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Inactive Financial Institution Letters
 
[Federal Register: July 19, 2004 (Volume 69, Number 137)]
[Proposed Rules]               
[Page 43059-43087]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jy04-41]                         

[[Page 43059]]

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Part II

Federal Deposit Insurance Corporation

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12 CFR Parts 303, 325, 327, and 347

International Banking; Proposed Rule

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 325, 327, and 347

RIN 3064-AC85

 
International Banking

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking with request for comment.

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SUMMARY: The FDIC is publishing for notice and comment proposed 
amendments to subpart J of part 303 on international banking and 
revisions to subpart A of part 347, relating to the international 
activities and investments of insured state nonmember banks, and 
subpart B of part 347, relating principally to insured and noninsured 
U.S. branches of foreign banks. The proposed amendments address the 
relocation of grandfathered insured branches. They also reorganize, 
clarify, and revise subparts A and B of part 347, and address various 
issues raised as part of the FDIC's ongoing effort under the Economic 
Growth and Regulatory Paperwork Reduction Act of 1996 (12 U.S.C. 3311) 
to address regulatory burden issues. Included in the revisions 
affecting grandfathered insured branches are revisions to the FDIC's 
asset pledge requirement to establish a risk-based system and revision 
of the FDIC's asset maintenance requirement to calculate the asset 
maintenance percentage based on the daily third-party liabilities of 
the branch. In addition, the FDIC is proposing to strengthen FDIC's 
supervisory processes and make conforming amendments for other FDIC 
rules as part of the proposal.
    The FDIC is also requesting comments, as part of this document, on 
whether deposits in wholesale U.S. branches of foreign banks should be 
covered by deposit insurance and on the accounting rules contained in 
subpart C of part 347.

DATES: Written comments must be received on or before September 17, 
2004.

ADDRESSES: You may submit comments, identified by RIN number 3064-AC85, 
by any of the following methods:
     Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html
.

     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7 a.m. and 5 p.m.
     E-mail: comments@FDIC.gov. Include RIN number 3064-AC85 in 
the subject line of the message.
     Public Inspection: Comments may be inspected and 
photocopied in the FDIC Public Information Center, Room 100, 801 17th 
Street, NW, Washington, DC, between 9 a.m. and 4:30 p.m. on business 
days.
    Instructions: Submissions received must include the agency name and 
RIN for this rulemaking. Comments received will be posted without 
change to http://www.FDIC.gov/regulations/laws/federal/propose.html, 

including any personal information provided.

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

SUPPLEMENTARY INFORMATION: The FDIC is proposing to amend and revise 
its rules concerning international banking activities of insured state 
nonmember banks operating in foreign countries and insured U.S. 
branches of foreign banks. This is being done to implement the ``plain 
language'' requirement contained in section 722 of the Gramm-Leach-
Bliley Act of 1999 (12 U.S.C. 4809). Also, as part of the FDIC's 
ongoing effort under the Economic Growth and Regulatory Paperwork 
Reduction Act of 1996 (12 U.S.C. 3311) (EGRPRA), the FDIC is proposing 
amendments to its existing rules to address certain regulatory burden 
issues raised in public comments. The FDIC is also proposing revisions 
to existing rules and new rules to update the FDIC's supervisory 
processes.
    The proposed changes will be made to subpart J of part 303 and to 
subparts A and B of part 347 of title 12 of the Code of Federal 
Regulations. As a result of the proposed changes, conforming changes 
also will be made to subpart B of part 325, relating to the FDIC's 
Prompt Corrective Action rules, and subpart A of part 327, regarding 
the FDIC's assessment rules for insured U.S. branches of foreign banks.
    Subpart J of part 303 contains the procedural rules that implement 
part 347. The rules in subpart A of part 347 address issues related to 
the international activities and investments of insured state nonmember 
banks. In general, they implement the FDIC's statutory authority under 
section 18(d)(2) of the Federal Deposit Insurance Act (FDI Act) (12 
U.S.C. 1828(d)(2)), regarding branches of insured state nonmember banks 
in foreign countries, and section 18(l) of the FDI Act, regarding 
insured state nonmember bank investments in foreign entities. The rules 
in subpart B of part 347 principally address issues related to insured 
and noninsured U.S. branches of foreign banks under section 6 of the 
International Banking Act (IBA) (12 U.S.C. 3104).
    Although subpart C of part 347 also contains rules regarding 
accounting and reporting rules relating to international lending 
activities of insured state nonmember banks, the FDIC is not proposing 
to revise subpart C at this time. The Office of the Comptroller of the 
Currency (``OCC'') and Board of Governors of the Federal Reserve System 
(``FRB'') have similar rules implementing the same statutory provisions 
for the institutions under their supervision that were originally 
issued in a joint rulemaking proceeding with the FDIC. Therefore, 
proposed revisions to the rules in subpart C may require discussion and 
coordination with the other agencies. Commenters may still comment on 
the rules contained in subpart C of part 347, however, in order to 
bring particular issues to the FDIC's attention at this time.

I. Background

    Although the FDIC made significant amendments and consolidated its 
international banking rules in 1998, various events that have 
transpired since then have influenced the FDIC's decision to propose 
further revisions to its international banking rules. First, when the 
FDIC finalized its international banking rules, the FRB was proposing 
amendments to Regulation K (12 CFR part 211). The FDIC noted in 63 FR 
17056 (April 8, 1998) (1998 Final Rule) that subpart A of part 347 
maintained parity with the existing version of Regulation K, governing 
foreign branching and investments by member banks, and that the FDIC 
may need to make further revisions to subpart A of part 347 once the 
FRB finalized its revisions to Regulation K. The revisions of 
Regulation K that are relevant to this rulemaking proceeding were 
finalized on October 26, 2001, and the FDIC is proposing certain 
revisions to the part 347 rules because of changes made to Regulation 
K. Second, the FDIC has received written comments from the public 
suggesting that the language in part 347 needs to be simplified and the 
FDIC believes that some additional reorganization and clarification of 
the

[[Page 43061]]

FDIC's rules may be beneficial. It is also believed that strengthening 
the existing supervisory structure in a few areas is appropriate. In 
addition, Congress enacted the ``plain language'' requirement for all 
proposed and final rulemakings published in the Federal Register after 
January 1, 2000, in section 722 of the Gramm-Leach-Bliley Act of 1999. 
Therefore, several revisions to part 347 are included to address this 
requirement. Finally, the FDIC and the other Federal banking agencies 
solicited and received public comments in 2003 as part of the ERGPRA 
regulatory burden reduction process on three categories of agency 
rules. Part 347 was included in one of those categories, and the 
comments relating to them have been reviewed and are discussed in 
greater detail in the section-by-section discussion in this document.
    In general, FDIC is proposing to revise subpart J of part 303 to 
provide new cross-references to the appropriate revised rule(s) in 
subparts A and B of part 347. Since many of the revisions to the text 
in subpart J merely provide new cross-references to the appropriate 
sections in subparts A and B of part 347 or make stylistic changes in 
the text, they will not be further addressed in the subpart J section-
by-section analysis. The existing sections in subpart A of part 347 are 
being reorganized in the proposal by moving, consolidating, and 
breaking particularly complex sections, such as existing section 
347.104, into multiple sections based on the subject matter addressed. 
The sections addressing general consent, expedited processing, and 
specific consent for foreign branches and investments, contained in 
existing sections 347.103 and 347.108, are also being reorganized and 
consolidated into separate sections addressing each type of approval. 
The existing sections in subpart B are being reorganized in the 
proposal by grouping them with other sections that address the same or 
similar subject matter. In addition, several existing sections in 
subpart B are being revised in the proposal to update and clarify the 
regulatory requirements. Finally, a few additional sections are being 
added to subparts A and B in the proposal to address issues that are 
not addressed in the existing rules.
    The proposed amendments and revisions are discussed below, by 
subpart, in the section-by-section description. The FDIC invites public 
comments on all aspects of the proposal. In addition, public comments 
are specifically invited on the following items:
     Providing for expedited processing of proposed relocations 
of insured U.S. branches of foreign banks (section 303.184);
     Revising existing sections that address authorized 
activities for foreign investments and foreign branches to more closely 
track the sections of Regulation K addressing those issues in 
connection with member banks. The revisions also address approval of 
activities requiring consideration under parts 347 and 362 (sections 
347.105 and 347.115);
     Providing that, except for certain merger and acquisition 
transactions, the grandfathered status of an insured branch of a 
foreign bank may not be transferred (section 347.206);
     Revising the FDIC's asset pledge requirement for insured 
branches of foreign banks to a risk-based approach (section 347.209);
     Revising the FDIC's asset maintenance rule for insured 
branches of foreign banks to calculate the asset maintenance percentage 
based on daily third-party liabilities (section 347.210); and
     Providing deposit insurance for wholesale U.S. branches of 
foreign banks (section V of the preamble).

II. Section-by-Section Analysis of Proposed Amendments to Part 303, 
Subpart J

1. Moving an Insured Branch of a Foreign Bank (Revised Sec.  303.184)

    Section 303.184 contains the filing procedures and approval 
criteria applicable to the relocation of an insured U.S. branch of a 
foreign bank. As part of the EGRPRA process, an industry trade 
association observed that section 303.41(b), which addresses branch 
relocations in the context of domestic branches of insured state 
nonmember banks, differentiates between a branch closing or relocation 
based upon whether the proposed move is within the same immediate 
neighborhood. The trade association expressed concern that, if the FDIC 
applied a similar geographic standard to proposed relocations of 
grandfathered insured branches, relocations of those branches would 
effectively be precluded because those branches could not close and 
reopen as insured branches. This is because of the statutory provision 
contained in section 6(d) of the International Banking Act (IBA) (12 
U.S.C. 3104(d)) requiring foreign banks engaging in domestic retail 
deposit activities after December 19, 1991 that require deposit 
insurance protection to do so through one or more insured bank 
subsidiaries. The FDIC does not believe such a construction was 
intended by the statute or existing rule but recognizes that the 
existing rule does not address the geographic proximity of the proposed 
relocation. Section 303.184(b) is being amended, to address this issue, 
by making expedited processing available for proposed relocations of 
grandfathered insured branches within the same state. The FDIC notes 
that 12 CFR 28.12(e)(1) provides for expeditious processing of 
intrastate relocations of federal branches regulated by the OCC. 
Therefore, although the FDIC's processing requirements differ from 
those utilized by the OCC, the approach of providing expedited 
processing for proposed relocations of insured branches of foreign 
banks within the same state is consistent with the OCC's overall 
approach of expediting proposed relocations of federal branches within 
the same state.

III. Section-by-Section Analysis of Proposed Revisions to Part 347, 
Subpart A

1. Authority, Purpose, and Scope (Revised Sec.  347.101)

    The proposal amends section 347.101 to provide a more comprehensive 
list of the major areas addressed by the rules in the subpart. The 
order of the subjects mentioned in the section is also revised to 
correspond to the order in which those subjects are addressed in the 
revised subpart.

2. Definitions (Revised Sec.  347.102)

    Four additional definitions are added to this section by the 
proposal. Proposed revisions to the rules in the subpart use the term 
``domestic'' in sections 347.104 and 347.105, and that term is defined 
in paragraph (c) of this section. Paragraph (m) defining ``insured 
state nonmember bank'' or ``bank'' is added to minimize the repetitive 
use of the former term that currently exists in the rules. Paragraphs 
(o) and (r) are new definitions that would adopt the same definition 
for ``investment grade'' and ``NRSRO'' that the FRB adopted in 12 CFR 
211.2(n) and (r). The effect of the inclusion of the latter two terms 
will be discussed in greater detail in the description of proposed 
section 347.115.

3. Effect of State Law on Actions Taken Under This Subpart (Revised 
Sec.  347.103)

    Section 347.103 combines the requirement contained in paragraph (a) 
of existing sections 347.103 and 347.104 into a single section. The 
rule specifies that an insured state nonmember bank may acquire or 
retain equity interests in foreign organizations or establish a foreign 
branch, if authorized to do so by the law of the state where the bank 
is

[[Page 43062]]

chartered, by complying with the requirements of this subpart.

4. Insured State Nonmember Bank Investments in Foreign Organizations 
(Revised Sec.  347.104)

    Section 347.104(a) of the proposal is derived from existing section 
347.104(f). The rationale for the requirement was discussed in the 
preamble to the 1998 Final Rule. That rationale, which is restated 
below, remains unchanged. Thus, the substance of paragraph (f) of the 
existing rule is retained. It is placed in a separate section, however, 
apart from the section addressing authorized activities of foreign 
organizations, and is reworded and reorganized for clarity.
    The FDIC recognizes that direct investments in foreign 
organizations by member banks (and thus national banks) are only 
permitted for certain types of investments specified in Regulation K, 
such as investments in foreign banks, because of language in section 25 
of the Federal Reserve Act (12 U.S.C. 601) limiting direct foreign 
investments by member banks. Other types of foreign investments by 
member banks are required to be made indirectly through an Edge 
corporation subsidiary or a foreign bank subsidiary of a member bank. 
In contrast, section 18(l) of the FDI Act (12 U.S.C. 1828(l)) permits 
state nonmember banks, to the extent authorized by state law, to invest 
in foreign ``banks and other entities.'' As a consequence, and because 
the legislative history of section 18(l) shows that Congress was aware 
of the FRB's parallel authority over member banks at the time section 
18(l) was enacted, the difference in language between the two statutes 
is significant and deliberate and results in the type of foreign 
organizations that state nonmember banks may invest in directly not 
being restricted by section 18(l).
    Because national banks are unable to invest directly in nonbank 
foreign organizations, however, the ability of insured state nonmember 
banks to invest in other types of foreign organizations raises issues 
under section 24 of the FDI Act (12 U.S.C. 1831a) and 12 CFR part 362. 
Section 24 prohibits an insured state nonmember bank from acquiring an 
equity investment that a national bank is not permitted to acquire. 
Such an investment may be made under section 24, however, if the 
investment is made through a majority-owned subsidiary of the bank. It 
may also be made if a company becomes majority-owned by the bank as a 
result of the investment and the ``as principal'' activities of the 
company are ones in which a subsidiary of a national bank could engage. 
Ownership of more than 50 percent of the equity in a nonbank foreign 
organization makes that organization a majority-owned subsidiary and, 
thus, no section 24 analysis is required because such a subsidiary is 
authorized only to engage in the same activities that the FRB has 
authorized for subsidiaries of member banks (and thus national banks) 
under Regulation K. In addition, while it is not necessary for insured 
state nonmember bank investments of 50 percent or less of the equity of 
a nonbank foreign organization to be held through an intermediate 
foreign bank subsidiary or Edge subsidiary as required under Regulation 
K, those investments are required to be held through some form of U.S. 
or foreign majority-owned subsidiary in order to comply with the 
requirements of section 24 and part 362.

