assurances by the 
foreign bank, including that it will cooperate and assist the FDIC, 
including, without limitation, by seeking to obtain waivers and 
exemptions from applicable confidentiality or secrecy restrictions or 
requirements to enable the foreign bank or its affiliates to make such 
information available to the FDIC.
    Therefore, the FDIC is adopting section 347.204, as revised in this 
final rule, for application to deposit insurance applications of U.S. 
branches and depository institution subsidiaries of foreign banks.
    Another issue addressed in the proposal was an amendment contained 
in proposed section 347.206(d), concerning the transferability of 
grandfathered branches to new foreign banks. As indicated in the 
proposal, section 347.206 of the proposal is largely derived from 
existing section 347.204(a)-(c) and implements section 6(d) of the IBA 
(12 U.S.C. 3104(d)).\8\
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    \8\ Section 6(d) of the IBA allows any insured branches that 
were accepting or maintaining domestic retail deposit accounts on 
December 19, 1991, to continue to operate as ``grandfathered'' 
insured branches conducting domestic retail deposit activities.
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    As part of the EGRPRA process the IIB requested that the FDIC adopt 
an interpretation of section 6(d) that would

[[Page 17554]]

allow the grandfathered branch status of an insured U.S. branch of a 
foreign bank to survive the sale or transfer of the branch from one 
foreign bank to another foreign bank. As indicated in the proposal, the 
IIB's view was that because the availability of the grandfather 
exception appears to be conditioned upon a single exception (that the 
branch was insured as of December 19, 1991), it was inconsistent with 
the plain meaning of the statute to include an additional condition 
(that is, the branch was not transferred after December 19, 1991). The 
IIB also observed that other grandfather provisions enacted by Congress 
in the same statute expressly state that those grandfather rights 
terminate upon a change in control. Therefore, the absence of such a 
provision in the grandfathered branch exception, it was argued, 
indicates that Congress did not intend that an insured branch would 
lose its grandfathered status upon its sale or transfer. Additionally, 
the IIB observed that permitting transfers of grandfathered branches 
would provide an option for other foreign banks that would like to 
establish FDIC-insured branches but are constrained from doing so by 
the subsidiary requirement in section 6(d) of the IBA. Finally, it was 
observed that depositors would not lose the protections of deposit 
insurance solely as a result of the sale or transfer of an insured 
branch.
    Having considered these points in the proposal, the FDIC observed 
that it had narrowly construed the exception in the past and that a 
broad reading of the grandfather exception requested would be at odds 
with the distinct preference Congress stated in section 6(d) of the IBA 
of making foreign banks desiring to engage in new domestic retail 
deposit activities requiring deposit insurance after December 19, 1991 
do so through insured banking subsidiaries. The FDIC also noted that it 
was a well recognized rule of statutory construction that in 
ascertaining the plain meaning of a statute it is appropriate to look 
to the particular statutory language at issue, as well as the language 
and design of the statute as a whole. By reading the statute as a 
whole, rather than merely focusing on the precise language of the 
grandfathered branch exception, the proposed broad reading of the 
exception was contrary to the direction Congress provided in section 
6(a) of the IBA, regarding implementation of the section, because 
purchasers of grandfathered branches could avoid forming and 
capitalizing banking subsidiaries to engage in domestic retail deposit 
activity in the U.S., rather than following the same process required 
for domestic banks of establishing and capitalizing a distinct 
corporate entity and applying for deposit insurance.
    The FDIC recognized, however, that its existing regulations did not 
address this issue and that there may be other situations, such as 
certain merger and acquisition transactions, that are not designed or 
motivated by the desire to obtain access to the domestic retail deposit 
market and avoid compliance with the subsidiary requirement in section 
6(d) of the IBA, where the grandfathered status of an insured branch 
should remain intact. Therefore, the FDIC proposed to address the issue 
by providing in section 347.206(d) of the proposal that in certain 
circumstances, such as certain merger and acquisition transactions, 
which are not designed or motivated by the desire to obtain access to 
the domestic retail deposit market and avoid compliance with the 
subsidiary requirement in section 6(d) of the IBA, the grandfathered 
status of an insured branch should remain intact following the 
transaction.
    The FDIC received comments from the ABA and IIB on the proposed 
amendment. The ABA indicated that it did not oppose the amendment, 
noting that it appeared to state explicitly what has been considered to 
be the law implicitly. The IIB, however, reiterated its previously 
expressed view that there was adequate legal authority for the FDIC to 
permit, rather than prohibit, the transferability of an insured branch 
to another foreign bank without the loss of its grandfathered status. 
It also suggested that permitting the grandfathered status of the 
remaining 12 FDIC-insured branches to survive a transfer of the branch 
would not be fundamentally inconsistent with the 1991 Congressional 
determination that foreign banks seeking to engage in new domestic 
retail activity do so through subsidiaries rather than branches.
    As indicated earlier, the IIB's legal and policy arguments on the 
transferability issue were submitted prior to the issuance of the 
proposal and were considered and discussed in the proposal. Although 
the FDIC recognizes that it might be possible to make legal and policy 
arguments supporting the IIB's proposed broad reading of the 
grandfather exception, the FDIC continues to believe that the exception 
should be construed narrowly, since it is contrary to Congress' general 
direction that foreign banks only engage in retail deposit taking after 
December 19, 1991, through banking subsidiaries with deposit insurance 
and that the statute not be construed to provide foreign banks with a 
competitive advantage over domestic banks.
    The IIB also noted that requiring a specific proper motivation in a 
merger and acquisition might even call into question the survival of 
grandfathered status following a change in control of the foreign 
parent bank. It suggested, regardless of the FDIC's treatment of the 
broader transferability issue, that the FDIC clarify that changes in 
control of the foreign parent bank will not terminate the grandfathered 
status of existing insured branches.
    The FDIC believes that it may be problematic to make a general 
statement such as that requested by the IIB in the context of a 
rulemaking proceeding. The FDIC believes that a change in ownership of 
a foreign bank that owns an insured branch may affect the FDIC's 
interest in the insured institution and that the FDIC should have an 
opportunity to evaluate the transaction before it is finalized. 
Therefore, since the universe of grandfathered insured branches of 
foreign banks is very limited, the FDIC believes that it is more 
appropriate for a foreign bank considering this type of transaction to 
discuss its planned structure with FDIC staff to evaluate whether the 
grandfathered status of the branch will remain intact following the 
proposed change in control of the existing foreign bank owner.
    Therefore, for the reasons previously stated, the FDIC is adopting 
section 347.206, as proposed, in the final rule.
    The FDIC also proposed to add a new section 347.207 to the subpart 
to facilitate cross-border supervision of insured U.S. branches and 
banking subsidiaries of foreign banks by providing for the sharing of 
supervisory information between the FDIC and foreign bank regulatory or 
supervisory authorities. As indicated in the proposal, the section was 
patterned after section 15 of the IBA (12 U.S.C. 3109) and 12 CFR 
211.27. It also addressed the confidentiality of such information, 
based upon the FDIC's interpretation of section 8(v) of the FDI Act (12 
U.S.C. 1818(v)), by providing that the disclosure or transfer of such 
information to a foreign bank regulatory or supervisory authority will 
not waive any privilege applicable to such information. The ABA's 
comment indicated that it supported the addition of the provision and 
it is being adopted in the final rule without further amendment.
    In amendments contained in section 347.209 of the proposal, the 
FDIC proposed to revise the 5 percent asset pledge requirement, 
contained in existing section 347.210, to make it

[[Page 17555]]

more risk-focused and take into consideration characteristics that may 
be unique to each insured branch. As discussed in the proposal, under 
the amended rule, the asset pledge requirement would be determined in a 
manner similar to the approach the FDIC has taken with its risk-based 
deposit insurance assessment system. In addition, any newly insured 
branch would be subject to at least a 5 percent asset pledge 
requirement throughout the first three years of its operations as an 
insured branch.\9\ After the first three years of operations as an 
insured branch, the asset pledge amount would be adjusted by taking 
into consideration the percentage of assets maintained by the insured 
branch, pursuant to section 347.210, and the supervisory information 
relative to the branch at issue. It was also envisioned that the most 
recent ROCA rating \10\ for the insured branch will be a focal point of 
such supervisory information but, as with the risk-based premium 
system, the FDIC could also consider other supervisory information that 
it considered appropriate to fully evaluate the potential risk posed by 
the insured branch in determining the supervisory subgroup assignment 
for the branch. The appropriate percentage of assets required to be 
pledged would then be determined based on the supervisory risk subgroup 
assigned and the asset maintenance level applicable to the branch. The 
amended section would generally permit the asset pledge to be lowered 
to not less than 2 percent of third-party liabilities for insured 
branches that were perceived to pose a lower potential risk and up to 8 
percent of liabilities for insured branches that were perceived to pose 
a higher potential risk to the deposit insurance fund. In addition, the 
FDIC's ability to require a higher percentage of pledged assets in 
appropriate circumstances would remain unchanged.
---------------------------------------------------------------------------

    \9\ The asset pledge requirement of newly insured branches has 
been revised in the final rule to provide that the pledge will be 
based on the branch's projection of its liabilities at the end of 
each year during the first three years of its operations. This 
revision is intended to avoid requiring a newly insured branch to 
pledge assets based on its third year projected liabilities, which 
will likely reflect its largest liability balance, during its first 
and second years of operations, when its projected liabilities will 
presumably be lower.
    \10\ The ROCA system represents the rating of risk management, 
operational controls, compliance, and asset quality of a Foreign 
Banking Organization's U.S. operations.
---------------------------------------------------------------------------

    The FDIC also proposed amendments to the ``eligible collateral'' 
portion of the rule to specify that ``negotiable'' certificates of 
deposit (``CDs'') with waivers of offset from their issuers, but not 
non-negotiable CDs with waivers of offset from their issuers, and U.S. 
Treasury bills would be considered eligible collateral under the rule.
    All of the commenters discussed the proposed amendments to this 
rule. The CSBS observed that the asset pledge and asset maintenance 
requirements were extremely important and valuable supervisory tools. 
It also observed that, while the role of the state asset pledge and 
asset maintenance requirements is paramount for the protection of 
creditors of uninsured branches, in the unique situation where retail 
deposits are insured by the FDIC, the major objective is the protection 
of depositors and that certain states had taken the initiative to avoid 
the imposition of double asset pledge requirements by exempting FDIC 
insured branches from state asset pledge requirements. Therefore, given 
the unique situation posed by insured branches of foreign banks and 
lack of effect on state prerogatives, the CSBS indicated that it did 
not object to the proposed amendments to the FDIC asset pledge and 
maintenance rules.
    The ABA expressed general support for the amendments but suggested 
that additional financial instruments be added to the eligible 
collateral list in the rule. The ABA observed that the list of assets 
that foreign banks may pledge under the existing rule includes certain 
negotiable CDs and bankers acceptances issued by state and national 
banks, but does not include the same types of instruments issued by 
state and federal savings associations. The ABA also observed that 
eligible collateral, under the existing rule, includes notes issued by 
banks and bank holding companies but not savings associations and 
thrift holding companies. The ABA believed that there was no reason to 
distinguish between banks, savings associations, and their respective 
corporate parents in this manner, since financial instruments provided 
by these other issuers also would provide the same protection from the 
FDIC.
    The IIB supported adoption of a risk-based asset pledge requirement 
but believed the proposed two percent minimum pledge amount should be 
eliminated in favor of either (i) a completely risk-based requirement 
or (ii) a smaller minimum. The IIB also disagreed with the FDIC's 
proposal to amend the eligible collateral requirement to require 
negotiable CDs with waivers of offset because of the practical burdens 
associated with requiring grandfathered branches to substitute 
negotiable CDs with waivers of offset for non-negotiable CDs with 
waivers of offset. It also observed that non-negotiable CDs with 
waivers of offset had been considered acceptable collateral for over 20 
years.
    The FDIC has considered the comments and is making certain 
amendments to section 347.209 in the final rule. The FDIC asset pledge 
requirement was established to provide the FDIC deposit insurance funds 
protection against losses on insured deposit claims by depositors of 
U.S. branches of foreign banks. While the FDIC is aware that the level 
of assets required to be pledged to the FDIC by a foreign bank may have 
an economic impact on the foreign bank, the FDIC's paramount interests 
are maintaining and protecting the resources of the deposit insurance 
funds that it administers and honoring its deposit insurance 
obligations to depositors of insured U.S. branches of foreign banks. 
Inherent in the asset pledge requirement, regardless of asset 
maintenance requirements imposed on U.S. branches, is the possibility 
that those U.S. branch assets may not be sufficient to pay the claims 
of domestic creditors, including the FDIC. Therefore, the FDIC believes 
that the proposed risk-based approach, including the two percent 
minimum requirement, represents the best compromise between the 
interest of the FDIC in assuring that the deposit insurance funds that 
it administers are protected and the financial interests of foreign 
banks in the pledged assets.
    For similar reasons, although the FDIC may have allowed non-
negotiable CDs to be treated as eligible collateral in the past, the 
FDIC is concerned that considering non-negotiable certificates of 
deposit as the equivalent of negotiable certificates of deposit, for 
asset pledge purposes, fails to take into consideration the potentially 
decreased value of non-negotiable certificates of deposit in the event 
of a forced sale, which is precisely the time the FDIC would be most 
concerned about their value, because of their non-negotiability. 
Therefore, except as provided in the final rule, the FDIC is adopting 
the proposal to allow only negotiable CDs with waivers of offset to be 
treated as eligible collateral for purposes of section 347.209. A 
limited exception is provided in the final rule, however, to treat non-
negotiable CDs that insured branches have pledged on March 18, 2005 as 
eligible collateral until those certificates of deposit mature 
according to the original terms of their existing deposit 
agreements.\11\ Finally,

[[Page 17556]]

the FDIC agrees with the ABA's recommendation concerning other types of 
eligible collateral and the final rule has been amended to include 
those additional types of financial instruments.
---------------------------------------------------------------------------

