[Federal
Register: July 19, 2004 (Volume 69, Number 137)]
[Proposed Rules]
[Page 43059-43087]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jy04-41]
[[Page 43059]]
-----------------------------------------------------------------------
Part II
Federal Deposit Insurance Corporation
-----------------------------------------------------------------------
12 CFR Parts 303, 325, 327, and 347
International Banking; Proposed Rule
[[Page 43060]]
-----------------------------------------------------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 303, 325, 327, and 347
RIN 3064-AC85
International Banking
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking with request for comment.
-----------------------------------------------------------------------
SUMMARY: The FDIC is publishing for notice and comment proposed
amendments to subpart J of part 303 on international banking and
revisions to subpart A of part 347, relating to the international
activities and investments of insured state nonmember banks, and
subpart B of part 347, relating principally to insured and noninsured
U.S. branches of foreign banks. The proposed amendments address the
relocation of grandfathered insured branches. They also reorganize,
clarify, and revise subparts A and B of part 347, and address various
issues raised as part of the FDIC's ongoing effort under the Economic
Growth and Regulatory Paperwork Reduction Act of 1996 (12 U.S.C.
3311)
to address regulatory burden issues. Included in the revisions
affecting grandfathered insured branches are revisions to the FDIC's
asset pledge requirement to establish a risk-based system and revision
of the FDIC's asset maintenance requirement to calculate the asset
maintenance percentage based on the daily third-party liabilities
of
the branch. In addition, the FDIC is proposing to strengthen FDIC's
supervisory processes and make conforming amendments for other FDIC
rules as part of the proposal.
The FDIC is also requesting comments, as part of this document, on
whether deposits in wholesale U.S. branches of foreign banks should be
covered by deposit insurance and on the accounting rules contained in
subpart C of part 347.
DATES: Written comments must be received on or before September
17,
2004.
ADDRESSES: You may submit comments, identified by RIN number 3064-AC85,
by any of the following methods:
Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
E-mail: comments@fdic.gov. Include RIN number 3064-AC85 in
the subject line of the message.
Public Inspection: Comments may be inspected and
photocopied in the FDIC Public Information Center, Room 100, 801 17th
Street, NW, Washington, DC, between 9 a.m. and 4:30 p.m. on business
days.
Instructions: Submissions received must include the agency name and
RIN for this rulemaking. Comments received will be posted without
change to http://www.FDIC.gov/regulations/laws/federal/propose.html,
including any personal information provided.
FOR FURTHER INFORMATION CONTACT: John Di Clemente, Chief, International
Section, Division of Supervision and Consumer Protection, (202) 898-
3540 or jdiclemente@fdic.gov or Rodney D. Ray, Counsel, Legal Division,
(202) 898-3556 or rray@fdic.gov, Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: The FDIC is proposing to amend and revise
its rules concerning international banking activities of insured
state
nonmember banks operating in foreign countries and insured U.S.
branches of foreign banks. This is being done to implement the ``plain
language'' requirement contained in section 722 of the Gramm-Leach-
Bliley Act of 1999 (12 U.S.C. 4809). Also, as part of the FDIC's
ongoing effort under the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (12 U.S.C. 3311) (EGRPRA), the FDIC is proposing
amendments to its existing rules to address certain regulatory burden
issues raised in public comments. The FDIC is also proposing revisions
to existing rules and new rules to update the FDIC's supervisory
processes.
The proposed changes will be made to subpart J of part 303 and to
subparts A and B of part 347 of title 12 of the Code of Federal
Regulations. As a result of the proposed changes, conforming changes
also will be made to subpart B of part 325, relating to the FDIC's
Prompt Corrective Action rules, and subpart A of part 327, regarding
the FDIC's assessment rules for insured U.S. branches of foreign banks.
Subpart J of part 303 contains the procedural rules that implement
part 347. The rules in subpart A of part 347 address issues related to
the international activities and investments of insured state nonmember
banks. In general, they implement the FDIC's statutory authority under
section 18(d)(2) of the Federal Deposit Insurance Act (FDI Act) (12
U.S.C. 1828(d)(2)), regarding branches of insured state nonmember banks
in foreign countries, and section 18(l) of the FDI Act, regarding
insured state nonmember bank investments in foreign entities. The rules
in subpart B of part 347 principally address issues related to insured
and noninsured U.S. branches of foreign banks under section 6 of the
International Banking Act (IBA) (12 U.S.C. 3104).
Although subpart C of part 347 also contains rules regarding
accounting and reporting rules relating to international lending
activities of insured state nonmember banks, the FDIC is not proposing
to revise subpart C at this time. The Office of the Comptroller of the
Currency (``OCC'') and Board of Governors of the Federal Reserve System
(``FRB'') have similar rules implementing the same statutory provisions
for the institutions under their supervision that were originally
issued in a joint rulemaking proceeding with the FDIC. Therefore,
proposed revisions to the rules in subpart C may require discussion and
coordination with the other agencies. Commenters may still comment on
the rules contained in subpart C of part 347, however, in order to
bring particular issues to the FDIC's attention at this time.
I. Background
Although the FDIC made significant amendments and consolidated
its
international banking rules in 1998, various events that have
transpired since then have influenced the FDIC's decision to propose
further revisions to its international banking rules. First, when
the
FDIC finalized its international banking rules, the FRB was proposing
amendments to Regulation K (12 CFR part 211). The FDIC noted in 63
FR
17056 (April 8, 1998) (1998 Final Rule) that subpart A of part 347
maintained parity with the existing version of Regulation K, governing
foreign branching and investments by member banks, and that the FDIC
may need to make further revisions to subpart A of part 347 once
the
FRB finalized its revisions to Regulation K. The revisions of
Regulation K that are relevant to this rulemaking proceeding were
finalized on October 26, 2001, and the FDIC is proposing certain
revisions to the part 347 rules because of changes made to Regulation
K. Second, the FDIC has received written comments from the public
suggesting that the language in part 347 needs to be simplified and
the
FDIC believes that some additional reorganization and clarification
of
the
[[Page 43061]]
FDIC's rules may be beneficial. It is also believed that strengthening
the existing supervisory structure in a few areas is appropriate.
In
addition, Congress enacted the ``plain language'' requirement for
all
proposed and final rulemakings published in the Federal Register
after
January 1, 2000, in section 722 of the Gramm-Leach-Bliley Act of
1999.
Therefore, several revisions to part 347 are included to address
this
requirement. Finally, the FDIC and the other Federal banking agencies
solicited and received public comments in 2003 as part of the ERGPRA
regulatory burden reduction process on three categories of agency
rules. Part 347 was included in one of those categories, and the
comments relating to them have been reviewed and are discussed in
greater detail in the section-by-section discussion in this document.
In general, FDIC is proposing to revise subpart J of part 303 to
provide new cross-references to the appropriate revised rule(s) in
subparts A and B of part 347. Since many of the revisions to the text
in subpart J merely provide new cross-references to the appropriate
sections in subparts A and B of part 347 or make stylistic changes in
the text, they will not be further addressed in the subpart J section-
by-section analysis. The existing sections in subpart A of part 347 are
being reorganized in the proposal by moving, consolidating, and
breaking particularly complex sections, such as existing section
347.104, into multiple sections based on the subject matter addressed.
The sections addressing general consent, expedited processing, and
specific consent for foreign branches and investments, contained in
existing sections 347.103 and 347.108, are also being reorganized and
consolidated into separate sections addressing each type of approval.
The existing sections in subpart B are being reorganized in the
proposal by grouping them with other sections that address the same or
similar subject matter. In addition, several existing sections in
subpart B are being revised in the proposal to update and clarify the
regulatory requirements. Finally, a few additional sections are being
added to subparts A and B in the proposal to address issues that are
not addressed in the existing rules.
The proposed amendments and revisions are discussed below, by
subpart, in the section-by-section description. The FDIC invites public
comments on all aspects of the proposal. In addition, public comments
are specifically invited on the following items:
Providing for expedited processing of proposed relocations
of insured U.S. branches of foreign banks (section 303.184);
Revising existing sections that address authorized
activities for foreign investments and foreign branches to more closely
track the sections of Regulation K addressing those issues in
connection with member banks. The revisions also address approval of
activities requiring consideration under parts 347 and 362 (sections
347.105 and 347.115);
Providing that, except for certain merger and acquisition
transactions, the grandfathered status of an insured branch of a
foreign bank may not be transferred (section 347.206);
Revising the FDIC's asset pledge requirement for insured
branches of foreign banks to a risk-based approach (section 347.209);
Revising the FDIC's asset maintenance rule for insured
branches of foreign banks to calculate the asset maintenance percentage
based on daily third-party liabilities (section 347.210); and
Providing deposit insurance for wholesale U.S. branches of
foreign banks (section V of the preamble).
II. Section-by-Section Analysis of Proposed Amendments to Part 303,
Subpart J
1. Moving an Insured Branch of a Foreign Bank (Revised Sec. 303.184)
Section 303.184 contains the filing procedures and approval
criteria applicable to the relocation of an insured U.S. branch of
a
foreign bank. As part of the EGRPRA process, an industry trade
association observed that section 303.41(b), which addresses branch
relocations in the context of domestic branches of insured state
nonmember banks, differentiates between a branch closing or relocation
based upon whether the proposed move is within the same immediate
neighborhood. The trade association expressed concern that, if the
FDIC
applied a similar geographic standard to proposed relocations of
grandfathered insured branches, relocations of those branches would
effectively be precluded because those branches could not close and
reopen as insured branches. This is because of the statutory provision
contained in section 6(d) of the International Banking Act (IBA)
(12
U.S.C. 3104(d)) requiring foreign banks engaging in domestic retail
deposit activities after December 19, 1991 that require deposit
insurance protection to do so through one or more insured bank
subsidiaries. The FDIC does not believe such a construction was
intended by the statute or existing rule but recognizes that the
existing rule does not address the geographic proximity of the proposed
relocation. Section 303.184(b) is being amended, to address this
issue,
by making expedited processing available for proposed relocations
of
grandfathered insured branches within the same state. The FDIC notes
that 12 CFR 28.12(e)(1) provides for expeditious processing of
intrastate relocations of federal branches regulated by the OCC.
Therefore, although the FDIC's processing requirements differ from
those utilized by the OCC, the approach of providing expedited
processing for proposed relocations of insured branches of foreign
banks within the same state is consistent with the OCC's overall
approach of expediting proposed relocations of federal branches within
the same state.
III. Section-by-Section Analysis of Proposed Revisions to Part 347,
Subpart A
1. Authority, Purpose, and Scope (Revised Sec. 347.101)
The proposal amends section 347.101 to provide a more comprehensive
list of the major areas addressed by the rules in the subpart. The
order of the subjects mentioned in the section is also revised to
correspond to the order in which those subjects are addressed in
the
revised subpart.
2. Definitions (Revised Sec. 347.102)
Four additional definitions are added to this section by the
proposal. Proposed revisions to the rules in the subpart use the
term
``domestic'' in sections 347.104 and 347.105, and that term is defined
in paragraph (c) of this section. Paragraph (m) defining ``insured
state nonmember bank'' or ``bank'' is added to minimize the repetitive
use of the former term that currently exists in the rules. Paragraphs
(o) and (r) are new definitions that would adopt the same definition
for ``investment grade'' and ``NRSRO'' that the FRB adopted in 12
CFR
211.2(n) and (r). The effect of the inclusion of the latter two terms
will be discussed in greater detail in the description of proposed
section 347.115.
3. Effect of State Law on Actions Taken Under This Subpart (Revised
Sec. 347.103)
Section 347.103 combines the requirement contained in paragraph
(a)
of existing sections 347.103 and 347.104 into a single section. The
rule specifies that an insured state nonmember bank may acquire or
retain equity interests in foreign organizations or establish a foreign
branch, if authorized to do so by the law of the state where the
bank
is
[[Page 43062]]
chartered, by complying with the requirements of this subpart.
4. Insured State Nonmember Bank Investments in Foreign Organizations
(Revised Sec. 347.104)
Section 347.104(a) of the proposal is derived from existing section
347.104(f). The rationale for the requirement was discussed in the
preamble to the 1998 Final Rule. That rationale, which is restated
below, remains unchanged. Thus, the substance of paragraph (f) of
the
existing rule is retained. It is placed in a separate section, however,
apart from the section addressing authorized activities of foreign
organizations, and is reworded and reorganized for clarity.
The FDIC recognizes that direct investments in foreign
organizations by member banks (and thus national banks) are only
permitted for certain types of investments specified in Regulation K,
such as investments in foreign banks, because of language in section 25
of the Federal Reserve Act (12 U.S.C. 601) limiting direct foreign
investments by member banks. Other types of foreign investments by
member banks are required to be made indirectly through an Edge
corporation subsidiary or a foreign bank subsidiary of a member bank.
In contrast, section 18(l) of the FDI Act (12 U.S.C. 1828(l)) permits
state nonmember banks, to the extent authorized by state law, to invest
in foreign ``banks and other entities.'' As a consequence, and because
the legislative history of section 18(l) shows that Congress was aware
of the FRB's parallel authority over member banks at the time section
18(l) was enacted, the difference in language between the two statutes
is significant and deliberate and results in the type of foreign
organizations that state nonmember banks may invest in directly not
being restricted by section 18(l).
Because national banks are unable to invest directly in nonbank
foreign organizations, however, the ability of insured state nonmember
banks to invest in other types of foreign organizations raises issues
under section 24 of the FDI Act (12 U.S.C. 1831a) and 12 CFR part 362.
Section 24 prohibits an insured state nonmember bank from acquiring an
equity investment that a national bank is not permitted to acquire.
Such an investment may be made under section 24, however, if the
investment is made through a majority-owned subsidiary of the bank. It
may also be made if a company becomes majority-owned by the bank as a
result of the investment and the ``as principal'' activities of the
company are ones in which a subsidiary of a national bank could engage.
Ownership of more than 50 percent of the equity in a nonbank foreign
organization makes that organization a majority-owned subsidiary and,
thus, no section 24 analysis is required because such a subsidiary is
authorized only to engage in the same activities that the FRB has
authorized for subsidiaries of member banks (and thus national banks)
under Regulation K. In addition, while it is not necessary for insured
state nonmember bank investments of 50 percent or less of the equity of
a nonbank foreign organization to be held through an intermediate
foreign bank subsidiary or Edge subsidiary as required under Regulation
K, those investments are required to be held through some form of U.S.
or foreign majority-owned subsidiary in order to comply with the
requirements of section 24 and part 362.
5. Permissible Financial Activities Outside the United States (Revised
Sec. 347.105)
Section 347.105 (a) and (b) of the proposal are derived from
existing section 347.104(b). As amended, the language in existing
section 347.104(b) that limits the activities of certain types of
investments in foreign organizations to those authorized by the
section, is restructured, reworded slightly, and placed in section
347.105(a). Under section 347.105(b) the same financial activities
will
be authorized that are presently authorized under section 347.104(b)
of
the existing rule.
The proposed rule also revises the activities list contained in the
existing rule. As the FDIC noted in the preamble to the 1998 Final
Rule, the activities contained in existing section 347.104(b) were
modeled after the FRB's corresponding provision in Regulation K, but
the list of authorized activities was reordered. In addition, the FDIC
considered certain activities listed in the FRB's corresponding section
of Regulation K to be authorized under Regulation Y and incorporated by
the cross-reference to Regulation Y activities contained in section
347.104(b)(10) of the existing rule. Therefore, those activities were
not separately listed in existing section 347.104(b). Time has shown
this approach to have made the interplay between the FDIC and FRB lists
of permissible activities difficult in certain circumstances to
understand and apply.
The FDIC recognizes that insured state nonmember banks or their
subsidiaries may want to engage in activities outside the United States
that are not listed by the FDIC as permissible activities but that have
been approved for member banks or their subsidiaries under Regulation
K. Including those items in the FDIC list of permissible activities
facilitates banks doing so. In addition, as discussed in more detail
below, the banks or their subsidiaries may want to engage in activities
outside the United States, as principal, that have not been authorized
for member banks (and thus national banks) in Regulation K. To do so,
banks must comply with section 24 of the FDI Act and the requirements
of part 362, as well as part 347.
Considering these issues, the FDIC is proposing to revise the order
of the activities listed in section 347.105(b) to more closely track
the order of the activities listed as permissible in 12 CFR 211.10, the
corresponding provision in Regulation K. The activities listed in the
proposal also include activities that the FDIC did not specifically
list as being authorized in the 1998 Final Rule because they were
considered to overlap with activities authorized by Regulation Y.\1\
Including them makes the comparison easier between activities
authorized under section 347.105(b) and those authorized for member
banks and their subsidiaries.\2\
---------------------------------------------------------------------------
\1\ The omitted activities were: financing; acting as a
fiduciary; providing investment, financial or economic advisory
services; leasing real or personal property or acting as agent,
broker or advisor in connection with such transactions if the lease
serves as the functional equivalent of an extension of credit to
the
lessee; acting as a futures commission merchant; and acting as
principal or agent in swap transactions.
\2\ The six activities being added to the list of approved
activities are being added, subject to the attendant restrictions
contained in section 225.28(b) of Regulation Y, because those
activities are considered to be subject to the Regulation Y
restrictions by the cross-reference to that authority in existing
section 347.104(b)(10).
---------------------------------------------------------------------------
Paragraphs (c) and (d) of section 347.105 are being added for
clarification. Paragraph (c) is based on language contained in the
preamble to the 1998 Final Rule but not included in the text of the
existing rule. Paragraph (d) addresses an issue that was raised in
the
preamble to the 1998 Final Rule, but not addressed in the existing
rule, concerning the applicability in certain instances of section
24
of the FDI Act and part 362 to issues arising under subpart A of
part
347. Briefly stated, in relevant part, section 24(a) of the FDI Act
and
part 362 prohibit a state bank from engaging, as principal, in any
type
of activity that is not permissible for a national bank, unless the
FDIC determines that the activity would not pose a significant risk
of
loss to the deposit insurance fund and the bank meets its minimum
capital requirements. Likewise, section 24(d) of the FDI Act and
part
362 prohibit a subsidiary of a state bank from engaging, as principal,
in any type of activity that
[[Page 43063]]
is not permissible for a subsidiary of a national bank, unless the
FDIC
first determines that it would not pose a significant risk of loss
to
the deposit insurance fund and the bank meets its minimum capital
requirements. Thus, when a state nonmember bank wants to engage in
financial activities, as principal, that are not specifically
authorized by part 347, the question becomes whether authorization
to
engage in those types of activities must be obtained under part 347,
part 362, or both parts. The FDIC is proposing to add paragraph (d)
which would generally address when authorization to engage in
activities through a subsidiary other than those specified in paragraph
(b) may be authorized by specific consent under part 347 and when
authorization for those activities must be obtained under part 362
as
well as subpart A of part 347.\3\
---------------------------------------------------------------------------
\3\ Proposed paragraph (d) is, of necessity, a rule of general
applicability. For example, as the FDIC noted in the preamble to
the
1998 Final Rule, an activity authorized under Regulation K
concerning a foreign investment entity's ability to underwrite life,
annuity, pension fund-related, and other types of insurance where
the associated risks have been previously determined to be
actuarially predictable (see, 12 CFR 211.10(a)(17)) was not included
in existing section 347.104. Although Regulation K included these
activities on its list of permissible activities abroad, the
regulation required specific consent before those activities could
be conducted by a subsidiary of an insured U.S. bank. Since no
general authorization had been given under Regulation K for this
activity to be conducted directly or indirectly by a subsidiary of
a
member bank, there was an issue under section 24 of the FDI Act.
Section 24(b) and 24(d)(2) of the FDI Act do not permit the FDIC
to
give approval for a state bank or its subsidiary to engage in
insurance underwriting if such underwriting is not permissible for
a
national bank or its subsidiary (unless that activity is expressly
excepted by other subsections of section 24 covering limited types
of insurance underwriting). Therefore, the FDIC observed when
adopting the 1998 Final Rule, that it was foreclosed at that time
from granting general regulatory authorization for banks to
indirectly underwrite life, pension-fund related and other types
of
insurance abroad. Insurance underwriting represents an example of
specific types of activities that are listed in 12 CFR 211.10 that
could not be authorized under either part 347 or part 362.