5. Permissible Financial Activities Outside the United States (Revised 
Sec.  347.105)

    Section 347.105 (a) and (b) of the proposal are derived from 
existing section 347.104(b). As amended, the language in existing 
section 347.104(b) that limits the activities of certain types of 
investments in foreign organizations to those authorized by the 
section, is restructured, reworded slightly, and placed in section 
347.105(a). Under section 347.105(b) the same financial activities will 
be authorized that are presently authorized under section 347.104(b) of 
the existing rule.
    The proposed rule also revises the activities list contained in the 
existing rule. As the FDIC noted in the preamble to the 1998 Final 
Rule, the activities contained in existing section 347.104(b) were 
modeled after the FRB's corresponding provision in Regulation K, but 
the list of authorized activities was reordered. In addition, the FDIC 
considered certain activities listed in the FRB's corresponding section 
of Regulation K to be authorized under Regulation Y and incorporated by 
the cross-reference to Regulation Y activities contained in section 
347.104(b)(10) of the existing rule. Therefore, those activities were 
not separately listed in existing section 347.104(b). Time has shown 
this approach to have made the interplay between the FDIC and FRB lists 
of permissible activities difficult in certain circumstances to 
understand and apply.
    The FDIC recognizes that insured state nonmember banks or their 
subsidiaries may want to engage in activities outside the United States 
that are not listed by the FDIC as permissible activities but that have 
been approved for member banks or their subsidiaries under Regulation 
K. Including those items in the FDIC list of permissible activities 
facilitates banks doing so. In addition, as discussed in more detail 
below, the banks or their subsidiaries may want to engage in activities 
outside the United States, as principal, that have not been authorized 
for member banks (and thus national banks) in Regulation K. To do so, 
banks must comply with section 24 of the FDI Act and the requirements 
of part 362, as well as part 347.
    Considering these issues, the FDIC is proposing to revise the order 
of the activities listed in section 347.105(b) to more closely track 
the order of the activities listed as permissible in 12 CFR 211.10, the 
corresponding provision in Regulation K. The activities listed in the 
proposal also include activities that the FDIC did not specifically 
list as being authorized in the 1998 Final Rule because they were 
considered to overlap with activities authorized by Regulation Y.\1\ 
Including them makes the comparison easier between activities 
authorized under section 347.105(b) and those authorized for member 
banks and their subsidiaries.\2\
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    \1\ The omitted activities were: financing; acting as a 
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.
    \2\ The six activities being added to the list of approved 
activities are being added, subject to the attendant restrictions 
contained in section 225.28(b) of Regulation Y, because those 
activities are considered to be subject to the Regulation Y 
restrictions by the cross-reference to that authority in existing 
section 347.104(b)(10).
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    Paragraphs (c) and (d) of section 347.105 are being added for 
clarification. Paragraph (c) is based on language contained in the 
preamble to the 1998 Final Rule but not included in the text of the 
existing rule. Paragraph (d) addresses an issue that was raised in the 
preamble to the 1998 Final Rule, but not addressed in the existing 
rule, concerning the applicability in certain instances of section 24 
of the FDI Act and part 362 to issues arising under subpart A of part 
347. Briefly stated, in relevant part, section 24(a) of the FDI Act and 
part 362 prohibit a state bank from engaging, as principal, in any type 
of activity that is not permissible for a national bank, unless the 
FDIC determines that the activity would not pose a significant risk of 
loss to the deposit insurance fund and the bank meets its minimum 
capital requirements. Likewise, section 24(d) of the FDI Act and part 
362 prohibit a subsidiary of a state bank from engaging, as principal, 
in any type of activity that

[[Page 43063]]

is not permissible for a subsidiary of a national bank, unless the FDIC 
first determines that it would not pose a significant risk of loss to 
the deposit insurance fund and the bank meets its minimum capital 
requirements. Thus, when a state nonmember bank wants to engage in 
financial activities, as principal, that are not specifically 
authorized by part 347, the question becomes whether authorization to 
engage in those types of activities must be obtained under part 347, 
part 362, or both parts. The FDIC is proposing to add paragraph (d) 
which would generally address when authorization to engage in 
activities through a subsidiary other than those specified in paragraph 
(b) may be authorized by specific consent under part 347 and when 
authorization for those activities must be obtained under part 362 as 
well as subpart A of part 347.\3\
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    \3\ Proposed paragraph (d) is, of necessity, a rule of general 
applicability. For example, as the FDIC noted in the preamble to the 
1998 Final Rule, an activity authorized under 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 previously determined to be 
actuarially predictable (see, 12 CFR 211.10(a)(17)) was not included 
in existing section 347.104. Although Regulation K included these 
activities on its list of permissible activities abroad, the 
regulation required specific consent before those activities could 
be conducted by a subsidiary of an insured U.S. bank. Since no 
general authorization had been given under Regulation K for this 
activity to be conducted directly or indirectly by a subsidiary of a 
member bank, there was an issue under section 24 of the FDI Act. 
Section 24(b) and 24(d)(2) of the FDI Act do not permit the FDIC to 
give approval for a state bank or its subsidiary to engage in 
insurance underwriting if such underwriting is not permissible for a 
national bank or its subsidiary (unless that activity is expressly 
excepted by other subsections of section 24 covering limited types 
of insurance underwriting). Therefore, the FDIC observed when 
adopting the 1998 Final Rule, that it was foreclosed at that time 
from granting general regulatory authorization for banks to 
indirectly underwrite life, pension-fund related and other types of 
insurance abroad. Insurance underwriting represents an example of 
specific types of activities that are listed in 12 CFR 211.10 that 
could not be authorized under either part 347 or part 362.
    In proposing paragraph (d) the FDIC desires to lend a degree of 
clarity to this area but also wants to provide banks with more 
notice that approval to engage in certain foreign activities may 
require compliance with requirements beyond those contained in part 
347. In these situations, for the FDIC to process such applications 
in a timely manner, the applicants will need to provide sufficiently 
detailed and relevant information regarding proposed foreign 
activities for the FDIC to properly evaluate the issues raised by 
the application.
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6. Going Concerns (Revised Sec.  347.106)

    Section 347.106 of the proposal is derived from the ``going 
concern'' provision contained in existing section 347.104(c). The text 
has been made a separate section and reworded slightly for ease of 
reference.
    As under the existing rule, a bank subsidiary (as defined in 
proposed section 347.102(t)) in a foreign country will be limited to 
conducting activities authorized under proposed section 347.105(b), 
unless the bank acquires its subsidiary as a going concern. In this 
case, under proposed section 347.106, no more than 5 percent of the 
foreign subsidiary's assets or revenues may be attributable to 
activities that are not on the list of authorized activities. In 
addition, any foreign organization which is controlled (as defined in 
proposed section 347.102(b)) by a bank and its affiliates (as defined 
in proposed section 347.102(a)), regardless of the percent of voting 
stock owned by the bank, is limited to conducting financial activities 
authorized under proposed section 347.105(b), subject to the same 5 
percent exception for going concerns.

7. Joint Ventures (Revised Sec.  347.107)

    Section 347.107(a) of the proposal is derived from the ``joint 
venture'' provision contained in existing section 347.104(d). The text 
has been made a separate section and reworded slightly for ease of 
reference. As is the case under the existing rule, if a bank and its 
affiliates hold 20 to 50 percent of the voting equity securities of a 
foreign organization and do not control the organization, no more than 
10 percent of the foreign organization's assets or revenues may be 
attributable to activities that are not on the section 347.105(b) list 
of authorized activities.

8. Portfolio Investments (Revised Sec.  347.108)

    Section 347.108(a) of the proposal is derived from the ``portfolio 
investment'' provision contained in existing section 347.104(e). The 
text has been made a separate section and reworded slightly for ease of 
reference. As is the case under the existing rule, if a bank and its 
affiliates' holdings are less than 20 percent of the voting equity 
securities of a foreign organization and the bank and its affiliates do 
not control the organization, no more than 10 percent of the foreign 
organization's assets or revenues may be attributable to activities 
that are not on the section 347.105(b) list of authorized activities. 
In addition, the bank is prohibited from making any loans or extensions 
of credit to the organization that are not on the same terms as those 
prevailing at the time for comparable transactions with nonaffiliated 
organizations.

9. Limitations on Indirect Investments in Nonfinancial Foreign 
Organizations (Revised Sec.  347.109)

    Section 347.109 of the proposal is derived from existing section 
347.104(g). The text of the paragraph is retained but is reworded for 
clarification, and the references to other sections of subpart A are 
revised to conform to the new section numbers contained in the 
proposal. The paragraph is also being made a separate section for ease 
of reference.
    Like paragraph (g) of the existing rule, this section authorizes a 
bank to make indirect portfolio investments in nonfinancial foreign 
organizations through a foreign subsidiary or an Edge corporation 
subsidiary, to an amount equal to 15 percent of the bank's Tier 1 
capital, without regard to whether the activities of the foreign 
organization are authorized under section 347.105(b). In addition, the 
following requirements must be met:
     The aggregate holdings of a particular foreign 
organization's equity interests by the bank and its affiliates must be 
less than 20 percent of the foreign organization's voting interests and 
40 percent of its total voting and nonvoting equity interests;
     The bank and its affiliates are not permitted to control 
the foreign organization; and
     Any loan or extension 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.

10. Affiliate Holdings (Revised Sec.  347.110)

    Section 347.110 of the proposal is derived from existing section 
347.104(h). The text of the paragraph is retained, and cross-references 
to subpart A are added for ease of reference due to other proposed 
revisions to the rules in subpart A. The reference to section 337.4 in 
the existing rule is also changed to reflect the removal and 
replacement of section 337.4 with section 362.8 or, for financial 
subsidiaries, section 362.18. See, 66 FR 1018 (January 5, 2001). The 
paragraph also is made a separate section for ease of reference.

11. Underwriting and Dealing Limits Applicable to Foreign Organizations 
Held by Insured State Nonmember Banks (Revised Sec.  347.111)

    Section 347.111 of the proposal is derived from existing section 
347.105. Cross-references are being added, for ease of reference, to 
other rules in

[[Page 43064]]

subpart A that affect this rule because of other revisions being made 
in this proposal. Appropriate revisions to section citations in 
Regulation K are also being made.
    Under the proposed rule, as with existing section 347.105, a 
foreign investment entity of a bank is permitted to underwrite, 
distribute, and deal equity securities outside the United States, 
subject to the three main limitations described generally below:
     Underwriting commitments for a single issuer may not 
exceed an amount equal to the lesser of $60 million or 25 percent of 
the bank's Tier 1 capital. This underwriting commitment limit may be 
exceeded, however, to the extent the commitment is covered by binding 
commitments from sub-underwriters or purchasers.
     Distribution and dealing shares of a single entity may not 
exceed an amount equal to the lesser of $30 million or 5 percent of the 
bank's Tier 1 capital. This limit is subject to two exceptions. First, 
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 sum of underwriting commitments, distribution and 
dealing shares, and any portfolio investments in nonfinancial 
organizations under proposed section 347.109 may not exceed an amount 
equal to 25 percent of the bank's Tier 1 capital.

12. Restrictions on Activities Applicable to Foreign Organizations That 
Act as Futures Commission Merchants (Revised Sec.  347.112)

    Section 347.112 of the proposal is derived from existing section 
347.106. As proposed, the title to the section is revised, and the text 
of the existing rule is reorganized and retained. Cross-references are 
added, for ease of reference, to subpart A that affect this rule 
because of other revisions made in this proposal.
    As with existing section 347.106, the proposed rule imposes an 
additional restriction beyond those imposed by section 225.28(b) of 
Regulation Y on acting as a futures commission merchant. Under section 
347.112, a foreign investment entity may not, without the FDIC's prior 
approval, have potential liability to a mutual exchange or clearing 
association of which the foreign investment entity is a member that 
exceeds 2 percent of the bank's Tier 1 capital.

13. Restrictions Applicable to Activities by a Foreign Organization in 
the United States. (Revised Sec.  347.113)

    Section 347.113 of the proposal is derived from existing section 
347.107. The title to the section is revised, and the text of the 
existing rule is reorganized and retained.
    As with the existing rule, the proposed rule prohibits a state 
nonmember bank from investing in any foreign organization that engages 
in the general business of buying or selling goods, wares, merchandise, 
or commodities in the U.S. It also prohibits investments totaling over 
5 percent of equity interests in any foreign organization if the 
organization engages in any business activities in the U.S. that are 
not incidental to its international or foreign business. The rule also 
provides that 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. Beyond these 
thresholds, foreign organizations are authorized to conduct activities 
that are permissible in the U.S. for an Edge corporation, or such other 
business activities as are approved by the FDIC.

14. Extensions of Credit to Foreign Organizations Held by Insured State 
Nonmember Banks; Shares of Foreign Organizations Held in Connection 
With Debts Previously Contracted (Revised Sec.  347.114)

    Section 347.114 of the proposal is derived from existing section 
347.109. The text of the existing rule is reorganized and retained with 
only minor revisions.

15. Activities Permissible for a Foreign Branch of an Insured State 
Nonmember Bank (Revised Sec.  347.115)

    Proposed section 347.115 is largely derived from existing section 
347.103(a). Although most of the existing text is not being changed 
substantively, a few revisions are made to incorporate changes made by 
the FRB in section 211.4 of Regulation K. For example, the reference to 
``development bank'' in existing section 347.103(a)(2)(i) has been 
changed to ``government sponsored development bank'' in section 
347.115(c)(1)(i). The authorization for an insured state nonmember bank 
to underwrite, distribute and deal, invest in or trade specified 
foreign government obligations that are rated as investment grade by at 
least two established international rating agencies under existing 
section 347.103(a)(3)(ii) is also being changed. As amended, section 
347.115(b)(2) would require only that these obligations be rated as 
``investment grade.'' As mentioned earlier, because the FDIC is 
proposing to adopt the same definition of ``investment grade'' that the 
FRB adopted in its recent revisions to Regulation K, an obligation 
would qualify as ``investment grade'' under the proposed rule if it 
received a rating in one of the four highest investment categories by 
two or more NRSROs (nationally recognized statistical rating 
organization, as designated by the Securities and Exchange Commission). 
If it had only been rated by one NRSRO and received the appropriate 
rating, it could be considered ``investment grade'' with only that one 
rating.
    In addition, as with section 347.105 of this proposal, in the 
preamble to the 1998 Final Rule, the FDIC determined that certain 
activities the FRB had specifically listed as being authorized in the 
corresponding section of Regulation K for foreign branches of national 
banks were within the general banking powers of a national bank. 
Therefore, it was considered unnecessary to separately enumerate them 
for foreign branches of insured state nonmember banks in existing 
section 347.103(a). Because the same issues that were previously 
discussed in connection with the revisions to section 347.105 of the 
proposal would be applicable to this section regarding the 
applicability of section 24 of the FDI Act and part 362, the FDIC is 
including the activities that were previously omitted from the text of 
the FDIC's existing rule but which are included in the corresponding 
provision of Regulation K.\4\ The activities

[[Page 43065]]

authorized under the proposed rule also are reorganized to correspond 
more closely to those activities authorized in 12 CFR 211.4 for foreign 
branches of member banks. Finally, the paragraph addressing ``other 
activities'' is revised to indicate that the FDIC may authorize foreign 
branches of state nonmember banks to engage in activities that are not 
specifically listed in the proposed rule, and a new paragraph (h) is 
being added to clarify when other activities may be approved under this 
subpart or, alternatively, when they also must be authorized under 
section 24 of the FDI Act and part 362.\5\
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    \4\ The omitted activities relevant to this discussion are: 
engaging in repurchase agreements that are the functional equivalent 
of extensions of credit and paying branch employees a greater rate 
of interest on their deposits than the rate paid to other depositors 
on similar deposits. A third activity, concerning extending credit 
to an officer of the branch in the foreign country in which the 
branch is located to finance the officer's living quarters, is not 
included in the list of activities authorized by the FDIC's existing 
rule. Considering that this activity was not among the list of 
permissible activities for foreign branches of member banks in the 
recent revisions to Regulation K and that the FDIC previously 
concluded that the activity was within the general banking powers of 
a foreign branch, the inclusion of this additional activity in the 
list of activities that are permissible under proposed section 
347.115 does not appear to be necessary. It also does not appear to 
advance the goal of making the comparison of activities authorized 
under Regulation K and those authorized by the FDIC's corresponding 
provision easier. Therefore, this particular activity is not being 
included in the list of permissible activities contained in the 
proposed rule.
    \5\ As with proposed section 347.105(d), this paragraph is 
considered a rule of general applicability to provide guidance and 
notice to banks with an interest in this area.
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16. Recordkeeping and Supervision of Foreign Activities of Insured 
State Nonmember Banks Under This Subpart (Revised Sec.  347.116)

    Section 347.116 of the proposal is derived from existing section 
347.110. The language in section 347.110(b)(2) of the existing rule is 
eliminated in the proposed rule because it addresses application 
processing and the requirement for specific consent in jurisdictions 
that limit access to financial information. Those issues are addressed 
in section 347.119 of the proposal.