    \11\ The FDIC recognizes that obtaining waivers of offset from 
issuers of negotiable certificates of deposit may make the pledge of 
certificates of deposit less attractive to foreign banks but there 
are several other types of financial instruments specified in the 
rule, besides certificates of deposit, that can be pledged by 
foreign banks to meet the collateral requirements.
---------------------------------------------------------------------------

    The FDIC also proposed various amendments relating to the asset 
maintenance calculation for insured branches, in section 347.210 of the 
proposal, including a revision that would have required insured 
branches to maintain eligible assets at a ratio of not less than 106 
percent of the insured branch's daily third-party liabilities, rather 
than based upon the preceding quarter's average book value of the 
insured branch's liabilities. The amendment was proposed to avoid 
potential anomalies that could be caused by using liability information 
from the preceding quarter, such as instances where grandfathered 
branches that were winding down their operations needed to calculate 
their asset maintenance on a daily basis to maintain compliance with 
the rule.
    Two of the commenters addressed this revision. The ABA expressed 
support for the amendment. The IIB, however, suggested that the mere 
change of the longstanding quarterly calculation method would impose 
systems and other burdens on insured branches that it felt could be 
avoided by the FDIC continuing to resolve such situations on a case-by-
case basis. The IIB also suggested that the FDIC might consider a 
specific modification to the existing asset maintenance requirement for 
branches that are winding down their operations.
    The FDIC has considered the comments, as well as the IIB's 
representations to FDIC staff that it is less difficult to calculate 
asset maintenance, based on fixed liability numbers, than based on the 
daily assets and liabilities of a branch, which can fluctuate, and has 
decided to retain the substance of the asset maintenance requirements 
specified in existing section 347.211(a). In doing so, the FDIC notes 
that the daily calculation method specified in the existing rule may be 
used to address situations where the quarterly calculation method is 
considered inappropriate from a supervisory perspective. This authority 
may be utilized, in the FDIC's discretion, in instances where the 
current third-party liabilities of a branch decline or increase 
substantially in relation to the average book value of the branch's 
third-party liabilities for the preceding quarter. In addition, 
appropriate conforming changes are also being made in the final rule to 
section 347.210(d), based on revisions being made to paragraph (a).
    There were no public comments on the proposed amendments to subpart 
B, other than those discussed above, and they are being adopted in the 
final rule, with the revisions previously discussed.

V. Deposit Insurance for Wholesale U.S. Branches of Foreign Banks

    The FDIC included a request for comments in the NPR concerning 
whether the FDIC should revise its existing views regarding the 
availability of FDIC insurance for wholesale U.S. branches of foreign 
banks.
    As explained in the NPR, the IIB expressed the view that some 
foreign banks with U.S. wholesale branches (i.e., branches that are not 
engaged in domestic retail deposit activities that require FDIC 
insurance) may be interested in obtaining deposit insurance but that 
certain statements the FDIC made in the context of a 1998 final rule 
may have had the effect of discouraging international banks from 
applying for ``optional'' deposit insurance and that the FDIC should 
not continue to discourage this effort.
    In that 1998 final rule (63 FR 17056), which accompanied the 
issuance of the FDIC's existing foreign banking rules in 1998, the FDIC 
observed that because section 5(b) of the FDI Act (12 U.S.C. 1815(b)), 
addressing deposit insurance applications for U.S. branches of foreign 
banks, had not been repealed, it arguably may be possible for a U.S. 
branch of a foreign bank that does not engage in domestic retail 
deposit activity to seek deposit insurance from the FDIC. The FDIC also 
observed, however, that as a practical matter, it did not foresee many 
circumstances in which it could be appropriate for the FDIC's Board of 
Directors to approve such an application, but that the elimination of 
the optional insurance rule would not affect a foreign bank's ability 
to argue that it may make such an application under section 5(b) of the 
FDI Act. Finally, the FDIC noted that the FDIC Board of Directors would 
have to determine whether to actually accept and approve such an 
application, based on its review of the facts and circumstances 
involved, in addition to the pertinent legal and policy considerations.
    Among the arguments the IIB advanced to support an expanded view of 
the availability of deposit insurance for wholesale branches were:
     A ``plain meaning'' construction of section 5(b) permits 
``any branch''--including a wholesale branch--to become insured;
     Congress expressly prohibited foreign banks from obtaining 
FDIC insurance for branches ``engaged in domestic retail deposit 
activities'' but did not remove the statutory provisions authorizing 
foreign banks to apply for deposit insurance for wholesale branches;
     The FDIC's approach ignores significant changes in 
regulatory practices and structures that have occurred since 1991 with 
regard to foreign banks; broader acceptance of the principle of 
``investor choice;'' and rejection of a broader policy to force foreign 
banks to operate in the U.S. only through subsidiaries;
     Wholesale depositors often seek the benefits of FDIC 
insurance--even though the full amount of their deposits may not be 
insured. The ability to offer these benefits through a U.S. branch 
would provide a benefit to customers and increase a foreign bank's 
funding options;
     Optional FDIC insurance is likely to be attractive 
primarily to foreign banks already operating FDIC-insured branches and 
subsidiaries in the U.S. and to a relatively small number of other 
foreign banks, especially those seeking to serve particular ethnic 
markets. As a result, a more liberal policy likely would have a minimal 
effect on the deposit insurance fund; and
     Permitting wholesale branches to obtain deposit insurance 
is consistent with the business model that has been followed by some 
major U.S. banks that have retained insurance while focusing on 
wholesale markets.
    Some of the arguments and observations countering the IIB's 
arguments were:
     Difficulty in reconciling the idea that Congress imposed 
the subsidiary requirement with regard to domestic retail deposit 
activity requiring deposit insurance for the protection of the FDIC 
with the implicit assumption that Congress did not believe such 
protection of the FDIC was needed with regard to wholesale branches of 
foreign banks because the first $100,000 of customer deposits in a 
wholesale branch would be insured to the same extent as deposits 
maintained in any other FDIC insured depository institution;
     Unlike bank subsidiaries, branches function as an integral 
part of the foreign bank itself and do not have their own independent 
board of directors. Thus, the directors of a foreign bank are not 
usually subject to the U.S.

[[Page 17557]]

jurisdiction, and domestic branch personnel essential to explaining 
certain transactions could be transferred beyond the reach of U.S. 
authorities;
     Essential records could also be difficult to reach if they 
are kept at the head office or at branches in other countries;
     A U.S. branch could be subjected to requirements under 
foreign laws or to political or economic decisions of a foreign 
government which conflict with domestic bank regulatory policies;
     Operating through a branch, as opposed to subsidiary 
structure, allows foreign banks the ability to engage in transactions 
with the home office without significant operational restrictions that 
might otherwise be applied to transactions with affiliates of insured 
U.S. banks; and
     Due to the operating relationship of a branch to its home 
office and dependence on the home office for financial support, the 
insolvency of a foreign bank with a multinational branch structure will 
result in the insolvency of the branches and this may pose complicated 
and time-consuming issues regarding the resolution of the branch that 
could more likely be avoided in situations involving banking 
subsidiaries.
    The FDIC received two comments concerning this section. The CSBS 
expressed support for the view that ``optional insurance'' is not 
specifically authorized by statute. The IIB indicated that it continued 
to believe that the FDIC's concerns, such as those regarding the 
potential impact on the FDIC insurance fund, were misplaced or could be 
adequately addressed by other means. The IIB also requested that no 
action be taken on its request to allow it to continue to explore ways 
to address the FDIC's concerns.
    As the FDIC has indicated above, there are arguments that can be 
made for providing deposit insurance coverage to wholesale U.S. 
branches of foreign banks, as well as compelling arguments that can be 
made against providing such coverage. Therefore, the FDIC has decided 
to maintain its previously stated position that, as a practical matter, 
it does not foresee many circumstances in which it could be appropriate 
for the FDIC's Board of Directors to approve such an application and 
that the FDIC Board of Directors would have to determine whether to 
actually accept and approve such an application, based on its review of 
the facts and circumstances involved, in addition to the pertinent 
legal and policy considerations.

VI. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.), the FDIC may not conduct or sponsor, 
and the respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The FDIC has two OMB-approved 
information collections (3064-0125, Foreign Branching and Investment by 
Insured State Nonmember Banks, and 3064-0114, Foreign Banks) that cover 
the paperwork burden associated with subparts A and B of part 347. The 
information collections in 3064-0125 consist of applications related to 
establishing and closing a foreign branch; applications related to 
acquiring stock of a foreign organization; and records and reports 
which a nonmember bank must maintain once it has established a foreign 
branch or foreign organization. The information collections in 3064-
0114 consist of applications to operate as a noninsured state-licensed 
branch of a foreign bank; applications from an insured state-licensed 
branch of a foreign bank to conduct activities which are not 
permissible for a federally-licensed branch; internal recordkeeping by 
insured branches of foreign banks; and reporting requirements related 
to an insured branch's pledge of assets to the FDIC. This proposal to 
amend part 347, subparts A and B will not result in any change in the 
current estimated paperwork burden associated with the regulation, 
therefore no submission has been made to OMB under the Paperwork 
Reduction Act.

VII. Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (RFA), an agency must either 
prepare a Final Regulatory Flexibility Analysis (FRFA) for a final rule 
or certify that the final rule will not have a significant economic 
impact on a substantial number of small entities. See 5 U.S.C. 604, 
605(b). For purposes of the analysis or certification, financial 
institutions with assets of $150 million or less are considered ``small 
entities.'' The FDIC has reviewed the impact of this final rule on 
small banks and, for the reasons provided below, certifies that the 
final rule will not have a significant economic impact on a substantial 
number of small entities.
    The final rule makes primarily technical revisions to update, 
reorganize, and clarify the existing rules in subpart A of part 347 and 
subpart J of part 303. Subpart J of part 303 contains the procedural 
rules that implement part 347. The rules in subpart A of part 347 
address issues related to the international activities and investments 
of insured state nonmember banks. In general, they implement the FDIC's 
statutory authority under section 18(d)(2) of the Federal Deposit 
Insurance Act (FDI Act) (12 U.S.C. 1828(d)(2)), regarding branches of 
insured state nonmember banks in foreign countries, and section 18(l) 
of the FDI Act, regarding insured state nonmember bank investments in 
foreign entities. As of September 30, 2004, there were approximately 
4,800 state nonmember commercial banks, but fewer than 40 of those 
institutions report having foreign offices. Available information 
indicates that state nonmember banks with foreign investments or 
foreign branches are not small entities.
    The final rule also makes revisions to update, reorganize, and 
clarify the existing rules in subpart B of part 347, as well as 
additional revisions and amendments that address supervisory issues. 
The rules in subpart B of part 347 principally address issues related 
to insured and noninsured U.S. branches of foreign banks under section 
6 of the International Banking Act (IBA) (12 U.S.C. 3104). As of 
December 31, 2004, there were approximately 199 U.S. branches of 
foreign banks, including 12 insured branches. Of this number, there 
were approximately 90 U.S. branches of foreign banks that appear to 
qualify as small entities, including 6 insured branches. The 12 insured 
branches are presently subject to the FDIC's asset pledge requirement, 
which is revised in section 347.209 of the final rule. Although the 
revision of the asset pledge requirement to implement a risk-based 
approach may result in an increase in the amount of assets pledged for 
insured branches with low supervisory ratings, the FDIC does not 
believe this will affect the insured branches that qualify as small 
entities. Other revisions to the rules affecting noninsured branches 
are not substantive and, thus, should have no significant economic 
impact on noninsured branches that qualify as small entities.

VIII. Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

[[Page 17558]]

IX. Plain Language Requirement

    Section 722 of the Gramm-Leach-Bliley Act (GLBA) (12 U.S.C. 4809), 
requires banking agencies to use plain language in all proposed and 
final rules published after January 1, 2000. The proposed rule 
requested comments on how the rule might be changed to reflect the 
requirements of GLBA. No GLBA comments were received.

X. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office so that the final rule may be reviewed.

List of Subjects

12 CFR Part 303

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 325

    Banks, banking, Reporting and recordkeeping requirements.

12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

12 CFR Part 347

    Authority delegations (Government agencies), Bank deposit 
insurance, Banks, banking, Credit, Foreign banking, Investments, 
Reporting and recordkeeping requirements, United States investments 
abroad.

0
For the reasons set forth above and under the authority of 12 U.S.C. 
1819(a) (Tenth), the FDIC Board of Directors hereby amends 12 CFR 
chapter III as follows:

PART 303--FILING PROCEDURES

Subpart J--International Banking

0
1. The authority citation for part 303 is revised to read as follows:


    Authority: 12 U.S.C. 378, 1813, 1815, 1817, 1818, 1819 (Seventh 
and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1, 1831w, 
1835a, 1843(l), 3104, 3105, 3108, 3207; 15 U.S.C. 1601-1607.

0
2. Revise Sec.  303.182 to read as follows:


Sec.  303.182  Establishing, moving or closing a foreign branch of an 
insured state nonmember bank.