In proposing paragraph (d) the FDIC desires to lend a degree of
clarity to this area but also wants to provide banks with more
notice that approval to engage in certain foreign activities may
require compliance with requirements beyond those contained in part
347. In these situations, for the FDIC to process such applications
in a timely manner, the applicants will need to provide sufficiently
detailed and relevant information regarding proposed foreign
activities for the FDIC to properly evaluate the issues raised by
the application.
---------------------------------------------------------------------------
6. Going Concerns (Revised Sec. 347.106)
Section 347.106 of the proposal is derived from the ``going
concern'' provision contained in existing section 347.104(c). The
text
has been made a separate section and reworded slightly for ease of
reference.
As under the existing rule, a bank subsidiary (as defined in
proposed section 347.102(t)) in a foreign country will be limited to
conducting activities authorized under proposed section 347.105(b),
unless the bank acquires its subsidiary as a going concern. In this
case, under proposed section 347.106, no more than 5 percent of the
foreign subsidiary's assets or revenues may be attributable to
activities that are not on the list of authorized activities. In
addition, any foreign organization which is controlled (as defined in
proposed section 347.102(b)) by a bank and its affiliates (as defined
in proposed section 347.102(a)), regardless of the percent of voting
stock owned by the bank, is limited to conducting financial activities
authorized under proposed section 347.105(b), subject to the same 5
percent exception for going concerns.
7. Joint Ventures (Revised Sec. 347.107)
Section 347.107(a) of the proposal is derived from the ``joint
venture'' provision contained in existing section 347.104(d). The
text
has been made a separate section and reworded slightly for ease of
reference. As is the case under the existing rule, if a bank and
its
affiliates hold 20 to 50 percent of the voting equity securities
of a
foreign organization and do not control the organization, no more
than
10 percent of the foreign organization's assets or revenues may be
attributable to activities that are not on the section 347.105(b)
list
of authorized activities.
8. Portfolio Investments (Revised Sec. 347.108)
Section 347.108(a) of the proposal is derived from the ``portfolio
investment'' provision contained in existing section 347.104(e).
The
text has been made a separate section and reworded slightly for ease
of
reference. As is the case under the existing rule, if a bank and
its
affiliates' holdings are less than 20 percent of the voting equity
securities of a foreign organization and the bank and its affiliates
do
not control the organization, no more than 10 percent of the foreign
organization's assets or revenues may be attributable to activities
that are not on the section 347.105(b) list of authorized activities.
In addition, the bank is prohibited from making any loans or extensions
of credit to the organization that are not on the same terms as those
prevailing at the time for comparable transactions with nonaffiliated
organizations.
9. Limitations on Indirect Investments in Nonfinancial Foreign
Organizations (Revised Sec. 347.109)
Section 347.109 of the proposal is derived from existing section
347.104(g). The text of the paragraph is retained but is reworded
for
clarification, and the references to other sections of subpart A
are
revised to conform to the new section numbers contained in the
proposal. The paragraph is also being made a separate section for
ease
of reference.
Like paragraph (g) of the existing rule, this section authorizes a
bank to make indirect portfolio investments in nonfinancial foreign
organizations through a foreign subsidiary or an Edge corporation
subsidiary, to an amount equal to 15 percent of the bank's Tier 1
capital, without regard to whether the activities of the foreign
organization are authorized under section 347.105(b). In addition, the
following requirements must be met:
The aggregate holdings of a particular foreign
organization's equity interests by the bank and its affiliates must be
less than 20 percent of the foreign organization's voting interests and
40 percent of its total voting and nonvoting equity interests;
The bank and its affiliates are not permitted to control
the foreign organization; and
Any loan or extension of credit to the foreign
organization must be on substantially the same terms as those
prevailing at the time for comparable transactions with nonaffiliated
organizations.
10. Affiliate Holdings (Revised Sec. 347.110)
Section 347.110 of the proposal is derived from existing section
347.104(h). The text of the paragraph is retained, and cross-references
to subpart A are added for ease of reference due to other proposed
revisions to the rules in subpart A. The reference to section 337.4
in
the existing rule is also changed to reflect the removal and
replacement of section 337.4 with section 362.8 or, for financial
subsidiaries, section 362.18. See, 66 FR 1018 (January 5, 2001).
The
paragraph also is made a separate section for ease of reference.
11. Underwriting and Dealing Limits Applicable to Foreign Organizations
Held by Insured State Nonmember Banks (Revised Sec. 347.111)
Section 347.111 of the proposal is derived from existing section
347.105. Cross-references are being added, for ease of reference,
to
other rules in
[[Page 43064]]
subpart A that affect this rule because of other revisions being
made
in this proposal. Appropriate revisions to section citations in
Regulation K are also being made.
Under the proposed rule, as with existing section 347.105, a
foreign investment entity of a bank is permitted to underwrite,
distribute, and deal equity securities outside the United States,
subject to the three main limitations described generally below:
Underwriting commitments for a single issuer may not
exceed an amount equal to the lesser of $60 million or 25 percent of
the bank's Tier 1 capital. This underwriting commitment limit may be
exceeded, however, to the extent the commitment is covered by binding
commitments from sub-underwriters or purchasers.
Distribution and dealing shares of a single entity may not
exceed an amount equal to the lesser of $30 million or 5 percent of the
bank's Tier 1 capital. This limit is subject to two exceptions. First,
to facilitate underwritings, any equity securities acquired pursuant to
an underwriting commitment extending up to 90 days after the payment
date of the underwriting are not included in the limit. Second, up to
75 percent of the position in an equity security may be reduced by
netting long and short positions in the identical equity security, or
by offsetting cash positions against derivative instruments referenced
to the same security.
The sum of underwriting commitments, distribution and
dealing shares, and any portfolio investments in nonfinancial
organizations under proposed section 347.109 may not exceed an amount
equal to 25 percent of the bank's Tier 1 capital.
12. Restrictions on Activities Applicable to Foreign Organizations
That
Act as Futures Commission Merchants (Revised Sec. 347.112)
Section 347.112 of the proposal is derived from existing section
347.106. As proposed, the title to the section is revised, and the
text
of the existing rule is reorganized and retained. Cross-references
are
added, for ease of reference, to subpart A that affect this rule
because of other revisions made in this proposal.
As with existing section 347.106, the proposed rule imposes an
additional restriction beyond those imposed by section 225.28(b) of
Regulation Y on acting as a futures commission merchant. Under section
347.112, a foreign investment entity may not, without the FDIC's prior
approval, have potential liability to a mutual exchange or clearing
association of which the foreign investment entity is a member that
exceeds 2 percent of the bank's Tier 1 capital.
13. Restrictions Applicable to Activities by a Foreign Organization
in
the United States. (Revised Sec. 347.113)
Section 347.113 of the proposal is derived from existing section
347.107. The title to the section is revised, and the text of the
existing rule is reorganized and retained.
As with the existing rule, the proposed rule prohibits a state
nonmember bank from investing in any foreign organization that engages
in the general business of buying or selling goods, wares, merchandise,
or commodities in the U.S. It also prohibits investments totaling over
5 percent of equity interests in any foreign organization if the
organization engages in any business activities in the U.S. that are
not incidental to its international or foreign business. The rule also
provides that a foreign organization will not be considered to be
engaged in business or activities in the U.S. unless it maintains an
office in the U.S. other than a representative office. Beyond these
thresholds, foreign organizations are authorized to conduct activities
that are permissible in the U.S. for an Edge corporation, or such other
business activities as are approved by the FDIC.
14. Extensions of Credit to Foreign Organizations Held by Insured
State
Nonmember Banks; Shares of Foreign Organizations Held in Connection
With Debts Previously Contracted (Revised Sec. 347.114)
Section 347.114 of the proposal is derived from existing section
347.109. The text of the existing rule is reorganized and retained
with
only minor revisions.
15. Activities Permissible for a Foreign Branch of an Insured State
Nonmember Bank (Revised Sec. 347.115)
Proposed section 347.115 is largely derived from existing section
347.103(a). Although most of the existing text is not being changed
substantively, a few revisions are made to incorporate changes made
by
the FRB in section 211.4 of Regulation K. For example, the reference
to
``development bank'' in existing section 347.103(a)(2)(i) has been
changed to ``government sponsored development bank'' in section
347.115(c)(1)(i). The authorization for an insured state nonmember
bank
to underwrite, distribute and deal, invest in or trade specified
foreign government obligations that are rated as investment grade
by at
least two established international rating agencies under existing
section 347.103(a)(3)(ii) is also being changed. As amended, section
347.115(b)(2) would require only that these obligations be rated
as
``investment grade.'' As mentioned earlier, because the FDIC is
proposing to adopt the same definition of ``investment grade'' that
the
FRB adopted in its recent revisions to Regulation K, an obligation
would qualify as ``investment grade'' under the proposed rule if
it
received a rating in one of the four highest investment categories
by
two or more NRSROs (nationally recognized statistical rating
organization, as designated by the Securities and Exchange Commission).
If it had only been rated by one NRSRO and received the appropriate
rating, it could be considered ``investment grade'' with only that
one
rating.
In addition, as with section 347.105 of this proposal, in the
preamble to the 1998 Final Rule, the FDIC determined that certain
activities the FRB had specifically listed as being authorized in the
corresponding section of Regulation K for foreign branches of national
banks were within the general banking powers of a national bank.
Therefore, it was considered unnecessary to separately enumerate them
for foreign branches of insured state nonmember banks in existing
section 347.103(a). Because the same issues that were previously
discussed in connection with the revisions to section 347.105 of the
proposal would be applicable to this section regarding the
applicability of section 24 of the FDI Act and part 362, the FDIC is
including the activities that were previously omitted from the text of
the FDIC's existing rule but which are included in the corresponding
provision of Regulation K.\4\ The activities
[[Page 43065]]
authorized under the proposed rule also are reorganized to correspond
more closely to those activities authorized in 12 CFR 211.4 for foreign
branches of member banks. Finally, the paragraph addressing ``other
activities'' is revised to indicate that the FDIC may authorize foreign
branches of state nonmember banks to engage in activities that are
not
specifically listed in the proposed rule, and a new paragraph (h)
is
being added to clarify when other activities may be approved under
this
subpart or, alternatively, when they also must be authorized under
section 24 of the FDI Act and part 362.\5\
---------------------------------------------------------------------------
\4\ The omitted activities relevant to this discussion are:
engaging in repurchase agreements that are the functional equivalent
of extensions of credit and paying branch employees a greater rate
of interest on their deposits than the rate paid to other depositors
on similar deposits. A third activity, concerning extending credit
to an officer of the branch in the foreign country in which the
branch is located to finance the officer's living quarters, is not
included in the list of activities authorized by the FDIC's existing
rule. Considering that this activity was not among the list of
permissible activities for foreign branches of member banks in the
recent revisions to Regulation K and that the FDIC previously
concluded that the activity was within the general banking powers
of
a foreign branch, the inclusion of this additional activity in the
list of activities that are permissible under proposed section
347.115 does not appear to be necessary. It also does not appear
to
advance the goal of making the comparison of activities authorized
under Regulation K and those authorized by the FDIC's corresponding
provision easier. Therefore, this particular activity is not being
included in the list of permissible activities contained in the
proposed rule.
\5\ As with proposed section 347.105(d), this paragraph is
considered a rule of general applicability to provide guidance and
notice to banks with an interest in this area.
---------------------------------------------------------------------------
16. Recordkeeping and Supervision of Foreign Activities of Insured
State Nonmember Banks Under This Subpart (Revised Sec. 347.116)
Section 347.116 of the proposal is derived from existing section
347.110. The language in section 347.110(b)(2) of the existing rule
is
eliminated in the proposed rule because it addresses application
processing and the requirement for specific consent in jurisdictions
that limit access to financial information. Those issues are addressed
in section 347.119 of the proposal.
17. General Consent (Revised Sec. 347.117)
Section 347.117 of the proposal consolidates the general consent
requirements related to foreign branches that are presently contained
in section 347.103(b) with the general consent requirements for
investments in foreign organizations that are presently contained
in
section 347.108(a) into a single rule.
Under proposed section 347.117(a), as in existing section
347.103(b), general consent is provided for an eligible insured state
nonmember bank to establish branches within a foreign country in which
it has a branch or a foreign bank subsidiary and for relocation of
existing foreign branches within a foreign country. As part of the
EGRPRA process, it was suggested that U.S. banks that are well-managed,
well-capitalized, maintain at least a satisfactory CRA rating, and have
experience operating overseas, such as through one or two branches,
should be allowed to branch overseas using procedures available to them
for domestic branching. After considering this comment, the FDIC is
concerned that such broad authority may allow branching into foreign
countries without adequate familiarity with the banking system and
regulatory requirements that may exist in the host country.
Nonetheless, the proposal introduces some additional flexibility in the
branching area, by allowing insured state nonmember banks to branch
into a foreign country under general consent in circumstances covered
by (a)(1)(ii) or (iii) of the proposed rule. This change will allow an
eligible state nonmember bank to establish additional branches in a
country in which the bank's holding company operates a foreign bank
subsidiary, or in which an affiliated bank or Edge or Agreement
corporation operates one or more foreign branches or foreign bank
subsidiaries. This will allow for after-the-fact notification to the
FDIC in those circumstances, rather than requiring prior approval under
expedited processing, as is presently required under section
347.103(c)(1).
Under proposed section 347.117(b), general consent for investments
in foreign organizations is provided in the same circumstances covered
by existing section 347.108(a). In addition, the proposal would grant
general consent to invest in a foreign organization, under proposed
section 347.117(b)(2), when at least one insured state nonmember bank
operates a foreign branch in the relevant foreign country where the
organization will be located because of the FDIC's familiarity with the
banking laws and practices of that country. This amendment was
suggested in a comment on the 1998 Final Rule, but the FDIC declined to
adopt it because of concerns that banks could operate ``nameplate''
branches in foreign countries and, because they would lack a physical
presence in those countries, more extensive analysis and coordination
with the host country supervisors may be needed before the FDIC
authorized free-standing foreign organizations. Upon further
consideration of this issue, however, the FDIC believes most nameplate
branches would be operated in jurisdictions where authority to invest
in foreign organizations by general consent would be inapplicable under
section 347.119(a) of the proposal. Therefore, if that issue arises,
specific consent would be required to authorize such an investment, and
the previously stated concern could be addressed at that time.
18. Expedited Processing (Revised Sec. 347.118)
Section 347.118 of the proposal consolidates the expedited
processing provisions for foreign branches in existing section
347.103(c)(2) with the expedited processing provisions for investments
in foreign organizations in existing section 347.108(b) into a single
rule for ease of reference.
19. Specific Consent (Revised Sec. 347.119)
Section 347.119 of the proposal consolidates the specific consent
requirements for foreign branches in existing section 347.103(d)-(e)
with the specific consent requirements for investments in foreign
organizations in existing section 347.108(c)-(d) into a single rule
for
ease of reference and because the existing provisions are largely
duplicative.
20. Computation of Investment Amounts (Revised Sec. 347.120)
Section 347.120 of the proposal is derived from existing section
347.108(e). It is placed in a separate section in the proposal to
indicate its applicability to the general consent, expedited
processing, and specific consent sections for foreign investments
because those subjects are addressed by separate sections of the
proposal.
21. Requirements for Insured State Nonmember Bank to Close a Foreign
Branch. (Revised Sec. 347.121)
Section 347.121 of the proposal is derived from 347.103(f) and
is
placed in a separate section for ease of reference and because the
approval provisions of that section are separated from the authorized
activities section for foreign branches in the proposal.
22. Limitations Applicable to the Authority Provided in This Subpart
(New Sec. 347.122)
The FDIC is proposing to add a new section 347.122. This section
recognizes that the FDIC may, under section 18(d)(2) and 18(l) of
the
FDI Act, condition the authority granted under this subpart A as
it
considers appropriate. The section also provides for termination
of
activities or divestiture of investments permitted under the subpart,
after giving the bank notice and a reasonable opportunity to be heard,
if a bank is unable or fails to comply with the requirements of the
subpart or any conditions imposed by the FDIC regarding transactions
under the subpart.
IV. Section-by-Section Analysis of Proposed Revisions to Part 347,
Subpart B
1. Authority, Purpose and Scope (Revised Sec. 347.201)
The FDIC is proposing to revise existing section 347.201 to reflect
the authority and coverage of subpart B, as amended. In addition,
the
scope of the subpart is revised to reflect the grouping of the sections
therein based primarily
[[Page 43066]]
upon whether they apply to both insured state and federal branches
or
only to state branches. The section also recognizes that section
347.204 applies to foreign banks seeking deposit insurance coverage
for
their state or federal depository institution subsidiaries.
2. Definitions (Revised Sec. 347.202)
The definitions contained in existing section 347.202 are revised
by amending an existing paragraph, moving an existing paragraph,
and
adding three new paragraphs. In the proposal, the definition of
``domestic retail deposit activity'' contained in paragraph (e) is
being amended to add ``federal'' branches because the prohibition
contained in section 347.206 of the proposal, concerning taking
domestic retail deposits through U.S. bank subsidiaries or certain
grandfathered branches, is applicable equally to state or federal
branches of foreign banks. The addition of ``federal'' branches to
section 347.202(e) is not intended, however, to create a discrepancy
regarding the application of section 347.216 of the proposal, which
also uses the term ``domestic retail deposit activity,'' because
section 347.216, by its own terms, applies specifically to state
branches. The corresponding rule for federal branches is 12 CFR 28.16.
Paragraph (m) of the proposal revises the definition of ``initial
deposit'' that is contained in paragraph (l) of the existing rule
to
eliminate the need for the separate definition of ``first deposit''
that is included at the end of the paragraph in the existing rule.
In
addition, paragraphs (j) and (s) are added to the section and are
consistent with the definitions for the same terms that are utilized
in
subpart A.
3. Deposit Insurance Required for All Branches of Foreign Banks
Engaged
in Domestic Retail Deposit Activity in the Same State (Revised Sec.
347.203)
Existing section 347.203 is retained in the proposal, but the text
is revised to clarify the requirements of the section. The title
to the
section also is revised to make it more descriptive of the contents
of
the section.
4. Commitment To Be Examined and Provide Information (Revised Sec.
347.204)
Section 347.204 of the proposal substantially revises existing
section 347.208 to update the rule and enhance the FDIC's supervisory
authority. The existing rule was initially issued in 1979 to implement
section 10(b) of the FDI Act (12 U.S.C. 1820(b)) with regard to U.S.
branches of foreign banks. Section 10(b) requires a foreign bank,
in
connection with obtaining deposit insurance for a branch or depository
institution subsidiary, to submit a binding written commitment to
the
FDIC to permit any examination of the affairs of any affiliate of
the
branch or depository institution subsidiary to the extent necessary
to
determine: (1) The relationship between the depository institution
and
the affiliate and (2) the effect of such relationship on such
depository institution.
Like the existing rule, the proposed rule addresses a foreign bank
seeking deposit insurance for a U.S. branch. However, the proposed
rule, if adopted, will apply whenever a foreign bank seeks deposit
insurance for a banking subsidiary.
Accordingly, the rule, as revised, will require a foreign bank
applying for deposit insurance for a U.S. branch or depository
institution subsidiary to provide the FDIC with a written commitment
(including a consent to U.S. court jurisdiction and designation of
agent for service of process, acceptable to the FDIC) to:
1. Permit examination, for the reasons specified in section
10(b)(4), of the foreign bank and affiliates located outside the U.S.;
\6\
---------------------------------------------------------------------------
\6\ Unlike the existing section, which requires the foreign bank
to provide information regarding the affairs of the foreign bank
and
its affiliates outside the U.S. and examination of the affairs of
any office, agency, branch or affiliate of the foreign bank located
in the United States, the proposed section will require the foreign
bank to permit examination of itself and its affiliates for the
purposes specified in the statute, without regard to their location.
