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FDIC Federal Register Citations
[Federal Register: April 6, 2005 (Volume 70, Number 65)]
[Rules and Regulations]
[Page 17549-17572]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap05-15]
[[Page 17549]]
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Part III
Federal Deposit Insurance Corporation
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12 CFR Parts 303, 325, 327, and 347
International Banking; Final Rule
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 303, 325, 327, and 347
RIN 3064-AC85
International Banking
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The FDIC is amending its international banking regulations in
subpart J of part 303 and revising subparts A and B of part 347. The
amendments 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). Included in the revisions are amendments that
address relocation of insured U.S. branches of foreign banks within and
outside the state where such branches are presently located, adoption
of a risk-based asset pledge requirement for insured U.S. branches of
foreign banks, and information and examination requirements for foreign
banks that own branches or depository institution subsidiaries seeking
FDIC deposit insurance. The FDIC has also decided to maintain its
existing position concerning the availability of FDIC deposit insurance
for wholesale U.S. branches of foreign banks.
DATES: These revisions are effective July 1, 2005.
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:
I. Background
On July 19, 2004, the FDIC issued a notice of proposed rulemaking
(``NPR'') in the Federal Register, with a 60 day comment period,
regarding proposed amendments to its international banking regulations
contained in subpart J of part 303, subpart B of part 325, subpart A of
part 327, and subparts A and B of part 347 of title 12 of the Code of
Federal Regulations. (69 FR 43060).
The proposed amendments were intended to accomplish various goals.
These included implementation of the ``plain language'' requirement
contained in section 722 of the Gramm-Leach-Bliley Act of 1999 (12
U.S.C. 4809); addressing certain regulatory burden issues raised in
public comments as part of the FDIC's ongoing burden reduction effort
under the Economic Growth and Regulatory Paperwork Reduction Act of
1996 (EGRPRA)(12 U.S.C. 3311); maintaining parity with Regulation K,
which was amended by the Board of Governors of the Federal Reserve
System (``FRB'') in October, 2001; and updating and enhancing the
FDIC's supervisory processes by revising existing rules and proposing
certain new rules. In addition, although no amendments were proposed
regarding the topics, the FDIC requested comments on whether deposits
in wholesale U.S. branches of foreign banks should be insured by the
FDIC and whether the accounting regulations contained in subpart C of
part 347 should be revised.
The comment period closed on September 17, 2004. Comments were
received from the American Bankers Association (``ABA''), the Institute
for International Bankers (``IIB''), and the Conference of State Bank
Supervisors (``CSBS'') regarding issues addressed in the NPR. In
addition, at the IIB's request, FDIC staff met with representatives of
the IIB and representatives of its constituent foreign banks regarding
the IIB's EGRPRA suggestions and issues addressed in its comment
letter.\1\ No comments were received regarding subpart C of part 347
and, therefore, none of the rules in that subpart are being amended in
the final rule.
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\1\ A meeting summary and list of participants is available on
the FDIC's Web page at http://www.fdic.gov/regulations/laws/federal/04cMEETING.html
.
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A discussion of the comments and changes to the proposal that are
being adopted in this final rule are presented below.
II. International Banking Procedural, Capital Maintenance, Assessment
Rules
Subpart J of part 303 contains the FDIC application procedures that
implement the international banking regulations in part 347, subparts A
and B. Although the NPR contained several amendments to the subpart J
regulations, most of them consisted of technical amendments because of
the substantial restructuring being proposed for the regulations in
part 347. There were no comments on those amendments and the FDIC is
adopting them as proposed.
In addition to the technical amendments, the FDIC proposed to amend
section 303.184, which addresses moving an insured branch of a foreign
bank (``grandfathered branch''),\2\ by specifying that expedited
processing could be provided for applications involving intrastate
relocations of eligible grandfathered branches. This amendment was
added to address concerns expressed by the IIB that grandfathered
branches would be precluded from moving or relocating from their
existing locations if their proposed relocations were made subject to
the ``immediate neighborhood'' geographic relocation requirement
applied to proposed branch relocations of state nonmember banks in
section 303.41(b). In their comments, the ABA and IIB expressed support
for the proposed amendment but the IIB indicated that it assumed that
the FDIC would subject a proposed interstate relocation to standard
processing and requested that the FDIC clarify this point in the final
rule. The FDIC has considered the IIB request and has added a new
paragraph (e) to section 303.184 to address standard processing of
applications to relocate a grandfathered state branch to another state.
In doing so, the FDIC believes it is appropriate to address a state
licensing issue raised by the IIB comment letter and to ensure that the
rule will only be utilized for legitimate relocations of existing
grandfathered state branches and not simply to recharacterize the
establishment of a new foreign branch in another state as a ``move'' or
``relocation'' of a grandfathered state branch to avoid compliance with
the subsidiary requirement contained in section 6(d) of the IBA.
Therefore, under section 303.184, as revised by this final rule, in
addition to satisfying the criteria contained in paragraph (d), a
foreign bank proposing to relocate a grandfathered state branch to
another state without affecting its grandfathered status will be
required, under paragraph (e), to comply with any applicable state laws
and regulations of the states affected by the proposed relocation. In
addition, because the foreign bank will be relocating its whole
grandfathered branch operation from one state to another (not creating
an additional out-of-state branch of the grandfathered branch, which
would not be allowed), the existing license of the branch in the state
from which it is moving may need to be surrendered or cancelled and a
[[Page 17551]]
new license obtained in the state to which the branch is relocating. To
avoid a ``break'' in the existence of the grandfathered branch, which
may create an issue regarding compliance with the subsidiary
requirement contained in section 6(d) of the IBA, the rule also
specifies that the foreign bank must obtain any required regulatory
approvals from the appropriate state licensing authority of the state
to which the insured branch proposes to relocate before relocating the
existing branch operations and surrendering its existing license to the
appropriate state licensing authority of the state from which the
branch is relocating.