    (a) Notice procedures for general consent. Notice in the form of a 
letter from an eligible depository institution establishing or 
relocating a foreign branch pursuant to Sec.  347.117(a) of this 
chapter must be provided to the appropriate FDIC office no later than 
30 days after taking such action. The notice must include the location 
of the foreign branch, including a street address, and a statement that 
the foreign branch has not been located on a site on the World Heritage 
List or on the foreign country's equivalent of the National Register of 
Historic Places (National Register), in accordance with section 402 of 
the National Historic Preservation Act Amendments of 1980 (NHPA 
Amendments Act) (16 U.S.C. 470a-2). The FDIC will provide written 
acknowledgment of receipt of the notice.
    (b) Filing procedures for other branch establishments--(1) Where to 
file. An applicant seeking to establish a foreign branch other than 
under Sec.  347.117(a) of this chapter shall submit an application to 
the appropriate FDIC office.
    (2) Content of filing. A complete letter application must include 
the following information:
    (i) The exact location of the proposed foreign branch, including 
the street address, and a statement whether the foreign branch will be 
located on a site on the World Heritage List or on the foreign 
country's equivalent of the National Register, in accordance with 
section 402 of the NHPA Amendments Act;
    (ii) Details concerning any involvement in the proposal by an 
insider of the applicant, as defined in Sec.  303.2(u) of this part, 
including any financial arrangements relating to fees, the acquisition 
of property, leasing of property, and construction contracts;
    (iii) A brief description of the applicant's business plan with 
respect to the foreign branch; and
    (iv) A brief description of the proposed activities of the branch 
and, to the extent any of the proposed activities are not authorized by 
Sec.  347.115 of this chapter, the applicant's reasons why they should 
be approved.
    (3) Additional information. The FDIC may request additional 
information to complete processing.
    (c) Processing--(1) Expedited processing for eligible depository 
institutions. An application filed under Sec.  347.118(a) of this 
chapter by an eligible depository institution as defined in Sec.  
303.2(r) of this part seeking to establish a foreign branch by 
expedited processing will be acknowledged in writing by the FDIC and 
will receive expedited processing, unless the applicant is notified in 
writing to the contrary and provided with the basis for that decision. 
The FDIC may remove the application from expedited processing for any 
of the reasons set forth in Sec.  303.11(c)(2) of this part. Absent 
such removal, an application processed under expedited processing is 
deemed approved 45 days after receipt of a substantially complete 
application by the FDIC, or on such earlier date authorized by the FDIC 
in writing.
    (2) Standard processing. For those applications that are not 
processed pursuant to the expedited procedures, the FDIC will provide 
the applicant with written notification of the final action when the 
decision is rendered.
    (d) Closing. Notices of branch closing under Sec.  347.121 of this 
chapter, in the form of a letter including the name, location, and date 
of closing of the closed branch, shall be filed with the appropriate 
FDIC office no later than 30 days after the branch is closed.


0
3. Amend Sec.  303.183 by revising the section heading and paragraphs 
(a), (b)(1), and (c)(1) to read as follows:


Sec.  303.183  Investment by insured state nonmember banks in foreign 
organization.

    (a) Notice procedures for general consent. Notice in the form of a 
letter from an eligible depository institution making direct or 
indirect investments in a foreign organization pursuant to Sec.  
347.117(b) of this chapter shall be provided to the appropriate FDIC 
office no later than 30 days after taking such action. The FDIC will 
provide written acknowledgment of receipt of the notice.
    (b) Filing procedures for other investments--(1) Where to file. An 
applicant seeking to make a foreign investment other than under Sec.  
347.117(b) of this chapter shall submit an application to the 
appropriate FDIC office.
* * * * *
    (c) Processing--(1) Expedited processing for eligible depository 
institutions. An application filed under Sec.  347.118(b) of this 
chapter by an eligible depository institution as defined in Sec.  
303.2(r) of this part seeking to make direct or indirect investments in 
a foreign organization will be acknowledged in writing by the FDIC and 
will receive expedited processing, unless the applicant is notified in 
writing to the contrary and provided with the basis for that decision. 
The FDIC may remove the application from expedited processing for any 
of the reasons set forth in Sec.  303.11(c)(2) of this

[[Page 17559]]

part. Absent such removal, an application processed under expedited 
processing is deemed approved 45 days after receipt of a substantially 
complete application by the FDIC, or on such earlier date authorized by 
the FDIC in writing.
* * * * *

0
4. Amend Sec.  303.184 to revise paragraph (b)(1) and add paragraph (e) 
to read as follows:


Sec.  303.184  Moving an insured branch of a foreign bank.

* * * * *
    (b) Processing--(1) Expedited processing for eligible insured 
branches. An application filed by an eligible insured branch as defined 
in Sec.  303.181(c) of this part will be acknowledged in writing by the 
FDIC and will receive expedited processing if the applicant is 
proposing to move within the same state, unless the applicant is 
notified to the contrary and provided with the basis for that decision. 
The FDIC may remove an application from expedited processing for any of 
the reasons set forth in Sec.  303.11(c)(2) of this part. Absent such 
removal, an application processed under expedited processing will be 
deemed approved on the latest of the following:
    (i) The 21st day after the FDIC's receipt of a substantially 
complete application; or
    (ii) The 5th day after expiration of the comment period described 
in paragraph (c) of this section.
* * * * *
    (e) Relocation of insured branch from one state to another. If the 
foreign bank proposes to relocate an insured state branch to a state 
that is outside the state where the branch is presently located, in 
addition to meeting the approval criteria contained in paragraph (d) of 
this section, the foreign bank must:
    (i) Comply with any applicable state laws or regulations of the 
states affected by the proposed relocation; and
    (ii) Obtain any required regulatory approvals from the appropriate 
state licensing authority of the state to which the insured branch 
proposes to relocate before relocating the existing branch operations 
and surrendering its existing license to the appropriate state 
licensing authority of the state from which the branch is relocating.
* * * * *

0
5. Amend Sec.  303.186 to revise the section heading and paragraph 
(a)(1) to read as follows:


Sec.  303.186  Exemptions from insurance requirements for a state 
branch of a foreign bank.

    (a) Filing procedures-- (1) Where to file. An application by a 
foreign bank for consent to operate as a noninsured state branch, as 
permitted by Sec.  347.215(b) of this chapter, shall be submitted in 
writing to the appropriate FDIC office.
* * * * *

0
6. Amend Sec.  303.187 to revise the section heading and paragraphs 
(a)(1), (a)(2)(iv) and (b)(1) to read as follows:


Sec.  303.187  Approval for an insured state branch of a foreign bank 
to conduct activities not permissible for federal branches.

    (a) Filing procedures--(1) Where to file. An application by an 
insured state branch seeking approval to conduct activities not 
permissible for a federal branch, as required by Sec.  347.212(a) of 
this chapter, shall be submitted in writing to the appropriate FDIC 
office.
    (2) * * *
    (iv) A statement by the applicant of whether it is in compliance 
with sections 347.209 and 347.210 of this chapter;
* * * * *
    (b) Divestiture or cessation--(1) Where To file. Divestiture plans 
necessitated by a change in law or other authority, as required by 
Sec.  347.212(e) of this chapter, shall be submitted in writing to the 
appropriate FDIC office.
* * * * *

PART 325--CAPITAL MAINTENANCE

0
7. The authority citation for part 325 continues to read as follows:

    Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819 (Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 
U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended 
by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).


0
8. Amend Sec.  325.103 to revise paragraph (c) to read as follows:


Sec.  325.103  Capital measures and capital category definitions.

* * * * *
    (c) Capital categories for insured branches of foreign banks. For 
purposes of the provisions of section 38 and this subpart, an insured 
branch of a foreign bank shall be deemed to be:
    (1) Well capitalized if the insured branch:
    (i) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (ii) Maintains the eligible assets prescribed under Sec.  347.210 
of this chapter at 108 percent or more of the preceding quarter's 
average book value of the insured branch's third-party liabilities; and
    (iii) Has not received written notification from:
    (A) The OCC to increase its capital equivalency deposit pursuant to 
12 CFR 28.15(b), or to comply with asset maintenance requirements 
pursuant to 12 CFR 28.20; or
    (B) The FDIC to pledge additional assets pursuant to Sec.  347.209 
of this chapter or to maintain a higher ratio of eligible assets 
pursuant to Sec.  347.210 of this chapter.
    (2) Adequately capitalized if the insured branch:
    (i) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (ii) Maintains the eligible assets prescribed under Sec.  347.210 
of this chapter at 106 percent or more of the preceding quarter's 
average book value of the insured branch's third-party liabilities; and
    (iii) Does not meet the definition of a well capitalized insured 
branch.
    (3) Undercapitalized if the insured branch:
    (i) Fails to maintain the pledge of assets required under Sec.  
347.209 of this chapter; or
    (ii) Fails to maintain the eligible assets prescribed under Sec.  
347.210 of this chapter at 106 percent or more of the preceding 
quarter's average book value of the insured branch's third-party 
liabilities.
    (4) Significantly undercapitalized if it fails to maintain the 
eligible assets prescribed under Sec.  347.210 of this chapter at 104 
percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities.
    (5) Critically undercapitalized if it fails to maintain the 
eligible assets prescribed under Sec.  347.210 of this chapter at 102 
percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities.
* * * * *

PART 327--ASSESSMENTS

0
9. The authority citation for part 327 continues to read as follows:

    Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Pub. L. 
104-208, 110 Stat. 3009-479 (12 U.S.C. 1821).


0
10. In Sec.  327.4, revise paragraphs (a)(1)(i)(B)(1), (a)(1)(i)(B)(2), 
(a)(1)(ii)(B)(1), and (a)(1)(ii)(B)(2) to read as follows:

[[Page 17560]]

Sec.  327.4  Annual assessment rate.

    (a) * * *
    (1) * * *
    (i) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 108 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (a)(1) of this section.
    (ii) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 106 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in paragraph (a)(1) of this section; and
* * * * *
0
11. Revise part 347 to read as follows:

PART 347--INTERNATIONAL BANKING

Subpart A--Foreign Banking and Investment by Insured State 
Nonmember Banks

Sec.
347.101 Authority, purpose, and scope.
347.102 Definitions.
347.103 Effect of state law on actions taken under this subpart.
347.104 Insured state nonmember bank investment in foreign 
organizations.
347.105 Permissible financial activities outside the United States.
347.106 Going concerns.
347.107 Joint ventures.
347.108 Portfolio investments.
347.109 Limitations on indirect investments in nonfinancial 
organizations.
347.110 Affiliate holdings.
347.111 Underwriting and dealing limits applicable to foreign 
organizations held by insured state nonmember banks.
347.112 Restrictions applicable to foreign organizations that act as 
futures commission merchants.
347.113 Restrictions applicable to activities by a foreign 
organization in the United States.
347.114 Extensions of credit to foreign organizations held by 
insured state nonmember banks; shares of foreign organizations held 
in connection with debts previously contracted.
347.115 Permissible activities for a foreign branch of an insured 
state nonmember bank.
347.116 Recordkeeping and supervision of the foreign activities of 
insured state nonmember banks.
347.117 General consent.
347.118 Expedited processing.
347.119 Specific consent.
347.120 Computation of investment amounts.
347.121 Requirements for insured state nonmember bank to close a 
foreign branch.
347.122 Limitations applicable to the authority provided in this 
subpart.
Subpart B--Foreign Banks
347.201 Authority, purpose, and scope.
347.202 Definitions.
347.203 Deposit insurance required for all branches of foreign banks 
engaged in domestic retail deposit activity in the same state.
347.204 Commitment to be examined and provide information.
347.205 Record maintenance.
347.206 Domestic retail deposit activity requiring deposit insurance 
by U.S. branch of a foreign bank.
347.207 Disclosure of supervisory information to foreign 
supervisors.
347.208 Assessment base deductions by insured branch.
347.209 Pledge of assets.
347.210 Asset maintenance.
347.211 Examination of branches of foreign banks.
347.212 FDIC approval to conduct activities that are not permissible 
for federal branches.
347.213 Establishment or operation of noninsured foreign branch.
347.214 Branch established under section 5 of the International 
Banking Act.
347.215 Exemptions from deposit insurance requirement.
347.216 Depositor notification.
Subpart C--International Lending
347.301 Purpose, authority, and scope.
347.302 Definitions.
347.303 Allocated transfer risk reserve.
347.304 Accounting for fees on international loans.
347.305 Reporting and disclosure of international assets.

    Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 
3104, 3105, 3108, 3109; Title IX, Pub. L. 98--181, 97 Stat. 1153.


Sec.  347.101  Authority, purpose, and scope.

    (a) This subpart is issued pursuant to section 18(d) and (l) of the 
Federal Deposit Insurance Act (12 U.S.C. 1828(d), 1828(l)).
    (b) The rules in subpart A address the FDIC's requirements for 
insured state nonmember bank investments in foreign organizations, 
permissible foreign financial activities, loans or extensions of credit 
to or for the account of foreign organizations, and the FDIC's 
recordkeeping, supervision, and approval requirements. The rules also 
address the permissible activities for foreign branches of insured 
state nonmember banks, as well as the FDIC's requirements for 
establishing, operating, relocating and closing of branches in foreign 
countries.


Sec.  347.102  Definitions.