This requirement is based on the relevant underlying statutory
provisions in the FDI Act. See, sections 3(w)(6) and 10(b)(4) of
the
FDI Act (12 U.S.C. 1813(w)(6), 1820(b)(4)).
---------------------------------------------------------------------------
2. Provide information, for the reasons specified in section
10(b)(4), regarding the foreign bank and affiliates located outside
the
U.S.; and
3. Allow examination and provide information, for the reasons
specified in section 10(b)(4), regarding the offices and affiliates of
the foreign bank that are located in the U.S.
The proposed rule also will allow the foreign examination provision
to be waived in instances where the FRB has already made a
comprehensive consolidated supervision determination for the foreign
bank at issue.
In addition, under the proposed rule, if an equivalent commitment
has been made by a foreign bank to another Federal banking agency that
provides the FDIC with the same rights and privileges that the FDIC
would have if it obtained such commitment on its own behalf, the FDIC
may waive all or part of the commitment requirements imposed by this
section in lieu of requiring its own separate commitment from the
foreign bank. If such waiver is granted, however, the foreign bank will
be required to provide the FDIC with the commitments required by the
section before the foreign bank terminates any commitments provided to
any other Federal banking agency which provide a basis for such waiver.
The FDIC recognizes that there may be situations when a foreign
bank has not been determined to be subject to comprehensive
consolidated supervision; has not provided a commitment to any other
Federal banking agency that the FDIC finds acceptable; and cannot or
will not provide the written commitment to permit examination required
under section 347.204(a)(1). In this circumstance, it is envisioned
that under section 347.204(a)(3) the deposit insurance application for
the U.S. branch or depository institution will not be processed because
the application will not be considered substantially complete without
the required commitment. It is also recognized, however, that the
foreign bank may be willing to provide the required commitment, but
obstacles to the FDIC's ability to utilize the commitment may be posed
by the laws or regulatory regime governing the foreign bank. In this
situation, it is envisioned that the foreign bank would be responsible
for addressing and resolving these issues in consultation with the
appropriate FDIC staff. To the extent the issues cannot be resolved
acceptably, but the foreign bank provides the required commitment, the
rule provides for consideration of these issues, in section
347.204(b)(3), in determining whether the deposit insurance application
of the foreign bank's U.S. branch or depository institution should be
granted or denied.
5. Records Maintenance (Revised Sec. 347.205)
Section 347.205 of the proposal addresses record maintenance
requirements for insured U.S. branches of foreign banks. The new
section reorders and combines the paragraphs of existing section
347.209, which addresses the same issues.
6. Conduct of Domestic Retail Deposit Activity by U.S. Branch of
a
Foreign Bank (Revised Sec. 347.206)
Section 347.206 of the proposal implements section 6(d) of the
IBA
(12 U.S.C. 3104(d)). Paragraphs (a)-(c) are derived from existing
section 347.204(a)-(c) but have been reworded slightly for clarity.
Paragraph (a) requires any foreign bank intending to conduct domestic
retail deposit
[[Page 43067]]
activities requiring deposit insurance in any state after December
19,
1991, to establish one or more insured U.S. bank subsidiaries to
conduct those deposit activities. Paragraph (b) provides an exception
to this general rule, based on section 6(d)(3) of the IBA, for any
FDIC-insured bank organized under the laws of any territory of the
United States, Puerto Rico, Guam, American Samoa, or the Virgin
Islands. This allows insured banks organized under the laws of the
specified jurisdictions to conduct any domestic retail deposit
activities in the United States through an insured branch, rather
than
through insured bank subsidiaries. Paragraph (c) is based upon the
``grandfathered branch'' exception in the statute, which allows any
insured branches that were accepting or maintaining domestic retail
deposit accounts on December 19, 1991, to continue to operate as
insured branches conducting domestic retail deposit activities.
Existing section 347.204(d), which authorizes foreign banks to operate
noninsured state branches meeting the criteria specified therein,
is
made into proposed section 347.213 because it only applies to state
branches.
Paragraph (d) of the proposed rule is added to address an issue
raised with the FDIC through the EGRPRA process. In that process, an
industry trade association requested that the FDIC clarify that the
grandfathered status of an insured branch survives the sale or transfer
of the branch from one foreign bank to another foreign bank. The trade
association suggested that the transferability of the grandfathered
status of a U.S. branch of a foreign bank to a new owner was supported
by applying the ``plain meaning'' rule of statutory construction to
section 6(d) of the IBA. The trade association's view was that because
the availability of the grandfather exception appears to be conditioned
upon a single exception (that the branch was insured as of December 19,
1991), it was inconsistent with the plain meaning of the statute to
read into it an additional condition (that the branch was not
transferred after December 19, 1991). The trade association also
observed that other grandfather provisions enacted by Congress in the
same statute expressly state that those grandfather rights terminate
upon a change in control. Therefore, the absence of such a provision in
the grandfathered branch exception, it was argued, indicates that
Congress did not intend that an insured branch would lose its
grandfathered status upon its sale or transfer. Additionally, the trade
association observed that permitting transfers of grandfathered
branches would provide an option for other foreign banks that would
like to establish FDIC-insured branches but are constrained from doing
so by the subsidiary requirement in section 6(d). Finally, it was
observed that depositors would not lose the protections of deposit
insurance solely as a result of the sale or transfer of an insured
branch.
The FDIC has considered these observations and others presented by
the trade association. It appreciates the arguments supporting a broad
reading of the grandfathered branch exception but the exception has
been construed more narrowly in the past \7\ and, at this time, the
FDIC is not persuaded that a change in position is justified. The broad
reading of the grandfather exception requested would be at odds with
the distinct preference Congress stated in section 6(d) of the IBA of
making foreign banks desiring to engage in new domestic retail deposit
activities requiring deposit insurance after December 19, 1991 do so
through insured banking subsidiaries. Since it is a well recognized
rule of statutory construction that in ascertaining the plain meaning
of a statute it is appropriate to look to the particular statutory
language at issue, as well as the language and design of the statute as
a whole, this construction of paragraph (d) appears to be more
appropriate than the alternative construction of the statute advanced
by the trade association.\8\ It also does not appear to be appropriate,
as a matter of policy, to adopt an interpretation that will make the
grandfathered status the object of bargain among foreign banks and
allow entry to and departure from the insured domestic retail deposit
market based on the highest bid for the privilege.
---------------------------------------------------------------------------
\7\ See e.g., FDIC Advisory Opinion 92-12, March 25, 1992,
reprinted in [1991-1992 Transfer Binder] Fed. Banking L. Rep. (CCH)
P81,482 (The grandfathered branch exception was intended only to
permit existing insured branches of foreign banks to continue to
operate after the enactment of FDICIA without the requirement of
being ``rolled up'' into a newly chartered subsidiary bank. The
provision does not permit a foreign bank with a grandfathered branch
to subsequently open additional insured branches which accept and
maintain deposit accounts having balances of less than $100,000.)
\8\ Reading the statute as a whole, the proposed broad reading
of the exception also is contrary to the direction provided in
section 6(a) of the IBA regarding implementation of the section
because purchasers of grandfathered branches could avoid forming and
capitalizing banking subsidiaries to engage in domestic retail
deposit activity in the U.S., rather than following the same process
required for domestic banks of establishing and capitalizing a
distinct corporate entity and applying for deposit insurance.
---------------------------------------------------------------------------
The FDIC recognizes that the existing rule does not address this
issue. It also recognizes, however, that there may be other situations,
such as certain merger and acquisition transactions, that are not
designed or motivated by the desire to obtain access to the domestic
retail deposit market and avoid compliance with the subsidiary
requirement in section 6(d) of the IBA, where the grandfathered status
of an insured branch should remain intact. Therefore, the FDIC is
addressing the issue in paragraph (d) of the proposed rule and inviting
public comments.
7. Disclosure of Supervisory Information to Foreign Supervisors
(New
Sec. 347.207)
Section 347.207 is proposed to facilitate cross-border supervision
of insured branches of foreign banks and insured bank subsidiaries
by
providing for the sharing of supervisory information between the
FDIC
and foreign bank regulatory or supervisory authorities. It is patterned
after section 15 of the IBA (12 U.S.C. 3109) and 12 CFR 211.27. The
section also addresses the confidentiality of such information, based
upon the FDIC's interpretation of section 8(v) of the FDI Act (12
U.S.C. 1818(v)), by providing that the disclosure or transfer of
such
information to a foreign bank regulatory or supervisory authority
does
not waive any privilege applicable to such information.
8. Assessment Base Deductions by Insured Branch (Revised Sec. 347.208)
Section 347.208 is revised text of existing section 347.212.
9. Pledge of Assets (Revised Sec. 347.209)
The asset pledge requirement contained in existing section 347.210
is revised in proposed section 347.209 by imposing a risk-based asset
pledge requirement. The existing 5 percent asset pledge requirement
has
been in place since 1984. As part of the EGRPRA process, an industry
trade association observed that the existing asset pledge requirement
fails to take into account the specific circumstances of each insured
branch and advances in risk-based bank supervision that have taken
place in recent years. The trade association also observed that the
asset pledge requirements do not apply to U.S. banks and asserted
that
the existing asset pledge requirement adversely affects the earnings
and liquidity of insured U.S. branches by making them maintain and
pledge specific amounts of generally lower yielding assets.
The FDIC recognizes that the asset pledge requirement may have
competitive implications for foreign
[[Page 43068]]
banks with regard to their insured branches operating in the United
States, but does not believe elimination of the asset pledge
requirement is appropriate. Unlike their domestic counterparts, the
activities, assets, and personnel of foreign banks operating insured
branches in the United States are, in large part, outside the
jurisdiction of the United States. While the parent bank may, in
theory, add financial support to the branch structure, the FDIC is
concerned that indications of financial weakness that become apparent
in an insured branch may also be indicative of financial weakness
at
the parent level that may result in less financial support from the
parent of the insured branch in times of financial stress. This could
result either from voluntary decisions of the parent or regulatory
restrictions imposed by the home country regulator, and may precipitate
significant deposit outflows from the insured branch. Therefore,
to
mitigate this risk and the potential risks associated with providing
deposit insurance for deposits in an insured branch, the FDIC continues
to believe that an asset pledge requirement in some amount is
appropriate.
The FDIC recognizes that it may be appropriate, however, to revise
the asset pledge requirement to make it more risk-focused and to take
into consideration characteristics that may be unique to each insured
branch. As revised in the proposal, the asset pledge requirement will
be determined in a manner similar to the approach the FDIC has taken
with its risk-based deposit insurance assessment system. Under the
proposal, any newly insured branch will be subject to a 5 percent asset
pledge requirement until the end of the first three years of its
operation as an insured branch. This differs from the one-year
requirement in paragraph (b)(2) of the existing rule, but the FDIC
believes that the standard in the existing rule is outdated and that it
is prudent to impose more stringent requirements on newly insured
institutions during the first three years of their operations to
compensate for potential risks associated with the commencement of
insured operations. Three years will also allow a newly insured branch
to experience at least one examination cycle, which will result in
supervisory information that the FDIC can utilize to adjust the asset
pledge requirement for the branch. After the first three years of
operation as an insured branch, the rule envisions that the asset
pledge amount will be adjusted by taking into consideration the
percentage of assets maintained by the insured branch, pursuant to
section 347.210, and the supervisory information relative to the branch
at issue. It is envisioned that the most recent ROCA rating \9\ for the
insured branch will be a focal point of such supervisory information
but, as with the risk-based premium system, the FDIC could also
consider other supervisory information that it believes is appropriate
to fully evaluate the potential risk posed by the insured branch in
determining the supervisory subgroup assignment for the branch. The
appropriate percentage of assets required to be pledged will then be
determined based on the supervisory risk subgroup assigned and the
asset maintenance level applicable to the branch. The proposal will
generally permit the asset pledge to be lowered to not less than 2
percent of third-party liabilities for insured branches that are
perceived to pose a lower potential risk and up to 8 percent of
liabilities for insured branches that are perceived to pose a higher
potential risk to the deposit insurance fund. In addition the FDIC's
ability to require a higher percentage of pledged assets in appropriate
circumstances will remain unchanged in the proposed rule. Although the
proposed rule could potentially increase the asset pledge requirement
above the existing 5 percent requirement for some insured branches,
most of the existing insured branches traditionally exceed the minimum
asset maintenance requirements imposed by existing section 347.210, and
most of their supervisory ratings are also favorable. Therefore, if the
rule is adopted as proposed, the FDIC's asset pledge requirement for
most of the existing insured branches will be reduced from its current
level. Moreover, the risk-based proposal is designed to increase the
degree of protection provided to the FDIC deposit insurance fund as the
risk profile for the insured branch deteriorates.
---------------------------------------------------------------------------
\9\ The ROCA system represents the rating of risk management,
operational controls, compliance, and asset quality of a Foreign
Banking Organization's U.S. operations.
---------------------------------------------------------------------------
The proposed rule also makes amendments and deletions to the
existing rule. Paragraph (d)(1) of the existing rule specifies that
certificates of deposit may be pledged as collateral. The additional
term ``negotiable'' is being added to the corresponding portion of
the
proposed rule to clarify this requirement because negotiable
certificates of deposit are marketable, while other types of
certificates of deposit may exist that could provide less protection
to
the FDIC in the event they had to be liquidated quickly. Thus,
certificates of deposit that are not negotiable will not qualify
as
acceptable collateral for purposes of the asset pledge requirement.
In
addition, the FDIC is proposing to amend paragraph (d)(2) to add
U.S.
Treasury bills as an additional form of eligible collateral. Finally,
paragraph (f) of the existing rule is removed in the proposed rule
because it is essentially a delegation of authority. Over the past
several years the FDIC has removed its delegations of authority for
supervisory matters from its rules and now generally addresses these
matters by internal delegations of authority from the FDIC's Board
of
Directors.
10. Asset Maintenance (Revised Sec. 347.210)
Proposed section 347.210 contains revisions to existing section
347.211 that are largely related to the asset maintenance calculation
for insured branches. As revised, the proposed rule will require
insured branches to maintain eligible assets on a daily basis in
an
amount not less than 106 percent of the insured branch's daily third-
party liabilities, rather than based upon the preceding quarter's
average book value of the insured branch's liabilities. Although
the
existing calculation method has been in place for a number of years,
there have been some instances where insured branches were winding
down
their operations and needed to be allowed to calculate their asset
maintenance on a daily basis to maintain compliance with the asset
maintenance requirement. The FDIC believes that requiring that the
calculation be made based on the daily third-party liabilities of
the
branch will avoid these and other potential anomalies that can be
caused by using liability information from the preceding quarter.
In addition, although requiring the asset maintenance ratio to be
calculated based on the daily assets and liabilities of a branch may
require some adjustment of existing processes, the FDIC does not
believe it will require much additional preparation by insured
branches. The FDIC also believes this formula's application will be
more straightforward and the asset maintenance calculation will be
easier for the insured branches to determine. Nevertheless, the FDIC is
soliciting public comment regarding this proposal.
Other revisions to paragraph (a) of the existing rule include
elimination of the alternative calculation for newly-established
branches and the reference to the ``Board of Directors.'' Paragraph (d)
of the existing rule is revised to require that the asset maintenance
[[Page 43069]]
calculations for the branch be retained until the next Federal
examination.
11. Examination of Branches of Foreign Banks (Revised Sec. 347.211)
Section 347.211 of the proposal contains the text of existing
section 347.214.
12. FDIC Approval to Conduct Activities That Are Not Permissible
for
Federal Branches (Revised Sec. 347.212)
Section 347.212 revises the text of existing section 347.213. In
addition, a specific citation is added to the appropriate section
in
subpart J that applies to this section for ease of reference.
13. Establishment and Operation of Noninsured Branch (Revised Sec.
347.213)
Section 347.213 of the proposal contains the revised text of
existing section 347.204(d). As in the existing rule, the section
authorizes foreign banks to operate noninsured branches if any such
branch:
Is conducting only a wholesale deposit taking operation;
Is accepting only deposits that are permissible for an
Edge Act corporation pursuant to proposed rule 347.214; or
Meets the requirements for an exemption from the
definition of ``domestic retail deposit activity'' pursuant to proposed
rule 347.215.
The paragraph is separated from the other paragraphs in existing
section 347.204 because paragraphs (a)-(c) are equally applicable to
state and federal branches that are insured. As indicated earlier,
paragraphs (a)-(c) of section 347.204 are contained in proposed section
347.206. Because this paragraph addresses only noninsured state
branches, it is placed in its own section and grouped with other
sections of the subpart that relate only to noninsured state branches.
14. Branch Established Under Section 5 of the International Banking
Act
(Revised Sec. 347.214)
Section 347.214 of the proposal contains the revised text of
existing section 347.205.
15. Exemption From Deposit Insurance Requirement (Revised Sec.
347.215)
Section 347.215 of the proposal contains revised text of existing
section 347.206. Paragraph (c)(2) has been revised to delete the
exception for non-time deposits because the timeframe stated in the
existing rule has expired. Other revisions to the text are not
substantive, and a specific citation has been added to the section
of
subpart J of part 303 that applies to this section.
16. Depositor Notification (Revised Sec. 347.216)
Section 347.216 of the proposal contains the text of existing
section 347.207.
V. Request for Comments on Deposit Insurance for Wholesale U.S.
Branches of Foreign Banks
As part of the EGRPRA process, an industry trade association
indicated that some foreign banks with U.S. wholesale branches (i.e.,
branches that are not engaged in domestic retail deposit activities
that require FDIC insurance) may be interested in obtaining deposit
insurance and recommended that the FDIC should no longer discourage
international banks from applying for ``optional'' deposit insurance.
To place this observation in context, prior to 1998, the FDIC had a
rule authorizing ``optional insurance'' for U.S. branches of foreign
banks. In 1998 the optional insurance rule was eliminated as part of
the revision and consolidation of various parts of the FDIC rules into
part 347. At that time, to summarize the discussion contained in the
1998 Final Rule, the FDIC observed that the subsidiary requirement
imposed by section 6(d) of the IBA appeared to reach only domestic
retail deposit taking activities of foreign banks. Because section 5(b)
of the FDI Act (12 U.S.C. 1815(b)), addressing deposit insurance
applications for U.S. branches of foreign banks, had not been repealed,
it arguably may be possible for a U.S. branch of a foreign bank that
does not engage in domestic retail deposit activity to seek deposit
insurance from the FDIC. The FDIC further observed, however, that as a
practical matter, it did not foresee many circumstances in which it
could be appropriate for the FDIC's Board of Directors to approve such
an application, but that the elimination of the optional insurance rule
would not affect a foreign bank's ability to argue that it may make
such an application under section 5(b) of the FDI Act.
Finally, the FDIC observed that the FDIC Board of Directors would
have to determine whether to actually accept and approve such an
application, based on its review of the facts and circumstances
involved, in addition to the pertinent legal and policy considerations.
Among the arguments advanced to support an expanded view of the
availability of deposit insurance for wholesale branches was that:
A ``plain meaning'' construction of section 5(b) permits
``any branch''--including a wholesale branch--to become insured;
Congress expressly prohibited foreign banks from obtaining
FDIC insurance for branches ``engaged in domestic retail deposit
activities'' but did not remove the statutory provisions authorizing
foreign banks to apply for deposit insurance for wholesale branches;
The FDIC's approach ignores significant changes in
regulatory practices and structures that have occurred since 1991 with
regard to foreign banks; broader acceptance of the principle of
``investor choice;'' and rejection of a broader policy to force foreign
banks to operate in the U.S. only through subsidiaries;
Wholesale depositors often seek the benefits of FDIC
insurance--even though the full amount of their deposits may not be
insured. The ability to offer these benefits through a U.S. branch
would provide a benefit to customers and increase a foreign bank's
funding options;
Optional FDIC insurance is likely to be attractive
primarily to foreign banks already operating FDIC-insured branches and
subsidiaries in the U.S. and to a relatively small number of other
foreign banks, especially those seeking to serve particular ethnic
markets. As a result, a more liberal policy likely would have a minimal
effect on the deposit insurance fund; and
Permitting wholesale branches to obtain deposit insurance
is consistent with the business model that has been followed by some
major U.S. banks that have retained insurance while focusing on
wholesale markets.