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\2\ A grandfathered branch of a foreign bank is a U.S. branch of
a foreign bank that obtained FDIC deposit insurance prior to
December 19, 1991 and is authorized to accept or maintain domestic
retail deposit accounts pursuant to section 6(d)(2) of the
International Banking Act (``IBA'')(12 U.S.C. 3104(d)(2)).
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In addition to the amendments proposed in subpart J of part 303,
the FDIC also proposed revisions to sections 325.103 and 327.4,
regarding capital maintenance and the annual assessment rate,
respectively, for insured U.S. branches of foreign banks. The
amendments were proposed to conform those sections with proposed
amendments to the FDIC's asset pledge and asset maintenance
requirements contained in subpart B of part 347. Because the FDIC has
decided to maintain the existing quarterly calculation methodology for
asset maintenance in the final rule, for the reasons discussed
subsequently in connection with section 347.210, the reference to the
``insured branch's daily third-party liabilities'' has been eliminated
in the final rule.
III. Foreign Banking and Investment by Insured State Nonmember Banks
Subpart A of part 347 primarily addresses branching, investments,
and permissible activities of state nonmember banks in foreign
countries. The FDIC proposed various amendments in the NPR that
reorganized the existing sections in the subpart and clarified their
coverage. For example, the FDIC proposed to divide particularly complex
sections, such as existing section 347.104 into sections 347.104
through 347.110, which are less complex sections but accomplish a
similar result. The FDIC also proposed to move and consolidate existing
sections based on the subject matter addressed to make the requirements
easier to locate and understand. For example, existing sections
347.103, addressing foreign branch powers and FDIC consent
requirements, and 347.108, addressing FDIC consent requirements for
foreign investments, were made sections 347.115 (permissible activities
for foreign branches), and 347.117 (general consent for foreign
branches and investments), 347.118 (expedited processing for foreign
branches and investments, and 347.119 (specific consent). The
discussion that follows is provided to explain a few of the more
significant amendments to the subpart.
The FDIC proposed to revise existing sections 347.103 and 347.104
in the NPR to better address the interplay between the FDIC's part 362
and part 347. This revision was accomplished in two ways. First we
separated the substance of existing section 347.104(f), dealing with
direct and indirect investments in foreign organizations, into section
347.104 in the proposed rule.\3\ Second, we created ``permissible
activities'' sections for state nonmember banks and their subsidiaries
in section 347.105(b) out of existing section 347.104(a)-(b) and for
foreign branches of state nonmember banks in section 347.115(a)-(g) out
of existing section 347.103(a). In addition, the order and list of
activities authorized for state nonmember banks and their subsidiaries
and foreign branches of state nonmember banks were revised to more
closely track the order of the activities listed as permissible for
member banks and their subsidiaries or foreign branches of member banks
under the corresponding provision in Regulation K. This revision will
make the comparison easier between activities authorized under subpart
A of part 347 and those authorized under Regulation K for branches of
member banks or member banks and their subsidiaries. The FDIC also
added paragraph (d) to proposed section 347.105 and paragraph (h) to
proposed section 347.115, for clarification, to generally address when
activities, other than those authorized by the respective sections, may
be authorized by specific consent under part 347 or when authorization
for the activities must be obtained under part 362 as well as subpart A
of part 347.
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\3\ Like existing section 347.104(f), section 347.104 recognizes
that the FDIC's treatment of direct and indirect investments by
state nonmember banks in foreign organizations differs from the
treatment such investments are provided in Regulation K for member
banks. This is because of differences in the underlying statutory
provisions governing member and state nonmember banks. Unlike member
banks, whose investments are constrained by the language of section
25 of the Federal Reserve Act (12 U.S.C. 601), section 18(l) of the
FDI Act permits state nonmember banks to invest in foreign ``banks
and other entities,'' to the extent authorized by state law. Thus,
considering the legislative history of section 18(l), and the
language of the statute, the FDIC has interpreted section 18(l) as
not restricting the types of foreign organizations in which a state
nonmember bank can invest.
The ability of insured state nonmember banks to invest in other
types of foreign organizations, however, raises issues under section
24 of the FDI Act (12 U.S.C. 1831a) and part 362 because national
banks are unable to invest directly in nonbank foreign
organizations. 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, subject to FDIC approval, 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
unnecessary 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.
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The ABA commented on the proposed amendment to section 347.115,
including another FDIC proposal adopting the same definition of
``investment grade'' that had been adopted by the FRB and the OCC. In
its comment, the ABA noted that the adoption of the same approach to
``investment grade'' was a substantive improvement, which it supported.
It also expressed support for the addition of section 347.115(h),
discussed above.
The FDIC also proposed to amend its authorization for ``general
consent'' in two ways. The first way was to allow insured state
nonmember banks to branch into a foreign country under general consent
in circumstances covered by proposed section 347.117(a)(1)(ii) or
(iii). This change would 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 and allow for an 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). The second way was to 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. The ABA commented on this amendment and
expressed support for the proposed change in general consent for
foreign branches.
[[Page 17552]]
Although the FDIC received no comments on the proposed revision for
foreign investments, an additional clarification to proposed section
347.117(b)(2) is included in this final rule. As indicated in the
discussion contained in the NPR, when the FDIC amended its foreign
banking regulations in 1998, it declined to adopt a suggestion that the
FDIC grant general consent to invest in a foreign organization when at
least one insured state nonmember bank operates a foreign branch in the
relevant foreign country. This was due to concerns that ``nameplate''
branches being operated in foreign countries might fall within the
scope of the authorization. In the discussion of the proposed amendment
in the NPR, the FDIC indicated that it believed 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). Although the FDIC believes the discussion in the NPR was
correct, it is concerned that the standard may be somewhat imprecise.
Therefore, the text contained in section 347.117(b)(2) has been revised
in the final rule to clearly indicate that the existence of a ``shell
branch'' (a term that the FDIC intends to be synonymous with the term
``nameplate branch'') in a foreign country will not provide a basis for
investment by general consent under section 347.117(b).
