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FDIC Federal Register Citations

[Federal Register: July 15, 1997 (Volume 62, Number 135)]
[Proposed Rules]               
[Page 37748-37778]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy97-19]
[[Page 37748]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 303, 325, 326, 327, 346, 347, 351 and 362
RIN 3064-AC05
 
International Banking Regulations; Consolidation and 
Simplification
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
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SUMMARY: As part of the FDIC's systematic review of its regulations and 
written policies under section 303(a) of the Riegle Community 
Development and Regulatory Improvement Act of 1994 (CDRI), the FDIC is 
seeking public comment on its proposal to revise and consolidate its 
three different groups of rules and regulations governing international 
banking. The first group governs insured branches of foreign banks and 
specifies what deposit-taking activities are permissible for uninsured 
state-licensed branches of foreign banks. The FDIC's proposal makes 
conforming changes throughout this group of regulations to reflect the 
statutory requirement that domestic retail deposit activities must be 
conducted through an insured bank subsidiary, not through an insured 
branch. Also with respect to this group of regulations, the FDIC is 
proposing to rescind the provisions concerning optional insurance for 
U.S. branches of foreign banks; the pledge of assets formula has been 
revised; and the FDIC Division of Supervision's (DOS) new supervision 
program--the Case Manager approach--has been integrated throughout the 
applicable regulations. The second group of regulations governs the 
foreign branches of insured state nonmember banks, and also governs 
such banks' investment in foreign banks or other financial entities. 
The FDIC's proposal modernizes this group of regulations and clarifies 
provisions outlining the activities in which insured state nonmember 
banks may engage abroad, and reduces the instances in which banks must 
file an application before opening a foreign branch or making a foreign 
investment. The third group of regulations governs the international 
lending of insured state nonmember banks and specifies when reserves 
are required for particular international assets. The FDIC is proposing 
to revise this group of regulations to simplify the accounting for fees 
on international loans to make it consistent with generally accepted 
accounting principles. Consistent with the goals of CDRI, the proposed 
rule will improve efficiency, reduce costs, and eliminate outmoded 
requirements.
DATES: Comments must be received on or before September 15, 1997.
ADDRESSES: Send written comments to Robert E. Feldman, Executive 
Secretary, Attention: Comments/OES, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, D.C. 20429. Comments may 
be hand delivered to the guard station at the rear of the 17th Street 
Building (located on F Street), on business days between 7:00 a.m. and 
5:00 p.m. (Fax number (202) 898-3838; Internet address: 
comments@fdic.gov). Comments may be inspected and photocopied in the 
FDIC Public Information Center, Room 100, 801 17th Street, NW, 
Washington, D.C. 20429, between 9:00 a.m. and 4:30 p.m. on business 
days.
FOR FURTHER INFORMATION CONTACT: Christie A. Sciacca, Assistant 
Director, (202/898-3671), Karen M. Walter, Chief, (202/898-3540), 
Suzanne L. Williams, Senior Financial Analyst, (202/898-6788), Division 
of Supervision; Jamey Basham, Counsel, (202/898-7265), Wendy Sneff, 
Counsel (202/898-6865), Karen L. Main, Senior Attorney (202/898-8838), 
Legal Division, FDIC, 550 17th Street, NW, Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review 
of its regulations and written policies. Section 303(a) of the CDRI (12 
U.S.C. 4803(a)) requires the FDIC to streamline and modify its 
regulations and written policies in order to improve efficiency, reduce 
unnecessary costs, and eliminate unwarranted constraints on credit 
availability. Section 303(a) also requires the FDIC to remove 
inconsistencies and outmoded and duplicative requirements from its 
regulations and written policies.
    As part of this review, the FDIC has determined that certain 
portions of part 346 are out-of-date, and other provisions of this part 
require clarification. Although the FDIC previously made certain 
regulatory amendments which took effect as recently as 1996, other 
regulatory language contained in part 346 does not accurately reflect 
the underlying statutory authority. The FDIC has also determined that 
part 347 is outmoded. Part 347 has not been revised in any significant 
regard since 1979, when it was originally promulgated.
    The FDIC has decided to consolidate its international banking rules 
into a single part, part 347, for ease of reference. This proposal 
places material on foreign branching and foreign bank investment by 
nonmember banks, currently located in part 347, into subpart A of part 
347. Material currently located in part 346, governing insured branches 
of foreign banks and deposit-taking by uninsured state-licensed 
branches of foreign banks, is placed in subpart B of part 347. Part 351 
of the FDIC's current rules and regulations, which contains rules 
governing the international lending operations of insured state 
nonmember banks, is placed in subpart C of new part 347. Part 351 was 
originally adopted in 1984 as an interagency rulemaking in coordination 
with the Board of Governors of the Federal Reserve System (FRB) and the 
Office of the Comptroller of the Currency (OCC). The proposed revisions 
to part 351 have been discussed with representatives from the OCC and 
FRB and they are in general agreement with the changes. However, as the 
other two federal banking agencies are not ready to act on a revised 
regulation at this time, the FDIC has decided to unilaterally issue its 
proposed revision to part 351 in connection with its consolidation of 
the international banking regulations.
    In addition, the FDIC is currently processing a complete revision 
of part 303 of the FDIC's rules and regulations, which contains the 
FDIC's applications procedures and delegations of authority. For ease 
of reference, the FDIC will consolidate its applications procedures for 
international banking matters into a single subpart of part 303, 
subpart J. At this time, the FDIC cannot determine whether this part 
347 rulemaking will be finalized before or after the FDIC's part 303 
rulemaking. To deal with this uncertainty, the FDIC's part 303 proposal 
will contain an ``interim'' version of subpart J, which will set out 
application processes compatible with the FDIC's current versions of 
parts 346 and 347. In addition, this part 347 proposal includes, as a 
separate subpart D of part 347, revised ``permanent'' application 
procedures compatible with the substantive provisions of this part 347 
proposal. These ``permanent'' application procedures will be located in 
subpart J without substantive change, displacing the interim 
procedures, once both part 303 and part 347 are issued as final rules.
    The FDIC requests public comments about all aspects of the 
proposal. In addition, the FDIC is raising specific questions for 
public comment, as set out in connection with the analysis of the 
proposal below.
[[Page 37749]]
Proposed Revisions to Part 347, Foreign Branches and Investments in 
Foreign Banks and Other Entities
Background
    Section 18(d)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1828(d)(2)) requires a nonmember bank to obtain the FDIC's consent to 
establish or operate a foreign branch. Section 18(d)(2) also authorizes 
the FDIC to impose conditions and issue regulations governing the 
affairs of foreign branches.
    Section 18(l) of the FDI Act (12 U.S.C. 1828(l)) requires a 
nonmember bank to obtain the FDIC's consent to acquire and hold, 
directly or indirectly, stock or other evidences of ownership in any 
foreign bank or other entity. Section 18(l) also states that these 
entities may not engage in any activities in the United States except 
as the Board of Directors of the FDIC (Board), in its judgment, has 
determined are incidental to the international or foreign business of 
these entities. In addition, section 18(l) authorizes the FDIC to 
impose conditions and issue regulations governing these investments. 
Finally, although nonmember banks subject to the interaffiliate 
transaction restrictions of sections 23A and 23B of the Federal Reserve 
Act, 12 U.S.C. 371c and 371c-1, as expressly incorporated by section 
18(j) of the FDI Act, 12 U.S.C. 1821(j), section 18(l) provides that 
nonmember banks may engage in transactions with these foreign banks and 
other entities in which the nonmember bank has invested in the manner 
and within the limits prescribed by the FDIC.
    A nonmember bank's authority to establish a foreign branch or 
invest in foreign banks or other entities, and the permissible 
activities for foreign branches or foreign investment entities, must be 
established in the first instance under the law of its state chartering 
authority. Congress created sections 18(d)(2) and 18(l) out of a 
concern that there was no federal-level review of nonmember banks' 
foreign branching and investments. S. Rep. No. 95-323, 95th Cong., 1st 
Sess. (1977) at 15. Although the FRB had long held authority over 
foreign branching and investment by state member banks and national 
banks (member banks) under the Federal Reserve Act, as well as foreign 
investment by bank holding companies under the Bank Holding Company 
Act, the FDIC did not hold corresponding statutory authority over 
nonmember banks until Congress created sections 18(d)(2) and 18(l) as 
part of the Financial Institutions Regulatory and Interest Rate Control 
Act of 1978, Public Law 95-630 (FIRIRCA).
    When the FDIC originally adopted part 347 in 1979, to implement the 
Corporation's new authority under sections 18(d)(2) and 18(l), the FDIC 
adopted a rule which was virtually the same as the corresponding 
provisions of the FRB's rules and regulations at the time. Based on the 
above legislative history, the FDIC determined that Congress intended 
to bring the international activities of nonmember banks under federal 
controls that were similar, but not necessarily identical, to those 
contained in the FRB's rules governing the international activities of 
member banks and bank holding companies. 44 FR 25194, 25195 (April 30, 
1979).
    In developing its proposal to revise part 347, the FDIC has 
therefore maintained a parity with the substance of the FRB's 
corresponding rules on foreign branching and investments by member 
banks, contained in subpart A of Regulation K (12 CFR 211.1-211.8). The 
permissible activities for foreign branches of nonmember banks and for 
foreign entities in which nonmember banks invest are virtually 
identical to those authorized for member banks under Regulation K. The 
amount limits and extent to which nonmember banks may engage in such 
activities without obtaining the FDIC's specific approval are also very 
similar, taking into account certain variances attributable to 
structural differences between the types of institutions governed. 
Where there are substantive differences between the FDIC's proposal and 
the FRB's rules under subpart A of Regulation K, the differences are 
noted below.
    In certain of the few limited instances in which the FDIC is 
proposing a different treatment than the FRB's under Regulation K, the 
difference raises issues under section 24 of the FDI Act (12 U.S.C. 
1831a) and part 362 of the FDIC's rules and regulations (12 CFR part 
362). Section 24 and part 362 prohibit a state bank from engaging as 
principal in any activity which is not permissible for a national bank, 
unless the FDIC first determines that it would not pose a significant 
risk of loss to the appropriate deposit insurance fund and the bank 
meets its minimum capital requirements. Section 24 and part 362 
similarly prohibit a subsidiary of a state bank from engaging as 
principal in any activity which is not permissible for a subsidiary of 
national bank, unless the FDIC first determines that it would not pose 
a significant risk of loss to the appropriate deposit insurance fund 
and the bank meets its minimum capital requirements. Section 24 and 
part 362 also prohibit a state bank from making an equity investment 
which is not permissible for a national bank, unless the investment is 
made through a majority-owned subsidiary, the FDIC determines that it 
would not pose a significant risk of loss to the appropriate deposit 
insurance fund for the subsidiary to hold the equity investment, and 
the bank meets its minimum capital requirements. Where these section 24 
issues arise, they are discussed below.
Subpart A--Foreign Branches
    The most significant revision made by the proposal is the FDIC's 
grant of authority to a nonmember bank meeting certain eligibility 
criteria to establish foreign branches under general consent or prior 
notice procedures. The existing list of foreign branch powers under 
current Sec. 347.3(c) has also been redrafted to bring it more in line 
with modern banking practice. The proposal also introduces expanded 
powers for foreign branches to underwrite, distribute, deal, invest in, 
and trade foreign government obligations.
    The general consent and prior notice procedures are discussed in 
detail in the analysis of subpart D, below, but to summarize them 
briefly, proposed Sec. 347.103(b) gives the FDIC's general consent for 
an eligible nonmember bank--one which is well-capitalized, well-rated 
under certain supervisory assessment benchmarks, has no supervision 
problems and has been in operation at least three years--to establish 
additional branches within a foreign country or relocate a branch 
within a foreign country. An eligible nonmember bank which has 
established its international expertise by successfully operating 
foreign branches or affiliates in two or more foreign countries may 
also establish branches in additional foreign countries upon 45 days 
prior notice to the FDIC. There are certain necessary limitations on 
these general consent and prior notice procedures, however, as 
discussed in the analysis of subpart D.
    In an effort to modernize the list of foreign branch powers 
currently contained in Sec. 347.3(c), the proposal eliminates 
Sec. 347.3(c)(2), containing specific authorization for a foreign 
branch to accept drafts or bills of exchange, and Sec. 347.3(c)(5), 
containing specific authorization for a foreign branch to make loans 
secured by real estate. In addition, the FDIC has not included a 
counterpart to the FRB's specific authorization for a foreign branch to 
engage in repurchase agreements involving securities that are the 
functional equivalent of extensions of credit. In the FDIC's view, 
these activities are within the general banking
[[Page 37750]]
powers of a foreign branch, and thus do not require specific mention on 
the list of activities which the FDIC is authorizing in addition to 
such general banking powers.
    The proposal also eliminates Sec. 347.3(c)(6), containing specific 
authorization for a foreign branch to pay its foreign branch officers 
and employees a greater rate of interest on branch deposits than the 
rate paid to other depositors on similar branch deposits. Regulation K 
presently contains a similar provision. While section 22(e) of the 
Federal Reserve Act (12 U.S.C. 376) generally limits a member bank's 
authority to pay employees a greater rate of interest than the rate 
paid to other depositors on similar deposits, the FDIC is not aware of 
any current regulatory restrictions directly prohibiting a nonmember 
bank from doing so, assuming there were no implications of insider 
abuse or of evading certain limited regulatory requirements concerning 
executive compensation. Thus, in the FDIC's view, this activity is 
within the general banking powers of a foreign branch of a nonmember 
bank.
    In addition, the FDIC has not included a counterpart to the FRB's 
specific authorization for a foreign branch to extend credit to an 
officer of the branch residing in the foreign country in which the 
branch is located to finance the officer's living quarters. In the 
FDIC's view, this activity is within the general banking powers of a 
foreign branch, provided that the bank observes prudent banking 
practices and Regulation O limits on loans to the bank's executive 
officers. Given that Regulation O currently makes provisions for a bank 
to finance an executive officer's purchase, construction, maintenance, 
or improvement of a personal residence, the FDIC need not specifically 
authorize it here.
    To update the current authorization under Sec. 347.3(c)(3) to hold 
the equity securities of the central bank, clearing houses, 
governmental entities, and development banks of the country in which 
the branch is located, proposed Sec. 347.103(a)(2) adds debt securities 
eligible to meet local reserve or similar requirements, as well as 
shares of automated electronic payment networks, professional 
societies, schools, and similar entities necessary to the business of 
the branch. The proposal continues to set the limit for such 
investments at 1 percent of the total deposits in all the bank's 
branches in that country as reported in the preceding year-end call 
report, subject to the same exclusions as currently apply for 
investments required by local law or permissible for a national bank 
under 12 U.S.C. 24 (Seventh). The FDIC specifically requests public 
comment on whether this limit is too high or too low, or should be 
calculated on a different basis.
    The current authorization under Sec. 347.3(c)(4) to underwrite, 
distribute and deal, invest and trade in obligations of the national 
government of the country in which the branch is located has been 
similarly updated. Proposed Sec. 347.103(a)(3) clarifies that 
obligations of the national government's political subdivisions, and 
its agencies and instrumentalities if supported by the national 
government's taxing authority or full faith and credit, are also 
eligible. The proposal also revises the investment limit to make it 10 
percent of the nonmember bank's tier 1 capital, instead of the outdated 
reference to 10 percent of its capital and surplus.
    Finally, the FDIC is considering whether it would be appropriate 
and desirable to permit a foreign branch to underwrite, distribute and 
deal, invest in and trade obligations of any foreign government, rather 
than just the obligations of the country in which it is located. 
Proposed Sec. 347.103(a)(3)(ii) would permit this activity, so long as 
the issuing country permits foreign enterprises to do so. Since 
Regulation K does not currently authorize member (and thus national) 
banks to conduct this activity, the proposal presents an issue under 
section 24 of the FDI Act and part 362 of the FDIC's rules and 
regulations. If adopted as part of the final rule, 
Sec. 347.103(a)(3)(ii) would represent the FDIC's determination that 
the activity would not create a significant risk to the deposit 
insurance fund.1
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    \1\ Because section 24 only permits the FDIC to authorize equity 
investments which are not permissible for a national bank through a 
majority-owned subsidiary, proposed Sec. 347.103(a)(3)(B) would 
require any foreign government obligations which constitute equity 
interests to be held through a subsidiary of the foreign branch. 
However, practically speaking, the vast majority of foreign 
government obligations would be debt obligations instead of equity 
interests, and could be held at the branch level.
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    Proposed Sec. 347.103(a)(3)(ii) would allow nonmember banks to 
consolidate these activities, which must currently be carried out in 
different branch offices in each country, into a single branch office, 
for more convenient administration and oversight. The proposal would 
include these activities as part of the 10 percent limit applicable to 
local obligation underwriting, distribution, investment and trading, 
and would also require the non-local obligations to be investment 
grade. The FDIC would expect nonmember banks to make appropriate 
periodic independent credit reviews to determine and monitor the 
investment-grade quality of issues which are unrated or rated under 
comparatively less-rigorous standards than the ones used by U.S. 
ratings agencies. The FDIC specifically requests comments on the merits 
of the proposal, including comments on appropriate amount limits if the 
activity is authorized and any appropriate safeguards which should be 
imposed.
Subpart A--Foreign Investments
Overview
    The FDIC is completely revising its approach to approvals of a 
nonmember bank's investment in the stock or other evidences of 
ownership of a foreign bank or other entity. Section 347.4 has not been 
revised in any significant regard since the FDIC originally adopted it, 
shortly after Congress gave the FDIC statutory responsibility for 
reviewing foreign investments. It currently provides little information 
about the types of activities in which the FDIC would consider it to be 
appropriate for a foreign investment entity to engage. The rule 
requires specific FDIC approval of virtually every foreign investment, 
and limits total investment in all cases to 25 percent of a nonmember 
bank's capital. Nonmember banks affected by the rule have advised the 
FDIC that they view the current approach as an impediment to their 
ability to compete effectively abroad. While the FDIC must remain 
mindful of its supervisory obligations arising from the FDI Act and 
international supervisory agreements, and has a responsibility to 
address certain issues to ensure that international operations do not 
threaten the safety and soundness or financial condition of nonmember 
banks, the FDIC agrees that the rule can be significantly revised in 
light of the experience the Corporation has gained since Sec. 347.4 was 
originally adopted.
    The FDIC's proposal adopts an approach like that of the FRB under 
Regulation K. The proposed rule lists the various types of financial 
activities in which a nonmember bank's foreign subsidiaries and joint 
ventures may engage. The proposal also authorizes limited indirect 
investment in and trading of the stock of nonfinancial entities. 
Securities underwriting and dealing abroad up to specified limits is 
permitted, with the FDIC's prior approval. Moreover, the proposed rule 
grants eligible nonmember banks the FDIC's general consent to make 
investments in conformity with the rule up to specified annual limits, 
and
[[Page 37751]]
permits additional investments upon 45 days prior notice.
Investment in Foreign Banks and Other Entities Engaged in Financial 
Activities
    Proposed Sec. 347.104(b) contains a list of approved activities 
which are financial in nature. A foreign subsidiary of a nonmember bank 
is limited to conducting these authorized financial activities, unless 
the nonmember bank acquires the subsidiary as a going concern, in which 
case up to 5 percent of the subsidiary's assets or revenues may be 
attributable to activities which are not on the list. Under the 
proposed definition of ``subsidiary'' at Sec. 347.102(p), a foreign 
organization is a subsidiary of a nonmember bank if the nonmember bank 
and its affiliates hold more than 50 percent of the foreign 
organization's voting equity securities. It is important to note that 
this proposed definition of a subsidiary differs from the commonly-used 
subsidiary definitional structure based on section 2(d) of the Bank 
Holding Company Act (12 U.S.C. 1841(d)). Under the section 2(d) type of 
structure, subsidiary status typically arises upon ownership of 25 
percent or more of the subsidiary's voting securities.
    Subsidiary status under the section 2(d) type of structure also 
arises when the parent controls election of the majority of the 
subsidiary's directors in any manner or if the parent has the power to 
directly or indirectly exercise a controlling influence over the 
management and policies of an organization. In contrast, the FDIC's 
proposal separates these elements out into their own definition of 
``control'' at Sec. 347.102(b). Section 347.102(b) also provides that 
control is deemed to exist whenever a nonmember bank or its affiliate 
is a general partner of a foreign organization. As is the case with 
subsidiaries, any foreign organization which is controlled by a state 
nonmember bank or its affiliates, regardless of the percent of voting 
stock owned by the state nonmember bank, is limited to conducting 
approved financial activities contained on the Sec. 347.104(b) list, 
subject to the same 5 percent exception for going concerns.
    The FDIC has proposed the less-inclusive subsidiary definition 
which is triggered at 50 percent rather than the more commonly-used 25 
percent in order to maintain consistency with the corresponding 
provisions of Regulation K. This less-inclusive approach is also 
carried through to the definition of an affiliate under proposed 
Sec. 347.102(a), also to maintain consistency with Regulation K. The 
FDIC has attempted to establish activity and amount limits in this part 
347 proposal which take into account any conduct of similar activities 
by the nonmember bank's holding company or the holding company's other 
affiliates as authorized by Regulation K. The use of consistent 
definitional thresholds is of great assistance to this end.
    If a nonmember bank and its affiliates hold less than 50 percent of 
the voting equity securities of a foreign organization and do not 
control the organization, up to 10 percent of the organization's assets 
or revenues may be attributable to activities which are not on the 
list. If the nonmember bank and its affiliates' holdings are less than 
20 percent of a foreign organization's voting equity interests, the 
nonmember bank is also prohibited from making any loans or extensions 
of credit to the organization which are not on substantially the same 
terms as those prevailing at the time for comparable transactions with 
nonaffiliated organizations. The FDIC is contemplating whether this 20 
percent limit should be somewhat higher, and specifically requests 
public comment on this point.
    The list of authorized financial activities in proposed 
Sec. 347.104(b) is modeled on the FRB's corresponding provision in 
Regulation K, 12 CFR 211.5(d). The proposal reorders the activities in 
an effort to group similar activities together, and where there are 
conditions and limitations on the conduct of a particular activity, 
this additional information is separately set out in proposed 
Secs. 347.105 and 347.106. Additional activities require the FDIC's 
approval.