While the FDIC recognizes the arguments advanced by the trade
association and appreciates that some foreign banks may be reluctant to
file deposit insurance applications, the FDIC believes that it is
difficult to reconcile the concept that Congress imposed the subsidiary
requirement with regard to domestic retail deposit activity requiring
deposit insurance for the protection of the FDIC with the implicit
assumption that Congress did not believe such protection was needed
with regard to wholesale branches of foreign banks.\10\ In this
respect, it
[[Page 43070]]
should be noted that even though the deposits of such branches may
be
characterized as ``wholesale,'' the branch deposits would be insured
to
the same extent as any other deposits maintained in an insured
depository institution and that it is possible to obtain more than
$100,000 in deposit insurance coverage if the customer accounts are
structured correctly.
---------------------------------------------------------------------------
\10\ For example, Senator Donald W. Riegle, who introduced the
amendment adding the subsidiary requirement to section 6 of the IBA,
explained the rationale for the amendment, at 137 Cong. Rec. S18617,
S18623 (daily ed. November 27, 1991), as follows:
``Another section of the conference report foreign bank subtitle
ensures that foreign banks, that wish to accept or maintain insured
deposit accounts, do so only in subsidiary banks incorporated in the
United States. Although the taking of retail deposits in insured
branches is not presently a widespread practice by foreign banks, I
pushed for enactment of this provision as a safeguard against any
future expansion of this practice in order to better safeguard the
bank insurance fund from losses by branches of banks whose full
operations we do not oversee or control. In the past the FDIC has
expressed concerns that in the event of insolvency of a foreign
bank, assets could easily be shifted from the U.S. branch and out of
U.S. jurisdiction while deposits could be shifted to the U.S.
branch. Such practices, of course, would create new risks for the
bank insurance fund and taxpayers who stand behind it. During his
September 24, 1991 confirmation hearing William Taylor, Chairman of
the FDIC, endorsed this provision.''
---------------------------------------------------------------------------
In addition, many of the reasons offered in the past against
insuring retail branches apply equally to wholesale branches. For
example, various legal issues arise in the branch context that are
more
difficult to predict and address than those involving banking
subsidiaries and, thus, potentially pose additional risks to the
deposit insurance fund. As the FDIC noted even prior to the 1991
statutory amendments regarding insured domestic retail deposit
activities by U.S. branches of foreign banks, directors of a foreign
bank are not usually subject to the U.S. jurisdiction, and domestic
branch personnel essential to explaining certain transactions could
be
transferred beyond the reach of U.S. authorities. Essential records
could also be difficult to reach if they are kept at the head office
or
at branches in other countries. The FDIC also has recognized in the
past that a U.S. branch could be subjected to requirements under
foreign laws or to political or economic decisions of a foreign
government which conflict with domestic bank regulatory policies.
In
addition, a recognized advantage of operating through a branch, as
opposed to subsidiary structure, is the ability to engage in
transactions with the home office without significant operational
restrictions that might otherwise be applied to transactions with
affiliates of insured U.S. banks. Finally, insolvency of a foreign
bank
with a multinational branch structure may pose complicated and time-
consuming issues regarding the resolution of the branch that could
more
likely be avoided in situations involving banking subsidiaries.
The proposed expansive approach to deposit insurance for wholesale
U.S. branches also appears to raise additional concerns, including the
following:
The size and legal structure of cross-border wholesale
branch operations, as opposed to similar operations through domestic
banking subsidiaries, may pose additional risks to the deposit
insurance fund. Regarding the size of the operations, for example, the
trade association indicated that foreign banks hold over $3 trillion in
assets through their U.S. operations, including over $1 trillion in
assets in nearly 300 U.S. branches and agencies of foreign banks.
Although it has been represented that only a small number of these
branches and U.S. subsidiaries would be interested in obtaining deposit
insurance, the potential for a larger number of branches seeking the
benefit of FDIC deposit insurance could present a considerable and
imprudent expansion of the deposit insurance safety net. Regarding the
legal structure of cross-border wholesale branches, while the branch
structure theoretically can provide more economic support from the
foreign bank than a subsidiary structure, the livelihood of a branch is
highly dependent on the continued economic viability of the foreign
bank. Unlike a subsidiary bank, which is separately capitalized and can
continue to operate independently of the foreign bank, if the foreign
bank becomes insolvent, in all likelihood the bank's branches will also
be rendered insolvent or require intervention.
The potential benefit to the wholesale branch depositors
of the liberalized approach may not be as significant for the branch's
depositors as the potential benefits that may accrue to the foreign
bank, through potentially reduced funding costs as a result of
obtaining FDIC deposit insurance. This raises concerns, from a policy
perspective, about whether this should be considered a proper use of
the deposit insurance funds and about the FDIC's reputation as a
deposit insurer. It also raises concerns about the potential for
foreign citizens being confused or misled by foreign bank marketing of
FDIC deposit insurance coverage for wholesale branch deposits.
It may also be difficult to ensure that deposit insurance
for wholesale branches would not be utilized as a mechanism to
circumvent or weaken the subsidiary requirement imposed by section 6(d)
of the IBA. For example, an argument might be made that an initial
deposit for a nominal amount in excess of $100,000 qualifies as a
``wholesale deposit,'' even thought the balance in the account
immediately falls below $100,000 and, even with subsequent deposits,
the balance in the account never again exceeds the $100,000.
Based on the foregoing discussion, the FDIC continues to believe
the statements made in the 1998 Final Rule are appropriate with regard
to deposit insurance for wholesale U.S. branches of foreign banks, but
welcomes public comments on this issue. The FDIC expects to take
appropriate action after consideration of the comments received.
VI. Regulatory Flexibility Act Analysis
The FDIC is required by section 3(a) of the Regulatory Flexibility
Act (5 U.S.C. 603(a)) to publish an initial regulatory flexibility
analysis with this rulemaking or certify that the proposed rule,
if
adopted, will not have a significant economic impact on a substantial
number of small entities. For purposes of the analysis or
certification, financial institutions with assets of $150 million
or
less are considered ``small entities.'' For the reasons stated below,
the FDIC certifies, pursuant to 5 U.S.C. 605(b), that the amendments
and revisions contained in this proposed rule will not, if promulgated
through a final rule, have a significant economic impact on a
substantial number of small entities.
The proposed rule makes primarily technical revisions to update,
reorganize, and clarify the existing rules in subpart A of part 347 and
subpart J of part 303. Subpart J of part 303 contains the procedural
rules that implement part 347. The rules in subpart A of part 347
address issues related to the international activities and investments
of insured state nonmember banks. In general, they implement the FDIC's
statutory authority under section 18(d)(2) of the Federal Deposit
Insurance Act (FDI Act) (12 U.S.C. 1828(d)(2)), regarding branches of
insured state nonmember banks in foreign countries, and section 18(l)
of the FDI Act, regarding insured state nonmember bank investments in
foreign entities. As of December 31, 2003, there were approximately
4,833 state nonmember banks, but fewer than 50 of those institutions
had foreign investments or foreign branches. Available information
indicates that state nonmember banks with foreign investments or
foreign branches are not small entities. For example, none of the state
nonmember banks with foreign branches is a small entity, and none of
the foreign investment applications processed in 2003 involved small
entities.
The proposed rule also makes revisions to update, reorganize, and
clarify the existing rules in subpart B of
[[Page 43071]]
347, as well as additional revisions and amendments that address
supervisory issues. The rules in subpart B of part 347 principally
address issues related to insured and noninsured U.S. branches of
foreign banks under section 6 of the International Banking Act (IBA)(12
U.S.C. 3104). As of December 31, 2003, there were approximately 237
U.S. branches of foreign banks, including 12 insured branches. Of
this
number, there were approximately 71 U.S. branches of foreign banks
that
appear to qualify as small entities, including 6 insured branches.
The
12 insured branches are presently subject to the FDIC's asset pledge
and asset maintenance requirements, which are revised in sections
347.209 and 347.210 of the proposed rule. Although the revision of
the
asset pledge requirement to implement a risk-based approach may result
in an increase in the amount of assets pledged for insured branches
with low supervisory ratings, the FDIC does not believe this will
affect the insured branches that qualify as small entities. The FDIC
also is simplifying the asset maintenance calculation in section
347.210. The formula will require that third-party liabilities be
calculated on a daily basis, rather than based upon the preceding
quarter's average book value of the insured branch's liabilities
(as
required in existing section 347.211). This revision will apply to
all
insured branches, including the small entities, but the FDIC believes
this calculation method will make compliance with the regulatory
requirement less difficult for the affected institutions. Although
the
change may require some modifications to existing computer programs,
these should not be significant because there should already be a
daily
reconcilement of assets and liabilities occurring in the branches.
The
requirement that the asset maintenance calculations be retained until
the next Federal examination also should not result in a significant
economic impact on the small entities because retention of each
branch's liability calculations until the next Federal examination
is
already required under the existing asset maintenance rule. Other
revisions being proposed to the rules affecting noninsured branches
are
not substantive and, thus, should have no significant economic impact
on noninsured branches that qualify as small entities.
Finally, no amendments are being proposed to the rules in subpart
C. The public merely is being given an opportunity, in this rulemaking
proceeding, to comment on the accounting and reporting rules related to
international lending that are contained in subpart C of part 347.
VII. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction
Act
of 1995 (44 U.S.C. 3501 et seq.), the FDIC may not conduct or sponsor,
and the respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The FDIC has two OMB-approved
information collections (3064-0125, Foreign Branching and Investment
by
Insured State Nonmember Banks, and 3064-0114, Foreign Banks) which
cover the paperwork burden associated with Subparts A and B of Part
347. The information collections in 3064-0125 consist of applications
related to establishing and closing a foreign branch; applications
related to acquiring stock of a foreign organization; and records
and
reports which a nonmember bank must maintain once it has established
a
foreign branch or foreign organization. The information collections
in
3064-0114 consist of applications to operate as a noninsured state-
licensed branch of a foreign bank; applications from an insured state-
licensed branch of a foreign bank to conduct activities which are
not
permissible for a federally-licensed branch; internal recordkeeping
by
insured branches of foreign banks; and reporting requirements related
to an insured branch's pledge of assets to the FDIC. This proposal
to
amend Part 347, Subparts A and B will not result in any change in
the
current estimated paperwork burden associated with the regulation,
therefore no submission has been made to OMB under the Paperwork
Reduction Act.
VIII. Plain Language Requirement
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
federal banking agencies to use ``plain language'' in all proposed
and
final rules published after January 1, 2000. We invite your comments
on
how to make this proposal easier to understand. For example:
(1) Have we organized the material to suit your needs?
(2) Are the requirements in the rule clearly stated?
(3) Does the rule contain technical language or jargon that isn't
clear?
(4) What else could we do to make the rule easier to understand?
IX. Assessment of Impact of Federal Regulation on Families
The FDIC has determined that the proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury
and
General Government Appropriations Act, 1999, enacted as part of the
Omnibus Consolidated and Emergency Supplemental Appropriations Act,
1999 (Public Law 105-277, 112 Stat. 2681).
List of Subjects
12 CFR Part 303
Administrative practice and procedure, Authority delegations
(Government agencies), Bank deposit insurance, Banks, banking,
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 325
Banks, banking, Reporting and recordkeeping requirements.
12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
12 CFR Part 347
Authority delegations (Government agencies), Bank deposit
insurance, Banks, banking, Credit, Foreign banking, Investments,
Reporting and recordkeeping requirements, United States investments
abroad.
For the reasons set forth above and under the authority of 12
U.S.C. 1819(a)(Tenth), the FDIC Board of Directors hereby proposes
to
amend 12 CFR chapter III as follows:
PART 303--FILING PROCEDURES
Subpart J--International Banking
1. The authority citation for part 303 continues to read as
follows:
Authority: 12 U.S.C. 378, 1813, 1815, 1817, 1818, 1819 (Seventh
and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1, 1831w,
1835a, 1843(l), 3104, 3105, 3108, 3207; 15 U.S.C. 1601-1607.
2. Revise Sec. 303.182 to read as follows:
Sec. 303.182 Establishing, moving or closing a foreign branch of
an
insured state nonmember bank.
(a) Notice procedures for general consent. Notice in the form of
a
letter from an eligible depository institution establishing or
relocating a foreign branch pursuant to Sec. 347.117(a) of this
chapter must be provided to the appropriate FDIC office no later
than
30 days after taking such action. The notice must include the location
of the foreign branch, including a street address, and a statement
that
the foreign branch has
[[Page 43072]]
not been located on a site on the World Heritage List or on the
foreign
country's equivalent of the National Register of Historic Places
(National Register), in accordance with section 402 of the National
Historic Preservation Act Amendments of 1980 (NHPA Amendments Act)
(16
U.S.C. 470a-2). The FDIC will provide written acknowledgment of receipt
of the notice.
(b) Filing procedures for other branch establishments--(1) Where to
file. An applicant seeking to establish a foreign branch other than
under Sec. 347.117(a) of this chapter shall submit an application to
the appropriate FDIC office.
(2) Content of filing. A complete letter application must include
the following information:
(i) The exact location of the proposed foreign branch, including
the street address, and a statement whether the foreign branch will be
located on a site on the World Heritage List or on the foreign
country's equivalent of the National Register, in accordance with
section 402 of the NHPA Amendments Act;
(ii) Details concerning any involvement in the proposal by an
insider of the applicant, as defined in Sec. 303.2(u) of this part,
including any financial arrangements relating to fees, the acquisition
of property, leasing of property, and construction contracts;
(iii) A brief description of the applicant's business plan with
respect to the foreign branch; and
(iv) A brief description of the proposed activities of the branch
and, to the extent any of the proposed activities are not authorized by
Sec. 347.115 of this chapter, the applicant's reasons why they should
be approved.
(3) Additional information. The FDIC may request additional
information to complete processing.
(c) Processing--(1) Expedited processing for eligible depository
institutions. An application filed under Sec. 347.118(a) of this
chapter by an eligible depository institution as defined in Sec.
303.2(r) of this part seeking to establish a foreign branch by
expedited processing will be acknowledged in writing by the FDIC and
will receive expedited processing, unless the applicant is notified in
writing to the contrary and provided with the basis for that decision.
The FDIC may remove the application from expedited processing for any
of the reasons set forth in Sec. 303.11(c)(2) of this part. Absent
such removal, an application processed under expedited processing is
deemed approved 45 days after receipt of a substantially complete
application by the FDIC, or on such earlier date authorized by the FDIC
in writing.
(2) Standard processing. For those applications that are not
processed pursuant to the expedited procedures, the FDIC will provide
the applicant with written notification of the final action when the
decision is rendered.
(d) Closing. Notices of branch closing under Sec. 347.121 of this
chapter, in the form of a letter including the name, location, and date
of closing of the closed branch, shall be filed with the appropriate
FDIC office no later than 30 days after the branch is closed.
3. In Sec. 303.183, revise the title and paragraphs (a), (b)(1),
and (c)(1) to read as follows:
Sec. 303.183 Investment by insured state nonmember banks in foreign
organization.
(a) Notice procedures for general consent. Notice in the form of
a
letter from an eligible depository institution making direct or
indirect investments in a foreign organization pursuant to Sec.
347.117(b) of this chapter shall be provided to the appropriate FDIC
office no later than 30 days after taking such action. The FDIC will
provide written acknowledgment of receipt of the notice.
(b) Filing procedures for other investments--(1) Where to file. An
applicant seeking to make a foreign investment other than under Sec.
347.117(b) of this chapter shall submit an application to the
appropriate FDIC office.
* * * * *
(c) Processing--(1) Expedited processing for eligible depository
institutions. An application filed under Sec. 347.118(b) of this
chapter by an eligible depository institution as defined in Sec.
303.2(r) of this part seeking to make direct or indirect investments in
a foreign organization will be acknowledged in writing by the FDIC and
will receive expedited processing, unless the applicant is notified in
writing to the contrary and provided with the basis for that decision.
The FDIC may remove the application from expedited processing for any
of the reasons set forth in Sec. 303.11(c)(2) of this part. Absent
such removal, an application processed under expedited processing is
deemed approved 45 days after receipt of a substantially complete
application by the FDIC, or on such earlier date authorized by the FDIC
in writing.
* * * * *
4. In Sec. 303.184, revise paragraph (b)(1) to read as follows:
Sec. 303.184 Moving an insured branch of a foreign bank.
* * * * *
(b) Processing--(1) Expedited processing for eligible insured
branches. An application filed by an eligible insured branch as defined
in Sec. 303.181(c) of this part will be acknowledged in writing by the
FDIC and will receive expedited processing if the applicant is
proposing to move within the same state, unless the applicant is
notified to the contrary and provided with the basis for that decision.
The FDIC may remove an application from expedited processing for any of
the reasons set forth in Sec. 303.11(c)(2) of this part. Absent such
removal, an application processed under expedited processing will be
deemed approved on the latest of the following:
(i) The 21st day after the FDIC's receipt of a substantially
complete application; or
(ii) The 5th day after expiration of the comment period described
in paragraph (c) of this section.
* * * * *
5. In Sec. 303.186, revise the title and paragraphs (a)(1) to read
as follows:
Sec. 303.186 Exemptions from insurance requirements for a state
branch of a foreign bank.
(a) Filing procedures--(1) Where to file. An application by a
foreign bank for consent to operate as a noninsured state branch,
as
permitted by Sec. 347.215(b) of this chapter, shall be submitted
in
writing to the appropriate FDIC office.
* * * * *
6. In Sec. 303.187, revise the title and paragraphs (a)(1),
(a)(2)(iv) and (b)(1) to read as follows:
Sec. 303.187 Approval for an insured state branch of a foreign bank
to conduct activities not permissible for federal branches.
(a) Filing procedures--(1) Where to file. An application by an
insured state branch seeking approval to conduct activities not
permissible for a federal branch, as required by Sec. 347.212(a)
of
this chapter, shall be submitted in writing to the appropriate FDIC
office.
(2) * * *
(iv) A statement by the applicant of whether it is in compliance
with Sec. Sec. 347.209 and 347.210 of this chapter;
* * * * *
(b) Divestiture or cessation--(1) Where to file. Divestiture plans
necessitated by a change in law or other authority, as required by
Sec. 347.212(e) of this chapter, shall be submitted in writing to the
appropriate FDIC office.
* * * * *
[[Page 43073]]
PART 325--CAPITAL MAINTENANCE
7. The authority citation for part 325 continues to read as
follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819 (Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat.
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat.
2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12
U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended
by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).
8. In Sec. 325.103, revise paragraph (c) to read as follows:
Sec. 325.103 Capital measures and capital category definitions.
* * * * *
(c) Capital categories for insured branches of foreign banks. For
purposes of the provisions of section 38 and this subpart, an insured
branch of a foreign bank shall be deemed to be:
(1) Well capitalized if the insured branch:
(i) Maintains the pledge of assets required under Sec. 347.209 of
this chapter; and
(ii) Maintains the eligible assets prescribed under Sec. 347.210
of this chapter at 108 percent of the insured branch's daily third-
party liabilities; and
(iii) Has not received written notification from:
(A) The OCC to increase its capital equivalency deposit pursuant to
12 CFR 28.15(b), or to comply with asset maintenance requirements
pursuant to 12 CFR 28.20; or
(B) The FDIC to pledge additional assets pursuant to Sec. 347.209
of this chapter or to maintain a higher ratio of eligible assets
pursuant to Sec. 347.210 of this chapter.
(2) Adequately capitalized if the insured branch:
(i) Maintains the pledge of assets required under Sec. 347.209 of
this chapter; and
(ii) Maintains the eligible assets prescribed under Sec. 347.210
of this chapter at 106 percent of the insured branch's daily third-
party liabilities; and
(iii) Does not meet the definition of a well capitalized insured
branch.