    For the purposes of this subpart:
    (a) An affiliate of an insured state nonmember bank means:
    (1) Any entity of which the insured state nonmember bank is a 
direct or indirect subsidiary or which otherwise controls the insured 
state nonmember bank;
    (2) Any organization which is a direct or indirect subsidiary of 
such entity or which is otherwise controlled by such entity; or
    (3) Any other organization that is a direct or indirect subsidiary 
of the insured state nonmember bank or is otherwise controlled by the 
insured state nonmember bank.
    (b) Control means the ability to control in any manner the election 
of a majority of an organization's directors or trustees; or the 
ability to exercise a controlling influence over the management and 
policies of an organization. An insured state nonmember bank is deemed 
to control an organization of which it is a general partner or its 
affiliate is a general partner.
    (c) Domestic means United States.
    (d) Eligible insured state nonmember bank means an eligible 
depository institution as defined in Sec.  303.2(r) of this chapter.
    (e) Equity interest means any ownership interest or rights in an 
organization, whether through an equity security, contribution to 
capital, general or limited partnership interest, debt or warrants 
convertible into ownership interests or rights, loans providing profit 
participation, binding commitments to acquire any such items, or some 
other form of business transaction.
    (f) Equity security means voting or nonvoting shares, stock, 
investment contracts, or other interests representing ownership or 
participation in a company or similar enterprise, as well as any 
instrument convertible to any such interest at the option of the holder 
without payment of substantial additional consideration.
    (g) FRB means the Board of Governors of the Federal Reserve System.
    (h) Foreign bank means an organization that is organized under the 
laws of a foreign country, a territory of the United States, Puerto 
Rico, Guam, American Samoa, or the Virgin Islands that:
    (1) Is recognized as a bank by the bank supervisory or monetary 
authority of the country of its organization or the

[[Page 17561]]

country in which its principal banking operations are located;
    (2) Receives deposits to a substantial extent in the regular course 
of its business; and
    (3) Has the power to accept demand deposits.
    (i) Foreign banking organization means a foreign organization that 
is formed for the sole purpose of either holding shares of a foreign 
bank or performing nominee, fiduciary, or other banking services 
incidental to the activities of a foreign branch or foreign bank 
affiliate of the insured state nonmember bank.
    (j) Foreign branch means an office or place of business located 
outside the United States, its territories, Puerto Rico, Guam, American 
Samoa, the Trust Territory of the Pacific Islands, or the Virgin 
Islands, at which banking operations are conducted, but does not 
include a representative office.
    (k) Foreign country means any country other than the United States 
and includes any territory, dependency, or possession of any such 
country or of the United States.
    (l) Foreign organization means an organization that is organized 
under the laws of a foreign country.
    (m) Insured state nonmember bank or bank means a state bank, as 
defined by Sec.  3(a)(2) of the Federal Deposit Insurance Act (12 
U.S.C. 1813(a)(2)), whose deposits are insured by the FDIC and that is 
not a member of the Federal Reserve System.
    (n) Indirectly means investments held or activities conducted by a 
subsidiary of an organization.
    (o) Investment grade means a security that is rated in one of the 
four highest categories by:
    (1) Two or more NRSROs; or
    (2) One NRSRO if the security is rated by only one NRSRO.
    (p) Loan or extension of credit means all direct and indirect 
advances of funds to a person, government, or entity made on the basis 
of any obligation of that person, government, or entity to repay funds.
    (q) Organization or entity means a corporation, partnership, 
association, bank, or other similar entity.
    (r) NRSRO means a nationally recognized statistical rating 
organization as designated by the Securities and Exchange Commission.
    (s) Representative office means an office that engages solely in 
representative functions such as soliciting new business for its home 
office or acting as liaison between the home office and local 
customers, but which has no authority to make business or contracting 
decisions other than those relating to the personnel and premises of 
the representative office.
    (t) Subsidiary means any organization more than 50 percent of the 
voting equity interests of which are directly or indirectly held by 
another organization.
    (u) Tier 1 capital means Tier 1 capital as defined in Sec.  325.2 
of this chapter.
    (v) Well capitalized means well capitalized as defined in Sec.  
325.103 of this chapter.


Sec.  347.103  Effect of state law on actions taken under this subpart.

    A bank may acquire and retain equity interests in a foreign 
organization or establish a foreign branch, subject to the requirements 
of this subpart, if it is authorized to do so by the law of the state 
in which the bank is chartered.


Sec.  347.104  Insured state nonmember bank investments in foreign 
organizations.

    (a) Investment in foreign banks or foreign banking organizations. A 
bank may directly or indirectly acquire and retain equity interests in 
a foreign bank or foreign banking organization.
    (b) Investment in other foreign organizations. A bank may only: (1) 
acquire and retain equity interests in foreign organizations, other 
than foreign banks or foreign banking organizations in amounts of 50 
percent or less of the foreign organization's voting equity interests, 
if the equity interest is held through a domestic or foreign 
subsidiary; and
    (2) The bank meets its minimum capital requirements.


Sec.  347.105  Permissible financial activities outside the United 
States.

    (a) Limitation on authorized activities. A bank may not directly or 
indirectly acquire or hold equity interests in a foreign organization 
that will result in the bank and its affiliates:
    (1) Holding more than 50 percent, in the aggregate, of the voting 
equity interest in such foreign organization; or
    (2) Controlling such foreign organization, unless the activities of 
a foreign organization are limited to those authorized under paragraph 
(b) of this section.
    (b) Authorized activities. The following financial activities are 
authorized outside the United States:
    (1) Commercial and other banking activities.
    (2) Financing, including commercial financing, consumer financing, 
mortgage banking, and factoring, subject to compliance with any 
attendant restrictions contained in 12 CFR 225.28(b).
    (3) Leasing real or personal property, acting as agent, broker or 
advisor in leasing real or personal property, subject to compliance 
with any attendant restrictions in 12 CFR 225.28(b).
    (4) Acting as a fiduciary, subject to compliance with any attendant 
restrictions in 12 CFR 225.28(b).
    (5) Underwriting credit life, credit accident and credit health 
insurance.
    (6) Performing services for other direct or indirect operations of 
a domestic banking organization, including representative functions, 
sale of long-term debt, name saving, liquidating assets acquired to 
prevent loss on a debt previously contracted in good faith, and other 
activities that are permissible for a bank holding company under 
sections 4(a)(2)(A) and 4(c)(1)(C) of the Bank Holding Company Act.
    (7) Holding the premises of a branch of an Edge corporation or 
insured state nonmember bank or the premises of a direct or indirect 
subsidiary, or holding or leasing the residence of an officer or 
employee of a branch or a subsidiary.
    (8) Providing investment, financial, or economic services, subject 
to compliance with any attendant restrictions in 12 CFR 225.28(b).
    (9) General insurance agency and brokerage.
    (10) Data processing.
    (11) Organizing, sponsoring, and managing 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 management control over 
the firms in which it invests.
    (12) Performing management consulting services, provided that such 
services when rendered with respect to the domestic market must be 
restricted to the initial entry.
    (13) Underwriting, distributing, and dealing in debt securities 
outside the United States.
    (14) With the prior approval of the FDIC under section 347.119(d), 
underwriting, distributing, and dealing in equity securities outside 
the United States.
    (15) Operating a travel agency in connection with financial 
services offered outside the United States by the bank or others.
    (16) Providing futures commission merchant services, subject to 
compliance with any attendant restrictions in 12 CFR 225.28(b).
    (17) Engaging in activities that the FRB has determined in 
Regulation Y (12 CFR 225.28(b)) are closely related to banking under 
section 4(c)(8) of the Bank Holding Company Act.
    (18) Engaging in other activities, with the prior approval of the 
FDIC.
    (c) Limitation on activities authorized under Regulation Y. If a 
bank relies solely on the cross-reference to

[[Page 17562]]

Regulation Y contained in paragraph (b)(17) of this section as 
authority to engage in an activity, compliance with any attendant 
restrictions on the activity that are contained in 12 CFR 225.28(b) is 
required.
    (d) Approval of other activities. Activities that are not 
specifically authorized by this section, but that are authorized by 12 
CFR 211.10 or FRB interpretations of activities authorized by that 
section, may be authorized by specific consent of the FDIC on an 
individual basis and upon such terms and conditions as the FDIC may 
consider appropriate. Activities that will be engaged in as principal 
(defined by reference to section 362.1(b) of this chapter), and that 
are not authorized by 12 CFR 211.10 or FRB interpretations of 
activities authorized under that section, must satisfy the requirements 
of part 362 of this chapter and be approved by the FDIC under this part 
as well as part 362 of this chapter.


Sec.  347.106  Going concerns.

    Going concerns. If a bank acquires an equity interest in a foreign 
organization that is a going concern, no more than 5 percent of either 
the consolidated assets or revenues of the foreign organization may be 
attributable to activities that are not permissible under Sec.  
347.105(b).


Sec.  347.107  Joint ventures.

    (a) Joint ventures. If a bank, directly or indirectly, acquires or 
holds an equity interest in a foreign organization that is a joint 
venture, and the bank or its affiliates do not control the foreign 
organization, no more than 10 percent of either the consolidated assets 
or revenues of the foreign organization may be attributable to 
activities that are not permissible under Sec.  347.105(b).
    (b) Joint venture defined. For purposes of this section, the term 
``joint venture'' means any organization in which 20 percent or more 
but not in excess of 50 percent of the voting equity interests, in the 
aggregate, are directly or indirectly held by a bank or its affiliates.


Sec.  347.108  Portfolio investments.

    (a) Portfolio investments. If a bank, directly or indirectly, 
acquires or holds an equity interest in a foreign organization as a 
portfolio investment and the foreign organization is not controlled, 
directly or indirectly, by the bank or its affiliates:
    (1) No more than 10 percent of either the consolidated assets or 
revenues of the foreign organization may be attributable to activities 
that are not permissible under Sec.  347.105(b); and
    (2) Any loans or extensions of credit made by the bank and its 
affiliates to the foreign organization must be on substantially the 
same terms, including interest rates and collateral, as those 
prevailing at the same time for comparable transactions between the 
bank or its affiliates and nonaffiliated organizations.
    (b) Portfolio investment defined. For purposes of this section, the 
term ``portfolio investment'' means an investment in an organization in 
which less than 20 percent of the voting equity interests, in the 
aggregate, are directly or indirectly held by a bank or its affiliates.


Sec.  347.109  Limitations on indirect investments in nonfinancial 
foreign organizations.

    (a) A bank may, through a subsidiary authorized by Sec. Sec.  
347.105 or 347.106, or an Edge corporation if also authorized by the 
FRB, acquire and hold equity interests in foreign organizations that 
are not foreign banks or foreign banking organizations and that engage 
generally in activities beyond those listed in Sec.  347.105(b), 
subject to the following:
    (1) The amount of the investment does not exceed 15 percent of the 
bank's Tier 1 capital;
    (2) The aggregate holding of voting equity interests of one foreign 
organization by the bank and its affiliates must be less than:
    (i) 20 percent of the foreign organization's voting equity 
interests; and
    (ii) 40 percent of the foreign organization's voting and nonvoting 
equity interests;
    (b) The bank or its affiliates must not otherwise control the 
foreign organization; and
    (c) Loans or extensions of credit made by the bank and its 
affiliates to the foreign organization must be on substantially the 
same terms, including interest rates and collateral, as those 
prevailing at the same time for comparable transactions between the 
bank or its affiliates and nonaffiliated organizations.


Sec.  347.110  Affiliate holdings.

    References in Sec. Sec.  347.107, 347.108, and 347.109 to equity 
interests of foreign organizations held by an affiliate of a bank 
include equity interests held in connection with an underwriting or for 
distribution or dealing by an affiliate permitted to do so by 
Sec. Sec.  362.8 or 362.18 of this chapter or section 4(c)(8) of the 
Bank Holding Company Act (12 U.S.C. 1843(c)(8)).


Sec.  347.111  Underwriting and dealing limits applicable to foreign 
organizations held by insured state nonmember banks.

    A bank that holds an equity interest in one or more foreign 
organizations which underwrite, deal, or distribute equity securities 
outside the United States as authorized by Sec.  347.105(b)(14) is 
subject to the following limitations:
    (a) Underwriting commitment limits. (1) The aggregate underwriting 
commitments by the foreign organizations for the equity securities of a 
single entity, taken together with underwriting commitments by any 
affiliate of the bank under the authority of 12 CFR 211.10(b), may not 
exceed the lesser of $60 million or 25 percent of the bank's Tier 1 
capital, except as otherwise provided in this paragraph.
    (2) Underwriting commitments in excess of this limit must be 
either:
    (i) Covered by binding commitments from subunderwriters or 
purchasers; or
    (ii) Deducted from the capital of the bank, with at least 50 
percent of the deduction being taken from Tier 1 capital, with the bank 
remaining well capitalized after this deduction.
    (b) Distribution and dealing limits. The equity securities of any 
single entity held for distribution or dealing by the foreign 
organizations, taken together with equity securities held for 
distribution or dealing by any affiliate of the bank under the 
authority of 12 CFR 211.10:
    (1) May not exceed the lesser of $30 million or 5 percent of the 
bank's Tier 1 capital, subject to the following:
    (i) Any equity securities acquired pursuant to any underwriting 
commitment extending up to 90 days after the payment date for the 
underwriting may be excluded from this limit;
    (ii) Any equity securities of the entity held under the authority 
of Sec. Sec.  347.105 through 347.109 or 12 CFR 211.10 for purposes 
other than distribution or dealing must be included in this limit; and
    (iii) Up to 75 percent of the position in an equity security may be 
reduced by netting long and short positions in the same security, or 
offsetting cash positions against derivative instruments referenced to 
the same security so long as the derivatives are part of a prudent 
hedging strategy; and
    (2) Must be included in calculating the general consent limits 
under Sec.  347.117(b)(3) if the bank relies on the general consent 
provisions as authority to acquire equity interests of the same foreign 
entity for investment or trading.
    (c) Additional distribution and dealing limits. With the exception 
of equity securities acquired pursuant to any underwriting commitment 
extending up to 90 days after the payment date for the underwriting, 
equity securities of a single entity held for distribution or dealing 
by all

[[Page 17563]]

affiliates of the bank (this includes shares held in connection with an 
underwriting or for distribution or dealing by an affiliate permitted 
to do so by Sec. Sec.  362.8 or 362.18 of this chapter or section 
4(c)(8) of the Bank Holding Company Act), combined with any equity 
interests held for investment or trading purposes by all affiliates of 
the bank, must conform to the limits of Sec. Sec.  347.105 through 
347.109.
    (d) Combined limits. The aggregate of the following may not exceed 
25 percent of the bank's Tier 1 capital:
    (1) All equity interests of foreign organizations held for 
investment or trading under Sec.  347.109 or by an affiliate of the 
bank under the corresponding paragraph of 12 CFR 211.10.
    (2) All underwriting commitments under paragraph (a) of this 
section, taken together with all underwriting commitments by any 
affiliate of the bank under the authority of 12 CFR 211.10, after 
excluding the amount of any underwriting commitment:
    (i) Covered by binding commitments from subunderwriters or 
purchasers under paragraph (a)(1) of this section or the comparable 
provision of 12 CFR 211.10; or
    (ii) Already deducted from the bank's capital under paragraph 
(a)(2) of this section, or the appropriate affiliate's capital under 
the comparable provisions of 12 CFR 211.10; and
    (3) All equity securities held for distribution or dealing under 
paragraph (b) of this section, taken together with all equity 
securities held for distribution or dealing by any affiliate of the 
bank under the authority of 12 CFR 211.10, after reducing by up to 75 
percent the position in any equity security by netting and offset, as 
permitted by paragraph (b)(1)(iii) of this section or the comparable 
provision of 12 CFR 211.10.