Finally, the proposal contained a new section 347.122, which was
intended to enhance the FDIC's existing supervisory authority. The
section recognizes that the FDIC may, under section 18(d)(2) and 18(l)
of the FDI Act, condition the authority granted under subpart A as it
considers appropriate and provide 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. The only comment on the section was submitted by the ABA,
which expressed no opposition to the new section.
After considering the proposed amendments contained in the NPR and
the comments submitted thereon, except as otherwise stated above, the
FDIC is adopting all of the amendments to subpart A of part 347 in this
final rule as they were proposed.
IV. Foreign Banks
The existing rules in part 347, subpart B primarily implement
provisions of the FDI Act and International Banking Act concerning
insured and noninsured U.S. branches of foreign banks. The FDIC
proposed reorganizing the subpart by grouping the existing sections
that were applicable to insured State and Federal branches at the
beginning of the subpart, followed by the sections applicable to only
State branches. In addition to several minor revisions to the existing
sections, the FDIC also proposed more substantive amendments. These
included revising its existing rules to update its foreign examination
and information rule and applying them to U.S. banking subsidiaries of
foreign banks, addressing how a grandfathered branch could be
transferred to a new foreign bank owner and retain the branch's
grandfathered status, adopting a risk-based approach for its asset
pledge rule, and revising its asset maintenance rule to compute asset
maintenance requirements based on a daily calculation of the third-
party assets and liabilities. Finally, the FDIC proposed a new rule to
facilitate cross-border supervision of insured U.S. branches of foreign
banks and insured U.S. bank subsidiaries by providing for the sharing
of supervisory information between the FDIC and foreign bank regulatory
or supervisory authorities and addressing the confidentiality of such
information. These more substantive amendments are discussed in greater
detail below.
Section 347.208 of the FDIC's existing rules addresses foreign bank
agreements with the FDIC to be examined and provide information. The
regulation implements section 10(b) of the FDI Act (12 U.S.C. 1820(b))
and was initially issued in 1979. Although the regulation addresses
foreign banks applying for deposit insurance for U.S. branches, it does
not address deposit insurance applications of U.S. depository
institution subsidiaries of foreign banks.\4\
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\4\ The statute 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.
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To update the rule and enhance the FDIC's supervisory authority,
the FDIC proposed to redesignate the rule as section 347.204 and
substantially amend it to make it more useful. As envisioned in the
proposal, the amended rule would have addressed several issues. It
would have made the rule applicable to U.S. depository institution
subsidiaries, as well as U.S. branches, of a foreign bank seeking
deposit insurance from the FDIC. It also would have required the
foreign bank to provide the FDIC with a written commitment (including
the foreign bank's consent to U.S. court jurisdiction and designation
of agent for service of process, acceptable to the FDIC) to:
Permit examination of the foreign bank and affiliates
located outside the U.S.;
Provide information regarding the foreign bank and
affiliates located outside the U.S.; and
Permit examination and provide information regarding the
offices and affiliates of the foreign bank that are located in the U.S.
In addition, the proposal would have allowed the FDIC to waive the
foreign examination provision if the FRB had determined that the
foreign bank was subject to comprehensive consolidated supervision
(``CCS''). It also would have allowed for the FDIC, in its discretion
and subject to the requirements specified in the regulation, to waive
some or all of the commitment requirements imposed by the section in
lieu of requiring its own separate commitment from the foreign bank.
There were two comments on proposed section 347.204. The ABA
expressed support for the proposed amendments to the section. The IIB
expressed concerns, however, about what it viewed as exertion of
``extraterritorial'' examination authority over non-U.S. offices and
affiliates of foreign banks. The IIB also asserted that the proposal
would reverse the FDIC's longstanding position, dating back to 1979,
when the original rule was adopted, when the FDIC recognized that
despite its broad statutory authority to conduct such examinations,
home country laws typically would prohibit the FDIC from doing so.
Therefore, the IIB observed, the FDIC adopted a compromise under which
it asserted examination authority only over U.S. branches and
affiliates and required an agreement to provide information concerning
operations of non-U.S. offices and affiliates. The IIB also felt that
the proposed foreign examination provision was largely unnecessary
because the proposed rule contained waiver authority for foreign banks
that had been determined to be subject to CCS. It noted that section 3
of the Bank Holding Company Act (12 U.S.C. 1842) required a finding of
comprehensive consolidated supervision by the FRB before a foreign bank
could acquire or establish a U.S. commercial bank subsidiary and that
the acquisition by a foreign bank of control of a savings
[[Page 17553]]
association was subject to a CCS determination by the OTS.
The FDIC has reviewed and considered the comments on proposed
section 347.204, as well as the information and an examination
requirement contained in existing section 347.208, and has decided to
make several revisions to section 347.204 in the final rule.
Although the IIB did not specifically reference the 1979 statement
mentioned in its comment, the FDIC believes that the reference was to a
comment contained in the preamble to the proposed rule for the FDIC's
initial foreign banking regulations. In that notice, the FDIC observed:
The FDIC is aware that most foreign banks would be prohibited,
or at least restricted, by law or policy of the country of the
bank's domicile from providing such a commitment. Were the FDIC to
require a commitment allowing the FDIC to conduct a full examination
of the bank, it is probable that no foreign bank could operate an
insured branch. This result clearly is not intended. Thus, the FDIC
proposes that a foreign bank agree to provide the FDIC with
information regarding the affairs of the bank and its affiliates
which are located outside the United States. As to activities within
the United States, the bank shall agree to allow the FDIC to examine
the affairs of the bank and its affiliates. 44 FR 23869, 23871
(April 23, 1979).