17. General Consent (Revised Sec.  347.117)

    Section 347.117 of the proposal consolidates the general consent 
requirements related to foreign branches that are presently contained 
in section 347.103(b) with the general consent requirements for 
investments in foreign organizations that are presently contained in 
section 347.108(a) into a single rule.
    Under proposed section 347.117(a), as in existing section 
347.103(b), general consent is provided for an eligible insured state 
nonmember bank to establish branches within a foreign country in which 
it has a branch or a foreign bank subsidiary and for relocation of 
existing foreign branches within a foreign country. As part of the 
EGRPRA process, it was suggested that U.S. banks that are well-managed, 
well-capitalized, maintain at least a satisfactory CRA rating, and have 
experience operating overseas, such as through one or two branches, 
should be allowed to branch overseas using procedures available to them 
for domestic branching. After considering this comment, the FDIC is 
concerned that such broad authority may allow branching into foreign 
countries without adequate familiarity with the banking system and 
regulatory requirements that may exist in the host country. 
Nonetheless, the proposal introduces some additional flexibility in the 
branching area, by allowing insured state nonmember banks to branch 
into a foreign country under general consent in circumstances covered 
by (a)(1)(ii) or (iii) of the proposed rule. This change will allow an 
eligible state nonmember bank to establish additional branches in a 
country in which the bank's holding company operates a foreign bank 
subsidiary, or in which an affiliated bank or Edge or Agreement 
corporation operates one or more foreign branches or foreign bank 
subsidiaries. This will allow for after-the-fact notification to the 
FDIC in those circumstances, rather than requiring prior approval under 
expedited processing, as is presently required under section 
347.103(c)(1).
    Under proposed section 347.117(b), general consent for investments 
in foreign organizations is provided in the same circumstances covered 
by existing section 347.108(a). In addition, the proposal would grant 
general consent to invest in a foreign organization, under proposed 
section 347.117(b)(2), when at least one insured state nonmember bank 
operates a foreign branch in the relevant foreign country where the 
organization will be located because of the FDIC's familiarity with the 
banking laws and practices of that country. This amendment was 
suggested in a comment on the 1998 Final Rule, but the FDIC declined to 
adopt it because of concerns that banks could operate ``nameplate'' 
branches in foreign countries and, because they would lack a physical 
presence in those countries, more extensive analysis and coordination 
with the host country supervisors may be needed before the FDIC 
authorized free-standing foreign organizations. Upon further 
consideration of this issue, however, the FDIC believes most nameplate 
branches would be operated in jurisdictions where authority to invest 
in foreign organizations by general consent would be inapplicable under 
section 347.119(a) of the proposal. Therefore, if that issue arises, 
specific consent would be required to authorize such an investment, and 
the previously stated concern could be addressed at that time.

18. Expedited Processing (Revised Sec.  347.118)

    Section 347.118 of the proposal consolidates the expedited 
processing provisions for foreign branches in existing section 
347.103(c)(2) with the expedited processing provisions for investments 
in foreign organizations in existing section 347.108(b) into a single 
rule for ease of reference.

19. Specific Consent (Revised Sec.  347.119)

    Section 347.119 of the proposal consolidates the specific consent 
requirements for foreign branches in existing section 347.103(d)-(e) 
with the specific consent requirements for investments in foreign 
organizations in existing section 347.108(c)-(d) into a single rule for 
ease of reference and because the existing provisions are largely 
duplicative.

20. Computation of Investment Amounts (Revised Sec.  347.120)

    Section 347.120 of the proposal is derived from existing section 
347.108(e). It is placed in a separate section in the proposal to 
indicate its applicability to the general consent, expedited 
processing, and specific consent sections for foreign investments 
because those subjects are addressed by separate sections of the 
proposal.

21. Requirements for Insured State Nonmember Bank to Close a Foreign 
Branch. (Revised Sec.  347.121)

    Section 347.121 of the proposal is derived from 347.103(f) and is 
placed in a separate section for ease of reference and because the 
approval provisions of that section are separated from the authorized 
activities section for foreign branches in the proposal.

22. Limitations Applicable to the Authority Provided in This Subpart 
(New Sec.  347.122)

    The FDIC is proposing to add a new section 347.122. This section 
recognizes that the FDIC may, under section 18(d)(2) and 18(l) of the 
FDI Act, condition the authority granted under this subpart A as it 
considers appropriate. The section also provides for termination of 
activities or divestiture of investments permitted under the subpart, 
after giving the bank notice and a reasonable opportunity to be heard, 
if a bank is unable or fails to comply with the requirements of the 
subpart or any conditions imposed by the FDIC regarding transactions 
under the subpart.

IV. Section-by-Section Analysis of Proposed Revisions to Part 347, 
Subpart B

1. Authority, Purpose and Scope (Revised Sec.  347.201)

    The FDIC is proposing to revise existing section 347.201 to reflect 
the authority and coverage of subpart B, as amended. In addition, the 
scope of the subpart is revised to reflect the grouping of the sections 
therein based primarily

[[Page 43066]]

upon whether they apply to both insured state and federal branches or 
only to state branches. The section also recognizes that section 
347.204 applies to foreign banks seeking deposit insurance coverage for 
their state or federal depository institution subsidiaries.

2. Definitions (Revised Sec.  347.202)

    The definitions contained in existing section 347.202 are revised 
by amending an existing paragraph, moving an existing paragraph, and 
adding three new paragraphs. In the proposal, the definition of 
``domestic retail deposit activity'' contained in paragraph (e) is 
being amended to add ``federal'' branches because the prohibition 
contained in section 347.206 of the proposal, concerning taking 
domestic retail deposits through U.S. bank subsidiaries or certain 
grandfathered branches, is applicable equally to state or federal 
branches of foreign banks. The addition of ``federal'' branches to 
section 347.202(e) is not intended, however, to create a discrepancy 
regarding the application of section 347.216 of the proposal, which 
also uses the term ``domestic retail deposit activity,'' because 
section 347.216, by its own terms, applies specifically to state 
branches. The corresponding rule for federal branches is 12 CFR 28.16. 
Paragraph (m) of the proposal revises the definition of ``initial 
deposit'' that is contained in paragraph (l) of the existing rule to 
eliminate the need for the separate definition of ``first deposit'' 
that is included at the end of the paragraph in the existing rule. In 
addition, paragraphs (j) and (s) are added to the section and are 
consistent with the definitions for the same terms that are utilized in 
subpart A.

3. Deposit Insurance Required for All Branches of Foreign Banks Engaged 
in Domestic Retail Deposit Activity in the Same State (Revised Sec.  
347.203)

    Existing section 347.203 is retained in the proposal, but the text 
is revised to clarify the requirements of the section. The title to the 
section also is revised to make it more descriptive of the contents of 
the section.

4. Commitment To Be Examined and Provide Information (Revised Sec.  
347.204)

    Section 347.204 of the proposal substantially revises existing 
section 347.208 to update the rule and enhance the FDIC's supervisory 
authority. The existing rule was initially issued in 1979 to implement 
section 10(b) of the FDI Act (12 U.S.C. 1820(b)) with regard to U.S. 
branches of foreign banks. Section 10(b) requires a foreign bank, in 
connection with obtaining deposit insurance for a branch or depository 
institution subsidiary, to submit a binding written commitment to the 
FDIC to permit any examination of the affairs of any affiliate of the 
branch or depository institution subsidiary to the extent necessary to 
determine: (1) The relationship between the depository institution and 
the affiliate and (2) the effect of such relationship on such 
depository institution.
    Like the existing rule, the proposed rule addresses a foreign bank 
seeking deposit insurance for a U.S. branch. However, the proposed 
rule, if adopted, will apply whenever a foreign bank seeks deposit 
insurance for a banking subsidiary.
    Accordingly, the rule, as revised, will require a foreign bank 
applying for deposit insurance for a U.S. branch or depository 
institution subsidiary to provide the FDIC with a written commitment 
(including a consent to U.S. court jurisdiction and designation of 
agent for service of process, acceptable to the FDIC) to:
    1. Permit examination, for the reasons specified in section 
10(b)(4), of the foreign bank and affiliates located outside the U.S.; 
\6\
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    \6\ Unlike the existing section, which requires the foreign bank 
to provide information regarding the affairs of the foreign bank and 
its affiliates outside the U.S. and examination of the affairs of 
any office, agency, branch or affiliate of the foreign bank located 
in the United States, the proposed section will require the foreign 
bank to permit examination of itself and its affiliates for the 
purposes specified in the statute, without regard to their location. 
This requirement is based on the relevant underlying statutory 
provisions in the FDI Act. See, sections 3(w)(6) and 10(b)(4) of the 
FDI Act (12 U.S.C. 1813(w)(6), 1820(b)(4)).
---------------------------------------------------------------------------

    2. Provide information, for the reasons specified in section 
10(b)(4), regarding the foreign bank and affiliates located outside the 
U.S.; and
    3. Allow examination and provide information, for the reasons 
specified in section 10(b)(4), regarding the offices and affiliates of 
the foreign bank that are located in the U.S.
    The proposed rule also will allow the foreign examination provision 
to be waived in instances where the FRB has already made a 
comprehensive consolidated supervision determination for the foreign 
bank at issue.
    In addition, under the proposed rule, if an equivalent commitment 
has been made by a foreign bank to another Federal banking agency that 
provides the FDIC with the same rights and privileges that the FDIC 
would have if it obtained such commitment on its own behalf, the FDIC 
may waive all or part of the commitment requirements imposed by this 
section in lieu of requiring its own separate commitment from the 
foreign bank. If such waiver is granted, however, the foreign bank will 
be required to provide the FDIC with the commitments required by the 
section before the foreign bank terminates any commitments provided to 
any other Federal banking agency which provide a basis for such waiver.
    The FDIC recognizes that there may be situations when a foreign 
bank has not been determined to be subject to comprehensive 
consolidated supervision; has not provided a commitment to any other 
Federal banking agency that the FDIC finds acceptable; and cannot or 
will not provide the written commitment to permit examination required 
under section 347.204(a)(1). In this circumstance, it is envisioned 
that under section 347.204(a)(3) the deposit insurance application for 
the U.S. branch or depository institution will not be processed because 
the application will not be considered substantially complete without 
the required commitment. It is also recognized, however, that the 
foreign bank may be willing to provide the required commitment, but 
obstacles to the FDIC's ability to utilize the commitment may be posed 
by the laws or regulatory regime governing the foreign bank. In this 
situation, it is envisioned that the foreign bank would be responsible 
for addressing and resolving these issues in consultation with the 
appropriate FDIC staff. To the extent the issues cannot be resolved 
acceptably, but the foreign bank provides the required commitment, the 
rule provides for consideration of these issues, in section 
347.204(b)(3), in determining whether the deposit insurance application 
of the foreign bank's U.S. branch or depository institution should be 
granted or denied.

5. Records Maintenance (Revised Sec.  347.205)

    Section 347.205 of the proposal addresses record maintenance 
requirements for insured U.S. branches of foreign banks. The new 
section reorders and combines the paragraphs of existing section 
347.209, which addresses the same issues.

6. Conduct of Domestic Retail Deposit Activity by U.S. Branch of a 
Foreign Bank (Revised Sec.  347.206)

    Section 347.206 of the proposal implements section 6(d) of the IBA 
(12 U.S.C. 3104(d)). Paragraphs (a)-(c) are derived from existing 
section 347.204(a)-(c) but have been reworded slightly for clarity. 
Paragraph (a) requires any foreign bank intending to conduct domestic 
retail deposit

[[Page 43067]]

activities requiring deposit insurance in any state after December 19, 
1991, to establish one or more insured U.S. bank subsidiaries to 
conduct those deposit activities. Paragraph (b) provides an exception 
to this general rule, based on section 6(d)(3) of the IBA, for any 
FDIC-insured bank organized under the laws of any territory of the 
United States, Puerto Rico, Guam, American Samoa, or the Virgin 
Islands. This allows insured banks organized under the laws of the 
specified jurisdictions to conduct any domestic retail deposit 
activities in the United States through an insured branch, rather than 
through insured bank subsidiaries. Paragraph (c) is based upon the 
``grandfathered branch'' exception in the statute, which allows any 
insured branches that were accepting or maintaining domestic retail 
deposit accounts on December 19, 1991, to continue to operate as 
insured branches conducting domestic retail deposit activities. 
Existing section 347.204(d), which authorizes foreign banks to operate 
noninsured state branches meeting the criteria specified therein, is 
made into proposed section 347.213 because it only applies to state 
branches.
    Paragraph (d) of the proposed rule is added to address an issue 
raised with the FDIC through the EGRPRA process. In that process, an 
industry trade association requested that the FDIC clarify that the 
grandfathered status of an insured branch survives the sale or transfer 
of the branch from one foreign bank to another foreign bank. The trade 
association suggested that the transferability of the grandfathered 
status of a U.S. branch of a foreign bank to a new owner was supported 
by applying the ``plain meaning'' rule of statutory construction to 
section 6(d) of the IBA. The trade association's view was that because 
the availability of the grandfather exception appears to be conditioned 
upon a single exception (that the branch was insured as of December 19, 
1991), it was inconsistent with the plain meaning of the statute to 
read into it an additional condition (that the branch was not 
transferred after December 19, 1991). The trade association also 
observed that other grandfather provisions enacted by Congress in the 
same statute expressly state that those grandfather rights terminate 
upon a change in control. Therefore, the absence of such a provision in 
the grandfathered branch exception, it was argued, indicates that 
Congress did not intend that an insured branch would lose its 
grandfathered status upon its sale or transfer. Additionally, the trade 
association observed that permitting transfers of grandfathered 
branches would provide an option for other foreign banks that would 
like to establish FDIC-insured branches but are constrained from doing 
so by the subsidiary requirement in section 6(d). Finally, it was 
observed that depositors would not lose the protections of deposit 
insurance solely as a result of the sale or transfer of an insured 
branch.
    The FDIC has considered these observations and others presented by 
the trade association. It appreciates the arguments supporting a broad 
reading of the grandfathered branch exception but the exception has 
been construed more narrowly in the past \7\ and, at this time, the 
FDIC is not persuaded that a change in position is justified. The broad 
reading of the grandfather exception requested would be at odds with 
the distinct preference Congress stated in section 6(d) of the IBA of 
making foreign banks desiring to engage in new domestic retail deposit 
activities requiring deposit insurance after December 19, 1991 do so 
through insured banking subsidiaries. Since it is a well recognized 
rule of statutory construction that in ascertaining the plain meaning 
of a statute it is appropriate to look to the particular statutory 
language at issue, as well as the language and design of the statute as 
a whole, this construction of paragraph (d) appears to be more 
appropriate than the alternative construction of the statute advanced 
by the trade association.\8\ It also does not appear to be appropriate, 
as a matter of policy, to adopt an interpretation that will make the 
grandfathered status the object of bargain among foreign banks and 
allow entry to and departure from the insured domestic retail deposit 
market based on the highest bid for the privilege.
---------------------------------------------------------------------------

    \7\ See e.g., FDIC Advisory Opinion 92-12, March 25, 1992, 
reprinted in [1991-1992 Transfer Binder] Fed. Banking L. Rep. (CCH) 
P81,482 (The grandfathered branch exception was intended only to 
permit existing insured branches of foreign banks to continue to 
operate after the enactment of FDICIA without the requirement of 
being ``rolled up'' into a newly chartered subsidiary bank. The 
provision does not permit a foreign bank with a grandfathered branch 
to subsequently open additional insured branches which accept and 
maintain deposit accounts having balances of less than $100,000.)
    \8\ Reading the statute as a whole, the proposed broad reading 
of the exception also is contrary to the direction provided in 
section 6(a) of the IBA regarding implementation of the section 
because purchasers of grandfathered branches could avoid forming and 
capitalizing banking subsidiaries to engage in domestic retail 
deposit activity in the U.S., rather than following the same process 
required for domestic banks of establishing and capitalizing a 
distinct corporate entity and applying for deposit insurance.
---------------------------------------------------------------------------

    The FDIC recognizes that the existing rule does not address this 
issue. It also recognizes, however, that there may be other situations, 
such as certain merger and acquisition transactions, that are not 
designed or motivated by the desire to obtain access to the domestic 
retail deposit market and avoid compliance with the subsidiary 
requirement in section 6(d) of the IBA, where the grandfathered status 
of an insured branch should remain intact. Therefore, the FDIC is 
addressing the issue in paragraph (d) of the proposed rule and inviting 
public comments.