Sec.  347.112  Restrictions applicable to foreign organizations that 
act as futures commission merchants.

    (a) If a bank acquires or retains an equity interest in a foreign 
organization that acts as a futures commission merchant pursuant to 
Sec.  347.105(b)(16), the foreign organization may not be a member of 
an exchange or clearing association that requires members to guarantee 
or otherwise contract to cover losses suffered by other members unless 
the:
    (1) Foreign organization's liability does not exceed two percent of 
the bank's Tier 1 capital, or
    (2) Bank has obtained the prior approval of the FDIC under Sec.  
347.120(d).
    (b) [Reserved]


Sec.  347.113  Restrictions applicable to activities by a foreign 
organization in the United States.

    (a) A bank, acting under the authority provided in this subpart, 
may not directly or indirectly hold:
    (1) Equity interests of any foreign organization that engages in 
the general business of buying or selling goods, wares, merchandise, or 
commodities in the United States; or
    (2) More than 5 percent of the equity interests of any foreign 
organization that engages in activities in the United States unless any 
activities in which the foreign organization engages in the United 
States are incidental to its international or foreign business.
    (b) For purposes of this section:
    (1) A foreign organization is not engaged in any business or 
activities in the United States unless it maintains an office in the 
United States other than a representative office.
    (2) The following activities are incidental to international or 
foreign business:
    (i) Activities that are permissible for an Edge corporation in the 
United States under 12 CFR 211.6; or
    (ii) Other activities approved by the FDIC.


Sec.  347.114  Extensions of credit to foreign organizations held by 
insured state nonmember banks; shares of foreign organizations held in 
connection with debts previously contracted.

    (a) Loans or extensions of credit. A bank that directly or 
indirectly holds equity interests in a foreign organization pursuant to 
the authority of this subpart may make loans or extensions of credit to 
or for the accounts of the organization without regard to the 
provisions of section 18(j) of the FDI Act (12 U.S.C. 1828(j)).
    (b) Debts previously contracted. Equity interests acquired to 
prevent a loss upon a debt previously contracted in good faith are not 
subject to the limitations or procedures of this subpart; however, they 
must be disposed of promptly but in no event later than two years after 
their acquisition, unless the FDIC authorizes retention for a longer 
period.


Sec.  347.115  Permissible activities for a foreign branch of an 
insured state nonmember bank.

    In addition to its general banking powers and if permitted by the 
law of the state in which the bank is chartered, a foreign branch of a 
bank may conduct the following activities to the extent that they are 
consistent with banking practices in a foreign country where the bank 
maintains a branch:
    (a) Guarantees. Guarantee debts, or otherwise agree to make 
payments on the occurrence of readily ascertainable events including, 
without limitation, nonpayment of taxes, rentals, customs duties, or 
costs of transport and loss or nonconformance of shipping documents, 
if:
    (1) The guarantee or agreement specifies a maximum monetary 
liability; and
    (2) To the extent the guarantee or agreement is not subject to a 
separate amount limit under state or federal law, the amount of the 
guarantee or agreement is combined with loans and other obligations for 
purposes of applying any legal lending limits.
    (b) Government obligations. Engage in the following types of 
transactions with respect to the obligations of foreign countries, so 
long as aggregate investments, securities held in connection with 
distribution and dealing, and underwriting commitments do not exceed 
ten percent of the bank's Tier 1 capital:
    (1) Underwrite, distribute and deal, invest in, or trade 
obligations of:
    (i) The national government of the country in which the branch is 
located or its political subdivisions; and
    (ii) An agency or instrumentality of such national government if 
supported by the taxing authority, guarantee, or full faith and credit 
of the national government.
    (2) Underwrite, distribute and deal, invest in or trade obligations 
\1\ rated as investment grade of:
---------------------------------------------------------------------------

    \1\ If the obligation is an equity interest, it must be held 
through a subsidiary of the foreign branch and the insured state 
nonmember bank must meet its minimum capital requirements.
---------------------------------------------------------------------------

    (i) The national government of any foreign country or its political 
subdivisions, to the extent permissible under the law of the issuing 
foreign country; and
    (ii) An agency or instrumentality of the national government of any 
foreign country to the extent permissible under the law of the issuing 
foreign country, if supported by the taxing authority, guarantee, or 
full faith and credit of the national government.
    (c) Local investments. (1) Acquire and hold local investments in:
    (i) Equity securities of the central bank, clearinghouses, 
governmental entities, and government sponsored development banks of 
the country in which the branch is located;
    (ii) Other debt securities eligible to meet local reserve or 
similar requirements; and
    (iii) Shares of automated electronic payment networks, professional

[[Page 17564]]

societies, schools, and similar entities necessary to the business of 
the branch.
    (2) Aggregate local investments (other than those required by the 
law of the foreign country or permissible under section 5136 of the 
Revised Statutes (12 U.S.C. 24 (Seventh)) by all the bank's branches in 
a single foreign country must not exceed 1 percent of the total 
deposits in all the bank's branches in that country as reported in the 
preceding year-end Report of Income and Condition (Call Report): \2\
---------------------------------------------------------------------------

    \2\ If a branch has recently been acquired by the bank and the 
branch was not previously required to file a Call Report, branch 
deposits as of the acquisition date must be used.
---------------------------------------------------------------------------

    (d) Insurance. Act as an insurance agent or broker.
    (e) Employee benefits program. Pay to an employee of a branch, as 
part of an employee benefits program, a greater rate of interest than 
that paid to other depositors of the branch.
    (f) Repurchase agreements. Engage in repurchase agreements 
involving securities and commodities that are the functional 
equivalents of extensions of credit.
    (g) Other activities. Engage in other activities, with the prior 
approval of the FDIC.
    (h) Approval of other activities. Activities that are not 
specifically authorized by this section, but that are authorized by 12 
CFR 211.4 or FRB interpretations of activities authorized by that 
section, may be authorized by specific consent of the FDIC on an 
individual basis and upon such terms and conditions as the FDIC may 
consider appropriate. Activities that will be engaged in as principal 
(defined by reference to section 362.1(b) of this chapter), and that 
are not authorized by 12 CFR 211.4 or FRB interpretations of activities 
authorized under that section, must satisfy the requirements of part 
362 of this chapter and be approved by the FDIC under this part as well 
as part 362 of this chapter.


Sec.  347.116  Recordkeeping and supervision of foreign activities of 
insured state nonmember banks.

    (a) Records, controls and reports. A bank with any foreign branch, 
any investment in a foreign organization of 20 percent or more of the 
organization's voting equity interests, or control of a foreign 
organization must maintain a system of records, controls and reports 
that, at minimum, provide for the following:
    (1) Risk assets. To permit assessment of exposure to loss, 
information furnished or available to the main office should be 
sufficient to permit periodic and systematic appraisals of the quality 
of risk assets, including loans and other extensions of credit. 
Coverage should extend to a substantial proportion of the risk assets 
in the branch or foreign organization, and include the status of all 
large credit lines and of credits to customers also borrowing from 
other offices or affiliates of the bank. Appropriate information on 
risk assets may include:
    (i) A recent financial statement of the borrower or obligee and 
current information on the borrower's or obligee's financial condition;
    (ii) Terms, conditions, and collateral;
    (iii) Data on any guarantors;
    (iv) Payment history; and
    (v) Status of corrective measures employed.
    (2) Liquidity. To enable assessment of local management's ability 
to meet its obligations from available resources, reports should 
identify the general sources and character of the deposits, borrowing, 
and other funding sources employed in the branch or foreign 
organization with special reference to their terms and volatility. 
Information should be available on sources of liquidity--cash, balances 
with banks, marketable securities, and repayment flows--such as will 
reveal their accessibility in time and any risk elements involved.
    (3) Contingencies. Data on the volume and nature of contingent 
items such as loan commitments and guarantees or their equivalents that 
permit analysis of potential risk exposure and liquidity requirements.
    (4) Controls. Reports on the internal and external audits of the 
branch or foreign organization in sufficient detail to permit 
determination of conformance to auditing guidelines. Appropriate audit 
reports may include coverage of:
    (i) Verification and identification of entries on financial 
statements;
    (ii) Income and expense accounts, including descriptions of 
significant chargeoffs and recoveries;
    (iii) Operations and dual-control procedures and other internal 
controls;
    (iv) Conformance to head office guidelines on loans, deposits, 
foreign exchange activities, accounting procedures in compliance with 
applicable accounting standards, and discretionary authority of local 
management;
    (v) Compliance with local laws and regulations; and
    (vi) Compliance with applicable U.S. laws and regulations.
    (b) Availability of information to examiners; reports. (1) 
Information about foreign branches or foreign organizations must be 
made available to the FDIC by the bank for examination and other 
supervisory purposes.
    (2) The FDIC may from time to time require a bank to make and 
submit such reports and information as may be necessary to implement 
and enforce the provisions of this subpart, and the bank shall submit 
an annual report of condition for each foreign branch pursuant to 
instructions provided by the FDIC.


Sec.  347.117  General consent.

    (a) General consent to establish or relocate a foreign branch. 
General consent of the FDIC is granted, subject to the written 
notification requirement contained in section 303.182(a) and consistent 
with the requirements of this subpart, for an:
    (1) Eligible bank to establish a foreign branch conducting 
activities authorized by section 347.115 of this section in any foreign 
country in which:
    (i) The bank already operates one or more foreign branches or 
foreign bank subsidiaries;
    (ii) The bank's holding company operates a foreign bank subsidiary; 
or
    (iii) An affiliated bank or Edge or Agreement corporation operates 
one or more foreign branches or foreign bank subsidiaries.
    (2) Insured state nonmember bank to relocate an existing foreign 
branch within a foreign country.
    (b) General consent to invest in a foreign organization. General 
consent of the FDIC is granted, subject to the written notification 
requirement contained in section 303.183(a) (unless no notification is 
required because the investment is acquired for trading purposes) and 
consistent with the requirements of this subpart, for an eligible bank 
to make investments in foreign organizations, directly or indirectly, 
if:
    (1) The bank operates at least one foreign bank subsidiary or 
foreign branch, an affiliated bank or Edge or Agreement corporation 
operates at least one foreign bank subsidiary or foreign branch, or the 
bank's holding company operates at least one foreign bank subsidiary in 
the country where the foreign organization will be located;
    (2) In any instance where the bank and its affiliates will hold 20 
percent or more of the foreign organization's voting equity interests 
or control the foreign organization, at least one state nonmember bank 
has a foreign bank subsidiary or foreign branch (other than a shell 
branch) in the country where the foreign organization will be located; 
\3\ and
---------------------------------------------------------------------------

    \3\ A list of these countries can be obtained from the FDIC's 
Internet Web Site at http://www.fdic.gov.


---------------------------------------------------------------------------

[[Page 17565]]

    (3) The investment is within one of the following limits:
    (i) The investment is acquired at net asset value from an 
affiliate;
    (ii) The investment is a reinvestment of cash dividends received 
from the same foreign organization during the preceding 12 months; or
    (iii) The total investment, directly or indirectly, in a single 
foreign organization in any transaction or series of transactions 
during a twelve-month period does not exceed 2 percent of the bank's 
Tier 1 capital, and such investments in all foreign organizations in 
the aggregate do not exceed:
    (A) 5 percent of the bank's Tier 1 capital during a 12-month 
period; and
    (B) Up to an additional 5 percent of the bank's Tier 1 capital if 
the investments are acquired for trading purposes.


Sec.  347.118  Expedited processing.

    (a) Expedited processing of branch applications. An eligible bank 
may establish a foreign branch conducting activities authorized by 
Sec.  347.115 in an additional foreign country, after complying with 
the expedited processing requirements contained in Sec.  303.182(b) and 
(c)(1), if any of the following are located in two or more foreign 
countries:
    (1) Foreign branches or foreign bank subsidiaries of the eligible 
bank;
    (2) Foreign branches or foreign bank subsidiaries of banks and Edge 
or Agreement corporations affiliated with the eligible bank; and
    (3) Foreign bank subsidiaries of the eligible bank's holding 
company.
    (b) Expedited processing of applications for investment in foreign 
organizations. An investment that does not qualify for general consent 
but is otherwise in conformity with the limits and requirements of this 
subpart may be made 45 days after an eligible bank files a 
substantially complete application with the FDIC in compliance with the 
expedited processing requirements contained in Sec.  303.183(b) and 
(c)(1), or within such earlier time as authorized by the FDIC.


Sec.  347.119  Specific consent.

    General consent and expedited processing under this subpart do not 
apply in the following circumstances:
    (a) Limitation on access to supervisory information in foreign 
country.
    (1) Applicable law or practice in the foreign country where the 
foreign organization or foreign branch would be located would limit the 
FDIC's access to information for supervisory purposes; and
    (i) A bank would hold 20 percent or more of the voting equity 
interests of a foreign organization or control such organization as a 
result of a foreign investment; or
    (ii) A bank would be establishing a foreign branch.
    (b) World Heritage site. A foreign branch of a bank would be 
located on a site on the World Heritage List or on the foreign 
country's equivalent of the National Register of Historic Places, in 
accordance with section 403 of the National Historic Preservation Act 
Amendments of 1980 (16 U.S.C. 470a-2).
    (c) Modification or suspension of general consent or expedited 
processing. The FDIC at any time notifies the bank that the FDIC is 
modifying or suspending its general consent or expedited processing 
procedure.
    (d) Specific consent. Direct or indirect investments in or 
activities of foreign organizations by banks, the establishment of 
foreign branches or issues regarding the types or amounts of activity 
that can be engaged in by foreign branches, which are not authorized 
under Sec. Sec.  347.117 or 347.118 require prior review and specific 
consent of the FDIC.


Sec.  347.120  Computation of investment amounts.

