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Financial Institution Letters


[Federal Register: April 8, 1998 (Volume 63, Number 67)]
[Rules and Regulations]               
[Page 17056-17090]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ap98-3]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 325, 326, 327, 346, 347, 351, and 362

RIN 3064-AC05

 
International Banking Regulations: Consolidation and 
Simplification

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: As part of the FDIC's systematic review of its regulations and 
written policies under section 303(a) of the Riegle Community 
Development and Regulatory Improvement Act of 1994 (CDRI), the FDIC has 
revised and consolidated its three different groups of rules and 
regulations governing international banking. The first group governs 
insured branches of foreign banks and specifies what deposit-taking 
activities are permissible for uninsured state-licensed branches of 
foreign banks. The FDIC's final rule makes conforming changes 
throughout this group of regulations to reflect the statutory 
requirement that domestic retail deposit activities must be conducted 
through an insured bank subsidiary, not through an insured branch. Also 
with respect to this group of regulations, the FDIC is rescinding the 
provisions concerning optional insurance for U.S. branches of foreign 
banks; the pledge of assets formula has been revised; and the FDIC

[[Page 17057]]

Division of Supervision's (DOS) new supervision program--the Case 
Manager approach--has been integrated throughout the applicable 
regulations. The second group of regulations governs the foreign 
branches of insured state nonmember banks, and also governs such banks' 
investment in foreign banks or other financial entities. The final rule 
modernizes this group of regulations and clarifies provisions outlining 
the activities in which insured state nonmember banks may engage 
abroad, and reduces the instances in which banks must file an 
application before opening a foreign branch or making a foreign 
investment. The third group of regulations governs the international 
lending of insured state nonmember banks and specifies when reserves 
are required for particular international assets. The final rule 
revises this group of regulations to simplify the accounting for fees 
on international loans to make it consistent with generally accepted 
accounting principles. Consistent with the goals of CDRI, the final 
rule improves efficiency, reduces costs, and eliminates outmoded 
requirements.

DATES: This final rule is effective July 1, 1998. Compliance is 
mandatory for all affected institutions on July 1, 1998. Affected 
institutions may elect to comply with the final rule voluntarily at any 
time after May 8, 1998. If an affected institution elects to comply 
voluntarily with any section of subpart A, B, or C of 12 CFR part 347, 
the institution or bank must comply with the entire subpart.

FOR FURTHER INFORMATION CONTACT: Christie A. Sciacca, Associate 
Director (202/898-3671), Karen M. Walter, Chief (202/898-3540), Suzanne 
L. Williams, Senior Financial Analyst (202/898-6788), Division of 
Supervision; Jamey Basham, Counsel (202/898-7265), Wendy Sneff, Counsel 
(202/898-6865), Legal Division, FDIC, 550 17th Street, NW, Washington, 
D.C. 20429.

SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review 
of its regulations and written policies. Section 303(a) of the CDRI (12 
U.S.C. 4803(a)) requires the FDIC to streamline and modify its 
regulations and written policies in order to improve efficiency, reduce 
unnecessary costs, and eliminate unwarranted constraints on credit 
availability. Section 303(a) also requires the FDIC to remove 
inconsistencies and outmoded and duplicative requirements from its 
regulations and written policies.
    As part of this review, the FDIC has determined that certain 
portions of part 346 are out-of-date, and other provisions of this part 
require clarification. Although the FDIC previously made certain 
regulatory amendments which took effect as recently as 1996, other 
regulatory language contained in part 346 does not accurately reflect 
the underlying statutory authority. The FDIC has also determined that 
part 347 is outmoded. Part 347 has not been revised in any significant 
regard since 1979, when it was originally promulgated. The FDIC 
published a proposed rule in the Federal Register on July 15, 1997 (62 
FR 37748).
    The FDIC has decided to consolidate its international banking rules 
into a single part, part 347, for ease of reference. This final rule 
places material on foreign branching and foreign bank investment by 
nonmember banks, currently located in part 347, into subpart A of part 
347. Material currently located in part 346, governing insured branches 
of foreign banks and deposit-taking by uninsured state-licensed 
branches of foreign banks, is placed in subpart B of part 347. Part 351 
of the FDIC's current rules and regulations, which contains rules 
governing the international lending operations of insured state 
nonmember banks, is placed in subpart C of new part 347. Part 351 was 
originally adopted in 1984 as an interagency rulemaking in coordination 
with the Board of Governors of the Federal Reserve System (FRB) and the 
Office of the Comptroller of the Currency (OCC). The most significant 
revision to part 351 is to require banks to follow GAAP in accounting 
for fees on international loans. This change was discussed with 
accounting staff at the OCC and FRB as part of an interagency working 
group and they are in general agreement with the change. However, as 
the other two federal banking agencies are not ready to act on a 
revised regulation at this time, the FDIC has decided to unilaterally 
issue its revision to part 351 in connection with its consolidation of 
the international banking regulations.
    In addition, the FDIC has recently published a notice of proposed 
rulemaking (62 FR 52810, October 9, 1997) containing complete revision 
of part 303 of the FDIC's rules and regulations, which contains the 
FDIC's applications procedures and delegations of authority. For ease 
of reference, the FDIC will consolidate its applications procedures for 
international banking matters into a single subpart of part 303, 
subpart J. In order to finalize part 347 without waiting for the part 
303 proposal to be finalized, this part 347 proposal includes, as a 
separate subpart D of part 347, revised application procedures 
compatible with the substantive provisions of this final rule. These 
application procedures will be transferred to subpart J of part 303 
once it is finalized, as is discussed in connection with subpart D, 
below.

I. Subpart A--Foreign Branches and Investments in Foreign Banks and 
Other Entities

A. Background

    Section 18(d)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1828(d)(2)) requires a nonmember bank to obtain the FDIC's consent to 
establish or operate a foreign branch. Section 18(d)(2) also authorizes 
the FDIC to impose conditions and issue regulations governing the 
affairs of foreign branches.
    Section 18(l) of the FDI Act (12 U.S.C. 1828(l)) requires a 
nonmember bank to obtain the FDIC's consent to acquire and hold, 
directly or indirectly, stock or other evidences of ownership in any 
foreign bank or other entity. Section 18(l) also states that these 
entities may not engage in any activities in the United States except 
as the Board of Directors of the FDIC (Board), in its judgment, has 
determined are incidental to the international or foreign business of 
these entities. In addition, section 18(l) authorizes the FDIC to 
impose conditions and issue regulations governing these investments. 
Finally, although nonmember banks are subject to the interaffiliate 
transaction restrictions of sections 23A and 23B of the Federal Reserve 
Act, 12 U.S.C. 371c and 371c-1, as expressly incorporated by section 
18(j) of the FDI Act, 12 U.S.C. 1821(j), section 18(l) provides that 
nonmember banks may engage in transactions with these foreign banks and 
other entities in which the nonmember bank has invested in the manner 
and within the limits prescribed by the FDIC.
    A nonmember bank's authority to establish a foreign branch or 
invest in foreign banks or other entities, and the permissible 
activities for foreign branches or foreign investment entities, must be 
established in the first instance under the law of its state chartering 
authority. Congress created sections 18(d)(2) and 18(l) out of a 
concern that there was no federal-level review of nonmember banks' 
foreign branching and investments. S. Rep. No. 95-323, 95th Cong., 1st 
Sess. (1977) at 15. Although the FRB had long held authority over 
foreign branching and investment by state member banks and national 
banks (member banks) under the Federal Reserve Act, as well as foreign 
investment by bank holding companies under the Bank Holding Company 
Act, the FDIC did not hold

[[Page 17058]]

corresponding statutory authority over nonmember banks until Congress 
created sections 18(d)(2) and 18(l) as part of the Financial 
Institutions Regulatory and Interest Rate Control Act of 1978, Pub. L. 
95-630 (FIRIRCA).
    The FRB's rules governing foreign branching and investments by 
member banks are contained in subpart A of Regulation K (12 CFR 211.1-
211.8). The FRB has issued a notice of proposed rulemaking to revise 
Regulation K (62 FR 68424 (Dec. 31, 1997)). The FDIC's subpart A of 
part 347 maintains parity with the substance of the current version of 
Regulation K. The FDIC's treatment of permissible activities for 
foreign branches and foreign entities in which nonmember banks invest 
is virtually identical to Regulation K, and the amount limits and 
expedited approval processes are very similar (the differences take 
into account certain variances attributable to structural differences 
between the types of institutions governed). Substantive differences 
between the FDIC's final rule and the current version of Regulation K 
are noted below.
    In certain of the few instances in which the FDIC is adopting a 
different treatment than the FRB's under the current version of 
Regulation K, the differences raise issues under section 24 of the FDI 
Act (12 U.S.C. 1831a) and part 362 of the FDIC's rules and regulations 
(12 CFR part 362). Section 24 and part 362 prohibit a state bank from 
engaging as principal in any activity which is not permissible for a 
national bank, unless the FDIC first determines that it would not pose 
a significant risk of loss to the appropriate deposit insurance fund 
and the bank meets its minimum capital requirements. Section 24 and 
part 362 similarly prohibit a subsidiary of a state bank from engaging 
as principal in any activity which is not permissible for a subsidiary 
of national bank, unless the FDIC first determines that it would not 
pose a significant risk of loss to the appropriate deposit insurance 
fund and the bank meets its minimum capital requirements. Section 24 
and part 362 also prohibit a state bank from making an equity 
investment which is not permissible for a national bank, unless the 
investment is made through a majority-owned subsidiary, the FDIC 
determines that it would not pose a significant risk of loss to the 
appropriate deposit insurance fund for the subsidiary to hold the 
equity investment, and the bank meets its minimum capital requirements. 
These section 24 issues are discussed below.
Impact of Proposed Revisions to Regulation K
    The FDIC has decided to finalize subpart A of part 347 now, 
notwithstanding the pendency of the FRB's proposal to modify subpart A 
of Regulation K. Nonmember banks affected by the current version of 
part 347 have advised the FDIC that they view the FDIC's current rule 
as an impediment to their ability to compete effectively abroad. The 
FDIC desires to make the improvements provided under its proposed rule 
available to nonmember banks without additional delay. If the FRB at 
some time in the future adopts some or all of the changes it has 
recently proposed to subpart A of Regulation K, the FDIC may propose 
additional revisions to subpart A of part 347. The FDIC seeks to 
maintain general similarity between the restrictions governing the 
international activities of nonmember banks and member banks, but the 
FDIC will not be able to assess the advisability of any changes to 
subpart A of part 347 until the FRB issues final revisions to 
Regulation K.
    If the FRB adopts certain of its proposed changes which would 
reduce the authority of member banks or their subsidiaries to conduct 
certain activities abroad, nonmember banks engaging in those activities 
as authorized by part 347 without an application to the FDIC are 
cautioned to assess whether an application to the FDIC may nevertheless 
be required under section 24 of the FDI Act. The FDIC, in structuring 
subpart A, has been mindful of section 24 issues and structured the 
rule so that activities authorized by subpart A without application to 
the FDIC do not require separate case-by-case authorization under 
section 24. However, if the FRB cuts back on what international 
activities are permissible for member banks and their subsidiaries 
under subpart A of Regulation K, the structure may develop gaps which 
the FDIC will need to address by further revisions to subpart A of part 
347. Affected nonmember banks assessing such questions in the interim 
are encouraged to contact FDIC staff for assistance.

B. Discussion of Comments

    The FDIC received two comment letters on subpart A, both from 
insured state nonmember banks with numerous foreign investments subject 
to current part 347. Both commenters expressed wholehearted support for 
the FDIC's efforts to update the rule. Both commenters made suggestions 
for additional improvements to the proposal, or alternative treatments 
of certain issues thereunder. Most of these related to the procedures 
for approving branches or investments. The FDIC has considered each 
suggestion in turn.
Comments on Application Processing Times
    One comment suggested that the FDIC shorten from 45 to 30 days the 
application processing period under Sec. 347.103 for an eligible bank 
with branches in two or more countries to establish a branch in an 
additional country. The FDIC does not think that a 45-day period is 
burdensome, given that the bank itself will know well in advance of its 
intention to establish a new branch and can plan accordingly.
    This  commenter also suggested that the FDIC similarly shorten the 
45-day application processing period under 347.108(b) for an eligible 
bank to make foreign investments not eligible for general consent. Such 
an application would be required if the eligible bank sought to acquire 
20 percent or more of an entity in a jurisdiction which is new to the 
FDIC as specified in section 347.108(a)(2). In such a case, the FDIC 
will need a 45-day period to contact host country supervisors and 
establish a working arrangement with them for cross-border supervision. 
Moreover, as is the case with the foreign branch application, the FDIC 
believes that the eligible bank will have sufficient advance notice of 
its desire to make such a significant investment that the bank can give 
the FDIC 45 days advance notice. Another situation in which such an 
application would be required is if an eligible bank with no existing 
foreign banking experience seeks to make a foreign investment. In such 
cases, 45 days will give the FDIC necessary time to work with the 
applicant to ensure it has appropriate operational and management 
systems in place to deal with the unique risks posed by foreign 
investments. Finally, such applications are required if an eligible 
bank seeks to invest more than five percent of its Tier 1 capital (plus 
an additional five percent for trading purposes) in a 12-month period. 
While the FDIC has no desire that state nonmember banks be thwarted in 
their efforts to obtain sound investment opportunities abroad which 
require swift action, given that the total outstanding foreign 
investments of even the most internationally active state nonmember 
banks is generally in the range of 10-15 percent of Tier 1 capital at 
present, it is the FDIC's opinion that the five percent threshold 
allows sufficient flexibility for institutions to take advantage of 
investment opportunities.

[[Page 17059]]

    In addition, as a result of another comment, the FDIC has modified 
its application procedures so that applications subject to expedited 
processing under the 45-day period may be approved by delegated 
authority prior to the expiration of such period. Thus, if the 
application presents no special concerns or any such concerns are 
resolved promptly, approval can be granted prior to the expiration of 
the 45 day period.
    In a similar vein, one commenter requested additional information 
about what considerations would be involved and what timing would apply 
if an application was subject to regular processing because the branch 
or foreign organization is located in a country whose laws or practices 
limit the FDIC's access to information for examination and other 
supervisory purposes. The commenter also requested that the FDIC 
consider any precedent regarding the country in question that has been 
developed by the OCC or the FRB. The FDIC's concern is that it have 
sufficient access to information as is necessary to evaluate the impact 
of the foreign operation on the insured state nonmember bank, and to 
serve the FDIC's international supervisory obligations as the nonmember 
bank's home country supervisor. In conducting this review, the FDIC 
will take into account any information obtained from, and experience 
gained by, the OCC and the FRB in supervising similar foreign 
operations of member banks in the foreign country. The FDIC's approach 
to applications involving secrecy jurisdictions will depend on the 
facts of the case, but generally speaking, the FDIC is likely to 
consider some or all of the following.
    The FDIC will assess the nature and extent of the secrecy 
restriction, with particular focus on the matters which are to be kept 
secret, whether there are appropriate exceptions for regulators, and 
whether the FDIC is within the scope of such exception. The FDIC will 
also consider whether the host country supervisor possesses, and 
exercises when appropriate, a right of access, and whether there is 
some other appropriately independent third party, such as an 
independent auditor, which has access to, and systematically evaluates, 
the relevant operations. The nature and extent of the foreign 
operation's dealing with customers will be taken into account. If total 
access is not possible, the FDIC will take into account the 
practicability of alternate precautions, such as duplicate record-
keeping in the U.S., reliance on host country supervisors and 
recognized external auditors, the use of special operating policies at 
the foreign organization, and the systematic use of customer 
confidentiality waivers.
    As for timing, the FDIC has recently approved certain applications 
from insured state nonmember banks seeking to establish foreign 
operations in secrecy jurisdictions. As the cases were ones of first 
impression, and involved issues of significant concern, processing took 
longer than would otherwise be the case. Now that the FDIC has begun to 
establish a framework for addressing these types of applications, 
future applications will be processed more quickly. In the final rule, 
the FDIC has also expanded the delegations of authority for approving 
foreign branch and foreign investment applications involving secrecy 
jurisdictions. These applications may be approved under delegated 
authority whenever the approving official is satisfied that adequate 
arrangements have been made (through conditions imposed in connection 
with the approval and agreed to in writing by the applicant) to ensure 
necessary FDIC access to information for supervisory purposes. In 
addition, as with any application, processing will be faster to the 
extent the applicant discloses sufficient information about its 
proposal in the first instance such that the FDIC can identify all 
issues raised therein early in the review procedure.
    This commenter also appeared to be under the impression that 
regular processing is required for an application to establish a 
branch, or to acquire 20 percent or more of a foreign organization, in 
a country in which there is not already a foreign bank subsidiary of a 
state nonmember bank. In actuality, there is no such condition in 
connection with general consent or expedited processing for branch 
applications. In addition, although Sec. 347.108(a)(2) imposes such a 
condition upon general consent approval for investing in 20 percent or 
more of a foreign organization, expedited processing is still available 
for eligible institutions under Sec. 347.108(b) in the absence of 
general consent.
Foreign Experience of Applicants
    Regarding the FDIC's general consent under Sec. 347.103(b) for a 
nonmember bank to establish or relocate a foreign branch in any country 
in which it already maintains a branch, the FDIC received a comment 
suggesting the authority be expanded to include any country in which 
the bank already controls a foreign organization. The FDIC has not 
adopted this suggestion. Such foreign organizations may not necessarily 
be engaged in banking, and may not have given the applicant sufficient 
familiarity with the conduct of banking in the country in question. For 
example, Sec. 347.104(b) authorizes the establishment of foreign 
organizations engaged in management consulting, or data processing. 
However, in response to this comment, the FDIC has expanded final 
Sec. 347.103(b) to include any jurisdiction in which the nonmember bank 
already has a foreign bank subsidiary. The FDIC has also decided to 
make expedited processing available for a nonmember bank to establish a 
foreign branch in a country in which an affiliate has a foreign bank 
subsidiary, foreign branch, or Edge or Agreement corporation. Also, the 
FDIC has made conforming changes to the category of banks eligible for 
expedited processing of foreign branch applications under 
Sec. 347.103(c) of the final rule. The FDIC proposed that expedited 
processing be available to eligible banks with foreign branches or 
foreign affiliates in two or more countries, but the final rule takes 
into account other banking-related operations of the bank or its 
affiliates.
    For the same reason that the FDIC has not extended foreign branch 
approval procedures so far as to take all foreign organizations into 
account, the FDIC has changed proposed Sec. 347.108(a)(1), which 
required a nonmember bank or an affiliate to own a foreign organization 
subsidiary before the bank could exercise general consent authority to 
invest in foreign organizations. Under the final rule, ``foreign 
organization'' subsidiary has been changed to ``foreign bank'' 
subsidiary. Upon further consideration, the FDIC has become concerned 
that foreign organizations may not necessarily be engaged in banking, 
and may not have given the applicant sufficient familiarity with the 
conduct of banking. However, the FDIC has also expanded 
Sec. 347.108(a)(1) to make general consent available if a nonmember 
bank has a foreign branch, or an affiliate with a banking-related 
office abroad.
    This commenter also suggested that proposed Sec. 347.108(a)(2), 
which conditioned the availability of general consent authority to 
invest in 20 percent or more of a foreign organization upon the 
existence of a foreign organization subsidiary of a state nonmember 
bank in the country in question, be similarly expanded to include any 
country in which a state nonmember bank maintains a foreign branch. The 
FDIC is not making this change at this time, out of a concern that many 
state nonmember banks currently operate ``nameplate'' branches in 
several foreign countries, involving little actual presence in the