The FDIC believes that this conservative approach may have been
prudent in the context of foreign banks seeking deposit insurance for
U.S. branches in the late 1970s but that the approach has become
somewhat outdated and the rule should be more reflective of the
supervisory structure that is currently in existence. In this regard,
it is noted that the underlying statutory provision in the FDI Act and
the initial regulation preceded the failure of the Bank of Credit and
Commerce International (``BCCI'') in the early 1990s, which had an
impact on certain insured depository institutions in the United States
that had undisclosed relationships with BCCI. The underlying statutory
provision and initial regulation also preceded the enactment of
statutory amendments to the IBA, Bank Holding Company Act, and Home
Owners Loan Act, as part of the Foreign Bank Supervision and
Enforcement Act of 1991,\5\ that require comprehensive consolidated
supervision determinations in certain circumstances by the appropriate
Federal banking agency under those statutes, including the initial
acquisition of control or establishment of a U.S. bank, savings
association, branch, agency, or representative office. Because the
appropriate Federal banking agencies consider, as part of their CCS
determination, whether the foreign bank's home country supervisor
receives sufficient information on the worldwide operations of the
foreign bank to assess its overall financial condition and compliance
with laws and regulations, as specified in 12 CFR 211.24(c)(ii), the
FDIC believes acceptable commitments and assurances of cooperation by
the foreign bank, coupled with appropriate supervisory coordination and
communication with the home country regulator may be sufficient to
satisfy the examination commitment for a foreign bank and its
affiliates outside the U.S. Thus, a CCS determination from the
appropriate Federal banking agency should reduce the need for foreign
examination commitments. Therefore, the section has been rewritten to
eliminate the foreign examination commitment requirement as a
prerequisite for obtaining consideration of a deposit insurance
application if the foreign bank has been determined to be subject to
CCS by the appropriate Federal banking agency.\6\
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\5\ Pub. L. 102-242, 105 Stat. 2236, 2286 (1991).
\6\ In the event that the FDIC receives an application for
deposit insurance for a U.S. banking subsidiary of a foreign bank
that has not been determined to be subject to CCS by an appropriate
Federal banking agency, the FDIC expects the foreign bank to provide
the commitments required by section 347.204 and it may also require
the foreign bank to provide the FDIC such additional commitments and
assurances as the FDIC considers necessary under the circumstances.
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The FDIC has also revised the final rule to eliminate the waiver
provisions contained in paragraph (b) of the proposal. The first waiver
provision concerned the foreign examination commitment, which is no
longer addressed in paragraph (a) of the final rule. In addition, the
other waiver provision, regarding waivers for commitments provided to
other Federal banking agencies, has been deleted. Although the latter
provision was intended to avoid the appearance of duplication, the FDIC
is concerned that such waivers may create the potential for uncertainty
regarding the FDIC's authority under the commitments. Thus the FDIC
believes the potential enforcement difficulties attendant to such
waivers outweigh the potential benefits of such waiver authority.
The FDIC also has revised the consent to jurisdiction and
designation of agent provisions in the final rule to clarify those
provisions by eliminating the ``court'' and ``process'' references. The
FDIC presently requires that foreign owners of insured depository
institutions, including foreign banks, provide consents to personal
jurisdiction that are acceptable to the FDIC; however, the consents are
not limited merely to court proceedings.\7\ Thus, the consent to
jurisdiction and designation of agent provisions have been revised in
the final rule to avoid giving the erroneous impression that consents
to jurisdiction and designations of agents that are limited to consent
to jurisdiction of the U.S. courts and service of process in court
proceedings will be acceptable to the FDIC.
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\7\ The consents to jurisdiction and designation of agent that
the FDIC presently uses also include consent to agency jurisdiction
and investigations for various supervisory and enforcement purposes.
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Section 347.204(b)(3) of the proposal has also been made paragraph
(b) in the final rule and revised. Because the FDIC believes that an
acceptable consent to U.S. jurisdiction and designation of agent for
service are essential components needed to obtain binding commitments
from the foreign bank, the final rule clarifies that the consent to
jurisdiction and designation of agent for service (and any limitations
on the FDIC's ability to utilize them) will be considered together with
the commitments provided by the foreign bank. Additionally, as revised
by the final rule, the section recognizes that the FDIC also has
discretion to consider any additional commitments or assurances by the
foreign bank, including that it will cooperate and assist the FDIC,
including, without limitation, by seeking to obtain waivers and
exemptions from applicable confidentiality or secrecy restrictions or
requirements to enable the foreign bank or its affiliates to make such
information available to the FDIC.
Therefore, the FDIC is adopting section 347.204, as revised in this
final rule, for application to deposit insurance applications of U.S.
branches and depository institution subsidiaries of foreign banks.
Another issue addressed in the proposal was an amendment contained
in proposed section 347.206(d), concerning the transferability of
grandfathered branches to new foreign banks. As indicated in the
proposal, section 347.206 of the proposal is largely derived from
existing section 347.204(a)-(c) and implements section 6(d) of the IBA
(12 U.S.C. 3104(d)).\8\
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\8\ Section 6(d) of the IBA allows any insured branches that
were accepting or maintaining domestic retail deposit accounts on
December 19, 1991, to continue to operate as ``grandfathered''
insured branches conducting domestic retail deposit activities.
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As part of the EGRPRA process the IIB requested that the FDIC adopt
an interpretation of section 6(d) that would
[[Page 17554]]
allow the grandfathered branch status of an insured U.S. branch of a
foreign bank to survive the sale or transfer of the branch from one
foreign bank to another foreign bank. As indicated in the proposal, the
IIB'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 include an additional condition
(that is, the branch was not transferred after December 19, 1991). The
IIB 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 IIB 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) of the IBA. 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.
Having considered these points in the proposal, the FDIC observed
that it had narrowly construed the exception in the past and that a
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. The FDIC also noted that it
was 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. By reading the statute as a
whole, rather than merely focusing on the precise language of the
grandfathered branch exception, the proposed broad reading of the
exception was contrary to the direction Congress 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 recognized, however, that its existing regulations did not
address this issue and 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 proposed to address the issue
by providing in section 347.206(d) of the proposal that in certain
circumstances, such as certain merger and acquisition transactions,
which 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, the grandfathered
status of an insured branch should remain intact following the
transaction.