    In computing the amount that may be invested in any foreign 
organization under Sec. Sec.  347.117 through 347.119, any investments 
held by an affiliate of a bank must be included.


Sec.  347.121  Requirements for insured state nonmember bank to close a 
foreign branch.

    A bank must comply with the written notification requirement 
contained in Sec.  303.182(d) when it closes a foreign branch.


Sec.  347.122  Limitations applicable to the authority provided in this 
subpart.

    The FDIC may impose such conditions on authority granted in this 
subpart as it considers appropriate. If a bank is unable or fails to 
comply with the requirements of this subpart or any conditions imposed 
by the FDIC regarding transactions under this subpart, the FDIC may 
require termination of any activities or divestiture of investments 
permitted under this subpart after giving the bank notice and a 
reasonable opportunity to be heard on the matter.

Subpart B--Foreign Banks


Sec.  347.201  Authority, purpose, and scope.

    (a) This subpart is issued pursuant to sections 5(c) and 10(b)(4) 
of the Federal Deposit Insurance Act (FDI Act)(12 U.S.C. 1815(c) and 
1820(b)(4)) and sections 6, 7, and 15 of the International Banking Act 
of 1978 (IBA)(12 U.S.C. 3104, 3105, and 3109).
    (b) This subpart implements the insured branch asset pledge and 
examination commitment requirement for foreign banks in the FDI Act. It 
also implements the deposit insurance, permissible activity, and cross-
border cooperation provisions of the IBA regarding the FDIC. Sections 
347.203-347.211 apply to state and federal branches whose deposits are 
insured. Sections 347.204 and 347.207 are applicable to depository 
institution subsidiaries of a foreign bank. Section 347.212 applies to 
insured state branches and Sec. Sec.  347.213-347.216 apply to state 
branches whose deposits are not insured by the FDIC.


Sec.  347.202  Definitions.

    For the purposes of this subpart:
    (a) Affiliate means any entity that controls, is controlled by, or 
is under common control with another entity. An entity shall be deemed 
to ``control'' another entity if the entity directly or indirectly 
owns, controls, or has the power to vote 25 percent or more of any 
class of voting securities of the other entity or controls in any 
manner the election of a majority of the directors or trustees of the 
other entity.
    (b) Branch means any office or place of business of a foreign bank 
located in any state of the United States at which deposits are 
received. The term does not include any office or place of business 
deemed by the state licensing authority or the Comptroller of the 
Currency to be an agency.
    (c) Deposit has the same meaning as that term in section 3(l) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(l)).
    (d) Depository means any insured state bank, national bank, or 
insured branch.
    (e) Domestic retail deposit activity means the acceptance by a 
federal or state branch of any initial deposit of less than $100,000.
    (f) Federal branch means a branch of a foreign bank established and 
operating under the provisions of section 4 of the International 
Banking Act of 1978 (12 U.S.C. 3102).
    (g) Foreign bank means any company organized under the laws of a 
foreign country, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Northern Mariana Islands, or the Virgin Islands, 
which engages in the business of banking. The term includes foreign 
commercial banks, foreign merchant banks and other foreign institutions 
that engage in banking

[[Page 17566]]

activities usual in connection with the business of banking in the 
countries where such foreign institutions are organized and operating. 
Except as otherwise specifically provided by the Federal Deposit 
Insurance Corporation, banks organized under the laws of a foreign 
country, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Northern Mariana Islands, or the Virgin Islands 
which are insured banks other than by reason of having an insured 
branch are not considered to be foreign banks for purposes of 
Sec. Sec.  347.204, 347.205, 347.209, and 347.210.
    (h) Foreign business means any entity including, but not limited 
to, a corporation, partnership, sole proprietorship, association, 
foundation or trust, which is organized under the laws of a foreign 
country or any United States entity which is owned or controlled by an 
entity which is organized under the laws of a foreign country or a 
foreign national.
    (i) Foreign country means any country other than the United States 
and includes any colony, dependency or possession of any such country.
    (j) FRB means the Board of Governors of the Federal Reserve System.
    (k) Home state of a foreign bank means the state so determined by 
the election of the foreign bank, or in default of such election, by 
the Board of Governors of the Federal Reserve System.
    (l) Immediate family member of a natural person means the spouse, 
father, mother, brother, sister, son or daughter of that natural 
person.
    (m) Initial deposit means the first deposit transaction between a 
depositor and the branch where there is no existing deposit 
relationship. The initial deposit may be placed into different deposit 
accounts or into different kinds of deposit accounts, such as demand, 
savings or time. Deposit accounts that are held by a depositor in the 
same right and capacity may be added together for the purposes of 
determining the dollar amount of the initial deposit.
    (n) Insured bank means any bank, including a foreign bank with an 
insured branch, the deposits of which are insured in accordance with 
the provisions of the Federal Deposit Insurance Act.
    (o) Insured branch means a branch of a foreign bank any deposits of 
which branch are insured in accordance with the provisions of the 
Federal Deposit Insurance Act.
    (p) Large United States business means any entity including, but 
not limited to, a corporation, partnership, sole proprietorship, 
association, foundation or trust which is organized under the laws of 
the United States or any state thereof, and:
    (1) Whose securities are registered on a national securities 
exchange or quoted on the National Association of Securities Dealers 
Automated Quotation System; or
    (2) Has annual gross revenues in excess of $1,000,000 for the 
fiscal year immediately preceding the initial deposit.
    (q) A majority owned subsidiary means a company the voting stock of 
which is more than 50 percent owned or controlled by another company.
    (r) Noninsured branch means a branch of a foreign bank deposits of 
which branch are not insured in accordance with the provisions of the 
Federal Deposit Insurance Act.
    (s) OCC means the Office of the Comptroller of the Currency.
    (t) Person means an individual, bank, corporation, partnership, 
trust, association, foundation, joint venture, pool, syndicate, sole 
proprietorship, unincorporated organization, or any other form of 
entity.
    (u) Significant risk to the deposit insurance fund shall be 
understood to be present whenever there is a high probability that the 
Bank Insurance Fund administered by the FDIC may suffer a loss.
    (v) State means any state of the United States or the District of 
Columbia.
    (w) State branch means a branch of a foreign bank established and 
operating under the laws of any state.
    (x) Wholly owned subsidiary means a company the voting stock of 
which is 100 percent owned or controlled by another company except for 
a nominal number of directors' shares.


Sec.  347.203  Deposit insurance required for all branches of foreign 
banks engaged in domestic retail deposit activity in the same State.

    The FDIC will not insure deposits in any branch of a foreign bank 
unless the foreign bank agrees that every branch established or 
operated by the foreign bank in the same state that engages in domestic 
retail deposit activity will be an insured branch.


Sec.  347.204  Commitment to be examined and provide information.

    (a) In connection with an application for deposit insurance for a 
U.S. branch or depository institution subsidiary of a foreign bank that 
has been determined to be subject to comprehensive consolidated 
supervision by the appropriate Federal banking agency, as defined in 
section 3(q) of the FDI Act (12 U.S.C. 1813(q)), the foreign bank shall 
provide binding written commitments (including a consent to U.S. 
jurisdiction and designation of agent for service, acceptable to the 
FDIC) to the following terms:
    (1) The FDIC will be provided with any information about the 
foreign bank and its affiliates located outside of the United States 
that the FDIC requests to determine:
    (i) The relationship between the U.S. branch or depository 
institution subsidiary and its affiliates; and
    (ii) The effect of such relationship on such U.S. branch or 
depository institution subsidiary;
    (2) The FDIC will be allowed to examine the affairs of any office, 
agency, branch or affiliate of the foreign bank located in the United 
States and will be provided any information requested to determine:
    (i) The relationship between the U.S. branch or depository 
institution subsidiary and such offices, agencies, branches or 
affiliates; and
    (ii) The effect of such relationship on such U.S. branch or 
depository institution subsidiary.
    (3) The FDIC will not process a deposit insurance application for 
any U.S. branch or depository institution subsidiary of a foreign bank 
if the foreign bank fails to provide the written commitments, consent 
to U.S. jurisdiction, and designation of agent for service required by 
this section.
    (b) The FDIC will consider the existence and extent of any 
prohibition or restrictions, if any, on its ability to utilize the 
commitments, consent to U.S. jurisdiction, and designation of agent for 
service required by this section, in determining whether to grant or 
deny a deposit insurance application for the U.S. branch or depository 
institution subsidiary of the foreign bank. In addition, the FDIC may 
consider any additional assurances or commitments provided by the 
foreign bank, including that it will cooperate and assist the FDIC, 
without limitation, by seeking to obtain waivers and exemptions from 
applicable confidentiality or secrecy restrictions or requirements to 
enable the foreign bank or its affiliates to make information about the 
foreign bank and its affiliates located outside of the United States 
available to the FDIC for review.
    (c) The foreign bank's commitments, consent to U.S. jurisdiction, 
and designation of agent for service shall be signed by an officer of 
the foreign bank who has been so authorized by the foreign bank's board 
of directors and in all instances will be executed in a manner 
acceptable to the FDIC and shall be included with the branch or

[[Page 17567]]

depository institution application for insurance. Any documents that 
are not in English shall be accompanied by an English translation.


Sec.  347.205  Record maintenance.

    The records of each insured branch shall be kept as though it were 
a separate entity, with its assets and liabilities separate from the 
other operations of the head office, other branches or agencies of the 
foreign bank and its subsidiaries or affiliates. Each insured branch 
must keep a set of accounts and records in the words and figures of the 
English language that accurately reflects the business transactions of 
the insured branch on a daily basis. A foreign bank that has more than 
one insured branch in a state may treat such insured branches as one 
entity for record-keeping purposes and may designate one branch to 
maintain records for all the branches in the state.


Sec.  347.206  Domestic retail deposit activity requiring deposit 
insurance by U.S. branch of a foreign bank.

    (a) Domestic retail deposit activity. To initiate or conduct 
domestic retail deposit activity requiring deposit insurance protection 
in any state after December 19, 1991, a foreign bank must establish one 
or more insured U.S. bank subsidiaries for that purpose.
    (b) Exception. Paragraph (a) of this section does not apply to any 
bank organized under the laws of any territory of the United States, 
Puerto Rico, Guam, American Samoa, or the Virgin Islands the deposits 
of which are insured by the FDIC pursuant to the Federal Deposit 
Insurance Act.
    (c) Grandfathered insured branches. Domestic retail deposit 
accounts with balances of less than $100,000 that require deposit 
insurance protection may be accepted or maintained in an insured branch 
of a foreign bank only if such branch was an insured branch on December 
19, 1991.
    (d) Change in ownership of grandfathered insured branch. The 
grandfathered status of an insured branch may not be transferred, 
except in certain merger and acquisition transactions that the FDIC 
determines are not designed, or motivated by the desire, to avoid 
compliance with section 6(d)(1) of the International Banking Act (12 
U.S.C. 3104(d)(1)).


Sec.  347.207  Disclosure of supervisory information to foreign 
supervisors.

    (a) Disclosure by the FDIC. The FDIC may disclose information 
obtained in the course of exercising its supervisory or examination 
authority to a foreign bank regulatory or supervisory authority, if the 
FDIC determines that disclosure is appropriate for bank supervisory or 
regulatory purposes and will not prejudice the interests of the United 
States.
    (b) Confidentiality. Before making any disclosure of information 
pursuant to paragraph (a) of this section, the FDIC will obtain, to the 
extent necessary, the agreement of the foreign bank regulatory or 
supervisory authority to maintain the confidentiality of such 
information to the extent possible under applicable law. The disclosure 
or transfer of information to a foreign bank regulatory or supervisory 
authority under this section will not waive any privilege applicable to 
the information that is disclosed or transferred.


Sec.  347.208  Assessment base deductions by insured branch.

    Deposits in an insured branch to the credit of the foreign bank or 
any of its offices, branches, agencies, or wholly owned subsidiaries 
may be deducted from the assessment base of the insured branch.


Sec.  347.209  Pledge of assets.