[[Page 17060]]

foreign country since all operations are effectively conducted in the 
United States. Authorization of free-standing foreign organizations in 
such countries may require more extensive analysis by the FDIC and more 
extensive coordination with host country supervisors, and it is thus 
appropriate to deal with such applications through expedited 
processing. In addition, although the FDIC proposed that the 
Sec. 347.108(a)(2) condition could be satisfied through the existence 
of a ``foreign organization'' subsidiary in the foreign country, upon 
further consideration of the issue, the FDIC has decided to require the 
existence of a ``foreign bank'' subsidiary. The FDIC is doing this out 
of a concern that a foreign organization may not necessarily be engaged 
in banking, and the FDIC consequently may not have evaluated all 
necessary factors. For example, as noted above, Sec. 347.104(b) 
authorizes the establishment of foreign organizations engaged in 
management consulting, or data processing.
    This commenter also requested that the FDIC adopt some mechanism to 
inform the public of the list of foreign countries in which state 
nonmember banks have foreign bank subsidiaries, so that affected banks 
can easily determine whether the Sec. 347.108(a)(2) condition is 
satisfied. The FDIC will make such information available through its 
Internet web site, www.fdic.gov, in the near future.
    In addition, this commenter pointed out that the preamble to the 
proposed rule created confusion as to whether the Sec. 347.108(a)(2) 
condition would be satisfied if the state nonmember bank seeking to 
exercise general consent authority was the only state nonmember bank 
with a foreign bank subsidiary in the foreign country in question. In 
such a case, the condition would indeed be satisfied. There is no 
requirement that some other state nonmember bank have a foreign bank 
subsidiary in the foreign country. The purpose of the 
Sec. 347.108(a)(2) condition is to ensure the FDIC has experience with 
the jurisdiction and a working relationship with its supervisors. These 
goals will be met regardless of whether the state nonmember bank 
presence in the foreign country is that of the state nonmember bank 
making the investment, or another state nonmember bank.
Delegations of Authority
    One commenter suggested that the FDIC Board of Directors should 
delegate its authority to authorize foreign branches, or foreign 
organizations in which state nonmember banks invest, to engage in 
activities not specifically set out in subpart A (including incidental 
activities in the United States), or to engage in such activities in a 
greater amount. This commenter also suggested delegation of the Board's 
authority to approve extensions of the two-year holding period for 
nonconforming foreign investments obtained in satisfaction of debts 
previously contracted. However, the FDIC feels that these issues are of 
such significance that they should be determined by the Board. In 
addition, the commenter was under the impression that a state nonmember 
bank seeking to invest in a foreign organization which conducts equity 
securities underwriting and dealing activity within the limits 
contained in subpart A would be required to obtain Board approval. 
Under the rule, Board approval would be required from a state nonmember 
bank seeking to invest in a foreign organization which would conduct 
underwriting and dealing activities in excess of subpart A's limits. 
However, for equity securities underwriting and dealing activities 
within the limits of Sec. 347.105, the Board has delegated its 
authority regarding the prior approval required by Sec. 347.104(b)(3).
Eligible Bank Definition
    Regarding the definition of an ``eligible insured state nonmember 
bank'' under proposed section 347.102(c), one commenter noted that a 
bank must have a satisfactory or better Community Reinvestment Act 
(CRA) (12 U.S.C. 2901 et seq.) rating in order to meet the definition, 
but that ``special purpose'' banks which are exempt from CRA will not 
have been assigned CRA ratings. Under the FDIC's CRA regulations at 12 
CFR part 345, special purpose banks that do not perform commercial or 
retail banking services by granting credit to the public in the 
ordinary course of business, other than as is incidental to their 
specialized operations, are not subject to examination under the FDIC's 
CRA regulations (12 CFR 345.11(c)(3)). The FDIC does not intend to 
apply the CRA element of the definition of an eligible insured state 
nonmember bank to a special purpose bank which is not subject to 
examination under the FDIC's CRA regulations. Language to this effect 
has been added to the definition. The substantive portions of the 
definition have also been transferred to Sec. 347.401 of the final 
rule, in order to more appropriately locate the definition with the 
application processing requirements in subpart D, and Sec. 347.102(c) 
now simply cross-references to the definition in Sec. 347.401. 
Additional changes to the eligibility definition are discussed in 
connection with subpart D, below.
Substantive Comments
    The public comments received by the FDIC also addressed three 
substantive issues. The first concerns the FDIC's list of authorized 
financial activities for a foreign organization in which a state 
nonmember bank may invest (Sec. 347.104(b)). One commenter, noting the 
FDIC's inclusion of activities authorized under Regulation Y (12 CFR 
225.28(b)) as being closely related to banking under section 4(c)(8) of 
the Bank Holding Company Act (Regulation Y list), suggested the FDIC 
also include any activity determined by the OCC to be incidental to the 
business of banking under section 24(Seventh) of the National Bank Act 
(12 U.S.C. 24(Seventh)). The FDIC has not added such a reference. The 
list of financial activities authorized under section 347.104(b) as a 
whole is quite extensive, and should be sufficient to permit nonmember 
banks to maintain a competitive footing abroad. Adoption of an 
additional analytical approach to authorizing activities abroad, 
incorporating the ``incidental to the business of banking'' test, seems 
unnecessary.
    The second substantive comment concerns the FDIC's identification 
of specific items on which a state nonmember bank should maintain a 
system of records, controls and reports about the activities of its 
foreign branches and organizations (Sec. 347.110(a)(1)-(4)). One 
commenter was concerned that the list of specific items might be 
strictly applied, without making allowances for the nature of the 
foreign operation's particular transactions. As an example, the 
commenter noted that a recent borrower financial statement, listed in 
Sec. 347.110(a)(1)(i), might not be necessary for an extension of 
credit collateralized by investment grade securities with a market 
value of 150 percent of the outstanding loan amount. To address this 
concern, the FDIC has changed the language of the regulation slightly, 
so that the detailed list of items to be held in connection with risk 
assets (Sec. 347.100(a)(1)(i)-(v)) and to be included in audit reports 
(Sec. 347.110(a)(1)(4)(i)-(vi)) is illustrative rather than mandatory. 
However, the FDIC cautions bank management that the bank must maintain 
a system which, at a minimum, meets the informational objectives 
spelled out in Sec. 347.110(a)(1)-(4).
    The third substantive comment concerns the FDIC's limitation on 
mutual fund activities of a foreign

[[Page 17061]]

organization in which a state nonmember bank invests 
(Sec. 347.104(b)(4)). This section permits the foreign organization to 
organize, sponsor, and manage a mutual fund, but only 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. The commenter did not object to the latter 
restriction concerning control, but suggested that the FDIC should 
permit the mutual fund shares to be sold or distributed in the United 
States or to U.S. residents so long as the fund was not required to be 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1). 
The standard which the FDIC proposed under Sec. 347.104(b)(4) is 
consistent with what is permissible for a member bank under the FRB's 
current standard in Regulation K. The commenter's proposed modification 
raises potential legal and supervisory issues which the FDIC would 
prefer not to address in a vacuum, in the absence of specific facts 
about the product in question. If a state nonmember bank wishes in the 
future to invest in a foreign organization which will organize or 
sponsor a mutual fund whose shares will be distributed or sold in the 
United States or to U.S. residents, the bank may submit an application 
to the FDIC.

C. Other Changes from Proposed Subpart A

    In addition to the changes the FDIC has made to proposed subpart A 
in response to public comments, the FDIC has made three additional 
changes concerning foreign branches of state nonmember banks. First, 
the proposal's definition of a ``foreign branch'' in Sec. 347.102(i) 
erroneously covered offices located in territories of the United 
States, Puerto Rico, Guam, American Samoa, the Trust Territory of the 
Pacific Islands, or the Virgin Islands. This is inconsistent with the 
current definition in current Sec. 347.2(a) and section 3(o) of the FDI 
Act (12 U.S.C. Sec. 1813(o)), and the final definition in 
Sec. 347.102(i) has been corrected accordingly.
    Second, under proposed Sec. 347.103(b), the FDIC provided its 
general consent for an eligible bank to establish additional branches 
in a country in which it already maintained a branch, or to relocate an 
existing branch within a foreign country. This had the effect of 
requiring a bank which did not meet the criteria of an eligible insured 
state nonmember bank to go through the full application process to 
relocate an existing foreign branch within a foreign country. Upon 
further consideration, the FDIC does not see the necessity for a 
general rule requiring full applications for such relocations, given 
the limited impact they would have on the nonmember bank and the FDIC's 
ability to suspend general consent as to any particular institution if 
necessary. Therefore, under Sec. 347.103(b)(2) of the final rule, the 
FDIC gives its general consent for relocations of existing foreign 
branches.
    Third, in the proposed rule, the FDIC indicated it was considering 
whether to authorize foreign branches to underwrite, distribute and 
deal, invest in and trade obligations of any foreign government (as 
opposed to the current authorization which extends only to obligations 
of the country in which the branch is located). The FDIC has decided to 
adopt this proposal, but has added an additional requirement that the 
non-local obligations be rated investment grade by at least two 
established international rating agencies. In contrast to the situation 
in the U.S., foreign sovereign debt is frequently rated. Nonmember 
banks still have the option of making an application to the FDIC to 
include unrated investment quality obligations as part of their foreign 
branch's line of business in this regard.

D. Description of Final Rule, Subpart A

Foreign Branches
    The most significant change from current part 347 is the FDIC's 
grant of authority to a nonmember bank meeting certain eligibility 
criteria to establish foreign branches under general consent or 
expedited processing procedures. The existing list of foreign branch 
powers under current Sec. 347.3(c) has also been redrafted to bring it 
more in line with modern banking practice. The final rule also 
introduces expanded powers for foreign branches to underwrite, 
distribute, deal, invest in, and trade foreign government obligations.
    The general consent and expedited processing procedures are 
discussed in detail in the analysis of subpart D, below, but to 
summarize them briefly, Sec. 347.103(b) gives the FDIC's general 
consent for a nonmember bank to relocate existing foreign branches 
within a foreign country, and for an eligible nonmember bank--one which 
is well-capitalized, well-rated under certain supervisory assessment 
benchmarks, and has no supervision problems--to establish branches 
within a foreign country in which the nonmember bank has a branch or a 
foreign bank subsidiary. By expedited processing requiring only 45 days 
prior notice to the FDIC, an eligible nonmember bank may also establish 
additional branches in a country in which an affiliate of the bank 
operates a foreign bank subsidiary, or in which an affiliated bank or 
Edge or Agreement corporation operate a foreign branch. An eligible 
nonmember bank which has established its international expertise by 
successfully operating such entities in two or more foreign countries 
may also establish branches in additional foreign countries under 
expedited processing procedures. There are certain necessary 
limitations on these general consent and expedited processing 
procedures, however, as discussed in the analysis of subpart D.
    Section 347.103(a) of the final rule lists the permissible 
activities for a foreign branch. In order to modernize the list of 
foreign branch powers currently contained in Sec. 347.3(c), the final 
rule eliminates Sec. 347.3(c)(2) (specific authorization for a foreign 
branch to accept drafts or bills of exchange), and Sec. 347.3(c)(5) 
(specific authorization for a foreign branch to make loans secured by 
real estate). The FDIC has not included a counterpart to the FRB's 
specific authorization for a foreign branch to engage in repurchase 
agreements involving securities that are the functional equivalent of 
extensions of credit. In the FDIC's view, these activities are within 
the general banking powers of a foreign branch, and thus do not require 
specific mention on the list of activities which the FDIC has 
authorized in addition to such general banking powers.
    The final rule also eliminates Sec. 347.3(c)(6) (specific 
authorization for a foreign branch to pay its foreign branch officers 
and employees a greater rate of interest on branch deposits than the 
rate paid to other depositors on similar branch deposits). Regulation K 
presently contains a similar provision. While section 22(e) of the 
Federal Reserve Act (12 U.S.C. 376) generally limits a member bank's 
authority to pay employees a greater rate of interest than the rate 
paid to other depositors on similar deposits, the FDIC is not aware of 
any current regulatory restrictions directly prohibiting a nonmember 
bank from doing so, assuming there were no implications of insider 
abuse or of evading certain limited regulatory requirements concerning 
executive compensation. Thus, in the FDIC's view, this activity is 
within the general banking powers of a foreign branch of a nonmember 
bank.
    In addition, the FDIC has not included a counterpart to the FRB's 
specific authorization for a foreign branch to extend credit to an 
officer of the branch residing in the foreign country in which the 
branch is located

[[Page 17062]]

to finance the officer's living quarters. In the FDIC's view, this 
activity is within the general banking powers of a foreign branch, 
provided that the bank observes prudent banking practices and 
Regulation O limits on loans to the bank's executive officers. Given 
that Regulation O currently permits a bank to finance an executive 
officer's purchase, construction, maintenance, or improvement of a 
personal residence, the FDIC need not specifically authorize it here.
    To update the current authorization under Sec. 347.3(c)(3) to hold 
the equity securities of the central bank, clearing houses, 
governmental entities, and development banks of the country in which 
the branch is located, final Sec. 347.103(a)(2) adds debt securities 
eligible to meet local reserve or similar requirements, as well as 
shares of automated electronic payment networks, professional 
societies, schools, and similar entities necessary to the business of 
the branch. Section 347.103(a)(2) continues to set the limit for such 
investments at one 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), subject to the same exclusions 
as currently apply for investments required by local law or permissible 
for a national bank under 12 U.S.C. 24 (Seventh).
    The current authorization under Sec. 347.3(c)(4) to underwrite, 
distribute and deal, invest and trade in obligations of the national 
government of the country in which the branch is located has been 
similarly updated. Section 347.103(a)(3) clarifies that obligations of 
the national government's political subdivisions, and its agencies and 
instrumentalities if supported by the national government's taxing 
authority or full faith and credit, are also eligible. The final rule 
also revises the investment limit to reference ten percent of the 
nonmember bank's Tier 1 capital, instead of the outdated reference to 
ten percent of its capital and surplus.
    Finally, the FDIC has decided to permit a foreign branch to 
underwrite, distribute and deal, invest in and trade obligations of any 
foreign government, rather than just the obligations of the country in 
which it is located. Section 347.103(a)(3)(ii) permits this activity, 
so long as the issuing country permits foreign enterprises to do so.
    Since Regulation K does not currently authorize member (and thus 
national) banks to conduct this activity, the FDIC, in adopting the 
final rule, has determined that the activity does not create a 
significant risk to the deposit insurance fund, as required by section 
24 of the FDI Act and part 362 of the FDIC's rules and 
regulations.1 Section 347.103(a)(3)(ii) allows nonmember 
banks to consolidate these activities, which must currently be carried 
out in different branch offices in each country, into a single branch 
office, for more convenient administration and oversight. The non-local 
obligations are counted as part of the ten percent limit applicable to 
local obligation underwriting, distribution, investment and trading, 
and must also be rated as investment grade by at least two established 
international rating agencies.
---------------------------------------------------------------------------

    \1\ Because section 24 only permits the FDIC to authorize equity 
investments which are not permissible for a national bank through a 
majority-owned subsidiary, proposed Sec. 347.103(a)(3)(B) requires 
any foreign government obligations which constitute equity interests 
to be held through a subsidiary of the foreign branch. However, 
practically speaking, the vast majority of foreign government 
obligations are debt obligations instead of equity interests, and 
could be held at the branch level.
---------------------------------------------------------------------------

Foreign Investments
    The final rule completely revises the FDIC's approach to approvals 
of a nonmember bank's investment in the stock or other evidences of 
ownership of a foreign bank or other entity. The final rule adopts an 
approach like that of the FRB under Regulation K. The rule lists the 
various types of financial activities in which a nonmember bank's 
foreign subsidiaries and joint ventures may engage. The rule also 
authorizes limited indirect investment in and trading of the stock of 
nonfinancial entities. Securities underwriting and dealing abroad up to 
specified limits is permitted, with the FDIC's prior approval. 
Moreover, the rule grants eligible nonmember banks the FDIC's general 
consent to make investments in conformity with the rule up to specified 
annual limits, and permits additional investments upon 45 days prior 
notice.
Investment in Foreign Banks and Other Entities Engaged in Financial 
Activities
    Section 347.104(b) contains a list of approved activities which are 
financial in nature. A foreign subsidiary of a nonmember bank is 
limited to conducting these authorized financial activities, unless the 
nonmember bank acquires the subsidiary as a going concern, in which 
case up to five percent of the subsidiary's assets or revenues may be 
attributable to activities which are not on the list. Under the 
definition of ``subsidiary'' at Sec. 347.102(p), a foreign organization 
is a subsidiary of a nonmember bank if the nonmember bank and its 
affiliates hold more than 50 percent of the foreign organization's 
voting equity securities. It is important to note that this definition 
of a subsidiary differs from the commonly-used subsidiary definition 
found in section 2(d) of the Bank Holding Company Act (BHCA) (12 U.S.C. 
1841(d)). Under section 2(d), subsidiary status typically arises upon 
ownership of 25 percent or more of the entity's voting securities. The 
FDIC has adopted the less-inclusive subsidiary definition which is 
triggered at 50 percent rather than the more commonly-used 25 percent 
in order to maintain consistency with the corresponding provisions of 
Regulation K. This less-inclusive approach is also carried through to 
the definition of an affiliate under Sec. 347.102(a), also to maintain 
consistency with Regulation K.
    Subsidiary status under Sec. 2(d) of the BHCA also arises when the 
parent controls in any manner the election of the majority of the 
subsidiary's directors in any manner or if the parent has the power to 
directly or indirectly exercise a controlling influence over the 
management and policies of an organization. In contrast, the final rule 
separates these elements out into their own definition of ``control'' 
at Sec. 347.102(b). Section 347.102(b) also provides that control is 
deemed to exist whenever a nonmember bank or its affiliate is a general 
partner of a foreign organization. As is the case with subsidiaries, 
any foreign organization which is controlled by a state nonmember bank 
or its affiliates, regardless of the percent of voting stock owned by 
the state nonmember bank, is limited to conducting approved financial 
activities contained on the Sec. 347.104(b) list, subject to the same 
five percent exception for going concerns.
    If a nonmember bank and its affiliates hold less than 50 percent of 
the voting equity securities of a foreign organization and do not 
control the organization, up to 10 percent of the organization's assets 
or revenues may be attributable to activities which are not on the 
list. If the nonmember bank and its affiliates' hold less than 20 
percent of a foreign organization's voting equity interests, the 
nonmember bank is prohibited from making any loans or extensions of 
credit to the organization which are not on substantially the same 
terms as those prevailing at the time for comparable transactions with 
nonaffiliated organizations.
    The list of authorized financial activities in Sec. 347.104(b) is 
modeled on the FRB's corresponding provision in Regulation K, 12 CFR 
211.5(d). The final rule reorders the activities in an effort

[[Page 17063]]

to group similar activities together, and where there are conditions 
and limitations on the conduct of a particular activity, this 
additional information is separately set out in Secs. 347.105 and 
347.106. Additional activities require the FDIC's approval.
    The final rule does not include six activities which currently 
appear in Regulation K. The FDIC has not included these activities, 
because they are each authorized under Regulation Y (12 CFR 225.28(b)) 
as being closely related to banking under section 4(c)(8) of the Bank 
Holding Company Act (Regulation Y list), and the final rule authorizes 
foreign investment organizations to engage in any activity on the 
Regulation Y list. The omitted activities are: financing; acting as 
fiduciary; providing investment, financial, or economic advisory 
services; leasing real or personal property or acting as agent, broker 
or advisor in connection with such transactions if the lease serves as 
the functional equivalent of an extension of credit to the lessee; 
acting as a futures commission merchant; and acting as principal or 
agent in swap transactions.
    In addition, Sec. 347.104(b) contains certain activities--for 
example, data processing--which are also authorized by the Regulation Y 
list, but are subject to certain additional limitations and conditions 
under Regulation Y. In such cases, the activities are included in 
Sec. 347.104(b) because a foreign investment entity is permitted to 
conduct them under the less restrictive terms of Sec. 347.104(b). But 
in cases in which the nonmember bank relies solely on Sec. 347.104(b)'s 
cross-reference to the Regulation Y list as authority to conduct an 
activity, the foreign investment entity must comply with the attendant 
restrictions in 12 CFR 227.28(b).
    Also, in the case of one activity authorized by Sec. 347.104(b)'s 
cross-reference to the Regulation Y list, acting as a futures 
commission merchant (FCM), the FDIC has imposed one restriction in 
addition to the restrictions imposed by Regulation Y at 12 CFR 
225.28(b). Under Sec. 347.106(a), a foreign investment entity may not 
have potential liability to a mutual exchange or clearing association 
of which the foreign investment entity is a member exceeding an amount 
equal to two percent of the nonmember bank's Tier 1 capital, unless the 
FDIC grants its prior approval.
    Unlike Regulation K, the FDIC's rule authorizes nonmember banks to 
directly invest in foreign organizations which are not foreign banks. 
Under 12 CFR 211.5(b)(2), the only foreign organizations in which 
member banks are permitted to invest directly are foreign banks; 
foreign organizations formed for the sole purpose of either holding 
shares of a foreign bank or for performing nominee, fiduciary, or other 
banking services incidental to the activities of the member bank's 
foreign branches or affiliates; or subsidiaries of foreign branches 
authorized under 12 CFR 211.3(b)(9). Any investment by a member bank in 
a foreign organization which is not one of these types of entities must 
be made indirectly, through an Edge corporation subsidiary or foreign 
bank subsidiary of the member bank. This limitation arises out of the 
language of section 25 of the Federal Reserve Act, which generally 
limits the direct investments of member banks to foreign banks. In 
contrast, section 18(l) of the FDI Act permits state nonmember banks, 
to the extent authorized by state law, to invest in foreign ``banks or 
other entities.'' As discussed above, the legislative history of 
section 18(l) shows that Congress was, at the time it created section 
18(l), mindful of the FRB's parallel authority over member banks under 
section 25. Therefore, the FDIC interprets the difference between the 
two statutes to be significant, and the type of foreign organizations 
in which a state nonmember bank may invest directly are not restricted 
by section 18(l).
    A national bank's inability to invest directly in the shares of a 
nonbank foreign organization raises issues under section 24 of the FDI 
Act and part 362 of the FDIC's rules and regulations. If a nonmember 
bank acquires a sufficient stake in a nonbank foreign organization such 
that the nonbank foreign organization is a ``majority-owned 
subsidiary'' 2 of the state nonmember bank for purposes of 
section 24, no section 24 analysis is required. This is because subpart 
A of part 347 only authorizes foreign organizations to engage in the 
same activities which the FRB has authorized for the foreign 
subsidiaries of member (and thus national) banks. Therefore, the 
nonmember bank's foreign subsidiary can only engage as principal in the 
same activities permitted for a foreign subsidiary of a national bank, 
and section 24's application requirement is never triggered.
---------------------------------------------------------------------------