    The proposal does not include six activities which currently appear 
in Regulation K. The FDIC has not included these activities, because 
they are each authorized under Regulation Y (12 CFR 225.28(b)) as being 
closely related to banking under section 4(c)(8) of the Bank Holding 
Company Act (Regulation Y list), and the proposal authorizes foreign 
investment organizations to engage in any activity on the Regulation Y 
list. The omitted activities are: financing; acting as fiduciary; 
providing investment, financial, or economic advisory services; leasing 
real or personal property or acting as agent, broker or advisor in 
connection with such transactions if the lease serves as the functional 
equivalent of an extension of credit to the lessee; acting as a futures 
commission merchant; and acting as principal or agent in swap 
transactions.
    In addition, proposed Sec. 347.104(b) contains certain activities--
for example, data processing--which are also authorized by the 
Regulation Y list, but are subject to certain additional limitations 
and conditions under Regulation Y. In such cases, the activities are 
included in Sec. 347.104(b) because a foreign investment entity is 
permitted to conduct them under the less restrictive terms of 
Sec. 347.104(b). But in cases in which the nonmember bank relies solely 
on Sec. 347.104(b)'s cross-reference to the Regulation Y list as 
authority to conduct an activity, the foreign investment entity must 
comply with the attendant restrictions in 12 CFR 227.28(b).
    Also, in the case of one activity authorized by Sec. 347.104(b)'s 
cross-reference to the Regulation Y list, acting as a futures 
commission merchant (FCM), the FDIC is contemplating imposing one 
restriction in addition to the restrictions imposed by Regulation Y at 
12 CFR 225.28(b). Under proposed Sec. 347.106(a), a foreign investment 
entity could not have potential liability to a mutual exchange or 
clearing association of which the foreign investment entity was a 
member exceeding an amount equal to 2 percent of the nonmember bank's 
tier 1 capital, unless the FDIC has granted its prior approval.
    This overall approach, in which part 347 specifies an approved list 
of activities applicable to varying degrees depending on the nonmember 
bank's proportional ownership of a foreign organization, is a major 
change from the approach under current part 347, in which activities 
are evaluated on a case-by-case basis in connection with the FDIC's 
approval of the investment. The FDIC specifically requests public 
comment on this new approach, including whether the limits are 
appropriate.
    Unlike Regulation K, the FDIC's proposal authorizes nonmember banks 
to directly invest in foreign organizations which are not foreign 
banks. Under 12 CFR 211.5(b)(2), the only foreign organizations in 
which member banks are permitted to invest directly are foreign banks; 
foreign organizations formed for the sole purpose of either holding 
shares of a foreign bank or for performing nominee, fiduciary, or other 
banking services incidental to the activities of the member bank's 
foreign branches or affiliates; or subsidiaries of foreign branches 
authorized under 12 CFR 211.3(b)(9). Any investment by a member bank in 
a foreign organization which is not one of these types of entities must 
be made indirectly, through an Edge corporation subsidiary or foreign 
bank subsidiary of the member bank. This limitation arises out of the 
language of section 25 of the
[[Page 37752]]
Federal Reserve Act, which generally limits the direct investments of 
member banks to foreign banks. In contrast, section 18(l) of the FDI 
Act permits state nonmember banks, to the extent authorized by state 
law, to invest in foreign ``banks or other entities.'' As discussed 
above, the legislative history of section 18(l) shows that Congress 
was, at the time it created section 18(l), mindful of the FRB's 
parallel authority over member banks under section 25. Therefore, the 
FDIC interprets the difference between the two statutes to be 
significant, and the type of foreign organizations in which a state 
nonmember bank may invest directly are not restricted by section 18(l).
    A national bank's inability to invest directly in the shares of a 
nonbank foreign organization raises issues under section 24 of the FDI 
Act and part 362 of the FDIC's rules and regulations. If a nonmember 
bank acquires a sufficient stake in a nonbank foreign organization such 
that the nonbank foreign organization is a ``majority-owned 
subsidiary'' \2\ of the state nonmember bank for purposes of section 
24, no section 24 analysis is required. This is because the FDIC's 
proposed rule only authorizes foreign organizations to engage in the 
same activities which the FRB has authorized for the foreign 
subsidiaries of member (and thus national) banks. Therefore, the 
nonmember bank's foreign subsidiary could only engage as principal in 
the same activities permitted for a foreign subsidiary of a national 
bank, and section 24's application requirement is never triggered.
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    \2\ Section 24 and part 362 do not set out a separate definition 
of ``majority owned subsidiary.'' Part 362 defines a ``subsidiary'' 
to mean any company directly or indirectly controlled by an insured 
state nonmember bank. Part 362 further defines ``control'' to mean 
the power to vote, directly or indirectly, 25 percent or more of any 
class of the voting stock of a company, the ability to control in 
any manner the election of a majority of a company's directors or 
trustees, or the ability to exercise a controlling influence over 
the management and polices of a company. A state nonmember bank thus 
holds a company as a ``majority-owned subsidiary'' when the bank 
holds more than 50 percent of the company's stock. This is 
equivalent to the definition of ``subsidiary'' in proposed 
Sec. 347.102(p).
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    If the nonmember bank holds a lesser amount of the nonbank foreign 
organization's shares, such that it does not arise to a ``majority-
owned subsidiary'' within the meaning of section 24 and part 362, the 
FDIC is required by section 24 and part 362 to determine that the 
nonmember bank's equity investment in a nonbank foreign organization 
does not pose a significant risk to the appropriate deposit insurance 
fund. Moreover, section 24 and part 362 provide that the FDIC may only 
permit equity investments to be held by the bank through a majority-
owned subsidiary. Under the proposal, the FDIC would permit such 
investments, and require them to be held through some form of U.S. or 
foreign majority-owned subsidiary. If adopted as part of the final 
rule, this would represent the FDIC's determination that dispensing 
with the intermediate foreign bank subsidiary or Edge subsidiary, the 
vehicle through which a national bank would be permitted to make this 
type of investment, would not create a significant risk to the deposit 
insurance fund.
    The FDIC is also omitting one activity authorized by Regulation K 
concerning a foreign investment entity's ability to underwrite life, 
annuity, pension fund-related, and other types of insurance, where the 
associated risks have been determined by the FRB to be actuarially 
predictable. Under Regulation K, the FRB has not given general 
authorization for this activity to be conducted directly or indirectly 
by a subsidiary of a U.S. insured bank. Since the activity is thus not 
generally permissible for a subsidiary of a national bank, a section 24 
issue arises. However, under section 24(b) and 24(d)(2), the FDIC may 
not give section 24 approval for a state bank or its subsidiary to 
engage in insurance underwriting to the extent it is not permissible 
for a national bank, or is not expressly excepted by other subsections 
of section 24 covering limited types of insurance underwriting. 
Therefore, the FDIC is presently foreclosed from granting general 
regulatory authorization for nonmember banks to underwrite life, 
pension-fund related, or other types of insurance in this fashion. The 
question of permitting nonmember banks to underwrite annuities through 
a foreign organization is beyond the scope of this rulemaking.
    The FDIC specifically requests public comment on the list of 
activities under proposed Sec. 347.104(b), including the scope of such 
activities and whether any different conditions or limits would be 
appropriate.
Portfolio Investments in Nonfinancial Foreign Organizations
    Proposed Sec. 347.104(g) authorizes nonmember banks to make 
portfolio investments in a foreign organization without regard to 
whether the activities of the organization are authorized financial 
activities listed in Sec. 347.104(b). Aggregate holdings of a 
particular foreign organization's equity interests by the nonmember 
bank and its affiliates must be less than 20 percent of the foreign 
organization's voting equity interests and 40 percent of its total 
voting and nonvoting equity interests. The FDIC is proposing the latter 
restriction to prevent a nonmember bank from, by obtaining a large 
equity position albeit a nonvoting one, obtaining a level of influence 
over the foreign organization which is inconsistent with the notion of 
a portfolio holding. The nonmember bank and its affiliates are not 
permitted to control the foreign organization, and any loan or 
extensions of credit to the foreign organization are to be on 
substantially the same terms as those prevailing at the time for 
comparable transactions with nonaffiliated organizations.
    The FDIC is considering limiting these investments in nonfinancial 
foreign organizations to an amount equal to 15 percent of the nonmember 
bank's tier 1 capital. The FDIC seeks to establish a level which will 
permit a nonmember bank's foreign subsidiaries to compete effectively 
with other financial institutions in their foreign markets. The FDIC 
specifically requests public comment on whether this limit is too high, 
or too low, and whether any additional safeguards are appropriate. The 
FDIC is also considering whether nonmember banks should be permitted to 
hold somewhat more than 20 percent of the organization's voting equity 
interests, and specifically requests public comment on this issue.
    In contrast to its approach with foreign organizations engaged 
primarily in financial activities authorized under Sec. 347.104(b), 
proposed Sec. 347.104(g) does not displace current limitations 
prohibiting member (and thus national) banks from making nonfinancial 
portfolio investments at the bank level or through a domestic 
subsidiary of the bank. Section 347.104(g) requires these investments 
to be held through a foreign subsidiary, or an Edge corporation 
subsidiary (subject to the FRB's authorization). The FDIC believes a 
nonmember bank's foreign bank and other financial subsidiaries must be 
permitted to make such investments in order to compete effectively in 
their foreign markets, and since such investments are permissible for a 
national bank, no section 24 analysis is required.
U.S. Activities of Foreign Organizations
    As discussed above, section 18(l) of the FDI Act states that the 
foreign organizations in which nonmember banks invest may not engage in 
any activities in the U.S. except as the Board, in its judgment, have 
determined are incidental to the international or foreign business of 
the foreign
[[Page 37753]]
organization. Proposed Sec. 347.107 addresses what activities may be 
engaged in within the United States. The proposal prohibits a nonmember 
bank from investing in any foreign organization which engages in the 
general business of buying or selling goods, wares, merchandise, or 
commodities in the U.S., and prohibits investments totaling over 5 
percent of the equity interests of any foreign organization if the 
organization engages in any business or activities in the U.S. which 
are not incidental to its international or foreign business. A foreign 
organization will not be considered to be engaged in business or 
activities in the U.S. unless it maintains an office in the U.S. other 
than a representative office.
    This structure follows the one established by the FRB under 
Regulation K. The FDIC is including the 5 percent threshold and the 
U.S. office threshold in acknowledgment that the U.S. is a leading 
international market and a substantial number of foreign organizations 
transact some portion of their business here. If nonmember banks are 
prohibited from investing in every foreign organization which does even 
a limited amount of its business in the U.S., nonmember banks will be 
at a disadvantage vis a vis their international financial institution 
competitors.
    Beyond these thresholds, the FDIC is proposing to permit a foreign 
organization to conduct activities that are permissible in the U.S. for 
an Edge corporation, or such other business or activities as are 
approved by the FDIC. In approving additional activities, the FDIC will 
consider whether the activities are international in character. For 
activities proposed by a foreign subsidiary or joint venture of a 
nonmember bank, the FDIC will also consider whether the activity would 
be conducted through a foreign organization to circumvent some legal 
requirement which would apply if the nonmember bank conducted the 
activity through a domestic organization.
    The FDIC specifically requests comments on this aspect of the 
proposal, including whether the thresholds and approved U.S. activities 
are appropriate.
Underwriting, Distributing, and Dealing Equity Securities Outside the 
United States
    Under the proposal, a foreign investment entity of a nonmember bank 
would be permitted to underwrite, distribute, and deal equity 
securities outside the United States. Briefly summarized, the FDIC is 
considering imposition of three main limits as part of proposed 
Sec. 347.105:
    Underwriting commitments for a single issuer could not exceed an 
amount equal to the lesser of $60 million or 25 percent of the 
nonmember bank's tier 1 capital.
    Distribution and dealing shares of a single entity could not 
exceed an amount equal to the lesser of $30 million or 5 percent of 
the nonmember bank's tier 1 capital.3
---------------------------------------------------------------------------
    \3\ Regulation K currently authorizes the lesser of $30 million 
or 10 percent.
---------------------------------------------------------------------------
    The sum of underwriting commitments, distribution and dealing 
shares, and any portfolio investments in nonfinancial foreign 
organizations under Sec. 347.104(g) could not exceed an amount equal 
to 25 percent of the nonmember bank's tier 1 capital.
Each of these three limits is discussed further below. In determining 
compliance with these limits, the nonmember bank would count all 
commitments of and shares held by each foreign organization in which 
the nonmember bank has invested pursuant to subpart A of part 347. The 
nonmember bank would also count all commitments of and shares held by 
foreign organizations in which the nonmember bank's affiliates have 
invested pursuant to subpart A of Regulation K.
    The $60 million/25 percent underwriting commitment limit could be 
exceeded to the extent the commitment is covered by binding commitments 
from subunderwriters or purchasers. The limit could also be exceeded to 
the extent the commitment is deducted from the nonmember bank's capital 
and the bank remains well-capitalized after the deduction. At least 
half of this deduction would be from tier 1 capital, and the deduction 
would be applicable for all regulatory purposes.
    The $30 million/5 percent limit on the equity securities of a 
single entity which may be held for distribution or dealing would be 
subject to two exceptions. First, in order to facilitate underwritings, 
any equity securities acquired pursuant to an underwriting commitment 
extending up to 90 days after the payment date of the underwriting 
would not be included in the limit. Second, up to 75 percent of the 
position in an equity security could be reduced by netting long and 
short positions in the identical equity security, or by offsetting cash 
positions against derivative instruments referenced to the same 
security. The provision permitting netting of derivative positions is 
intended to recognize the beneficial impact of prudent hedging 
strategies, and encourage such strategies where the nonmember bank and 
the foreign organization determines they are appropriate. The FDIC 
would expect a nonmember bank asserting netting involving derivatives 
to be able to establish the validity of the hedging strategy to the 
nonmember bank's examiners.
    If the nonmember bank's foreign organizations hold the same equity 
securities for distribution and dealing as well as for investment or 
trading pursuant to Sec. 347.104 or the corresponding provision of 
Regulation K, two additional considerations would apply:
    The investment or trading securities would be included in 
calculating the 5 percent/$30 million per-entity distribution and 
dealing limit, in order to prevent securities which are potentially 
distribution or dealing inventory from being characterized as 
investment or trading shares. Conversely, if the nonmember bank 
relies on the general consent provisions under proposed Sec. 347.108 
to acquire the securities for investment or trading purposes, 
distribution and dealing securities would be counted towards the 
general consent investment limits.
    In addition, equity interests in a particular foreign 
organization held for distribution and dealing would be required to 
conform with the limits of proposed Sec. 347.104. Equity interests 
held for distribution or dealing by an affiliate permitted to do so 
under Sec. 337.4 of the FDIC's rules and regulations (12 CFR 337.4) 
or section 4(c)(8) of the Bank Holding Company Act (12 U.S.C. 
1843(c)(8)) would be counted for this limit. If the nonmember bank's 
foreign organizations hold equity interests in the same entity for 
investment and trading purposes, such interests would be included in 
determining compliance with these limits. However, in order to 
permit 100 percent underwriting, the proposal contains an exception 
for equity securities acquired pursuant to an underwriting 
commitment for up to 90 days after the payment date for the 
underwriting.
    The combined limit, under which nonfinancial portfolio shares, 
underwriting commitments, and distribution and dealing shares would be 
limited to 25% of the nonmember bank's capital, would only include 
underwriting commitments net of amounts subject to commitments from 
subunderwriters or purchasers or already deducted from the nonmember 
bank's capital. Equity securities held for distribution or dealing 
would only be counted net of any position reduction through netting, as 
permitted in connection with the 5% dealing limit.
    The FDIC specifically requests public comments on the underwriting, 
distribution, and dealing aspects of the proposal, including comments 
on whether the limits and limit adjustments are too low or too high, 
the basis upon which limits should be calculated, and any appropriate
[[Page 37754]]
safeguards. The FDIC also requests comments on the proposed netting 
provisions and on the type of hedging strategies a nonmember bank might 
use pursuant to the proposed netting provisions concerning derivatives.
Approval of Investments
    The FDIC is proposing to permit a nonmember bank meeting certain 
eligibility criteria to make foreign investments under the rule 
pursuant to general consent and prior notice procedures. These 
procedures are discussed in detail in the analysis of proposed subpart 
D below, but to summarize them briefly, proposed Sec. 347.108 grants 
the FDIC's general consent for nonmember banks meeting the same 
eligibility criteria as apply in the foreign branching context to 
invest up to 5 percent of their tier 1 capital in any twelve month 
period, plus up to an additional 5 percent in equity interests for 
trading purposes. A sublimit of 2 percent of tier 1 capital per foreign 
organization applies. The nonmember bank must already have at least one 
foreign organization subsidiary, and at least one nonmember bank must 
have a foreign organization subsidiary in the relevant foreign country, 
in order for general consent to be applicable. An investment that does 
not qualify for general consent, but is otherwise in compliance with 
the rule, may be made by an eligible bank upon 45 days prior notice. 
There are certain necessary limitations on these general consent and 
prior notice procedures, however, as discussed in the analysis of 
proposed subpart D.
Extensions of Credit
    Proposed Sec. 347.109(a) does not alter the FDIC's current 
treatment under Sec. 347.5 of extensions of credit to foreign 
investment entities. The limitations of section 18(j) of the FDI Act, 
incorporating by reference the interaffiliate transaction restrictions 
of sections 23A and 23B of the Federal Reserve Act, do not apply. The 
FDIC specifically requests public comment whether it is appropriate to 
continue this aspect of the rule without change, in light of the 
activities and investments which would be permitted under the proposal.
Debts Previously Contracted
    With one exception, proposed Sec. 347.109(b) does not alter the 
FDIC's current treatment under Sec. 347.4(b), whereby equity interests 
acquired to prevent loss on a debt previously contracted in good faith 
are not subject to the limits and approvals of the regulation. The FDIC 
is proposing to extend the time period an institution is granted to 
dispose of such equity interests without the FDIC's specific approval 
under part 347 from one to two years. The extension is not intended to 
relieve an institution from its general obligation to dispose of the 
investment promptly under the circumstances and make diligent efforts 
to such end. However, extending the point at which an application is 
required will reduce administrative burden, and the FDIC can monitor 
the progress of divestiture efforts as part of the normal examination 
cycle. As with the current requirements of Sec. 347.4(b), the proposed 
rule is not intended to displace any of the nonmember bank's concurrent 
obligations under state law, or extend a state law divestiture or 
approval period of less than two years. The FDIC specifically requests 
public comment on the merits of extending this time period, and the 
appropriate duration of the extension.
Supervision and Recordkeeping for Foreign Branches and Investments
    With one exception, proposed Sec. 347.110 does not alter the FDIC's 
current requirements for reporting and recordkeeping under current 
Sec. 347.6. These requirements are intended to facilitate both the 
nonmember bank's oversight of its foreign operations and the FDIC's 
supervision of them. The proposal adds one new element. If a nonmember 
bank seeks to establish a foreign branch, or acquire a foreign joint 
venture or subsidiary, in a country in which applicable law or practice 
would limit the FDIC's access to information about the branch or 
subsidiary for supervisory purposes, the nonmember bank may not rely on 
the FDIC's general consent or prior notice procedures to do so. In such 
cases, the FDIC must have an opportunity to evaluate the impact of the 
limits on the FDIC's access, and determine whether the FDIC can still 
serve its domestic and international supervisory obligations through 
measures such as duplicate record-keeping in the U.S., reliance on host 
country supervisors, operating policies of the foreign organization, or 
reliance on recognized external auditors.
Proposed Revisions to Part 346, Deposit Insurance Requirements for 
State Branches and Foreign Banks Having Insured Branches
Background
    The FDIC adopted part 346 as a final regulation on July 9, 1979. 
This part was originally promulgated to implement various provisions of 
the International Banking Act of 1978 (IBA) (Pub. L. 95-369). 12 U.S.C. 
3101 et seq. Under the IBA, foreign banks operating in the United 
States through branches, agencies or commercial lending companies are 
subject to federal supervision and regulation similar to that imposed 
on like activities of domestic banks. For example, section 6 of the IBA 
requires certain branches of foreign banks to obtain federal deposit 
insurance. In particular, deposit insurance is required for a federal 
branch that accepts deposits of less than $100,000 and for a state 
branch that accepts deposits of less than $100,000 if it is located in 
a state which requires deposit insurance for state-chartered banks. 
Exemptions from the insurance requirement may be granted either by 
regulation or by order of the OCC, in the case of a federal branch, or 
the FDIC, in the case of a state branch, if the branch is not engaged 
in a domestic retail deposit activity requiring insurance protection. 
Section 6 also made numerous amendments to the FDI Act. The amendments 
to the FDI Act dealt with in part 346 include: (1) A requirement that 
the foreign bank give a commitment for examination; (2) a requirement 
that the foreign bank pledge assets to the FDIC; (3) rules for the 
maintenance of assets in the branch; and (4) rules for the assessment 
of deposits by the FDIC.
    In 1991, the IBA was amended with the passage of the Federal 
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) (Pub. L. 
102-242); specifically, sections 201-215 of FDICIA were enacted as the 
Foreign Bank Supervision Enhancement Act of 1991 (FBSEA). This 
legislation made numerous changes to the IBA. Section 6 of the IBA was 
amended to require that any foreign bank that intends to conduct 
domestic retail deposit activities in the United States must do so by 
organizing one or more insured bank subsidiaries in the United States. 
Until this legislative change, foreign banks were allowed to accept 
initial deposits of less than $100,000 in insured branches. In 
addition, section 7 of the IBA was amended by adding a new subsection 
(h) which provides that a state-licensed insured branch of a foreign 
bank may not engage in any activity which is not permissible for a 
federal branch of a foreign bank unless the FRB has determined that the 
activity is consistent with sound banking practice, and the FDIC has 
determined that the activity would pose no significant risk to the Bank 
Insurance Fund (BIF). The statutory amendments to section 7 of the IBA 
were implemented in part 346 in final form and became effective on
[[Page 37755]]
January 1, 1995. At that time, a new subpart D was added to address the 
application procedures and approval process necessary for an insured 
state branch to request permission from the FDIC (and the FRB) to 
engage in or continue an activity that is otherwise not permissible for 
a federal branch of a foreign bank. The statutory requirement that a 
foreign bank only accept domestic retail deposits in the United States 
through an insured bank subsidiary was not incorporated into part 346 
at that time.