7. Disclosure of Supervisory Information to Foreign Supervisors (New 
Sec.  347.207)

    Section 347.207 is proposed to facilitate cross-border supervision 
of insured branches of foreign banks and insured bank subsidiaries by 
providing for the sharing of supervisory information between the FDIC 
and foreign bank regulatory or supervisory authorities. It is patterned 
after section 15 of the IBA (12 U.S.C. 3109) and 12 CFR 211.27. The 
section also addresses the confidentiality of such information, based 
upon the FDIC's interpretation of section 8(v) of the FDI Act (12 
U.S.C. 1818(v)), by providing that the disclosure or transfer of such 
information to a foreign bank regulatory or supervisory authority does 
not waive any privilege applicable to such information.

8. Assessment Base Deductions by Insured Branch (Revised Sec.  347.208)

    Section 347.208 is revised text of existing section 347.212.

9. Pledge of Assets (Revised Sec.  347.209)

    The asset pledge requirement contained in existing section 347.210 
is revised in proposed section 347.209 by imposing a risk-based asset 
pledge requirement. The existing 5 percent asset pledge requirement has 
been in place since 1984. As part of the EGRPRA process, an industry 
trade association observed that the existing asset pledge requirement 
fails to take into account the specific circumstances of each insured 
branch and advances in risk-based bank supervision that have taken 
place in recent years. The trade association also observed that the 
asset pledge requirements do not apply to U.S. banks and asserted that 
the existing asset pledge requirement adversely affects the earnings 
and liquidity of insured U.S. branches by making them maintain and 
pledge specific amounts of generally lower yielding assets.
    The FDIC recognizes that the asset pledge requirement may have 
competitive implications for foreign

[[Page 43068]]

banks with regard to their insured branches operating in the United 
States, but does not believe elimination of the asset pledge 
requirement is appropriate. Unlike their domestic counterparts, the 
activities, assets, and personnel of foreign banks operating insured 
branches in the United States are, in large part, outside the 
jurisdiction of the United States. While the parent bank may, in 
theory, add financial support to the branch structure, the FDIC is 
concerned that indications of financial weakness that become apparent 
in an insured branch may also be indicative of financial weakness at 
the parent level that may result in less financial support from the 
parent of the insured branch in times of financial stress. This could 
result either from voluntary decisions of the parent or regulatory 
restrictions imposed by the home country regulator, and may precipitate 
significant deposit outflows from the insured branch. Therefore, to 
mitigate this risk and the potential risks associated with providing 
deposit insurance for deposits in an insured branch, the FDIC continues 
to believe that an asset pledge requirement in some amount is 
appropriate.
    The FDIC recognizes that it may be appropriate, however, to revise 
the asset pledge requirement to make it more risk-focused and to take 
into consideration characteristics that may be unique to each insured 
branch. As revised in the proposal, the asset pledge requirement will 
be determined in a manner similar to the approach the FDIC has taken 
with its risk-based deposit insurance assessment system. Under the 
proposal, any newly insured branch will be subject to a 5 percent asset 
pledge requirement until the end of the first three years of its 
operation as an insured branch. This differs from the one-year 
requirement in paragraph (b)(2) of the existing rule, but the FDIC 
believes that the standard in the existing rule is outdated and that it 
is prudent to impose more stringent requirements on newly insured 
institutions during the first three years of their operations to 
compensate for potential risks associated with the commencement of 
insured operations. Three years will also allow a newly insured branch 
to experience at least one examination cycle, which will result in 
supervisory information that the FDIC can utilize to adjust the asset 
pledge requirement for the branch. After the first three years of 
operation as an insured branch, the rule envisions that the asset 
pledge amount will be adjusted by taking into consideration the 
percentage of assets maintained by the insured branch, pursuant to 
section 347.210, and the supervisory information relative to the branch 
at issue. It is envisioned that the most recent ROCA rating \9\ for the 
insured branch will be a focal point of such supervisory information 
but, as with the risk-based premium system, the FDIC could also 
consider other supervisory information that it believes is appropriate 
to fully evaluate the potential risk posed by the insured branch in 
determining the supervisory subgroup assignment for the branch. The 
appropriate percentage of assets required to be pledged will then be 
determined based on the supervisory risk subgroup assigned and the 
asset maintenance level applicable to the branch. The proposal will 
generally permit the asset pledge to be lowered to not less than 2 
percent of third-party liabilities for insured branches that are 
perceived to pose a lower potential risk and up to 8 percent of 
liabilities for insured branches that are perceived to pose a higher 
potential risk to the deposit insurance fund. In addition the FDIC's 
ability to require a higher percentage of pledged assets in appropriate 
circumstances will remain unchanged in the proposed rule. Although the 
proposed rule could potentially increase the asset pledge requirement 
above the existing 5 percent requirement for some insured branches, 
most of the existing insured branches traditionally exceed the minimum 
asset maintenance requirements imposed by existing section 347.210, and 
most of their supervisory ratings are also favorable. Therefore, if the 
rule is adopted as proposed, the FDIC's asset pledge requirement for 
most of the existing insured branches will be reduced from its current 
level. Moreover, the risk-based proposal is designed to increase the 
degree of protection provided to the FDIC deposit insurance fund as the 
risk profile for the insured branch deteriorates.
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    \9\ The ROCA system represents the rating of risk management, 
operational controls, compliance, and asset quality of a Foreign 
Banking Organization's U.S. operations.
---------------------------------------------------------------------------

    The proposed rule also makes amendments and deletions to the 
existing rule. Paragraph (d)(1) of the existing rule specifies that 
certificates of deposit may be pledged as collateral. The additional 
term ``negotiable'' is being added to the corresponding portion of the 
proposed rule to clarify this requirement because negotiable 
certificates of deposit are marketable, while other types of 
certificates of deposit may exist that could provide less protection to 
the FDIC in the event they had to be liquidated quickly. Thus, 
certificates of deposit that are not negotiable will not qualify as 
acceptable collateral for purposes of the asset pledge requirement. In 
addition, the FDIC is proposing to amend paragraph (d)(2) to add U.S. 
Treasury bills as an additional form of eligible collateral. Finally, 
paragraph (f) of the existing rule is removed in the proposed rule 
because it is essentially a delegation of authority. Over the past 
several years the FDIC has removed its delegations of authority for 
supervisory matters from its rules and now generally addresses these 
matters by internal delegations of authority from the FDIC's Board of 
Directors.

10. Asset Maintenance (Revised Sec.  347.210)

    Proposed section 347.210 contains revisions to existing section 
347.211 that are largely related to the asset maintenance calculation 
for insured branches. As revised, the proposed rule will require 
insured branches to maintain eligible assets on a daily basis in an 
amount not less than 106 percent of the insured branch's daily third-
party liabilities, rather than based upon the preceding quarter's 
average book value of the insured branch's liabilities. Although the 
existing calculation method has been in place for a number of years, 
there have been some instances where insured branches were winding down 
their operations and needed to be allowed to calculate their asset 
maintenance on a daily basis to maintain compliance with the asset 
maintenance requirement. The FDIC believes that requiring that the 
calculation be made based on the daily third-party liabilities of the 
branch will avoid these and other potential anomalies that can be 
caused by using liability information from the preceding quarter.
    In addition, although requiring the asset maintenance ratio to be 
calculated based on the daily assets and liabilities of a branch may 
require some adjustment of existing processes, the FDIC does not 
believe it will require much additional preparation by insured 
branches. The FDIC also believes this formula's application will be 
more straightforward and the asset maintenance calculation will be 
easier for the insured branches to determine. Nevertheless, the FDIC is 
soliciting public comment regarding this proposal.
    Other revisions to paragraph (a) of the existing rule include 
elimination of the alternative calculation for newly-established 
branches and the reference to the ``Board of Directors.'' Paragraph (d) 
of the existing rule is revised to require that the asset maintenance

[[Page 43069]]

calculations for the branch be retained until the next Federal 
examination.

11. Examination of Branches of Foreign Banks (Revised Sec.  347.211)

    Section 347.211 of the proposal contains the text of existing 
section 347.214.

12. FDIC Approval to Conduct Activities That Are Not Permissible for 
Federal Branches (Revised Sec.  347.212)

    Section 347.212 revises the text of existing section 347.213. In 
addition, a specific citation is added to the appropriate section in 
subpart J that applies to this section for ease of reference.

13. Establishment and Operation of Noninsured Branch (Revised Sec.  
347.213)

    Section 347.213 of the proposal contains the revised text of 
existing section 347.204(d). As in the existing rule, the section 
authorizes foreign banks to operate noninsured branches if any such 
branch:
     Is conducting only a wholesale deposit taking operation;
     Is accepting only deposits that are permissible for an 
Edge Act corporation pursuant to proposed rule 347.214; or
     Meets the requirements for an exemption from the 
definition of ``domestic retail deposit activity'' pursuant to proposed 
rule 347.215.
    The paragraph is separated from the other paragraphs in existing 
section 347.204 because paragraphs (a)-(c) are equally applicable to 
state and federal branches that are insured. As indicated earlier, 
paragraphs (a)-(c) of section 347.204 are contained in proposed section 
347.206. Because this paragraph addresses only noninsured state 
branches, it is placed in its own section and grouped with other 
sections of the subpart that relate only to noninsured state branches.

14. Branch Established Under Section 5 of the International Banking Act 
(Revised Sec.  347.214)

    Section 347.214 of the proposal contains the revised text of 
existing section 347.205.

15. Exemption From Deposit Insurance Requirement (Revised Sec.  
347.215)

    Section 347.215 of the proposal contains revised text of existing 
section 347.206. Paragraph (c)(2) has been revised to delete the 
exception for non-time deposits because the timeframe stated in the 
existing rule has expired. Other revisions to the text are not 
substantive, and a specific citation has been added to the section of 
subpart J of part 303 that applies to this section.

16. Depositor Notification (Revised Sec.  347.216)

    Section 347.216 of the proposal contains the text of existing 
section 347.207.

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

    As part of the EGRPRA process, an industry trade association 
indicated that some foreign banks with U.S. wholesale branches (i.e., 
branches that are not engaged in domestic retail deposit activities 
that require FDIC insurance) may be interested in obtaining deposit 
insurance and recommended that the FDIC should no longer discourage 
international banks from applying for ``optional'' deposit insurance.
    To place this observation in context, prior to 1998, the FDIC had a 
rule authorizing ``optional insurance'' for U.S. branches of foreign 
banks. In 1998 the optional insurance rule was eliminated as part of 
the revision and consolidation of various parts of the FDIC rules into 
part 347. At that time, to summarize the discussion contained in the 
1998 Final Rule, the FDIC observed that the subsidiary requirement 
imposed by section 6(d) of the IBA appeared to reach only domestic 
retail deposit taking activities of foreign banks. Because section 5(b) 
of the FDI Act (12 U.S.C. 1815(b)), addressing deposit insurance 
applications for U.S. branches of foreign banks, had not been repealed, 
it arguably may be possible for a U.S. branch of a foreign bank that 
does not engage in domestic retail deposit activity to seek deposit 
insurance from the FDIC. The FDIC further observed, however, that as a 
practical matter, it did not foresee many circumstances in which it 
could be appropriate for the FDIC's Board of Directors to approve such 
an application, but that the elimination of the optional insurance rule 
would not affect a foreign bank's ability to argue that it may make 
such an application under section 5(b) of the FDI Act.
    Finally, the FDIC observed that the FDIC Board of Directors would 
have to determine whether to actually accept and approve such an 
application, based on its review of the facts and circumstances 
involved, in addition to the pertinent legal and policy considerations.
    Among the arguments advanced to support an expanded view of the 
availability of deposit insurance for wholesale branches was that:
     A ``plain meaning'' construction of section 5(b) permits 
``any branch''--including a wholesale branch--to become insured;
     Congress expressly prohibited foreign banks from obtaining 
FDIC insurance for branches ``engaged in domestic retail deposit 
activities'' but did not remove the statutory provisions authorizing 
foreign banks to apply for deposit insurance for wholesale branches;
     The FDIC's approach ignores significant changes in 
regulatory practices and structures that have occurred since 1991 with 
regard to foreign banks; broader acceptance of the principle of 
``investor choice;'' and rejection of a broader policy to force foreign 
banks to operate in the U.S. only through subsidiaries;
     Wholesale depositors often seek the benefits of FDIC 
insurance--even though the full amount of their deposits may not be 
insured. The ability to offer these benefits through a U.S. branch 
would provide a benefit to customers and increase a foreign bank's 
funding options;
     Optional FDIC insurance is likely to be attractive 
primarily to foreign banks already operating FDIC-insured branches and 
subsidiaries in the U.S. and to a relatively small number of other 
foreign banks, especially those seeking to serve particular ethnic 
markets. As a result, a more liberal policy likely would have a minimal 
effect on the deposit insurance fund; and
     Permitting wholesale branches to obtain deposit insurance 
is consistent with the business model that has been followed by some 
major U.S. banks that have retained insurance while focusing on 
wholesale markets.
    While the FDIC recognizes the arguments advanced by the trade 
association and appreciates that some foreign banks may be reluctant to 
file deposit insurance applications, the FDIC believes that it is 
difficult to reconcile the concept that Congress imposed the subsidiary 
requirement with regard to domestic retail deposit activity requiring 
deposit insurance for the protection of the FDIC with the implicit 
assumption that Congress did not believe such protection was needed 
with regard to wholesale branches of foreign banks.\10\ In this 
respect, it

[[Page 43070]]

should be noted that even though the deposits of such branches may be 
characterized as ``wholesale,'' the branch deposits would be insured to 
the same extent as any other deposits maintained in an insured 
depository institution and that it is possible to obtain more than 
$100,000 in deposit insurance coverage if the customer accounts are 
structured correctly.
---------------------------------------------------------------------------

    \10\ For example, Senator Donald W. Riegle, who introduced the 
amendment adding the subsidiary requirement to section 6 of the IBA, 
explained the rationale for the amendment, at 137 Cong. Rec. S18617, 
S18623 (daily ed. November 27, 1991), as follows:
    ``Another section of the conference report foreign bank subtitle 
ensures that foreign banks, that wish to accept or maintain insured 
deposit accounts, do so only in subsidiary banks incorporated in the 
United States. Although the taking of retail deposits in insured 
branches is not presently a widespread practice by foreign banks, I 
pushed for enactment of this provision as a safeguard against any 
future expansion of this practice in order to better safeguard the 
bank insurance fund from losses by branches of banks whose full 
operations we do not oversee or control. In the past the FDIC has 
expressed concerns that in the event of insolvency of a foreign 
bank, assets could easily be shifted from the U.S. branch and out of 
U.S. jurisdiction while deposits could be shifted to the U.S. 
branch. Such practices, of course, would create new risks for the 
bank insurance fund and taxpayers who stand behind it. During his 
September 24, 1991 confirmation hearing William Taylor, Chairman of 
the FDIC, endorsed this provision.''
---------------------------------------------------------------------------