(3) Undercapitalized if the insured branch:
(i) Fails to maintain the pledge of assets required under Sec.
347.209 of this chapter; or
(ii) Fails to maintain the eligible assets prescribed under Sec.
347.210 of this chapter at 106 percent or more of the insured branch's
daily third-party liabilities.
(4) Significantly undercapitalized if it fails to maintain the
eligible assets prescribed under Sec. 347.210 of this chapter at 104
percent of the insured branch's daily third-party liabilities.
(5) Critically undercapitalized if it fails to maintain the
eligible assets prescribed under Sec. 347.210 of this chapter at 102
percent or more of the insured branch's daily third-party liabilities.
* * * * *
PART 327--ASSESSMENTS
9. The authority citation for part 327 continues to read as
follows:
Authority: 12 U.S.C. 1441, 1441b, 1813, 1815, 1817-1819; Pub. L.
104-208, 110 Stat. 3009-479 (12 U.S.C. 1821).
10. In Sec. 327.4, revise paragraphs (a)(1)(i)(B)(1),
(a)(1)(i)(B)(2), (a)(1)(ii)(B)(1), and (a)(1)(ii)(B)(2) to read as
follows:
Sec. 327.4 Annual assessment rate.
(a) * * *
(1) * * *
(i) * * *
(B) * * *
(1) Maintains the pledge of assets required under Sec. 347.209 of
this chapter; and
(2) Maintains the eligible assets prescribed under Sec. 347.210 of
this chapter at 108 percent of the insured branch's daily third-party
liabilities.
(ii) * * *
(B) * * *
(1) Maintains the pledge of assets required under Sec. 347.209 of
this chapter; and
(2) Maintains the eligible assets prescribed under Sec. 347.210 of
this chapter at 106 percent of the insured branch's daily third-party
liabilities; and
* * * * *
11. Revise part 347 to read as follows:
PART 347--INTERNATIONAL BANKING
Subpart A--Foreign Banking and Investment by Insured State Nonmember
Banks
Sec.
347.101 Authority, purpose, and scope.
347.102 Definitions.
347.103 Effect of state law on actions taken under this subpart.
347.104 Insured state nonmember bank investment in foreign
organizations.
347.105 Permissible financial activities outside the United States.
347.106 Going concerns.
347.107 Joint ventures.
347.108 Portfolio investments.
347.109 Limitations on indirect investments in nonfinancial
organizations.
347.110 Affiliate holdings.
347.111 Underwriting and dealing limits applicable to foreign
organizations held by insured state nonmember banks.
347.112 Restrictions applicable to foreign organizations that act
as
futures commission merchants.
347.113 Restrictions applicable to activities by a foreign
organization in the United States.
347.114 Extensions of credit to foreign organizations held by
insured state nonmember banks; shares of foreign organizations held
in connection with debts previously contracted.
347.115 Permissible activities for a foreign branch of an insured
state nonmember bank.
347.116 Recordkeeping and supervision of the foreign activities of
insured state nonmember banks.
347.117 General consent.
347.118 Expedited processing.
347.119 Specific consent.
347.120 Computation of investment amounts.
347.121 Requirements for insured state nonmember bank to close a
foreign branch.
347.122 Limitations applicable to the authority provided in this
subpart.
Subpart B--Foreign Banks
347.201 Authority, purpose, and scope.
347.202 Definitions.
347.203 Deposit insurance required for all branches of foreign banks
engaged in domestic retail deposit activity in the same state.
347.204 Commitment to be examined and provide information.
347.205 Record maintenance.
347.206 Domestic retail deposit activity requiring deposit insurance
by U.S. branch of a foreign bank.
347.207 Disclosure of supervisory information to foreign
supervisors.
347.208 Assessment base deductions by insured branch.
347.209 Pledge of assets.
347.210 Asset maintenance.
347.211 Examination of branches of foreign banks.
347.212 FDIC approval to conduct activities that are not permissible
for federal branches.
347.213 Establishment or operation of noninsured foreign branch.
347.214 Branch established under section 5 of the International
Banking Act.
347.215 Exemptions from deposit insurance requirement.
347.216 Depositor notification.
Subpart C--International Lending
347.301 Purpose, authority, and scope.
347.302 Definitions.
347.303 Allocated transfer risk reserve.
347.304 Accounting for fees on international loans.
347.305 Reporting and disclosure of international assets.
Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103,
3104, 3105, 3108, 3109; Title IX, Pub. L. 98-181, 97 Stat. 1153.
[[Page 43074]]
Subpart A--Foreign Banking and Investment by Insured State
Nonmember Banks
Sec. 347.101 Authority, purpose, and scope.
(a) This subpart is issued pursuant to section 18(d) and (l) of
the
Federal Deposit Insurance Act (12 U.S.C. 1828(d), 1828(l)).
(b) The rules in subpart A address the FDIC's requirements for
insured state nonmember bank investments in foreign organizations,
permissible foreign financial activities, loans or extensions of credit
to or for the account of foreign organizations, and the FDIC's
recordkeeping, supervision, and approval requirements. The rules also
address the permissible activities for foreign branches of insured
state nonmember banks, as well as the FDIC's requirements for
establishing, operating, relocating and closing of branches in foreign
countries.
Sec. 347.102 Definitions.
For the purposes of this subpart:
(a) An affiliate of an insured state nonmember bank means:
(1) Any entity of which the insured state nonmember bank is a
direct or indirect subsidiary or which otherwise controls the insured
state nonmember bank;
(2) Any organization which is a direct or indirect subsidiary of
such entity or which is otherwise controlled by such entity; or
(3) Any other organization that is a direct or indirect subsidiary
of the insured state nonmember bank or is otherwise controlled by the
insured state nonmember bank.
(b) Control means the ability to control in any manner the election
of a majority of an organization's directors or trustees; or the
ability to exercise a controlling influence over the management and
policies of an organization. An insured state nonmember bank is deemed
to control an organization of which it is a general partner or its
affiliate is a general partner.
(c) Domestic means United States.
(d) Eligible insured state nonmember bank means an eligible
depository institution as defined in Sec. 303.2(r) of this chapter.
(e) Equity interest means any ownership interest or rights in an
organization, whether through an equity security, contribution to
capital, general or limited partnership interest, debt or warrants
convertible into ownership interests or rights, loans providing profit
participation, binding commitments to acquire any such items, or some
other form of business transaction.
(f) Equity security means voting or nonvoting shares, stock,
investment contracts, or other interests representing ownership or
participation in a company or similar enterprise, as well as any
instrument convertible to any such interest at the option of the holder
without payment of substantial additional consideration.
(g) FRB means the Board of Governors of the Federal Reserve System.
(h) Foreign bank means an organization that is organized under the
laws of a foreign country, a territory of the United States, Puerto
Rico, Guam, American Samoa, or the Virgin Islands that:
(1) Is recognized as a bank by the bank supervisory or monetary
authority of the country of its organization or the country in which
its principal banking operations are located;
(2) Receives deposits to a substantial extent in the regular course
of its business; and
(3) Has the power to accept demand deposits.
(i) Foreign banking organization means a foreign organization that
is formed for the sole purpose of either holding shares of a foreign
bank or performing nominee, fiduciary, or other banking services
incidental to the activities of a foreign branch or foreign bank
affiliate of the insured state nonmember bank.
(j) Foreign branch means an office or place of business located
outside the United States, its territories, Puerto Rico, Guam, American
Samoa, the Trust Territory of the Pacific Islands, or the Virgin
Islands, at which banking operations are conducted, but does not
include a representative office.
(k) Foreign country means any country other than the United States
and includes any territory, dependency, or possession of any such
country or of the United States.
(l) Foreign organization means an organization that is organized
under the laws of a foreign country.
(m) Insured state nonmember bank or bank means a state bank, as
defined by section 3(a)(2) of the Federal Deposit Insurance Act (12
U.S.C. 1813(a)(2)), whose deposits are insured by the FDIC and that is
not a member of the Federal Reserve System.
(n) Indirectly means investments held or activities conducted by a
subsidiary of an organization.
(o) Investment grade means a security that is rated in one of the
four highest categories by:
(1) Two or more NRSROs; or
(2) One NRSRO if the security is rated by only one NRSRO.
(p) Loan or extension of credit means all direct and indirect
advances of funds to a person, government, or entity made on the basis
of any obligation of that person, government, or entity to repay funds.
(q) Organization or entity means a corporation, partnership,
association, bank, or other similar entity.
(r) NRSRO means a nationally recognized statistical rating
organization as designated by the Securities and Exchange Commission.
(s) Representative office means an office that engages solely in
representative functions such as soliciting new business for its home
office or acting as liaison between the home office and local
customers, but which has no authority to make business or contracting
decisions other than those relating to the personnel and premises of
the representative office.
(t) Subsidiary means any organization more than 50 percent of the
voting equity interests of which are directly or indirectly held by
another organization.
(u) Tier 1 capital means Tier 1 capital as defined in section 325.2
of this chapter.
(v) Well capitalized means well capitalized as defined in section
325.103 of this chapter.
Sec. 347.103 Effect of state law on actions taken under this subpart.
A bank may acquire and retain equity interests in a foreign
organization or establish a foreign branch, subject to the requirements
of this subpart, if it is authorized to do so by the law of the state
in which the bank is chartered.
Sec. 347.104 Insured state nonmember bank investments in foreign
organizations.
(a) Investment in foreign banks or foreign banking organizations.
A
bank may directly or indirectly acquire and retain equity interests
in
a foreign bank or foreign banking organization.
(b) Investment in other foreign organizations. A bank may only:
(1) acquire and retain equity interests in foreign organizations,
other than foreign banks or foreign banking organizations in amounts of
50 percent or less of the foreign organization's voting equity
interests, if the equity interest is held through a domestic or foreign
subsidiary; and
(2) the bank meets its minimum capital requirements.
Sec. 347.105 Permissible financial activities outside the United
States.
(a) Limitation on authorized activities. A bank may not directly
or
indirectly acquire or hold equity interests in a foreign organization
that will result in the bank and its affiliates:
[[Page 43075]]
(1) Holding more than 50 percent, in the aggregate, of the voting
equity interest in such foreign organization; or
(2) Controlling such foreign organization, unless the activities of
a foreign organization are limited to those authorized under paragraph
(b) of this section.
(b) Authorized activities. The following financial activities are
authorized outside the United States:
(1) Commercial and other banking activities.
(2) Financing, including commercial financing, consumer financing,
mortgage banking, and factoring, subject to compliance with any
attendant restrictions contained in 12 CFR 225.28(b).
(3) Leasing real or personal property, acting as agent, broker or
advisor in leasing real or personal property, subject to compliance
with any attendant restrictions in 12 CFR 225.28(b).
(4) Acting as a fiduciary, subject to compliance with any attendant
restrictions in 12 CFR 225.28(b).
(5) Underwriting credit life, credit accident and credit health
insurance.
(6) Performing services for other direct or indirect operations of
a domestic banking organization, including representative functions,
sale of long-term debt, name saving, liquidating assets acquired to
prevent loss on a debt previously contracted in good faith, and other
activities that are permissible for a bank holding company under
sections 4(a)(2)(A) and 4(c)(1)(C) of the Bank Holding Company Act.
(7) Holding the premises of a branch of an Edge corporation or
insured state nonmember bank or the premises of a direct or indirect
subsidiary, or holding or leasing the residence of an officer or
employee of a branch or a subsidiary.
(8) Providing investment, financial, or economic services, subject
to compliance with any attendant restrictions in 12 CFR 225.28(b).
(9) General insurance agency and brokerage.
(10) Data processing.
(11) Organizing, sponsoring, and managing a mutual fund if the
fund's shares are not sold or distributed in the United States or to
U.S. residents and the fund does not exercise management control over
the firms in which it invests.
(12) Performing management consulting services, provided that such
services when rendered with respect to the domestic market must be
restricted to the initial entry.
(13) Underwriting, distributing, and dealing in debt securities
outside the United States.
(14) With the prior approval of the FDIC under Sec. 347.120(d),
underwriting, distributing, and dealing in equity securities outside
the United States.
(15) Operating a travel agency in connection with financial
services offered outside the United States by the bank or others.
(16) Providing futures commission merchant services, subject to
compliance with any attendant restrictions in 12 CFR 225.28(b).
(17) Engaging in activities that the FRB has determined in
Regulation Y (12 CFR 225.28(b)) are closely related to banking under
section 4(c)(8) of the Bank Holding Company Act.
(18) Engaging in other activities, with the prior approval of the
FDIC.
(c) Limitation on activities authorized under Regulation Y. If a
bank relies solely on the cross-reference to Regulation Y contained in
paragraph (b)(17) of this section as authority to engage in an
activity, compliance with any attendant restrictions on the activity
that are contained in 12 CFR 225.28(b) is required.
(d) Approval of other activities. Activities that are not
specifically authorized by this section, but that are authorized by 12
CFR 211.10 or FRB interpretations of activities authorized by that
section, may be authorized by specific consent of the FDIC on an
individual basis and upon such terms and conditions as the FDIC may
consider appropriate. Activities that will be engaged in as principal
(defined by reference to Sec. 362.1(b) of this chapter), and that are
not authorized by 12 CFR 211.10 or FRB interpretations of activities
authorized under that section, must satisfy the requirements of part
362 of this chapter and be approved by the FDIC under this part as well
as part 362 of this chapter.
Sec. 347.106 Going concerns.
Going concerns. If a bank acquires an equity interest in a foreign
organization that is a going concern, no more than 5 percent of either
the consolidated assets or revenues of the foreign organization may
be
attributable to activities that are not permissible under Sec.
347.105(b).
Sec. 347.107 Joint ventures.
(a) Joint ventures. If a bank, directly or indirectly, acquires
or
holds an equity interest in a foreign organization that is a joint
venture, and the bank or its affiliates do not control the foreign
organization, no more than 10 percent of either the consolidated
assets
or revenues of the foreign organization may be attributable to
activities that are not permissible under Sec. 347.105(b).
(b) Joint venture defined. For purposes of this section, the term
``joint venture'' means any organization in which 20 percent or more
but not in excess of 50 percent of the voting equity interests, in the
aggregate, are directly or indirectly held by a bank or its affiliates.
Sec. 347.108 Portfolio investments.
(a) Portfolio investments. If a bank, directly or indirectly,
acquires or holds an equity interest in a foreign organization as
a
portfolio investment and the foreign organization is not controlled,
directly or indirectly, by the bank or its affiliates:
(1) No more than 10 percent of either the consolidated assets or
revenues of the foreign organization may be attributable to activities
that are not permissible under Sec. 347.105(b); and
(2) Any loans or extensions of credit made by the bank and its
affiliates to the foreign organization must be on substantially the
same terms, including interest rates and collateral, as those
prevailing at the same time for comparable transactions between the
bank or its affiliates and nonaffiliated organizations.
(b) Portfolio investment defined. For purposes of this section, the
term ``portfolio investment'' means an investment in an organization in
which less than 20 percent of the voting equity interests, in the
aggregate, are directly or indirectly held by a bank or its affiliates.
Sec. 347.109 Limitations on indirect investments in nonfinancial
foreign organizations.
(a) A bank may, through a subsidiary authorized by Sec. 347.105
or
347.106, or an Edge corporation if also authorized by the FRB, acquire
and hold equity interests in foreign organizations that are not foreign
banks or foreign banking organizations and that engage generally
in
activities beyond those listed in Sec. 347.105(b), subject to the
following:
(1) The amount of the investment does not exceed 15 percent of the
bank's Tier 1 capital;
(2) The aggregate holding of voting equity interests of one foreign
organization by the bank and its affiliates must be less than:
(i) 20 percent of the foreign organization's voting equity
interests; and
(ii) 40 percent of the foreign organization's voting and nonvoting
equity interests;
(3) The bank or its affiliates must not otherwise control the
foreign organization; and
(4) Loans or extensions of credit made by the bank and its
affiliates to the foreign organization must be on substantially the
same terms, including interest rates and collateral, as those
prevailing at the same time for
[[Page 43076]]
comparable transactions between the bank or its affiliates and
nonaffiliated organizations.
(b) [Reserved]
Sec. 347.110 Affiliate holdings.
References in Sec. Sec. 347.107, 347.108, and 347.109 to equity
interests of foreign organizations held by an affiliate of a bank
include equity interests held in connection with an underwriting
or for
distribution or dealing by an affiliate permitted to do so by Sec.
362.8 or 362.18 of this chapter or section 4(c)(8) of the Bank Holding
Company Act (12 U.S.C. 1843(c)(8)).
Sec. 347.111 Underwriting and dealing limits applicable to foreign
organizations held by insured state nonmember banks.
A bank that holds an equity interest in one or more foreign
organizations which underwrite, deal, or distribute equity securities
outside the United States as authorized by section 347.105(b)(14)
is
subject to the following limitations:
(a) Underwriting commitment limits.
(1) The aggregate underwriting commitments by the foreign
organizations for the equity securities of a single entity, taken
together with underwriting commitments by any affiliate of the bank
under the authority of 12 CFR 211.10(b), may not exceed the lesser of
$60 million or 25 percent of the bank's Tier 1 capital, except as
otherwise provided in this paragraph.
(2) Underwriting commitments in excess of this limit must be
either:
(i) Covered by binding commitments from subunderwriters or
purchasers; or
(ii) Deducted from the capital of the bank, with at least 50
percent of the deduction being taken from Tier 1 capital, with the bank
remaining well capitalized after this deduction.
(b) Distribution and dealing limits. The equity securities of any
single entity held for distribution or dealing by the foreign
organizations, taken together with equity securities held for
distribution or dealing by any affiliate of the bank under the
authority of 12 CFR 211.10:
(1) May not exceed the lesser of $30 million or 5 percent of the
bank's Tier 1 capital, subject to the following:
(i) Any equity securities acquired pursuant to any underwriting
commitment extending up to 90 days after the payment date for the
underwriting may be excluded from this limit;
(ii) Any equity securities of the entity held under the authority
of Sec. Sec. 347.105 through 347.109 or 12 CFR 211.10 for purposes
other than distribution or dealing must be included in this limit; and
(iii) Up to 75 percent of the position in an equity security may be
reduced by netting long and short positions in the same security, or
offsetting cash positions against derivative instruments referenced to
the same security so long as the derivatives are part of a prudent
hedging strategy; and
(2) Must be included in calculating the general consent limits
under Sec. 347.117(b)(3) if the bank relies on the general consent
provisions as authority to acquire equity interests of the same foreign
entity for investment or trading.
(c) Additional distribution and dealing limits. With the exception
of equity securities acquired pursuant to any underwriting commitment
extending up to 90 days after the payment date for the underwriting,
equity securities of a single entity held for distribution or dealing
by all affiliates of the bank (this includes shares held in connection
with an underwriting or for distribution or dealing by an affiliate
permitted to do so by Sec. 362.8 or 362.18 of this chapter or section
4(c)(8) of the Bank Holding Company Act), combined with any equity
interests held for investment or trading purposes by all affiliates of
the bank, must conform to the limits of Sec. 347.105 through 347.109.
(d) Combined limits. The aggregate of the following may not exceed
25 percent of the bank's Tier 1 capital:
(1) All equity interests of foreign organizations held for
investment or trading under Sec. 347.109 or by an affiliate of the
bank under the corresponding paragraph of 12 CFR 211.10.
(2) All underwriting commitments under paragraph (a) of this
section, taken together with all underwriting commitments by any
affiliate of the bank under the authority of 12 CFR 211.10, after
excluding the amount of any underwriting commitment:
(i) Covered by binding commitments from subunderwriters or
purchasers under paragraph (a)(1) of this section or the comparable
provision of 12 CFR 211.10; or
(ii) Already deducted from the bank's capital under paragraph
(a)(2) of this section, or the appropriate affiliate's capital under
the comparable provisions of 12 CFR 211.10; and
(3) All equity securities held for distribution or dealing under
paragraph (b) of this section, taken together with all equity
securities held for distribution or dealing by any affiliate of the
bank under the authority of 12 CFR 211.10, after reducing by up to 75
percent the position in any equity security by netting and offset, as
permitted by paragraph (b)(1)(iii) of this section or the comparable
provision of 12 CFR 211.10.