    Finally, in 1994, with the enactment of section 107 of the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-
Neal Act) (Pub. L. 103-328), the federal banking agencies were charged 
with the obligation of revising their respective regulations adopted 
pursuant to section 6 of the IBA to ensure that the regulations are 
consistent with the legislative goal of ``affording equal competitive 
opportunities to foreign and United States banking organizations in 
their United States operations [and to] ensure that foreign banking 
organizations do not receive an unfair competitive advantage over 
United States banking organizations.'' 12 U.S.C. 3104(a). To this end, 
the FDIC reviewed and revised its regulation governing the deposit 
insurance exemptions available to state branches under part 346. 
Section 346.6. The current list of excepted deposit-taking activities 
enumerated in Sec. 346.6(a) became effective on April 1, 1996.
Current Part 346
    Subpart A of part 346 contains the definitions of terms which are 
relevant to the regulatory provisions set forth in this part. Subpart B 
establishes rules for determining which state branches must obtain 
deposit insurance. Basically, branches engaged in ``retail'' deposit 
activity must be insured while branches engaged in ``wholesale'' 
deposit activity do not have to be insured. Subpart B also includes a 
requirement that where one branch of a foreign bank becomes insured, 
every branch of that bank in the same state must become insured (except 
for branches which accept only initial deposits in an amount of 
$100,000 or greater). This restriction on the operation of insured 
branches applies to both federal and state branches. Section 346.6 of 
this subpart lists the types of excepted deposit-taking activities 
which will not be deemed to be ``domestic retail deposit activity'' and 
describes the procedures for a state branch to apply for an exemption 
from the deposit insurance requirement; Sec. 346.7 provides depositor 
notification requirements for those noninsured branches.
    Subpart C of part 346 establishes rules that apply to foreign banks 
which operate insured state or federal branches. These rules require a 
foreign bank having an insured branch to: (1) Provide the FDIC with 
information regarding the bank's activities outside of the United 
States and allow the FDIC to examine the foreign bank's activities in 
the United States; (2) maintain records in an appropriate manner; (3) 
pledge assets under terms acceptable to the FDIC; and (4) maintain 
assets at the branch equal in value to the branch's liabilities. Rules 
for assessing the deposits of an insured branch are also set out. As 
mentioned above, a new subpart D was added in 1995 which provides that 
a foreign bank operating an insured state branch which desires to 
engage in or continue an activity that is not permissible for a federal 
branch, pursuant to statute, regulation, official bulletin or circular, 
or any other order or interpretation issued in writing by the OCC, 
shall file with the FDIC (and the FRB) a prior written application for 
permission to conduct or continue such activity. Subpart D describes 
the application contents, the filing procedures and the circumstances 
under which a plan of divestiture or cessation must be submitted to the 
FDIC.
Subpart B Proposal
    Former part 346 will become subpart B of the new, consolidated part 
347. Unlike former part 347, former part 346 has been revised several 
times since its original adoption to implement various provisions of 
the IBA which were amended by FBSEA and the Riegle-Neal Act in 1991 and 
1994, respectively. However, one significant change to section 6 of the 
IBA which was effected by FBSEA in 1991 has not been implemented by a 
revision of the FDIC's regulations. FBSEA amended section 6 of the IBA 
to require that foreign banks which intend to conduct domestic retail 
deposit activities in the United States must organize insured bank 
subsidiaries to conduct those deposit activities after December 19, 
1991. (Section 6(c) of the IBA; however, in 1994, the section was re-
designated as section 6(d).) However, any insured branches which were 
accepting or maintaining domestic retail deposit accounts on December 
19, 1991, are allowed to continue to operate as insured branches 
conducting retail deposit activities (grandfathered insured branches). 
IBA section 6(d) also provides an exception to the definition of 
``foreign bank'' which excludes ``any bank organized under the laws of 
any territory of the United States, Puerto Rico, Guam, American Samoa, 
or the Virgin Islands the deposits of which are insured by the [FDIC] 
pursuant to the [FDI Act]''. IBA section 6(d)(3). This definitional 
``carve out'' has the effect of allowing banks organized under the laws 
of the territories included therein to continue to conduct domestic 
retail deposit activities in the United States through insured branches 
rather than be required to charter an insured bank subsidiary. This 
statutory framework to authorize and regulate the domestic retail 
deposit activities of foreign banks in the United States has been 
implemented in proposed Sec. 347.204. Moreover, corresponding revisions 
to other relevant sections in subpart B are also being made to 
recognize this statutory change to the deposit insurance requirements 
for foreign banks.
    Proposed Sec. 347.206 addresses exemptions from the deposit 
insurance requirement. Paragraph (a)(7) has been revised in an effort 
to simplify and clarify the calculation of the regulatory de minimis 
exception. The transition rule applicable to time deposits has been 
revised by the deletion of the reference to 90 days after the effective 
date of the regulation which has been rendered moot with the passage of 
time. Finally, the FDIC is proposing to rescind former Sec. 346.8 of 
its rules and regulations. Former Sec. 346.8 provides foreign banks 
with the opportunity to apply for deposit insurance for their U.S. 
branches which would not otherwise be required to be insured pursuant 
to proposed Sec. 347.204.
    In the portion of former part 346 that addressed the examination 
and supervisory requirements for foreign banks having insured branches, 
several proposed changes have been made. First, in proposed 
Sec. 347.210 which sets out the requirements for foreign banks to 
pledge assets for the benefit of the FDIC, the formula for calculating 
the amount of assets to be pledged has been simplified and clarified. 
Proposed Sec. 347.210(b). Other revisions have been made throughout 
proposed Sec. 347.210 to incorporate the FDIC DOS's new supervision 
program--the Case Manager approach.
    Finally, in connection with the FDIC's CDRI review of part 303 of 
its rules and regulations, the application procedures for the exemption 
from domestic retail deposit activities for a noninsured branch which 
were formerly found in Sec. 346.6(b) of part 346 will be temporarily 
transferred to Sec. 347.404, and the application and divestiture plan 
procedures set forth in the current section governing FDIC approval for 
state insured branches to conduct
[[Page 37756]]
activities not permissible for federal branches will be temporarily 
relocated to Sec. 347.405 of this part. Because former part 346 will 
become subpart B of the proposed part 347, the two separate scope 
sections of the former part have been combined to create a more 
cohesive and integrated subpart B. Some technical and non-substantive 
changes have been made to several of the definitions in proposed 
Sec. 347.202, and the terms have been alphabetized for the reader's 
ease of reference.
Insurance of Deposits Sections
    As presented above in the general discussion of the proposed 
subpart B, one legislative change which must be incorporated throughout 
the applicable sections addressing deposit insurance requirements for 
state branches is the mandate that domestic deposit retail activity be 
conducted through an insured bank subsidiary. The first section in 
subpart B which is affected by this statutory change is proposed 
Sec. 347.201 which discusses the scope of the new subpart. Proposed 
Sec. 347.204, ``Insurance requirement'', is being completely 
reorganized to incorporate the statutory requirement that a foreign 
bank must organize an insured bank subsidiary to initiate or conduct 
domestic retail deposit activity in the United States. This requirement 
is set forth in proposed Sec. 347.204(a). Paragraph (b) of that section 
sets out the exclusion to the definition of ``foreign bank'' discussed 
above, which will allow banks organized under the laws of the U.S. 
territories included therein to conduct domestic retail deposit 
activities through insured branches rather than being required to 
charter an insured bank subsidiary. This exception reflects the fact 
that banks organized in these jurisdictions are already subject to more 
comprehensive examination and supervision by the U.S. banking 
regulatory agencies, and therefore, these banks can engage in retail 
deposit-taking in the U.S. through their branch networks. Paragraph (c) 
recognizes that there are grandfathered insured branches that are 
authorized to continue domestic retail deposit activities because they 
were operating prior to the effective date of the FBSEA legislation. 
And finally, paragraph (d) authorizes foreign banks to establish or 
operate noninsured branches if such branch (i) is only conducting a 
``wholesale'' deposit operation, (ii) is only accepting deposits that 
are permissible for an Edge Act corporation (pursuant to Sec. section 
347.205); or (iii) meets the requirements for an exemption from the 
definition of ``domestic retail deposit activity'' pursuant to proposed 
Sec. 347.206.
    The FDIC is proposing to make minor revisions to Sec. 346.6 
(proposed Sec. 347.206)--the section which enumerates the exemptions to 
the definition of ``domestic retail deposit activities'' for state 
branches of foreign banks. Proposed Sec. 347.206(a) will be amended to 
provide that if the state branch conducts deposit-taking activities 
which do not fall within the enumerated exceptions in proposed 
Sec. 347.206(a), then the parent foreign bank will be required to 
organize an insured bank subsidiary to engage in such retail deposit 
activities in the U.S. (The foreign bank will still have the option, 
however, to operate a noninsured branch which accepts initial deposits 
of less than $100,000 that do not otherwise fall within the exceptions 
enumerated in paragraphs (a)(1)-(a)(7) of this section by applying for 
the FDIC's consent pursuant to proposed Sec. 347.206(b)). Paragraph 
(a)(7) of the proposed section, the regulatory de minimis exception, is 
being revised to clarify the calculation methodology and to delete the 
``average daily basis'' reference. As stated in the preamble to the 
final rule when the current exceptions were adopted on April 1, 1996:
[t]he FDIC wishes to make it clear that the numerator is comprised 
of the total amount of deposits accepted under the de minimis 
exception, not just the amount of the initial deposits of less than 
$100,000 which were accepted to open the accounts.
61 FR 5671, 5674 (February 14, 1996). The de minimis calculation 
methodology remains unchanged from the current rule. See FDIC Legal 
Division Staff Advisory Opinion (unpublished) dated December 16, 1985 
from Katharine H. Haygood, Esq. Paragraph (b) of proposed Sec. 347.206 
will be revised by transferring the application for an exemption 
procedure set forth therein to Sec. 347.404 of proposed subpart D until 
the FDIC's proposed part 303 is finalized. Lastly, the transition rule 
for time deposits set forth in proposed paragraph (c) is being revised 
by deleting the reference to 90 days after April 1, 1996--which was the 
effective date of these particular regulatory changes. This transition 
period was originally included to afford branches the requisite time to 
reclassify or divest time deposits that would mature very soon after 
the regulation's effective date. This transition period has expired, 
and therefore, this reference will be deleted. The FDIC invites public 
comment on the clarification of the calculation methodology.
    The FDIC proposes to rescind former Sec. 346.8 which permits a 
foreign bank to apply to the FDIC for deposit insurance for a 
noninsured federal or state branch when it is not otherwise required to 
be insured. When the IBA was initially enacted in 1978, certain 
provisions thereof amended the FDI Act to provide that ``[s]ubject to 
the provisions of [the FDI Act] and to such terms and conditions as the 
Board of Directors may impose, any branch of a foreign bank * * * may 
become an insured branch.'' 12 U.S.C. 1815(b). Although the statutory 
mandate of FBSEA now requires a foreign bank that proposes to engage in 
domestic retail deposit activity to organize an insured bank 
subsidiary, noninsured branches are still authorized to operate in the 
U.S. because they are not engaged in domestic retail deposit activity. 
(Noninsured branches are permitted to conduct wholesale deposit 
activities, and are authorized to operate under Secs. 347.205 and 
347.206 of the proposed subpart B.) Section 5(b) of the FDI Act is 
still, in theory, applicable to these U.S. branches of foreign banks. 
12 U.S.C. 1815(b). Because of this statutory underpinning, rescinding 
the regulation does not really affect a foreign bank's discretion to 
apply to the FDIC for insurance. Former Sec. 346.8 added nothing 
substantive to the statutory authorization and, therefore, is redundant 
and unnecessary.
    Since the enactment of FBSEA in 1991, there can be no de novo 
insured branches to conduct domestic retail deposit-taking activities. 
It was Congress' intent that foreign banks wishing to conduct domestic 
retail deposit activities in the U.S. must do so through an insured 
bank subsidiary. The FDIC recognizes that there are regulatory 
exemptions which allow noninsured branches to accept initial deposits 
of less than $100,000 without being deemed to be engaged in domestic 
retail deposit activities. See, proposed Sec. 347.206. Although a 
technical reading of section 5(b) of the FDI Act suggests that a 
foreign bank may still apply to the FDIC for deposit insurance for a 
noninsured branch, as a practical matter the FDIC does not foresee many 
circumstances in which it could be appropriate for the FDIC Board of 
Directors (Board) to approve such an application. The Board would 
review the facts and circumstances in each case, in addition to the 
pertinent legal and policy considerations, and would have to determine 
whether to actually approve an application for deposit insurance for a 
noninsured branch. The FDIC is requesting public comment on its 
proposed rescission of former Sec. 346.8 as well as any possible 
effects on U.S.
[[Page 37757]]
branches of foreign banks of such an action.
Proposed Sections Addressing Foreign Banks Having Insured Branches
    Proposed Sec. 347.210(a) sets forth the FDIC's requirement that an 
insured branch pledge assets for the benefit of the FDIC or its 
designee. Paragraph (b) of the proposed section will contain a revised 
formula for calculating the amount of assets that the insured branch 
will be required to pledge to satisfy the requirement in paragraph (a) 
of proposed Sec. 347.210. Currently, in order to satisfy the pledge of 
assets requirement, an insured branch must pledge assets equal to five 
percent of the average of the insured branch's liabilities for the last 
30 days of the second and fourth calendar quarters, respectively. 
Paragraph (b) then provides detailed instructions for making this 
calculation. Proposed Sec. 347.210(b) will provide that the amount of 
assets that must be pledged to the FDIC will be equal to ``five percent 
of the average of the insured branch's liabilities for the last 30 days 
of the most recent calendar quarter.'' This formula will be more 
straightforward to apply and the calculation thereof will be easier for 
the insured branches. However, the foreign bank will be required to 
provide the appropriate FDIC regional director with a written report 
regarding the pledged assets on a quarterly basis rather than semi-
annually, in accordance with proposed Sec. 347.210(e)(6)(ii). This new 
reporting requirement will be consistent with other FDIC reporting 
requirements, such as the filing of Reports of Income and Condition, 
and with the FDIC's policy of analyzing financial data on a quarterly 
basis. It is the FDIC's belief that the quarterly reporting requirement 
will not impose a significant additional burden on affected foreign 
banks because the information is already being collected and maintained 
by the bank. Submitting it to the FDIC will not require much additional 
preparation by the affected banks. However, the FDIC is soliciting 
public comment regarding this proposal to require these reports on 
pledged assets to be submitted on a quarterly basis rather than semi-
annually.
    In proposed Sec. 347.210(c), the restriction that a depository may 
not be an affiliate of the foreign bank whose insured branch is seeking 
to use the depository has been moved from the definition of 
``depository'', proposed Sec. 347.202(d), to this substantive 
provision. A requirement that the foreign bank shall concurrently 
provide copies of all the documents and instruments delivered to the 
depository to the appropriate FDIC regional director has been added in 
paragraph (e)(4) of the proposed section. Many of the provisions in 
proposed Sec. 347.210(e) will be revised to incorporate references to 
the appropriate FDIC regional office or official to fully integrate 
DOS's new Case Manager approach to bank supervision. Finally, the 
delegation of authority to the Director of DOS (and to the Deputy 
Director (DOS)) to enter into or revoke the approval of a pledge 
agreement or to require the dismissal of a depository pursuant to 
Sec. 303.8(f) of the FDIC's rules and regulations has been transferred 
to proposed Sec. 347.210, and will become new paragraph (f) of that 
section.
    Proposed Sec. 347.213 will retain the substantive requirements and 
standards regarding the necessity for an insured state branch to apply 
to the FDIC (and the FRB) for their approval to conduct or continue an 
activity which is otherwise not permissible for a federal branch. 
However, the application and plan of divestiture procedures which were 
formerly found in Sec. 346.101 will be temporarily transferred to new 
Sec. 347.405 of subpart D until the FDIC's proposed part 303 is 
finalized.
Definitions
    Some technical and non-substantive changes have been made to 
various definitions in proposed Sec. 347.202. As mentioned above, the 
definition of ``depository'' has been amended by deleting the 
restriction that a depository cannot be an affiliate of the foreign 
bank whose insured branch is seeking to use the depository. This 
limitation has been moved to proposed Sec. 347.210(c), the substantive 
provision which addresses the requirements for a depository which must 
be contained in the pledge agreement. In addition, the definition of 
``foreign bank'' has been revised by deleting the exclusionary language 
which ``carves out'' any banks that are organized under the laws of 
U.S. territories from the requirement that a foreign bank organize an 
insured bank subsidiary to conduct domestic retail deposit activities 
in the U.S. This exclusionary language has been re-located and 
designated as proposed Sec. 347.204(b). In this way, the exclusion, 
which is found in section 6(d)(3) of the IBA, will be read in 
conjunction with the other regulatory language which implements 
sections 6(c) and (d) of the IBA in proposed Sec. 347.204. Finally, the 
terms in the definitional section have been alphabetized for the 
reader's ease of reference.
Subpart C--International Lending
    The International Lending Supervision Act of 1983 (ILSA), 12 U.S.C. 
3901, et. seq., strengthens supervision of international lending by 
requiring each federal banking agency to evaluate the foreign country 
exposure and transfer risk of banks within its jurisdiction for use in 
examination and supervision of such banks. To implement this provision, 
the federal banking agencies, through the Interagency Country Exposure 
Review Committee (ICERC), assess and categorize countries on the basis 
of conditions that may lead to increased transfer risk. In addition, 
section 905(a) of ILSA directs each federal banking agency to require 
banks within its jurisdiction to establish and maintain a special 
reserve whenever the agency determines that the quality of a bank's 
assets has been impaired by a protracted inability of public or private 
borrowers in a foreign country to make payments on their external 
indebtedness, or no definite prospects exist for the orderly 
restoration of debt service. 12 U.S.C. 3904(a). In keeping with the 
requirements of ILSA, on February 13, 1984, the FDIC, the Office of the 
Comptroller of the Currency and the Board of Governors of the Federal 
Reserve System (collectively, the federal banking agencies) issued a 
joint notice of final rulemaking requiring banks to establish special 
reserves, the allocated transfer risk reserve (ATRR), against the risks 
presented in certain international assets.
    The current regulation sets forth specific instructions on the 
accounting treatment for the ATRR. The instructions for the preparation 
of Consolidated Reports of Condition and Income (Call Reports) provide 
that a bank which is required by ILSA and the regulations of the 
federal banking agencies to establish an ATRR must report the reserve 
separately in its Call Report. Currently, persons preparing Call 
Reports have to look to the regulations for guidance on the accounting 
treatment of ATRRs. In an effort to simplify the task of preparing Call 
Reports by gathering all accounting information in one place, some of 
the federal banking agencies have been considering whether to amend the 
Call Report instructions to include a full description of the 
accounting treatment of ATRRs. The agencies are further considering 
whether to replace the existing provision in the regulation with a 
reference to the amended Call Report instructions or to maintain a full 
description of the accounting treatment in both the regulation and the 
amended
[[Page 37758]]
Call Report instructions. At present, as ILSA specifically directs the 
federal banking agencies to require banks to account for ATRRs in a 
particular manner and the instructions for the Call Report do not 
currently include such detailed instructions for treatment of ATRRs, 
the FDIC has decided to retain the description of the accounting 
treatment of the ATRR in its revised regulation. The FDIC is requesting 
comment as to whether the instructions for the Call Report should be 
amended to include a description of the accounting treatment for ATRRs. 
The FDIC is requesting further comment as to whether, if the Call 
Report instructions are amended, to retain the detailed description of 
the accounting treatment of ATRRs in the revised part 351 or to replace 
the existing regulation language with a requirement to follow the 
accounting treatment outlined in amended Call Report instructions.
    ILSA also requires the federal banking agencies to promulgate 
regulations for accounting for fees charged by banks in connection with 
international loans. Section 906(a) of ILSA (12 U.S.C. 3905(a)) deals 
specifically with the restructuring of international loans to avoid 
excessive debt service burden on debtor countries. This section 
requires banks, in connection with the restructuring of an 
international loan, to amortize any fee exceeding the administrative 
cost of the restructuring over the effective life of the loan. Section 
906(b) of ILSA (12 U.S.C. 3905(b)) deals with all international loans 
and requires the federal banking agencies to promulgate regulations for 
accounting for agency, commitment, management and other fees in 
connection with such loans to assure that the appropriate portion of 
such fees is accrued in income over the effective life of each such 
loan. The current regulation provides a separate accounting treatment 
for each type of fee charged by banks in connection with their 
international lending. When ILSA was enacted in 1983 and the current 
regulation on accounting for international loan fees was promulgated on 
March 29, 1984, Congress and the federal banking agencies considered 
that the application of the broad fee accounting principles for banks 
contained in GAAP were insufficient to accomplish adequate uniformity 
in accounting principles in this area. Since that time, the Financial 
Accounting Standards Board has revised the GAAP rules for fee 
accounting for international loans in a manner that accommodates the 
specific requirements of section 906 of ILSA. As a result, in order to 
reduce the regulatory burden on insured state nonmember banks, and 
simplify its regulations, the FDIC has decided, in consultation with 
accounting staff from the other federal banking agencies, to eliminate 
from the revised version of part 351 the requirements as to the 
particular accounting method to be followed in accounting for fees on 
international loans and to require instead that state nonmember banks 
follow GAAP in accounting for such fees. In the event that the FASB 
changes the GAAP rules on fee accounting for international loans, the 
FDIC will reexamine its regulation in light of ILSA to assess the need 
for a revision to the regulation.
Subpart D--Application Procedures and Delegations of Authority
Overview
    This proposed rule includes a separate subpart D containing 
application procedures and delegations of authority for the substantive 
matters covered by the proposal.4 As discussed above, the 
FDIC is currently preparing a complete revision of part 303 of the 
FDIC's rules and regulations, which contains the FDIC's applications 
procedures and delegations of authority. As part of these revisions to 
part 303, subpart J of part 303 will address application requirements 
relating to the foreign activities of insured state nonmember banks and 
the U.S. activities of insured branches of foreign banks. It is the 
FDIC's intent that at such time as part 347 and part 303 are both 
final, the application procedures proposed in subpart D of this 
proposal will be relocated to subpart J of part 303, in order to 
centralize all international banking application procedures in one 
convenient place.
---------------------------------------------------------------------------
    \4\ Under the FDIC's current rules, these application 
requirements are located in various sections of three different 
regulations: 12 CFR part 303, 12 CFR part 346, and 12 CFR part 347.