    \2\ Section 24 and part 362 do not set out a separate definition 
of ``majority-owned subsidiary.'' Part 362 defines a ``subsidiary'' 
to mean any company directly or indirectly controlled by an insured 
state nonmember bank. Part 362 further defines ``control'' to mean 
the power to vote, directly or indirectly, 25 percent or more of any 
class of the voting stock of a company, the ability to control in 
any manner the election of a majority of a company's directors or 
trustees, or the ability to exercise a controlling influence over 
the management and policies of a company. A state nonmember bank 
thus holds a company as a ``majority-owned subsidiary'' when the 
bank holds more than 50 percent of the company's stock. This is 
equivalent to the definition of ``subsidiary'' in proposed 
Sec. 347.102(p).
---------------------------------------------------------------------------

    If the nonmember bank holds a lesser amount of the nonbank foreign 
organization's shares, such that it does not rise to a ``majority-owned 
subsidiary'' within the meaning of section 24 and part 362, the FDIC is 
required by section 24 and part 362 to determine that the nonmember 
bank's equity investment in a nonbank foreign organization does not 
pose a significant risk to the appropriate deposit insurance fund. The 
FDIC has determined that dispensing with the intermediate foreign bank 
subsidiary or Edge subsidiary, the vehicle through which a national 
bank is permitted to make this type of investment, is simply a 
structural matter that does not create a significant risk to the 
deposit insurance fund. The final rule therefore authorizes nonmember 
banks to hold such non-majority equity interests. However, section 24 
and part 362 provide that the FDIC may only permit equity investments 
to be held by the bank through a majority-owned subsidiary. The final 
rule therefore requires these investments to be held through some form 
of U.S. or foreign majority-owned subsidiary.
    The final rule does not include one activity authorized by 
Regulation K concerning a foreign investment entity's ability to 
underwrite life, annuity, pension fund-related, and other types of 
insurance, where the associated risks have been determined by the FRB 
to be actuarially predictable. Under Regulation K, the FRB has not 
given general authorization for this activity to be conducted directly 
or indirectly by a subsidiary of a member bank. Since the activity is 
thus not generally permissible for a subsidiary of a national bank, a 
section 24 issue arises. However, under section 24(b) and 24(d)(2), the 
FDIC may not give section 24 approval for a state bank or its 
subsidiary to engage in insurance underwriting if it is not permissible 
for a national bank, or is not expressly excepted by other subsections 
of section 24 covering limited types of insurance underwriting. 
Therefore, the FDIC is presently foreclosed from granting general 
regulatory authorization for nonmember banks to underwrite life, 
pension fund-related, or other types of insurance in this fashion. This 
prohibition does not extend to annuity underwriting, and a nonmember 
bank which wishes to underwrite annuities through a foreign 
organization may apply to the FDIC

[[Page 17064]]

under the final rule and part 362 for specific approval to do so.
Portfolio Investments in Nonfinancial Foreign Organizations
    Section 347.104(g) of the final rule authorizes nonmember banks to 
make portfolio investments in a foreign organization without regard to 
whether the activities of the organization are authorized financial 
activities listed in Sec. 347.104(b). Aggregate holdings of a 
particular foreign organization's equity interests by the nonmember 
bank and its affiliates must be less than 20 percent of the foreign 
organization's voting equity interests and 40 percent of its total 
voting and nonvoting equity interests. The latter restriction prevents 
a nonmember bank from, by obtaining a large equity position albeit a 
nonvoting one, obtaining a level of influence over the foreign 
organization which is inconsistent with the notion of a portfolio 
holding. The nonmember bank and its affiliates are not permitted to 
control the foreign organization, and any loan or extensions of credit 
to the foreign organization must be on substantially the same terms as 
those prevailing at the time for comparable transactions with 
nonaffiliated organizations.
    Section 347.104(g) limits these investments in nonfinancial foreign 
organizations to an amount equal to 15 percent of the nonmember bank's 
Tier 1 capital. In contrast to the FDIC's approach with foreign 
organizations engaged primarily in financial activities authorized 
under Sec. 347.104(b), Sec. 347.104(g) does not displace current 
limitations prohibiting member (and thus national) banks from making 
nonfinancial portfolio investments at the bank level or through a 
domestic subsidiary of the bank. Section 347.104(g) requires these 
investments to be held through a foreign subsidiary, or an Edge 
corporation subsidiary (subject to the FRB's authorization). The FDIC 
is authorizing these portfolio investments so that a nonmember bank's 
foreign bank and other financial subsidiaries can compete effectively 
in their foreign markets. It is therefore not necessary to authorize 
portfolio investments at the bank or domestic subsidiary level.
U.S. Activities of Foreign Organizations
    As discussed above, section 18(l) of the FDI Act states that the 
foreign organizations in which nonmember banks invest may not engage in 
any activities in the U.S. except as the Board of Directors, in its 
judgment, has determined are incidental to the international or foreign 
business of the foreign organization. Section 347.107 of the final rule 
addresses what activities may be engaged in within the United States. 
The rule prohibits a nonmember bank from investing in any foreign 
organization which engages in the general business of buying or selling 
goods, wares, merchandise, or commodities in the U.S., and prohibits 
investments totaling over five percent of the equity interests of any 
foreign organization if the organization engages in any business or 
activities in the U.S. which are not incidental to its international or 
foreign business. A foreign organization will not be considered to be 
engaged in business or activities in the U.S. unless it maintains an 
office in the U.S. other than a representative office.
    This structure follows the one established by the FRB under 
Regulation K. The FDIC is including the five percent threshold and the 
U.S. office threshold in acknowledgment that the U.S. is a leading 
international market and a substantial number of foreign organizations 
transact some portion of their business here. If nonmember banks are 
prohibited from investing in every foreign organization which does even 
a limited amount of its business in the U.S., nonmember banks will be 
at a disadvantage vis a vis their international financial institution 
competitors.
    Beyond these thresholds, the regulation permits foreign 
organizations to conduct activities that are permissible in the U.S. 
for an Edge corporation, or such other business or activities as are 
approved by the FDIC. In approving additional activities, the FDIC will 
consider whether the activities are international in character. For 
activities proposed by a foreign subsidiary or joint venture of a 
nonmember bank, the FDIC will also consider whether the activity would 
be conducted through a foreign organization to circumvent some legal 
requirement which would apply if the nonmember bank conducted the 
activity through a domestic organization.
Underwriting, Distributing, and Dealing Equity Securities Outside the 
United States
    Under the final rule, a foreign investment entity of a nonmember 
bank is permitted to underwrite, distribute, and deal equity securities 
outside the United States. Briefly summarized, the final rule imposes 
three main limits as part of Sec. 347.105.
    First, underwriting commitments for a single issuer may not exceed 
an amount equal to the lesser of $60 million or 25 percent of the 
nonmember bank's Tier 1 capital.
    Second, distribution and dealing shares of a single entity may not 
exceed an amount equal to the lesser of $30 million or five percent of 
the nonmember bank's Tier 1 capital.3
---------------------------------------------------------------------------

    \3\ Regulation K currently authorizes the lesser of $30 million 
or 10 percent.
---------------------------------------------------------------------------

    Third, the sum of underwriting commitments, distribution and 
dealing shares, and any portfolio investments in nonfinancial foreign 
organizations under Sec. 347.104(g) may not exceed an amount equal to 
25 percent of the nonmember bank's Tier 1 capital.
    Each of these three limits is discussed further below. In 
determining compliance with these limits, the nonmember bank counts all 
commitments of and shares held by each foreign organization in which 
the nonmember bank has invested pursuant to subpart A of part 347. The 
nonmember bank also counts all commitments of and shares held by 
foreign organizations in which the nonmember bank's affiliates have 
invested pursuant to subpart A of Regulation K.
    The $60 million/25 percent underwriting commitment limit may be 
exceeded to the extent the commitment is covered by binding commitments 
from subunderwriters or purchasers. The limit may also be exceeded to 
the extent the commitment is deducted from the nonmember bank's capital 
and the bank remains well-capitalized after the deduction. At least 
half of this deduction must be from Tier 1 capital, and the deduction 
applies for all regulatory purposes.
    The $30 million/five percent limit on the equity securities of a 
single entity which may be held for distribution or dealing is subject 
to two exceptions. First, in order to facilitate underwritings, any 
equity securities acquired pursuant to an underwriting commitment 
extending up to 90 days after the payment date of the underwriting are 
not included in the limit. Second, up to 75 percent of the position in 
an equity security may be reduced by netting long and short positions 
in the identical equity security, or by offsetting cash positions 
against derivative instruments referenced to the same security. The 
provision permitting netting of derivative positions is intended to 
recognize the beneficial impact of prudent hedging strategies, and 
encourage such strategies where the nonmember bank and the foreign 
organization determines they are appropriate. The FDIC expects a 
nonmember bank asserting netting involving derivatives to be able to

[[Page 17065]]

establish the validity of the hedging strategy to the nonmember bank's 
examiners.
    If the nonmember bank's foreign organizations hold the same equity 
securities for distribution and dealing as well as for investment or 
trading pursuant to Sec. 347.104 or the corresponding provision of 
Regulation K, two additional considerations apply.
    First, the investment or trading securities are included in 
calculating the $30 million/five percent per-entity distribution and 
dealing limit, in order to prevent securities which are potentially 
distribution or dealing inventory from being characterized as 
investment or trading shares. Conversely, if the nonmember bank relies 
on the general consent provisions under proposed Sec. 347.108 to 
acquire the securities for investment or trading purposes, distribution 
and dealing securities are counted towards the general consent 
investment limits.
    Second, equity interests in a particular foreign organization held 
for distribution and dealing are required to conform with the limits of 
Sec. 347.104. Equity interests held for distribution or dealing by an 
affiliate permitted to do so under Sec. 337.4 of the FDIC's rules and 
regulations (12 CFR 337.4) or section 4(c)(8) of the Bank Holding 
Company Act (12 U.S.C. 1843(c)(8)) are counted for this limit. If the 
nonmember bank's foreign organizations hold equity interests in the 
same entity for investment and trading purposes, such interests are 
included in determining compliance with these limits. However, in order 
to permit 100 percent underwriting, the final rule contains an 
exception for equity securities acquired pursuant to an underwriting 
commitment for up to 90 days after the payment date for the 
underwriting.
    The combined limit, under which nonfinancial portfolio shares, 
underwriting commitments, and distribution and dealing shares are 
limited to 25 percent of the nonmember bank's Tier 1 capital, only 
includes underwriting commitments net of amounts subject to commitments 
from subunderwriters or purchasers or already deducted from the 
nonmember bank's capital. Equity securities held for distribution or 
dealing are only counted net of any position reduction through netting, 
as permitted in connection with the five percent dealing limit.
Approval of Investments
    The final rule permits a nonmember bank meeting certain eligibility 
criteria to make foreign investments pursuant to general consent and 
expedited processing procedures. These procedures are discussed in 
detail in the analysis of subpart D below, but to summarize them 
briefly, Sec. 347.108 grants the FDIC's general consent for nonmember 
banks meeting the same eligibility criteria as apply in the foreign 
branching context to invest up to five percent of their Tier 1 capital 
in any 12-month period in foreign investments, plus up to an additional 
five percent in equity interests for trading purposes. A sublimit of 
two percent of Tier 1 capital per foreign organization applies. The 
nonmember bank must already operate at least one foreign branch or 
foreign bank subsidiary, or an affiliate of the bank must operate a 
foreign bank subsidiary, or an affiliated bank or Edge or Agreement 
corporation must operate a foreign branch. In addition, at least one 
nonmember bank must have a foreign bank subsidiary in the relevant 
foreign country, in order for general consent to be applicable. An 
investment that does not qualify for general consent, but is otherwise 
in compliance with the rule, may be made by an eligible bank upon 45 
days prior notice under the expedited processing procedure. There are 
certain necessary limitations on these general consent and expedited 
processing procedures, however, as discussed in the analysis of subpart 
D.
Extensions of Credit
    Section 347.109(a) of the final rule does not alter the FDIC's 
current treatment under Sec. 347.5 of extensions of credit to foreign 
investment entities: the limitations of section 18(j) of the FDI Act, 
incorporating by reference the interaffiliate transaction restrictions 
of sections 23A and 23B of the Federal Reserve Act, do not apply.
Debts Previously Contracted
    With one exception, Sec. 347.109(b) of the final rule does not 
alter the FDIC's current treatment under Sec. 347.4(b), whereby equity 
interests acquired to prevent loss on a debt previously contracted in 
good faith are not subject to the limits and approvals of the 
regulation. The FDIC is extending the time period an institution is 
granted to dispose of such equity interests without the FDIC's specific 
approval under part 347 from one to two years. The extension is not 
intended to relieve an institution from its general obligation to 
dispose of the investment promptly under the circumstances and make 
diligent efforts to such end. However, extending the point at which an 
application is required reduces administrative burden, and the FDIC can 
monitor the progress of divestiture efforts as part of the normal 
examination cycle. As with the current requirements of Sec. 347.4(b), 
the final rule is not intended to displace any of the nonmember bank's 
concurrent obligations under state law, or extend a state law 
divestiture or approval period of less than two years.

E. Supervision and Recordkeeping for Foreign Branches and Investments

    Section 347.110 of the final rule does not alter the FDIC's current 
requirements for reporting and recordkeeping under current Sec. 347.6. 
These requirements are intended to facilitate both the nonmember bank's 
oversight of its foreign operations and the FDIC's supervision of them. 
The final rule adds one new element. If a nonmember bank seeks to 
establish a foreign branch, or acquire a foreign joint venture or 
subsidiary, in a country in which applicable law or practice would 
limit the FDIC's access to information about the branch or subsidiary 
for supervisory purposes, the nonmember bank may not rely on the FDIC's 
general consent or expedited processing procedures to do so. In such 
cases, the FDIC must have an opportunity to evaluate the impact of the 
limits on the FDIC's access, and determine whether the FDIC can still 
serve its domestic and international supervisory obligations through 
measures such as duplicate record-keeping in the U.S., reliance on host 
country supervisors, operating policies of the foreign organization, or 
reliance on recognized external auditors.

II. Subpart B--Deposit Insurance Requirements for State Branches 
and Foreign Banks Having Insured Branches

A. Background

    Subpart B, like current part 346 of the FDIC's Rules and 
Regulations, implements certain provisions of the International Banking 
Act of 1978 (IBA) (Pub. L. 95-369), as amended, and corresponding 
provisions of the FDI Act. Subpart B establishes the permissible 
deposit-taking activities of uninsured state licensed branches of 
foreign banks. Subpart B also establishes certain rules applicable to 
insured branches of foreign banks, whose ability to conduct domestic 
retail deposit activity is grandfathered under the Foreign Bank 
Supervision Enhancement Act of 1991 (FBSEA) (Title II, subtitle A of 
the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub. 
L. 102-242). These rules cover asset pledge and asset maintenance 
requirements for insured branches, approval requirements for any 
activities

[[Page 17066]]

not permissible for federal branches, and information-related items.
    The FDIC received no public comments on proposed subpart B. The 
FDIC is issuing the final version of subpart B without change from the 
proposal. As the FDIC discussed in the NPR, the only significant change 
from current part 346 is the addition of regulatory language conforming 
to FBSEA's requirement that foreign banks conduct all domestic retail 
deposit activity through a U.S. insured bank subsidiary. Insured 
branches of foreign banks will also be required to calculate and report 
compliance with the pledge of asset requirement on a quarterly basis. 
These differences, and other changes from current part 346, are 
highlighted in the following description of subpart B.

B. Description of Final Rule, Subpart B

    The definitions in Sec. 347.202 are unchanged from current part 
346, except that substantive limitations contained in some of the 
definitions have been moved to the appropriate substantive rule itself.
    Section 347.203, requiring all branches of the same foreign bank in 
the same state which accept initial deposits in an amount of less than 
$100,000 to be insured, is unchanged from current part 346.
    Section 347.204 has no counterpart in current part 346. However, 
the FDIC is merely implementing FBSEA provisions which have applied by 
their own terms since December 19, 1991. Thus, Sec. 347.204 does not 
impose any new restrictions on foreign banks. FBSEA amended section 
6(c) of the IBA (redesignated section 6(d) in 1994, 12 U.S.C. 3104(d)) 
to require any foreign bank intending to conduct domestic retail 
deposit activities in any state in the U.S. to organize an insured bank 
subsidiary to conduct these deposit activities. However, any insured 
branches which were accepting or maintaining domestic retail deposit 
accounts on December 19, 1991, are allowed to continue to operate as 
insured branches conducting domestic retail deposit activities. IBA 
section 6(d)(3) also exempts 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 FDI Act. This allows insured banks organized under the 
laws of the jurisdictions included therein to conduct any domestic 
retail deposit activities in the United States through insured 
branches, rather than organizing an insured bank subsidiary. This 
statutory scheme has been reiterated in Sec. 347.204.
    In connection with reiterating this statutory scheme in 
Sec. 347.204, the FDIC has included Sec. 347.204(b), mirroring the 
exemption for FDIC-insured banks organized under the laws of any 
territory of the United States, Puerto Rico, Guam, American Samoa, or 
the Virgin Islands set out in IBA section 6(d)(3). The enumerated 
jurisdictions are commonwealths and territories of the United States 
which are specifically included within the ``foreign bank'' definition 
in IBA section 1(b)(7), and which the FDIC has included in the 
regulatory definition of ``foreign bank'' under Sec. 347.202(g). In 
drafting the Sec. 347.204(b) exemption, the FDIC has stuck closely to 
the IBA's statutory language, and has not listed the Northern Mariana 
Islands among the specifically-enumerated jurisdictions. The Northern 
Mariana Islands is a commonwealth, and, like the commonwealth of Puerto 
Rico, is specifically included in the definition of ``State'' for 
purposes of the FDI Act under section 3(a)(3) thereof (12 U.S.C. 
1813(a)(3)). As such, the FDI Act on its face would permit a bank 
chartered by the Northern Mariana Islands to obtain FDIC insurance. 
Therefore, there may be an interpretive issue under IBA section 
6(d)(3), whether a Northern Mariana Islands bank which had obtained 
FDIC insurance fell within the section 6(d)(3) exception and was 
permitted to engage in domestic retail deposit taking in the U.S. 
through an insured branch. Given that there are currently no Northern 
Mariana Islands banks with FDIC deposit insurance, the FDIC sees no 
need to express any interpretive position on this issue at this time.
    In consideration of section 6(d) of the IBA, the FDIC has decided 
it is no longer necessary to have any counterpart to current 
Sec. 346.8. Section 346.8 authorized foreign banks to seek insurance 
for a foreign branch even though the foreign branch did not engage in 
domestic retail deposit activity, and was therefore not required to 
obtain insurance. On their face, at least, FBSEA's amendments to 
section 6 of the IBA seem only to reach foreign banks conducting 
domestic retail deposit activity, and Congress has not repealed section 
5(b) of the FDI Act, authorizing deposit insurance applications from 
foreign branches. Therefore, it may arguably be possible for a foreign 
branch which does not engage in domestic retail deposit activity to 
seek deposit insurance from the FDIC. As a practical matter, however, 
the FDIC does not foresee many circumstances in which it could be 
appropriate for the FDIC Board of Directors to approve such an 
application. Moreover, the elimination of Sec. 346.8 does not affect a 
foreign bank's ability to argue that it may make an application under 
section 5(b) of the FDI Act. The Board would have to determine whether 
to actually accept and approve such an application, based upon its 
review of the facts and circumstances, in addition to the pertinent 
legal and policy considerations.
    Section 347.205 permits an uninsured state foreign branch to 
operate under an agreement with the FRB which limits the branch to 
accepting only those deposits which would be permissible for an Edge 
corporation. This is unchanged from current part 346.
    Section 347.206 sets out the rules under which uninsured state 
foreign branches may, without being deemed to be engaged in domestic 
retail deposit activity, accept deposits in an initial amount of less 
than $100,000. The FDIC conducted an exhaustive review of these rules 
in connection with the enactment of section 107 of the Riegle-Neal 
Interstate Banking and Branching Efficiency Act of 1994 (Pub. L. 103-
328), and revised them to ensure they are consistent with ``affording 
equal competitive opportunities to foreign and United States banking 
organizations in their United States operations [and to] ensure that 
foreign banking organizations do not receive an unfair competitive 
advantage over United States banking organizations.'' 12 U.S.C. 
3104(a). See 61 FR 5671 (February 14, 1996). These revisions to current 
section 346.6 took effect on April 1, 1996, and the FDIC is only 
adopting minor, nonsubstantive revisions in connection with this 
rulemaking. Regulatory language setting out the one percent ``de 
minimis'' exception is being revised to clearly state the calculation 
method which the FDIC has long applied in implementing the de minimis 
exception, but the calculation method is not changed. The FDIC is also 
relocating the application procedure for foreign branches seeking 
additional exceptions from the substantive rule to the separate 
procedural rules on applications, set out in new subpart D of part 347.
    Section 347.207, specifying the notice which uninsured state 
foreign branches must give depositors, makes no changes from the 
comparable requirements of part 346. The same is true of section 
347.208, the agreement by any foreign bank with an insured state branch 
to provide the FDIC with certain information about the bank and permit 
the FDIC to examine any of its U.S. operations. The same is also true 
of

