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FDIC Federal Register Citations

Institute of International Bankers

May 3, 2004

Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: Robert E. Feldman, Executive Secretary

Re: Proposed Rule: Transactions with Affiliates (RIN 3064-AC78) Ladies and Gentlemen:

We are submitting this letter in response to the request of the Federal Deposit Insurance Corporation (the "FDIC") for comment on the FDIC's proposed rule regarding the application of Sections 23A and 23B of the Federal Reserve Act1 and the Federal Reserve Board's Regulation W2 to insured state nonmember banks (the "Proposed Rule").3 The Institute of International Bankers represents internationally headquartered financial institutions from over 40 countries, and our members include international banks that operate FDIC-insured state-licensed branches ("insured State branches") in the United States.

The preamble to the Proposed Rule states that it is the FDIC's view that "insured State branches, agencies, and commercial lending companies of foreign banks are subject to the substantive provisions of Regulation W and this part.4 The FDIC requests comment on whether the Proposed Rule is clear in this respect and whether the FDIC's view is justified.

We understand that the FDIC's stated position is intended only to confirm that insured State branches, like other U.S. branches of international banks, are subject to those provisions of Regulation W that specifically apply to U.S. branches of international banks with respect to transactions with certain affiliates engaged in activities under authority of the Gramm- Leach-Bliley Act (the "GLBA") i.e., Subpart G of Regulation W). The applicability of those provisions to insured State branches is clear under Subpart G of Regulation W, which implements the Federal Reserve Board's statutory authority under the GLBA to impose such restrictions on U.S. branches, agencies and commercial lending companies of international banks.5 Thus, we understand that the FDIC's position is not intended to suggest that insured State branches are generally subject to Sections 23A and 23B of the Federal Reserve Act as implemented in Regulation W (other than Subpart G).

On the basis of our understanding of the FDIC's intent, we do not believe that the Proposed Rule requires additional clarification or justification of this point. If the FDIC were to determine that a clarification is appropriate, the FDIC's new Part 303 could provide simply that insured State branches are subject to Subpart G of Regulation W in the same manner and to the same extent as other branches of international banks.

We note that if the FDIC were to change its position regarding the general applicability of Sections 23A and 23B and Regulation W to insured State branches, we would respectfully submit that such a change would require a detailed proposal and opportunity for further comment, as the application of affiliate transaction limits to branch offices of international banks raises complex issues stemming from the unique nature of cross-border branch operations.

Please do not hesitate to contact the Institute if we can be of further assistance.

Lawrence R. Uhlick
Executive Director and General Counsel

1 12 U.S.C. §§ 371c, 371c-1 ("Sections 23A and 23B").
2 12 C.F.R. Part 223 ("Regulation W").
3 69 Fed. Reg. 12571 (March 17, 2004).
4 69 Fed. Reg. at 12577. We understand that the reference to agencies and commercial lending companies in this context was inadvertent, as agencies and commercial lending companies are not authorized to accept FDIC-insured deposits and are not treated as "insured banks" under the Federal Deposit Insurance Act (the "FDIA") or as member banks under Sections 23A or 23B.
The Institute's mission is to help resolve the many special legislative, regulatory and tax issues confronting internationally headquartered financial institutions that engage in banking, securities and/or insurance activities in the United States.
5 See GLBA § 114(b)(4), codified at 12 U.S.C. § 1828a(b)(4) ("The [Federal Reserve] Board may, by regulation or order, impose restrictions or requirements on relationships or transactions between a branch, agency, or commercial lending company of a foreign bank in the United States and any affiliate in the United States of such foreign bank" if the Federal Reserve Board makes certain findings.).

Last Updated 05/12/2004

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