Sec. 347.112 Restrictions applicable to foreign organizations that
act as futures commission merchants.
(a) If a bank acquires or retains an equity interest in a foreign
organization that acts as a futures commission merchant pursuant
to
Sec. 347.105(b)(16), the foreign organization may not be a member
of
an exchange or clearing association that requires members to guarantee
or otherwise contract to cover losses suffered by other members unless
the:
(1) foreign organization's liability does not exceed two percent of
the bank's Tier 1 capital, or
(2) bank has obtained the prior approval of the FDIC under Sec.
347.120(d).
(b) [Reserved]
Sec. 347.113 Restrictions applicable to activities by a foreign
organization in the United States.
(a) A bank, acting under the authority provided in this subpart,
may not directly or indirectly hold:
(1) equity interests of any foreign organization that engages in
the general business of buying or selling goods, wares, merchandise, or
commodities in the United States; or
(2) more than 5 percent of the equity interests of any foreign
organization that engages in activities in the United States unless any
activities in which the foreign organization engages in the United
States are incidental to its international or foreign business.
(b) For purposes of this section:
(1) A foreign organization is not engaged in any business or
activities in the United States unless it maintains an office in the
United States other than a representative office.
(2) The following activities are incidental to international or
foreign business:
(i) Activities that are permissible for an Edge corporation in the
United States under 12 CFR 211.6: or
(ii) Other activities approved by the FDIC.
Sec. 347.114 Extensions of credit to foreign organizations held by
insured state nonmember banks; shares of foreign organizations held
in
connection with debts previously contracted.
(a) Loans or extensions of credit. A bank that directly or
indirectly holds equity interests in a foreign organization pursuant
to
the authority of this subpart may make loans or extensions of credit
to
or for the accounts of the organization without regard to the
provisions of section 18(j) of the FDI Act (12 U.S.C. 1828(j)).
(b) Debts previously contracted. Equity interests acquired to
prevent a
[[Page 43077]]
loss upon a debt previously contracted in good faith are not subject
to
the limitations or procedures of this subpart; however, they must
be
disposed of promptly but in no event later than two years after their
acquisition, unless the FDIC authorizes retention for a longer period.
Sec. 347.115 Permissible activities for a foreign branch of an
insured state nonmember bank.
In addition to its general banking powers and if permitted by the
law of the state in which the bank is chartered, a foreign branch
of a
bank may conduct the following activities to the extent that they
are
consistent with banking practices in a foreign country where the
bank
maintains a branch:
(a) Guarantees. Guarantee debts, or otherwise agree to make
payments on the occurrence of readily ascertainable events including,
without limitation, nonpayment of taxes, rentals, customs duties, or
costs of transport and loss or nonconformance of shipping documents,
if:
(1) The guarantee or agreement specifies a maximum monetary
liability; and
(2) To the extent the guarantee or agreement is not subject to a
separate amount limit under state or federal law, the amount of the
guarantee or agreement is combined with loans and other obligations for
purposes of applying any legal lending limits.
(b) Government obligations. Engage in the following types of
transactions with respect to the obligations of foreign countries, so
long as aggregate investments, securities held in connection with
distribution and dealing, and underwriting commitments do not exceed
ten percent of the bank's Tier 1 capital:
(1) Underwrite, distribute and deal, invest in, or trade
obligations of:
(i) The national government of the country in which the branch is
located or its political subdivisions; and
(ii) An agency or instrumentality of such national government if
supported by the taxing authority, guarantee, or full faith and credit
of the national government.
(2) Underwrite, distribute and deal, invest in or trade obligations
\11\ rated as investment grade of:
---------------------------------------------------------------------------
\11\ If the obligation is an equity interest, it must be held
through a subsidiary of the foreign branch and the insured state
nonmember bank must meet its minimum capital requirements.
---------------------------------------------------------------------------
(i) The national government of any foreign country or its political
subdivisions, to the extent permissible under the law of the issuing
foreign country; and
(ii) An agency or instrumentality of the national government of any
foreign country to the extent permissible under the law of the issuing
foreign country, if supported by the taxing authority, guarantee, or
full faith and credit of the national government.
(c) Local investments.
(1) Acquire and hold local investments in:
(i) Equity securities of the central bank, clearing houses,
governmental entities, and government sponsored development banks of
the country in which the branch is located;
(ii) Other debt securities eligible to meet local reserve or
similar requirements; and
(iii) Shares of automated electronic payment networks, professional
societies, schools, and similar entities necessary to the business of
the branch.
(2) Aggregate local investments (other than those required by the
law of the foreign country or permissible under section 5136 of the
Revised Statutes (12 U.S.C. 24 (Seventh)) by all the bank's branches in
a single foreign country must not exceed 1 percent of the total
deposits in all the bank's branches in that country as reported in the
preceding year-end Report of Income and Condition (Call Report): \12\
---------------------------------------------------------------------------
\12\ If a branch has recently been acquired by the bank and the
branch was not previously required to file a Call Report, branch
deposits as of the acquisition date must be used.
---------------------------------------------------------------------------
(d) Insurance. Act as an insurance agent or broker.
(e) Employee benefits program. Pay to an employee of a branch, as
part of an employee benefits program, a greater rate of interest than
that paid to other depositors of the branch.
(f) Repurchase agreements. Engage in repurchase agreements
involving securities and commodities that are the functional
equivalents of extensions of credit.
(g) Other activities. Engage in other activities, with the prior
approval of the FDIC.
(h) Approval of other activities. Activities that are not
specifically authorized by this section, but that are authorized by 12
CFR 211.4 or FRB interpretations of activities authorized by that
section, may be authorized by specific consent of the FDIC on an
individual basis and upon such terms and conditions as the FDIC may
consider appropriate. Activities that will be engaged in as principal
(defined by reference to Sec. 362.1(b) of this chapter), and that are
not authorized by 12 CFR 211.4 or FRB interpretations of activities
authorized under that section, must satisfy the requirements of part
362 of this chapter and be approved by the FDIC under this part as well
as part 362 of this chapter.
Sec. 347.116 Recordkeeping and supervision of foreign activities
of
insured state nonmember banks.
(a) Records, controls and reports. A bank with any foreign branch,
any investment in a foreign organization of 20 percent or more of
the
organization's voting equity interests, or control of a foreign
organization must maintain a system of records, controls and reports
that, at minimum, provide for the following:
(1) Risk assets. To permit assessment of exposure to loss,
information furnished or available to the main office should be
sufficient to permit periodic and systematic appraisals of the quality
of risk assets, including loans and other extensions of credit.
Coverage should extend to a substantial proportion of the risk assets
in the branch or foreign organization, and include the status of all
large credit lines and of credits to customers also borrowing from
other offices or affiliates of the bank. Appropriate information on
risk assets may include:
(i) A recent financial statement of the borrower or obligee and
current information on the borrower's or obligee's financial condition;
(ii) Terms, conditions, and collateral;
(iii) Data on any guarantors;
(iv) Payment history; and
(v) Status of corrective measures employed.
(2) Liquidity. To enable assessment of local management's ability
to meet its obligations from available resources, reports should
identify the general sources and character of the deposits, borrowing,
and other funding sources employed in the branch or foreign
organization with special reference to their terms and volatility.
Information should be available on sources of liquidity--cash, balances
with banks, marketable securities, and repayment flows--such as will
reveal their accessibility in time and any risk elements involved.
(3) Contingencies. Data on the volume and nature of contingent
items such as loan commitments and guarantees or their equivalents that
permit analysis of potential risk exposure and liquidity requirements.
(4) Controls. Reports on the internal and external audits of the
branch or foreign organization in sufficient detail to permit
determination of conformance to auditing guidelines. Appropriate audit
reports may include coverage of:
(i) Verification and identification of entries on financial
statements;
[[Page 43078]]
(ii) Income and expense accounts, including descriptions of
significant chargeoffs and recoveries;
(iii) Operations and dual-control procedures and other internal
controls;
(iv) Conformance to head office guidelines on loans, deposits,
foreign exchange activities, accounting procedures in compliance with
applicable accounting standards, and discretionary authority of local
management;
(v) Compliance with local laws and regulations; and
(vi) Compliance with applicable U.S. laws and regulations.
(b) Availability of information to examiners; reports.
(1) Information about foreign branches or foreign organizations
must be made available to the FDIC by the bank for examination and
other supervisory purposes.
(2) The FDIC may from time to time require a bank to make and
submit such reports and information as may be necessary to implement
and enforce the provisions of this subpart, and the bank shall submit
an annual report of condition for each foreign branch pursuant to
instructions provided by the FDIC.
Sec. 347.117 General consent.
(a) General consent to establishment or relocation of foreign
branch. General consent of the FDIC is granted, subject to the written
notification requirement contained in section 303.182(a) and consistent
with the requirements of this subpart, for an:
(1) Eligible bank to establish a foreign branch conducting
activities authorized by section 347.115 of this section in any foreign
country in which:
(i) The bank already operates one or more foreign branches or
foreign bank subsidiaries;
(ii) The bank's holding company operates a foreign bank subsidiary;
or
(iii) An affiliated bank or Edge or Agreement corporation operates
one or more foreign branches or foreign bank subsidiaries.
(2) Insured state nonmember bank to relocate an existing foreign
branch within a foreign country.
(b) General consent to invest in a foreign organization. General
consent of the FDIC is granted, subject to the written notification
requirement contained in section 303.183(a) (unless no notification is
required because the investment is acquired for trading purposes) and
consistent with the requirements of this subpart, for an eligible bank
to make investments in foreign organizations, directly or indirectly,
if:
(1) The bank operates at least one foreign bank subsidiary or
foreign branch, an affiliated bank or Edge or Agreement corporation
operates at least one foreign bank subsidiary or foreign branch, or the
bank's holding company operates at least one foreign bank subsidiary;
(2) In any instance where the bank and its affiliates will hold 20
percent or more of the foreign organization's voting equity interests
or control the foreign organization, at least one bank has a foreign
bank subsidiary or foreign branch in the country where the foreign
organization will be located; \13\ and
---------------------------------------------------------------------------
\13\ A list of these countries can be obtained from the FDIC's
Internet Web Site at http://www.fdic.gov.
---------------------------------------------------------------------------
(3) The investment is within one of the following limits:
(i) The investment is acquired at net asset value from an
affiliate;
(ii) The investment is a reinvestment of cash dividends received
from the same foreign organization during the preceding 12 months; or
(iii) The total investment, directly or indirectly, in a single
foreign organization in any transaction or series of transactions
during a twelve-month period does not exceed 2 percent of the bank's
Tier 1 capital, and such investments in all foreign organizations in
the aggregate do not exceed:
(A) 5 percent of the bank's Tier 1 capital during a 12-month
period; and
(B) Up to an additional 5 percent of the bank's Tier 1 capital if
the investments are acquired for trading purposes.
Sec. 347.118 Expedited processing.
(a) Expedited processing of branch applications. An eligible bank
may establish a foreign branch conducting activities authorized by
Sec. 347.115 in an additional foreign country, after complying with
the expedited processing requirements contained in Sec. 303.182(b)
and
(c)(1), if any of the following are located in two or more foreign
countries:
(1) Foreign branches or foreign bank subsidiaries of the eligible
bank;
(2) Foreign branches or foreign bank subsidiaries of banks and Edge
or Agreement corporations affiliated with the eligible bank; and
(3) Foreign bank subsidiaries of the eligible bank's holding
company.
(b) Expedited processing of applications for investment in foreign
organizations. An investment that does not qualify for general consent
but is otherwise in conformity with the limits and requirements of this
subpart may be made 45 days after an eligible bank files a
substantially complete application with the FDIC in compliance with the
expedited processing requirements contained in Sec. 303.183(b) and
(c)(1), or within such earlier time as authorized by the FDIC.
Sec. 347.119 Specific consent.
General consent and expedited processing under this subpart do
not
apply in the following circumstances:
(a) Limitation on access to supervisory information in foreign
country.
(1) Applicable law or practice in the foreign country where the
foreign organization or foreign branch would be located would limit the
FDIC's access to information for supervisory purposes; and
(i) A bank would hold 20 percent or more of the voting equity
interests of a foreign organization or control such organization as a
result of a foreign investment; or
(ii) A bank would be establishing a foreign branch.
(b) World Heritage site. A foreign branch of a bank would be
located on a site on the World Heritage List or on the foreign
country's equivalent of the National Register of Historic Places, in
accordance with section 403 of the National Historic Preservation Act
Amendments of 1980 (16 U.S.C. 470a-2).
(c) Modification or suspension of general consent or expedited
processing. The FDIC at any time notifies the bank that the FDIC is
modifying or suspending its general consent or expedited processing
procedure.
(d) Specific consent. Direct or indirect investments in or
activities of foreign organizations by banks, the establishment of
foreign branches or issues regarding the types or amounts of activity
that can be engaged in by foreign branches, which are not authorized
under Sec. Sec. 347.117 or 347.118 require prior review and specific
consent of the FDIC.
Sec. 347.120 Computation of investment amounts.
In computing the amount that may be invested in any foreign
organization under Sec. Sec. 347.117 through 347.119, any investments
held by an affiliate of a bank must be included.
Sec. 347.121 Requirements for insured state nonmember bank to close
a
foreign branch.
A bank must comply with the written notification requirement
contained in Sec. 303.182(d) when it closes a foreign branch.
Sec. 347.122 Limitations applicable to the authority provided in
this
subpart.
The FDIC may impose such conditions on authority granted in this
[[Page 43079]]
subpart as it considers appropriate. If a bank is unable or fails
to
comply with the requirements of this subpart or any conditions imposed
by the FDIC regarding transactions under this subpart, the FDIC may
require termination of any activities or divestiture of investments
permitted under this subpart after giving the bank notice and a
reasonable opportunity to be heard on the matter.
Subpart B--Foreign Banks
Sec. 347.201 Authority, purpose, and scope.
(a) This subpart is issued pursuant to sections 5(c) and 10(b)(4)
of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1815(c)
and
1820(b)(4)) and sections 6, 7, and 15 of the International Banking
Act
of 1978 (IBA) (12 U.S.C. 3104, 3105, and 3109).
(b) This subpart implements the insured branch asset pledge and
examination commitment requirement for foreign banks in the FDI Act. It
also implements the deposit insurance, permissible activity, and cross-
border cooperation provisions of the IBA regarding the FDIC. Sections
347.203-347.211 apply to state and federal branches whose deposits are
insured. Sections 347.204 and 347.207 are applicable to depository
institution subsidiaries of a foreign bank. Section 347.212 applies to
insured state branches and Sec. Sec. 347.213 through 347.216 apply to
state branches whose deposits are not insured by the FDIC.
Sec. 347.202 Definitions.
For the purposes of this subpart:
(a) Affiliate means any entity that controls, is controlled by, or
is under common control with another entity. An entity shall be deemed
to ``control'' another entity if the entity directly or indirectly
owns, controls, or has the power to vote 25 percent or more of any
class of voting securities of the other entity or controls in any
manner the election of a majority of the directors or trustees of the
other entity.
(b) Branch means any office or place of business of a foreign bank
located in any state of the United States at which deposits are
received. The term does not include any office or place of business
deemed by the state licensing authority or the Comptroller of the
Currency to be an agency.
(c) Deposit has the same meaning as that term in section 3(l) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(l)).
(d) Depository means any insured state bank, national bank, or
insured branch.
(e) Domestic retail deposit activity means the acceptance by a
federal or state branch of any initial deposit of less than $100,000.
(f) Federal branch means a branch of a foreign bank established and
operating under the provisions of section 4 of the International
Banking Act of 1978 (12 U.S.C. 3102).
(g) Foreign bank means any company organized under the laws of a
foreign country, any territory of the United States, Puerto Rico, Guam,
American Samoa, the Northern Mariana Islands, or the Virgin Islands,
which engages in the business of banking. The term includes foreign
commercial banks, foreign merchant banks and other foreign institutions
that engage in banking activities usual in connection with the business
of banking in the countries where such foreign institutions are
organized and operating. Except as otherwise specifically provided by
the Federal Deposit Insurance Corporation, banks organized under the
laws of a foreign country, any territory of the United States, Puerto
Rico, Guam, American Samoa, the Northern Mariana Islands, or the Virgin
Islands which are insured banks other than by reason of having an
insured branch are not considered to be foreign banks for purposes of
Sec. Sec. 347.204, 347.205, 347.209, and 347.210.
(h) Foreign business means any entity including, but not limited
to, a corporation, partnership, sole proprietorship, association,
foundation or trust, which is organized under the laws of a foreign
country or any United States entity which is owned or controlled by an
entity which is organized under the laws of a foreign country or a
foreign national.
(i) Foreign country means any country other than the United States
and includes any colony, dependency or possession of any such country.
(j) FRB means the Board of Governors of the Federal Reserve System.
(k) Home state of a foreign bank means the state so determined by
the election of the foreign bank, or in default of such election, by
the Board of Governors of the Federal Reserve System.
(l) Immediate family member of a natural person means the spouse,
father, mother, brother, sister, son or daughter of that natural
person.
(m) Initial deposit means the first deposit transaction between a
depositor and the branch where there is no existing deposit
relationship. The initial deposit may be placed into different deposit
accounts or into different kinds of deposit accounts, such as demand,
savings or time. Deposit accounts that are held by a depositor in the
same right and capacity may be added together for the purposes of
determining the dollar amount of the initial deposit.
(n) Insured bank means any bank, including a foreign bank with an
insured branch, the deposits of which are insured in accordance with
the provisions of the Federal Deposit Insurance Act.
(o) Insured branch means a branch of a foreign bank any deposits of
which branch are insured in accordance with the provisions of the
Federal Deposit Insurance Act.
(p) Large United States business means any entity including, but
not limited to, a corporation, partnership, sole proprietorship,
association, foundation or trust which is organized under the laws of
the United States or any state thereof, and:
(1) Whose securities are registered on a national securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotation System; or
(2) Has annual gross revenues in excess of $1,000,000 for the
fiscal year immediately preceding the initial deposit.
(q) A majority owned subsidiary means a company the voting stock of
which is more than 50 percent owned or controlled by another company.
(r) Noninsured branch means a branch of a foreign bank deposits of
which branch are not insured in accordance with the provisions of the
Federal Deposit Insurance Act.
(s) OCC means the Office of the Comptroller of the Currency.
(t) Person means an individual, bank, corporation, partnership,
trust, association, foundation, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, or any other form of
entity.
(u) Significant risk to the deposit insurance fund shall be
understood to be present whenever there is a high probability that the
Bank Insurance Fund administered by the FDIC may suffer a loss.
(v) State means any state of the United States or the District of
Columbia.
(w) State branch means a branch of a foreign bank established and
operating under the laws of any state.
(x) Wholly owned subsidiary means a company the voting stock of
which is 100 percent owned or controlled by another company except for
a nominal number of directors' shares.
Sec. 347.203 Deposit insurance required for all branches of foreign
banks engaged in domestic retail deposit activity in the same state.
The FDIC will not insure deposits in any branch of a foreign bank
unless the
[[Page 43080]]
foreign bank agrees that every branch established or operated by
the
foreign bank in the same state that engages in domestic retail deposit
activity will be an insured branch.
Sec. 347.204 Commitment to be examined and provide information.
(a) A foreign bank that applies for insurance for a U.S. branch
or
depository institution subsidiary shall provide a written commitment
(including a consent to U.S. court jurisdiction and designation of
agent for service of process, acceptable to the FDIC) to the following
terms:
(1)(i) The FDIC will be permitted to examine the foreign bank and
its affiliates located outside of the United States to determine:
(A) The relationship between the U.S. branch or depository
institution subsidiary and its affiliates; and
(B) The effect of such relationship on such U.S. branch or
depository institution subsidiary.