[[Page 17067]]

Sec. 347.209, requiring insured state branches to maintain records on a 
separate-entity basis, and to maintain a set of records in English.
    Section 347.210(a) of the final rule, setting forth the FDIC's 
requirement that an insured branch pledge assets for the benefit of the 
FDIC or its designee, contains certain changes from the comparable 
provisions of current part 346. The pledge requirement remains at five 
percent of the average of the insured branch's liabilities, as is 
currently the case, but the final rule requires the pledge to be 
calculated quarterly, whereas the current rule only requires it to be 
calculated for the last 30 days of the second and fourth calendar 
quarters. The final rule provides that the amount of assets that must 
be pledged to the FDIC will be equal to ``five percent of the average 
of the insured branch's liabilities for the last 30 days of the most 
recent calendar quarter.'' This formula will be more straightforward to 
apply and the calculation thereof will be easier for the insured 
branches. The final rule also requires the insured branch to provide 
the appropriate FDIC regional director with a written report regarding 
the pledged assets on a quarterly basis (Sec. 347.210(e)(6)(ii)). The 
current rule only requires semiannual reporting. This new reporting 
requirement is consistent with other FDIC reporting requirements, such 
as the filing of Reports of Income and Condition, and with the FDIC's 
policy of analyzing financial data on a quarterly basis. It is the 
FDIC's belief that quarterly calculation and reporting requirements do 
not impose a significant additional burden on insured branches because 
the information is already being collected and maintained by the bank. 
Also, Sec. 347.210(e)(4) of the final rule now requires the foreign 
branch to provide the appropriate FDIC regional director with copies of 
all the documents and instruments delivered to the depository which 
holds the pledged assets. Submitting this information to the FDIC will 
not require additional preparation by the affected banks. Finally, the 
delegation of authority to the Director of DOS (and to the Deputy 
Director (DOS)) to enter into or revoke the approval of a pledge 
agreement or to require the dismissal of a depository pursuant to 
Sec. 303.8(f) of the FDIC's current rules and regulations has been 
transferred to proposed Sec. 347.210 as paragraph (f) of that section.
    Section 347.211 of the final rule establishes a requirement for 
insured branches to maintain eligible assets in an amount not less than 
106 percent of liabilities. The only change from the corresponding 
requirements under current part 346 is the addition of language 
permitting the FDIC to exclude from the eligible asset pool any asset 
which the FDIC considers not to be bankable.
    Section 347.212 permits an insured branch to deduct from its 
deposit insurance assessment base any deposit to the credit of the 
foreign bank or any of its offices, branches, agencies, or wholly-owned 
subsidiaries. This is unchanged from part 346.
    Section 347.213 will retain part 346's substantive requirements and 
standards regarding the necessity for an insured state branch to apply 
to the FDIC for approval to conduct or continue an activity which is 
otherwise not permissible for a federal branch. However, the 
application and plan of divestiture procedures which were formerly 
found in Sec. 346.101 will be transferred to new Sec. 347.405 of 
subpart D. Section 347.213, like Sec. 346.101 before it, is modeled in 
large part on part 362, ``Activities and Investments of Insured State 
Banks.'' As part of the FDIC's ongoing CDRI review of all of its 
regulations and written policies, the FDIC has issued a notice of 
rulemaking to revise part 362. 62 FR 47,969 (September 12, 1997). After 
the closing of the comment period and the completion of the final part 
362, Sec. 347.213 and Sec. 347.405 may be the subject of additional 
rulemaking proceedings, if necessary, to reflect any changes made to 
the underlying regulatory scheme governing the permissible activities 
of insured state banks.
    Finally, the language of the rule has been revised throughout where 
necessary to incorporate references to the appropriate FDIC regional 
office or official to fully integrate DOS's new Case Manager approach 
to bank supervision.

III. Subpart C--International Lending

A. Background

    The International Lending Supervision Act of 1983 (ILSA), 12 U.S.C. 
3901, et. seq, was enacted to assure that the economic health and 
stability of the United States and the other nations of the world are 
not adversely affected or threatened by imprudent lending practices or 
inadequate supervision.
    ILSA strengthens supervision of international lending by requiring 
each federal banking agency to evaluate the foreign country exposure 
and transfer risk of banks within its jurisdiction for use in the 
examination and supervision of such banks. 12 U.S.C. 3903. Transfer 
risk generally refers to the possibility that an asset of a bank cannot 
be serviced in the currency of payment because of a lack of, or 
restraints on the availability of, needed foreign exchange in the 
country of the obligor. To implement this provision, the federal 
banking agencies, through the Interagency Country Exposure Review 
Committee (ICERC), assess and categorize countries on the basis of 
conditions that may lead to increased transfer risk.
    In addition, section 905(a) of ILSA directs each federal banking 
agency to promulgate regulations or orders to require banks within its 
jurisdiction to establish and maintain a special reserve whenever the 
agency determines that the quality of a bank's assets has been impaired 
by a protracted inability of public or private borrowers in a foreign 
country to make payments on their external indebtedness, or no definite 
prospects exist for the orderly restoration of debt service. 12 U.S.C. 
3904(a). To implement this provision of ILSA, on February 13, 1984, the 
FDIC, the Office of the Comptroller of the Currency, and the Federal 
Reserve System (collectively, the federal banking agencies) issued a 
joint notice of final rulemaking requiring banks to establish special 
reserves, called Allocated Transfer Risk Reserves (ATRRs), against the 
transfer risks presented in certain international assets. 49 FR 5587 
(February 13, 1984), (codified in part 351 of the FDIC's Rules and 
Regulations, part 211 (Subpart D of Regulation K) of the Federal 
Reserve's Regulations,. and part 20 of the Comptroller of the 
Currency's Regulations). These regulations set forth specific 
instructions on the accounting treatment for ATRRs. The line item 
guidance for reporting ATRRs provided in the instructions for the 
preparation of Consolidated Reports of Condition and Income (Call 
Reports) refer back to ILSA and the regulations and other guidelines 
issued by the federal banking agencies. (Schedule RC, Item 4.c in FFIEC 
Forms 031, 032, 033 and 034.)
    In order to simplify the task of preparing Call Reports by 
gathering all accounting information in one place, the FDIC requested 
comment in the Notice of Proposed Rulemaking on whether the 
instructions for the preparation of Call Reports should be amended to 
include a full description of the accounting treatment of ATRRs. 62 FR 
37,748, 37,757-8 (July 15, 1997). The FDIC also requested comment as to 
whether, if the Call Report instructions are amended, to retain the 
detailed description of the accounting treatment of ATRRs in the 
revised regulations or to replace the

[[Page 17068]]

regulatory language with a simplified requirement to follow the 
accounting treatment outlined in the amended Call Report instructions. 
Call Report instructions are not issued unilaterally by each federal 
banking agency but are issued under the auspices of the Federal 
Financial Institutions Examination Council (FFIEC) in consultation with 
staff of the federal banking agencies. As the FFIEC has not, to date, 
amended the Call Report instructions to incorporate the detailed 
instructions for ATRR accounting, the FDIC has decided to retain the 
description of the accounting treatment in its revised regulation.
    Section 906 of ILSA requires the federal banking agencies to 
promulgate regulations for the accounting for fees charged by banks in 
connection with international loans and the restructuring of certain 
international loans. 12 U.S.C. 3905. To implement this requirement, on 
March 29, 1984, the federal banking agencies issued a joint notice of 
final rulemaking concerning the accounting for fees on international 
loans, including restructured international loans. 49 FR 12,192 (March 
29, 1984), (codified in part 351 of the FDIC's Rules and Regulations, 
part 211 (Subpart D of Regulation K) of the Federal Reserve's 
Regulations, and part 20 of the Comptroller of the Currency's 
Regulations).
    Section 906(a) of ILSA deals specifically with the restructuring of 
international loans to avoid excessive debt service burden on debtor 
countries. 12 U.S.C. 3905(a). This section requires banks, in 
accounting for fees on a restructured international loan, to amortize 
any fee exceeding the administrative cost of the restructuring over the 
effective life of each such loan. In order to distinguish between the 
category of restructured international loans described in section 
906(a) of ILSA and all other international loans for the purposes of 
accounting for fees, the 1984 regulation contained a definition of 
``restructured international loan'' designed to meet the particular 
scope and purpose of section 906(a).
    Section 906(b) of ILSA deals with the accounting for fees on all 
other international loans. 12 U.S.C. 3905(b). This section requires the 
federal banking agencies to promulgate regulations to account for 
agency, commitment, management and other fees in connection with such 
loans to assure that the appropriate portion of such fees is accrued to 
income over the effective life of each such loan. When ILSA was enacted 
in 1983 and part 351 was promulgated on March 29, 1984, Congress and 
the federal banking agencies considered that the broad fee accounting 
principles for banks then contained in generally accepted accounting 
principles (GAAP) were insufficient to accomplish adequate uniformity 
in accounting principles in this area. The preamble to the 1984 rule 
stated that the agencies would reexamine the need for a discussion of 
accounting treatment if the FASB were to issue a final pronouncement or 
standard on this subject. Since that time, the FASB has revised the 
GAAP rules for fee accounting for loans, including international loans, 
in a manner that accommodates the specific requirements of section 
906(b) of ILSA. As a result, in order to reduce the regulatory burden 
on insured state nonmember banks and simplify its regulations, the FDIC 
has decided, in consultation with accounting staffs from the other 
federal banking agencies, to eliminate from the revised Sec. 347.304(b) 
of the regulations the requirements as to the particular accounting 
method to be followed in accounting for fees on international loans and 
to require instead that state nonmember banks follow GAAP in accounting 
for such fees. In the event that the FASB changes the GAAP rules on fee 
accounting for international loans, the FDIC will reexamine its 
regulation in light of ILSA to assess the need for a revision to the 
regulation.

B. Discussion of Comments

    Only one comment was received on subpart C of the revised 
regulation. The commenter generally supported efforts by the federal 
banking agencies to produce greater consistency between the information 
collected in regulatory reports and general purpose financial 
statements.
    The commenter cited Section 37 of the Federal Deposit Insurance Act 
(FDIA) for the principle that accounting principles applicable to 
reports or statements required to be filed with banking agencies by 
insured depository institutions should depart from GAAP only if the 
banking agencies determine that the application of GAAP is inconsistent 
with the objectives stated in that section of the FDIA 4 and 
the resulting regulatory accounting principles are no less stringent 
than GAAP. 12 U.S.C. 1831n. However, the commenter failed to note that 
section 37(a)(2)(A) of the FDIA also provides that any requirement 
under that section to apply GAAP in reports to be filed with the 
banking agencies is subject to other requirements of the FDIA ``and any 
other provision of Federal law.'' 12 U.S.C. 1831n(a)(2)(A). As a 
result, to the extent that ILSA mandates a certain accounting treatment 
which differs from GAAP, the requirements of ILSA prevail and the 
implementing regulation will reflect these requirements.
---------------------------------------------------------------------------

    \4\ FDIA Section 37(a)(1) states that accounting principles 
applicable to reports filed with banking agencies should (A) result 
in financial statements and call reports that accurately reflect the 
capital of the institution, (B) facilitate effective supervision of 
the institutions, and (C) facilitate prompt corrective action to 
resolve the institutions at the least cost to the insurance funds. 
12 U.S.C. 1831n(a)(1).
---------------------------------------------------------------------------

    The commenter also recommended that instructions for accounting for 
international loan fees and ATRRs should be developed on an interagency 
basis through proposed changes to the Call Reports rather than in 
agency-specific regulations. However, ILSA mandates that the federal 
banking agencies promulgate regulations or orders necessary to 
implement its provisions. As a result, the FDIC has decided to retain a 
regulatory requirement for banks to follow the provisions of ILSA. The 
commenter further proposed that the regulatory provisions dealing with 
accounting for international loan fees should be replaced with a 
requirement to follow the accounting treatment outlined in amended Call 
Report instructions. As noted above, amendments to Call Report 
instructions are made through the auspices of FFIEC. Call Report 
instructions have long had detailed instructions on accounting for loan 
fees generally. However, to date, FFIEC has not acted to revise the 
Call Report instructions to include detailed information on the 
accounting for international loan fees or ATRRs. As a result, the FDIC 
has decided to retain the detailed accounting information in its 
revised regulation.
    The commenter also recommended that the regulatory provisions 
dealing with international loan fees should be replaced with a 
requirement to account for loan fees in conformity with the provisions 
of FASB SFAS No. 91, Accounting for Nonrefundable Fees and Costs 
Associated with Originating or Acquiring Loans and Initial Direct Costs 
of Leases and related authoritative pronouncements. The revised 
Sec. 347.304(b) dealing with accounting for fees on international loans 
states that, except as specifically provided for restructured 
international loans, banks should account for fees in accordance with 
GAAP. As GAAP changes from time to time to reflect changing conditions, 
the FDIC has decided for the sake of flexibility not to specify that 
financial institutions follow any particular FASB standard.
    The commenter also proposed that the provisions in revised section 
347.303 dealing with establishment of ATRRs

[[Page 17069]]

should be reevaluated in light of the criteria established in FASB 
Statements No. 5, Accounting for Contingencies, and No. 114, Accounting 
by Creditors for Impairment of a Loan (as amended by FASB Statement No. 
118, Accounting by Creditors for Impairment of a Loan--Income 
Recognition and Disclosures). However, a general reliance on GAAP is 
not appropriate in this instance as ILSA directs the federal banking 
agencies to require banking institutions to establish and maintain an 
ATRR whenever, in the judgment of the appropriate banking agency, 
certain conditions enumerated by statute exist. The determination of 
the ATRR is conducted on an interagency basis by ICERC.
    Lastly, the commenter requested that the Call Report instructions 
clarify the alternative accounting treatment for ATRRs. As noted 
earlier, amendments of Call Report instructions are made on an 
interagency basis through the FFIEC. The commenter also stated that the 
description of the alternative accounting treatment for ATRRs would 
permit institutions to charge to the allowance for loan and lease 
losses (ALLL) impairments of types of international assets which are 
not chargeable to the ALLL under GAAP. Under the alternative accounting 
treatment, banks may write down the value of specified international 
assets by either a reduction in the principal amount of the asset or by 
a charge to the ALLL. Banks that elect to take a charge to the ALLL, 
however, are required to replenish the ALLL in an amount necessary to 
restore it to a level which adequately provides for the estimated 
losses inherent in the banking institution's loan and lease portfolio 
in accordance with GAAP. We share the commenter's concern that the 
alternative accounting treatment provisions should be consistent with 
GAAP. As a result, in response to the comment, we have modified the 
description of the alternative accounting treatment to provide that 
banks may charge to the ALLL only those international assets that can 
be charged to the ALLL pursuant to GAAP.

C. Changes from Proposed Subpart C

    Subpart C in the final regulation differs from the proposed 
regulation by the addition of Sec. 347.301 dealing with Purpose, Scope 
and Authority, and a separate Sec. 347.302 for Definitions and the 
renumbering of the subsequent sections. These changes are made to 
conform with the format of the other subparts of part 347.
    The definitions of ``international loan'' and ``restructured 
international loan'' from Sec. 351.2 are retained in the final 
regulation. These definitions were deleted in the proposed regulation 
from the section on accounting for loan fees in the interest of 
simplifying language without any intent to change the applicability of 
the regulation. However, in the interest of reducing any ambiguity, the 
FDIC has decided to add these definitions back into the final 
regulation. Because section 906(a) of ILSA refers to restructurings of 
international loans to avoid excessive debt service burden on debtor 
countries, the definition of ``restructured international loan,'' as 
introduced in the 1984 regulation and retained in this revision, 
contains two criteria. First, the borrower whose loan is being 
restructured because of debt service difficulties must be a resident of 
a foreign country experiencing a generalized inability of public and 
private sector obligors to meet their external debt obligations on a 
timely basis because of a lack of, or restraints on the availability 
of, foreign exchange in that country. As noted above, the 
classification of countries according to transfer risk is the 
responsibility of ICERC. Second, in a restructuring, the terms of the 
loan are revised to extend the original schedule of payments or reduce 
stated interest, or the restructuring takes the form of provision of 
new funds for the benefit of the borrower that has the same effect as 
extending the schedule of payments or reducing stated interest on the 
original loan. These criteria are intended to cover loans restructured 
to meet debt service difficulties, but not ordinary refinancings.
    For any loan that meets the definition of restructured 
international loan, Sec. 347.304(a) of the final revised regulation 
prohibits any bank from charging any fee exceeding the administrative 
cost of the restructuring unless it amortizes the amount of the fee 
exceeding the administrative cost over the effective life of the loan. 
However, consistent with the preamble to the 1984 regulation, if any 
restructuring of an international loan would also be a ``troubled debt 
restructuring'' under the terms of Financial Accounting Standards Board 
(FASB) Statement of Financial Accounting Standards (SFAS) No. 15, as 
amended by SFAS 114 or SFAS 118 or a subsequent amendatory standard, 
the loan should be accounted for in accordance with that standard. This 
definition of ``restructured international loan,'' however, which was 
adopted to implement the specific fee accounting rules mandated by 
ILSA, is not intended to categorize any particular loan as a ``troubled 
debt restructuring.''
    The description of administrative cost from the existing 
Sec. 351.2(d)(2) is being retained in a new definition of 
``administrative cost.'' This description was deleted in the proposed 
regulation from the section on accounting for loan fees in the interest 
of simplifying language without any intent to change the applicability 
of the regulation. However, in the interest of reducing any ambiguity, 
the FDIC has decided to add this description back into the final 
regulation as a defined term. References to syndication in the 
description of administrative cost in the current part 351 were deleted 
as the changes to the regulation remove the need to refer to 
syndication.
    In addition, in response to a comment, we have modified the 
alternative accounting treatment to provide that banks may charge to 
the ALLL only those international assets that can be charged to the 
ALLL pursuant to GAAP.

D. Description of Final Rule, Subpart C

    The final rule contains separate provisions for Purpose, Authority 
and Scope and for Definitions. The Definitions section retains, among 
others, the definitions of ``international loan'' and ``restructured 
international loan'' from the current part 351. Definitions of 
``international syndicated loan'' and ``loan agreement'' have been 
deleted from the current regulation as changes to the regulation remove 
the need to define these terms. The description of ``administrative 
cost'' from the current part 351 has been retained as a defined term.
    The final regulation contains provisions requiring the 
establishment of ATRRs that are similar to the existing provisions. The 
term ``Allowance for Possible Loan Losses'' in the existing regulation 
has been changed to ``Allowance for Loan and Lease Losses'' to reflect 
current terminology. As noted above, the FDIC has also modified the 
alternative accounting treatment for ATRRs to provide that banks may 
charge to the ALLL only those international assets that can be charged 
to the ALLL pursuant to GAAP.
    The final regulation simplifies the provisions for accounting for 
fees on restructured international loans and other international loans. 
With respect to restructured international loans, the final regulation 
follows the ILSA requirement that banks amortize the amount of any fee 
exceeding the administrative cost of the restructuring over the 
effective life of the loan. Subject to the provisions for restructured 
international loans, banks are directed to account for fees on

[[Page 17070]]

international loans in accordance with GAAP.