---------------------------------------------------------------------------
Establishing, Moving, or Closing a Foreign Branch of a State Nonmember 
Bank
    Applications for a nonmember bank to establish a foreign branch are 
currently treated under the same process applicable for domestic 
branches under 12 CFR 303.2. The FDIC proposes to treat foreign 
branches separately, since foreign branch applications are not legally 
required to be subjected to analysis under the Community Reinvestment 
Act or under the factors listed in section 6 of the FDI Act, as is the 
case for domestic branches.
    Under Secs. 347.103(b) and 347.402 as proposed, the FDIC would give 
its general consent for an eligible nonmember bank to establish 
additional foreign branches in any country in which the bank already 
operates a branch, or to relocate a branch within the country. The 
proposal only requires an eligible nonmember bank to notify the FDIC of 
its actions within thirty days. In addition, an eligible nonmember bank 
that operates branches or affiliates in two or more foreign 
jurisdictions may establish additional branches conducting approved 
activities in additional foreign jurisdictions upon 45 days prior 
notice to the FDIC.
    To be eligible, the nonmember bank must be well capitalized, not be 
subject to a cease and desist order, consent order, prompt corrective 
action directive, formal written agreement, memorandum of 
understanding, or other administrative agreement with any U.S. bank 
regulatory agency, and must have been chartered and operating for at 
least three years. The nonmember bank must also have received an FDIC-
assigned composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System (UFIRS); have received a rating of 1 or 2 
under the ``management'' component of the UFIRS at its most recent 
examination; have a compliance rating of 1 or 2; and have a 
satisfactory or better Community Reinvestment Act rating. An 
application to establish a foreign branch is not an ``application for a 
deposit facility'' covered by the Community Reinvestment Act, and the 
FDIC will therefore only take the nonmember bank's CRA rating into 
account for purposes of determining whether the application receives 
expedited treatment under the general consent and prior notice 
procedures.
    The FDIC is proposing these general consent and prior notice 
provisions because a nonmember bank meeting the proposed requirements 
should ordinarily have sufficient familiarity with the implications of 
foreign branching, be well-managed, and be of sufficiently sound 
overall condition, that extensive FDIC review is not required. The FDIC 
retains the option to suspend these procedures as to any institutions 
for which this is not the case. If the FDIC suspends its general 
consent or prior notice with respect to a particular nonmember bank, it 
means that the nonmember bank must make full application to establish 
additional branches. Suspension of general consent or prior notice does 
not, in and of itself, require closure of existing foreign branches, 
and cases necessitating actual closure of branches would be handled
[[Page 37759]]
under section 8 of the FDI Act (12 U.S.C. 1818) or other relevant 
authority. For nonmember banks seeking to establish a branch in an 
additional jurisdiction under the prior notice procedure, the FDIC may 
remove an applicant from the prior notice process if the FDIC's review 
of the notice indicates significant concerns related to supervision, 
law or policy, and the nonmember bank will be required to complete the 
full application process.
    General consent and prior notice are also inapplicable in any case 
presenting either of two special circumstances. Since the FDIC must 
have access to information about a foreign branch's activities in order 
to effectively supervise the institution, general consent or prior 
notice do not apply if the law or practice of the foreign jurisdiction 
would limit the FDIC's access to information for supervisory purposes. 
In such cases, the FDIC must have an opportunity to fully analyze the 
extent of the confidentiality conferred under foreign law and whether 
it would, in light of all the circumstances, impair the FDIC's ability 
to carry out the FDIC's responsibilities as a bank supervisor. In 
addition, if the proposed foreign branch would be have a direct adverse 
impact on a site which is on the World Heritage List 5 or 
the foreign jurisdiction's equivalent of the National Register of 
Historic Places, the FDIC may need an opportunity to evaluate the 
proposal in light of section 402 of the National Historic Preservation 
Act Amendments of 1989 (16 U.S.C. 470a-2).
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    \5\ The World Heritage List was established under the terms of 
The Convention Concerning the Protection of World Culture and 
Natural Heritage adopted in November, 1972 at a General Conference 
of the United Nations Education, Scientific and Cultural 
Organization. Current versions of the list are on the Internet at 
http://www.unesco.org/whc/heritage.htm, or may be obtained from the 
FDIC Public Information Center, Room 100, 801 17th Street, NW, 
Washington, DC.
---------------------------------------------------------------------------
    The proposal also requires a nonmember bank which closes a foreign 
branch to notify the appropriate regional director that it has done so. 
This notice is strictly for informational purposes, since the FDIC has 
previously determined that Congress did not intend section 42 of the 
FDI Act (12 U.S.C. 42) on branch closings to apply to foreign branches.
    Finally, proposed Sec. 347.402 sets out the procedures for 
applications which are not eligible for the general consent or prior 
notice provisions.
    This proposal is a major change from the FDIC's current procedures 
under which an application is required for each foreign branch. The 
FDIC specifically requests public comment on the merits of proposed 
procedure, and whether its parameters are appropriately designed.
Acquisition of Stock of Foreign Banks or Other Financial Entities by an 
Insured State Nonmember Bank
    Section 347.4 of the FDIC's current rules contains an investment 
ceiling, under which a nonmember bank's investments in foreign 
organizations (as well as an Edge corporation) may not exceed 25% of 
the bank's capital and surplus. The FDIC is proposing to eliminate this 
general limit, and instead monitor the overall investments of each 
nonmember bank on an individual basis. In addition, Sec. 347.4 
presently requires an application before a nonmember bank may make any 
investment in a foreign organization. Under Secs. 347.108(a) and 
347.403 of the proposal, the FDIC would give its general consent for an 
eligible nonmember bank to make investments in foreign organizations 
complying with the activity and other limits of subpart A. Eligibility 
of the nonmember bank is determined by the same criteria as for foreign 
branch approvals.6 The proposal permits investments in a 
single foreign organization of up to 2 percent of the nonmember bank's 
tier 1 capital during any twelve-month period. Aggregate investments 
for investment purposes may total as much as 5 percent of the nonmember 
bank's tier 1 capital during any twelve-month period, and an additional 
5 percent for investments acquired for trading purposes. Investments 
acquired at net asset value from an affiliate or representing 
reinvestments of cash dividends from the foreign organization are not 
subject to these limits. The proposal only requires the nonmember bank 
to notify the FDIC of its investment within thirty days, and no notice 
is required for trading investments.
---------------------------------------------------------------------------
    \6\ As is the case under the proposed foreign branch application 
procedure, the FDIC will take the nonmember bank's Community 
Reinvestment Act rating into account only for purposes of 
determining whether the application is eligible for general consent 
or prior notice procedures, since an application to make a foreign 
investment is not an ``application for a deposit facility'' covered 
by the CRA.
---------------------------------------------------------------------------
    However, in order to make investments under general consent, the 
nonmember bank or an affiliate must already have at least one foreign 
organization subsidiary. In addition, if the investment will constitute 
a joint venture or a subsidiary, the proposal requires that at least 
one other nonmember bank already have a foreign organization subsidiary 
in the country in question. This will prevent nonmember banks from 
establishing a presence in a jurisdiction in which the FDIC has not had 
an opportunity to contact host country supervisory authorities and 
establish a working arrangement for cross-border supervision.
    The proposal also permits an eligible nonmember bank to make any 
investment which complies with the activity and other limits of subpart 
A upon 45 days prior notice to the FDIC. The FDIC may remove an 
applicant from the prior notice process if the FDIC's review of the 
notice indicates significant concerns related to supervision, law or 
policy, and a complete application would be required.
    As is the case in connection with the foreign branch proposal, the 
FDIC is proposing these general consent and prior notice procedures 
because a nonmember bank meeting the requirements of the provisions is 
of sufficient expertise, is well-managed, and is in sufficiently sound 
overall condition, that extensive FDIC review is not required. The FDIC 
retains the option to suspend these procedures as to any institutions 
for which this is not the case. As with foreign branch applications, 
the consequence of suspension is that a full application is required in 
the future, and divestiture is not implicated. General consent and 
prior notice are also not available in any foreign jurisdiction if its 
law or practice would limit the FDIC's access to information for 
supervisory purposes, for the same reasons stated above in connection 
with foreign branch approvals.
    Finally, proposed Sec. 347.403 sets out the procedures for 
applications which are not eligible for the general consent or prior 
notice provisions.
    This proposal is a major change from the FDIC's current procedures 
under which an application is required for each foreign investment and 
total investment is subject to a 25% limit. The FDIC specifically 
requests public comment on the merits of proposed procedure, and 
whether its parameters are appropriately designed.
Exemptions From the Insurance Requirement for a State Branch of a 
Foreign Bank
    From its initial adoption in 1979, Sec. 346.6 of the FDIC's rules 
has provided a list of deposit activities in which a state branch could 
engage that would not constitute ``domestic retail deposit activity''. 
44 FR 23869 (April 23, 1979), 44 FR 40056 (July 9, 1979). ``Domestic 
retail deposit activity'' refers to the acceptance by a state branch of 
any initial deposit of less than $100,000. In
[[Page 37760]]
1979, the significance of the distinction between ``retail'' deposit-
taking and non-retail deposit activities resulted in the organization 
of insured and noninsured state branches, respectively. A state branch 
which conducted retail deposit activities was required to be insured by 
the FDIC. However, a state branch which limited its deposit-taking 
activities to those entities and/or circumstances enumerated in 
Sec. 346.6 was not deemed to be engaged in domestic retail deposit 
activities and, therefore, was not required to be an insured branch.
    With the passage of FBSEA, the significance of the distinction 
between retail and non-retail deposit activities became more 
pronounced. FBSEA amended section 6 of the IBA to require that foreign 
banks that intend to conduct domestic retail deposit activities in the 
United States shall organize an insured bank subsidiary for such 
purpose. Domestic retail deposit activities can no longer be conducted 
through an insured state branch (except for a grandfathered branch).
    As originally developed, Sec. 346.6 provided two alternative means 
for a state branch to operate as a noninsured branch. This bifurcated 
approach to authorizing a state branch to operate as a noninsured 
branch was not affected by the enactment of FBSEA which mandated the 
chartering of an insured bank subsidiary to engage in retail deposit 
taking. If the state branch only conducts deposit-taking activities 
which are enumerated in Sec. 346.6(a) (1)-(7), and are carried forward 
to proposed Sec. 347.206(a) (1)-(7), then the state branch is deemed to 
not be engaged in domestic retail deposit activity, and the deposit 
insurance requirement is not triggered. Second, a state branch can 
operate as an noninsured branch when it is engaged in deposit-taking 
activities which are not otherwise excepted under paragraph (a) of 
Sec. 346.6, (proposed Sec. 347.206), if the FDIC Board approves its 
application for consent to operate the branch as a noninsured branch 
pursuant to Sec. 346.6(b), which has been carried forward as proposed 
Sec. 347.206(b). The Board may exempt the state branch from the 
insurance requirement if the Board finds that the branch is not engaged 
in domestic retail deposit activities requiring insurance protection. 
(After FBSEA, if the state branch is engaged in domestic retail deposit 
activities, then the foreign bank parent must charter an insured bank 
subsidiary to conduct its domestic deposit-taking activities--not an 
insured branch.)
    The proposal transfers the application procedures currently 
contained in Sec. 346.6(b) to proposed Sec. 347.404. These procedures 
need no substantive revision at this time, because the procedures were 
recently reviewed and amended by the FDIC as a result of amendments to 
the IBA which were made by section 107 of the Riegle-Neal Act.
Application by Insured State Branches for FDIC Approval To Conduct 
Activities Not Permissible for Federal Branches
    Section 202 of FDICIA amended section 7 of the IBA by adding a new 
subsection (h) which provides that after December 19, 1992, a state-
licensed insured branch of a foreign bank may not engage in any 
activity which is not permissible for a federal branch of a foreign 
bank unless the FRB has determined that the activity is consistent with 
sound banking practice, and the FDIC has determined that the activity 
would pose no significant risk to the Bank Insurance Fund (BIF). The 
legislative amendments also addressed application procedures and plans 
of divestiture or cessation. The FDIC and the FRB both promulgated 
regulations to implement the applicable provisions of the IBA. The FDIC 
adopted a new subpart D to part 346, Applications Seeking Approval for 
Insured State Branches to Conduct Activities Not Permissible for 
Federal Branches, which became effective on January 1, 1995.
    Foreign banks are required to seek both the FDIC's and the FRB's 
approval for an insured state branch to engage in or continue to engage 
in an activity which is not permissible for a federal branch of a 
foreign bank. In the event such an application is denied or the foreign 
bank elects not to continue the activity, a plan of divestiture or 
cessation must be submitted and such divestiture or cessation must be 
completed within one year or sooner if the FDIC so directs. As 
discussed in the preamble to the final regulation, the FDIC 
deliberately chose to model many substantive provisions of current 
Sec. 346.101 upon its (then) recently adopted part 362, ``Activities 
and Investments of Insured State Banks'' (58 FR 64462, December 8, 
1993). 59 FR 60703 (November 28, 1994). For example, the preamble 
states that, ``[t]he FDIC is of the opinion that [section] 346.101(a) 
of the final regulation should parallel [section] 362.2(b) concerning 
the activities of state banks with regard to the determination of 
permissible activities.'' Moreover, the FDIC took the position in the 
final regulation that activities approved as exceptions for state-
chartered domestic banks on the basis that they pose no significant 
risk to the BIF should also be permissible for state-licensed insured 
branches of foreign banks without the necessity of filing an 
application or notice pursuant to Sec. 346.101 (provided the activity 
in question is also permissible for a state licensed branch of a 
foreign bank under state law and any other applicable federal law or 
regulation). And finally, the definition of ``significant risk to the 
deposit insurance fund'' parallels the part 362 definition.
    As part of the FDIC's ongoing CDRI review of all of its regulations 
and written policies, the FDIC is also conducting a thorough review of 
part 362, and is preparing a proposed notice of rulemaking on this 
regulation for publication in the Federal Register in the near term. In 
view of the many and substantive similarities between Sec. 346.101 and 
the FDIC's part 362, the proposed Sec. 347.213 makes no substantive 
changes from the requirements of Sec. 346.101 at this time. The 
application procedures proposed in Sec. 347.405 also contain no 
substantive changes. After the closing of the comment period and the 
completion of the final part 362, Sec. 347.213 and/or Sec. 347.405 may 
be amended, if necessary, to reflect any changes made to the underlying 
regulatory scheme governing the permissible activities of insured state 
banks.
Technical and Conforming Changes
    The FDIC's rules and regulations currently contain numerous cross-
references to part 346. These would be conformed to the proposed 
sections of revised part 347 under the proposal. The proposal would 
also eliminate application procedures and delegations under current 
part 303 of the FDIC's rules and regulations, to the extent those 
procedures and delegations are displaced under the proposal.
Paperwork Reduction Act
    The collections of information contained in this proposed rule have 
been submitted to the Office of Management and Budget (OMB) for review 
and approval in accordance with the requirements of the Paperwork 
Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.). Comments are 
invited on: (a) Whether the collection of information is necessary for 
the proper performance of the FDIC's functions, including whether the 
information has practical utility; (b) the accuracy of the estimates of 
the burden of the information collection; (c) ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
(d) ways to minimize the burden of the information collection on 
respondents, including through the use of automated
[[Page 37761]]
collection techniques or other forms of information technology.
    Comments should be addressed to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attention: Desk 
Officer Alexander Hunt, New Executive Office Building, Room 3208, 
Washington, DC 20503, with copies of such comments to Steven F. Hanft, 
Assistant Executive Secretary (Regulatory Analysis), Federal Deposit 
Insurance Corporation, Room F-400, 550 17th Street NW, Washington, DC 
20429. All comments should refer to ``Part 347--International 
Banking.'' OMB is required to make a decision concerning the 
collections of information contained in the proposed regulations 
between 30 and 60 days after the publication of this document in the 
Federal Register. Therefore, a comment to OMB is best assured of having 
its full effect if OMB receives it within 30 days of this publication. 
This does not affect the deadline for the public to comment to the FDIC 
on the proposed regulation.
    The collections of information in this proposed rule are contained 
in various proposed sections appearing in subpart A and subpart B of 
proposed part 347. The FDIC has asked the OMB to divide the collections 
of information into two groups, each with a separate OMB control 
number, with one group containing the collections from subpart A 
(Foreign Branching and Investment by Insured State Nonmember Banks) and 
the other containing the collections from subpart B (Foreign Banks). 
For the subpart A group, the FDIC has requested a new OMB control 
number. For the subpart B group the FDIC has requested the revision of 
one collection already approved by OMB (OMB No. 3064-0114) and the 
elimination of a second OMB approved collection (OMB No. 3064-0010). 
Each of the collections required by the proposed part 347 is discussed 
below.
Subpart A--Foreign Branching and Investment by Insured State Nonmember 
Banks
    Sections 347.103(b) and 347.402 contain collections of information 
in the form of requirements that insured state nonmember banks 
(nonmember banks) (1) notify the FDIC if the bank establishes a foreign 
branch under certain eligibility criteria in the rule; (2) give the 
FDIC 45 days prior notice before establishing a branch under certain 
eligibility criteria in the rule; (3) file an application with the FDIC 
requesting authorization to establish a foreign branch or to engage in 
certain activities through a foreign branch; or (4) notify the FDIC if 
the bank closes a foreign branch. The information will be used by the 
FDIC to authorize foreign branching as set out in section 18(d)(2) of 
the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1828(d)(2)). The 
estimated annual reporting burden for the collection of information is 
summarized as follows:
Collections (1) and (4)(notice of foreign branch establishment 
(347.402(a)) or foreign branch closure (347.402(c)):
    Total annual responses: 4
    Average hours per response: 2
Collection (2) (prior notice of foreign branch establishment 
(347.402(b))
    Total annual responses: 3
    Average hours per response: 6
Collection (3) (application to establish a foreign branch (347.402(d))
    Total annual responses: 3
    Average hours per response: 40
Total annual burden hours: 146
    Sections 347.108 and 347.403 contain collections of information in 
the form of requirements that nonmember banks (1) notify the FDIC if 
the bank acquires stock or other evidences of ownership of foreign 
organizations under certain eligibility criteria in the rule; (2) give 
the FDIC 45 days prior notice before acquiring stock or other evidences 
of ownership of foreign organizations under certain eligibility 
criteria in the rule; or (3) file an application with the FDIC 
requesting authorization to acquire stock or other evidences of 
ownership of foreign organizations or to engage in certain activities 
through foreign organizations. The information will be used by the FDIC 
to authorize foreign investment as set out in section 18(l) of the FDI 
Act (12 U.S.C. 1828(l)). The estimated annual reporting burden for the 
collection of information is summarized as follows:
Collection (1) (notice of foreign investment (347.403(a)).
    Total annual responses: 5
    Average hours per response: 2
Collection (2) (prior notice of foreign investment (347.403(b)).
    Total annual responses: 4
    Average hours per response: 6
Collection (3) (application to make a foreign investment (347.403(c)).
    Total annual responses: 3
    Average hours per response: 60
Total annual burden hours: 214
    Section 347.110 contains collections of information in the form of 
a requirement that nonmember banks with foreign branches, or that hold 
20 percent or more of a foreign organization's voting equity interests, 
or control a foreign organization, maintain certain records, controls, 
and reports on the foreign operation's business activities. Sections 
18(d)(2) and 18(l) of the FDI Act authorize the FDIC to govern a 
nonmember bank's conduct of foreign branching and investment, and the 
information will be used by the nonmember bank to monitor the foreign 
operations and control its risk. The estimated annual reporting burden 
for the collection of information is summarized as follows:
Total annual responses: 63
Average hours per response: 400
Total annual burden hours: 25,200
Summary of Subpart A Collections
Total annual responses: 85
Total annual burden hours: 25,560
Subpart B--Foreign Banks
    Sections 347.206(b) and 347.404 contain a collection of information 
in the form of a requirement that noninsured state-licensed branches of 
foreign banks make an application to obtain the FDIC's permission to 
receive deposits of less than $100,000 if the deposits are not 
otherwise authorized by Sec. 347.206(a). The information will be used 
by the FDIC to determine whether to authorize the deposit taking as set 
out in section 6(b) of the International Banking Act (12 U.S.C. 
3104(b)). The estimated annual reporting burden for the collection of 
information is summarized as follows:
Total annual responses: 1
Average hours per response: 6
Total annual burden hours: 6
    Sections 347.216 and 347.405 contain collections of information in 
the form of requirements that insured state-licensed branches of 
foreign banks (1) file an application with the FDIC requesting 
permission to conduct activities which are not permissible for a 
federal branch of a foreign bank; or (2) submit a pro forma plan of 
divestiture or cessation for activities which are not permissible for a 
federal branch of a foreign bank. The information in the application 
will be used by the FDIC to determine whether the activity poses a 
significant risk to the deposit insurance fund, as required by section 
7 of the International Banking Act (12 U.S.C. 3105(h)), and the 
information in the plan of divestiture or cessation will be used by the 
FDIC to make judgments concerning the reasonableness of the branch's 
actions to discontinue activities deemed to pose a significant risk to 
the deposit insurance fund. This collection of information has 
previously been approved by the OMB under control no. 3064-0114. The 
estimated annual reporting burden for the collection of information is 
summarized as follows:
Total annual responses: 1
[[Page 37762]]
Average hours per response: 8
Total annual burden hours: 8
    Sections 347.209 contains a collection of information in the form 
of a requirement that insured branches of foreign banks maintain a set 
of accounts and records in English and maintain its records as a 
separate entity with assets and liabilities separate from the foreign 
bank's head office, other branches, etc. The information will be used 
by the insured branch in the same way any banking entity uses such 
records, and the FDIC will review such records in connection with 
examining and supervising the insured branch (which is an ``insured 
depository institution'' for which the FDIC is the ``appropriate 
Federal banking agency'' within the meaning of section 3 of the FDI 
Act, (12 U.S.C. 1813)). The estimated annual reporting burden for the 
collection of information is summarized as follows:
Total annual responses: 32
Average hours per response: 120
Total annual burden hours: 3,840
    Sections 347.210(e)(4) and 347.210(e)(6) contain collections of 
information in the form of a requirement that insured branches of 
foreign banks and their depositories (1) make quarterly reports to the 
FDIC identifying the specific securities the foreign bank has pledged 
to the FDIC and their value, as well as the average liabilities of the 
insured branch; and (2) provide the FDIC copies of documents and 
instruments conveyed by the insured branch to the depository to 
effectuate the pledge. The information will be used by the FDIC to 
verify compliance with the pledge of asset requirements authorized by 
section 5(c) of the FDI Act (12 U.S.C. 1815(c)). The collection of 
information under item (1) on a semiannual basis has previously been 
approved by the OMB, whereas the FDIC is now proposing to collect it 
quarterly. The OMB's previous approval was under control no. 3064-0010, 
but the FDIC is requesting that it be regrouped under the subpart B 
control number for ease of reference. The estimated annual reporting 
burden for the collection of information is summarized as follows:
Collection (1) (reports (347.210(e)(6))
    Total annual responses: 256
    Average hours per response: 2
Collection (2) (copies of documents effectuating pledges 
(347.210(e)(4))
    Total annual responses: 128
    Average hours per response: 0.25
Total annual burden hours: 544
Summary of Subpart B Collections
Total annual responses: 418
Total annual burden hours: 4,398
Regulatory Flexibility Act
    Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub. 