(ii) The FDIC will be provided with any information about the
foreign bank and its affiliates located outside of the United States
that the FDIC requests to determine:
(A) The relationship between the U.S. branch or depository
institution subsidiary and its affiliates; and
(B) The effect of such relationship on such U.S. branch or
depository institution subsidiary.
(2) The FDIC will be allowed to examine the affairs of any office,
agency, branch or affiliate of the foreign bank located in the United
States and will be provided any information requested to determine:
(i) The relationship between the U.S. branch or depository
institution subsidiary and such offices, agencies, branches or
affiliates; and
(ii) The effect of such relationship on such U.S. branch or
depository institution subsidiary.
(3) The FDIC will not process a deposit insurance application for
any U.S. branch or depository institution subsidiary if the foreign
bank fails to provide the written commitment required by paragraph (a)
of this section.
(b)(1) The FDIC may waive compliance with the examination
requirement contained in paragraph (a)(1)(i) of this section if the FRB
has determined that the foreign bank is subject to comprehensive
consolidated supervision, as required by section 7 of the International
Banking Act (12 U.S.C. 3105).
(2) The FDIC may waive the commitment requirements in paragraph (a)
of this section, or any portion thereof, if the foreign bank has made
an equivalent commitment to another Federal banking agency which
provides the FDIC the same rights and privileges that the FDIC would
have if it obtained such commitment on its own behalf. If such waiver
is granted, however, the foreign bank shall provide the FDIC with the
commitments required by this section before terminating any commitments
provided to any other Federal banking agency that provide a basis for
such waiver.
(3) The FDIC will consider the existence and extent of any
prohibition or restrictions on its ability to utilize the commitments
required by paragraph (a)(1)(i) and (ii) of this section in determining
whether to grant or deny a deposit insurance application for the U.S.
branch or depository institution subsidiary.
(c) The commitment to permit examination (including a consent to
U.S. court jurisdiction and designation of agent for service of
process) shall be signed by an officer of the foreign bank who has been
so authorized by the foreign bank's board of directors and in all
instances will be executed in a manner acceptable to the FDIC and shall
be included with the foreign bank's application for insurance. Any of
the documents that are not in English shall be accompanied by an
English translation.
Sec. 347.205 Record maintenance.
The records of each insured branch shall be kept as though it were
a separate entity, with its assets and liabilities separate from
the
other operations of the head office, other branches or agencies of
the
foreign bank and its subsidiaries or affiliates. Each insured branch
must keep a set of accounts and records in the words and figures
of the
English language that accurately reflects the business transactions
of
the insured branch on a daily basis. A foreign bank that has more
than
one insured branch in a state may treat such insured branches as
one
entity for record-keeping purposes and may designate one branch to
maintain records for all the branches in the state.
Sec. 347.206 Domestic retail deposit activity requiring deposit
insurance by U.S. branch of a foreign bank.
(a) Domestic retail deposit activity. To initiate or conduct
domestic retail deposit activity requiring deposit insurance protection
in any state after December 19, 1991, a foreign bank must establish
one
or more insured U.S. bank subsidiaries for that purpose.
(b) Exception. Paragraph (a) of this section does not apply to any
bank organized under the laws of any territory of the United States,
Puerto Rico, Guam, American Samoa, or the Virgin Islands, the deposits
of which are insured by the FDIC pursuant to the Federal Deposit
Insurance Act.
(c) Grandfathered insured branches. Domestic retail deposit
accounts with balances of less than $100,000 that require deposit
insurance protection may be accepted or maintained in an insured branch
of a foreign bank only if such branch was an insured branch on December
19, 1991.
(d) Change in ownership of grandfathered insured branch. The
grandfathered status of an insured branch may not be transferred,
except in certain merger and acquisition transactions that the FDIC
determines are not designed, or motivated by the desire, to avoid
compliance with section 6(d)(1) of the International Banking Act (12
U.S.C. 3104(d)(1)).
Sec. 347.207 Disclosure of supervisory information to foreign
supervisors.
(a) Disclosure by the FDIC. The FDIC may disclose information
obtained in the course of exercising its supervisory or examination
authority to a foreign bank regulatory or supervisory authority,
if the
FDIC determines that disclosure is appropriate for bank supervisory
or
regulatory purposes and will not prejudice the interests of the United
States.
(b) Confidentiality. Before making any disclosure of information
pursuant to paragraph (a) of this section, the FDIC will obtain, to the
extent necessary, the agreement of the foreign bank regulatory or
supervisory authority to maintain the confidentiality of such
information to the extent possible under applicable law. The disclosure
or transfer of information to a foreign bank regulatory or supervisory
authority under this section will not waive any privilege applicable to
the information that is disclosed or transferred.
Sec. 347.208 Assessment base deductions by insured branch.
Deposits in an insured branch to the credit of the foreign bank
or
any of its offices, branches, agencies, or wholly owned subsidiaries
may be deducted from the assessment base of the insured branch.
Sec. 347.209 Pledge of assets.
(a) Purpose. A foreign bank that has an insured branch must pledge
assets for the benefit of the FDIC or its designee(s). Whenever the
FDIC is obligated under section 11(f) of the Federal Deposit Insurance
Act (12 U.S.C. 1821(f)) to pay the insured deposits of an insured
branch, the assets
[[Page 43081]]
pledged under this section must become the property of the FDIC
and be
used to the extent necessary to protect the deposit insurance fund.
(b) Amount of assets to be pledged.
(1) For a newly insured branch, a foreign bank must pledge assets
equal to at least 5 percent of the liabilities of the branch, based on
the branch's projection of its liabilities at the end of the first
three years of its operation. For all other insured branches, a foreign
bank must pledge assets equal to the appropriate percentage applicable
to the insured branch, as determined by reference to the risk-based
assessment schedule contained in this paragraph, of the insured
branch's average liabilities for the last 30 days of the most recent
calendar quarter.\14\
---------------------------------------------------------------------------
\14\ This average must be computed by using the sum of the close
of business figures for the 30 calendar days of the most recent
calendar quarter, ending with and including the last day of the
calendar quarter, divided by 30. For days on which the branch is
closed, however, balances from the previous business day are to be
used in determining its average liabilities. The insured branch may
exclude liabilities to other offices, agencies, branches, and wholly
owned subsidiaries of the foreign bank. The value of the pledged
assets must be computed based on the lesser of the principal amount
(par value) or market value of such assets at the time of the
original pledge and thereafter as of the last day of the most recent
calendar quarter.
---------------------------------------------------------------------------
(2) Risk-based assessment schedule. The risk-based asset pledge
required by paragraph (b)(1) will be determined by utilizing the
following risk-based assessment schedule:
------------------------------------------------------------------------
Supervisory risk subgroup
Asset maintenance level --------------------------------------
A* B* C*
------------------------------------------------------------------------
Equal to or Greater than 108%.... 2 3 4
Equal to or Greater than 106%.... 4 5 6
Less than 106%................... 6 7 8
------------------------------------------------------------------------
*Amount represents percent.
The appropriate asset pledge percentage will be determined based
on the
supervisory risk subgroup and asset maintenance level applicable
to the
insured branch.
(3) Supervisory risk factors. For purposes of this section, within
each asset maintenance group, each institution will be assigned to one
of three subgroups based on consideration by the FDIC of supervisory
evaluations provided by the primary federal regulator for the insured
branch. The supervisory evaluations include the results of examination
findings by the primary federal regulator, as well as other information
the primary federal regulator determines to be relevant. In addition,
the FDIC will take into consideration such other information (such as
state examination findings, if appropriate) as it determines to be
relevant to the financial condition and the risk posed to the deposit
insurance fund. The three supervisory subgroups are:
(i) Subgroup ``A''. This subgroup consists of financially sound
institutions with only a few minor weaknesses;
(ii) Subgroup ``B''. This subgroup consists of institutions that
demonstrate weaknesses which, if not corrected, could result in
significant deterioration of the institution and increased risk of loss
to the deposit insurance fund; and
(iii) Subgroup ``C''. This subgroup consists of institutions that
pose a substantial probability of loss to the deposit insurance fund.
(4) The FDIC may require a foreign bank to pledge additional assets
or to compute its pledge on a daily basis whenever the FDIC determines
that the condition of the foreign bank or the insured branch is such
that the assets pledged under this section will not adequately protect
the deposit insurance fund. In requiring a foreign bank to pledge
additional assets, the FDIC will consult with the primary regulator for
the insured branch. Among the factors to be considered in imposing
these requirements are the concentration of risk to any one borrower or
group of related borrowers, the concentration of transfer risk related
to any one country, including the country in which the foreign bank's
head office is located or any other factor the FDIC determines is
relevant.
(5) Each insured branch must separately comply with the
requirements of this section. A foreign bank which has more than one
insured branch in a state may, however, treat all of its insured
branches in the same state as one entity and will designate one insured
branch to be responsible for compliance with this section.
(c) Depository. A foreign bank must place pledged assets for
safekeeping at any depository which is located in any state. However, a
depository may not be an affiliate of the foreign bank whose insured
branch is seeking to use the depository. A foreign bank must obtain the
FDIC's prior written approval of the depository selected, and such
approval may be revoked and dismissal of the depository required
whenever the depository does not fulfill any one of its obligations
under the pledge agreement. A foreign bank shall appoint and constitute
the depository as its attorney in fact for the sole purpose of
transferring title to pledged assets to the FDIC as may be required to
effectuate the provisions of paragraph (a) of this section.
(d) Assets that may be pledged. Subject to the right of the FDIC to
require substitution, a foreign bank may pledge any of the kinds of
assets listed in this paragraph (d); such assets must be denominated in
United States dollars. A foreign bank shall be deemed to have pledged
any such assets for the benefit of the FDIC or its designee at such
time as any such asset is placed with the depository, as follows:
(1) Negotiable certificates of deposit that are payable in the
United States and that are issued by any state bank, national bank, or
branch of a foreign bank which has executed a valid waiver of offset
agreement or similar debt instruments that are payable in the United
States and that are issued by any agency of a foreign bank which has
executed a valid waiver of offset agreement; provided, that the
maturity of any certificate or issuance is not greater than one year;
and provided further, that the issuing branch or agency of a foreign
bank is not an affiliate of the pledging bank or from the same country
as the pledging bank's domicile;
(2) Treasury bills, interest bearing bonds, notes, debentures, or
other direct obligations of or obligations fully guaranteed as to
principal and interest by the United States or any agency or
instrumentality thereof;
(3) Commercial paper that is rated P-1 or P-2, or their equivalent
by a nationally recognized rating service; provided, that any conflict
in a rating shall be resolved in favor of the lower rating;
[[Page 43082]]
(4) Banker's acceptances that are payable in the United States
and
that are issued by any state bank, national bank, or branch or agency
of a foreign bank; provided, that the maturity of any acceptance
is not
greater than 180 days; and provided further, that the branch or agency
issuing the acceptance is not an affiliate of the pledging bank or
from
the same country as the pledging bank's domicile;
(5) General obligations of any state of the United States, or any
county or municipality of any state of the United States, or any
agency, instrumentality, or political subdivision of the foregoing or
any obligation guaranteed by a state of the United States or any county
or municipality of any state of the United States; provided, that such
obligations have a credit rating within the top two rating bands of a
nationally recognized rating service (with any conflict in a rating
resolved in favor of the lower rating);
(6) Obligations of the African Development Bank, Asian Development
Bank, Inter-American Development Bank, and the International Bank for
Reconstruction and Development;
(7) Notes issued by bank holding companies or banks organized under
the laws of the United States or any state thereof or notes issued by
United States branches or agencies of foreign banks, provided, that the
notes have a credit rating within the top two rating bands of a
nationally recognized rating service (with any conflict in a rating
resolved in favor of the lower rating) and that they are payable in the
United States, and provided further, that the issuer is not an
affiliate of the foreign bank pledging the note; or
(8) Any other asset determined by the FDIC to be acceptable.
(e) Pledge agreement. A foreign bank shall not pledge any assets
unless a pledge agreement in form and substance satisfactory to the
FDIC has been executed by the foreign bank and the depository. The
agreement, in addition to other terms not inconsistent with this
paragraph (e), shall give effect to the following terms:
(1) Original pledge. The foreign bank shall place with the
depository assets of the kind described in paragraph (d) of this
section, having an aggregate value in the amount as required pursuant
to paragraph (b) of this section.
(2) Additional assets required to be pledged. Whenever the foreign
bank is required to pledge additional assets for the benefit of the
FDIC or its designees pursuant to paragraph (b)(4) of this section, it
shall place (within two business days after the last day of the most
recent calendar quarter, unless otherwise ordered) additional assets of
the kind described in paragraph (d) of this section, having an
aggregate value in the amount required by the FDIC.
(3) Substitution of assets. The foreign bank, at any time, may
substitute any assets for pledged assets, and, upon such substitution,
the depository shall promptly release any such assets to the foreign
bank; provided, that:
(i) The foreign bank pledges assets of the kind described in
paragraph (d) of this section having an aggregate value not less than
the value of the pledged assets for which they are substituted and
certified as such by the foreign bank; and
(ii) The FDIC has not by written notification to the foreign bank,
a copy of which shall be provided to the depository, suspended or
terminated the foreign bank's right of substitution.
(4) Delivery of other documents. Concurrently with the pledge of
any assets, the foreign bank will deliver to the depository all
documents and instruments necessary or advisable to effectuate the
transfer of title to any such assets and thereafter, from time to time,
at the request of the FDIC, deliver to the depository any such
additional documents or instruments. The foreign bank shall provide
copies of all such documents described in this paragraph (e)(4) to the
appropriate regional director concurrently with their delivery to the
depository.
(5) Acceptance and safekeeping responsibilities of the depository.
(i) The depository will accept and hold any assets pledged by the
foreign bank pursuant to the pledge agreement for safekeeping free and
clear of any lien, charge, right of offset, credit, or preference in
connection with any claim the depository may assert against the foreign
bank and shall designate any such assets as a special pledge for the
benefit of the FDIC or its designee. The depository shall not accept
the pledge of any such assets unless, concurrently with such pledge,
the foreign bank delivers to the depository the documents and
instruments necessary for the transfer of title thereto as provided in
this part.
(ii) The depository shall hold any such assets separate from all
other assets of the foreign bank or the depository. Such assets may be
held in book-entry form but must at all times be segregated on the
records of the depository and clearly identified as assets subject to
the pledge agreement.
(6) Reporting requirements of the insured branch and the
depository--(i) Initial reports. Upon the original pledge of assets as
provided in paragraph (e)(1) of this section:
(A) The depository shall provide to the foreign bank and to the
appropriate FDIC regional director a written report in the form of a
receipt identifying each asset pledged and specifying in reasonable
detail with respect to each such asset the complete title, interest
rate, series, serial number (if any), principal amount (par value),
maturity date and call date; and
(B) The foreign bank shall provide to the appropriate regional
director a written report certified as correct by the foreign bank
which sets forth the value of each pledged asset and the aggregate
value of all such assets, and which states that the aggregate value of
all such assets is at least equal to the amount required pursuant to
paragraph (b) of this section and that all such assets are of the kind
described in paragraph (d) of this section.
(ii) Quarterly reports. Within ten calendar days after the end of
the most recent calendar quarter:
(A) The depository shall provide to the appropriate regional
director a written report specifying in reasonable detail with respect
to each asset currently pledged (including any asset pledged to satisfy
the requirements of paragraph (b)(4) of this section and identified as
such), as of two business days after the end of the most recent
calendar quarter, the complete title, interest rate, series, serial
number (if any), principal amount (par value), maturity date, and call
date, provided, that if no substitution of any asset has occurred
during the reporting period, the reporting need only specify that no
substitution of assets has occurred; and
(B) The foreign bank shall provide as of two business days after
the end of the most recent calendar quarter to the appropriate regional
director a written report certified as correct by the foreign bank
which sets forth the value of each pledged asset and the aggregate
value of all such assets, which states that the aggregate value of all
such assets is at least equal to the amount required pursuant to
paragraph (b) of this section and that all such assets are of the kind
described in paragraph (d) of this section, and which states the
average of the liabilities of each insured branch of the foreign bank
computed in the manner and for the period prescribed in paragraph (b)
of this section.
(iii) Additional reports. The foreign bank shall, from time to
time, as may be required, provide to the appropriate regional director
a written report in the form specified containing the information
requested with respect to any asset then currently pledged.
(7) Access to assets. With respect to any asset pledged pursuant to
the
[[Page 43083]]
pledge agreement, the depository will provide representatives of
the
FDIC or the foreign bank with access (during regular business hours
of
the depository and at the location where any such asset is held,
without other limitation or qualification) to all original instruments,
documents, books, and records evidencing or pertaining to any such
asset.
(8) Release upon the order of the FDIC. The depository shall
release to the foreign bank any pledged assets, as specified in a
written notification of the appropriate regional director, upon the
terms and conditions provided in such notification, including without
limitation the waiver of any requirement that any assets be pledged by
the foreign bank in substitution of any released assets.
(9) Release to the FDIC. Whenever the FDIC is obligated under
section 11(f) of the Federal Deposit Insurance Act to pay insured
deposits of an insured branch, the FDIC by written certification shall
so inform the depository; and the depository, upon receipt of such
certification, shall thereupon promptly release and transfer title to
any pledged assets to the FDIC or release such assets to the foreign
bank, as specified in the certification. Upon release and transfer of
title to all pledged assets specified in the certification, the
depository shall be discharged from any further obligation under the
pledge agreement.
(10) Interest earned on assets. The foreign bank may retain any
interest earned with respect to the assets currently pledged unless the
FDIC by written notice prohibits retention of interest by the foreign
bank, in which case the notice shall specify the disposition of any
such interest.
(11) Expenses of agreement. The FDIC shall not be required to pay
any fees, costs, or expenses for services provided by the depository to
the foreign bank pursuant to, or in connection with, the pledge
agreement.
(12) Substitution of depository. The depository may resign, or the
foreign bank may discharge the depository, from its duties and
obligations under the pledge agreement by giving at least 60 days
written notice thereof to the other party and to the appropriate
regional director. The FDIC, upon 30 days written notice to the foreign
bank and the depository, may require the foreign bank to dismiss the
depository if the FDIC in its discretion determines that the depository
is in breach of the pledge agreement. The depository shall continue to
function as such until the appointment of a successor depository
becomes effective and the depository has released to the successor
depository the pledged assets and documents and instruments to
effectuate transfer of title in accordance with the written
instructions of the foreign bank as approved by the FDIC. The
appointment by the foreign bank of a successor depository shall not be
effective until:
(i) The FDIC has approved in writing the successor depository; and
(ii) A pledge agreement in form and substance satisfactory to the
FDIC has been executed.
(13) Waiver of terms. The FDIC may by written order waive
compliance by the foreign bank or the depository with any term or
condition of the pledge agreement.
Sec. 347.210 Asset maintenance.
(a) An insured branch of a foreign bank shall maintain on a daily
basis eligible assets at an amount not less than 106 percent of the
insured branch's daily liabilities, exclusive of liabilities due
to the
head office of the foreign bank, other branches, agencies, offices,
or
wholly owned subsidiaries. The FDIC, after consulting with the primary
regulator of the insured branch, may require that a higher ratio
of
eligible assets be maintained if the financial condition of the insured
branch warrants such action. Among the factors which will be considered
in requiring a higher ratio of eligible assets are the concentration
of
risk to any one borrower or group of related borrowers; the
concentration of transfer risk to any one country, including the
country in which the foreign bank's head office is located; or any
other factor the FDIC determines is relevant. Eligible assets must
be
payable in United States dollars.