IV. Subpart D--Application Procedures and Delegations of Authority

A. Overview

    The final rule includes a separate subpart D containing application 
procedures and delegations of authority for the substantive matters 
covered by part 347 as revised. Under the FDIC's current rules, these 
application requirements are located in various sections of three 
different regulations: 12 CFR part 303, 12 CFR part 346, and 12 CFR 
part 347. As discussed above, the FDIC issued a Notice of Proposed 
Rulemaking to completely revise part 303 of the FDIC's rules and 
regulations, which contains the FDIC's applications procedures and 
delegations of authority. As part of these revisions to part 303, 
subpart J of part 303 will address application requirements relating to 
the foreign activities of insured state nonmember banks and the U.S. 
activities of insured branches of foreign banks. In order to permit 
part 347 to be issued in final form before the FDIC issues part 303 in 
final form, it is necessary to issue the application procedures for 
part 347 in this subpart D. However, when part 303 is issued in final 
form, the application procedures contained in subpart D to part 347 
will be transferred to subpart J of part 303 as part of the same 
rulemaking, in order to centralize all international banking 
application procedures in one convenient place.
    The FDIC has made certain nonsubstantive changes to the language of 
subpart D of part 347, in order to make it consistent with the language 
of proposed part 303. The FDIC has also made certain changes to the 
criteria establishing which applicants are ``eligible depository 
institutions'' entitled to processing under general consent or 
expedited processing procedures. These changes, discussed below, were 
also made to establish consistency with the part 303 proposal. At this 
time, it is impossible for the FDIC to determine if it will make 
further changes to the language of part 303 or to the eligibility 
criteria thereunder. If such changes are made, the FDIC, in connection 
with transferring the application procedures in subpart D of part 347 
over to subpart J of part 303, will make further changes to these 
application procedures in order to maintain consistency.

B. Public Comments and Changes to Subpart D

    Public comments on the application procedures were limited to those 
concerning foreign branches and investments of nonmember banks under 
subpart A. Those comments, and the corresponding changes the FDIC has 
made to the application procedures, are discussed in detail above, in 
the discussion of comments received in connection with subpart A, and 
will not be repeated here.
    The FDIC has also eliminated two criteria under the definition of 
an eligible depository institution which were not consistent with the 
criteria under the definition proposed in connection with part 303. 
The final rule, in Sec. 347.401(c), does not contain a requirement that 
the applicant have received a rating of 1 or 2 under the ``management'' 
component of the Uniform Financial Institutions Rating System (UFIRS); 
nor does it contain the requirement that the applicant have been 
chartered and operating for three years. In addition, in the interests 
of consistency with part 303, the FDIC has modified the proposed rule's 
criteria requiring that the applicant not be subject to any 
enforcement-related agreements. The proposal contained an exception for 
any board of directors resolution addressing corrective action taken 
pursuant to regulatory recommendations, whereas the final rule has no 
such carve-out.

C. Description of Final Rule

Establishing, Moving, or Closing a Foreign Branch of a State Nonmember 
Bank
    Applications for a nonmember bank to establish a foreign branch are 
currently treated under the same process applicable for domestic 
branches under 12 CFR 303.2. The final rule treats foreign branches 
separately, since foreign branch applications are not legally required 
to be subjected to analysis under the Community Reinvestment Act or 
under the factors listed in section 6 of the FDI Act, as is the case 
for domestic branches.
    Under Secs. 347.103(b) and 347.402 of the final rule, the FDIC has 
given its general consent for an eligible depository institution to 
establish additional foreign branches in any country in which the bank 
already operates a branch or foreign bank subsidiary, or to relocate a 
branch within the country. The final rule, only requires an eligible 
nonmember bank to notify the FDIC of its actions within 30 days. In 
addition, if an eligible nonmember bank seeks to establish a foreign 
branch in any country in which the nonmember bank's affiliates operate 
certain banking-related offices, the FDIC will give the application 
expedited processing within 45 days. Expedited processing also applies 
to an eligible nonmember bank that operates branches or affiliates in 
two or more foreign countries and seeks to establish additional 
branches conducting approved activities in additional foreign 
jurisdictions. Certain banking-related offices of the eligible 
nonmember bank's affiliates may be counted for these purposes.
    To be eligible, the nonmember bank must have received an FDIC-
assigned composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System (UFIRS); have a satisfactory or better 
Community Reinvestment Act rating (unless the bank is a ``special 
purpose'' bank not subject to examination under the FDIC's CRA 
regulations); and have a compliance rating of 1 or 2. The nonmember 
bank must also be well capitalized; and it must not be subject to a 
cease and desist order, consent order, prompt corrective action 
directive, written agreement, memorandum of understanding, or other 
administrative agreement with its primary federal regulator or 
chartering authority. An application to establish a foreign branch is 
not an ``application for a deposit facility'' covered by the Community 
Reinvestment Act, and the FDIC will therefore only take the nonmember 
bank's CRA rating into account for purposes of determining whether the 
application receives expedited treatment under the general consent and 
expedited processing procedures.
    The FDIC has adopted these general consent and expedited processing 
provisions because a nonmember bank meeting the proposed requirements 
will ordinarily have sufficient familiarity with the implications of 
foreign branching, be well-managed, and be of sufficiently sound 
overall condition, that extensive FDIC review is not required. The FDIC 
retains the option to suspend expedited processing as to any 
application, for any of the reasons specified in Sec. 347.402(c)(1). 
These are the same grounds for suspension as would be applicable under 
the general rules contained in the FDIC's part 303 proposal, at 
proposed Sec. 303.11. The FDIC may also categorically suspend general 
consent or expedited processing for any particular nonmember bank, as 
specified in Sec. 347.103(d)(3). If the FDIC suspends its general 
consent or expedited processing with respect to a particular nonmember 
bank, it means that the nonmember bank must make

[[Page 17071]]

full application to establish additional branches. Suspension of 
general consent or expedited processing does not, in and of itself, 
require closure of existing foreign branches. Cases necessitating 
actual closure of branches would be handled under section 8 of the FDI 
Act (12 U.S.C. 1818) or other relevant authority.
    General consent and expedited processing are also inapplicable in 
any case presenting either of two special circumstances. Since the FDIC 
must have access to information about a foreign branch's activities in 
order to effectively supervise the institution, general consent or 
expedited processing do not apply if the law or practice of the foreign 
country would limit the FDIC's access to information for supervisory 
purposes. In such cases, the FDIC must have an opportunity to fully 
analyze the extent of the confidentiality conferred under foreign law, 
as described in connection with the discussion of public comments on 
subpart A, above. In addition, if the proposed foreign branch would 
have a direct adverse impact on a site which is on the World Heritage 
List 5 or the foreign jurisdiction's equivalent of the 
National Register of Historic Places, the FDIC may need an opportunity 
to evaluate the application in light of section 402 of the National 
Historic Preservation Act Amendments of 1980 (16 U.S.C. 470a-2).
---------------------------------------------------------------------------

    \5\ The World Heritage List was established under the terms of 
The Convention Concerning the Protection of World Culture and 
Natural Heritage adopted in November, 1972 at a General Conference 
of the United Nations Education, Scientific and Cultural 
Organization. Current versions of the list are on the Internet at 
http://www.unesco.org/whc/heritage.htm, or may be obtained from the 
FDIC Public Information Center, Room 100, 801 17th Street, NW, 
Washington, DC 20429.
---------------------------------------------------------------------------

    Section 347.103(f) and 347.402(d) also requires a nonmember bank 
which closes a foreign branch to notify the appropriate regional 
director that it has done so. This notice is strictly for informational 
purposes, since the FDIC has previously determined that Congress did 
not intend section 42 of the FDI Act (12 U.S.C. 42) on branch closings 
to apply to foreign branches.
    Finally, Sec. 347.402 also sets out the procedures for applications 
which are not eligible for the general consent or expedited processing 
provisions.
Acquisition of Stock of Foreign Banks or Other Financial Entities by an 
Insured State Nonmember Bank
    Section 347.4 of the FDIC's current rules contains an investment 
ceiling, under which a nonmember bank's investments in foreign 
organizations (as well as an Edge corporation) may not exceed 25 
percent of the bank's capital and surplus. The FDIC has eliminated this 
general limit, and will now instead monitor the overall investments of 
each nonmember bank on an individual basis. In addition, Sec. 347.4 
presently requires an application before a nonmember bank may make any 
investment in a foreign organization. Under Secs. 347.108(a) and 
347.403 of the final rule, the FDIC grants its general consent for an 
eligible nonmember bank to make investments in foreign organizations 
complying with the activity and other limits of subpart A. Eligibility 
of the nonmember bank is determined by the same criteria as for foreign 
branch approvals. As is the case under the foreign branch application 
procedure, the FDIC will take the nonmember bank's Community 
Reinvestment Act rating into account only for purposes of determining 
whether the application is eligible for general consent or expedited 
processing, since an application to make a foreign investment is not an 
``application for a deposit facility'' covered by the CRA.
    The final rule permits investments in a single foreign organization 
of up to two percent of the nonmember bank's Tier 1 capital during any 
twelve-month period. Aggregate investments for investment purposes may 
total as much as five percent of the nonmember bank's Tier 1 capital 
during any twelve-month period, and an additional five percent for 
investments acquired for trading purposes. Investments acquired at net 
asset value from an affiliate or representing reinvestments of cash 
dividends from the foreign organization are not subject to these 
limits. The final rule only requires the nonmember bank to notify the 
FDIC of its investment within thirty days, and no notice is required 
for trading investments.
    However, in order to make investments under general consent, the 
nonmember bank or an must already have at least one foreign bank 
subsidiary or foreign branch, as evidence that the nonmember bank's 
management has suitable expertise to address the special considerations 
that arise in foreign investments. This experience requirement can also 
be satisfied if an affiliate of the nonmember bank has a foreign bank 
subsidiary, or if an affiliated bank or Edge or Agreement corporation 
has a foreign branch. In addition, if the investment will constitute a 
joint venture or a subsidiary or will otherwise be controlled by the 
state nonmember, the final rule requires that at least one other 
nonmember bank already have a foreign bank subsidiary in the country in 
question. This will prevent nonmember banks from establishing a 
presence in a jurisdiction in which the FDIC has not had an opportunity 
to contact host country supervisory authorities and establish a working 
arrangement for cross-border supervision.
    The final rule also permits an eligible nonmember bank to make any 
investment which complies with the activity and other limits of subpart 
A through an expedited processing procedure lasting 45 days. Under 
Sec. 347.403(c)(1), the FDIC may remove an applicant from expedited 
processing if the FDIC's review of the application indicates 
significant concerns related to supervision, law or policy. In such a 
case, a complete application is required. These are the same grounds 
for removal as would be applicable under the general rules contained in 
the FDIC's part 303 proposal, at proposed Sec. 303.11.
    As is the case in connection with the foreign branch rules, the 
FDIC is adopting these general consent and expedited processing 
procedures because a nonmember bank meeting the requirements of the 
provisions has sufficient expertise, is well-managed, and is in 
sufficiently sound overall condition, that extensive FDIC review is not 
required. The FDIC retains the option to suspend these procedures as to 
any institutions for which this is not the case. As with foreign branch 
applications, the consequence of suspension is that a full application 
is required in the future, and divestiture is not implicated. General 
consent and expedited processing are also not available in any foreign 
country if its law or practice would limit the FDIC's access to 
information for supervisory purposes, for the same reasons stated above 
in connection with foreign branch approvals.
    Finally, Sec. 347.402 also sets out the procedures for applications 
which are not eligible for the general consent or expedited processing 
provisions.
Exemptions From the Insurance Requirement for a State Branch of a 
Foreign Bank
    From its initial adoption in 1979, Sec. 346.6 of the FDIC's rules 
has provided a list of deposit activities in which a state branch could 
engage that would not constitute ``domestic retail deposit activity''. 
If the state branch only conducts deposit-taking activities which are 
enumerated in Sec. 346.6(a)(1)-(7), and are carried forward to proposed 
Sec. 347.206(a)(1)-(7), then the state branch is deemed to not be 
engaged in domestic retail deposit activity, and the deposit insurance 
requirement is not triggered. Pursuant to Sec. 346.6(b), which has been 
carried forward as Sec. 347.206(b), the

[[Page 17072]]

FDIC may permit an uninsured state branch to accept additional types of 
deposits in an initial amount of less than $100,000. The final rule 
transfers the associated application procedures currently contained in 
Sec. 346.6(b) to Sec. 347.404. These procedures need no substantive 
revision at this time, because the procedures were recently reviewed 
and amended by the FDIC as a result of amendments to the IBA which were 
made by section 107 of the Riegle-Neal Act.
Application by Insured State Branches for FDIC Approval To Conduct 
Activities Not Permissible for Federal Branches
    Section 347.405 of the final rule contains the application 
procedure for a state-licensed insured branch of a foreign bank seeking 
to engage in any activity which is not permissible for a federal branch 
of a foreign bank, as required by Sec. 347.213 of the final rule. 
Section 347.405 also sets out procedures for filing divestiture plans 
in the event such an application is denied or the law changes and a 
foreign bank elects not to continue the activity. No substantive 
changes have been made from the current application procedures in 
Sec. 346.101.

V. Technical and Conforming Changes

    The FDIC's rules and regulations currently contain numerous cross-
references to part 346. These have conformed to the appropriate 
sections of revised part 347 under the final rule. The final rule also 
eliminates application procedures and delegations under current part 
303 of the FDIC's rules and regulations, to the extent those procedures 
and delegations are displaced under the final rule.

VI. Paperwork Reduction Act

    The collections of information contained in this rule have been 
reviewed and approved by the Office of Management and Budget (OMB) in 
accordance with the requirements of the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3501 et seq.). The collections of information in this 
final rule are contained in various sections appearing in subpart A and 
subpart B of part 347. The collections of information into two groups, 
each with a separate OMB control number. The collections from subpart A 
(Foreign Branching and Investment by Insured State Nonmember Banks) 
have been assigned control number 3064-0125, and the collections from 
subpart B (Foreign Banks) have been assigned control number 3064-0114. 
Both OMB clearances will expire on July 31st, 2000. Each of the 
collections required by the final rule is discussed below.

Subpart A--Foreign Branching and Investment by Insured State Nonmember 
Banks--OMB Control No. 3064-0125

    Sections 347.103(b)-(f) and 347.402 contain collections of 
information in the form of requirements that insured state nonmember 
banks (nonmember banks) (1) notify the FDIC if the bank establishes a 
foreign branch under certain eligibility criteria in the rule; (2) give 
the FDIC 45 days prior notice before establishing a branch under 
certain eligibility criteria in the rule; (3) file an application with 
the FDIC requesting authorization to establish a foreign branch or to 
engage in certain activities through a foreign branch; or (4) notify 
the FDIC if the bank closes a foreign branch. The information will be 
used by the FDIC to authorize foreign branching as set out in section 
18(d)(2) of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 
1828(d)(2)). The estimated annual reporting burden for the collection 
of information is summarized as follows:
    Collections (1) and (4) (notice of foreign branch establishment 
(347.402(a)) or foreign branch closure (347.402(d)):
    Total annual responses: 4.
    Average hours per response: 2.
    Collection (2) (expedited processing for foreign branch 
establishment (347.402(b))
    Total annual responses: 3.
    Average hours per response: 6.
    Collection (3) (application to establish a foreign branch 
(347.402(b))
    Total annual responses: 3.
    Average hours per response: 40.
    Total annual burden hours: 146.
    Sections 347.108 and 347.403 contain collections of information in 
the form of requirements that nonmember banks (1) notify the FDIC if 
the bank acquires stock or other evidences of ownership of foreign 
organizations under certain eligibility criteria in the rule; (2) give 
the FDIC 45 days prior notice before acquiring stock or other evidences 
of ownership of foreign organizations under certain eligibility 
criteria in the rule; or (3) file an application with the FDIC 
requesting authorization to acquire stock or other evidences of 
ownership of foreign organizations or to engage in certain activities 
through foreign organizations. The information will be used by the FDIC 
to authorize foreign investment as set out in section 18(l) of the FDI 
Act (12 U.S.C. 1828 (l)). The estimated annual reporting burden for the 
collection of information is summarized as follows:
    Collection (1) (notice of foreign investment (347.403(a)).
    Total annual responses: 5.
    Average hours per response: 2.
    Collection (2) (expedited processing for foreign investment 
(347.403(b)).
    Total annual responses: 4.
    Average hours per response: 6.
    Collection (3) (application to make a foreign investment 
(347.403(b)).
    Total annual responses: 3.
    Average hours per response: 60.
    Total annual burden hours: 214.
    Section 347.110 contains collections of information in the form of 
a requirement that nonmember banks with foreign branches, or that hold 
20 percent or more of a foreign organization's voting equity interests, 
or control a foreign organization, maintain certain records, controls, 
and reports on the foreign operation's business activities. Section 
18(d)(2) and 18(l) of the FDI Act authorize the FDIC to govern a 
nonmember bank's conduct of foreign branching and investment, and the 
information will be used by the nonmember bank to monitor the foreign 
operations and control its risk. The estimated annual reporting burden 
for the collection of information is summarized as follows:
    Total annual responses: 63.
    Average hours per response: 400.
    Total annual burden hours: 25,200.
Summary of Subpart A--OMB Control No. 3064-0125 Collections
    Total annual responses: 85.
    Total annual burden hours: 25,560.

Subpart B--Foreign Banks--OMB Control No. 3064-0114

    Sections 347.206(b) and 347.404 contain a collection of information 
in the form of a requirement that noninsured state-licensed branches of 
foreign banks make an application to obtain the FDIC's permission to 
receive deposits of less than $100,000 if the deposits are not 
otherwise authorized by Sec. 347.206(a). The information will be used 
by the FDIC to determine whether to authorize the deposit taking as set 
out in section 6(b) of the International Banking Act (12 U.S.C. 
3104(b)). The estimated annual reporting burden for the collection of 
information is summarized as follows:
    Total annual responses: 1.
    Average hours per response: 6.
    Total annual burden hours: 6.
    Sections 347.216 and 347.405 contain collections of information in 
the form of requirements that insured state-licensed branches of 
foreign banks (1) file an application with the FDIC requesting 
permission to conduct activities which are not permissible for a 
federal branch

[[Page 17073]]

of a foreign bank; or (2) submit a pro forma plan of divestiture or 
cessation for activities which are not permissible for a federal branch 
of a foreign bank. The information in the application will be used by 
the FDIC to determine whether the activity poses a significant risk to 
the deposit insurance fund, as required by section 7 of the 
International Banking Act (12 U.S.C. 3105(h)), and the information in 
the plan of divestiture or cessation will be used by the FDIC to make 
judgments concerning the reasonableness of the branch's actions to 
discontinue activities deemed to pose a significant risk to the deposit 
insurance fund. This collection of information had previously been 
approved by the OMB under control no. 3064-0114. The estimated annual 
reporting burden for the collection of information is summarized as 
follows:
    Total annual responses: 1.
    Average hours per response: 8.
    Total annual burden hours: 8.
    Sections 347.209 contains a collection of information in the form 
of a requirement that insured branches of foreign banks maintain a set 
of accounts and records in English and maintain its records as a 
separate entity with assets and liabilities separate from the foreign 
bank's head office, other branches, etc. The information will be used 
by the insured branch in the same way any banking entity uses such 
records, and the FDIC will review such records in connection with 
examining and supervising the insured branch (which is an ``insured 
depository institution'' for which the FDIC is the ``appropriate 
Federal banking agency'' within the meaning of section 3 of the FDI 
Act, (12 U.S.C. 1813)). The estimated annual reporting burden for the 
collection of information is summarized as follows:
    Total annual responses: 32.
    Average hours per response: 120.
    Total annual burden hours: 3,840.
    Sections 347.210(e)(4) and 347.210(e)(6) contain collections of 
information in the form of a requirement that insured branches of 
foreign banks and their depositories (1) make quarterly reports to the 
FDIC identifying the specific securities the foreign bank has pledged 
to the FDIC and their value, as well as the average liabilities of the 
insured branch; and (2) provide the FDIC copies of documents and 
instruments conveyed by the insured branch to the depository to 
effectuate the pledge. The information will be used by the FDIC to 
verify compliance with the pledge of asset requirements authorized by 
section 5(c) of the FDI Act (12 U.S.C. 1815(c)). The collection of 
information under item (1) on a semiannual basis has previously been 
approved by the OMB, whereas the FDIC is now proposing to collect it 
quarterly. The OMB's previous approval was under control no. 3064-0010, 
but the OMB has approved the FDIC's request to regroup it under control 
number 3064-0114 for ease of reference. The estimated annual reporting 
burden for the collection of information is summarized as follows:
    Collection (1)(reports (347.210(e)(6))
    Total annual responses: 256.
    Average hours per response: 2.
    Collection (2)(copies of documents effectuating pledges 
(347.210(e)(4))
    Total annual responses: 128.
    Average hours per response: 0.25.
    Total annual burden hours: 544.
Summary of Subpart B--OMB Control No. 3064-0114 Collections
    Total annual responses: 418.
    Total annual burden hours: 4,398.
    The FDIC has a continuing interest in the public's opinion 
regarding collections of information. Members of the public may submit 
comments, at any time, regarding any aspect of these collections of 
information. Comments may be sent to: Steven F. Hanft, Assistant 
Executive Secretary (Regulatory Analysis), Federal Deposit Insurance 
Corporation, Room F-4080, 550 17th Street NW, Washington, DC 20429.

