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4000 - Advisory Opinions

Regulation O: Application of Recordkeeping Requirements to Subsidiary Bank Owned by Non-Bank Holding Company


August 3, 1993

Mark A. Mellon, Attorney

This is in response to your letter of June 9, 1993 to J. Virgil Mattingly, General Counsel of the Board of Governors of the Federal Reserve System. Mr. Mattingly informed you in his letter of July 19, 1993, that your request had been forwarded to the FDIC. I have been selected to answer your inquiry on the behalf of your client, [Company ("Co.")], relating to the recordkeeping requirements set forth in 12 C.F.R. § 215.8 (section 215.8 of Regulation O) as they apply to [Bank], a state-chartered nonmember bank which is a subsidiary of your client.

In your letter you state that [Co.] owns [Bank] pursuant to an exception to the Bank Holding Company Act's general prohibition of ownership of a bank by an entity which is not a bank holding company. As an insured nonmember bank, [Bank] is subject to the recordkeeping requirements of Regulation O as set forth in 12 C.F.R. § 215.8. See 12 C.F.R. § 337.3(a). Section 215.8 requires [Bank] to conduct an annual survey of all insiders (defined by section 215.2(f) as executive officers, directors, shareholders and related interests of those parties) of not only [Bank] but also of [Co.] and its subsidiaries, both domestic and foreign, to determine whether any insiders are indebted to [Bank] for an extension of credit.

You contend that application of this requirement to [Co.]'s foreign subsidiaries would impose an onerous regulatory burden upon [Bank] which would not significantly enhance compliance with Regulation O insider lending restrictions. You state that there are over 120 [Co.] foreign subsidiaries and that virtually all of [Bank]'s foreign loans are to employees of [Co.] who are temporarily assigned overseas. You therefore propose that [Bank] adopt alternative procedures with respect to its foreign subsidiaries to lessen [Bank]'s regulatory burden while still ensuring compliance with Regulation O.

You propose that [Bank]:

a.  Monitor all [Bank] customers who are [Co.] employees and assigned to overseas duty in order to determine whether they will be serving as insiders of a foreign subsidiary and

b.  Require prospective borrowers who reside outside of the United States to state whether they are affiliated with any [Co.] subsidiaries.

In light of the unusual circumstances which you describe, I do not see any point in requiring a comprehensive survey of [Co.] foreign subsidiaries for Regulation O purposes. As long as these proposed measures are strictly implemented, an annual survey by [Bank] of insiders of [Co.] foreign subsidiaries should be unnecessary. I must echo Mr. Mattingly's caveat in his letter to you, however, and caution you that my opinion only applies to the facts and circumstances which you have described and that the proposed measures may turn out to be inadequate if those facts and circumstances change.

I hope that this letter is responsive to your query. Please do not hesitate to contact me if you should have any questions about this or any other matter.

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