L. 96-354, 5 U.S.C. 601 et seq.), it is certified that the proposed 
rule will not have a significant impact on a substantial number of 
small entities. With respect to subparts A and C of the proposed rule, 
the FDIC's review of call report data indicates the proposal will 
impact only an insubstantial number of small entities. With respect to 
subpart B of proposed part 347, the proposed revisions basically 
incorporate the legislative requirement first imposed by FBSEA that a 
foreign bank which intends to engage in domestic retail deposit 
activity in the U.S. must do so through an insured bank subsidiary. 
This has been the statutory standard for over 15 years; however, this 
requirement was not heretofore addressed in the FDIC's applicable 
regulation, part 346. Explicitly including this requirement in subpart 
B can not be characterized as having a ``significant impact'' on the 
affected entities as they have been required to comply with this 
provision of FBSEA for many years. The other revisions which have been 
made to proposed subpart B involve adding references to the FDIC's new 
supervisory approach--the Case Manager system--where applicable and 
simplifying the calculation of the amount of pledged assets required to 
comply with proposed Sec. 347.210(a). The formula will be based upon a 
quarterly calculation rather than a semi-annual calculation. In the 
future, the foreign bank will be required to report the calculation to 
the appropriate regional director every quarter. However, the 
additional two reports per year will not represent a significant burden 
on the affected banks because the foreign banks are already maintaining 
the information, and the time required to forward the quarterly 
calculation to the FDIC will be nominal. Therefore, the proposed 
revisions to subpart B will not have a significant impact on a 
substantial number of small entities.
List of Subjects
12 CFR Part 303
    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, 
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 325
    Administrative practice and procedure, Banks, banking, Capital 
adequacy, Reporting and recordkeeping requirements, Savings 
associations, State non-member banks.
12 CFR Part 326
    Banks, banking, Currency, Insured nonmember banks, Reporting and 
recordkeeping requirements, Security measures.
12 CFR Part 327
    Assessments, Bank deposit insurance, Banks, banking, Financing 
Corporation, Savings associations.
12 CFR Part 346
    Bank deposit insurance, Foreign banking, Reporting and 
recordkeeping requirements.
12 CFR Part 347
    Bank deposit insurance, Banks, banking, Credit, Foreign banking, 
Foreign investments, Insured branches, Investments, Reporting and 
recordkeeping requirements, United States investments abroad.
12 CFR Part 351
    Foreign banking, Reporting and recordkeeping requirements.
12 CFR Part 362
    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, Insured 
depository institutions, Investments, Reporting and recordkeeping 
requirements.
    For the reasons set forth above and under the authority of 12 
U.S.C. 1819(a)(Tenth), the FDIC Board of Directors hereby proposes to 
amend 12 CFR chapter III as follows:
PART 303--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF 
AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR 
REGULATION
    1. The authority citation for part 303 continues to read as 
follows:
    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(j), 1818, 1819 
(Seventh and Tenth), 1828, 1831e, 1831o, 1831p-1; 15 U.S.C. 1607.
Sec. 303.2  [Amended]
    2. In Sec. 303.2, paragraph (a) introductory text is amended by 
removing and reserving footnote 2.
Sec. 303.5  [Amended]
    3. In Sec. 303.5, paragraph (d) is removed and reserved.
    4. In Sec. 303.6, paragraphs (f)(1)(ii)(A) and (f)(1)(ii)(C) are 
revised to read as follows:
Sec. 303.6  Application procedures.
* * * * *
[[Page 37763]]
    (f) * * *
    (1) * * *
    (ii) * * *
    (A) Applications to establish a branch, including a remote service 
facility. In the communities in which the home office and the domestic 
branch to be established are located.
* * * * *
    (C) Applications for deposit insurance. In the community in which 
the home bank office is or will be located.
* * * * *
    5. In Sec. 303.7, the heading for paragraph (a) and paragraphs 
(a)(1)(i), (a)(1)(ii)(A), (a)(1)(iii)(D), and (b)(4)(ii) are revised, 
the words ``; and'' are removed at the end of paragraph (f)(2)(i) and a 
period is added in their place, and paragraph (f)(2)(ii) is removed and 
reserved to read as follows:
Sec. 303.7  Delegation of authority to the Director (DOS) and to the 
associate directors, regional directors and deputy regional directors 
to act on certain applications, requests, and notices of acquisition of 
control.
* * * * *
    (a) Applications for branches (including remote service facilities, 
courier services), relocations, and for trust and other banking 
powers--(1) * * * (i) Authority is delegated to the Director (DOS), and 
where confirmed in writing by the director, to an associate director, 
or to the appropriate regional director or deputy regional director, to 
approve applications for consent to establish branch facilities 
(including remote service facilities and courier services) or 
relocations where the applicant satisfies the requisites listed in 
paragraph (a)(1)(iii) of this section and agrees in writing to comply 
with any condition imposed by the delegate other than those standard 
conditions listed in Sec. 303.0(b)(31).
    (ii) * * *
    (A) to deny applications for consent to establish branch facilities 
(including remote service facilities and courier services) or 
relocations; and
* * * * *
    (iii) * * *
* * * * *
    (D) The requirements of the National Historic Preservation Act (16 
U.S.C. 470), the National Environmental Policy Act (42 U.S.C. 4321), 
and the Community Reinvestment Act of 1977 (12 U.S.C. 2901-2905) and 
its applicable implementing regulation (part 345 of this chapter) have 
been considered and favorably resolved: Provided however, That the 
authority to approve an application may not be subdelegated to a 
regional director or deputy regional director where a protest (as that 
term is defined in Sec. 303.0(b)(30)) under the Community Reinvestment 
Act is filed.
* * * * *
    (b) * * *
    (4) * * *
    (ii) Where the resulting institution, upon consummation of the 
merger transaction, does not meet the capital requirements set forth in 
part 325 of this chapter and the FDIC's ``Statement of Policy on 
Capital''. (If the applicant is a foreign bank, the delegated authority 
to approve does not extend to instances where, upon consummation of the 
merger transaction, the foreign bank's insured branch is not in 
compliance with subpart B of part 347 of this chapter.)
* * * * *
Sec. 303.8  [Amended]
    6. In Sec. 303.8, paragraph (f) is removed and reserved.
PART 325--CAPITAL MAINTENANCE
    7. The authority citation for part 325 continues to read as 
follows:
    Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, 2355, 2386 (12 U.S.C. 1828 note).
    8. In Sec. 325.103, paragraph (c) is revised to read as follows:
Sec. 325.103  Capital measures and capital category definitions.
* * * * *
    (c) Capital categories for insured branches of foreign banks. For 
purposes of the provisions of section 38 and this subpart, an insured 
branch of a foreign bank shall be deemed to be:
    (1) Well capitalized if the insured branch:
    (i) Maintains the pledge of assets required under Sec. 347.210 of 
this chapter; and
    (ii) Maintains the eligible assets prescribed under Sec. 347.211 of 
this chapter at 108 percent or more of the preceding quarter's average 
book value of the insured branch's third-party liabilities; and
    (iii) Has not received written notification from:
    (A) The OCC to increase its capital equivalency deposit pursuant to 
12 CFR 28.15(b), or to comply with asset maintenance requirements 
pursuant to 12 CFR 28.20; or
    (B) The FDIC to pledge additional assets pursuant to Sec. 347.210 
of this chapter or to maintain a higher ratio of eligible assets 
pursuant to Sec. 347.211 of this chapter.
    (2) Adequately capitalized if the insured branch:
    (i) Maintains the pledge of assets required under Sec. 347.210 of 
this chapter; and
    (ii) Maintains the eligible assets prescribed under Sec. 347.211 of 
this chapter at 106 percent or more of the preceding quarter's average 
book value of the insured branch's third-party liabilities; and
    (iii) Does not meet the definition of a well capitalized insured 
branch.
    (3) Undercapitalized if the insured branch:
    (i) Fails to maintain the pledge of assets required under 
Sec. 347.210 of this chapter; or
    (ii) Fails to maintain the eligible assets prescribed under 
Sec. 347.211 of this chapter at 106 percent or more of the preceding 
quarter's average book value of the insured branch's third-party 
liabilities.
    (4) Significantly undercapitalized if it fails to maintain the 
eligible assets prescribed under Sec. 347.211 of this chapter at 104 
percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities.
    (5) Critically undercapitalized if it fails to maintain the 
eligible assets prescribed under Sec. 347.211 of this chapter at 102 
percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities.
* * * * *
PART 326--MINIMUM SECURITY DEVICES AND PROCEDURES AND BANK SECRECY 
ACT 1 COMPLIANCE
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    \1\ In its original form, subchapter II of chapter 53 of title 
31 U.S.C., was part of Pub. L. 91-508 which requires recordkeeping 
for and reporting of currency transactions by banks and others and 
is commonly known as the Bank Secrecy Act.
---------------------------------------------------------------------------
    9. The authority citation for part 326 continues to read as 
follows:
    Authority: 12 U.S.C. 1813, 1815, 1817, 1818, 1819 (Tenth), 1881-
1833; 31 U.S.C. 5311-5324.
    10. In Sec. 326.1, paragraph (c) is amended by revising the last 
sentence to read as follows:
Sec. 326.1  Definitions.
* * * * *
    (c) * * * In the case of a foreign bank, as defined in Sec. 347.202 
of this chapter, the term branch has the same meaning given in 
Sec. 347.202 of this chapter.
    11. In Sec. 326.8, paragraph (a) and footnote 3 are revised to read 
as follows:
[[Page 37764]]
Sec. 326.8  Bank Secrecy Act compliance.
    (a) Purpose. This subpart is issued to assure that all insured 
nonmember banks as defined in Sec. 326.1 3 establish and 
maintain procedures reasonably designed to assure and monitor their 
compliance with the requirements of subchapter II of chapter 53 of 
title 31, United States Code, and the implementing regulations 
promulgated thereunder by the Department of Treasury at 31 CFR part 
103.
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    \3\ In regard to foreign banks, the programs and procedures 
required by Sec. 326.8 need be instituted only at an insured branch 
as defined in Sec. 347.202 of this chapter which is a State branch 
as defined in Sec. 347.202 of this chapter.
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* * * * *
PART 327--ASSESSMENTS
    12. The authority citation for part 327 is revised to read as 
follows:
    Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Pub. L. 
104-208, 110 Stat. 3009-479 (12 U.S.C. 1821).
    13. In Sec. 327.1, paragraph (b)(2) is revised to read as follows:
Sec. 327.1  Purpose and scope.
* * * * *
    (b) * * *
    (2) Deductions from the assessment base of an insured branch of a 
foreign bank are stated in subpart B of part 347 of this chapter.
    14. In Sec. 327.4, paragraphs (a)(1)(i)(B)(1), (a)(1)(i)(B)(2), 
(a)(1)(ii)(B)(1), and (a)(1)(ii)(B)(2) are revised to read as follows:
Sec. 327.4  Annual assessment rate.
    (a) * * *
    (1) * * *
    (i) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec. 347.210 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec. 347.211 of 
this chapter at 108 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in this paragraph (a)(1).
    (ii) * * *
    (B) * * *
    (1) Maintains the pledge of assets required under Sec. 347.210 of 
this chapter; and
    (2) Maintains the eligible assets prescribed under Sec. 347.211 of 
this chapter at 106 percent or more of the average book value of the 
insured branch's third-party liabilities for the quarter ending on the 
report date specified in this paragraph (a)(1); and
* * * * *
PART 346--[REMOVED]
    15. Part 346 is removed.
    16. Part 347 is revised to read as follows:
PART 347--INTERNATIONAL BANKING
Subpart A--Foreign Branching and Investment by Insured State Nonmember 
Banks
Sec.
347.101  Purpose, authority, and scope.
347.102  Definitions.
347.103  Foreign branches of insured state nonmember banks.
347.104  Investment by insured state nonmember banks in foreign 
organizations.
347.105  Underwriting and dealing limits applicable to foreign 
organizations held by insured state nonmember banks.
347.106  Restrictions on certain activities applicable to foreign 
organizations held by insured state nonmember banks.
347.107  U.S. activities of foreign organizations held by insured 
state nonmember banks.
347.108  Obtaining FDIC approval to invest in foreign organizations.
347.109  Extensions of credit to foreign organizations held by 
insured state nonmember banks; shares of foreign organizations held 
in connection with debts previously contracted.
347.110  Supervision and recordkeeping of the foreign activities of 
insured state nonmember banks.
Subpart B--Foreign Banks
347.201  Scope.
347.202  Definitions.
347.203  Restriction on operation of insured and noninsured 
branches.
347.204  Insurance requirement.
347.205  Branches established under section 5 of the International 
Banking Act.
347.206  Exemptions from the insurance requirement.
347.207  Notification to depositors.
347.208  Agreement to provide information and to be examined.
347.209  Records.
347.210  Pledge of assets.
347.211  Asset maintenance.
347.212  Deductions from the assessment base.
347.213  FDIC approval to conduct activities not permissible for 
federal branches.
Subpart C--International Lending
347.301  Allocated transfer risk reserve.
347.302  Accounting for fees on international loans.
347.303  Reporting and disclosure of international assets.
Subpart D--Applications and Delegations of Authority
347.401  Definitions.
347.402  Establishing, moving or closing a foreign branch of a state 
nonmember bank; Sec. 347.103.
347.403  Investment by insured state nonmember banks in foreign 
organizations; Sec. 347.108.
347.404  Exemptions from insurance requirement for a state branch of 
a foreign bank; Sec. 347.206(b).
347.405  Approval for an insured state branch of a foreign bank to 
conduct activities not permissible for federal branches; 
Sec. 347.213.
    Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 
3104, 3105, 3108; Title IX, Pub. L. 98-181, 97 Stat. 1153.
Subpart A--Foreign Branching and Investment by Insured State 
Nonmember Banks
Sec. 347.101  Purpose, authority, and scope.
    Under sections 18(d) and 18(l) of the Federal Deposit Insurance Act 
(12 U.S.C. 1828(d), 1828(l)), the Federal Deposit Insurance Corporation 
prescribes the regulations in this subpart relating to foreign branches 
of insured state nonmember banks, the acquisition and holding of stock 
of foreign organizations, and loans or extensions of credit to or for 
the account of such foreign organizations.
Sec. 347.102  Definitions.
    For the purposes of this subpart:
    (a) An affiliate of an insured state nonmember bank means:
    (1) Any entity of which the insured state nonmember bank is a 
direct or indirect subsidiary or which otherwise controls the insured 
state nonmember bank;
    (2) Any organization which is a direct or indirect subsidiary of 
such entity or which is otherwise controlled by such entity; or
    (3) Any other organization which is a direct or indirect subsidiary 
of the insured state nonmember bank or is otherwise controlled by the 
insured state nonmember bank.
    (b) Control means the ability to control in any manner the election 
of a majority of an organization's directors or trustees; or the 
ability to exercise a controlling influence over the management and 
policies of an organization. An insured state nonmember bank is deemed 
to control an organization of which it is a general partner or its 
affiliate is a general partner.
    (c) Eligible insured state nonmember bank means one that has an 
FDIC-assigned composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System (UFIRS); is well-capitalized; received a 
rating of 1 or 2 under the ``management'' component of the UFIRS at its 
most recent examination; has a compliance rating of 1 or 2; has a 
satisfactory or
[[Page 37765]]
better Community Reinvestment Act rating; is not subject to a cease and 
desist order, consent order, prompt corrective action directive, formal 
or informal written agreement (excluding any board of directors 
resolution addressing corrective action taken pursuant to regulatory 
recommendations), or other administrative agreement with any U.S. bank 
regulatory authority; and has been chartered and operating for at least 
three years.
    (d) Equity interest means any ownership interest or rights in an 
organization, whether through an equity security, contribution to 
capital, general or limited partnership interest, debt or warrants 
convertible into ownership interests or rights, loans providing profit 
participation, binding commitments to acquire any such items, or some 
other form of business transaction.
    (e) Equity security means voting or nonvoting shares, stock, 
investment contracts, or other interests representing ownership or 
participation in a company or similar enterprise, as well as any 
instrument convertible to any such interest at the option of the holder 
without payment of substantial additional consideration.
    (f) FRB means the Board of Governors of the Federal Reserve System.
    (g) Foreign bank means a foreign organization that:
    (1) Is recognized as a bank by the bank supervisory or monetary 
authority of the country of its organization or the country in which 
its principal banking operations are located;
    (2) Receives deposits to a substantial extent in the regular course 
of its business; and
    (3) Has the power to accept demand deposits.
    (h) Foreign banking organization means a foreign organization that 
is formed for the sole purpose of either holding shares of a foreign 
bank or performing nominee, fiduciary, or other banking services 
incidental to the activities of a foreign branch or foreign bank 
affiliate of the insured state nonmember bank.
    (i) Foreign branch means an office or place of business of an 
insured state nonmember bank located in a foreign country at which 
banking operations are conducted, but does not include a representative 
office.
    (j) Foreign country means any country other than the United States 
and includes any territory, dependency, or possession of any such 
country or of the United States, and the Commonwealth of Puerto Rico.
    (k) Foreign organization means an organization that is organized 
under the laws of a foreign country.
    (l) Indirectly means investments held or activities conducted by a 
subsidiary of an organization.
    (m) Loan or extension of credit means all direct and indirect 
advances of funds to a person, government, or entity made on the basis 
of any obligation of that person, government, or entity to repay funds.
    (n) Organization or entity means a corporation, partnership, 
association, bank, or other similar entity.
    (o) Representative office means an office that engages solely in 
representative functions such as soliciting new business for its home 
office or acting as liaison between the home office and local 
customers, but which has no authority to make business or contracting 
decisions other than those relating to the personnel and premises of 
the representative office.
    (p) Subsidiary means any organization more than 50 percent of the 
voting equity interests of which are directly or indirectly held by 
another organization.
    (q) Tier 1 capital means tier 1 capital as defined in Sec. 325.2 of 
this chapter.
    (r) Well capitalized means well capitalized as defined in 
Sec. 325.103 of this chapter.
Sec. 347.103  Foreign branches of insured state nonmember banks.
    (a) Powers of foreign branches. To the extent authorized by state 
law, an insured state nonmember bank may establish a foreign branch. In 
addition to its general banking powers, and if permitted by state law, 
a foreign branch of an insured state nonmember bank may conduct the 
following activities to the extent the activities are consistent with 
banking practices in the foreign country in which the branch is 
located:
    (1) Guarantees. Guarantee debts, or otherwise agree to make 
payments on the occurrence of readily ascertainable events including 
without limitation such things as nonpayment of taxes, rentals, customs 
duties, or costs of transport and loss or nonconformance of shipping 
documents, if:
    (i) The guarantee or agreement specifies a maximum monetary 
liability; and
    (ii) To the extent the guarantee or agreement is not subject to a 
separate amount limit under state or federal law, the amount of the 
guarantee or agreement is combined with loans and other obligations for 
purposes of applying any legal lending limits.
    (2) Local investments. Acquire and hold the following local 
investments, so long as aggregate investments (other than those 
required by the law of the foreign country or permissible under section 
5136 of the Revised Statutes (12 U.S.C. 24 Seventh)) by all the bank's 
branches in one foreign country do not exceed 1 percent of the total 
deposits in all the bank's branches in that country as reported in the 
preceding year-end call report: 1
---------------------------------------------------------------------------
    \1\ If a branch has recently been acquired by the state 
nonmember bank and the branch was not previously required to file a 
call report, branch deposits as of the acquisition date must be 
used.
---------------------------------------------------------------------------
    (i) Equity securities of the central bank, clearing houses, 
governmental entities, and development banks of the country in which 
the branch is located;
    (ii) Other debt securities eligible to meet local reserve or 
similar requirements; and
    (iii) Shares of automated electronic payment networks, professional 
societies, schools, and similar entities necessary to the business of 
the branch.
    (3) Government obligations. Make the following types of 
transactions with respect to the obligations of foreign countries, so 
long as aggregate investments, securities held in connection with 
distribution and dealing, and underwriting commitments do not exceed 10 
percent of the insured state nonmember bank's Tier 1 capital:
    (i) Underwrite, distribute and deal, invest in, or trade 
obligations of:
    (A) The national government of the country in which the branch is 
located or its political subdivisions; and
    (B) An agency or instrumentality of such national government if 
supported by the taxing authority, guarantee, or full faith and credit 
of the national government.
    (ii) Underwrite, distribute and deal, invest in or trade 
investment-grade obligations 2 of:
---------------------------------------------------------------------------
    \2\ If the obligation is an equity interest, it must be held 
through a subsidiary of the foreign branch and the insured state 
nonmember bank must meet its minimum capital requirements.
---------------------------------------------------------------------------
    (A) The national government of any foreign country or its political 
subdivisions, to the extent permissible under the law of the issuing 
foreign country; and
    (B) An agency or instrumentality of the national government of any 
foreign country to the extent permissible under the law of the issuing 
foreign country, if supported by the taxing authority, guarantee, or 
full faith and credit of the national government.
    (4) Insurance. Act as an insurance agent or broker.
    (5) Other activities. Engage in these activities in an additional 
amount, or in other activities, approved by the FDIC.