The FDIC received comments from the ABA and IIB on the proposed
amendment. The ABA indicated that it did not oppose the amendment,
noting that it appeared to state explicitly what has been considered to
be the law implicitly. The IIB, however, reiterated its previously
expressed view that there was adequate legal authority for the FDIC to
permit, rather than prohibit, the transferability of an insured branch
to another foreign bank without the loss of its grandfathered status.
It also suggested that permitting the grandfathered status of the
remaining 12 FDIC-insured branches to survive a transfer of the branch
would not be fundamentally inconsistent with the 1991 Congressional
determination that foreign banks seeking to engage in new domestic
retail activity do so through subsidiaries rather than branches.
As indicated earlier, the IIB's legal and policy arguments on the
transferability issue were submitted prior to the issuance of the
proposal and were considered and discussed in the proposal. Although
the FDIC recognizes that it might be possible to make legal and policy
arguments supporting the IIB's proposed broad reading of the
grandfather exception, the FDIC continues to believe that the exception
should be construed narrowly, since it is contrary to Congress' general
direction that foreign banks only engage in retail deposit taking after
December 19, 1991, through banking subsidiaries with deposit insurance
and that the statute not be construed to provide foreign banks with a
competitive advantage over domestic banks.
The IIB also noted that requiring a specific proper motivation in a
merger and acquisition might even call into question the survival of
grandfathered status following a change in control of the foreign
parent bank. It suggested, regardless of the FDIC's treatment of the
broader transferability issue, that the FDIC clarify that changes in
control of the foreign parent bank will not terminate the grandfathered
status of existing insured branches.
The FDIC believes that it may be problematic to make a general
statement such as that requested by the IIB in the context of a
rulemaking proceeding. The FDIC believes that a change in ownership of
a foreign bank that owns an insured branch may affect the FDIC's
interest in the insured institution and that the FDIC should have an
opportunity to evaluate the transaction before it is finalized.
Therefore, since the universe of grandfathered insured branches of
foreign banks is very limited, the FDIC believes that it is more
appropriate for a foreign bank considering this type of transaction to
discuss its planned structure with FDIC staff to evaluate whether the
grandfathered status of the branch will remain intact following the
proposed change in control of the existing foreign bank owner.
Therefore, for the reasons previously stated, the FDIC is adopting
section 347.206, as proposed, in the final rule.
The FDIC also proposed to add a new section 347.207 to the subpart
to facilitate cross-border supervision of insured U.S. branches and
banking subsidiaries of foreign banks by providing for the sharing of
supervisory information between the FDIC and foreign bank regulatory or
supervisory authorities. As indicated in the proposal, the section was
patterned after section 15 of the IBA (12 U.S.C. 3109) and 12 CFR
211.27. It also addressed 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 will
not waive any privilege applicable to such information. The ABA's
comment indicated that it supported the addition of the provision and
it is being adopted in the final rule without further amendment.
In amendments contained in section 347.209 of the proposal, the
FDIC proposed to revise the 5 percent asset pledge requirement,
contained in existing section 347.210, to make it
[[Page 17555]]
more risk-focused and take into consideration characteristics that may
be unique to each insured branch. As discussed in the proposal, under
the amended rule, the asset pledge requirement would be determined in a
manner similar to the approach the FDIC has taken with its risk-based
deposit insurance assessment system. In addition, any newly insured
branch would be subject to at least a 5 percent asset pledge
requirement throughout the first three years of its operations as an
insured branch.\9\ After the first three years of operations as an
insured branch, the asset pledge amount would 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 was also envisioned that the most
recent ROCA rating \10\ 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 considered 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 would then be determined based on the supervisory risk subgroup
assigned and the asset maintenance level applicable to the branch. The
amended section would generally permit the asset pledge to be lowered
to not less than 2 percent of third-party liabilities for insured
branches that were perceived to pose a lower potential risk and up to 8
percent of liabilities for insured branches that were 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 would remain unchanged.
---------------------------------------------------------------------------
\9\ The asset pledge requirement of newly insured branches has
been revised in the final rule to provide that the pledge will be
based on the branch's projection of its liabilities at the end of
each year during the first three years of its operations. This
revision is intended to avoid requiring a newly insured branch to
pledge assets based on its third year projected liabilities, which
will likely reflect its largest liability balance, during its first
and second years of operations, when its projected liabilities will
presumably be lower.
\10\ 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 FDIC also proposed amendments to the ``eligible collateral''
portion of the rule to specify that ``negotiable'' certificates of
deposit (``CDs'') with waivers of offset from their issuers, but not
non-negotiable CDs with waivers of offset from their issuers, and U.S.
Treasury bills would be considered eligible collateral under the rule.
All of the commenters discussed the proposed amendments to this
rule. The CSBS observed that the asset pledge and asset maintenance
requirements were extremely important and valuable supervisory tools.
It also observed that, while the role of the state asset pledge and
asset maintenance requirements is paramount for the protection of
creditors of uninsured branches, in the unique situation where retail
deposits are insured by the FDIC, the major objective is the protection
of depositors and that certain states had taken the initiative to avoid
the imposition of double asset pledge requirements by exempting FDIC
insured branches from state asset pledge requirements. Therefore, given
the unique situation posed by insured branches of foreign banks and
lack of effect on state prerogatives, the CSBS indicated that it did
not object to the proposed amendments to the FDIC asset pledge and
maintenance rules.