    (a) Purpose. A foreign bank that has an insured branch must pledge 
assets for the benefit of the FDIC or its designee(s). Whenever the 
FDIC is obligated under section 11(f) of the Federal Deposit Insurance 
Act (12 U.S.C. 1821(f)) to pay the insured deposits of an insured 
branch, the assets pledged under this section must become the property 
of the FDIC and be used to the extent necessary to protect the deposit 
insurance fund.
    (b) Amount of assets to be pledged. (1) For a newly insured branch, 
a foreign bank must pledge assets equal to at least 5 percent of the 
liabilities of the branch, based on the branch's projection of its 
liabilities at the end of each of the first three years of operations. 
For all other insured branches, a foreign bank must pledge assets equal 
to the appropriate percentage applicable to the insured branch, as 
determined by reference to the risk-based assessment schedule contained 
in this paragraph, of the insured branch's average liabilities for the 
last 30 days of the most recent calendar quarter.\4\
---------------------------------------------------------------------------

    \4\ This average must be computed by using the sum of the close 
of business figures for the 30 calendar days of the most recent 
calendar quarter, ending with and including the last day of the 
calendar quarter, divided by 30. For days on which the branch is 
closed, however, balances from the previous business day are to be 
used in determining its average liabilities. In determining its 
average liabilities, the insured branch may exclude liabilities to 
other offices, agencies, branches, and wholly owned subsidiaries of 
the foreign bank. The value of the pledged assets must be computed 
based on the lesser of the principal amount (par value) or market 
value of such assets at the time of the original pledge and 
thereafter as of the last day of the most recent calendar quarter.
---------------------------------------------------------------------------

    (2) Risk-based assessment schedule. The risk-based asset pledge 
required by paragraph (b)(1) will be determined by utilizing the 
following risk-based assessment schedule:

------------------------------------------------------------------------
                                         Supervisory risk subgroup
     Asset maintenance level      --------------------------------------
                                      A (%)        B (%)        C (%)
------------------------------------------------------------------------
Equal to or greater than 108%....            2            3            4
Equal to or greater than 106%....            4            5            6
Less than 106%...................            6            7            8
------------------------------------------------------------------------

    The appropriate asset pledge percentage will be determined based on 
the supervisory risk subgroup and asset maintenance level applicable to 
the insured branch.
     (3) Supervisory risk factors. For purposes of this section, within 
each asset maintenance group, each institution will be assigned to one 
of three subgroups based on consideration by the FDIC of supervisory 
evaluations provided by the primary federal regulator for the insured 
branch. The supervisory evaluations include the results of examination 
findings by the primary federal regulator, as well as other information 
the primary federal regulator determines to be relevant. In addition, 
the FDIC will take into consideration such other information (such as 
state examination findings, if appropriate) as it determines to be 
relevant to the financial condition and the risk posed to the deposit 
insurance fund. The three supervisory subgroups are:

[[Page 17568]]

    (i) Subgroup ``A''. This subgroup consists of financially sound 
institutions with only a few minor weaknesses;
    (ii) Subgroup ``B''. This subgroup consists of institutions that 
demonstrate weaknesses which, if not corrected, could result in 
significant deterioration of the institution and increased risk of loss 
to the deposit insurance fund; and
    (iii) Subgroup ``C''. This subgroup consists of institutions that 
pose a substantial probability of loss to the deposit insurance fund.
    (4) The FDIC may require a foreign bank to pledge additional assets 
or to compute its pledge on a daily basis whenever the FDIC determines 
that the condition of the foreign bank or the insured branch is such 
that the assets pledged under this section will not adequately protect 
the deposit insurance fund. In requiring a foreign bank to pledge 
additional assets, the FDIC will consult with the primary regulator for 
the insured branch. Among the factors to be considered in imposing 
these requirements are the concentration of risk to any one borrower or 
group of related borrowers, the concentration of transfer risk related 
to any one country, including the country in which the foreign bank's 
head office is located or any other factor the FDIC determines is 
relevant.
    (5) Each insured branch must separately comply with the 
requirements of this section. A foreign bank which has more than one 
insured branch in a state may, however, treat all of its insured 
branches in the same state as one entity and will designate one insured 
branch to be responsible for compliance with this section.
    (c) Depository. A foreign bank must place pledged assets for 
safekeeping at any depository which is located in any state. However, a 
depository may not be an affiliate of the foreign bank whose insured 
branch is seeking to use the depository. A foreign bank must obtain the 
FDIC's prior written approval of the depository selected, and such 
approval may be revoked and dismissal of the depository required 
whenever the depository does not fulfill any one of its obligations 
under the pledge agreement. A foreign bank shall appoint and constitute 
the depository as its attorney in fact for the sole purpose of 
transferring title to pledged assets to the FDIC as may be required to 
effectuate the provisions of paragraph (a) of this section.
    (d) Assets that may be pledged. Subject to the right of the FDIC to 
require substitution, a foreign bank may pledge any of the kinds of 
assets listed in this paragraph (d); such assets must be denominated in 
United States dollars. A foreign bank shall be deemed to have pledged 
any such assets for the benefit of the FDIC or its designee at such 
time as any such asset is placed with the depository, as follows:
    (1)(i) Negotiable certificates of deposit that are payable in the 
United States and that are issued by any state bank, national bank, 
state or federal savings association, or branch of a foreign bank which 
has executed a valid waiver of offset agreement or similar debt 
instruments that are payable in the United States and that are issued 
by any agency of a foreign bank which has executed a valid waiver of 
offset agreement; provided, that the maturity of any certificate or 
issuance is not greater than one year; and provided further, that the 
issuing branch or agency of a foreign bank is not an affiliate of the 
pledging bank or from the same country as the pledging bank's domicile;
    (ii) Non-negotiable certificates of deposit, subject to the terms 
specified in paragraph (d)(1)(i) of this section other than the 
requirement of negotiability, that were pledged as collateral to the 
FDIC on March 18, 2005, until maturity according to the original terms 
of the existing deposit agreement.
    (2) Treasury bills, interest bearing bonds, notes, debentures, or 
other direct obligations of or obligations fully guaranteed as to 
principal and interest by the United States or any agency or 
instrumentality thereof;
    (3) Commercial paper that is rated P-1 or P-2, or their equivalent 
by a nationally recognized rating service; provided, that any conflict 
in a rating shall be resolved in favor of the lower rating;
    (4) Banker's acceptances that are payable in the United States and 
that are issued by any state bank, national bank, state or federal 
savings association, or branch or agency of a foreign bank; provided, 
that the maturity of any acceptance is not greater than 180 days; and 
provided further, that the branch or agency issuing the acceptance is 
not an affiliate of the pledging bank or from the same country as the 
pledging bank's domicile;
    (5) General obligations of any state of the United States, or any 
county or municipality of any state of the United States, or any 
agency, instrumentality, or political subdivision of the foregoing or 
any obligation guaranteed by a state of the United States or any county 
or municipality of any state of the United States; provided, that such 
obligations have a credit rating within the top two rating bands of a 
nationally recognized rating service (with any conflict in a rating 
resolved in favor of the lower rating);
    (6) Obligations of the African Development Bank, Asian Development 
Bank, Inter-American Development Bank, and the International Bank for 
Reconstruction and Development;
    (7) Notes issued by bank and thrift holding companies, banks, or 
savings associations organized under the laws of the United States or 
any state thereof or notes issued by United States branches or agencies 
of foreign banks, provided, that the notes have a credit rating within 
the top two rating bands of a nationally recognized rating service 
(with any conflict in a rating resolved in favor of the lower rating) 
and that they are payable in the United States, and provided further, 
that the issuer is not an affiliate of the foreign bank pledging the 
note; or
    (8) Any other asset determined by the FDIC to be acceptable.
    (e) Pledge agreement. A foreign bank shall not pledge any assets 
unless a pledge agreement in form and substance satisfactory to the 
FDIC has been executed by the foreign bank and the depository. The 
agreement, in addition to other terms not inconsistent with this 
paragraph (e), shall give effect to the following terms:
    (1) Original pledge. The foreign bank shall place with the 
depository assets of the kind described in paragraph (d) of this 
section, having an aggregate value in the amount as required pursuant 
to paragraph (b) of this section.
    (2) Additional assets required to be pledged. Whenever the foreign 
bank is required to pledge additional assets for the benefit of the 
FDIC or its designees pursuant to paragraph (b)(4) of this section, it 
shall deliver (within two business days after the last day of the most 
recent calendar quarter, unless otherwise ordered) additional assets of 
the kind described in paragraph (d) of this section, having an 
aggregate value in the amount required by the FDIC.
    (3) Substitution of assets. The foreign bank, at any time, may 
substitute any assets for pledged assets, and, upon such substitution, 
the depository shall promptly release any such assets to the foreign 
bank; provided, that:
    (i) The foreign bank pledges assets of the kind described in 
paragraph (d) of this section having an aggregate value not less than 
the value of the pledged assets for which they are substituted and 
certified as such by the foreign bank; and
    (ii) The FDIC has not by written notification to the foreign bank, 
a copy of which shall be provided to the depository, suspended or 
terminated the foreign bank's right of substitution.

[[Page 17569]]

    (4) Delivery of other documents. Concurrently with the pledge of 
any assets, the foreign bank will deliver to the depository all 
documents and instruments necessary or advisable to effectuate the 
transfer of title to any such assets and thereafter, from time to time, 
at the request of the FDIC, deliver to the depository any such 
additional documents or instruments. The foreign bank shall provide 
copies of all such documents described in this paragraph (e)(4) to the 
appropriate regional director concurrently with their delivery to the 
depository.
    (5) Acceptance and safekeeping responsibilities of the depository. 
(i) The depository will accept and hold any assets pledged by the 
foreign bank pursuant to the pledge agreement for safekeeping free and 
clear of any lien, charge, right of offset, credit, or preference in 
connection with any claim the depository may assert against the foreign 
bank and shall designate any such assets as a special pledge for the 
benefit of the FDIC or its designee. The depository shall not accept 
the pledge of any such assets unless, concurrently with such pledge, 
the foreign bank delivers to the depository the documents and 
instruments necessary for the transfer of title thereto as provided in 
this part.
    (ii) The depository shall hold any such assets separate from all 
other assets of the foreign bank or the depository. Such assets may be 
held in book-entry form but must at all times be segregated on the 
records of the depository and clearly identified as assets subject to 
the pledge agreement.
    (6) Reporting requirements of the insured branch and the 
depository. (i) Initial reports. Upon the original pledge of assets as 
provided in paragraph (e)(1) of this section:
    (A) The depository shall provide to the foreign bank and to the 
appropriate FDIC regional director a written report in the form of a 
receipt identifying each asset pledged and specifying in reasonable 
detail with respect to each such asset the complete title, interest 
rate, series, serial number (if any), principal amount (par value), 
maturity date and call date; and
    (B) The foreign bank shall provide to the appropriate regional 
director a written report certified as correct by the foreign bank 
which sets forth the value of each pledged asset and the aggregate 
value of all such assets, and which states that the aggregate value of 
all such assets is at least equal to the amount required pursuant to 
paragraph (b) of this section and that all such assets are of the kind 
described in paragraph (d) of this section.
    (ii) Quarterly reports. Within ten calendar days after the end of 
the most recent calendar quarter:
    (A) The depository shall provide to the appropriate regional 
director a written report specifying in reasonable detail with respect 
to each asset currently pledged (including any asset pledged to satisfy 
the requirements of paragraph (b)(4) of this section and identified as 
such), as of two business days after the end of the most recent 
calendar quarter, the complete title, interest rate, series, serial 
number (if any), principal amount (par value), maturity date, and call 
date, provided, that if no substitution of any asset has occurred 
during the reporting period, the reporting need only specify that no 
substitution of assets has occurred; and
    (B) The foreign bank shall provide as of two business days after 
the end of the most recent calendar quarter to the appropriate regional 
director a written report certified as correct by the foreign bank 
which sets forth the value of each pledged asset and the aggregate 
value of all such assets, which states that the aggregate value of all 
such assets is at least equal to the amount required pursuant to 
paragraph (b) of this section and that all such assets are of the kind 
described in paragraph (d) of this section, and which states the 
average of the liabilities of each insured branch of the foreign bank 
computed in the manner and for the period prescribed in paragraph (b) 
of this section.
    (iii) Additional reports. The foreign bank shall, from time to 
time, as may be required, provide to the appropriate regional director 
a written report in the form specified containing the information 
requested with respect to any asset then currently pledged.
    (7) Access to assets. With respect to any asset pledged pursuant to 
the pledge agreement, the depository will provide representatives of 
the FDIC or the foreign bank with access (during regular business hours 
of the depository and at the location where any such asset is held, 
without other limitation or qualification) to all original instruments, 
documents, books, and records evidencing or pertaining to any such 
asset.
    (8) Release upon the order of the FDIC. The depository shall 
release to the foreign bank any pledged assets, as specified in a 
written notification of the appropriate regional director, upon the 
terms and conditions provided in such notification, including without 
limitation the waiver of any requirement that any assets be pledged by 
the foreign bank in substitution of any released assets.
    (9) Release to the FDIC. Whenever the FDIC is obligated under 
section 11(f) of the Federal Deposit Insurance Act to pay insured 
deposits of an insured branch, the FDIC by written certification shall 
so inform the depository; and the depository, upon receipt of such 
certification, shall thereupon promptly release and transfer title to 
any pledged assets to the FDIC or release such assets to the foreign 
bank, as specified in the certification. Upon release and transfer of 
title to all pledged assets specified in the certification, the 
depository shall be discharged from any further obligation under the 
pledge agreement.
    (10) Interest earned on assets. The foreign bank may retain any 
interest earned with respect to the assets currently pledged unless the 
FDIC by written notice prohibits retention of interest by the foreign 
bank, in which case the notice shall specify the disposition of any 
such interest.
    (11) Expenses of agreement. The FDIC shall not be required to pay 
any fees, costs, or expenses for services provided by the depository to 
the foreign bank pursuant to, or in connection with, the pledge 
agreement.
    (12) Substitution of depository. The depository may resign, or the 
foreign bank may discharge the depository, from its duties and 
obligations under the pledge agreement by giving at least 60 days' 
written notice thereof to the other party and to the appropriate 
regional director. The FDIC, upon 30 days' written notice to the 
foreign bank and the depository, may require the foreign bank to 
dismiss the depository if the FDIC in its discretion determines that 
the depository is in breach of the pledge agreement. The depository 
shall continue to function as such until the appointment of a successor 
depository becomes effective and the depository has released to the 
successor depository the pledged assets and documents and instruments 
to effectuate transfer of title in accordance with the written 
instructions of the foreign bank as approved by the FDIC. The 
appointment by the foreign bank of a successor depository shall not be 
effective until:
    (i) The FDIC has approved in writing the successor depository; and
    (ii) A pledge agreement in form and substance satisfactory to the 
FDIC has been executed.
    (13) Waiver of terms. The FDIC may by written order waive 
compliance by the foreign bank or the depository with any term or 
condition of the pledge agreement.


Sec.  347.210  Asset maintenance.