VII. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) (Title II, Pub. L. 104-121) provides generally for agencies to 
report rules to Congress for review. The reporting requirement is 
triggered when a federal agency issues a final rule. Accordingly, the 
FDIC will file the appropriate reports with Congress as required by 
SBREFA.
    The Office of Management and Budget has determined that this final 
revision of part 347 does not constitute a ``major rule''' as defined 
by SBREFA.

VIII. Effective Date

    Subject to certain exceptions, 12 U.S.C. 4802(b) provides that new 
regulations and amendments to regulations prescribed by a federal 
banking agency which impose additional reporting, disclosures, or other 
new requirements on an insured depository institution shall take effect 
on the first day of a calendar quarter which begins on or after the 
date on which the regulations are published in final form. Accordingly, 
compliance with the final rule is not mandatory until July 1, 1998. 
However, section 4802(b) also permits any person subject to the 
regulation to comply with the regulation voluntarily, prior to the 
effective date. Consequently, affected insured depository institutions 
and foreign banks may elect to comply voluntarily with the final rule, 
once the 30-day delay period required by section 553 of the 
Administrative Procedure Act (5 U.S.C. 552b) has passed. If an insured 
depository institution or foreign bank elects to comply voluntarily 
with any section of subparts A, B, or C of part 347, the institution or 
bank must comply with the entire subpart.

IX. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub. 
L. 96-354, 5 U.S.C. 601 et seq.), it is certified that the final rule 
will not have a significant impact on a substantial number of small 
entities. With respect to subparts A and C of part 347, the FDIC's 
review of Call Report data indicates the rule will impact only an 
insubstantial number of small entities. With respect to subpart B of 
part 347, the revisions incorporate the legislative requirement first 
imposed by FBSEA that a foreign bank which intends to engage in 
domestic retail deposit activity in the U.S. must do so through an 
insured bank subsidiary. This has been the statutory standard for over 
five years; however, this requirement was not heretofore addressed in 
the FDIC's applicable regulation, part 346. Explicitly including this 
requirement in subpart B cannot be characterized as having a 
``significant impact'' on the affected entities as they have been 
required to comply with this provision of FBSEA for many years. The 
other revisions which have been made to subpart B involve adding 
references to the FDIC's new supervisory approach--the Case Manager 
system--where applicable and simplifying the calculation of the amount 
of pledged assets required to comply with Sec. 347.210(a). The formula 
will be based upon a quarterly calculation rather than a semi-annual 
calculation. In the future, the foreign bank will be required to report 
the calculation to the appropriate regional director every quarter. 
However, the additional two reports per year will not represent a 
significant burden on the affected banks because the foreign banks are 
already maintaining the information, and the time required to forward 
the quarterly calculation to the FDIC will be nominal. Therefore, the 
revisions to subpart B will not have a significant impact on a 
substantial number of small entities.

[[Page 17074]]

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

    Administrative practice and procedure, Banks, banking, Capital 
adequacy, Reporting and recordkeeping requirements, Savings 
associations, State non-member banks.

12 CFR Part 326

    Banks, banking, Currency, Insured nonmember banks, Reporting and 
recordkeeping requirements, Security measures.

12 CFR Part 327

    Assessments, Bank deposit insurance, Banks, banking, Financing 
Corporation, Savings associations.

12 CFR Part 346

    Bank deposit insurance, Foreign banking, Reporting and 
recordkeeping requirements.

12 CFR Part 347

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

12 CFR Part 351

    Foreign banking, Reporting and recordkeeping requirements.

12 CFR Part 362

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, Insured 
depository institutions, Investments, Reporting and recordkeeping 
requirements.

    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--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF 
AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR 
REGULATION

    1. The authority citation for part 303 continues to read as 
follows:

    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(j), 1818, 1819 
(Seventh and Tenth), 1828, 1831e, 1831o, 1831p-1; 15 U.S.C. 1607.


Sec. 303.2  [Amended]

    2. In Sec. 303.2, paragraph (a) introductory text is amended by 
removing and reserving footnote 2.


Sec. 303.5  [Amended]

    3. In Sec. 303.5, paragraph (d) is removed and reserved.
    4. In Sec. 303.6, paragraphs (f)(1)(ii)(A) and (f)(1)(ii)(C) are 
revised to read as follows:


Sec. 303.6  Application procedures.

* * * * *
    (f) * * *
    (1) * * *
    (ii) * * *
    (A) Applications to establish a branch, including a remote service 
facility. In the communities in which the home office and the domestic 
branch to be established are located.
* * * * *
    (C) Applications for deposit insurance. In the community in which 
the home bank office is or will be located.
* * * * *
    5. In Sec. 303.7, the heading for paragraph (a) and paragraphs 
(a)(1)(i), (a)(1)(ii)(A), (a)(1)(iii)(D), and (b)(4)(ii) are revised, 
the words ``; and'' are removed at the end of paragraph (f)(2)(i) and a 
period is added in their place, and paragraph (f)(2)(ii) is removed and 
reserved to read as follows:


Sec. 303.7  Delegation of authority to the Director (DOS) and to the 
associate directors, regional directors and deputy regional directors 
to act on certain applications, requests, and notices of acquisition of 
control.

* * * * *
    (a) Applications for branches (including remote service facilities, 
courier services), relocations, and for trust and other banking 
powers--(1) * * *
    (i) Authority is delegated to the Director (DOS), and where 
confirmed in writing by the director, to an associate director, or to 
the appropriate regional director or deputy regional director, to 
approve applications for consent to establish branch facilities 
(including remote service facilities and courier services) or 
relocations where the applicant satisfies the requisites listed in 
paragraph (a)(1)(iii) of this section and agrees in writing to comply 
with any condition imposed by the delegate other than those standard 
conditions listed in Sec. 303.0(b)(31).
    (ii) * * *
    (A) To deny applications for consent to establish branch facilities 
(including remote service facilities and courier services) or 
relocations; and
* * * * *
    (iii) * * *
* * * * *
    (D) The requirements of the National Historic Preservation Act (16 
U.S.C. 470), the National Environmental Policy Act (42 U.S.C. 4321), 
and the Community Reinvestment Act of 1977 (12 U.S.C. 2901-2905) and 
its applicable implementing regulation (part 345 of this chapter) have 
been considered and favorably resolved: Provided however, That the 
authority to approve an application may not be subdelegated to a 
regional director or deputy regional director where a protest (as that 
term is defined in Sec. 303.0(b)(30)) under the Community Reinvestment 
Act is filed.
* * * * *
    (b) * * *
    (4) * * *
    (ii) Where the resulting institution, upon consummation of the 
merger transaction, does not meet the capital requirements set forth in 
part 325 of this chapter and the FDIC's ``Statement of Policy on 
Capital''. (If the applicant is a foreign bank, the delegated authority 
to approve does not extend to instances where, upon consummation of the 
merger transaction, the foreign bank's insured branch is not in 
compliance with subpart B of part 347 of this chapter.)
* * * * *


Sec. 303.8  [Amended]

    6. In Sec. 303.8, paragraph (f) is removed and reserved.

PART 325--CAPITAL MAINTENANCE

    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, 2386 (12 U.S.C. 1828 note).

    8. In Sec. 325.103, paragraph (c) is revised 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. 347.210 of 
this chapter; and

[[Page 17075]]

    (ii) Maintains the eligible assets prescribed under Sec. 347.211 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. 347.210 
of this chapter or to maintain a higher ratio of eligible assets 
pursuant to Sec. 347.211 of this chapter.
    (2) Adequately capitalized if the insured branch:
    (i) Maintains the pledge of assets required under Sec. 347.210 of 
this chapter; and
    (ii) Maintains the eligible assets prescribed under Sec. 347.211 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. 347.210 of this chapter; or
    (ii) Fails to maintain the eligible assets prescribed under 
Sec. 347.211 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. 347.211 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. 347.211 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 326--MINIMUM SECURITY DEVICES AND PROCEDURES AND BANK SECRECY 
ACT 1 COMPLIANCE
---------------------------------------------------------------------------

    \1\ In its original form, subchapter II of chapter 53 of title 
31 U.S.C., was part of Pub. L. 91-508 which requires recordkeeping 
for and reporting of currency transactions by banks and others and 
is commonly known as the Bank Secrecy Act.
---------------------------------------------------------------------------

    9. The authority citation for part 326 continues to read as 
follows:

    Authority: 12 U.S.C. 1813, 1815, 1817, 1818, 1819 (Tenth), 1881-
1833; 31 U.S.C. 5311-5324.

    10. In Sec. 326.1, paragraph (c) is amended by revising the last 
sentence to read as follows:


Sec. 326.1  Definitions.

* * * * *
    (c) * * * In the case of a foreign bank, as defined in Sec. 347.202 
of this chapter, the term branch has the same meaning given in 
Sec. 347.202 of this chapter.
    11. In Sec. 326.8, paragraph (a) and footnote 3 are revised to read 
as follows:


Sec. 326.8  Bank Secrecy Act compliance.

    (a) Purpose. This subpart is issued to assure that all insured 
nonmember banks as defined in Sec. 326.1 3 establish and 
maintain procedures reasonably designed to assure and monitor their 
compliance with the requirements of subchapter II of chapter 53 of 
title 31, United States Code, and the implementing regulations 
promulgated thereunder by the Department of Treasury at 31 CFR part 
103.
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    \3\ In regard to foreign banks, the programs and procedures 
required by Sec. 326.8 need be instituted only at an insured branch 
as defined in Sec. 347.202 of this chapter which is a State branch 
as defined in Sec. 347.202 of this chapter.
---------------------------------------------------------------------------

* * * * *

PART 327--ASSESSMENTS

    12. The authority citation for part 327 is revised 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).

    13. In Sec. 327.1, paragraph (b)(2) is revised to read as follows:


Sec. 327.1  Purpose and scope.

* * * * *
    (b) * * *
    (2) Deductions from the assessment base of an insured branch of a 
foreign bank are stated in subpart B of part 347 of this chapter.
    14. In Sec. 327.4, paragraphs (a)(1)(i)(B)(1), (a)(1)(i)(B)(2), 
(a)(1)(ii)(B)(1), and (a)(1)(ii)(B)(2) are revised to read as follows:


Sec. 327.4  Annual assessment rate.

    (a) * * *
    (1) * * *
    (i) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec. 347.210 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec. 347.211 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. 347.210 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec. 347.211 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
* * * * *

PART 346--[REMOVED]

    15. Part 346 is removed.
    16. Part 347 is revised to read as follows:

PART 347--INTERNATIONAL BANKING

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

Sec.
347.101  Purpose, authority, and scope.
347.102  Definitions.
347.103  Foreign branches of insured state nonmember banks.
347.104  Investment by insured state nonmember banks in foreign 
organizations.
347.105  Underwriting and dealing limits applicable to foreign 
organizations held by insured state nonmember banks.
347.106  Restrictions on certain activities applicable to foreign 
organizations held by insured state nonmember banks.
347.107  U.S. activities of foreign organizations held by insured 
state nonmember banks.
347.108  Obtaining FDIC approval to invest in foreign organizations.
347.109  Extensions of credit to foreign organizations held by 
insured state nonmember banks; shares of foreign organizations held 
in connection with debts previously contracted.
347.110  Supervision and recordkeeping of the foreign activities of 
insured state nonmember banks.

Subpart B--Foreign Banks

347.201  Scope.
347.202  Definitions.
347.203  Restriction on operation of insured and noninsured 
branches.
347.204  Insurance requirement.
347.205  Branches established under section 5 of the International 
Banking Act.
347.206  Exemptions from the insurance requirement.
347.207  Notification to depositors.
347.208  Agreement to provide information and to be examined.
347.209  Records.
347.210  Pledge of assets.

[[Page 17076]]

347.211  Asset maintenance.
347.212  Deductions from the assessment base.
347.213  FDIC approval to conduct activities not permissible for 
federal branches.

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.

Subpart D--Applications and Delegations of Authority

347.401  Definitions.
347.402  Establishing, moving or closing a foreign branch of a state 
nonmember bank; Sec. 347.103.
347.403  Investment by insured state nonmember banks in foreign 
organizations; Sec. 347.108.
347.404  Exemptions from insurance requirement for a state branch of 
a foreign bank; Sec. 347.206(b).
347.405  Approval for an insured state branch of a foreign bank to 
conduct activities not permissible for federal branches; 
Sec. 347.213.

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

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


Sec. 347.101  Purpose, authority, and scope.

    Under sections 18(d) and 18(l) of the Federal Deposit Insurance Act 
(12 U.S.C. 1828(d), 1828(l)), the Federal Deposit Insurance Corporation 
prescribes the regulations in this subpart relating to foreign branches 
of insured state nonmember banks, the acquisition and holding of stock 
of foreign organizations, and loans or extensions of credit to or for 
the account of such foreign organizations.


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 which 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) Eligible insured state nonmember bank means an eligible 
depository institution as defined in Sec. 347.401(c).
    (d) 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.
    (e) 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.
    (f) FRB means the Board of Governors of the Federal Reserve System.
    (g) 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 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.
    (h) 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.
    (i) 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.
    (j) 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.
    (k) Foreign organization means an organization that is organized 
under the laws of a foreign country.
    (l) Indirectly means investments held or activities conducted by a 
subsidiary of an organization.
    (m) 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.
    (n) Organization or entity means a corporation, partnership, 
association, bank, or other similar entity.
    (o) 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.
    (p) Subsidiary means any organization more than 50 percent of the 
voting equity interests of which are directly or indirectly held by 
another organization.
    (q) Tier 1 capital means Tier 1 capital as defined in Sec. 325.2 of 
this chapter.
    (r) Well capitalized means well capitalized as defined in 
Sec. 325.103 of this chapter.


Sec. 347.103  Foreign branches of insured state nonmember banks.

    (a) Powers of foreign branches. To the extent authorized by state 
law, an insured state nonmember bank may establish a foreign branch. In 
addition to its general banking powers, and if permitted by state law, 
a foreign branch of an insured state nonmember bank may conduct the 
following activities to the extent the activities are consistent with 
banking practices in the foreign country in which the branch is 
located:
    (1) Guarantees. Guarantee debts, or otherwise agree to make 
payments on the occurrence of readily ascertainable events including 
without limitation such things as nonpayment of taxes, rentals, customs 
duties, or costs of transport and loss or nonconformance of shipping 
documents, if:
    (i) The guarantee or agreement specifies a maximum monetary 
liability; and
    (ii) 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.
    (2) Local investments. Acquire and hold the following local 
investments, so

[[Page 17077]]

long as aggregate 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 one 
foreign country do 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): 1
---------------------------------------------------------------------------

    \1\ If a branch has recently been acquired by the state 
nonmember bank and the branch was not previously required to file a 
Call Report, branch deposits as of the acquisition date must be 
used.
---------------------------------------------------------------------------

    (i) Equity securities of the central bank, clearing houses, 
governmental entities, and 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 
societies, schools, and similar entities necessary to the business of 
the branch.
    (3) Government obligations. Make 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 insured state nonmember bank's Tier 1 capital:
    (i) Underwrite, distribute and deal, invest in, or trade 
obligations of:
    (A) The national government of the country in which the branch is 
located or its political subdivisions; and
    (B) An agency or instrumentality of such national government if 
supported by the taxing authority, guarantee, or full faith and credit 
of the national government.
    (ii) Underwrite, distribute and deal, invest in or trade 
obligations2 rated as investment grade by at least two 
established international rating agencies of:
---------------------------------------------------------------------------

    \2\ 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.
---------------------------------------------------------------------------

    (A) The national government of any foreign country or its political 
subdivisions, to the extent permissible under the law of the issuing 
foreign country; and
    (B) 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.
    (4) Insurance. Act as an insurance agent or broker.
    (5) Other activities. Engage in these activities in an additional 
amount, or in other activities, approved by the FDIC.
    (b) General consent to establish and relocate foreign branches. (1) 
General consent of the FDIC is granted for an eligible insured state 
nonmember bank to establish foreign branches conducting activities 
authorized by this section in any foreign country in which the bank 
already operates one or more foreign branches or foreign bank 
subsidiaries.
    (2) General consent of the FDIC is granted for an insured state 
nonmember bank to relocate an existing foreign branch within a foreign 
country.
    (3) An insured state nonmember bank acting under this paragraph 
must provide written notice of such action to the FDIC within 30 days 
after establishing or relocating the branch.
    (c) Expedited processing of branch applications. (1) Forty-five 
days after filing a substantially complete application with the FDIC, 
or upon such earlier time as authorized by the FDIC, an eligible 
insured state nonmember bank may establish foreign branches conducting 
activities authorized by this section in any foreign country in which:
    (i) An affiliated bank or Edge or Agreement corporation operates 
one or more foreign branches or foreign bank subsidiaries; or
    (ii) The bank's holding company operates a foreign bank subsidiary.
    (2) If any of the following are located in two or more foreign 
countries, an eligible insured state nonmember bank may establish a 
foreign branch conducting activities authorized by this section in an 
additional foreign country 45 days after the bank files a substantially 
complete application with the FDIC, or upon such earlier time as 
authorized by the FDIC:
    (i) Foreign branches or foreign bank subsidiaries of the eligible 
insured state nonmember bank;
    (ii) Foreign branches or foreign bank subsidiaries of banks and 
Edge or Agreement corporations affiliated with the eligible insured 
state nonmember bank; and
    (iii) Foreign bank subsidiaries of the eligible insured state 
nonmember bank's holding company.
    (d) Limitations on general consent and expedited processing. 
General consent under paragraph (b) or expedited processing under 
paragraph (c) of this section does not apply:
    (1) If the foreign branch 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);
    (2) If the foreign branch would be located in a foreign country in 
which applicable law or practice would limit the FDIC's access to 
information for supervisory purposes; or
    (3) If the FDIC at any time notifies the insured state nonmember 
bank that the FDIC is modifying or suspending its general consent or 
expedited processing procedure.
    (e) Specific consent required. An insured state nonmember bank may 
not engage in a type or amount of foreign branch activity not 
authorized by this section, or establish a foreign branch other than as 
authorized by paragraphs (b) and (c) of this section, without obtaining 
the prior specific consent of the FDIC.
    (f) Branch closing. An insured state nonmember bank must notify the 
FDIC in writing at the time it closes a foreign branch.
    (g) Procedures. Procedures for notices and applications under this 
section are set out in subpart D of this part.


Sec. 347.104  Investment by insured state nonmember banks in foreign 
organizations.

    (a) Investment authorized. To the extent authorized by state law, 
an insured state nonmember bank may directly or indirectly acquire and 
retain equity interests in foreign organizations, subject to the 
requirements of this subpart.
    (b) Authorized financial activities. An insured state nonmember 
bank may not directly or indirectly acquire or hold equity interests of 
a foreign organization resulting in the insured state nonmember bank 
and its affiliates holding more than 50 percent of a foreign 
organization's voting equity interests in the aggregate, or the insured 
state nonmember bank or its affiliates otherwise controlling the 
foreign organization, unless the activities of the foreign organization 
are limited to the following financial activities:
    (1) Commercial and other banking activities.
    (2) Underwriting, distributing, and dealing debt securities outside 
the United States.
    (3) With the prior approval of the FDIC under Sec. 347.108(d), 
underwriting, distributing, and dealing equity securities outside the 
United States.
    (4) 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.
    (5) General insurance agency and brokerage.