The ABA expressed general support for the amendments but suggested
that additional financial instruments be added to the eligible
collateral list in the rule. The ABA observed that the list of assets
that foreign banks may pledge under the existing rule includes certain
negotiable CDs and bankers acceptances issued by state and national
banks, but does not include the same types of instruments issued by
state and federal savings associations. The ABA also observed that
eligible collateral, under the existing rule, includes notes issued by
banks and bank holding companies but not savings associations and
thrift holding companies. The ABA believed that there was no reason to
distinguish between banks, savings associations, and their respective
corporate parents in this manner, since financial instruments provided
by these other issuers also would provide the same protection from the
FDIC.
The IIB supported adoption of a risk-based asset pledge requirement
but believed the proposed two percent minimum pledge amount should be
eliminated in favor of either (i) a completely risk-based requirement
or (ii) a smaller minimum. The IIB also disagreed with the FDIC's
proposal to amend the eligible collateral requirement to require
negotiable CDs with waivers of offset because of the practical burdens
associated with requiring grandfathered branches to substitute
negotiable CDs with waivers of offset for non-negotiable CDs with
waivers of offset. It also observed that non-negotiable CDs with
waivers of offset had been considered acceptable collateral for over 20
years.
The FDIC has considered the comments and is making certain
amendments to section 347.209 in the final rule. The FDIC asset pledge
requirement was established to provide the FDIC deposit insurance funds
protection against losses on insured deposit claims by depositors of
U.S. branches of foreign banks. While the FDIC is aware that the level
of assets required to be pledged to the FDIC by a foreign bank may have
an economic impact on the foreign bank, the FDIC's paramount interests
are maintaining and protecting the resources of the deposit insurance
funds that it administers and honoring its deposit insurance
obligations to depositors of insured U.S. branches of foreign banks.
Inherent in the asset pledge requirement, regardless of asset
maintenance requirements imposed on U.S. branches, is the possibility
that those U.S. branch assets may not be sufficient to pay the claims
of domestic creditors, including the FDIC. Therefore, the FDIC believes
that the proposed risk-based approach, including the two percent
minimum requirement, represents the best compromise between the
interest of the FDIC in assuring that the deposit insurance funds that
it administers are protected and the financial interests of foreign
banks in the pledged assets.
For similar reasons, although the FDIC may have allowed non-
negotiable CDs to be treated as eligible collateral in the past, the
FDIC is concerned that considering non-negotiable certificates of
deposit as the equivalent of negotiable certificates of deposit, for
asset pledge purposes, fails to take into consideration the potentially
decreased value of non-negotiable certificates of deposit in the event
of a forced sale, which is precisely the time the FDIC would be most
concerned about their value, because of their non-negotiability.
Therefore, except as provided in the final rule, the FDIC is adopting
the proposal to allow only negotiable CDs with waivers of offset to be
treated as eligible collateral for purposes of section 347.209. A
limited exception is provided in the final rule, however, to treat non-
negotiable CDs that insured branches have pledged on March 18, 2005 as
eligible collateral until those certificates of deposit mature
according to the original terms of their existing deposit
agreements.\11\ Finally,
[[Page 17556]]
the FDIC agrees with the ABA's recommendation concerning other types of
eligible collateral and the final rule has been amended to include
those additional types of financial instruments.
---------------------------------------------------------------------------
\11\ The FDIC recognizes that obtaining waivers of offset from
issuers of negotiable certificates of deposit may make the pledge of
certificates of deposit less attractive to foreign banks but there
are several other types of financial instruments specified in the
rule, besides certificates of deposit, that can be pledged by
foreign banks to meet the collateral requirements.
---------------------------------------------------------------------------
The FDIC also proposed various amendments relating to the asset
maintenance calculation for insured branches, in section 347.210 of the
proposal, including a revision that would have required insured
branches to maintain eligible assets at a ratio of 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. The amendment was proposed to avoid
potential anomalies that could be caused by using liability information
from the preceding quarter, such as instances where grandfathered
branches that were winding down their operations needed to calculate
their asset maintenance on a daily basis to maintain compliance with
the rule.
Two of the commenters addressed this revision. The ABA expressed
support for the amendment. The IIB, however, suggested that the mere
change of the longstanding quarterly calculation method would impose
systems and other burdens on insured branches that it felt could be
avoided by the FDIC continuing to resolve such situations on a case-by-
case basis. The IIB also suggested that the FDIC might consider a
specific modification to the existing asset maintenance requirement for
branches that are winding down their operations.
The FDIC has considered the comments, as well as the IIB's
representations to FDIC staff that it is less difficult to calculate
asset maintenance, based on fixed liability numbers, than based on the
daily assets and liabilities of a branch, which can fluctuate, and has
decided to retain the substance of the asset maintenance requirements
specified in existing section 347.211(a). In doing so, the FDIC notes
that the daily calculation method specified in the existing rule may be
used to address situations where the quarterly calculation method is
considered inappropriate from a supervisory perspective. This authority
may be utilized, in the FDIC's discretion, in instances where the
current third-party liabilities of a branch decline or increase
substantially in relation to the average book value of the branch's
third-party liabilities for the preceding quarter. In addition,
appropriate conforming changes are also being made in the final rule to
section 347.210(d), based on revisions being made to paragraph (a).
There were no public comments on the proposed amendments to subpart
B, other than those discussed above, and they are being adopted in the
final rule, with the revisions previously discussed.
V. Deposit Insurance for Wholesale U.S. Branches of Foreign Banks
The FDIC included a request for comments in the NPR concerning
whether the FDIC should revise its existing views regarding the
availability of FDIC insurance for wholesale U.S. branches of foreign
banks.
As explained in the NPR, the IIB expressed the view 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 but that
certain statements the FDIC made in the context of a 1998 final rule
may have had the effect of discouraging international banks from
applying for ``optional'' deposit insurance and that the FDIC should
not continue to discourage this effort.
In that 1998 final rule (63 FR 17056), which accompanied the
issuance of the FDIC's existing foreign banking rules in 1998, the FDIC
observed that 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 also
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 noted 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 the IIB advanced to support an expanded view of
the availability of deposit insurance for wholesale branches were:
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.