    (b) Establishment of foreign branches. (1) General consent of the 
FDIC is
[[Page 37766]]
granted for an eligible insured state nonmember bank to establish 
additional foreign branches conducting activities authorized by this 
section in any foreign country in which the bank already operates one 
or more foreign branches, or to relocate an existing foreign branch 
within a foreign country. The insured state nonmember bank must provide 
written notice of such action to the FDIC within 30 days of 
establishment or relocation.
    (2) An eligible insured state nonmember bank with foreign branches 
or affiliates in two or more foreign countries may establish a foreign 
branch conducting activities authorized by this section in an 
additional foreign country 45 days after the insured state nonmember 
bank files a completed notice with the FDIC, or upon such earlier time 
as authorized by the FDIC.
    (3) General consent or prior notice under this paragraph does not 
apply:
    (i) If the foreign branch would be located on a site on the World 
Heritage List or on the foreign country's equivalent of the National 
Register of Historic Places, in accordance with section 403 of the 
National Historic Preservation Act Amendments of 1989 (16 U.S.C. 470a-
2);
    (ii) If the foreign branch would be located in a foreign country in 
which applicable law or practice would limit the FDIC's access to 
information for supervisory purposes; or
    (iii) If the FDIC at any time notifies the insured state nonmember 
bank that the FDIC is modifying or suspending its general consent or 
prior notice procedure.
    (4) An insured state nonmember bank may not otherwise establish a 
foreign branch, or engage in a type or amount of foreign branch 
activity not authorized by this section, without obtaining the prior 
specific consent of the FDIC.
    (5) An insured state nonmember bank must notify the FDIC at the 
time it closes a foreign branch.
    (6) Procedures for notices and applications under this section are 
set out in subpart D of this part.
Sec. 347.104  Investment by insured state nonmember banks in foreign 
organizations.
    (a) Investment authorized. To the extent authorized by state law, 
an insured state nonmember bank may directly or indirectly acquire and 
retain equity interests in foreign organizations, subject to the 
requirements of this subpart.
    (b) Authorized financial activities. An insured state nonmember 
bank may not directly or indirectly acquire or hold equity interests of 
a foreign organization resulting in the insured state nonmember bank 
and its affiliates holding more than 50 percent of a foreign 
organization's voting equity interests in the aggregate, or the insured 
state nonmember bank or its affiliates otherwise controlling the 
foreign organization, unless the activities of the foreign organization 
are limited to the following financial activities:
    (1) Commercial and other banking activities.
    (2) Underwriting, distributing, and dealing debt securities outside 
the United States.
    (3) With the prior approval of the FDIC, underwriting, 
distributing, and dealing equity securities outside the United States.
    (4) Organizing, sponsoring, and managing a mutual fund if the 
fund's shares are not sold or distributed in the United States or to 
U.S. residents and the fund does not exercise management control over 
the firms in which it invests.
    (5) General insurance agency and brokerage.
    (6) Underwriting credit life, credit accident and credit health 
insurance.
    (7) Performing management consulting services provided that such 
services when rendered with respect to the United States market must be 
restricted to the initial entry.
    (8) Data processing.
    (9) Operating a travel agency in connection with financial services 
offered abroad by the insured state nonmember bank or others.
    (10) Engaging in activities that the FRB has determined in 
Regulation Y (12 CFR 225.28(b)) are closely related to banking under 
section 4(c)(8) of the Bank Holding Company Act.
    (11) Performing services for other direct or indirect operations of 
a U.S. banking organization, including representative functions, sale 
of long-term debt, name saving, liquidating assets acquired to prevent 
loss on a debt previously contracted in good faith, and other 
activities that are permissible for a bank holding company under 
sections 4(a)(2)(A) and 4(c)(1)(C) of the Bank Holding Company Act.
    (12) Holding the premises of a branch of an Edge corporation or 
insured state nonmember bank or the premises of a direct or indirect 
subsidiary, or holding or leasing the residence of an officer or 
employee of a branch or a subsidiary.
    (13) Engaging in the foregoing activities in an additional amount, 
or in other activities, with the prior approval of the FDIC.
    (c) Going concerns. If an insured state nonmember bank acquires 
equity interests of a foreign organization under paragraph (b) of this 
section and the foreign organization is a going concern, up to 5 
percent of either the consolidated assets or revenues of the foreign 
organization may be attributable to activities that are not permissible 
under paragraph (b) of this section.
    (d) Joint ventures. If an insured state nonmember bank directly or 
indirectly acquires or holds equity interests of a foreign organization 
resulting in the insured state nonmember bank and its affiliates 
holding 20 percent or more, but not in excess of 50 percent, of the 
voting equity interests of a foreign organization in the aggregate, and 
the insured state nonmember bank or its affiliates do not control the 
foreign organization, up to 10 percent of either the consolidated 
assets or revenues of the foreign organization may be attributable to 
activities that are not permissible under paragraph (b) of this 
section.
    (e) Portfolio investment. If an insured state nonmember bank 
directly or indirectly acquires or holds equity interests of a foreign 
organization resulting in the insured state nonmember bank and its 
affiliates holding less than 20 percent of the voting equity interests 
of a foreign organization in the aggregate, and the insured state 
nonmember bank or its affiliates do not control the foreign 
organization:
    (1) Up to 10 percent of either the consolidated assets or revenues 
of the foreign organization may be attributable to activities that are 
not permissible under paragraph (b) of this section; and
    (2) Any loans or extensions of credit made by the insured state 
nonmember bank and its affiliates to the foreign organization must be 
on substantially the same terms, including interest rates and 
collateral, as those prevailing at the same time for comparable 
transactions between the insured state nonmember bank or its affiliates 
and nonaffiliated organizations.
    (f) Indirect holding of foreign organizations which are not foreign 
banks or foreign banking organizations. Any investment pursuant to the 
authority of paragraphs (b) through (e) of this section in a foreign 
organization which is not a foreign bank or foreign banking 
organization must be held indirectly through a U.S. or foreign 
subsidiary of the insured state nonmember bank if the foreign 
organization does not constitute a subsidiary of the insured state 
nonmember bank, and the insured state nonmember bank must meet its 
minimum capital requirements.
    (g) Indirect investments in nonfinancial foreign organizations. An 
insured state nonmember bank may
[[Page 37767]]
indirectly acquire and hold equity interests in an amount up to 15 
percent of the insured state nonmember bank's Tier 1 capital in foreign 
organizations engaged generally in activities beyond those listed in 
paragraph (b) of this section, subject to the following:
    (1) The equity interests must be acquired and held indirectly 
through a subsidiary authorized by paragraphs (b) or (c) of this 
section, or an Edge corporation if also authorized by the FRB;
    (2) The aggregate holding of voting equity interests of one foreign 
organization by the insured state nonmember bank and its affiliates 
must be less than 20 percent of the foreign organization's voting 
equity interests;
    (3) The aggregate holding of voting and nonvoting equity interests 
of one foreign organization by the insured state nonmember bank and its 
affiliates must be less than 40 percent of the foreign organization's 
equity interests;
    (4) The insured state nonmember bank or its affiliates must not 
otherwise control the foreign organization; and
    (5) Any loans or extensions of credit made by the insured state 
nonmember bank and its affiliates to the foreign organization must be 
on substantially the same terms, including interest rates and 
collateral, as those prevailing at the same time for comparable 
transactions between the insured state nonmember bank or its affiliates 
and nonaffiliated organizations.
    (h) Affiliate holdings. References in this section to equity 
interests of foreign organizations held by an affiliate of an insured 
state nonmember bank includes equity interests held in connection with 
an underwriting or for distribution or dealing by an affiliate 
permitted to do so by Sec. 337.4 of this chapter or section 4(c)(8) of 
the Bank Holding Company Act (12 U.S.C. 1843(c)(8)).
Sec. 347.105  Underwriting and dealing limits applicable to foreign 
organizations held by insured state nonmember banks.
    If an insured state nonmember bank, in reliance on the authority of 
Sec. 347.104, holds an equity interest in one or more foreign 
organizations which underwrite, deal, or distribute equity securities 
outside the United States as authorized by Sec. 347.104(b)(3):
    (a) Underwriting commitment limits. The aggregate underwriting 
commitments by the foreign organizations for the equity securities of a 
single entity, taken together with underwriting commitments by any 
affiliate of the insured state nonmember bank under the authority of 12 
CFR 211.5, must not exceed the lesser of $60 million or 25 percent of 
the insured state nonmember bank's Tier 1 capital unless excess amounts 
are either:
    (1) Covered by binding commitments from subunderwriters or 
purchasers; or
    (2) Deducted from the capital of the insured state nonmember bank, 
with at least 50 percent of the deduction being taken from Tier 1 
capital, and the insured state nonmember bank remains well capitalized 
after this deduction.
    (b) Distribution and dealing limits. The equity securities of any 
single entity held for distribution or dealing by the foreign 
organizations, taken together with equity securities held for 
distribution or dealing by any affiliate of the insured state nonmember 
bank under the authority of 12 CFR 211.5:
    (1) Must not exceed the lesser of $30 million or 5 percent of the 
insured state nonmember bank's Tier 1 capital, subject to the 
following:
    (i) Any equity securities acquired pursuant to any underwriting 
commitment extending up to 90 days after the payment date for the 
underwriting may be excluded from this limit;
    (ii) Any equity securities of the entity held under the authority 
of Sec. 347.104 or 12 CFR 211.5(b) for purposes other than distribution 
or dealing must be included in this limit; and
    (iii) Up to 75 percent of the position in an equity security may be 
reduced by netting long and short positions in the same security, or 
offsetting cash positions against derivative instruments referenced to 
the same security so long as the derivatives are part of a prudent 
hedging strategy; and
    (2) Must be included in calculating the general consent limits 
under Sec. 347.108(a)(3) if the insured state nonmember bank relies on 
the general consent provisions as authority to acquire equity interests 
of the same foreign entity for investment or trading.
    (c) Additional distribution and dealing limits. With the exception 
of equity securities acquired pursuant to any underwriting commitment 
extending up to 90 days after the payment date for the underwriting, 
equity securities of a single entity held for distribution or dealing 
by all affiliates of the state nonmember bank,3 combined 
with any equity interests held for investment or trading purposes by 
all affiliates of the state nonmember bank, must conform to the limits 
of Sec. 347.104.
---------------------------------------------------------------------------
    \3\ This includes shares held in connection with an underwriting 
or for distribution or dealing by an affiliate permitted to do so by 
Sec. 337.4 of this chapter or section 4(c)(8) of the Bank Holding 
Company Act.
---------------------------------------------------------------------------
    (d) Combined limits. The aggregate of the following may not exceed 
25 percent of the insured state nonmember bank's Tier 1 capital:
    (1) All equity interests of foreign organizations held for 
investment or trading under Sec. 347.104(g) or by an affiliate of the 
insured state nonmember bank under the corresponding paragraph of 12 
CFR 211.5;
    (2) All underwriting commitments under paragraph (a) of this 
section, taken together with all underwriting commitments by any 
affiliate of the insured state nonmember bank under the authority of 12 
CFR 211.5, after excluding the amount of any underwriting commitment:
    (i) Covered by binding commitments from subunderwriters or 
purchasers under paragraph (a)(1) of this section or the comparable 
provision of 12 CFR 211.5; or
    (ii) Already deducted from the insured state nonmember bank's 
capital under paragraph (a)(2) of this section, or the appropriate 
affiliate's capital under the comparable provisions of 12 CFR 211.5; 
and
    (3) All equity securities held for distribution or dealing under 
paragraph (b) of this section, taken together with all equity 
securities held for distribution or dealing by any affiliate of the 
insured state nonmember bank under the authority of 12 CFR 211.5, after 
reducing by up to 75 percent the position in any equity security by 
netting and offset, as permitted by paragraph (b)(1)(iii) of this 
section or the comparable provision of 12 CFR 211.5.
Sec. 347.106  Restrictions on certain activities applicable to foreign 
organizations held by insured state nonmember banks.
    Futures commission merchant. If an insured state nonmember bank, in 
reliance on the authority of Sec. 347.104, acquires or retains an 
equity interest in one or more foreign organizations which acts as a 
futures commission merchant as authorized by Sec. 347.104(b)(10), the 
foreign organization may not be a member of an exchange or clearing 
association that requires members to guarantee or otherwise contract to 
cover losses suffered by other members unless the foreign 
organization's liability does not exceed 2 percent of the insured state 
nonmember bank's Tier 1 capital, or the insured state nonmember bank 
has obtained the prior approval of the FDIC under Sec. 347.108(d).
Sec. 347.107  U.S. activities of foreign organizations held by insured 
state nonmember banks.
    (a) An insured state nonmember bank may not directly or indirectly 
hold the equity interests of any foreign organization pursuant to the 
authority of
[[Page 37768]]
this section if the organization engages in the general business of 
buying or selling goods, wares, merchandise, or commodities in the 
United States.
    (b) An insured state nonmember bank may not directly or indirectly 
hold more than 5 percent of the equity interests of any foreign 
organization pursuant to the authority of this subpart unless any 
activities in which the foreign organization engages directly or 
indirectly in the United States are incidental to its international or 
foreign business.
    (c) A foreign organization is not engaged in any business or 
activities in the United States for these purposes unless it maintains 
an office in the United States other than a representative office.
    (d) The following activities are incidental to international or 
foreign business:
    (1) activities that the FRB has determined in Regulation K (12 CFR 
211.4) are permissible in the United States for an Edge corporation.
    (2) Other activities approved by the FDIC.
Sec. 347.108  Obtaining FDIC approval to invest in foreign 
organizations.
    (a) General consent. General consent of the FDIC is granted for an 
eligible insured state nonmember bank to make direct or indirect 
investments in foreign organizations in conformity with the limits and 
requirements of this subpart if:
    (1) The insured state nonmember bank or an affiliate presently have 
at least one foreign organization subsidiary;
    (2) In any case in which the insured state nonmember bank and its 
affiliates will hold 20 percent or more of the foreign organization's 
voting equity interests, at least one insured state nonmember bank has 
a foreign organization subsidiary in the relevant foreign country;
    (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 twelve 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 insured 
state nonmember bank's Tier 1 capital, and such investments in all 
foreign organizations in the aggregate do not exceed:
    (A) 5 percent of the insured state nonmember bank's Tier 1 capital 
during a twelve-month period; and
    (B) Up to an additional 5 percent of the insured state nonmember 
bank's Tier 1 capital if the investments are acquired for trading 
purposes; and
    (4) Within 30 days, the insured state nonmember bank provides the 
FDIC written notice of the investment, unless the investment was 
acquired for trading purposes, in which case no notice is required.
    (b) Prior notice. 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 insured state 
nonmember bank files a completed notice with the FDIC, or upon such 
earlier time as authorized by the FDIC.
    (c) Inapplicability of general consent or prior notice. General 
consent or prior notice under this section do not apply:
    (1) For foreign investments resulting in the insured state 
nonmember bank holding 20 percent or more of the voting equity 
interests of a foreign organization or controlling such organization 
and the foreign organization would be located in a foreign country in 
which applicable law or practice would limit the FDIC's access to 
information for supervisory purposes; or
    (2) If the FDIC at any time notifies the insured state nonmember 
bank that the FDIC is modifying or suspending its general consent or 
prior notice procedure.
    (d) Specific consent. Any investment that is not authorized under 
general consent or prior notice procedures must not be made without the 
prior specific consent of the FDIC.
    (e) Computation of amounts. In computing the amount that may be 
invested in any foreign organization under this section, any 
investments held by an affiliate of the insured state nonmember bank 
must be included.
    (f) Procedures. Procedures for applications and notices under this 
section are set out in subpart D of this part.
Sec. 347.109  Extensions of credit to foreign organizations held by 
insured state nonmember banks; shares of foreign organizations held in 
connection with debts previously contracted.
    (a) Loans or extensions of credit. An insured state nonmember bank 
which directly or indirectly holds equity interests in a foreign 
organization pursuant to the authority of this subpart may make loans 
or extensions of credit to or for the accounts of the organization 
without regard to the provisions of section 18(j) of the FDI Act (12 
U.S.C. 1828(j)).
    (b) Debts previously contracted. Equity interests acquired to 
prevent a loss upon a debt previously contracted in good faith are not 
subject to the limitations or procedures of this subpart; however they 
must be disposed of promptly but in no event later than two years after 
their acquisition, unless the FDIC authorizes retention for a longer 
period.
Sec. 347.110  Supervision and recordkeeping of the foreign activities 
of insured state nonmember banks.
    (a) Records, controls and reports. An insured state nonmember bank 
with any foreign branch, any investment in a foreign organization of 20 
percent or more of the organization's voting equity interests, or 
control of a foreign organization must maintain a system of records, 
controls and reports that, at minimum, provide for the following:
    (1) Risk assets. To permit assessment of exposure to loss, 
information furnished or available to the main office should be 
sufficient to permit periodic and systematic appraisals of the quality 
of risk assets, including loans and other extensions of credit. 
Coverage should extend to a substantial proportion of the risk assets 
in the branch or foreign organization, and include the status of all 
large credit lines and of credits to customers also borrowing from 
other offices or affiliates of the insured state nonmember bank. 
Information on risk assets should 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
[[Page 37769]]
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. Such reports 
should cover:
    (i) Verification and identification of entries on financial 
statements;
    (ii) Income and expense accounts, including descriptions of 
significant chargeoffs and recoveries;
    (iii) Operations and dual-control procedures and other internal 
controls;
    (iv) Conformance to head office guidelines on loans, deposits, 
foreign exchange activities, proper accounting procedures, and 
discretionary authority of local management;
    (v) Compliance with local laws and regulations; and
    (vi) Compliance with applicable U.S. laws and regulations.
    (b) Availability of information to examiners; reports. (1) 
Information about foreign branches or foreign organizations must be 
made available to the FDIC by the insured state nonmember bank for 
examination and other supervisory purposes.
    (2) If any applicable law or practice in a particular foreign 
country would limit the FDIC's access to information for supervisory 
purposes, no insured state nonmember bank may utilize the general 
consent or prior notice procedures under Secs. 347.103 and 347.108 to:
    (i) Establish any foreign branch in the foreign country; or
    (ii) Make any investment resulting in the state nonmember bank 
holding 20 percent or more of the voting equity interests of a foreign 
organization in the foreign country or controlling such organization.
    (3) The FDIC may from time to time require an insured state 
nonmember bank to make and submit such reports and information as may 
be necessary to implement and enforce the provisions of this subpart, 
and the insured state nonmember bank shall submit an annual report of 
condition for each foreign branch pursuant to instructions provided by 
the FDIC.
Subpart B--Foreign Banks
Sec. 347.201  Scope.
    (a)(1) Sections 347.203 through 347.207 of this subpart implement 
the insurance provisions of section 6 of the International Banking Act 
of 1978 (12 U.S.C. 3104). They set out the FDIC's rules regarding 
retail deposit activities requiring a foreign bank to establish an 
insured bank subsidiary; deposit activities permissible for a 
noninsured branch; authority for a state branch to apply for an 
exemption from the insurance requirement; and, depositor notification 
requirements. Sections 347.204, 347.205, 347.206 and 347.207 do not 
apply to a federal branch. The Comptroller of the Currency's 
regulations (12 CFR part 28) establish such rules for federal branches. 
However, federal branches deemed by the Comptroller to require 
insurance must apply to the FDIC for insurance.
    (2) Sections 347.203 through 347.207 of this subpart also set out 
the FDIC's rules regarding the operation of insured and noninsured 
branches, whether state or federal, by a foreign bank.
    (b) Sections 347.208 through 347.212 of this subpart set out the 
rules that apply only to a foreign bank that operates or proposes to 
establish an insured state or federal branch. These rules relate to the 
following matters: an agreement to provide information and to be 
examined and provisions concerning recordkeeping, pledge of assets, 
asset maintenance, and deductions from the assessment base.
Sec. 347.202  Definitions.
    For the purposes of this subpart:
    (a) Affiliate means any entity that controls, is controlled by, or 
is under common control with another entity. An entity shall be deemed 
to ``control'' another entity if the entity directly or indirectly 
owns, controls, or has the power to vote 25 percent or more of any 
class of voting securities of the other entity or controls in any 
manner the election of a majority of the directors or trustees of the 
other entity.
    (b) Branch means any office or place of business of a foreign bank 
located in any state of the United States at which deposits are 
received. The term does not include any office or place of business 
deemed by the state licensing authority or the Comptroller of the 
Currency to be an agency.
    (c) Deposit has the same meaning as that term in section 3(l) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(l)).
    (d) Depository means any insured state bank, national bank, or 
insured branch.
    (e) Domestic retail deposit activity means the acceptance by a 
state branch of any initial deposit of less than $100,000.
    (f) Federal branch means a branch of a foreign bank established and 
operating under the provisions of section 4 of the International 
Banking Act of 1978 (12 U.S.C. 3102).
    (g) Foreign bank means any company organized under the laws of a 
foreign country, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Northern Mariana Islands or the Virgin Islands, 
which engages in the business of banking. The term includes foreign 
commercial banks, foreign merchant banks and other foreign institutions 
that engage in banking activities usual in connection with the business 
of banking in the countries where such foreign institutions are 
organized and operating. Except as otherwise specifically provided by 
the Federal Deposit Insurance Corporation, banks organized under the 
laws of a foreign country, any territory of the United States, Puerto 
Rico, Guam, American Samoa, the Northern Mariana Islands, or the Virgin 
Islands which are insured banks other than by reason of having an 
insured branch are not considered to be foreign banks for purposes of 
Secs. 347.208, 347.209, 347.210, and 347.211.
    (h) Foreign business means any entity including, but not limited 
to, a corporation, partnership, sole proprietorship, association, 
foundation or trust, which is organized under the laws of a foreign 
country or any United States entity which is owned or controlled by an 
entity which is organized under the laws of a foreign country or a 
foreign national.
    (i) Foreign country means any country other than the United States 
and includes any colony, dependency or possession of any such country.
    (j) Home state of a foreign bank means the state so determined by 
the election of the foreign bank, or in default of such election, by 
the Board of Governors of the Federal Reserve System.
    (k) Immediate family member of a natural person means the spouse, 
father, mother, brother, sister, son or daughter of that natural 
person.
    (l) Initial deposit means the first deposit transaction between a 
depositor and the branch. The initial deposit may be placed into 
different deposit accounts or into different kinds of deposit accounts, 
such as demand, savings or time. Deposit accounts that are held by a 
depositor in the same right and capacity may be added together for the 
purposes of determining the dollar amount of the initial deposit. 