    In addition, many of the reasons offered in the past against 
insuring retail branches apply equally to wholesale branches. For 
example, various legal issues arise in the branch context that are more 
difficult to predict and address than those involving banking 
subsidiaries and, thus, potentially pose additional risks to the 
deposit insurance fund. As the FDIC noted even prior to the 1991 
statutory amendments regarding insured domestic retail deposit 
activities by U.S. branches of foreign banks, directors of a foreign 
bank are not usually subject to the U.S. jurisdiction, and domestic 
branch personnel essential to explaining certain transactions could be 
transferred beyond the reach of U.S. authorities. Essential records 
could also be difficult to reach if they are kept at the head office or 
at branches in other countries. The FDIC also has recognized in the 
past that a U.S. branch could be subjected to requirements under 
foreign laws or to political or economic decisions of a foreign 
government which conflict with domestic bank regulatory policies. In 
addition, a recognized advantage of operating through a branch, as 
opposed to subsidiary structure, is the ability to engage in 
transactions with the home office without significant operational 
restrictions that might otherwise be applied to transactions with 
affiliates of insured U.S. banks. Finally, insolvency of a foreign bank 
with a multinational branch structure may pose complicated and time-
consuming issues regarding the resolution of the branch that could more 
likely be avoided in situations involving banking subsidiaries.
    The proposed expansive approach to deposit insurance for wholesale 
U.S. branches also appears to raise additional concerns, including the 
following:
     The size and legal structure of cross-border wholesale 
branch operations, as opposed to similar operations through domestic 
banking subsidiaries, may pose additional risks to the deposit 
insurance fund. Regarding the size of the operations, for example, the 
trade association indicated that foreign banks hold over $3 trillion in 
assets through their U.S. operations, including over $1 trillion in 
assets in nearly 300 U.S. branches and agencies of foreign banks. 
Although it has been represented that only a small number of these 
branches and U.S. subsidiaries would be interested in obtaining deposit 
insurance, the potential for a larger number of branches seeking the 
benefit of FDIC deposit insurance could present a considerable and 
imprudent expansion of the deposit insurance safety net. Regarding the 
legal structure of cross-border wholesale branches, while the branch 
structure theoretically can provide more economic support from the 
foreign bank than a subsidiary structure, the livelihood of a branch is 
highly dependent on the continued economic viability of the foreign 
bank. Unlike a subsidiary bank, which is separately capitalized and can 
continue to operate independently of the foreign bank, if the foreign 
bank becomes insolvent, in all likelihood the bank's branches will also 
be rendered insolvent or require intervention.
     The potential benefit to the wholesale branch depositors 
of the liberalized approach may not be as significant for the branch's 
depositors as the potential benefits that may accrue to the foreign 
bank, through potentially reduced funding costs as a result of 
obtaining FDIC deposit insurance. This raises concerns, from a policy 
perspective, about whether this should be considered a proper use of 
the deposit insurance funds and about the FDIC's reputation as a 
deposit insurer. It also raises concerns about the potential for 
foreign citizens being confused or misled by foreign bank marketing of 
FDIC deposit insurance coverage for wholesale branch deposits.
     It may also be difficult to ensure that deposit insurance 
for wholesale branches would not be utilized as a mechanism to 
circumvent or weaken the subsidiary requirement imposed by section 6(d) 
of the IBA. For example, an argument might be made that an initial 
deposit for a nominal amount in excess of $100,000 qualifies as a 
``wholesale deposit,'' even thought the balance in the account 
immediately falls below $100,000 and, even with subsequent deposits, 
the balance in the account never again exceeds the $100,000.
    Based on the foregoing discussion, the FDIC continues to believe 
the statements made in the 1998 Final Rule are appropriate with regard 
to deposit insurance for wholesale U.S. branches of foreign banks, but 
welcomes public comments on this issue. The FDIC expects to take 
appropriate action after consideration of the comments received.

VI. Regulatory Flexibility Act Analysis

    The FDIC is required by section 3(a) of the Regulatory Flexibility 
Act (5 U.S.C. 603(a)) to publish an initial regulatory flexibility 
analysis with this rulemaking or certify that the proposed rule, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities. For purposes of the analysis or 
certification, financial institutions with assets of $150 million or 
less are considered ``small entities.'' For the reasons stated below, 
the FDIC certifies, pursuant to 5 U.S.C. 605(b), that the amendments 
and revisions contained in this proposed rule will not, if promulgated 
through a final rule, have a significant economic impact on a 
substantial number of small entities.
    The proposed rule makes primarily technical revisions to update, 
reorganize, and clarify the existing rules in subpart A of part 347 and 
subpart J of part 303. Subpart J of part 303 contains the procedural 
rules that implement part 347. The rules in subpart A of part 347 
address issues related to the international activities and investments 
of insured state nonmember banks. In general, they implement the FDIC's 
statutory authority under section 18(d)(2) of the Federal Deposit 
Insurance Act (FDI Act) (12 U.S.C. 1828(d)(2)), regarding branches of 
insured state nonmember banks in foreign countries, and section 18(l) 
of the FDI Act, regarding insured state nonmember bank investments in 
foreign entities. As of December 31, 2003, there were approximately 
4,833 state nonmember banks, but fewer than 50 of those institutions 
had foreign investments or foreign branches. Available information 
indicates that state nonmember banks with foreign investments or 
foreign branches are not small entities. For example, none of the state 
nonmember banks with foreign branches is a small entity, and none of 
the foreign investment applications processed in 2003 involved small 
entities.
    The proposed rule also makes revisions to update, reorganize, and 
clarify the existing rules in subpart B of

[[Page 43071]]

347, as well as additional revisions and amendments that address 
supervisory issues. The rules in subpart B of part 347 principally 
address issues related to insured and noninsured U.S. branches of 
foreign banks under section 6 of the International Banking Act (IBA)(12 
U.S.C. 3104). As of December 31, 2003, there were approximately 237 
U.S. branches of foreign banks, including 12 insured branches. Of this 
number, there were approximately 71 U.S. branches of foreign banks that 
appear to qualify as small entities, including 6 insured branches. The 
12 insured branches are presently subject to the FDIC's asset pledge 
and asset maintenance requirements, which are revised in sections 
347.209 and 347.210 of the proposed rule. Although the revision of the 
asset pledge requirement to implement a risk-based approach may result 
in an increase in the amount of assets pledged for insured branches 
with low supervisory ratings, the FDIC does not believe this will 
affect the insured branches that qualify as small entities. The FDIC 
also is simplifying the asset maintenance calculation in section 
347.210. The formula will require that third-party liabilities be 
calculated on a daily basis, rather than based upon the preceding 
quarter's average book value of the insured branch's liabilities (as 
required in existing section 347.211). This revision will apply to all 
insured branches, including the small entities, but the FDIC believes 
this calculation method will make compliance with the regulatory 
requirement less difficult for the affected institutions. Although the 
change may require some modifications to existing computer programs, 
these should not be significant because there should already be a daily 
reconcilement of assets and liabilities occurring in the branches. The 
requirement that the asset maintenance calculations be retained until 
the next Federal examination also should not result in a significant 
economic impact on the small entities because retention of each 
branch's liability calculations until the next Federal examination is 
already required under the existing asset maintenance rule. Other 
revisions being proposed to the rules affecting noninsured branches are 
not substantive and, thus, should have no significant economic impact 
on noninsured branches that qualify as small entities.
    Finally, no amendments are being proposed to the rules in subpart 
C. The public merely is being given an opportunity, in this rulemaking 
proceeding, to comment on the accounting and reporting rules related to 
international lending that are contained in subpart C of part 347.

VII. Paperwork Reduction Act

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

VIII. Plain Language Requirement

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
federal banking agencies to use ``plain language'' in all proposed and 
final rules published after January 1, 2000. We invite your comments on 
how to make this proposal easier to understand. For example:
    (1) Have we organized the material to suit your needs?
    (2) Are the requirements in the rule clearly stated?
    (3) Does the rule contain technical language or jargon that isn't 
clear?
    (4) What else could we do to make the rule easier to understand?

IX. Assessment of Impact of Federal Regulation on Families

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

List of Subjects

12 CFR Part 303

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

12 CFR Part 325

    Banks, banking, Reporting and recordkeeping requirements.

12 CFR Part 327

    Bank deposit insurance, Banks, banking, Savings associations.

12 CFR Part 347

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

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

PART 303--FILING PROCEDURES

Subpart J--International Banking

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

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

    2. Revise Sec.  303.182 to read as follows:


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

    (a) Notice procedures for general consent. Notice in the form of a 
letter from an eligible depository institution establishing or 
relocating a foreign branch pursuant to Sec.  347.117(a) of this 
chapter must be provided to the appropriate FDIC office no later than 
30 days after taking such action. The notice must include the location 
of the foreign branch, including a street address, and a statement that 
the foreign branch has

[[Page 43072]]

not been located on a site on the World Heritage List or on the foreign 
country's equivalent of the National Register of Historic Places 
(National Register), in accordance with section 402 of the National 
Historic Preservation Act Amendments of 1980 (NHPA Amendments Act) (16 
U.S.C. 470a-2). The FDIC will provide written acknowledgment of receipt 
of the notice.
    (b) Filing procedures for other branch establishments--(1) Where to 
file. An applicant seeking to establish a foreign branch other than 
under Sec.  347.117(a) of this chapter shall submit an application to 
the appropriate FDIC office.
    (2) Content of filing. A complete letter application must include 
the following information:
    (i) The exact location of the proposed foreign branch, including 
the street address, and a statement whether the foreign branch will be 
located on a site on the World Heritage List or on the foreign 
country's equivalent of the National Register, in accordance with 
section 402 of the NHPA Amendments Act;
    (ii) Details concerning any involvement in the proposal by an 
insider of the applicant, as defined in Sec.  303.2(u) of this part, 
including any financial arrangements relating to fees, the acquisition 
of property, leasing of property, and construction contracts;
    (iii) A brief description of the applicant's business plan with 
respect to the foreign branch; and
    (iv) A brief description of the proposed activities of the branch 
and, to the extent any of the proposed activities are not authorized by 
Sec.  347.115 of this chapter, the applicant's reasons why they should 
be approved.
    (3) Additional information. The FDIC may request additional 
information to complete processing.
    (c) Processing--(1) Expedited processing for eligible depository 
institutions. An application filed under Sec.  347.118(a) of this 
chapter by an eligible depository institution as defined in Sec.  
303.2(r) of this part seeking to establish a foreign branch by 
expedited processing will be acknowledged in writing by the FDIC and 
will receive expedited processing, unless the applicant is notified in 
writing to the contrary and provided with the basis for that decision. 
The FDIC may remove the application from expedited processing for any 
of the reasons set forth in Sec.  303.11(c)(2) of this part. Absent 
such removal, an application processed under expedited processing is 
deemed approved 45 days after receipt of a substantially complete 
application by the FDIC, or on such earlier date authorized by the FDIC 
in writing.
    (2) Standard processing. For those applications that are not 
processed pursuant to the expedited procedures, the FDIC will provide 
the applicant with written notification of the final action when the 
decision is rendered.
    (d) Closing. Notices of branch closing under Sec.  347.121 of this 
chapter, in the form of a letter including the name, location, and date 
of closing of the closed branch, shall be filed with the appropriate 
FDIC office no later than 30 days after the branch is closed.
    3. In Sec.  303.183, revise the title and paragraphs (a), (b)(1), 
and (c)(1) to read as follows:


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

    (a) Notice procedures for general consent. Notice in the form of a 
letter from an eligible depository institution making direct or 
indirect investments in a foreign organization pursuant to Sec.  
347.117(b) of this chapter shall be provided to the appropriate FDIC 
office no later than 30 days after taking such action. The FDIC will 
provide written acknowledgment of receipt of the notice.
    (b) Filing procedures for other investments--(1) Where to file. An 
applicant seeking to make a foreign investment other than under Sec.  
347.117(b) of this chapter shall submit an application to the 
appropriate FDIC office.
* * * * *
    (c) Processing--(1) Expedited processing for eligible depository 
institutions. An application filed under Sec.  347.118(b) of this 
chapter by an eligible depository institution as defined in Sec.  
303.2(r) of this part seeking to make direct or indirect investments in 
a foreign organization will be acknowledged in writing by the FDIC and 
will receive expedited processing, unless the applicant is notified in 
writing to the contrary and provided with the basis for that decision. 
The FDIC may remove the application from expedited processing for any 
of the reasons set forth in Sec.  303.11(c)(2) of this part. Absent 
such removal, an application processed under expedited processing is 
deemed approved 45 days after receipt of a substantially complete 
application by the FDIC, or on such earlier date authorized by the FDIC 
in writing.
* * * * *
    4. In Sec.  303.184, revise paragraph (b)(1) to read as follows:


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

* * * * *
    (b) Processing--(1) Expedited processing for eligible insured 
branches. An application filed by an eligible insured branch as defined 
in Sec.  303.181(c) of this part will be acknowledged in writing by the 
FDIC and will receive expedited processing if the applicant is 
proposing to move within the same state, unless the applicant is 
notified to the contrary and provided with the basis for that decision. 
The FDIC may remove an application from expedited processing for any of 
the reasons set forth in Sec.  303.11(c)(2) of this part. Absent such 
removal, an application processed under expedited processing will be 
deemed approved on the latest of the following:
    (i) The 21st day after the FDIC's receipt of a substantially 
complete application; or
    (ii) The 5th day after expiration of the comment period described 
in paragraph (c) of this section.
* * * * *
    5. In Sec.  303.186, revise the title and paragraphs (a)(1) to read 
as follows:


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

    (a) Filing procedures--(1) Where to file. An application by a 
foreign bank for consent to operate as a noninsured state branch, as 
permitted by Sec.  347.215(b) of this chapter, shall be submitted in 
writing to the appropriate FDIC office.
* * * * *
    6. In Sec.  303.187, revise the title and paragraphs (a)(1), 
(a)(2)(iv) and (b)(1) to read as follows:


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

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

[[Page 43073]]

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, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 
U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended 
by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).

    8. In Sec.  325.103, revise paragraph (c) to read as follows:


Sec.  325.103  Capital measures and capital category definitions.

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

PART 327--ASSESSMENTS

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

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

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


Sec.  327.4  Annual assessment rate.

    (a) * * *
    (1) * * *
    (i) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 108 percent of the insured branch's daily third-party 
liabilities.
    (ii) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec.  347.209 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec.  347.210 of 
this chapter at 106 percent of the insured branch's daily third-party 
liabilities; and
* * * * *
    11. Revise part 347 to read as follows:

PART 347--INTERNATIONAL BANKING

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

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

[[Page 43074]]

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


Sec.  347.101  Authority, purpose, and scope.

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


Sec.  347.102  Definitions.