Some of the arguments and observations countering the IIB's
arguments were:
Difficulty in reconciling the idea 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 of the FDIC was needed with regard to wholesale branches of
foreign banks because the first $100,000 of customer deposits in a
wholesale branch would be insured to the same extent as deposits
maintained in any other FDIC insured depository institution;
Unlike bank subsidiaries, branches function as an integral
part of the foreign bank itself and do not have their own independent
board of directors. Thus, the directors of a foreign bank are not
usually subject to the U.S.
[[Page 17557]]
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;
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;
Operating through a branch, as opposed to subsidiary
structure, allows foreign banks 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; and
Due to the operating relationship of a branch to its home
office and dependence on the home office for financial support, the
insolvency of a foreign bank with a multinational branch structure will
result in the insolvency of the branches and this 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 FDIC received two comments concerning this section. The CSBS
expressed support for the view that ``optional insurance'' is not
specifically authorized by statute. The IIB indicated that it continued
to believe that the FDIC's concerns, such as those regarding the
potential impact on the FDIC insurance fund, were misplaced or could be
adequately addressed by other means. The IIB also requested that no
action be taken on its request to allow it to continue to explore ways
to address the FDIC's concerns.
As the FDIC has indicated above, there are arguments that can be
made for providing deposit insurance coverage to wholesale U.S.
branches of foreign banks, as well as compelling arguments that can be
made against providing such coverage. Therefore, the FDIC has decided
to maintain its previously stated position that, as a practical matter,
it does not foresee many circumstances in which it could be appropriate
for the FDIC's Board of Directors to approve such an application and
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.
VI. 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) that 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.
VII. Regulatory Flexibility Act
Under the Regulatory Flexibility Act (RFA), an agency must either
prepare a Final Regulatory Flexibility Analysis (FRFA) for a final rule
or certify that the final rule will not have a significant economic
impact on a substantial number of small entities. See 5 U.S.C. 604,
605(b). For purposes of the analysis or certification, financial
institutions with assets of $150 million or less are considered ``small
entities.'' The FDIC has reviewed the impact of this final rule on
small banks and, for the reasons provided below, certifies that the
final rule will not have a significant economic impact on a substantial
number of small entities.
The final 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 September 30, 2004, there were approximately
4,800 state nonmember commercial banks, but fewer than 40 of those
institutions report having foreign offices. Available information
indicates that state nonmember banks with foreign investments or
foreign branches are not small entities.
The final rule also makes revisions to update, reorganize, and
clarify the existing rules in subpart B of part 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, 2004, there were approximately 199 U.S. branches of
foreign banks, including 12 insured branches. Of this number, there
were approximately 90 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 requirement,
which is revised in section 347.209 of the final 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. Other revisions 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.
VIII. Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
[[Page 17558]]
IX. Plain Language Requirement
Section 722 of the Gramm-Leach-Bliley Act (GLBA) (12 U.S.C. 4809),
requires banking agencies to use plain language in all proposed and
final rules published after January 1, 2000. The proposed rule
requested comments on how the rule might be changed to reflect the
requirements of GLBA. No GLBA comments were received.
X. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has determined that the final
rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC
will file the appropriate reports with Congress and the General
Accounting Office so that the final rule may be reviewed.
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.
0
For the reasons set forth above and under the authority of 12 U.S.C.
1819(a) (Tenth), the FDIC Board of Directors hereby amends 12 CFR
chapter III as follows:
PART 303--FILING PROCEDURES
Subpart J--International Banking
0
1. The authority citation for part 303 is revised 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.
0
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 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.
0
3. Amend Sec. 303.183 by revising the section heading 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
[[Page 17559]]
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.
* * * * *
0
4. Amend Sec. 303.184 to revise paragraph (b)(1) and add paragraph (e)
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.
* * * * *
(e) Relocation of insured branch from one state to another. If the
foreign bank proposes to relocate an insured state branch to a state
that is outside the state where the branch is presently located, in
addition to meeting the approval criteria contained in paragraph (d) of
this section, the foreign bank must:
(i) Comply with any applicable state laws or regulations of the
states affected by the proposed relocation; and
(ii) Obtain any required regulatory approvals from the appropriate
state licensing authority of the state to which the insured branch
proposes to relocate before relocating the existing branch operations
and surrendering its existing license to the appropriate state
licensing authority of the state from which the branch is relocating.
* * * * *
0
5. Amend Sec. 303.186 to revise the section heading and paragraph
(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.
* * * * *
0
6. Amend Sec. 303.187 to revise the section heading 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 sections 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.
* * * * *
PART 325--CAPITAL MAINTENANCE
0
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).
0
8. Amend Sec. 325.103 to 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 or more of the preceding quarter's
average book value of the insured branch's third-party liabilities; and
(iii) Has not received written notification from:
(A) The OCC to increase its capital equivalency deposit pursuant to
12 CFR 28.15(b), or to comply with asset maintenance requirements
pursuant to 12 CFR 28.20; or
(B) The FDIC to pledge additional assets pursuant to Sec. 347.209
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 or more of the preceding quarter's
average book value of the insured branch's third-party liabilities; and
(iii) Does not meet the definition of a well capitalized insured
branch.
(3) Undercapitalized if the insured branch:
(i) Fails to maintain the pledge of assets required under Sec.
347.209 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 preceding
quarter's average book value of the insured branch's third-party
liabilities.
(4) Significantly undercapitalized if it fails to maintain the
eligible assets prescribed under Sec. 347.210 of this chapter at 104
percent or more of the preceding quarter's average book value of the
insured branch's third-party liabilities.
(5) Critically undercapitalized if it fails to maintain the
eligible assets prescribed under Sec. 347.210 of this chapter at 102
percent or more of the preceding quarter's average book value of the
insured branch's third-party liabilities.
* * * * *
PART 327--ASSESSMENTS
0
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).