``First deposit'' means any deposit made when there is no existing 
deposit relationship between the depositor and the branch.
    (m) Insured bank means any bank, including a foreign bank having an 
insured branch, the deposits of which are insured in accordance with 
the provisions of the Federal Deposit Insurance Act.
    (n) Insured branch means a branch of a foreign bank any deposits of 
which
[[Page 37770]]
branch are insured in accordance with the provisions of the Federal 
Deposit Insurance Act.
    (o) Large United States business means any entity including, but 
not limited to, a corporation, partnership, sole proprietorship, 
association, foundation or trust which is organized under the laws of 
the United States or any state thereof, and:
    (1) Whose securities are registered on a national securities 
exchange or quoted on the National Association of Securities Dealers 
Automated Quotation System; or
    (2) Has annual gross revenues in excess of $1,000,000 for the 
fiscal year immediately preceding the initial deposit.
    (p) A majority owned subsidiary means a company the voting stock of 
which is more than 50 percent owned or controlled by another company.
    (q) Noninsured branch means a branch of a foreign bank deposits of 
which branch are not insured in accordance with the provisions of the 
Federal Deposit Insurance Act.
    (r) Person means an individual, bank, corporation, partnership, 
trust, association, foundation, joint venture, pool, syndicate, sole 
proprietorship, unincorporated organization, or any other form of 
entity.
    (s) Significant risk to the deposit insurance fund shall be 
understood to be present whenever there is a high probability that the 
Bank Insurance Fund administered by the FDIC may suffer a loss.
    (t) State means any state of the United States or the District of 
Columbia.
    (u) State branch means a branch of a foreign bank established and 
operating under the laws of any state.
    (v) A wholly owned subsidiary means a company the voting stock of 
which is 100 percent owned or controlled by another company except for 
a nominal number of directors' shares.
Sec. 347.203  Restriction on operation of insured and noninsured 
branches.
    The FDIC will not insure deposits in any branch of a foreign bank 
unless the foreign bank agrees that every branch established or 
operated by the foreign bank in the same state will be an insured 
branch; provided, that this restriction does not apply to any branch 
which accepts only initial deposits in an amount of $100,000 or 
greater.
Sec. 347.204  Insurance requirement.
    (a) Domestic retail deposit activity. In order to initiate or 
conduct domestic retail deposit activity, which requires deposit 
insurance protection, a foreign bank shall:
    (1) Establish 1 or more insured bank subsidiaries in the United 
States for that purpose; and
    (2) Obtain deposit insurance for any such subsidiary in accordance 
with the Federal Deposit Insurance Act.
    (b) Exception. For purposes of paragraph (a) of this section, 
``foreign bank'' does not include any bank organized under the laws of 
any territory of the United States, Puerto Rico, Guam, American Samoa, 
or the Virgin Islands the deposits of which are insured by the 
Corporation pursuant to the Federal Deposit Insurance Act.
    (c) Grandfathered insured branches. Domestic retail deposit 
accounts with balances of less than $100,000 that require deposit 
insurance protection may be accepted or maintained in a branch of a 
foreign bank only if such branch was an insured branch on December 19, 
1991.
    (d) Noninsured branches. A foreign bank may establish or operate a 
state branch which is not an insured branch whenever:
    (1) The branch only accepts initial deposits in an amount of 
$100,000 or greater; or
    (2) The branch meets the criteria set forth in Sec. 347.205 or 
Sec. 347.206.
Sec. 347.205  Branches established under section 5 of the International 
Banking Act.
    A foreign bank may operate any state branch as a noninsured branch 
whenever the foreign bank has entered into an agreement with the Board 
of Governors of the Federal Reserve System to accept at that branch 
only those deposits as would be permissible for a corporation organized 
under section 25(a) of the Federal Reserve Act (12 U.S.C. 611 et seq.) 
and implementing rules and regulations administered by the Board of 
Governors (12 CFR part 211).
Sec. 347.206  Exemptions from the insurance requirement.
    (a) Deposit activities not requiring insurance. A state branch will 
not be deemed to be engaged in domestic retail deposit activity which 
requires the foreign bank parent to establish an insured bank 
subsidiary in accordance with Sec. 347.204(a) if the state branch only 
accepts initial deposits in an amount of less than $100,000 which are 
derived solely from the following:
    (1) Individuals who are not citizens or residents of the United 
States at the time of the initial deposit;
    (2) Individuals who:
    (i) Are not citizens of the United States;
    (ii) Are residents of the United States; and
    (iii) Are employed by a foreign bank, foreign business, foreign 
government, or recognized international organization;
    (3) Persons (including immediate family members of natural persons) 
to whom the branch or foreign bank (including any affiliate thereof) 
has extended credit or provided other nondeposit banking services 
within the past twelve months or has entered into a written agreement 
to provide such services within the next twelve months;
    (4) Foreign businesses, large United States businesses, and persons 
from whom an Edge Corporation may accept deposits under 
Sec. 211.4(e)(1) of Regulation K of the Board of Governors of the 
Federal Reserve System, 12 CFR 211.4(e)(1);
    (5) Any governmental unit, including the United States government, 
any state government, any foreign government and any political 
subdivision or agency of any of the foregoing, and recognized 
international organizations;
    (6) Persons who are depositing funds in connection with the 
issuance of a financial instrument by the branch for the transmission 
of funds or the transmission of such funds by any electronic means; and
    (7) Any other depositor, but only if the branch's average deposits 
under this paragraph (a)(7) of this section do not exceed one percent 
of the branch's average total deposits for the last 30 days of the most 
recent calendar quarter (de minimis exception). In calculating this de 
minimis exception, both the average deposits under this paragraph 
(a)(7) of this section and the average total deposits shall be computed 
by summing the close of business figures for each of the last 30 
calendar days, ending with and including the last day of the calendar 
quarter, and dividing the resulting sum by 30. For days on which the 
branch is closed, balances from the last previous business day are to 
be used. In determining its average branch deposits, the branch may 
exclude deposits in the branch of other offices, branches, agencies or 
wholly owned subsidiaries of the bank. In addition, the branch must not 
solicit deposits from the general public by advertising, display of 
signs, or similar activity designed to attract the attention of the 
general public. A foreign bank which has more than one state branch in 
the same state may aggregate deposits in such branches (excluding 
deposits of other branches, agencies or wholly owned subsidiaries of 
the bank) for the purpose of this paragraph (a)(7).
    (b) Application for an exemption. Whenever a foreign bank proposes 
to accept at a state branch initial deposits of less than $100,000 and 
such deposits
[[Page 37771]]
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 pursuant to Sec. 347.404. 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.
    (c) Transition period. A noninsured state branch may maintain a 
retail deposit lawfully accepted pursuant to this section prior to 
April 1, 1996:
    (1) If the deposit qualifies pursuant to paragraph (a) or (b) of 
this section; or
    (2) If the deposit does not qualify pursuant to paragraph (a) or 
(b) of this section, no later than:
    (i) In the case of a non-time deposit, five years from April 1, 
1996; or
    (ii) In the case of a time deposit, the first maturity date of the 
time deposit after April 1, 1996.
Sec. 347.207  Notification to depositors.
    Any state branch that is exempt from the insurance requirement 
pursuant to Sec. 347.206 shall:
    (a) Display conspicuously at each window or place where deposits 
are usually accepted a sign stating that deposits are not insured by 
the FDIC; and
    (b) Include in bold face conspicuous type on each signature card, 
passbook, and instrument evidencing a deposit the statement ``This 
deposit is not insured by the FDIC''; or require each depositor to 
execute a statement which acknowledges that the initial deposit and all 
future deposits at the branch are not insured by the FDIC. This 
acknowledgment shall be retained by the branch so long as the depositor 
maintains any deposit with the branch. This provision applies to any 
negotiable certificates of deposit made in a branch on or after July 6, 
1989, as well as to any renewals of such deposits which become 
effective on or after July 6, 1989.
Sec. 347.208  Agreement to provide information and to be examined.
    (a) A foreign bank that applies for insurance for any branch shall 
agree in writing to the following terms:
    (1)(i) The foreign bank will provide the FDIC with information 
regarding the affairs of the foreign bank and its affiliates which are 
located outside of the United States as the FDIC from time to time may 
request to:
    (A) Determine the relations between the insured branch and the 
foreign bank and its affiliates; and
    (B) Assess the financial condition of the foreign bank as it 
relates to the insured branch.
    (ii) If the laws of the country of the foreign bank's domicile or 
the policy of the Central Bank or other banking authority prohibit or 
restrict the foreign bank from entering into this agreement, the 
foreign bank shall agree to provide information to the extent permitted 
by such law or policy. Information provided shall be in English and in 
the form requested by the FDIC and shall be made available in the 
United States. The Board of Directors will consider the existence and 
extent of this prohibition or restriction in determining whether to 
grant insurance and may deny the application if the information 
available is so limited in extent that an unacceptable risk to the 
insurance fund is presented.
    (2)(i) The FDIC may examine the affairs of any office, agency, 
branch or affiliate of the foreign bank located in the United States as 
the FDIC deems necessary to:
    (A) Determine the relations between the insured branch and such 
offices, agencies, branches or affiliates; and
    (B) Assess the financial condition of the foreign bank as it 
relates to the insured branch.
    (ii) The foreign bank shall also agree to provide the FDIC with 
information regarding the affairs of such offices, agencies, branches 
or affiliates as the FDIC deems necessary. The Board of Directors will 
not grant insurance to any branch if the foreign bank fails to enter 
into an agreement as required under this paragraph (a).
    (b) The agreement shall be signed by an officer of the foreign bank 
who has been so authorized by the foreign bank's board of directors. 
The agreement and the authorization shall be included with the foreign 
bank's application for insurance. Any agreement not in English shall be 
accompanied by an English translation.
Sec. 347.209  Records.
    (a) Each insured branch shall keep a set of accounts and records in 
the words and figures of the English language which accurately reflect 
the business transactions of the insured branch on a daily basis.
    (b) The records of each insured branch shall be kept as though it 
were a separate entity, with its assets and liabilities separate from 
the other operations of the head office, other branches or agencies of 
the foreign bank and its subsidiaries or affiliates. A foreign bank 
which has more than one insured branch in a state may treat such 
insured branches as one entity for record keeping purposes and may 
designate one branch to maintain records for all the branches in the 
state.
Sec. 347.210  Pledge of assets.
    (a) Purpose. A foreign bank that has an insured branch shall pledge 
assets for the benefit of the FDIC or its designee(s). Whenever the 
FDIC is obligated under section 11(f) of the Federal Deposit Insurance 
Act (12 U.S.C. 1821(f)) to pay the insured deposits of an insured 
branch, the assets pledged under this section shall become the property 
of the FDIC to be used to the extent necessary to protect the deposit 
insurance fund.
    (b) Amount of assets to be pledged. (1) A foreign bank shall pledge 
assets equal to five percent of the average of the insured branch's 
liabilities for the last 30 days of the most recent calendar quarter. 
This average shall be computed by using the sum of the close of 
business figures for the 30 calendar days of the most recent calendar 
quarter, ending with and including the last day of the calendar 
quarter, divided by 30.4 In determining its average 
liabilities, the insured branch may exclude liabilities to other 
offices, agencies, branches, and wholly owned subsidiaries of the 
foreign bank. The value of the pledged assets shall be computed based 
on the lesser of the principal amount (par value) or market value of 
such assets at the time of the original pledge and thereafter as of the 
last day of the most recent calendar quarter.
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    \4\ For days on which the branch is closed, balances from the 
last previous business day are to be used.
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    (2) The initial five-percent deposit for a newly established 
insured branch shall be based on the branch's projection of liabilities 
at the end of the first year of its operation.
    (3) The FDIC may require a foreign bank to pledge additional assets 
or to compute its pledge on a daily basis whenever the FDIC determines 
that the foreign bank's or any insured branch's condition is such that 
the assets pledged under paragraph (b)(1) or (b)(2) of this section 
will not adequately protect the deposit insurance fund. In requiring a 
foreign bank to pledge additional assets, the FDIC will consult with 
the insured branch's primary regulator. Among the
[[Page 37772]]
factors to be considered in imposing these requirements are the 
concentration of risk to any one borrower or group of related 
borrowers, the concentration of transfer risk to any one country, 
including the country in which the foreign bank's head office is 
located or any other factor the FDIC determines is relevant.
    (4) Each insured branch shall separately comply with the 
requirements of this section. However, a foreign bank which has more 
than one insured branch in a state may treat all of its insured 
branches in the same state as one entity and shall designate one 
insured branch to be responsible for compliance with this section.
    (c) Depository. A foreign bank shall place pledged assets for 
safekeeping at any depository which is located in any state. However, a 
depository may not be an affiliate of the foreign bank whose insured 
branch is seeking to use the depository. A foreign bank must obtain the 
FDIC's prior written approval of the depository selected, and such 
approval may be revoked and dismissal of the depository required 
whenever the depository does not fulfill any one of its obligations 
under the pledge agreement. A foreign bank shall appoint and constitute 
the depository as its attorney in fact for the sole purpose of 
transferring title to pledged assets to the FDIC as may be required to 
effectuate the provisions of paragraph (a) of this section.
    (d) Assets that may be pledged. Subject to the right of the FDIC to 
require substitution, a foreign bank may pledge any of the kinds of 
assets listed below; such assets must be denominated in United States 
dollars. A foreign bank shall be deemed to have pledged any such assets 
for the benefit of the FDIC or its designees at such time as any such 
asset is placed with the depository.
    (1) Certificates of deposit that are payable in the United States 
and that are issued by any state bank, national bank, or branch of a 
foreign bank which has executed a valid waiver of offset agreement or 
similar debt instruments that are payable in the United States and that 
are issued by any agency of a foreign bank which has executed a valid 
waiver of offset agreement; provided, that the maturity of any 
certificate or issuance is not greater than one year; and provided 
further, that the issuing branch or agency of a foreign bank is not an 
affiliate of the pledging bank or from the same country as the pledging 
bank's domicile;
    (2) Interest bearing bonds, notes, debentures, or other direct 
obligations of or obligations fully guaranteed as to principal and 
interest by the United States or any agency or instrumentality thereof;
    (3) Commercial paper that is rated P-1 or P-2, or their equivalent 
by a nationally recognized rating service; provided, that any conflict 
in a rating shall be resolved in favor of the lower rating;
    (4) Banker's acceptances that are payable in the United States and 
that are issued by any state bank, national bank, or branch or agency 
of a foreign bank; provided, that the maturity of any acceptance is not 
greater than 180 days; and provided further, that the branch or agency 
issuing the acceptance is not an affiliate of the pledging bank or from 
the same country as the pledging bank's domicile;
    (5) General obligations of any state of the United States, or any 
county or municipality of any state of the United States, or any 
agency, instrumentality, or political subdivision of the foregoing or 
any obligation guaranteed by a state of the United States or any county 
or municipality of any state of the United States; provided, that such 
obligations have a credit rating within the top two rating bands of a 
nationally-recognized rating service (with any conflict in a rating 
resolved in favor of the lower rating);
    (6) Obligations of the African Development Bank, Asian Development 
Bank, Inter-American Development Bank, and the International Bank for 
Reconstruction and Development;
    (7) Notes issued by bank holding companies or banks organized under 
the laws of the United States or any state thereof or notes issued by 
United States branches or agencies of foreign banks, provided, that the 
notes have a credit rating within the top two rating bands of a 
nationally-recognized rating service (with any conflict in a rating 
resolved in favor of the lower rating) and that they are payable in the 
United States, and provided further, that the issuer is not an 
affiliate of the foreign bank pledging the note; or
    (8) Any other asset determined by the FDIC to be acceptable.
    (e) Pledge agreement. A foreign bank shall not pledge any assets 
unless a pledge agreement in form and substance satisfactory to the 
FDIC has been executed by the foreign bank and the depository. The 
agreement, in addition to other terms not inconsistent with this 
paragraph (e), shall give effect to the following terms:
    (1) Original pledge. The foreign bank shall place with the 
depository assets of the kind described in Sec. 347.210(d), having an 
aggregate value in the amount as required pursuant to Sec. 347.210(b).
    (2) Additional assets required to be pledged. Whenever the foreign 
bank is required to pledge additional assets for the benefit of the 
FDIC or its designees pursuant to paragraph (b)(3) of this section, it 
shall place (within two (2) business days after the last day of the 
most recent calendar quarter, unless otherwise ordered) additional 
assets of the kind described in paragraph (d) of this section, having 
an aggregate value in the amount required by the FDIC.
    (3) Substitution of assets. The foreign bank, at any time, may 
substitute any assets for pledged assets, and, upon such substitution, 
the depository shall promptly release any such assets to the foreign 
bank. Provided, that:
    (i) The foreign bank pledges assets of the kind described in 
paragraph (d) of this section having an aggregate value not less than 
the value of the pledged assets for which they are substituted and 
certified as such by the foreign bank; and
    (ii) The FDIC has not by written notification to the foreign bank, 
a copy of which shall be provided to the depository, suspended or 
terminated the foreign bank's right of substitution.
    (4) Delivery of other documents. Concurrently with the pledge of 
any assets, the foreign bank shall deliver to the depository all 
documents and instruments necessary or advisable to effectuate the 
transfer of title to any such assets and thereafter, from time to time, 
at the request of the FDIC, deliver to the depository any such 
additional documents or instruments. The foreign bank shall provide 
copies of all such documents described in this paragraph (e)(4) to the 
appropriate regional director concurrently with their delivery to the 
depository.
    (5) Acceptance and safekeeping responsibilities of the depository. 
(i) The depository shall accept and hold any assets pledged by the 
foreign bank pursuant to the pledge agreement for safekeeping free and 
clear of any lien, charge, right of offset, credit, or preference in 
connection with any claim the depository may assert against the foreign 
bank and shall designate any such assets as a special pledge for the 
benefit of the FDIC or its designees. The depository shall not accept 
the pledge of any such assets unless concurrently with such pledge the 
foreign bank delivers to the depository the documents and instruments 
necessary for the transfer of title thereto as provided in this part.
    (ii) The depository shall hold any such assets separate from all 
other assets of the foreign bank or the depository. Such assets may be 
held in book-entry form but must at all times be segregated
[[Page 37773]]
on the records of the depository and clearly identified as assets 
subject to the pledge agreement.
    (6) Reporting requirements of the insured branch and the 
depository--(i) Initial reports. Upon the original pledge of assets as 
provided in paragraph (e)(1) of this section:
    (A) The depository shall provide to the foreign bank and to the 
appropriate regional director a written report in the form of a receipt 
identifying each asset pledged and specifying in reasonable detail with 
respect to each such asset the complete title, interest rate, series, 
serial number (if any), principal amount (par value), maturity date and 
call date; and
    (B) The foreign bank shall provide to the appropriate regional 
director a written report certified as correct by the foreign bank 
which sets forth the value of each pledged asset and the aggregate 
value of all such assets, and which states that the aggregate value of 
all such assets is the amount required pursuant to paragraph (b) of 
this section and that all such assets are of the kind described in 
paragraph (d) of this section.
    (ii) Quarterly reports. Within ten (10) calendar days after the end 
of the most recent calendar quarter:
    (A) The depository shall provide to the appropriate regional 
director a written report specifying in reasonable detail with respect 
to each asset currently pledged (including any asset pledged to satisfy 
the requirements of paragraph (b)(3) of this section and identified as 
such), as of two business days after the end of the most recent 
calendar quarter, the complete title, interest rate, series, serial 
number (if any), principal amount (par value), maturity date, and call 
date, provided, that if no substitution of any asset has occurred 
during the reporting period, the report need only specify that no 
substitution of assets has occurred; and
    (B) The foreign bank shall provide as of two business days after 
the end of the most recent calendar quarter to the appropriate regional 
director a written report certified as correct by the foreign bank 
which sets forth the value of each pledged asset and the aggregate 
value of all such assets, which states that the aggregate value of all 
such assets is the amount required pursuant to paragraph (b) of this 
section and that all such assets are of the kind described in paragraph 
(d) of this section, and which states the average of the liabilities of 
each insured branch of the foreign bank computed in the manner and for 
the period prescribed in paragraph (b) of this section.
    (iii) Additional reports. The foreign bank shall, from time to 
time, as may be required, provide to the appropriate regional director 
a written report in the form specified containing the information 
requested with respect to any asset then currently pledged.
    (7) Access to assets. With respect to any asset pledged pursuant to 
the pledge agreement, the depository will provide representatives of 
the FDIC or the foreign bank access (during regular business hours of 
the depository and at the location where any such asset is held, 
without other limitation or qualification) to all original instruments, 
documents, books, and records evidencing or pertaining to any such 
asset.
    (8) Release upon the order of the FDIC. The depository shall 
release to the foreign bank any pledged assets, as specified in a 
written notification of the appropriate regional director, upon the 
terms and conditions provided in such notification, including without 
limitation the waiver of any requirement that any assets be pledged by 
the foreign bank in substitution of any released assets.
    (9) Release to the FDIC. Whenever the FDIC is obligated under 
section 11(f) of the Federal Deposit Insurance Act (12 U.S.C. 1821(f)) 
to pay insured deposits of an insured branch, the FDIC by written 
certification shall so inform the depository; and the depository, upon 
receipt of such certification, shall thereupon promptly release and 
transfer title to any pledged assets to the FDIC or release such assets 
to the foreign bank, as specified in the certification. Upon release 
and transfer of title to all pledged assets specified in the 
certification, the depository shall be discharged from any further 
obligation under the pledge agreement.
    (10) Interest earned on assets. The foreign bank may retain any 
interest earned with respect to the assets currently pledged unless the 
FDIC by written notice prohibits retention of interest by the foreign 
bank, in which case the notice shall specify the disposition of any 
such interest.
    (11) Expenses of agreement. The FDIC shall not be required to pay 
any fees, costs, or expenses for services provided by the depository to 
the foreign bank pursuant to, or in connection with, the pledge 
agreement.