    For the purposes of this subpart:
    (a) An affiliate of an insured state nonmember bank means:
    (1) Any entity of which the insured state nonmember bank is a 
direct or indirect subsidiary or which otherwise controls the insured 
state nonmember bank;
    (2) Any organization which is a direct or indirect subsidiary of 
such entity or which is otherwise controlled by such entity; or
    (3) Any other organization that is a direct or indirect subsidiary 
of the insured state nonmember bank or is otherwise controlled by the 
insured state nonmember bank.
    (b) Control means the ability to control in any manner the election 
of a majority of an organization's directors or trustees; or the 
ability to exercise a controlling influence over the management and 
policies of an organization. An insured state nonmember bank is deemed 
to control an organization of which it is a general partner or its 
affiliate is a general partner.
    (c) Domestic means United States.
    (d) Eligible insured state nonmember bank means an eligible 
depository institution as defined in Sec.  303.2(r) of this chapter.
    (e) Equity interest means any ownership interest or rights in an 
organization, whether through an equity security, contribution to 
capital, general or limited partnership interest, debt or warrants 
convertible into ownership interests or rights, loans providing profit 
participation, binding commitments to acquire any such items, or some 
other form of business transaction.
    (f) Equity security means voting or nonvoting shares, stock, 
investment contracts, or other interests representing ownership or 
participation in a company or similar enterprise, as well as any 
instrument convertible to any such interest at the option of the holder 
without payment of substantial additional consideration.
    (g) FRB means the Board of Governors of the Federal Reserve System.
    (h) Foreign bank means an organization that is organized under the 
laws of a foreign country, a territory of the United States, Puerto 
Rico, Guam, American Samoa, or the Virgin Islands that:
    (1) Is recognized as a bank by the bank supervisory or monetary 
authority of the country of its organization or the country in which 
its principal banking operations are located;
    (2) Receives deposits to a substantial extent in the regular course 
of its business; and
    (3) Has the power to accept demand deposits.
    (i) Foreign banking organization means a foreign organization that 
is formed for the sole purpose of either holding shares of a foreign 
bank or performing nominee, fiduciary, or other banking services 
incidental to the activities of a foreign branch or foreign bank 
affiliate of the insured state nonmember bank.
    (j) Foreign branch means an office or place of business located 
outside the United States, its territories, Puerto Rico, Guam, American 
Samoa, the Trust Territory of the Pacific Islands, or the Virgin 
Islands, at which banking operations are conducted, but does not 
include a representative office.
    (k) Foreign country means any country other than the United States 
and includes any territory, dependency, or possession of any such 
country or of the United States.
    (l) Foreign organization means an organization that is organized 
under the laws of a foreign country.
    (m) Insured state nonmember bank or bank means a state bank, as 
defined by section 3(a)(2) of the Federal Deposit Insurance Act (12 
U.S.C. 1813(a)(2)), whose deposits are insured by the FDIC and that is 
not a member of the Federal Reserve System.
    (n) Indirectly means investments held or activities conducted by a 
subsidiary of an organization.
    (o) Investment grade means a security that is rated in one of the 
four highest categories by:
    (1) Two or more NRSROs; or
    (2) One NRSRO if the security is rated by only one NRSRO.
    (p) Loan or extension of credit means all direct and indirect 
advances of funds to a person, government, or entity made on the basis 
of any obligation of that person, government, or entity to repay funds.
    (q) Organization or entity means a corporation, partnership, 
association, bank, or other similar entity.
    (r) NRSRO means a nationally recognized statistical rating 
organization as designated by the Securities and Exchange Commission.
    (s) Representative office means an office that engages solely in 
representative functions such as soliciting new business for its home 
office or acting as liaison between the home office and local 
customers, but which has no authority to make business or contracting 
decisions other than those relating to the personnel and premises of 
the representative office.
    (t) Subsidiary means any organization more than 50 percent of the 
voting equity interests of which are directly or indirectly held by 
another organization.
    (u) Tier 1 capital means Tier 1 capital as defined in section 325.2 
of this chapter.
    (v) Well capitalized means well capitalized as defined in section 
325.103 of this chapter.


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

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


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

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


Sec.  347.105  Permissible financial activities outside the United 
States.

    (a) Limitation on authorized activities. A bank may not directly or 
indirectly acquire or hold equity interests in a foreign organization 
that will result in the bank and its affiliates:

[[Page 43075]]

    (1) Holding more than 50 percent, in the aggregate, of the voting 
equity interest in such foreign organization; or
    (2) Controlling such foreign organization, unless the activities of 
a foreign organization are limited to those authorized under paragraph 
(b) of this section.
    (b) Authorized activities. The following financial activities are 
authorized outside the United States:
    (1) Commercial and other banking activities.
    (2) Financing, including commercial financing, consumer financing, 
mortgage banking, and factoring, subject to compliance with any 
attendant restrictions contained in 12 CFR 225.28(b).
    (3) Leasing real or personal property, acting as agent, broker or 
advisor in leasing real or personal property, subject to compliance 
with any attendant restrictions in 12 CFR 225.28(b).
    (4) Acting as a fiduciary, subject to compliance with any attendant 
restrictions in 12 CFR 225.28(b).
    (5) Underwriting credit life, credit accident and credit health 
insurance.
    (6) Performing services for other direct or indirect operations of 
a domestic banking organization, including representative functions, 
sale of long-term debt, name saving, liquidating assets acquired to 
prevent loss on a debt previously contracted in good faith, and other 
activities that are permissible for a bank holding company under 
sections 4(a)(2)(A) and 4(c)(1)(C) of the Bank Holding Company Act.
    (7) Holding the premises of a branch of an Edge corporation or 
insured state nonmember bank or the premises of a direct or indirect 
subsidiary, or holding or leasing the residence of an officer or 
employee of a branch or a subsidiary.
    (8) Providing investment, financial, or economic services, subject 
to compliance with any attendant restrictions in 12 CFR 225.28(b).
    (9) General insurance agency and brokerage.
    (10) Data processing.
    (11) Organizing, sponsoring, and managing a mutual fund if the 
fund's shares are not sold or distributed in the United States or to 
U.S. residents and the fund does not exercise management control over 
the firms in which it invests.
    (12) Performing management consulting services, provided that such 
services when rendered with respect to the domestic market must be 
restricted to the initial entry.
    (13) Underwriting, distributing, and dealing in debt securities 
outside the United States.
    (14) With the prior approval of the FDIC under Sec.  347.120(d), 
underwriting, distributing, and dealing in equity securities outside 
the United States.
    (15) Operating a travel agency in connection with financial 
services offered outside the United States by the bank or others.
    (16) Providing futures commission merchant services, subject to 
compliance with any attendant restrictions in 12 CFR 225.28(b).
    (17) Engaging in activities that the FRB has determined in 
Regulation Y (12 CFR 225.28(b)) are closely related to banking under 
section 4(c)(8) of the Bank Holding Company Act.
    (18) Engaging in other activities, with the prior approval of the 
FDIC.
    (c) Limitation on activities authorized under Regulation Y. If a 
bank relies solely on the cross-reference to Regulation Y contained in 
paragraph (b)(17) of this section as authority to engage in an 
activity, compliance with any attendant restrictions on the activity 
that are contained in 12 CFR 225.28(b) is required.
    (d) Approval of other activities. Activities that are not 
specifically authorized by this section, but that are authorized by 12 
CFR 211.10 or FRB interpretations of activities authorized by that 
section, may be authorized by specific consent of the FDIC on an 
individual basis and upon such terms and conditions as the FDIC may 
consider appropriate. Activities that will be engaged in as principal 
(defined by reference to Sec.  362.1(b) of this chapter), and that are 
not authorized by 12 CFR 211.10 or FRB interpretations of activities 
authorized under that section, must satisfy the requirements of part 
362 of this chapter and be approved by the FDIC under this part as well 
as part 362 of this chapter.


Sec.  347.106  Going concerns.

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


Sec.  347.107  Joint ventures.

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


Sec.  347.108  Portfolio investments.

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


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

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

[[Page 43076]]

comparable transactions between the bank or its affiliates and 
nonaffiliated organizations.
    (b) [Reserved]


Sec.  347.110  Affiliate holdings.

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


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

    A bank that holds an equity interest in one or more foreign 
organizations which underwrite, deal, or distribute equity securities 
outside the United States as authorized by section 347.105(b)(14) is 
subject to the following limitations:
    (a) Underwriting commitment limits.
    (1) The aggregate underwriting commitments by the foreign 
organizations for the equity securities of a single entity, taken 
together with underwriting commitments by any affiliate of the bank 
under the authority of 12 CFR 211.10(b), may not exceed the lesser of 
$60 million or 25 percent of the bank's Tier 1 capital, except as 
otherwise provided in this paragraph.
    (2) Underwriting commitments in excess of this limit must be 
either:
    (i) Covered by binding commitments from subunderwriters or 
purchasers; or
    (ii) Deducted from the capital of the bank, with at least 50 
percent of the deduction being taken from Tier 1 capital, with the bank 
remaining well capitalized after this deduction.
    (b) Distribution and dealing limits. The equity securities of any 
single entity held for distribution or dealing by the foreign 
organizations, taken together with equity securities held for 
distribution or dealing by any affiliate of the bank under the 
authority of 12 CFR 211.10:
    (1) May not exceed the lesser of $30 million or 5 percent of the 
bank's Tier 1 capital, subject to the following:
    (i) Any equity securities acquired pursuant to any underwriting 
commitment extending up to 90 days after the payment date for the 
underwriting may be excluded from this limit;
    (ii) Any equity securities of the entity held under the authority 
of Sec. Sec.  347.105 through 347.109 or 12 CFR 211.10 for purposes 
other than distribution or dealing must be included in this limit; and
    (iii) Up to 75 percent of the position in an equity security may be 
reduced by netting long and short positions in the same security, or 
offsetting cash positions against derivative instruments referenced to 
the same security so long as the derivatives are part of a prudent 
hedging strategy; and
    (2) Must be included in calculating the general consent limits 
under Sec.  347.117(b)(3) if the bank relies on the general consent 
provisions as authority to acquire equity interests of the same foreign 
entity for investment or trading.
    (c) Additional distribution and dealing limits. With the exception 
of equity securities acquired pursuant to any underwriting commitment 
extending up to 90 days after the payment date for the underwriting, 
equity securities of a single entity held for distribution or dealing 
by all affiliates of the bank (this includes shares held in connection 
with an underwriting or for distribution or dealing by an affiliate 
permitted to do so by Sec.  362.8 or 362.18 of this chapter or section 
4(c)(8) of the Bank Holding Company Act), combined with any equity 
interests held for investment or trading purposes by all affiliates of 
the bank, must conform to the limits of Sec.  347.105 through 347.109.
    (d) Combined limits. The aggregate of the following may not exceed 
25 percent of the bank's Tier 1 capital:
    (1) All equity interests of foreign organizations held for 
investment or trading under Sec.  347.109 or by an affiliate of the 
bank under the corresponding paragraph of 12 CFR 211.10.
    (2) All underwriting commitments under paragraph (a) of this 
section, taken together with all underwriting commitments by any 
affiliate of the bank under the authority of 12 CFR 211.10, after 
excluding the amount of any underwriting commitment:
    (i) Covered by binding commitments from subunderwriters or 
purchasers under paragraph (a)(1) of this section or the comparable 
provision of 12 CFR 211.10; or
    (ii) Already deducted from the bank's capital under paragraph 
(a)(2) of this section, or the appropriate affiliate's capital under 
the comparable provisions of 12 CFR 211.10; and
    (3) All equity securities held for distribution or dealing under 
paragraph (b) of this section, taken together with all equity 
securities held for distribution or dealing by any affiliate of the 
bank under the authority of 12 CFR 211.10, after reducing by up to 75 
percent the position in any equity security by netting and offset, as 
permitted by paragraph (b)(1)(iii) of this section or the comparable 
provision of 12 CFR 211.10.


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

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


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

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


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

    (a) Loans or extensions of credit. A bank that directly or 
indirectly holds equity interests in a foreign organization pursuant to 
the authority of this subpart may make loans or extensions of credit to 
or for the accounts of the organization without regard to the 
provisions of section 18(j) of the FDI Act (12 U.S.C. 1828(j)).
    (b) Debts previously contracted. Equity interests acquired to 
prevent a

[[Page 43077]]

loss upon a debt previously contracted in good faith are not subject to 
the limitations or procedures of this subpart; however, they must be 
disposed of promptly but in no event later than two years after their 
acquisition, unless the FDIC authorizes retention for a longer period.


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

    In addition to its general banking powers and if permitted by the 
law of the state in which the bank is chartered, a foreign branch of a 
bank may conduct the following activities to the extent that they are 
consistent with banking practices in a foreign country where the bank 
maintains a branch:
    (a) Guarantees. Guarantee debts, or otherwise agree to make 
payments on the occurrence of readily ascertainable events including, 
without limitation, nonpayment of taxes, rentals, customs duties, or 
costs of transport and loss or nonconformance of shipping documents, 
if:
    (1) The guarantee or agreement specifies a maximum monetary 
liability; and
    (2) To the extent the guarantee or agreement is not subject to a 
separate amount limit under state or federal law, the amount of the 
guarantee or agreement is combined with loans and other obligations for 
purposes of applying any legal lending limits.
    (b) Government obligations. Engage in the following types of 
transactions with respect to the obligations of foreign countries, so 
long as aggregate investments, securities held in connection with 
distribution and dealing, and underwriting commitments do not exceed 
ten percent of the bank's Tier 1 capital:
    (1) Underwrite, distribute and deal, invest in, or trade 
obligations of:
    (i) The national government of the country in which the branch is 
located or its political subdivisions; and
    (ii) An agency or instrumentality of such national government if 
supported by the taxing authority, guarantee, or full faith and credit 
of the national government.
    (2) Underwrite, distribute and deal, invest in or trade obligations 
\11\ rated as investment grade of:
---------------------------------------------------------------------------

    \11\ If the obligation is an equity interest, it must be held 
through a subsidiary of the foreign branch and the insured state 
nonmember bank must meet its minimum capital requirements.
---------------------------------------------------------------------------

    (i) The national government of any foreign country or its political 
subdivisions, to the extent permissible under the law of the issuing 
foreign country; and
    (ii) An agency or instrumentality of the national government of any 
foreign country to the extent permissible under the law of the issuing 
foreign country, if supported by the taxing authority, guarantee, or 
full faith and credit of the national government.
    (c) Local investments.
    (1) Acquire and hold local investments in:
    (i) Equity securities of the central bank, clearing houses, 
governmental entities, and government sponsored development banks of 
the country in which the branch is located;
    (ii) Other debt securities eligible to meet local reserve or 
similar requirements; and
    (iii) Shares of automated electronic payment networks, professional 
societies, schools, and similar entities necessary to the business of 
the branch.
    (2) Aggregate local investments (other than those required by the 
law of the foreign country or permissible under section 5136 of the 
Revised Statutes (12 U.S.C. 24 (Seventh)) by all the bank's branches in 
a single foreign country must not exceed 1 percent of the total 
deposits in all the bank's branches in that country as reported in the 
preceding year-end Report of Income and Condition (Call Report): \12\
---------------------------------------------------------------------------

    \12\ If a branch has recently been acquired by the bank and the 
branch was not previously required to file a Call Report, branch 
deposits as of the acquisition date must be used.
---------------------------------------------------------------------------

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


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

    (a) Records, controls and reports. A bank with any foreign branch, 
any investment in a foreign organization of 20 percent or more of the 
organization's voting equity interests, or control of a foreign 
organization must maintain a system of records, controls and reports 
that, at minimum, provide for the following:
    (1) Risk assets. To permit assessment of exposure to loss, 
information furnished or available to the main office should be 
sufficient to permit periodic and systematic appraisals of the quality 
of risk assets, including loans and other extensions of credit. 
Coverage should extend to a substantial proportion of the risk assets 
in the branch or foreign organization, and include the status of all 
large credit lines and of credits to customers also borrowing from 
other offices or affiliates of the bank. Appropriate information on 
risk assets may include:
    (i) A recent financial statement of the borrower or obligee and 
current information on the borrower's or obligee's financial condition;
    (ii) Terms, conditions, and collateral;
    (iii) Data on any guarantors;
    (iv) Payment history; and
    (v) Status of corrective measures employed.
    (2) Liquidity. To enable assessment of local management's ability 
to meet its obligations from available resources, reports should 
identify the general sources and character of the deposits, borrowing, 
and other funding sources employed in the branch or foreign 
organization with special reference to their terms and volatility. 
Information should be available on sources of liquidity--cash, balances 
with banks, marketable securities, and repayment flows--such as will 
reveal their accessibility in time and any risk elements involved.
    (3) Contingencies. Data on the volume and nature of contingent 
items such as loan commitments and guarantees or their equivalents that 
permit analysis of potential risk exposure and liquidity requirements.
    (4) Controls. Reports on the internal and external audits of the 
branch or foreign organization in sufficient detail to permit 
determination of conformance to auditing guidelines. Appropriate audit 
reports may include coverage of:
    (i) Verification and identification of entries on financial 
statements;

[[Page 43078]]

    (ii) Income and expense accounts, including descriptions of 
significant chargeoffs and recoveries;
    (iii) Operations and dual-control procedures and other internal 
controls;
    (iv) Conformance to head office guidelines on loans, deposits, 
foreign exchange activities, accounting procedures in compliance with 
applicable accounting standards, and discretionary authority of local 
management;
    (v) Compliance with local laws and regulations; and
    (vi) Compliance with applicable U.S. laws and regulations.
    (b) Availability of information to examiners; reports.
    (1) Information about foreign branches or foreign organizations 
must be made available to the FDIC by the bank for examination and 
other supervisory purposes.
    (2) The FDIC may from time to time require a bank to make and 
submit such reports and information as may be necessary to implement 
and enforce the provisions of this subpart, and the bank shall submit 
an annual report of condition for each foreign branch pursuant to 
instructions provided by the FDIC.