0
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:
[[Page 17560]]
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 or more of the average book value of the
insured branch's third-party liabilities for the quarter ending on the
report date specified in paragraph (a)(1) of this section.
(ii) * * *
(B) * * *
(1) Maintains the pledge of assets required under Sec. 347.209 of
this chapter; and
(2) Maintains the eligible assets prescribed under Sec. 347.210 of
this chapter at 106 percent or more of the average book value of the
insured branch's third-party liabilities for the quarter ending on the
report date specified in paragraph (a)(1) of this section; and
* * * * *
0
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.
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
[[Page 17561]]
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 Sec. 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 Sec. 325.2
of this chapter.
(v) Well capitalized means well capitalized as defined in Sec.
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:
(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 section 347.119(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
[[Page 17562]]
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 section 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. 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;
(b) The bank or its affiliates must not otherwise control the
foreign organization; and
(c) 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.
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. 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 Sec. 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
[[Page 17563]]
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. 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. 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 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
\1\ rated as investment grade of:
---------------------------------------------------------------------------
\1\ 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, clearinghouses,
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
[[Page 17564]]
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): \2\
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\2\ 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 section 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;
(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 establish or relocate a 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 in
the country where the foreign organization will be located;
(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 state nonmember bank
has a foreign bank subsidiary or foreign branch (other than a shell
branch) in the country where the foreign organization will be located;
\3\ and
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\3\ A list of these countries can be obtained from the FDIC's
Internet Web Site at http://www.fdic.gov.
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[[Page 17565]]
(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
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. 347.213-347.216 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
[[Page 17566]]
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 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) In connection with an application for deposit insurance for a
U.S. branch or depository institution subsidiary of a foreign bank that
has been determined to be subject to comprehensive consolidated
supervision by the appropriate Federal banking agency, as defined in
section 3(q) of the FDI Act (12 U.S.C. 1813(q)), the foreign bank shall
provide binding written commitments (including a consent to U.S.
jurisdiction and designation of agent for service, acceptable to the
FDIC) to the following terms:
(1) 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:
(i) The relationship between the U.S. branch or depository
institution subsidiary and its affiliates; and
(ii) 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 of a foreign bank
if the foreign bank fails to provide the written commitments, consent
to U.S. jurisdiction, and designation of agent for service required by
this section.
(b) The FDIC will consider the existence and extent of any
prohibition or restrictions, if any, on its ability to utilize the
commitments, consent to U.S. jurisdiction, and designation of agent for
service required by this section, in determining whether to grant or
deny a deposit insurance application for the U.S. branch or depository
institution subsidiary of the foreign bank. In addition, the FDIC may
consider any additional assurances or commitments provided by the
foreign bank, including that it will cooperate and assist the FDIC,
without limitation, by seeking to obtain waivers and exemptions from
applicable confidentiality or secrecy restrictions or requirements to
enable the foreign bank or its affiliates to make information about the
foreign bank and its affiliates located outside of the United States
available to the FDIC for review.
(c) The foreign bank's commitments, consent to U.S. jurisdiction,
and designation of agent for service 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 branch or
[[Page 17567]]
depository institution application for insurance. Any 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 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 each of the first three years of operations.
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.\4\
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\4\ 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. 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.
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(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
------------------------------------------------------------------------
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:
[[Page 17568]]
(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)(i) Negotiable certificates of deposit that are payable in the
United States and that are issued by any state bank, national bank,
state or federal savings association, 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;
(ii) Non-negotiable certificates of deposit, subject to the terms
specified in paragraph (d)(1)(i) of this section other than the
requirement of negotiability, that were pledged as collateral to the
FDIC on March 18, 2005, until maturity according to the original terms
of the existing deposit agreement.
(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;
(4) Banker's acceptances that are payable in the United States and
that are issued by any state bank, national bank, state or federal
savings association, 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 and thrift holding companies, banks, or
savings associations 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 deliver (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.
[[Page 17569]]
(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 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
[[Page 17570]]
eligible assets in an amount not less than 106 percent of the preceding
quarter's average book value of the insured branch's liabilities or, in
the case of a newly-established insured branch, the estimated book
value of its liabilities at the end of the first full quarter of
operation, exclusive of liabilities due to the foreign bank's head
office, other branches, agencies, offices, or wholly owned
subsidiaries. The Director of the Division of Supervision and Consumer
Protection or his designee may impose a computation of total
liabilities on a daily basis in those instances where it is found
necessary for supervisory purposes. The FDIC Board of Directors, after
consulting with the insured branch's primary regulator, may require
that a higher ratio of eligible assets be maintained if the financial
condition of the insured branch warrants such action. Among the factors
which will be considered in requiring a higher ratio of eligible assets
are the concentration of risk to any one borrower or group of related
borrowers, the concentration of transfer risk to any one country,
including the country in which the foreign bank's head office is
located or any other factor the FDIC determines is relevant. Eligible
assets shall be payable in United States dollars.
(b) In determining eligible assets for the purposes of compliance
with paragraph (a) of this section, the insured branch shall exclude
the following:
(1) Any asset due from the foreign bank's head office, 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) The average book value of the insured branch's liabilities for
a quarter shall be, at the insured branch's option, either an average
of the balances as of the close of business for each day of the quarter
or an average of the balances as of the close of business on each
Wednesday during the quarter. Quarters end on March 31, June 30,
September 30, and December 31 of any given year. For days on which the
insured branch is closed, balances from the previous business day are
to be used. Calculations of the average book value of the insured
branch's liabilities for a quarter shall be retained by the insured
branch until the next federal examination.
Sec. 347.211 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 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;
[[Page 17571]]
(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 section 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 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:
(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,
[[Page 17572]]
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 exempted 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.
By order of the Board of Directors.
Dated at Washington, DC, this 18th day of March, 2005.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 05-6295 Filed 4-5-05; 8:45 am]
BILLING CODE 6714-01-P
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