    (a) An insured branch of a foreign bank shall maintain on a daily 
basis

[[Page 17570]]

eligible assets in an amount not less than 106 percent of the preceding 
quarter's average book value of the insured branch's liabilities or, in 
the case of a newly-established insured branch, the estimated book 
value of its liabilities at the end of the first full quarter of 
operation, exclusive of liabilities due to the foreign bank's head 
office, other branches, agencies, offices, or wholly owned 
subsidiaries. The Director of the Division of Supervision and Consumer 
Protection or his designee may impose a computation of total 
liabilities on a daily basis in those instances where it is found 
necessary for supervisory purposes. The FDIC Board of Directors, after 
consulting with the insured branch's primary regulator, may require 
that a higher ratio of eligible assets be maintained if the financial 
condition of the insured branch warrants such action. Among the factors 
which will be considered in requiring a higher ratio of eligible assets 
are the concentration of risk to any one borrower or group of related 
borrowers, the concentration of transfer risk to any one country, 
including the country in which the foreign bank's head office is 
located or any other factor the FDIC determines is relevant. Eligible 
assets shall be payable in United States dollars.
    (b) In determining eligible assets for the purposes of compliance 
with paragraph (a) of this section, the insured branch shall exclude 
the following:
    (1) Any asset due from the foreign bank's head office, or its other 
branches, agencies, offices or affiliates;
    (2) Any asset classified ``Value Impaired,'' to the extent of the 
required Allocated Transfer Risk Reserves or equivalent write down, or 
``Loss'' in the most recent state or federal examination report;
    (3) Any deposit of the insured branch in a bank unless the bank has 
executed a valid waiver of offset agreement;
    (4) Any asset not supported by sufficient credit information to 
allow a review of the asset's credit quality, as determined at the most 
recent state or federal examination, as follows:
    (i) Whether an asset has sufficient credit information will be a 
function of the size of the borrower and the location within the 
foreign bank of the responsibility for authorizing and monitoring 
extensions of credit to the borrower. For large, well known companies, 
when credit responsibility is located in an office of the foreign bank 
outside the insured branch, the insured branch must have adequate 
documentation to show that the asset is of good quality and is being 
supervised adequately by the foreign bank. In such cases, copies of 
periodic memoranda that include an analysis of the borrower's recent 
financial statements and a report on recent developments in the 
borrower's operations and borrowing relationships with the foreign bank 
generally would constitute sufficient information. For other borrowers, 
periodic memoranda must be supplemented by information such as copies 
of recent financial statements, recent correspondence concerning the 
borrower's financial condition and repayment history, credit terms and 
collateral, data on any guarantors, and where necessary, the status of 
any corrective measures being employed;
    (ii) Subsequent to the determination that an asset lacks sufficient 
credit information, an insured branch may not include the amount of 
that asset among eligible assets until the FDIC determines that 
sufficient documentation exists. Such a determination may be made 
either at the next federal examination, or upon request of the insured 
branch, by the appropriate regional director;
    (5) Any asset not in the insured branch's actual possession unless 
the insured branch holds title to such asset and the insured branch 
maintains records sufficient to enable independent verification of the 
insured branch's ownership of the asset, as determined at the most 
recent state or federal examination;
    (6) Any intangible asset;
    (7) Any other asset not considered bankable by the FDIC.
    (c) A foreign bank which has more than one insured branch in a 
state may treat all of its insured branches in the same state as one 
entity for purposes of compliance with paragraph (a) of this section 
and shall designate one insured branch to be responsible for 
maintaining the records of the insured branches' compliance with this 
section.
    (d) The average book value of the insured branch's liabilities for 
a quarter shall be, at the insured branch's option, either an average 
of the balances as of the close of business for each day of the quarter 
or an average of the balances as of the close of business on each 
Wednesday during the quarter. Quarters end on March 31, June 30, 
September 30, and December 31 of any given year. For days on which the 
insured branch is closed, balances from the previous business day are 
to be used. Calculations of the average book value of the insured 
branch's liabilities for a quarter shall be retained by the insured 
branch until the next federal examination.


Sec.  347.211  Examination of branches of foreign banks.

    (a) Frequency of on-site examination. Each branch or agency of a 
foreign bank shall be examined on-site at least once during each 12-
month period (beginning on the date the most recent examination of the 
office ended) by:
    (1) The FRB;
    (2) The FDIC, if an insured branch;
    (3) The OCC, if the branch or agency of the foreign bank is 
licensed by the OCC; or
    (4) The state supervisor, if the office of the foreign bank is 
licensed or chartered by the state.
    (b) 18-month cycle for certain small institutions. (1) Mandatory 
standards. The FDIC may conduct a full-scope, on-site examination at 
least once during each 18-month period, rather than each 12-month 
period as provided in paragraph (a) of this section, if the insured 
branch:
    (i) Has total assets of $250 million or less;
    (ii) Has received a composite ROCA supervisory rating (which rates 
risk management, operational controls, compliance, and asset quality) 
of 1 or 2 at its most recent examination;
    (iii) Satisfies the requirement of either the following paragraph 
(b)(iii)(A) or (B):
    (A) The foreign bank's most recently reported capital adequacy 
position consists of, or is equivalent to, Tier 1 and total risk-based 
capital ratios of at least 6 percent and 10 percent, respectively, on a 
consolidated basis; or
    (B) The insured branch has maintained on a daily basis, over the 
past three quarters, eligible assets in an amount not less than 108 
percent of the preceding quarter's average third party liabilities 
(determined consistent with applicable federal and state law) and 
sufficient liquidity is currently available to meet its obligations to 
third parties;
    (iv) Is not subject to a formal enforcement action or order by the 
FRB, FDIC, or the OCC; and
    (v) Has not experienced a change in control during the preceding 
12-month period in which a full-scope, on-site examination would have 
been required but for this section.
    (2) Discretionary standards. In determining whether an insured 
branch that meets the standards of paragraph (b)(1) of this section 
should not be eligible for an 18-month examination cycle pursuant to 
this paragraph (b), the FDIC may consider additional factors, including 
whether:
    (i) Any of the individual components of the ROCA supervisory rating 
of an insured branch is rated ``3'' or worse;

[[Page 17571]]

    (ii) The results of any off-site monitoring indicate a 
deterioration in the condition of the insured branch;
    (iii) The size, relative importance, and role of a particular 
insured branch when reviewed in the context of the foreign bank's 
entire U.S. operations otherwise necessitate an annual examination; and
    (iv) The condition of the parent foreign bank gives rise to such a 
need.
    (c) Authority to conduct more frequent examinations. Nothing in 
paragraphs (a) and (b) of this section limits the authority of the FDIC 
to examine any insured branch as frequently as it deems necessary.


Sec.  347.212  FDIC approval to conduct activities that are not 
permissible for federal branches.

    (a) Scope. A foreign bank operating an insured state branch which 
desires to engage in or continue to engage in any type of activity that 
is not permissible for a federal branch, pursuant to the National Bank 
Act (12 U.S.C. 21 et seq.) or any other federal statute, regulation, 
official bulletin or circular, written order or interpretation, or 
decision of a court of competent jurisdiction, must file a written 
application for permission to conduct such activity with the FDIC.
    (b) Exceptions. If the FDIC has already determined, pursuant to 
part 362 of this chapter, ``Activities and Investment of Insured State 
Banks,'' that an activity does not present a significant risk to the 
affected deposit insurance fund, no application is required under 
paragraph (a) of this section for a foreign bank operating an insured 
branch to engage or continue to engage in the same activity.
    (c) Agency activities. A foreign bank operating an insured state 
branch is not required to submit an application pursuant to paragraph 
(a) of this section to engage in or continue engaging in an activity 
conducted as agent if the activity is:
    (1) permissible agency activity for a state-chartered bank located 
in the state which the state-licensed insured branch of the foreign 
bank is located;
    (2) permissible agency activity for a state-licensed branch of a 
foreign bank located in that state; and
    (3) permissible pursuant to any other applicable federal law or 
regulation.
    (d) Conditions of approval. (1) Approval of such an application 
required by paragraph (a) of this section may be conditioned on the 
agreement by the foreign bank and its insured state branch to conduct 
the activity subject to specific limitations, which may include 
pledging of assets in excess of the asset pledge and asset maintenance 
requirements contained in Sec. Sec.  347.209 and 347.210.
    (2) In the case of an application to initially engage in an 
activity, as opposed to an application to continue to conduct an 
activity, the insured state branch shall not commence the activity 
until it has been approved in writing by the FDIC pursuant to this part 
and the FRB, and any and all conditions imposed in such approvals have 
been satisfied.
    (e) Divestiture or cessation. (1) If an application for permission 
to continue to conduct an activity is not approved by the FDIC or the 
FRB, the applicant shall submit a plan of divestiture or cessation of 
the activity to the appropriate regional director.
    (2) A foreign bank operating an insured state branch which elects 
not to apply to the FDIC for permission to continue to conduct an 
activity which is rendered impermissible by any change in statute, 
regulation, official bulletin or circular, written order or 
interpretation, or decision of a court of competent jurisdiction shall 
submit a plan of divestiture or cessation to the appropriate regional 
director.
    (3) All plans of divestitures or cessation required by this 
paragraph must be completed within one year from the date of the 
disapproval, or within such shorter period as the FDIC may direct.
    (f) Procedures. Procedures for applications under this section are 
set out in section 303.187.


Sec.  347.213  Establishment or operation of noninsured foreign branch.

    (a) A foreign bank may establish or operate a state branch, as 
provided by state law, without federal deposit insurance whenever:
    (1) The branch only accepts initial deposits in an amount of 
$100,000 or greater; or
    (2) The branch meets the criteria set forth in Sec. Sec.  347.214 
or 347.215.
    (b) [Reserved]


Sec.  347.214  Branch established under section 5 of the International 
Banking Act.

    A foreign bank may operate any state branch as a noninsured branch 
whenever the foreign bank has entered into an agreement with the FRB to 
accept at that branch only those deposits as would be permissible for a 
corporation organized under section 25(a) of the Federal Reserve Act 
(12 U.S.C. 611 et seq.) and implementing rules and regulations 
administered by the FRB (12 CFR 211).


Sec.  347.215  Exemptions from deposit insurance requirement.

    (a) Deposit activities not requiring insurance. A state branch will 
not be considered to be engaged in domestic retail deposit activity 
that requires the foreign bank parent to establish an insured U.S. bank 
subsidiary if the state branch accepts initial deposits only in an 
amount of less than $100,000 that are derived solely from the 
following:
    (1) Individuals who are not citizens or residents of the United 
States at the time of the initial deposit;
    (2) Individuals who:
    (i) Are not citizens of the United States;
    (ii) Are residents of the United States; and
    (iii) Are employed by a foreign bank, foreign business, foreign 
government, or recognized international organization;
    (3) Persons (including immediate family members of natural persons) 
to whom the branch or foreign bank (including any affiliate thereof) 
has extended credit or provided other nondeposit banking services 
within the past twelve months or has entered into a written agreement 
to provide such services within the next twelve months;
    (4) Foreign businesses, large United States businesses, and persons 
from whom an Edge or agreement corporation may accept deposits under 12 
CFR 211.6(a)(1);
    (5) Any governmental unit, including the United States government, 
any state government, any foreign government and any political 
subdivision or agency of any of the foregoing, and recognized 
international organizations;
    (6) Persons who are depositing funds in connection with the 
issuance of a financial instrument by the branch for the transmission 
of funds or the transmission of such funds by any electronic means; and
    (7) Any other depositor, but only if:
    (i) The branch's average deposits under this paragraph (a)(7) do 
not exceed one percent of the branch's average total deposits, as 
calculated under paragraph (a)(7)(ii) if this section (de minimis 
exception).
    (ii) For purposes of calculating this exception:
    (A) The branch's average deposits under this paragraph and the 
average total deposits must be computed by summing the close of 
business figures for each of the last 30 calendar days, ending with and 
including the last day of the calendar quarter, and dividing the 
resulting sum by 30;
    (B) For days on which the branch is closed, balances from the last 
previous business day are to be used;
    (C) The branch may exclude deposits in the branch of other offices, 
branches,

[[Page 17572]]

agencies or wholly owned subsidiaries of the bank to determine its 
average deposits;
    (D) The branch must not solicit deposits from the general public by 
advertising, display of signs, or similar activity designed to attract 
the attention of the general public; and
    (E) A foreign bank that has more than one state branch in the same 
state may aggregate deposits in such branches (excluding deposits of 
other branches, agencies or wholly owned subsidiaries of the bank) for 
the purpose of this paragraph (a)(7).
    (b) Application for an exemption. (1) Whenever a foreign bank 
proposes to accept at a state branch initial deposits of less than 
$100,000 and such deposits are not otherwise exempted under paragraph 
(a) of this section, the foreign bank may apply to the FDIC for consent 
to operate the branch as a noninsured branch. The Board of Directors 
may exempt the branch from the insurance requirement if the branch is 
not engaged in domestic retail deposit activities requiring insurance 
protection. The Board of Directors will consider the size and nature of 
depositors and deposit accounts, the importance of maintaining and 
improving the availability of credit to all sectors of the United 
States economy, including the international trade finance sector of the 
United States economy, whether the exemption would give the foreign 
bank an unfair competitive advantage over United States banking 
organizations, and any other relevant factors in making this 
determination.
    (2) Procedures for applications under this section are set out in 
Sec.  303.186.
    (c) Transition period. A noninsured state branch may maintain a 
retail deposit lawfully accepted prior to April 1, 1996 pursuant to 
regulations in effect prior to July 1, 1998:
    (1) If the deposit qualifies pursuant to paragraph (a) or (b) of 
this section; or
    (2) If the deposit does not qualify pursuant to paragraph (a) or 
(b) of this section, in the case of a time deposit, no later than the 
first maturity date of the time deposit after April 1, 1996.


Sec.  347.216  Depositor notification.

    Any state branch that is exempt from the insurance requirement 
pursuant to Sec.  347.215 shall:
    (a) Display conspicuously at each window or place where deposits 
are usually accepted a sign stating that deposits are not insured by 
the FDIC; and
    (b) Include in bold face conspicuous type on each signature card, 
passbook, and instrument evidencing a deposit the statement ``This 
deposit is not insured by the FDIC''; or require each depositor to 
execute a statement which acknowledges that the initial deposit and all 
future deposits at the branch are not insured by the FDIC. This 
acknowledgment shall be retained by the branch so long as the depositor 
maintains any deposit with the branch. This provision applies to any 
negotiable certificates of deposit made in a branch on or after July 6, 
1989, as well as to any renewals of such deposits which become 
effective on or after July 6, 1989.

    By order of the Board of Directors.

    Dated at Washington, DC, this 18th day of March, 2005.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 05-6295 Filed 4-5-05; 8:45 am]

BILLING CODE 6714-01-P

Last Updated 05/06/2005 communications@fdic.gov