    (12) Substitution of depository. The depository may resign, or the 
foreign bank may discharge the depository, from its duties and 
obligations under the pledge agreement by giving at least sixty (60) 
days' written notice thereof to the other party and to the appropriate 
regional director. The FDIC, upon thirty (30) days' written notice to 
the foreign bank and the depository, may require the foreign bank to 
dismiss the depository if the FDIC in its discretion determines that 
the depository is in breach of the pledge agreement. The depository 
shall continue to function as such until the appointment of a successor 
depository becomes effective and the depository has released to the 
successor depository the pledged assets and documents and instruments 
to effectuate transfer of title in accordance with the written 
instructions of the foreign bank as approved by the FDIC. The 
appointment by the foreign bank of a successor depository shall not be 
effective until:
    (i) The FDIC has approved in writing the successor depository; and
    (ii) A pledge agreement in form and substance satisfactory to the 
FDIC has been executed.
    (13) Waiver of terms. The FDIC may by written order waive 
compliance by the foreign bank or the depository with any term or 
condition of the pledge agreement.
    (f)(1) Authority is delegated to the Director (DOS), the Deputy 
Director (DOS), and where confirmed in writing by the Director, to an 
associate director, or to the appropriate regional director or deputy 
regional director, to enter into pledge agreements with foreign banks 
and depositories in connection with the pledge of asset requirements 
pursuant to this section. This authority shall also extend to the power 
to revoke such approval and require the dismissal of the depository.
    (2) Authority is delegated to the General Counsel or designee to 
modify the terms of the model pledge agreement used for such deposit 
agreements.
Sec. 347.211  Asset maintenance.
    (a) An insured branch of a foreign bank shall maintain on a daily 
basis eligible assets in an amount not less than 106% of the preceding 
quarter's average book value of the insured branch's liabilities or, in 
the case of a newly-established insured branch, the estimated book 
value of its liabilities at the end of the first full quarter of 
operation, exclusive of liabilities due to the foreign bank's head 
office, other branches, agencies, offices, or wholly owned 
subsidiaries. The Director of the Division of Supervision or his 
designee may impose a computation of total liabilities on a daily basis 
in those instances where it is found necessary for supervisory 
purposes. The Board of Directors, after consulting with the insured 
branch's primary regulator, may require that a higher ratio of eligible 
assets be maintained if the financial condition of the insured branch 
warrants such action. Among the factors
[[Page 37774]]
which will be considered in requiring a higher ratio of eligible assets 
are the concentration of risk to any one borrower or group of related 
borrowers, the concentration of transfer risk to any one country, 
including the country in which the foreign bank's head office is 
located or any other factor the FDIC determines is relevant. Eligible 
assets shall be payable in United States dollars.
    (b) In determining eligible assets for the purposes of compliance 
with paragraph (a) of this section, the insured branch shall exclude 
the following:
    (1) Any asset due from the foreign bank's head office, other 
branches, agencies, offices or affiliates;
    (2) Any asset classified ``Value Impaired,'' to the extent of the 
required Allocated Transfer Risk Reserves or equivalent write down, or 
``Loss'' in the most recent state or federal examination report;
    (3) Any deposit of the insured branch in a bank unless the bank has 
executed a valid waiver of offset agreement;
    (4) Any asset not supported by sufficient credit information to 
allow a review of the asset's credit quality, as determined at the most 
recent state or federal examination; 5
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    \5\ 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.
    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.
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    (5) Any asset not in the insured branch's actual possession unless 
the insured branch holds title to such asset and the insured branch 
maintains records sufficient to enable independent verification of the 
insured branch's ownership of the asset, as determined at the most 
recent state or federal examination;
    (6) Any intangible asset;
    (7) Any other asset not considered bankable by the FDIC.
    (c) A foreign bank which has more than one insured branch in a 
state may treat all of its insured branches in the same state as one 
entity for purposes of compliance with paragraph (a) of this section 
and shall designate one insured branch to be responsible for 
maintaining the records of the insured branches' compliance with this 
section.
    (d) The average book value of the insured branch's liabilities for 
a quarter shall be, at the insured branch's option, either an average 
of the balances as of the close of business for each day of the quarter 
or an average of the balances as of the close of business on each 
Wednesday during the quarter. Quarters end on March 31, June 30, 
September 30, and December 31 of any given year. For days on which the 
insured branch is closed, balances from the previous business day are 
to be used. Calculations of the average book value of the insured 
branch's liabilities for a quarter shall be retained by the insured 
branch until the next federal examination.
Sec. 347.212  Deductions from the assessment base.
    An insured branch may deduct from its assessment base deposits in 
the insured branch to the credit of the foreign bank or any office, 
branch or agency of and any wholly owned subsidiary of the foreign 
bank.
Sec. 347.213  FDIC approval to conduct activities not permissible for 
federal branches.
    (a) Scope. A foreign bank operating an insured state branch which 
desires to engage in or continue to engage in any type of activity that 
is not permissible for a federal branch, pursuant to the National Bank 
Act (12 U.S.C. 21 et seq.) or any other federal statute, regulation, 
official bulletin or circular, written order or interpretation, or 
decision of a court of competent jurisdiction (each an impermissible 
activity), shall file a written application for permission to conduct 
such activity with the FDIC pursuant to Sec. 347.405.
    (b) Exceptions. A foreign bank operating an insured state branch 
which would otherwise be required to submit an application pursuant to 
paragraph (a) of this section will not be required to submit such an 
application if the activity it desires to engage in or continue to 
engage in has been determined by the FDIC not to present a significant 
risk to the affected deposit insurance fund pursuant to 12 CFR Part 
362, ``Activities and Investment of Insured State Banks''.
    (c) Agency activities. A foreign bank operating an insured state 
branch which would otherwise be required to submit an application 
pursuant to paragraph (a) of this section will not be required to 
submit such an application if it desires to engage in or continue to 
engage in an activity conducted as agent which would be a permissible 
agency activity for a state-chartered bank located in the state which 
the state-licensed insured branch of the foreign bank is located and is 
also permissible for a state-licensed branch of a foreign bank located 
in that state; provided, however, that the agency activity must be 
permissible pursuant to any other applicable federal law or regulation.
    (d) Conditions of approval. Approval of such an application may be 
conditioned on the applicant's agreement to conduct the activity 
subject to specific limitations, such as but not limited to the 
pledging of assets in excess of the requirements of Sec. 347.210 and/or 
the maintenance of eligible assets in excess of the requirements of 
Sec. 347.211. In the case of an application to initially engage in an 
activity, as opposed to an application to continue to conduct an 
activity, the insured branch shall not commence the activity until it 
has been approved in writing by the FDIC pursuant to this part and the 
Board of Governors of the Federal Reserve System (Board of Governors), 
and any and all conditions imposed in such approvals have been 
satisfied.
    (e) Divestiture or cessation. (1) If an application for permission 
to continue to conduct an activity is not approved by the FDIC or the 
Board of Governors, the applicant shall submit a plan of divestiture or 
cessation of the activity to the appropriate regional director in 
accordance with the terms set forth in Sec. 347.405(d).
    (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 in accordance with the terms set forth in Sec. 347.405(d).
    (3) Divestitures or cessations shall be completed within one year 
from the date of the disapproval, or within such shorter period of time 
as the FDIC shall direct.
[[Page 37775]]
Subpart C--International Lending
Sec. 347.301  Allocated transfer risk reserve.
    (a) Definitions. For the purposes of this subpart:
    (1) Banking institution means an insured state nonmember bank.
    (2) 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.
    (3) International assets means those assets required to be included 
in banking institutions' ``Country Exposure Report'' form (FFIEC No. 
009).
    (4) 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.
    (b) Allocated Transfer Risk Reserve--(1) 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.
    (2) Procedures and standards--(i) Joint agency determination. At 
least annually, the federal banking agencies shall determine jointly, 
based on the standards set forth in paragraph (b)(2)(ii) of this 
section, the following:
    (A) Which international assets subject to transfer risk warrant 
establishment of an ATRR;
    (B) The amount of the ATRR for the specified assets; and
    (C) Whether an ATRR established for specified assets may be 
reduced.
    (ii) Standards for requiring ATRR--(A) Evaluation of assets. The 
federal banking agencies shall apply the following criteria in 
determining whether an ATRR is required for particular international 
assets:
    (1) Whether the quality of a banking institution's assets has been 
impaired by a protracted inability of public or private obligors in a 
foreign country to make payments on their external indebtedness as 
indicated by such factors, among others, as whether:
    (i) Such obligors have failed to make full interest payments on 
external indebtedness; or
    (ii) Such obligors have failed to comply with the terms of any 
restructured indebtedness; or
    (iii) A foreign country has failed to comply with any International 
Monetary Fund or other suitable adjustment program; or
    (2) Whether no definite prospects exist for the orderly restoration 
of debt service.
    (B) Determination of amount of ATRR. (1) In determining the amount 
of the ATRR, the federal banking agencies shall consider:
    (i) The length of time the quality of the asset has been impaired;
    (ii) Recent actions taken to restore debt service capability;
    (iii) Prospects for restored asset quality; and
    (iv) Such other factors as the federal banking agencies may 
consider relevant to the quality of the asset.
    (2) 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.
    (iii) FDIC notification. Based on the joint agency determinations 
under paragraph (b)(2)(i) of this section, the FDIC shall notify each 
banking institution holding assets subject to an ATRR:
    (A) Of the amount of the ATRR to be established by the institution 
for specified international assets; and
    (B) That an ATRR established for specified assets may be reduced.
    (3) Accounting treatment of ATRR--(i) 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.
    (ii) 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.
    (iii) 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).
    (iv) 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, 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. 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.
    (v) 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. 347.302  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. 347.303  Reporting and disclosure of international assets.
    (a) Requirements. (1) Pursuant to section 907(a) of the 
International Lending Supervision Act of 1983 (Title IX, Pub. L. 98-
181, 97 Stat. 1153) (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
[[Page 37776]]
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 the FDIC from requiring from a banking institution such 
additional or more frequent information on the institution's holdings 
of international assets as the agency may consider necessary.
Subpart D--Applications and Delegations of Authority
Sec. 347.401  Definitions.
    For the purposes of this subpart, the following definitions apply:
    (a) Appropriate regional director or appropriate deputy regional 
director means the appropriate regional director or appropriate deputy 
regional director as defined by Sec. 303.0 of this chapter.
    (b) Board of Governors means the Board of Governors of the Federal 
Reserve System.
    (c) Comptroller means the Office of the Comptroller of the 
Currency.
    (d) Eligible insured state nonmember bank means an eligible insured 
state nonmember bank as defined by Sec. 347.102.
    (e) Federal branch means a federal branch of a foreign bank as 
defined by Sec. 347.201.
    (f) FDIC means the Federal Deposit Insurance Corporation.
    (g) Foreign bank means a foreign bank as defined by Sec. 347.201.
    (h) Foreign branch means a foreign branch of an insured state 
nonmember bank as defined by Sec. 347.201.
    (i) Foreign organization means a foreign organization as defined by 
Sec. 347.102.
    (j) Insured branch means an insured branch of a foreign bank as 
defined by Sec. 347.201.
    (k) Noninsured branch means a noninsured branch of a foreign bank 
as defined by Sec. 347.201.
    (l) State branch means a state branch of a foreign bank as defined 
by Sec. 347.201.
Sec. 347.402  Establishing, moving or closing a foreign branch of a 
state nonmember bank; Sec. 347.103.
    (a) General consent. Written notice under Sec. 347.103(b)(1) from 
an eligible insured state nonmember bank establishing or relocating a 
foreign branch pursuant to the FDIC's general consent procedure must be 
provided to the appropriate regional director within thirty days of 
such action, and include the location of the foreign branch, including 
a street address, and a statement that the foreign branch will not 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 402 of the National Historic Preservation Act 
Amendments of 1989 (16 U.S.C. 470a-2). The appropriate regional 
director will provide written acknowledgment of receipt of the notice.
    (b) Prior notice. (1) Prior notice under Sec. 347.103(b)(2) from an 
eligible insured state nonmember bank establishing a foreign branch 
pursuant to the FDIC's prior notice procedure must be filed with the 
appropriate regional director and contain the following information:
    (i) The exact location of the foreign branch, including a street 
address, and a statement that the foreign branch will not 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 402 of the National Historic Preservation Act Amendments 
of 1989 (16 U.S.C. 470a-2);
    (ii) Details concerning any involvement in the proposal by an 
insider of the bank, including any financial arrangements relating to 
fees, the acquisition of property, leasing of property, and 
construction contracts;
    (iii) A brief description of the bank's business plan with respect 
to the foreign branch; and
    (iv) A brief description of the activities of the branch.
    (2) The appropriate regional director will provide written 
acknowledgment of the date of receipt of the notice and the bank may 
establish the foreign branch 45 days after such date, or upon such 
earlier time as authorized by the FDIC, unless the FDIC promptly 
provides the bank written notification that the application will be 
processed under paragraph (d) of this section because:
    (i) The application presents a significant supervisory concern; or
    (ii) The application presents a significant legal or policy issue.
    (c) Closing. The notice of closing required by Sec. 347.103(b)(5) 
should be in letter form to the appropriate regional director and 
include the name, location, and date of closing of the closed branch.
    (d) Content of branch application. (1) An application by an insured 
state nonmember bank required by Sec. 347.103(b) and which is not 
eligible for treatment under general consent or prior notice, must be 
in writing and contain the following information:
    (i) The exact location of the foreign branch, including a street 
address;
    (ii) Details concerning any involvement in the proposal by an 
insider of the bank, including any financial arrangements relating to 
fees, the acquisition of property, leasing of property, and 
construction contracts;
    (iii) A brief description of the bank's business plan with respect 
to the foreign branch;
    (iv) A brief description of the activities of the branch, and to 
the extent any activities are not authorized by Sec. 347.103(a), the 
bank's reasons why they should be approved; and
    (v) A statement whether the foreign branch would be located on a 
site on the World Heritage List or on the foreign country's equivalent 
of the National Register of Historic Places, in accordance with section 
402 of the National Historic Preservation Act Amendments of 1989 (16 
U.S.C. 470a-2).
    (2) The appropriate regional director may request additional 
information to complete processing.
    (3) The application must be filed with the appropriate regional 
director.
    (e) Delegations of authority. Authority is hereby delegated to the 
Director (DOS) and the deputy director, and if confirmed in writing by 
the Director, to an associate director, appropriate regional director, 
or appropriate deputy regional director, to approve an application 
under paragraph (d) of this section so long as:
    (1) the requirements of section 402 the National Historic 
Preservation Act Amendments of 1989 have been favorably resolved; and
    (2) the applicant will only conduct activities authorized by 
Sec. 347.103(a).
Sec. 347.403  Investment by insured state nonmember banks in foreign 
organizations; Sec. 347.108.
    (a) General consent. Written notice under Sec. 347.108(a) from an 
eligible insured state nonmember bank making direct or indirect 
investments in a foreign organization pursuant to the FDIC's general 
consent procedure must be provided to the appropriate regional director 
within thirty days of such action. The appropriate regional director 
will provide written acknowledgment of receipt of the notice.
    (b) Prior notice. (1) Prior notice under Sec. 347.108(b) from an 
eligible insured state nonmember bank making direct or indirect 
investments in a foreign organization pursuant to the FDIC's prior 
notice procedure must be filed with the appropriate regional director 
and contain the following information:
    (i) Basic information about the terms of the transaction, the 
amount of the
[[Page 37777]]
investment in the foreign organization and the proportion of its 
ownership to be acquired;
    (ii) Basic information about the foreign organization, its 
financial position and income, including any available balance sheet 
and income statement for the prior year, or financial projections for a 
new foreign organization, and a brief description of the foreign 
organization's activities, including any incidental activities in the 
United States;
    (iii) A listing of all shareholders known to hold 10 percent or 
more of any class of the foreign bank's or other financial entity's 
stock or other evidence of ownership, and the amount held by each; and
    (iv) A brief description of the bank's business plan with respect 
to the foreign organization, and if the bank seeks approval to engage 
in underwriting or dealing activities, a description of the bank's 
plans and procedures to address all relevant risks.
    (2) The appropriate regional director will provide written 
acknowledgment of the date of receipt of the notice and the bank may 
make the investment 45 days after such date, or upon such earlier time 
as authorized by the FDIC, unless the FDIC promptly provides the bank 
written notification that the application will be processed under 
paragraph (c) of this section because:
    (i) The application presents a significant supervisory concern; or
    (ii) The application presents a significant legal or policy issue.
    (c) Content of application. (1) An application by an insured state 
nonmember bank which is not eligible for treatment under general 
consent or prior notice required by Sec. 347.108(d), must be in writing 
and contain the following information:
    (i) Basic information about the terms of the transaction, the 
amount of the investment in the foreign organization and the proportion 
of its ownership to be acquired;
    (ii) Basic information about the foreign organization, its 
financial position and income, including any available balance sheet 
and income statement for the prior year, or financial projections for a 
new foreign organization;
    (iii) A listing of all shareholders known to hold 10 percent or 
more of any class of the foreign bank's or other financial entity's 
stock or other evidence of ownership, and the amount held by each;
    (iv) A brief description of the bank's business plan with respect 
to the foreign organization, and if the bank seeks approval to engage 
in underwriting or dealing activities, a description of the bank's 
plans and procedures to address all relevant risks;
    (v) A brief description of the foreign organization's activities, 
and to the extent such activities are not authorized by subpart A of 
part 347, the bank's reasons why they should be approved; and
    (vi) A brief description of any business or activities which the 
foreign organization will conduct directly or indirectly in the United 
States, and to the extent such activities are not authorized by subpart 
A of part 347, the bank's reasons why they should be approved.
    (2) The appropriate regional director may request additional 
information to complete processing.
    (3) The application must be filed with the appropriate regional 
director.
    (d) Delegations of authority. Authority is delegated to the 
Director (DOS) and the deputy director, and if confirmed in writing by 
the director, to an associate director, appropriate regional director, 
or appropriate deputy regional director to approve or deny applications 
under paragraph (c) of this section so long as the investment complies 
with the activities restrictions, investment limits, and other 
requirements of Sec. 347.104 through Sec. 347.107.
Sec. 347.404  Exemptions from insurance requirement for a state branch 
of a foreign bank; Sec. 347.206(b).
    (a) Application for an exemption. A foreign bank may apply to the 
FDIC for consent to operate a branch as a noninsured branch as required 
by Sec. 347.206(b).
    (b) Contents of application. The application must be in writing and 
include the following information and documentation:
    (1) The kinds of deposit activities in which the branch proposes to 
engage;
    (2) The expected source of deposits;
    (3) The manner in which deposits will be solicited;
    (4) How this activity will maintain or improve the availability of 
credit to all sectors of the United States economy, including the 
international trade finance sector;
    (5) That the activity will not give the foreign bank an unfair 
competitive advantage over United States banking organizations; and
    (6) A resolution by the foreign bank's board of directors 
authorizing the filing of the application; or if a resolution is not 
required by the applicant's organizational documents, the request shall 
include evidence of approval by the foreign bank's senior management.
    (c) Application filing. The request must be filed with the 
appropriate regional director.
    (d) Additional information. The appropriate regional director may 
request additional information to complete the application processing.
Sec. 347.405  Approval for an insured state branch of a foreign bank to 
conduct activities not permissible for federal branches; Sec. 347.213.
    (a) Application for permission. 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 shall 
file a written application for permission to conduct such activity with 
the FDIC as required by Sec. 347.213.
    (b) Contents of application. An application submitted pursuant to 
paragraph (a) of this section shall be in letter form and shall include 
the following information and documentation:
    (1) A brief description of the activity, including the manner in 
which it will be conducted and an estimate of the expected dollar 
volume associated with the activity;
    (2) An analysis of the impact of the proposed activity on the 
condition of the United States operations of the foreign bank in 
general and of the branch in particular, including a copy, if 
available, of any feasibility study, management plan, financial 
projections, business plan, or similar document concerning the conduct 
of the activity;
    (3) A resolution by the applicant's board of directors or, if a 
resolution is not required pursuant to the applicant's organizational 
documents, evidence of approval by senior management authorizing the 
conduct of such activity and the filing of this application;
    (4) A statement by the applicant of whether or not it is in 
compliance with Secs. 347.210 and 347.211, Pledge of Assets and Asset 
Maintenance, respectively;
    (5) A statement by the applicant that it has complied with all 
requirements of the Board of Governors concerning applications to 
conduct the activity in question and the status of such application, 
including a copy of the Board of Governors' disposition of such 
application, if applicable; and
    (6) A statement of why the activity will pose no significant risk 
to the Bank Insurance Fund.
    (c) Board of Governors application. An applicant may submit to the 
FDIC a copy of its application to the Board of Governors, provided that 
such application contains the information
[[Page 37778]]
described in paragraph (b) of this section.
    (d) Divestiture or cessation. (1) An applicant that is required to 
submit a plan of divestiture or cessation for any of the reasons set 
forth in Sec. 347.213(e) shall submit a detailed written plan of 
divestiture or cessation within 60 days of the disapproval or the 
triggering event.
    (2) The divestiture or cessation plan shall:
    (i) Describe in detail the manner in which the applicant will 
divest itself of or cease the activity in question; and
    (ii) Shall include a projected timetable describing how long the 
divestiture or cessation is expected to take.
    (e) Filing procedures. Applications and divestiture plans pursuant 
to this section shall be filed with the appropriate regional director.
    (f) Additional information. The appropriate regional director may 
request additional information to complete the application or 
divestiture plan processing.
    (g) Delegation of authority. Authority is hereby delegated to the 
Director (DOS) and the deputy director and, where confirmed in writing 
by the Director, to an associate director, or to the appropriate 
regional director or deputy regional director, to approve plans of 
divestiture and cessation submitted pursuant to paragraph (d) of this 
section.
PART 351--[REMOVED]
    17. Part 351 is removed.
PART 362--ACTIVITIES AND INVESTMENTS OF INSURED STATE BANKS
    18. The authority citation of part 362 continues to read as 
follows:
    Authority: 12 U.S.C. 1816, 1818, 1819 (Tenth), 1831a.
    19. In Sec. 362.4, paragraph (c)(3)(i)(A) is revised to read as 
follows:
Sec. 362.4  Activities of insured state banks and their subsidiaries.
* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (A) Directly guarantee the obligations of others as provided for in 
Sec. 347.103(a)(1) of this chapter; and
* * * * *
    By order of the Board of Directors.
    Dated at Washington, D.C. this 24th day of June, 1997.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 97-17270 Filed 7-14-97; 8:45 am]
BILLING CODE 6174-01-P

Last Updated 07/15/1997 regs@fdic.gov