[[Page 17078]]

    (6) Underwriting credit life, credit accident and credit health 
insurance.
    (7) Performing management consulting services provided that such 
services when rendered with respect to the United States market must be 
restricted to the initial entry.
    (8) Data processing.
    (9) Operating a travel agency in connection with financial services 
offered abroad by the insured state nonmember bank or others.
    (10) 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.
    (11) Performing services for other direct or indirect operations of 
a U.S. 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.
    (12) 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.
    (13) Engaging in the foregoing activities in an additional amount, 
or in other activities, with the prior approval of the FDIC under 
Sec. 347.108(d).
    (c) Going concerns. If an insured state nonmember bank acquires 
equity interests of a foreign organization under paragraph (b) of this 
section and the foreign organization is a going concern, up to five 
percent of either the consolidated assets or revenues of the foreign 
organization may be attributable to activities that are not permissible 
under paragraph (b) of this section.
    (d) Joint ventures. If an insured state nonmember bank directly or 
indirectly acquires or holds equity interests of a foreign organization 
resulting in the insured state nonmember bank and its affiliates 
holding 20 percent or more, but not in excess of 50 percent, of the 
voting equity interests of a foreign organization in the aggregate, and 
the insured state nonmember bank or its affiliates do not control the 
foreign organization, up to 10 percent of either the consolidated 
assets or revenues of the foreign organization may be attributable to 
activities that are not permissible under paragraph (b) of this 
section.
    (e) Portfolio investment. If an insured state nonmember bank 
directly or indirectly acquires or holds equity interests of a foreign 
organization resulting in the insured state nonmember bank and its 
affiliates holding less than 20 percent of the voting equity interests 
of a foreign organization in the aggregate, and the insured state 
nonmember bank or its affiliates do not control the foreign 
organization:
    (1) Up to ten percent of either the consolidated assets or revenues 
of the foreign organization may be attributable to activities that are 
not permissible under paragraph (b) of this section; and
    (2) Any loans or extensions of credit made by the insured state 
nonmember 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 insured state nonmember bank or its affiliates 
and nonaffiliated organizations.
    (f) Indirect holding of foreign organizations which are not foreign 
banks or foreign banking organizations. Any investment pursuant to the 
authority of paragraphs (b) through (e) of this section in a foreign 
organization which is not a foreign bank or foreign banking 
organization must be held indirectly through a U.S. or foreign 
subsidiary of the insured state nonmember bank if the foreign 
organization does not constitute a subsidiary of the insured state 
nonmember bank, and the insured state nonmember bank must meet its 
minimum capital requirements.
    (g) Indirect investments in nonfinancial foreign organizations. An 
insured state nonmember bank may indirectly acquire and hold equity 
interests in an amount up to 15 percent of the insured state nonmember 
bank's Tier 1 capital in foreign organizations engaged generally in 
activities beyond those listed in paragraph (b) of this section, 
subject to the following:
    (1) The equity interests must be acquired and held indirectly 
through a subsidiary authorized by paragraphs (b) or (c) of this 
section, or an Edge corporation if also authorized by the FRB;
    (2) The aggregate holding of voting equity interests of one foreign 
organization by the insured state nonmember bank and its affiliates 
must be less than 20 percent of the foreign organization's voting 
equity interests;
    (3) The aggregate holding of voting and nonvoting equity interests 
of one foreign organization by the insured state nonmember bank and its 
affiliates must be less than 40 percent of the foreign organization's 
equity interests;
    (4) The insured state nonmember bank or its affiliates must not 
otherwise control the foreign organization; and
    (5) Any loans or extensions of credit made by the insured state 
nonmember 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 insured state nonmember bank or its affiliates 
and nonaffiliated organizations.
    (h) Affiliate holdings. References in this section to equity 
interests of foreign organizations held by an affiliate of an insured 
state nonmember bank includes equity interests held in connection with 
an underwriting or for distribution or dealing by an affiliate 
permitted to do so by Sec. 337.4 of this chapter or section 4(c)(8) of 
the Bank Holding Company Act (12 U.S.C. 1843(c)(8)).


Sec. 347.105  Underwriting and dealing limits applicable to foreign 
organizations held by insured state nonmember banks.

    If an insured state nonmember bank, in reliance on the authority of 
Sec. 347.104, 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. 347.104(b)(3):
    (a) Underwriting commitment limits. 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 insured state nonmember bank under the authority of 12 
CFR 211.5, must not exceed the lesser of $60 million or 25 percent of 
the insured state nonmember bank's Tier 1 capital unless excess amounts 
are either:
    (1) Covered by binding commitments from subunderwriters or 
purchasers; or
    (2) Deducted from the capital of the insured state nonmember bank, 
with at least 50 percent of the deduction being taken from Tier 1 
capital, and the insured state nonmember bank remains 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 insured state nonmember 
bank under the authority of 12 CFR 211.5:
    (1) Must not exceed the lesser of $30 million or 5 percent of the 
insured state nonmember bank's Tier 1 capital, subject to the 
following:
    (i) Any equity securities acquired pursuant to any underwriting 
commitment extending up to 90 days

[[Page 17079]]

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. 347.104 or 12 CFR 211.5(b) 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. 347.108(a)(3) if the insured state nonmember 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 affiliates of the state nonmember bank (this includes shares 
held in connection with an underwriting or for distribution or dealing 
by an affiliate permitted to do so by Sec. 337.4 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 state nonmember bank, must conform to the limits of 
Sec. 347.104.
    (d) Combined limits. The aggregate of the following may not exceed 
25 percent of the insured state nonmember bank's Tier 1 capital:
    (1) All equity interests of foreign organizations held for 
investment or trading under Sec. 347.104(g) or by an affiliate of the 
insured state nonmember bank under the corresponding paragraph of 12 
CFR 211.5;
    (2) All underwriting commitments under paragraph (a) of this 
section, taken together with all underwriting commitments by any 
affiliate of the insured state nonmember bank under the authority of 12 
CFR 211.5, 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 211.5; or
    (ii) Already deducted from the insured state nonmember bank's 
capital under paragraph (a)(2) of this section, or the appropriate 
affiliate's capital under the comparable provisions of 12 CFR 211.5; 
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 
insured state nonmember bank under the authority of 12 CFR 211.5, 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 211.5.


Sec. 347.106  Restrictions on certain activities applicable to foreign 
organizations held by insured state nonmember banks.

    Futures commission merchant. If an insured state nonmember bank, in 
reliance on the authority of Sec. 347.104, acquires or retains an 
equity interest in one or more foreign organizations which acts as a 
futures commission merchant as authorized by Sec. 347.104(b)(10), 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 foreign 
organization's liability does not exceed two percent of the insured 
state nonmember bank's Tier 1 capital, or the insured state nonmember 
bank has obtained the prior approval of the FDIC under Sec. 347.108(d).


Sec. 347.107  U.S. activities of foreign organizations held by insured 
state nonmember banks.

    (a) An insured state nonmember bank may not directly or indirectly 
hold the equity interests of any foreign organization pursuant to the 
authority of this section if the organization engages in the general 
business of buying or selling goods, wares, merchandise, or commodities 
in the United States.
    (b) An insured state nonmember bank may not directly or indirectly 
hold more than 5 percent of the equity interests of any foreign 
organization pursuant to the authority of this subpart unless any 
activities in which the foreign organization engages directly or 
indirectly in the United States are incidental to its international or 
foreign business.
    (c) A foreign organization is not engaged in any business or 
activities in the United States for these purposes unless it maintains 
an office in the United States other than a representative office.
    (d) The following activities are incidental to international or 
foreign business:
    (1) Activities that the FRB has determined in Regulation K (12 CFR 
211.4) are permissible in the United States for an Edge corporation.
    (2) Other activities approved by the FDIC.


Sec. 347.108  Obtaining FDIC approval to invest in foreign 
organizations.

    (a) General consent. General consent of the FDIC is granted for an 
eligible insured state nonmember bank to make direct or indirect 
investments in foreign organizations in conformity with the limits and 
requirements of this subpart if:
    (1) The insured state nonmember bank presently 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 insured state nonmember bank's 
holding company operates at least one foreign bank subsidiary;
    (2) In any case in which the insured state nonmember 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 insured state nonmember bank has a foreign bank subsidiary in the 
relevant foreign country; 3
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    \3\ A list of these countries can be obtained from the FDIC's 
Internet Web Site at www.fdic.gov.
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    (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 two percent of the insured 
state nonmember bank's Tier 1 capital, and such investments in all 
foreign organizations in the aggregate do not exceed:
    (A) 5 percent of the insured state nonmember bank's Tier 1 capital 
during a 12-month period; and
    (B) Up to an additional five percent of the insured state nonmember 
bank's Tier 1 capital if the investments are acquired for trading 
purposes; and
    (4) Within 30 days, the insured state nonmember bank provides the 
FDIC written notice of the investment, unless the investment was 
acquired for trading purposes, in which case no notice is required.
    (b) Expedited processing. An investment that does not qualify for 
general consent but is otherwise in conformity with the limits and

[[Page 17080]]

requirements of this subpart may be made 45 days after an eligible 
insured state nonmember bank files a substantially complete application 
with the FDIC, or upon such earlier time as authorized by the FDIC.
    (c) Inapplicability of general consent or expedited processing. 
General consent or expedited processing under this section do not 
apply:
    (1) For foreign investments resulting in the insured state 
nonmember bank holding 20 percent or more of the voting equity 
interests of a foreign organization or controlling such organization 
and the foreign organization would be located in a foreign country in 
which applicable law or practice would limit the FDIC's access to 
information for supervisory purposes; or
    (2) If the FDIC at any time notifies the insured state nonmember 
bank that the FDIC is modifying or suspending its general consent or 
expedited processing procedure.
    (d) Specific consent. Any investment that is not authorized under 
general consent or expedited processing procedures must not be made 
without the prior specific consent of the FDIC.
    (e) Computation of amounts. In computing the amount that may be 
invested in any foreign organization under this section, any 
investments held by an affiliate of the insured state nonmember bank 
must be included.
    (f) Procedures. Procedures for applications and notices under this 
section are set out in subpart D of this part.


Sec. 347.109  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. An insured state nonmember bank 
which 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. 347.110  Supervision and recordkeeping of the foreign activities 
of insured state nonmember banks.

    (a) Records, controls and reports. An insured state nonmember 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 insured state nonmember 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, proper accounting procedures, 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 insured state nonmember bank for 
examination and other supervisory purposes.
    (2) If any applicable law or practice in a particular foreign 
country would limit the FDIC's access to information for supervisory 
purposes, no insured state nonmember bank may utilize the general 
consent or expedited processing procedures under Secs. 347.103 and 
347.108 to:
    (i) Establish any foreign branch in the foreign country; or
    (ii) Make any investment resulting in the state nonmember bank 
holding 20 percent or more of the voting equity interests of a foreign 
organization in the foreign country or controlling such organization.
    (3) The FDIC may from time to time require an insured state 
nonmember bank to make and submit such reports and information as may 
be necessary to implement and enforce the provisions of this subpart, 
and the insured state nonmember bank shall submit an annual report of 
condition for each foreign branch pursuant to instructions provided by 
the FDIC.

Subpart B--Foreign Banks


Sec. 347.201  Scope.

    (a)(1) Sections 347.203 through 347.207 implement the insurance 
provisions of section 6 of the International Banking Act of 1978 (12 
U.S.C. 3104). They set out the FDIC's rules regarding domestic retail 
deposit activities requiring a foreign bank to establish an insured 
bank subsidiary; deposit activities permissible for a noninsured 
branch; authority for a state branch to apply for an exemption from the 
insurance requirement; and, depositor notification requirements. 
Sections 347.204, 347.205, 347.206 and 347.207 do not apply to a 
federal branch. The Comptroller of the Currency's regulations (12 CFR 
part 28) establish such rules for federal branches. However, federal 
branches deemed by the Comptroller to require

[[Page 17081]]

insurance must apply to the FDIC for insurance.
    (2) Sections 347.203 through 347.207 also set out the FDIC's rules 
regarding the operation of insured and noninsured branches, whether 
state or federal, by a foreign bank.
    (b) Sections 347.208 through 347.212 set out the rules that apply 
only to a foreign bank that operates or proposes to establish an 
insured state or federal branch. These rules relate to the following 
matters: an agreement to provide information and to be examined and 
provisions concerning recordkeeping, pledge of assets, asset 
maintenance, and deductions from the assessment base.


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 
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 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 
Secs. 347.208, 347.209, 347.210, and 347.211.
    (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) 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.
    (k) Immediate family member of a natural person means the spouse, 
father, mother, brother, sister, son or daughter of that natural 
person.
    (l) Initial deposit means the first deposit transaction between a 
depositor and the branch. 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. 
``First deposit'' means any deposit made when there is no existing 
deposit relationship between the depositor and the branch.
    (m) Insured bank means any bank, including a foreign bank having an 
insured branch, the deposits of which are insured in accordance with 
the provisions of the Federal Deposit Insurance Act.
    (n) 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.
    (o) 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.
    (p) A majority owned subsidiary means a company the voting stock of 
which is more than 50 percent owned or controlled by another company.
    (q) 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.
    (r) Person means an individual, bank, corporation, partnership, 
trust, association, foundation, joint venture, pool, syndicate, sole 
proprietorship, unincorporated organization, or any other form of 
entity.
    (s) 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.
    (t) State means any state of the United States or the District of 
Columbia.
    (u) State branch means a branch of a foreign bank established and 
operating under the laws of any state.
    (v) A 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  Restriction on operation of insured and noninsured 
branches.

    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 will be an insured 
branch; provided, that this restriction does not apply to any branch 
which accepts only initial deposits in an amount of $100,000 or 
greater.


Sec. 347.204  Insurance requirement.

    (a) Domestic retail deposit activity. In order to initiate or 
conduct domestic retail deposit activity which requires deposit 
insurance protection in any state a foreign bank shall:
    (1) Establish one or more insured bank subsidiaries in the United 
States for that purpose; and
    (2) Obtain deposit insurance for any such subsidiary in accordance 
with the Federal Deposit Insurance Act.
    (b) Exception. For purposes of paragraph (a) of this section, 
``foreign bank'' does not include any bank organized under the laws of 
any

[[Page 17082]]

territory of the United States, Puerto Rico, Guam, American Samoa, or 
the Virgin Islands the deposits of which are insured by the Corporation 
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 a branch of a 
foreign bank only if such branch was an insured branch on December 19, 
1991.
    (d) Noninsured branches. A foreign bank may establish or operate a 
state branch which is not an insured branch 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. 347.205 or 
Sec. 347.206.


Sec. 347.205  Branches 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 Board 
of Governors of the Federal Reserve System 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 Board of 
Governors (12 CFR part 211).


Sec. 347.206  Exemptions from the insurance requirement.

    (a) Deposit activities not requiring insurance. A state branch will 
not be deemed to be engaged in domestic retail deposit activity which 
requires the foreign bank parent to establish an insured bank 
subsidiary in accordance with Sec. 347.204(a) if the state branch only 
accepts initial deposits in an amount of less than $100,000 which 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 Corporation may accept deposits under 
Sec. 211.4(e)(1) of Regulation K of the Board of Governors of the 
Federal Reserve System, 12 CFR 211.4(e)(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 the branch's average deposits 
under this paragraph (a)(7) do not exceed one percent of the branch's 
average total deposits for the last 30 days of the most recent calendar 
quarter (de minimis exception). In calculating this de minimis 
exception, both the average deposits under this paragraph (a)(7) and 
the average total deposits shall 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. For days on which the branch is closed, balances 
from the last previous business day are to be used. In determining its 
average branch deposits, the branch may exclude deposits in the branch 
of other offices, branches, agencies or wholly owned subsidiaries of 
the bank. In addition, 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. A foreign bank 
which 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 excepted 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 
subpart D of this part.
    (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 (See Sec. 346.6 as 
contained in 12 CFR parts 300 to 499 revised as of January 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, no later than:
    (i) In the case of a non-time deposit, five years from April 1, 
1996; or
    (ii) In the case of a time deposit, the first maturity date of the 
time deposit after April 1, 1996.


Sec. 347.207  Notification to depositors.

    Any state branch that is exempt from the insurance requirement 
pursuant to Sec. 347.206 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.


Sec. 347.208  Agreement to provide information and to be examined.

    (a) A foreign bank that applies for insurance for any branch shall 
agree in writing to the following terms:
    (1)(i) The foreign bank will provide the FDIC with information 
regarding the affairs of the foreign bank and its affiliates which are 
located outside of

[[Page 17083]]

the United States as the FDIC from time to time may request to:
    (A) Determine the relations between the insured branch and the 
foreign bank and its affiliates; and
    (B) Assess the financial condition of the foreign bank as it 
relates to the insured branch.
    (ii) If the laws of the country of the foreign bank's domicile or 
the policy of the Central Bank or other banking authority prohibit or 
restrict the foreign bank from entering into this agreement, the 
foreign bank shall agree to provide information to the extent permitted 
by such law or policy. Information provided shall be in English and in 
the form requested by the FDIC and shall be made available in the 
United States. The Board of Directors will consider the existence and 
extent of this prohibition or restriction in determining whether to 
grant insurance and may deny the application if the information 
available is so limited in extent that an unacceptable risk to the 
insurance fund is presented.
    (2)(i) The FDIC may examine the affairs of any office, agency, 
branch or affiliate of the foreign bank located in the United States as 
the FDIC deems necessary to:
    (A) Determine the relations between the insured branch and such 
offices, agencies, branches or affiliates; and
    (B) Assess the financial condition of the foreign bank as it 
relates to the insured branch.
    (ii) The foreign bank shall also agree to provide the FDIC with 
information regarding the affairs of such offices, agencies, branches 
or affiliates as the FDIC deems necessary. The Board of Directors will 
not grant insurance to any branch if the foreign bank fails to enter 
into an agreement as required under this paragraph (a).
    (b) The agreement shall be signed by an officer of the foreign bank 
who has been so authorized by the foreign bank's board of directors. 
The agreement and the authorization shall be included with the foreign 
bank's application for insurance. Any agreement not in English shall be 
accompanied by an English translation.


Sec. 347.209  Records.

    (a) Each insured branch shall keep a set of accounts and records in 
the words and figures of the English language which accurately reflect 
the business transactions of the insured branch on a daily basis.
    (b) 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. A foreign bank 
which 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. 347.210  Pledge of assets.

    (a) Purpose. A foreign bank that has an insured branch shall 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 shall become the property 
of the FDIC to be used to the extent necessary to protect the deposit 
insurance fund.
    (b) Amount of assets to be pledged. (1) A foreign bank shall pledge 
assets equal to five percent of the average of the insured branch's 
liabilities for the last 30 days of the most recent calendar quarter. 
This average shall 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 30.4 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 shall 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.
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    \4\ For days on which the branch is closed, balances from the 
previous business day are to be used.
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    (2) The initial five-percent deposit for a newly established 
insured branch shall be based on the branch's projection of liabilities 
at the end of the first year of its operation.
    (3) 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 foreign bank's or any insured branch's condition is such that 
the assets pledged under paragraph (b)(1) or (b)(2) of 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 insured branch's primary regulator. 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 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.
    (4) Each insured branch shall separately comply with the 
requirements of this section. However, 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 and shall designate one 
insured branch to be responsible for compliance with this section.
    (c) Depository. A foreign bank shall 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 designees at such 
time as any such asset is placed with the depository, as follows:
    (1) Certificates of deposit that are payable in the United States 
and that are issued by any state bank, national bank, 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;
    (2) 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

[[Page 17084]]

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, 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 holding companies or banks 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)(3) of this section, it 
shall place (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.
    (4) Delivery of other documents. Concurrently with the pledge of 
any assets, the foreign bank shall 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 shall 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 designees. 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 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 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)(3) 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 report 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 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

[[Page 17085]]

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 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 (12 U.S.C. 1821(f)) 
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.
    (f)(1) Authority is delegated to the Director (DOS), the Deputy 
Director (DOS), and where confirmed in writing by the Director, to an 
associate director, or to the appropriate regional director or deputy 
regional director, to enter into pledge agreements with foreign banks 
and depositories in connection with the pledge of asset requirements 
pursuant to this section. This authority shall also extend to the power 
to revoke such approval and require the dismissal of the depository.
    (2) Authority is delegated to the General Counsel or designee to 
modify the terms of the model pledge agreement used for such deposit 
agreements.


Sec. 347.211  Asset maintenance.

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

[[Page 17086]]

    (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. 347.212  Deductions from the assessment base.

    An insured branch may deduct from its assessment base deposits in 
the insured branch to the credit of the foreign bank or any office, 
branch or agency of and any wholly owned subsidiary of the foreign 
bank.


Sec. 347.213  FDIC approval to conduct activities 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 (each an impermissible 
activity), shall file a written application for permission to conduct 
such activity with the FDIC.
    (b) Exceptions. A foreign bank operating an insured state branch 
which would otherwise be required to submit an application pursuant to 
paragraph (a) of this section will not be required to submit such an 
application if the activity it desires to engage in or continue to 
engage in has been determined by the FDIC not to present a significant 
risk to the affected deposit insurance fund pursuant to part 362 of 
this chapter, ``Activities and Investment of Insured State Banks'.
    (c) Agency activities. A foreign bank operating an insured state 
branch which would otherwise be required to submit an application 
pursuant to paragraph (a) of this section will not be required to 
submit such an application if it desires to engage in or continue to 
engage in an activity conducted as agent which would be a permissible 
agency activity for a state-chartered bank located in the state which 
the state-licensed insured branch of the foreign bank is located and is 
also permissible for a state-licensed branch of a foreign bank located 
in that state; provided, however, that the agency activity must be 
permissible pursuant to any other applicable federal law or regulation.
    (d) Conditions of approval. Approval of such an application may be 
conditioned on the applicant's agreement to conduct the activity 
subject to specific limitations, such as but not limited to the 
pledging of assets in excess of the requirements of Sec. 347.210 and/or 
the maintenance of eligible assets in excess of the requirements of 
Sec. 347.211. 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 branch shall not commence the activity until it 
has been approved in writing by the FDIC pursuant to this part and the 
Board of Governors of the Federal Reserve System (Board of Governors), 
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 
Board of Governors, 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) Divestitures or cessations shall be completed within one year 
from the date of the disapproval, or within such shorter period of time 
as the FDIC shall direct.
    (f) Procedures. Procedures for applications under this section are 
set out in subpart D of this part.