Sec.  347.117  General consent.

    (a) General consent to establishment or relocation of foreign 
branch. General consent of the FDIC is granted, subject to the written 
notification requirement contained in section 303.182(a) and consistent 
with the requirements of this subpart, for an:
    (1) Eligible bank to establish a foreign branch conducting 
activities authorized by section 347.115 of this section in any foreign 
country in which:
    (i) The bank already operates one or more foreign branches or 
foreign bank subsidiaries;
    (ii) The bank's holding company operates a foreign bank subsidiary; 
or
    (iii) An affiliated bank or Edge or Agreement corporation operates 
one or more foreign branches or foreign bank subsidiaries.
    (2) Insured state nonmember bank to relocate an existing foreign 
branch within a foreign country.
    (b) General consent to invest in a foreign organization. General 
consent of the FDIC is granted, subject to the written notification 
requirement contained in section 303.183(a) (unless no notification is 
required because the investment is acquired for trading purposes) and 
consistent with the requirements of this subpart, for an eligible bank 
to make investments in foreign organizations, directly or indirectly, 
if:
    (1) The bank operates at least one foreign bank subsidiary or 
foreign branch, an affiliated bank or Edge or Agreement corporation 
operates at least one foreign bank subsidiary or foreign branch, or the 
bank's holding company operates at least one foreign bank subsidiary;
    (2) In any instance where the bank and its affiliates will hold 20 
percent or more of the foreign organization's voting equity interests 
or control the foreign organization, at least one bank has a foreign 
bank subsidiary or foreign branch in the country where the foreign 
organization will be located; \13\ and
---------------------------------------------------------------------------

    \13\ A list of these countries can be obtained from the FDIC's 
Internet Web Site at http://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 2 percent of the bank's 
Tier 1 capital, and such investments in all foreign organizations in 
the aggregate do not exceed:
    (A) 5 percent of the bank's Tier 1 capital during a 12-month 
period; and
    (B) Up to an additional 5 percent of the bank's Tier 1 capital if 
the investments are acquired for trading purposes.


Sec.  347.118  Expedited processing.

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


Sec.  347.119  Specific consent.

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


Sec.  347.120  Computation of investment amounts.

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


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

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


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

    The FDIC may impose such conditions on authority granted in this

[[Page 43079]]

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

Subpart B--Foreign Banks


Sec.  347.201  Authority, purpose, and scope.

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


Sec.  347.202  Definitions.

    For the purposes of this subpart:
    (a) Affiliate means any entity that controls, is controlled by, or 
is under common control with another entity. An entity shall be deemed 
to ``control'' another entity if the entity directly or indirectly 
owns, controls, or has the power to vote 25 percent or more of any 
class of voting securities of the other entity or controls in any 
manner the election of a majority of the directors or trustees of the 
other entity.
    (b) Branch means any office or place of business of a foreign bank 
located in any state of the United States at which deposits are 
received. The term does not include any office or place of business 
deemed by the state licensing authority or the Comptroller of the 
Currency to be an agency.
    (c) Deposit has the same meaning as that term in section 3(l) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(l)).
    (d) Depository means any insured state bank, national bank, or 
insured branch.
    (e) Domestic retail deposit activity means the acceptance by a 
federal or state branch of any initial deposit of less than $100,000.
    (f) Federal branch means a branch of a foreign bank established and 
operating under the provisions of section 4 of the International 
Banking Act of 1978 (12 U.S.C. 3102).
    (g) Foreign bank means any company organized under the laws of a 
foreign country, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Northern Mariana Islands, or the Virgin Islands, 
which engages in the business of banking. The term includes foreign 
commercial banks, foreign merchant banks and other foreign institutions 
that engage in banking activities usual in connection with the business 
of banking in the countries where such foreign institutions are 
organized and operating. Except as otherwise specifically provided by 
the Federal Deposit Insurance Corporation, banks organized under the 
laws of a foreign country, any territory of the United States, Puerto 
Rico, Guam, American Samoa, the Northern Mariana Islands, or the Virgin 
Islands which are insured banks other than by reason of having an 
insured branch are not considered to be foreign banks for purposes of 
Sec. Sec.  347.204, 347.205, 347.209, and 347.210.
    (h) Foreign business means any entity including, but not limited 
to, a corporation, partnership, sole proprietorship, association, 
foundation or trust, which is organized under the laws of a foreign 
country or any United States entity which is owned or controlled by an 
entity which is organized under the laws of a foreign country or a 
foreign national.
    (i) Foreign country means any country other than the United States 
and includes any colony, dependency or possession of any such country.
    (j) FRB means the Board of Governors of the Federal Reserve System.
    (k) Home state of a foreign bank means the state so determined by 
the election of the foreign bank, or in default of such election, by 
the Board of Governors of the Federal Reserve System.
    (l) Immediate family member of a natural person means the spouse, 
father, mother, brother, sister, son or daughter of that natural 
person.
    (m) Initial deposit means the first deposit transaction between a 
depositor and the branch where there is no existing deposit 
relationship. The initial deposit may be placed into different deposit 
accounts or into different kinds of deposit accounts, such as demand, 
savings or time. Deposit accounts that are held by a depositor in the 
same right and capacity may be added together for the purposes of 
determining the dollar amount of the initial deposit.
    (n) Insured bank means any bank, including a foreign bank with an 
insured branch, the deposits of which are insured in accordance with 
the provisions of the Federal Deposit Insurance Act.
    (o) Insured branch means a branch of a foreign bank any deposits of 
which branch are insured in accordance with the provisions of the 
Federal Deposit Insurance Act.
    (p) Large United States business means any entity including, but 
not limited to, a corporation, partnership, sole proprietorship, 
association, foundation or trust which is organized under the laws of 
the United States or any state thereof, and:
    (1) Whose securities are registered on a national securities 
exchange or quoted on the National Association of Securities Dealers 
Automated Quotation System; or
    (2) Has annual gross revenues in excess of $1,000,000 for the 
fiscal year immediately preceding the initial deposit.
    (q) A majority owned subsidiary means a company the voting stock of 
which is more than 50 percent owned or controlled by another company.
    (r) Noninsured branch means a branch of a foreign bank deposits of 
which branch are not insured in accordance with the provisions of the 
Federal Deposit Insurance Act.
    (s) OCC means the Office of the Comptroller of the Currency.
    (t) Person means an individual, bank, corporation, partnership, 
trust, association, foundation, joint venture, pool, syndicate, sole 
proprietorship, unincorporated organization, or any other form of 
entity.
    (u) Significant risk to the deposit insurance fund shall be 
understood to be present whenever there is a high probability that the 
Bank Insurance Fund administered by the FDIC may suffer a loss.
    (v) State means any state of the United States or the District of 
Columbia.
    (w) State branch means a branch of a foreign bank established and 
operating under the laws of any state.
    (x) Wholly owned subsidiary means a company the voting stock of 
which is 100 percent owned or controlled by another company except for 
a nominal number of directors' shares.


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

    The FDIC will not insure deposits in any branch of a foreign bank 
unless the

[[Page 43080]]

foreign bank agrees that every branch established or operated by the 
foreign bank in the same state that engages in domestic retail deposit 
activity will be an insured branch.


Sec.  347.204  Commitment to be examined and provide information.

    (a) A foreign bank that applies for insurance for a U.S. branch or 
depository institution subsidiary shall provide a written commitment 
(including a consent to U.S. court jurisdiction and designation of 
agent for service of process, acceptable to the FDIC) to the following 
terms:
    (1)(i) The FDIC will be permitted to examine the foreign bank and 
its affiliates located outside of the United States to determine:
    (A) The relationship between the U.S. branch or depository 
institution subsidiary and its affiliates; and
    (B) The effect of such relationship on such U.S. branch or 
depository institution subsidiary.
    (ii) The FDIC will be provided with any information about the 
foreign bank and its affiliates located outside of the United States 
that the FDIC requests to determine:
    (A) The relationship between the U.S. branch or depository 
institution subsidiary and its affiliates; and
    (B) The effect of such relationship on such U.S. branch or 
depository institution subsidiary.
    (2) The FDIC will be allowed to examine the affairs of any office, 
agency, branch or affiliate of the foreign bank located in the United 
States and will be provided any information requested to determine:
    (i) The relationship between the U.S. branch or depository 
institution subsidiary and such offices, agencies, branches or 
affiliates; and
    (ii) The effect of such relationship on such U.S. branch or 
depository institution subsidiary.
    (3) The FDIC will not process a deposit insurance application for 
any U.S. branch or depository institution subsidiary if the foreign 
bank fails to provide the written commitment required by paragraph (a) 
of this section.
    (b)(1) The FDIC may waive compliance with the examination 
requirement contained in paragraph (a)(1)(i) of this section if the FRB 
has determined that the foreign bank is subject to comprehensive 
consolidated supervision, as required by section 7 of the International 
Banking Act (12 U.S.C. 3105).
    (2) The FDIC may waive the commitment requirements in paragraph (a) 
of this section, or any portion thereof, if the foreign bank has made 
an equivalent commitment to another Federal banking agency which 
provides the FDIC the same rights and privileges that the FDIC would 
have if it obtained such commitment on its own behalf. If such waiver 
is granted, however, the foreign bank shall provide the FDIC with the 
commitments required by this section before terminating any commitments 
provided to any other Federal banking agency that provide a basis for 
such waiver.
    (3) The FDIC will consider the existence and extent of any 
prohibition or restrictions on its ability to utilize the commitments 
required by paragraph (a)(1)(i) and (ii) of this section in determining 
whether to grant or deny a deposit insurance application for the U.S. 
branch or depository institution subsidiary.
    (c) The commitment to permit examination (including a consent to 
U.S. court jurisdiction and designation of agent for service of 
process) shall be signed by an officer of the foreign bank who has been 
so authorized by the foreign bank's board of directors and in all 
instances will be executed in a manner acceptable to the FDIC and shall 
be included with the foreign bank's application for insurance. Any of 
the documents that are not in English shall be accompanied by an 
English translation.


Sec.  347.205  Record maintenance.

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


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

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


Sec.  347.207  Disclosure of supervisory information to foreign 
supervisors.

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


Sec.  347.208  Assessment base deductions by insured branch.

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


Sec.  347.209  Pledge of assets.

    (a) Purpose. A foreign bank that has an insured branch must pledge 
assets for the benefit of the FDIC or its designee(s). Whenever the 
FDIC is obligated under section 11(f) of the Federal Deposit Insurance 
Act (12 U.S.C. 1821(f)) to pay the insured deposits of an insured 
branch, the assets

[[Page 43081]]

pledged under this section must become the property of the FDIC and be 
used to the extent necessary to protect the deposit insurance fund.
    (b) Amount of assets to be pledged.
    (1) For a newly insured branch, a foreign bank must pledge assets 
equal to at least 5 percent of the liabilities of the branch, based on 
the branch's projection of its liabilities at the end of the first 
three years of its operation. For all other insured branches, a foreign 
bank must pledge assets equal to the appropriate percentage applicable 
to the insured branch, as determined by reference to the risk-based 
assessment schedule contained in this paragraph, of the insured 
branch's average liabilities for the last 30 days of the most recent 
calendar quarter.\14\
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    \14\ This average must be computed by using the sum of the close 
of business figures for the 30 calendar days of the most recent 
calendar quarter, ending with and including the last day of the 
calendar quarter, divided by 30. For days on which the branch is 
closed, however, balances from the previous business day are to be 
used in determining its average liabilities. The insured branch may 
exclude liabilities to other offices, agencies, branches, and wholly 
owned subsidiaries of the foreign bank. The value of the pledged 
assets must be computed based on the lesser of the principal amount 
(par value) or market value of such assets at the time of the 
original pledge and thereafter as of the last day of the most recent 
calendar quarter.
---------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                         Supervisory risk subgroup
     Asset maintenance level      --------------------------------------
                                        A*           B*           C*
------------------------------------------------------------------------
Equal to or Greater than 108%....            2            3            4
Equal to or Greater than 106%....            4            5            6
Less than 106%...................            6            7           8
------------------------------------------------------------------------
*Amount represents percent.


The appropriate asset pledge percentage will be determined based on the 
supervisory risk subgroup and asset maintenance level applicable to the 
insured branch.
    (3) Supervisory risk factors. For purposes of this section, within 
each asset maintenance group, each institution will be assigned to one 
of three subgroups based on consideration by the FDIC of supervisory 
evaluations provided by the primary federal regulator for the insured 
branch. The supervisory evaluations include the results of examination 
findings by the primary federal regulator, as well as other information 
the primary federal regulator determines to be relevant. In addition, 
the FDIC will take into consideration such other information (such as 
state examination findings, if appropriate) as it determines to be 
relevant to the financial condition and the risk posed to the deposit 
insurance fund. The three supervisory subgroups are:
    (i) Subgroup ``A''. This subgroup consists of financially sound 
institutions with only a few minor weaknesses;
    (ii) Subgroup ``B''. This subgroup consists of institutions that 
demonstrate weaknesses which, if not corrected, could result in 
significant deterioration of the institution and increased risk of loss 
to the deposit insurance fund; and
    (iii) Subgroup ``C''. This subgroup consists of institutions that 
pose a substantial probability of loss to the deposit insurance fund.
    (4) The FDIC may require a foreign bank to pledge additional assets 
or to compute its pledge on a daily basis whenever the FDIC determines 
that the condition of the foreign bank or the insured branch is such 
that the assets pledged under this section will not adequately protect 
the deposit insurance fund. In requiring a foreign bank to pledge 
additional assets, the FDIC will consult with the primary regulator for 
the insured branch. Among the factors to be considered in imposing 
these requirements are the concentration of risk to any one borrower or 
group of related borrowers, the concentration of transfer risk related 
to any one country, including the country in which the foreign bank's 
head office is located or any other factor the FDIC determines is 
relevant.
    (5) Each insured branch must separately comply with the 
requirements of this section. A foreign bank which has more than one 
insured branch in a state may, however, treat all of its insured 
branches in the same state as one entity and will designate one insured 
branch to be responsible for compliance with this section.
    (c) Depository. A foreign bank must place pledged assets for 
safekeeping at any depository which is located in any state. However, a 
depository may not be an affiliate of the foreign bank whose insured 
branch is seeking to use the depository. A foreign bank must obtain the 
FDIC's prior written approval of the depository selected, and such 
approval may be revoked and dismissal of the depository required 
whenever the depository does not fulfill any one of its obligations 
under the pledge agreement. A foreign bank shall appoint and constitute 
the depository as its attorney in fact for the sole purpose of 
transferring title to pledged assets to the FDIC as may be required to 
effectuate the provisions of paragraph (a) of this section.
    (d) Assets that may be pledged. Subject to the right of the FDIC to 
require substitution, a foreign bank may pledge any of the kinds of 
assets listed in this paragraph (d); such assets must be denominated in 
United States dollars. A foreign bank shall be deemed to have pledged 
any such assets for the benefit of the FDIC or its designee at such 
time as any such asset is placed with the depository, as follows:
    (1) Negotiable 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) Treasury bills, interest bearing bonds, notes, debentures, or 
other direct obligations of or obligations fully guaranteed as to 
principal and interest by the United States or any agency or 
instrumentality thereof;
    (3) Commercial paper that is rated P-1 or P-2, or their equivalent 
by a nationally recognized rating service; provided, that any conflict 
in a rating shall be resolved in favor of the lower rating;