(b) In determining eligible assets for the purposes of compliance
with paragraph (a) of this section, the insured branch shall exclude
the following:
(1) Any asset due from the foreign bank's head office, or its other
branches, agencies, offices or affiliates;
(2) Any asset classified ``Value Impaired,'' to the extent of the
required Allocated Transfer Risk Reserves or equivalent write down, or
``Loss'' in the most recent state or federal examination report;
(3) Any deposit of the insured branch in a bank unless the bank has
executed a valid waiver of offset agreement;
(4) Any asset not supported by sufficient credit information to
allow a review of the asset's credit quality, as determined at the most
recent state or federal examination, as follows:
(i) Whether an asset has sufficient credit information will be a
function of the size of the borrower and the location within the
foreign bank of the responsibility for authorizing and monitoring
extensions of credit to the borrower. For large, well known companies,
when credit responsibility is located in an office of the foreign bank
outside the insured branch, the insured branch must have adequate
documentation to show that the asset is of good quality and is being
supervised adequately by the foreign bank. In such cases, copies of
periodic memoranda that include an analysis of the borrower's recent
financial statements and a report on recent developments in the
borrower's operations and borrowing relationships with the foreign bank
generally would constitute sufficient information. For other borrowers,
periodic memoranda must be supplemented by information such as copies
of recent financial statements, recent correspondence concerning the
borrower's financial condition and repayment history, credit terms and
collateral, data on any guarantors, and where necessary, the status of
any corrective measures being employed;
(ii) Subsequent to the determination that an asset lacks sufficient
credit information, an insured branch may not include the amount of
that asset among eligible assets until the FDIC determines that
sufficient documentation exists. Such a determination may be made
either at the next federal examination, or upon request of the insured
branch, by the appropriate regional director;
(5) Any asset not in the insured branch's actual possession unless
the insured branch holds title to such asset and the insured branch
maintains records sufficient to enable independent verification of the
insured branch's ownership of the asset, as determined at the most
recent state or federal examination;
(6) Any intangible asset;
(7) Any other asset not considered bankable by the FDIC.
(c) A foreign bank which has more than one insured branch in a
state may treat all of its insured branches in the same state as one
entity for purposes of compliance with paragraph (a) of this section
and shall designate one insured branch to be responsible for
maintaining the records of the insured branches' compliance with this
section.
(d) Asset maintenance calculations required by this rule shall be
retained by the insured branch until the next federal examination.
Sec. 347.211 Examination of branches of foreign banks.
(a) Frequency of on-site examination. Each branch or agency of
a
foreign bank shall be examined on-site at least once during each
12-
month period (beginning
[[Page 43084]]
on the date the most recent examination of the office ended) by:
(1) The FRB;
(2) The FDIC, if an insured branch;
(3) The OCC, if the branch or agency of the foreign bank is
licensed by the OCC; or
(4) The state supervisor, if the office of the foreign bank is
licensed or chartered by the state.
(b) 18-month cycle for certain small institutions--(1) Mandatory
standards. The FDIC may conduct a full-scope, on-site examination at
least once during each 18-month period, rather than each 12-month
period as provided in paragraph (a) of this section, if the insured
branch:
(i) Has total assets of $250 million or less;
(ii) Has received a composite ROCA supervisory rating (which rates
risk management, operational controls, compliance, and asset quality)
of 1 or 2 at its most recent examination;
(iii) Satisfies the requirement of either the following paragraph
(b)(iii)(A) or (B):
(A) The foreign bank's most recently reported capital adequacy
position consists of, or is equivalent to, Tier 1 and total risk-based
capital ratios of at least 6 percent and 10 percent, respectively, on a
consolidated basis; or
(B) The insured branch has maintained on a daily basis, over the
past three quarters, eligible assets in an amount not less than 108
percent of the preceding quarter's average third party liabilities
(determined consistent with applicable federal and state law) and
sufficient liquidity is currently available to meet its obligations to
third parties;
(iv) Is not subject to a formal enforcement action or order by the
FRB, FDIC, or the OCC; and
(v) Has not experienced a change in control during the preceding
12-month period in which a full-scope, on-site examination would have
been required but for this section.
(2) Discretionary standards. In determining whether an insured
branch that meets the standards of paragraph (b)(1) of this section
should not be eligible for an 18-month examination cycle pursuant to
this paragraph (b), the FDIC may consider additional factors, including
whether:
(i) Any of the individual components of the ROCA supervisory rating
of an insured branch is rated ``3'' or worse;
(ii) The results of any off-site monitoring indicate a
deterioration in the condition of the insured branch;
(iii) The size, relative importance, and role of a particular
insured branch when reviewed in the context of the foreign bank's
entire U.S. operations otherwise necessitate an annual examination; and
(iv) The condition of the parent foreign bank gives rise to such a
need.
(c) Authority to conduct more frequent examinations. Nothing in
paragraphs (a) and (b) of this section limits the authority of the FDIC
to examine any insured branch as frequently as it deems necessary.
Sec. 347.212 FDIC approval to conduct activities that are not
permissible for federal branches.
(a) Scope. A foreign bank operating an insured state branch which
desires to engage in or continue to engage in any type of activity
that
is not permissible for a federal branch, pursuant to the National
Bank
Act (12 U.S.C. 21 et seq.) or any other federal statute, regulation,
official bulletin or circular, written order or interpretation, or
decision of a court of competent jurisdiction, must file a written
application for permission to conduct such activity with the FDIC.
(b) Exceptions. If the FDIC has already determined, pursuant to
part 362 of this chapter, ``Activities and Investment of Insured State
Banks,'' that an activity does not present a significant risk to the
affected deposit insurance fund, no application is required under
paragraph (a) of this section for a foreign bank operating an insured
branch to engage or continue to engage in the same activity.
(c) Agency activities. A foreign bank operating an insured state
branch is not required to submit an application pursuant to paragraph
(a) of this section to engage in or continue engaging in an activity
conducted as agent if the activity is:
(1) Permissible agency activity for a state-chartered bank located
in the state which the state-licensed insured branch of the foreign
bank is located;
(2) Permissible agency activity for a state-licensed branch of a
foreign bank located in that state; and
(3) Permissible pursuant to any other applicable federal law or
regulation.
(d) Conditions of approval. (1) Approval of such an application
required by paragraph (a) of this section may be conditioned on the
agreement by the foreign bank and its insured state branch to conduct
the activity subject to specific limitations, which may include
pledging of assets in excess of the asset pledge and asset maintenance
requirements contained in Sec. Sec. 347.209 and 347.210.
(2) In the case of an application to initially engage in an
activity, as opposed to an application to continue to conduct an
activity, the insured state branch shall not commence the activity
until it has been approved in writing by the FDIC pursuant to this part
and the FRB, and any and all conditions imposed in such approvals have
been satisfied.
(e) Divestiture or cessation. (1) If an application for permission
to continue to conduct an activity is not approved by the FDIC or the
FRB, the applicant shall submit a plan of divestiture or cessation of
the activity to the appropriate regional director.
(2) A foreign bank operating an insured state branch which elects
not to apply to the FDIC for permission to continue to conduct an
activity which is rendered impermissible by any change in statute,
regulation, official bulletin or circular, written order or
interpretation, or decision of a court of competent jurisdiction shall
submit a plan of divestiture or cessation to the appropriate regional
director.
(3) All plans of divestitures or cessation required by this
paragraph must be completed within one year from the date of the
disapproval, or within such shorter period as the FDIC may direct.
(f) Procedures. Procedures for applications under this section are
set out in Sec. 303.187.
Sec. 347.213 Establishment or operation of noninsured foreign branch.
(a) A foreign bank may establish or operate a state branch, as
provided by state law, without federal deposit insurance whenever:
(1) The branch only accepts initial deposits in an amount of
$100,000 or greater; or
(2) The branch meets the criteria set forth in Sec. Sec. 347.214
or 347.215.
(b) [Reserved]
Sec. 347.214 Branch established under section 5 of the International
Banking Act.
A foreign bank may operate any state branch as a noninsured branch
whenever the foreign bank has entered into an agreement with the
FRB to
accept at that branch only those deposits as would be permissible
for a
corporation organized under section 25(a) of the Federal Reserve
Act
(12 U.S.C. 611 et seq.) and implementing rules and regulations
administered by the FRB (12 CFR part 211).
Sec. 347.215 Exemptions from deposit insurance requirement.
(a) Deposit activities not requiring insurance. A state branch
will
not be considered to be engaged in domestic retail deposit activity
that requires the foreign bank parent to establish an insured U.S.
bank
subsidiary if the state branch accepts initial deposits only in an
amount of less than $100,000 that are derived solely from the
following:
[[Page 43085]]
(1) Individuals who are not citizens or residents of the United
States at the time of the initial deposit;
(2) Individuals who:
(i) Are not citizens of the United States;
(ii) Are residents of the United States; and
(iii) Are employed by a foreign bank, foreign business, foreign
government, or recognized international organization;
(3) Persons (including immediate family members of natural persons)
to whom the branch or foreign bank (including any affiliate thereof)
has extended credit or provided other nondeposit banking services
within the past twelve months or has entered into a written agreement
to provide such services within the next twelve months;
(4) Foreign businesses, large United States businesses, and persons
from whom an Edge or agreement corporation may accept deposits under 12
CFR 211.6(a)(1);
(5) Any governmental unit, including the United States government,
any state government, any foreign government and any political
subdivision or agency of any of the foregoing, and recognized
international organizations;
(6) Persons who are depositing funds in connection with the
issuance of a financial instrument by the branch for the transmission
of funds or the transmission of such funds by any electronic means; and
(7) Any other depositor, but only if:
(i) The branch's average deposits under this paragraph (a)(7) do
not exceed one percent of the branch's average total deposits, as
calculated under paragraph (a)(7)(ii) if this section (de minimis
exception).
(ii) For purposes of calculating this exception:
(A) The branch's average deposits under this paragraph and the
average total deposits must be computed by summing the close of
business figures for each of the last 30 calendar days, ending with and
including the last day of the calendar quarter, and dividing the
resulting sum by 30;
(B) For days on which the branch is closed, balances from the last
previous business day are to be used;
(C) The branch may exclude deposits in the branch of other offices,
branches, agencies or wholly owned subsidiaries of the bank to
determine its average deposits;
(D) The branch must not solicit deposits from the general public by
advertising, display of signs, or similar activity designed to attract
the attention of the general public; and
(E) A foreign bank that has more than one state branch in the same
state may aggregate deposits in such branches (excluding deposits of
other branches, agencies or wholly owned subsidiaries of the bank) for
the purpose of this paragraph (a)(7).
(b) Application for an exemption. (1) Whenever a foreign bank
proposes to accept at a state branch initial deposits of less than
$100,000 and such deposits are not otherwise excepted under paragraph
(a) of this section, the foreign bank may apply to the FDIC for consent
to operate the branch as a noninsured branch. The Board of Directors
may exempt the branch from the insurance requirement if the branch is
not engaged in domestic retail deposit activities requiring insurance
protection. The Board of Directors will consider the size and nature of
depositors and deposit accounts, the importance of maintaining and
improving the availability of credit to all sectors of the United
States economy, including the international trade finance sector of the
United States economy, whether the exemption would give the foreign
bank an unfair competitive advantage over United States banking
organizations, and any other relevant factors in making this
determination.
(2) Procedures for applications under this section are set out in
Sec. 303.186.
(c) Transition period. A noninsured state branch may maintain a
retail deposit lawfully accepted prior to April 1, 1996 pursuant to
regulations in effect prior to July 1, 1998:
(1) If the deposit qualifies pursuant to paragraph (a) or (b) of
this section; or
(2) If the deposit does not qualify pursuant to paragraph (a) or
(b) of this section, in the case of a time deposit, no later than the
first maturity date of the time deposit after April 1, 1996.
Sec. 347.216 Depositor Notification.
Any state branch that is exempt from the insurance requirement
pursuant to Sec. 347.215 shall:
(a) Display conspicuously at each window or place where deposits
are usually accepted a sign stating that deposits are not insured by
the FDIC; and
(b) Include in bold face conspicuous type on each signature card,
passbook, and instrument evidencing a deposit the statement ``This
deposit is not insured by the FDIC''; or require each depositor to
execute a statement which acknowledges that the initial deposit and all
future deposits at the branch are not insured by the FDIC. This
acknowledgment shall be retained by the branch so long as the depositor
maintains any deposit with the branch. This provision applies to any
negotiable certificates of deposit made in a branch on or after July 6,
1989, as well as to any renewals of such deposits which become
effective on or after July 6, 1989.
Subpart C--International Lending
Sec. 347.301 Purpose, authority, and scope.
Under the International Lending Supervision Act of 1983 (12 U.S.C.
3901 et seq.) (ILSA), the Federal Deposit Insurance Corporation
prescribes the regulations in this subpart relating to international
lending activities of banks.
Sec. 347.302 Definitions.
For the purposes of this subpart:
(a) Administrative cost means those costs which are specifically
identified with negotiating, processing and consummating the loan.
These costs include, but are not necessarily limited to: Legal fees;
costs of preparing and processing loan documents; and an allocable
portion of salaries and related benefits of employees engaged in the
international lending function. No portion of supervisory and
administrative expenses or other indirect expenses such as occupancy
and other similar overhead costs shall be included.
(b) Banking institution means an insured state nonmember bank.
(c) Federal banking agencies means the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency,
and the Federal Deposit Insurance Corporation.
(d) International assets means those assets required to be included
in banking institutions' ``Country Exposure Report'' form (FFIEC No.
009).
(e) International loan means a loan as defined in the instructions
to the ``Report of Condition and Income'' for the respective banking
institution (FFIEC Nos. 031, 032, 033 and 034) and made to a foreign
government, or to an individual, a corporation, or other entity not a
citizen of, resident in, or organized or incorporated in the United
States.
(f) Restructured international loan means a loan that meets the
following criteria:
(1) The borrower is unable to service the existing loan according
to its terms and is a resident of a foreign country in which there is a
generalized inability of public and private sector obligors to meet
their external debt obligations on a timely basis because of a lack of,
or restraints on the availability of, needed foreign exchange in the
country; and
(2) Either:
(i) The terms of the existing loan are amended to reduce stated
interest or extend the schedule of payments; or
(ii) A new loan is made to, or for the benefit of, the borrower,
enabling the
[[Page 43086]]
borrower to service or refinance the existing debt.
(g) Transfer risk means the possibility that an asset cannot be
serviced in the currency of payment because of a lack of, or restraints
on the availability of, needed foreign exchange in the country of the
obligor.
Sec. 347.303 Allocated transfer risk reserve.
(a) Establishment of Allocated Transfer Risk Reserve. A banking
institution shall establish an allocated transfer risk reserve (ATRR)
for specified international assets when required by the FDIC in
accordance with this section.
(b) Procedures and standards--(1) Joint agency determination. At
least annually, the federal banking agencies shall determine jointly,
based on the standards set forth in paragraph (b)(2) of this section,
the following:
(i) Which international assets subject to transfer risk warrant
establishment of an ATRR;
(ii) The amount of the ATRR for the specified assets; and
(iii) Whether an ATRR established for specified assets may be
reduced.
(2) Standards for requiring ATRR--(i) Evaluation of assets. The
federal banking agencies shall apply the following criteria in
determining whether an ATRR is required for particular international
assets:
(A) Whether the quality of a banking institution's assets has been
impaired by a protracted inability of public or private obligers in a
foreign country to make payments on their external indebtedness as
indicated by such factors, among others, as whether:
(1) Such obligors have failed to make full interest payments on
external indebtedness; or
(2) Such obligors have failed to comply with the terms of any
restructured indebtedness; or
(3) A foreign country has failed to comply with any International
Monetary Fund or other suitable adjustment program; or
(B) Whether no definite prospects exist for the orderly restoration
of debt service.
(ii) Determination of amount of ATRR. (A) In determining the amount
of the ATRR, the federal banking agencies shall consider:
(1) The length of time the quality of the asset has been impaired;
(2) Recent actions taken to restore debt service capability;
(3) Prospects for restored asset quality; and
(4) Such other factors as the federal banking agencies may consider
relevant to the quality of the asset.
(B) The initial year's provision for the ATRR shall be ten percent
of the principal amount of each specified international asset, or such
greater or lesser percentage determined by the federal banking
agencies. Additional provision, if any, for the ATRR in subsequent
years shall be fifteen percent of the principal amount of each
specified international asset, or such greater or lesser percentage
determined by the federal banking agencies.
(3) FDIC notification. Based on the joint agency determinations
under paragraph (b)(1) of this section, the FDIC shall notify each
banking institution holding assets subject to an ATRR:
(i) Of the amount of the ATRR to be established by the institution
for specified international assets; and
(ii) That an ATRR established for specified assets may be reduced.
(c) Accounting treatment of ATRR--(1) Charge to current income. A
banking institution shall establish an ATRR by a charge to current
income and the amounts so charged shall not be included in the banking
institution's capital or surplus.
(2) Separate accounting. A banking institution shall account for an
ATRR separately from the Allowance for Loan and Lease Losses, and shall
deduct the ATRR from ``gross loans and leases'' to arrive at ``net
loans and leases.'' The ATRR must be established for each asset subject
to the ATRR in the percentage amount specified.
(3) Consolidation. A banking institution shall establish an ATRR,
as required, on a consolidated basis. For banks, consolidation should
be in accordance with the procedures and tests of significance set
forth in the instructions for preparation of Consolidated Reports of
Condition and Income (FFIEC Nos. 031, 032, 033 and 034).
(4) Alternative accounting treatment. A banking institution need
not establish an ATRR if it writes down in the period in which the ATRR
is required, or has written down in prior periods, the value of the
specified international assets in the requisite amount for each such
asset. For purposes of this paragraph (c)(4), international assets may
be written down by a charge to the Allowance for Loan and Lease Losses
or a reduction in the principal amount of the asset by application of
interest payments or other collections on the asset; provided, that
only those international assets that may be charged to the Allowance
for Loan and Lease Losses pursuant to generally accepted accounting
principles may be written down by a charge to the Allowance for Loan
and Lease Losses. However, the Allowance for Loan and Lease Losses must
be replenished in such amount necessary to restore it to a level which
adequately provides for the estimated losses inherent in the banking
institution's loan and lease portfolio.
(5) Reduction of ATRR. A banking institution may reduce an ATRR
when notified by the FDIC or, at any time, by writing down such amount
of the international asset for which the ATRR was established.
Sec. 347.304 Accounting for fees on international loans.
(a) Restrictions on fees for restructured international loans.
No
banking institution shall charge, in connection with the restructuring
of an international loan, any fee exceeding the administrative cost
of
the restructuring unless it amortizes the amount of the fee exceeding
the administrative cost over the effective life of the loan.
(b) Accounting treatment. Subject to paragraph (a) of this section,
banking institutions shall account for fees on international loans in
accordance with generally accepted accounting principles.
Sec. 347.305 Reporting and disclosure of international assets.
(a) Requirements. (1) Pursuant to section 907(a) of ILSA, a banking
institution shall submit to the FDIC, at least quarterly, information
regarding the amounts and composition of its holdings of international
assets.
(2) Pursuant to section 907(b) of ILSA, a banking institution shall
submit to the FDIC information regarding concentrations in its holdings
of international assets that are material in relation to total assets
and to capital of the institution, such information to be made publicly
available by the FDIC on request.
(b) Procedures. The format, content and reporting and filing dates
of the reports required under paragraph (a) of this section shall be
determined jointly by the federal banking agencies. The requirements to
be prescribed by the federal banking agencies may include changes to
existing forms (such as revisions to the Country Exposure Report, Form
FFIEC No. 009) or such other requirements as the federal banking
agencies deem appropriate. The federal banking agencies also may
determine to exempt from the requirements of paragraph (a) of this
section banking institutions that, in the federal banking agencies'
judgment, have de minimis holdings of international assets.
(c) Reservation of Authority. Nothing contained in this subpart
shall preclude
[[Page 43087]]
the FDIC from requiring from a banking institution such additional
or
more frequent information on the institution's holdings of
international assets as the agency may consider necessary.
By order of the Board of Directors.
Dated at Washington, DC, this 28th day of June, 2004.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 04-15757 Filed 7-16-04; 8:45 am]
BILLING CODE 6714-01-P
|