Subpart C--International Lending


Sec. 347.301  Purpose, authority, and scope.

    Under the International Lending Supervision Act of 1983 (Title IX, 
Pub. L. 98-181, 97 Stat. 1153) (12 U.S.C. 3901 et seq.) (ILSA), the 
Federal Deposit Insurance Corporation prescribes the regulations in 
this subpart relating to international lending activities of insured 
state nonmember banks.


Sec. 347.302  Definitions.

    For the purposes of this subpart:
    (a) Administrative cost means those costs which are specifically 
identified with negotiating, processing and consummating the loan. 
These costs include, but are not necessarily limited to: legal fees; 
costs of preparing and processing loan documents; and an allocable 
portion of salaries and related benefits of employees engaged in the 
international lending function. No portion of supervisory and 
administrative expenses or other indirect expenses such as occupancy 
and other similar overhead costs shall be included.
    (b) Banking institution means an insured state nonmember bank.
    (c) Federal banking agencies means the Board of Governors of the 
Federal Reserve System, the Office of the Comptroller of the Currency, 
and the Federal Deposit Insurance Corporation.
    (d) International assets means those assets required to be included 
in banking institutions' ``Country Exposure Report'' form (FFIEC No. 
009).
    (e) International loan means a loan as defined in the instructions 
to the ``Report of Condition and Income'' for the respective banking 
institution (FFIEC Nos. 031, 032, 033 and 034) and made to a foreign 
government, or to an individual, a corporation, or other entity not a 
citizen of, resident in, or organized or incorporated in the United 
States.
    (f) Restructured international loan means a loan that meets the 
following criteria:
    (1) The borrower is unable to service the existing loan according 
to its terms and is a resident of a foreign country in which there is a 
generalized inability of public and private sector obligors to meet 
their external debt obligations on a timely basis because of a lack of, 
or restraints on the availability of, needed foreign exchange in the 
country; and
    (2) Either:

[[Page 17087]]

    (i) The terms of the existing loan are amended to reduce stated 
interest or extend the schedule of payments; or
    (ii) A new loan is made to, or for the benefit of, the borrower, 
enabling the borrower to service or refinance the existing debt.
    (g) Transfer risk means the possibility that an asset cannot be 
serviced in the currency of payment because of a lack of, or restraints 
on the availability of, needed foreign exchange in the country of the 
obligor.


Sec. 347.303  Allocated transfer risk reserve.

    (a) Establishment of Allocated Transfer Risk Reserve. A banking 
institution shall establish an allocated transfer risk reserve (ATRR) 
for specified international assets when required by the FDIC in 
accordance with this section.
    (b) Procedures and standards--(1) Joint agency determination. At 
least annually, the federal banking agencies shall determine jointly, 
based on the standards set forth in paragraph (b)(2) of this section, 
the following:
    (i) Which international assets subject to transfer risk warrant 
establishment of an ATRR;
    (ii) The amount of the ATRR for the specified assets; and
    (iii) Whether an ATRR established for specified assets may be 
reduced.
    (2) Standards for requiring ATRR--(i) Evaluation of assets. The 
federal banking agencies shall apply the following criteria in 
determining whether an ATRR is required for particular international 
assets:
    (A) Whether the quality of a banking institution's assets has been 
impaired by a protracted inability of public or private obligers in a 
foreign country to make payments on their external indebtedness as 
indicated by such factors, among others, as whether:
    (1) Such obligors have failed to make full interest payments on 
external indebtedness; or
    (2) Such obligors have failed to comply with the terms of any 
restructured indebtedness; or
    (3) A foreign country has failed to comply with any International 
Monetary Fund or other suitable adjustment program; or
    (B) Whether no definite prospects exist for the orderly restoration 
of debt service.
    (ii) Determination of amount of ATRR. (A) In determining the amount 
of the ATRR, the federal banking agencies shall consider:
    (1) The length of time the quality of the asset has been impaired;
    (2) Recent actions taken to restore debt service capability;
    (3) Prospects for restored asset quality; and
    (4) Such other factors as the federal banking agencies may consider 
relevant to the quality of the asset.
    (B) The initial year's provision for the ATRR shall be ten percent 
of the principal amount of each specified international asset, or such 
greater or lesser percentage determined by the federal banking 
agencies. Additional provision, if any, for the ATRR in subsequent 
years shall be fifteen percent of the principal amount of each 
specified international asset, or such greater or lesser percentage 
determined by the federal banking agencies.
    (3) FDIC notification. Based on the joint agency determinations 
under paragraph (b)(1) of this section, the FDIC shall notify each 
banking institution holding assets subject to an ATRR:
    (i) Of the amount of the ATRR to be established by the institution 
for specified international assets; and
    (ii) That an ATRR established for specified assets may be reduced.
    (c) Accounting treatment of ATRR--(1) Charge to current income. A 
banking institution shall establish an ATRR by a charge to current 
income and the amounts so charged shall not be included in the banking 
institution's capital or surplus.
    (2) Separate accounting. A banking institution shall account for an 
ATRR separately from the Allowance for Loan and Lease Losses, and shall 
deduct the ATRR from ``gross loans and leases'' to arrive at ``net 
loans and leases.'' The ATRR must be established for each asset subject 
to the ATRR in the percentage amount specified.
    (3) Consolidation. A banking institution shall establish an ATRR, 
as required, on a consolidated basis. For banks, consolidation should 
be in accordance with the procedures and tests of significance set 
forth in the instructions for preparation of Consolidated Reports of 
Condition and Income (FFIEC Nos. 031, 032, 033 and 034).
    (4) Alternative accounting treatment. A banking institution need 
not establish an ATRR if it writes down in the period in which the ATRR 
is required, or has written down in prior periods, the value of the 
specified international assets in the requisite amount for each such 
asset. For purposes of this paragraph (c)(4), international assets may 
be written down by a charge to the Allowance for Loan and Lease Losses 
or a reduction in the principal amount of the asset by application of 
interest payments or other collections on the asset; provided, that 
only those international assets that may be charged to the Allowance 
for Loan and Lease Losses pursuant to generally accepted accounting 
principles may be written down by a charge to the Allowance for Loan 
and Lease Losses. However, the Allowance for Loan and Lease Losses must 
be replenished in such amount necessary to restore it to a level which 
adequately provides for the estimated losses inherent in the banking 
institution's loan and lease portfolio.
    (5) Reduction of ATRR. A banking institution may reduce an ATRR 
when notified by the FDIC or, at any time, by writing down such amount 
of the international asset for which the ATRR was established.


Sec. 347.304  Accounting for fees on international loans.

    (a) Restrictions on fees for restructured international loans. No 
banking institution shall charge, in connection with the restructuring 
of an international loan, any fee exceeding the administrative cost of 
the restructuring unless it amortizes the amount of the fee exceeding 
the administrative cost over the effective life of the loan.
    (b) Accounting treatment. Subject to paragraph (a) of this section, 
banking institutions shall account for fees on international loans in 
accordance with generally accepted accounting principles.


Sec. 347.305  Reporting and disclosure of international assets.

    (a) Requirements. (1) Pursuant to section 907(a) of ILSA, a banking 
institution shall submit to the FDIC, at least quarterly, information 
regarding the amounts and composition of its holdings of international 
assets.
    (2) Pursuant to section 907(b) of ILSA, a banking institution shall 
submit to the FDIC information regarding concentrations in its holdings 
of international assets that are material in relation to total assets 
and to capital of the institution, such information to be made publicly 
available by the FDIC on request.
    (b) Procedures. The format, content and reporting and filing dates 
of the reports required under paragraph (a) of this section shall be 
determined jointly by the federal banking agencies. The requirements to 
be prescribed by the federal banking agencies may include changes to 
existing forms (such as revisions to the Country Exposure Report, Form 
FFIEC No. 009) or such other requirements as the federal banking 
agencies deem appropriate. The federal banking agencies also may 
determine to exempt from the requirements of paragraph (a) of this 
section banking institutions that, in the

[[Page 17088]]

federal banking agencies' judgment, have de minimis holdings of 
international assets.
    (c) Reservation of Authority. Nothing contained in this subpart 
shall preclude the FDIC from requiring from a banking institution such 
additional or more frequent information on the institution's holdings 
of international assets as the agency may consider necessary.

Subpart D--Applications and Delegations of Authority


Sec. 347.401  Definitions.

    For the purposes of this subpart, the following definitions apply:
    (a) Appropriate regional director or appropriate deputy regional 
director means the appropriate regional director or appropriate deputy 
regional director as defined by Sec. 303.0 of this chapter.
    (b) Board of Governors means the Board of Governors of the Federal 
Reserve System.
    (c) Eligible depository institution means an insured state 
nonmember bank that has an FDIC-assigned composite rating of 1 or 2 
under the Uniform Financial Institutions Rating System as a result of 
its most recent federal or state examination; received a satisfactory 
or better Community Reinvestment Act (CRA) rating from the FDIC at its 
most recent examination, if the bank is subject to examination under 
part 345 of this chapter; received a compliance rating of 1 or 2 from 
the FDIC at its most recent examination; is well capitalized; and is 
not subject to a cease and desist order, consent order, prompt 
corrective action directive, written agreement, memorandum of 
understanding, or other administrative agreement with its primary 
federal regulator or its chartering authority.
    (d) Federal branch means a federal branch of a foreign bank as 
defined by Sec. 347.202.
    (e) FDIC means the Federal Deposit Insurance Corporation.
    (f) Foreign bank means a foreign bank as defined by Sec. 347.202.
    (g) Foreign branch means a foreign branch of an insured state 
nonmember bank as defined by Sec. 347.102.
    (h ) Foreign organization means a foreign organization as defined 
by Sec. 347.102.
    (i) Insider means a person who is or is proposed to be a director, 
officer, or incorporator of an application; a shareholder who directly 
or indirectly controls ten percent or more of any class of the 
applicant's outstanding voting stock; or the associates or interests of 
any such person.
    (j) Insured branch means an insured branch of a foreign bank as 
defined by Sec. 347.202.
    (k) Noninsured branch means a noninsured branch of a foreign bank 
as defined by Sec. 347.202.
    (l) State branch means a state branch of a foreign bank as defined 
by Sec. 347.202.


Sec. 347.402  Establishing, moving or closing a foreign branch of a 
state nonmember bank; Sec. 347.103.

    (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. 347.103(b) shall be 
provided to the appropriate regional director (DOS) no later than 30 
days after taking such action, and 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 appropriate regional director 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. 347.103(b) shall submit an application to the appropriate 
regional director (DOS).
    (2) Content of filing. A complete letter application shall 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. 347.401(i), 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 activities of the branch, and to 
the extent any activities are not authorized by Sec. 347.103(a) , the 
applicant's reasons why they should be approved.
    (3) Additional information. The appropriate regional director (DOS) 
may request additional information to complete processing.
    (c) Processing--(1) Expedited processing for eligible depository 
institutions. An application filed under Sec. 347.103(c) by an eligible 
depository institution as defined in Sec. 347.401(c) 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 at any time before the approval date if the 
appropriate regional director (DOS) determines the application presents 
a significant supervisory concern, raises a significant legal or policy 
issue, or other good cause exists for removal, and will promptly notify 
the applicant in writing of the reason for such action. Absent such 
removal, an application processed under expedited processing is deemed 
approved 45 days after receipt of a complete application by the FDIC, 
or on such earlier date authorized by the FDIC in writing.
    (2) Standard processing. For those applications which are not 
processed pursuant to the expedited procedures, the FDIC will provide 
the applicant with written notification of the final action as soon as 
the decision is rendered.
    (d) Closing. Notices of branch closing under Sec. 347.103(f) , in 
the form of a letter including the name, location, and date of closing 
of the closed branch, shall be filed with the appropriate regional 
director (DOS) no later than 30 days after the branch is closed.
    (e) Delegation of authority. Authority is delegated to the Director 
and Deputy Director (DOS) and, if confirmed in writing by the Director, 
to an associate director and the appropriate regional director and 
deputy regional director to approve an application under paragraph (c) 
of this section if the following criteria are satisfied:
    (1) The requirements of section 402 the NHPA Amendments Act have 
been favorably resolved;
    (2) The applicant will only conduct activities authorized by 
Sec. 347.103(a); and
    (3) If the foreign branch will be located in a foreign country in 
which applicable law or practice would limit the FDIC's access to 
information for supervisory purposes, the delegate is satisfied that 
adequate arrangements have been made (through conditions imposed in 
connection with the approval and agreed to in writing by the applicant) 
to ensure that the FDIC will have necessary access to information for 
supervisory purposes.

[[Page 17089]]

Sec. 347.403  Investment by insured state nonmember banks in foreign 
organizations; Sec. 347.108.

    (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. 347.108(a) shall be provided to the appropriate regional director 
(DOS) no later than 30 days after taking such action. The appropriate 
regional director 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. 347.108(a) shall submit an application to the appropriate regional 
director (DOS).
    (2) Content of filing. A complete application shall include the 
following information:
    (i) Basic information about the terms of the proposed transaction, 
the amount of the investment in the foreign organization and the 
proportion of its ownership to be acquired;
    (ii) Basic information about the foreign organization, its 
financial position and income, including any available balance sheet 
and income statement for the prior year, or financial projections for a 
new foreign organization;
    (iii) A listing of all shareholders known to hold ten percent or 
more of any class of the foreign organization's stock or other evidence 
of ownership, and the amount held by each;
    (iv) A brief description of the applicant's business plan with 
respect to the foreign organization;
    (v) A brief description of any business or activities which the 
foreign organization will conduct directly or indirectly in the United 
States, and to the extent such activities are not authorized by subpart 
A of part 347, the applicant's reasons why they should be approved;
    (vi) A brief description of the foreign organization's activities, 
and to the extent such activities are not authorized by subpart A of 
part 347, the applicant's reasons why they should be approved; and
    (vii) If the applicant seeks approval to engage in underwriting or 
dealing activities, a description of the applicant's plans and 
procedures to address all relevant risks.
    (3) Additional information. The appropriate regional director (DOS) 
may request additional information to complete processing.
    (c) Processing--(1) Expedited processing for eligible depository 
institutions. An application filed under Sec. 347.108(b) by an eligible 
depository institution as defined in Sec. 347.401(c) seeking to make 
direct or indirect investments in a foreign organization 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 at any time before 
the approval date if the appropriate regional director (DOS) determines 
the application presents a significant supervisory concern, raises a 
significant legal or policy issue, or other good cause exists for 
removal, and will promptly notify the applicant in writing of the 
reason for such action. Absent such removal, an application processed 
under expedited processing is deemed approved 45 days after receipt of 
a complete application by the FDIC, or on such earlier date authorized 
by the FDIC in writing.
    (2) Standard processing. For those applications which are not 
processed pursuant to the expedited procedures, the FDIC will provide 
the applicant with written notification of the final action as soon as 
the decision is rendered.
    (d) Delegations of authority. Authority is delegated to the 
Director and Deputy Director (DOS) and, if confirmed in writing by the 
Director, to an associate director and the appropriate regional 
director and appropriate deputy regional director to approve 
applications under paragraph (c) of this section so long as:
    (1) The investment complies with the amount limits in Secs. 347.104 
through 347.107 and is in a foreign organization which only conducts 
such activities as authorized in Secs. 347.104 through 347.107; and
    (2) For foreign investments resulting in the applicant holding 20 
percent or more of the voting equity interests of the foreign 
organization or controlling such organization, if the organization is 
located in a foreign country in which applicable law or practice would 
limit the FDIC's access to information for supervisory purposes, the 
delegate is satisfied that adequate arrangements have been made 
(through conditions imposed in connection with the approval and agreed 
to in writing by the applicant) to ensure that the FDIC will have 
necessary access to information for supervisory purposes.


Sec. 347.404  Exemptions from insurance requirement for a state branch 
of a foreign bank; Sec. 347.206(b).

    (a) Filing procedures for consent to operate as a noninsured 
branch--(1) Where to file. A foreign bank seeking consent to operate a 
branch as a noninsured branch under Sec. 347.206(b) shall submit an 
application to the appropriate regional director (DOS).
    (2) Content of filing. A complete letter application shall include 
the following information:
    (i) The kinds of deposit activities in which the branch proposes to 
engage;
    (ii) The expected source of deposits;
    (iii) The manner in which deposits will be solicited;
    (iv) How this activity will maintain or improve the availability of 
credit to all sectors of the United States economy, including the 
international trade finance sector;
    (v) That the activity will not give the foreign bank an unfair 
competitive advantage over United States banking organizations; and
    (vi) A resolution by the foreign bank's board of directors 
authorizing the filing of the application; or if a resolution is not 
required by the applicant's organizational documents, the request shall 
include evidence of approval by the applicant's senior management.
    (3) Additional information. The appropriate regional director (DOS) 
may request additional information to complete processing.
    (b) Processing. The FDIC will provide the applicant with written 
notification of the final action as soon as the decision is rendered.


Sec. 347.405  Approval for an insured state branch of a foreign bank to 
conduct activities not permissible for federal branches; Sec. 347.213.

    (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. 347.213(a), shall 
be submitted in writing to the appropriate regional director (DOS).
    (2) Content of filing. A complete letter application shall include 
the following information:
    (i) A brief description of the activity, including the manner in 
which it will be conducted and an estimate of the expected dollar 
volume associated with the activity;
    (ii) An analysis of the impact of the proposed activity on the 
condition of the United States operations of the foreign bank in 
general and of the branch in particular, including a copy of the 
feasibility study, management plan, financial projections, business 
plan, or

[[Page 17090]]

similar document concerning the conduct of the activity;
    (iii) A resolution by the applicant's board of directors, or 
evidence of approval by senior management if a resolution is not 
required pursuant to the applicant's organizational documents, 
authorizing the filing of the application;
    (iv) A statement by the applicant of whether it is in compliance 
with Secs. 347.210 and 347.211, Pledge of assets and Asset maintenance, 
respectively;
    (v) A statement by the applicant that it has complied with all 
requirements of the Board of Governors concerning applications to 
conduct the activity in question and the status of each such 
application, including a copy of the Board of Governors' disposition of 
each such application, if applicable; and
    (vi) A statement of why the activity will pose no significant risk 
to the Bank Insurance Fund.
    (3) Board of Governors application. If the application to the Board 
of Governors contains the information required by paragraph (a) of this 
section, the applicant may submit a copy to the FDIC in lieu of a 
separate letter application.
    (4) Additional information. The appropriate regional director (DOS) 
may request additional information to complete processing.
    (b) Divestiture or cessation--(1) Where to file. Divestiture plans 
necessitated by a change in law or other authority, as required by 
Sec. 347.213(e), shall be submitted in writing to the appropriate 
regional director (DOS) no later than 60 days after the disapproval or 
the triggering event.
    (2) Content of filing. A complete letter application shall include 
the following information:
    (i) A detailed description of the manner in which the applicant 
proposes to divest itself of or cease the activity in question; and
    (ii) A projected timetable describing how long the divestiture or 
cessation is expected to take.
    (3) Additional information. The appropriate regional director (DOS) 
may request additional information to complete processing.
    (c) Delegation of authority. Authority is delegated to the Director 
and Deputy Director (DOS) and, where confirmed in writing by the 
Director, to an associate director and the appropriate regional 
director and deputy regional director, to approve plans of divestiture 
and cessation submitted pursuant to paragraph (b) of this section.

PART 351--[REMOVED]

    17. Part 351 is removed.

PART 362--ACTIVITIES AND INVESTMENTS OF INSURED STATE BANKS

    18. The authority citation of part 362 continues to read as 
follows:

    Authority: 12 U.S.C. 1816, 1818, 1819 (tenth), 1831a.

    19. In Sec. 362.4, paragraph (c)(3)(i)(A) is revised to read as 
follows.


Sec. 362.4  Activities of insured state banks and their subsidiaries.

* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (A) Directly guarantee the obligations of others as provided for in 
Sec. 347.103(a)(1) of this chapter; and
* * * * *
    By order of the Board of Directors.
    Dated at Washington, D.C. this 24th day of March, 1998.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 98-8858 Filed 4-7-98; 8:45 am]
BILLING CODE 6714-01-P
Last Updated 11/15/2011 communications@fdic.gov