[[Page 43082]]

    (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)(4) 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 will deliver to the depository all 
documents and instruments necessary or advisable to effectuate the 
transfer of title to any such assets and thereafter, from time to time, 
at the request of the FDIC, deliver to the depository any such 
additional documents or instruments. The foreign bank shall provide 
copies of all such documents described in this paragraph (e)(4) to the 
appropriate regional director concurrently with their delivery to the 
depository.
    (5) Acceptance and safekeeping responsibilities of the depository. 
(i) The depository will accept and hold any assets pledged by the 
foreign bank pursuant to the pledge agreement for safekeeping free and 
clear of any lien, charge, right of offset, credit, or preference in 
connection with any claim the depository may assert against the foreign 
bank and shall designate any such assets as a special pledge for the 
benefit of the FDIC or its designee. The depository shall not accept 
the pledge of any such assets unless, concurrently with such pledge, 
the foreign bank delivers to the depository the documents and 
instruments necessary for the transfer of title thereto as provided in 
this part.
    (ii) The depository shall hold any such assets separate from all 
other assets of the foreign bank or the depository. Such assets may be 
held in book-entry form but must at all times be segregated on the 
records of the depository and clearly identified as assets subject to 
the pledge agreement.
    (6) Reporting requirements of the insured branch and the 
depository--(i) Initial reports. Upon the original pledge of assets as 
provided in paragraph (e)(1) of this section:
    (A) The depository shall provide to the foreign bank and to the 
appropriate FDIC regional director a written report in the form of a 
receipt identifying each asset pledged and specifying in reasonable 
detail with respect to each such asset the complete title, interest 
rate, series, serial number (if any), principal amount (par value), 
maturity date and call date; and
    (B) The foreign bank shall provide to the appropriate regional 
director a written report certified as correct by the foreign bank 
which sets forth the value of each pledged asset and the aggregate 
value of all such assets, and which states that the aggregate value of 
all such assets is at least equal to the amount required pursuant to 
paragraph (b) of this section and that all such assets are of the kind 
described in paragraph (d) of this section.
    (ii) Quarterly reports. Within ten calendar days after the end of 
the most recent calendar quarter:
    (A) The depository shall provide to the appropriate regional 
director a written report specifying in reasonable detail with respect 
to each asset currently pledged (including any asset pledged to satisfy 
the requirements of paragraph (b)(4) of this section and identified as 
such), as of two business days after the end of the most recent 
calendar quarter, the complete title, interest rate, series, serial 
number (if any), principal amount (par value), maturity date, and call 
date, provided, that if no substitution of any asset has occurred 
during the reporting period, the reporting need only specify that no 
substitution of assets has occurred; and
    (B) The foreign bank shall provide as of two business days after 
the end of the most recent calendar quarter to the appropriate regional 
director a written report certified as correct by the foreign bank 
which sets forth the value of each pledged asset and the aggregate 
value of all such assets, which states that the aggregate value of all 
such assets is at least equal to the amount required pursuant to 
paragraph (b) of this section and that all such assets are of the kind 
described in paragraph (d) of this section, and which states the 
average of the liabilities of each insured branch of the foreign bank 
computed in the manner and for the period prescribed in paragraph (b) 
of this section.
    (iii) Additional reports. The foreign bank shall, from time to 
time, as may be required, provide to the appropriate regional director 
a written report in the form specified containing the information 
requested with respect to any asset then currently pledged.
    (7) Access to assets. With respect to any asset pledged pursuant to 
the

[[Page 43083]]

pledge agreement, the depository will provide representatives of the 
FDIC or the foreign bank with access (during regular business hours of 
the depository and at the location where any such asset is held, 
without other limitation or qualification) to all original instruments, 
documents, books, and records evidencing or pertaining to any such 
asset.
    (8) Release upon the order of the FDIC. The depository shall 
release to the foreign bank any pledged assets, as specified in a 
written notification of the appropriate regional director, upon the 
terms and conditions provided in such notification, including without 
limitation the waiver of any requirement that any assets be pledged by 
the foreign bank in substitution of any released assets.
    (9) Release to the FDIC. Whenever the FDIC is obligated under 
section 11(f) of the Federal Deposit Insurance Act to pay insured 
deposits of an insured branch, the FDIC by written certification shall 
so inform the depository; and the depository, upon receipt of such 
certification, shall thereupon promptly release and transfer title to 
any pledged assets to the FDIC or release such assets to the foreign 
bank, as specified in the certification. Upon release and transfer of 
title to all pledged assets specified in the certification, the 
depository shall be discharged from any further obligation under the 
pledge agreement.
    (10) Interest earned on assets. The foreign bank may retain any 
interest earned with respect to the assets currently pledged unless the 
FDIC by written notice prohibits retention of interest by the foreign 
bank, in which case the notice shall specify the disposition of any 
such interest.
    (11) Expenses of agreement. The FDIC shall not be required to pay 
any fees, costs, or expenses for services provided by the depository to 
the foreign bank pursuant to, or in connection with, the pledge 
agreement.
    (12) Substitution of depository. The depository may resign, or the 
foreign bank may discharge the depository, from its duties and 
obligations under the pledge agreement by giving at least 60 days 
written notice thereof to the other party and to the appropriate 
regional director. The FDIC, upon 30 days written notice to the foreign 
bank and the depository, may require the foreign bank to dismiss the 
depository if the FDIC in its discretion determines that the depository 
is in breach of the pledge agreement. The depository shall continue to 
function as such until the appointment of a successor depository 
becomes effective and the depository has released to the successor 
depository the pledged assets and documents and instruments to 
effectuate transfer of title in accordance with the written 
instructions of the foreign bank as approved by the FDIC. The 
appointment by the foreign bank of a successor depository shall not be 
effective until:
    (i) The FDIC has approved in writing the successor depository; and
    (ii) A pledge agreement in form and substance satisfactory to the 
FDIC has been executed.
    (13) Waiver of terms. The FDIC may by written order waive 
compliance by the foreign bank or the depository with any term or 
condition of the pledge agreement.


Sec.  347.210  Asset maintenance.

    (a) An insured branch of a foreign bank shall maintain on a daily 
basis eligible assets at an amount not less than 106 percent of the 
insured branch's daily liabilities, exclusive of liabilities due to the 
head office of the foreign bank, other branches, agencies, offices, or 
wholly owned subsidiaries. The FDIC, after consulting with the primary 
regulator of the insured branch, 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 must be 
payable in United States dollars.
    (b) In determining eligible assets for the purposes of compliance 
with paragraph (a) of this section, the insured branch shall exclude 
the following:
    (1) Any asset due from the foreign bank's head office, or its other 
branches, agencies, offices or affiliates;
    (2) Any asset classified ``Value Impaired,'' to the extent of the 
required Allocated Transfer Risk Reserves or equivalent write down, or 
``Loss'' in the most recent state or federal examination report;
    (3) Any deposit of the insured branch in a bank unless the bank has 
executed a valid waiver of offset agreement;
    (4) Any asset not supported by sufficient credit information to 
allow a review of the asset's credit quality, as determined at the most 
recent state or federal examination, as follows:
    (i) Whether an asset has sufficient credit information will be a 
function of the size of the borrower and the location within the 
foreign bank of the responsibility for authorizing and monitoring 
extensions of credit to the borrower. For large, well known companies, 
when credit responsibility is located in an office of the foreign bank 
outside the insured branch, the insured branch must have adequate 
documentation to show that the asset is of good quality and is being 
supervised adequately by the foreign bank. In such cases, copies of 
periodic memoranda that include an analysis of the borrower's recent 
financial statements and a report on recent developments in the 
borrower's operations and borrowing relationships with the foreign bank 
generally would constitute sufficient information. For other borrowers, 
periodic memoranda must be supplemented by information such as copies 
of recent financial statements, recent correspondence concerning the 
borrower's financial condition and repayment history, credit terms and 
collateral, data on any guarantors, and where necessary, the status of 
any corrective measures being employed;
    (ii) Subsequent to the determination that an asset lacks sufficient 
credit information, an insured branch may not include the amount of 
that asset among eligible assets until the FDIC determines that 
sufficient documentation exists. Such a determination may be made 
either at the next federal examination, or upon request of the insured 
branch, by the appropriate regional director;
    (5) Any asset not in the insured branch's actual possession unless 
the insured branch holds title to such asset and the insured branch 
maintains records sufficient to enable independent verification of the 
insured branch's ownership of the asset, as determined at the most 
recent state or federal examination;
    (6) Any intangible asset;
    (7) Any other asset not considered bankable by the FDIC.
    (c) A foreign bank which has more than one insured branch in a 
state may treat all of its insured branches in the same state as one 
entity for purposes of compliance with paragraph (a) of this section 
and shall designate one insured branch to be responsible for 
maintaining the records of the insured branches' compliance with this 
section.
    (d) Asset maintenance calculations required by this rule shall be 
retained by the insured branch until the next federal examination.


Sec.  347.211  Examination of branches of foreign banks.

    (a) Frequency of on-site examination. Each branch or agency of a 
foreign bank shall be examined on-site at least once during each 12-
month period (beginning

[[Page 43084]]

on the date the most recent examination of the office ended) by:
    (1) The FRB;
    (2) The FDIC, if an insured branch;
    (3) The OCC, if the branch or agency of the foreign bank is 
licensed by the OCC; or
    (4) The state supervisor, if the office of the foreign bank is 
licensed or chartered by the state.
    (b) 18-month cycle for certain small institutions--(1) Mandatory 
standards. The FDIC may conduct a full-scope, on-site examination at 
least once during each 18-month period, rather than each 12-month 
period as provided in paragraph (a) of this section, if the insured 
branch:
    (i) Has total assets of $250 million or less;
    (ii) Has received a composite ROCA supervisory rating (which rates 
risk management, operational controls, compliance, and asset quality) 
of 1 or 2 at its most recent examination;
    (iii) Satisfies the requirement of either the following paragraph 
(b)(iii)(A) or (B):
    (A) The foreign bank's most recently reported capital adequacy 
position consists of, or is equivalent to, Tier 1 and total risk-based 
capital ratios of at least 6 percent and 10 percent, respectively, on a 
consolidated basis; or
    (B) The insured branch has maintained on a daily basis, over the 
past three quarters, eligible assets in an amount not less than 108 
percent of the preceding quarter's average third party liabilities 
(determined consistent with applicable federal and state law) and 
sufficient liquidity is currently available to meet its obligations to 
third parties;
    (iv) Is not subject to a formal enforcement action or order by the 
FRB, FDIC, or the OCC; and
    (v) Has not experienced a change in control during the preceding 
12-month period in which a full-scope, on-site examination would have 
been required but for this section.
    (2) Discretionary standards. In determining whether an insured 
branch that meets the standards of paragraph (b)(1) of this section 
should not be eligible for an 18-month examination cycle pursuant to 
this paragraph (b), the FDIC may consider additional factors, including 
whether:
    (i) Any of the individual components of the ROCA supervisory rating 
of an insured branch is rated ``3'' or worse;
    (ii) The results of any off-site monitoring indicate a 
deterioration in the condition of the insured branch;
    (iii) The size, relative importance, and role of a particular 
insured branch when reviewed in the context of the foreign bank's 
entire U.S. operations otherwise necessitate an annual examination; and
    (iv) The condition of the parent foreign bank gives rise to such a 
need.
    (c) Authority to conduct more frequent examinations. Nothing in 
paragraphs (a) and (b) of this section limits the authority of the FDIC 
to examine any insured branch as frequently as it deems necessary.


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

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


Sec.  347.213  Establishment or operation of noninsured foreign branch.

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


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

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


Sec.  347.215  Exemptions from deposit insurance requirement.

    (a) Deposit activities not requiring insurance. A state branch will 
not be considered to be engaged in domestic retail deposit activity 
that requires the foreign bank parent to establish an insured U.S. bank 
subsidiary if the state branch accepts initial deposits only in an 
amount of less than $100,000 that are derived solely from the 
following:

[[Page 43085]]

    (1) Individuals who are not citizens or residents of the United 
States at the time of the initial deposit;
    (2) Individuals who:
    (i) Are not citizens of the United States;
    (ii) Are residents of the United States; and
    (iii) Are employed by a foreign bank, foreign business, foreign 
government, or recognized international organization;
    (3) Persons (including immediate family members of natural persons) 
to whom the branch or foreign bank (including any affiliate thereof) 
has extended credit or provided other nondeposit banking services 
within the past twelve months or has entered into a written agreement 
to provide such services within the next twelve months;
    (4) Foreign businesses, large United States businesses, and persons 
from whom an Edge or agreement corporation may accept deposits under 12 
CFR 211.6(a)(1);
    (5) Any governmental unit, including the United States government, 
any state government, any foreign government and any political 
subdivision or agency of any of the foregoing, and recognized 
international organizations;
    (6) Persons who are depositing funds in connection with the 
issuance of a financial instrument by the branch for the transmission 
of funds or the transmission of such funds by any electronic means; and
    (7) Any other depositor, but only if:
    (i) The branch's average deposits under this paragraph (a)(7) do 
not exceed one percent of the branch's average total deposits, as 
calculated under paragraph (a)(7)(ii) if this section (de minimis 
exception).
    (ii) For purposes of calculating this exception:
    (A) The branch's average deposits under this paragraph and the 
average total deposits must be computed by summing the close of 
business figures for each of the last 30 calendar days, ending with and 
including the last day of the calendar quarter, and dividing the 
resulting sum by 30;
    (B) For days on which the branch is closed, balances from the last 
previous business day are to be used;
    (C) The branch may exclude deposits in the branch of other offices, 
branches, agencies or wholly owned subsidiaries of the bank to 
determine its average deposits;
    (D) The branch must not solicit deposits from the general public by 
advertising, display of signs, or similar activity designed to attract 
the attention of the general public; and
    (E) A foreign bank that has more than one state branch in the same 
state may aggregate deposits in such branches (excluding deposits of 
other branches, agencies or wholly owned subsidiaries of the bank) for 
the purpose of this paragraph (a)(7).
    (b) Application for an exemption. (1) Whenever a foreign bank 
proposes to accept at a state branch initial deposits of less than 
$100,000 and such deposits are not otherwise 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 
Sec.  303.186.
    (c) Transition period. A noninsured state branch may maintain a 
retail deposit lawfully accepted prior to April 1, 1996 pursuant to 
regulations in effect prior to July 1, 1998:
    (1) If the deposit qualifies pursuant to paragraph (a) or (b) of 
this section; or
    (2) If the deposit does not qualify pursuant to paragraph (a) or 
(b) of this section, in the case of a time deposit, no later than the 
first maturity date of the time deposit after April 1, 1996.


Sec.  347.216  Depositor Notification.

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

Subpart C--International Lending


Sec.  347.301  Purpose, authority, and scope.

    Under the International Lending Supervision Act of 1983 (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 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:
    (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

[[Page 43086]]

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 federal banking agencies' 
judgment, have de minimis holdings of international assets.
    (c) Reservation of Authority. Nothing contained in this subpart 
shall preclude

[[Page 43087]]

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.

    By order of the Board of Directors.

    Dated at Washington, DC, this 28th day of June, 2004.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 04-15757 Filed 7-16-04; 8:45 am]

BILLING CODE 6714-01-P






Last Updated 4/11/2005 communications@fdic.gov