[Federal Register Volume 60, Number 128 (Wednesday, July 5, 1995)]
[Proposed Rules]
[Pages 34907-34922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16201]



 ========================================================================
 Proposed Rules
                                                 Federal Register
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 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 60, No. 128 / Wednesday, July 5, 1995 / 
Proposed Rules  


[[Page 34907]]


DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 20 and 28

[Docket No. 95-13]
RIN 1557-AB26


International Banking

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to revise its regulations governing the international 
operations of national banks and the operation of foreign banks through 
Federal branches and Federal agencies in the United States. The 
proposal is part of the OCC's Regulation Review Program, which seeks to 
simplify OCC regulations and reduce compliance costs, consistent with 
maintaining safety and soundness. The proposal streamlines and 
consolidates into one CFR part substantially all provisions relating to 
international banking that were previously included in 12 CFR parts 20 
and 28, and clarifies and simplifies their various requirements.
    The proposal also updates the rules to implement provisions of the 
Foreign Bank Supervisory Enhancement Act of 1991 (FBSEA) and the 
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 
(Interstate Act) relating to Federal branches and agencies.

DATES: Comments must be received by September 5, 1995.

ADDRESSES: Comments should be directed to: Communications Division, 250 
E Street SW, Washington, DC 20219, Attention: Docket No. 95-13. 
Comments will be available for public inspection and photocopying at 
the same location.

FOR FURTHER INFORMATION CONTACT: Raija Bettauer, Counselor for 
International Activities, (202) 874-0680; Manpreet Singh, Attorney, 
International Activities, (202) 874-0680; Timothy M. Sullivan, 
Director, International Banking and Finance, (202) 874-4730.

SUPPLEMENTARY INFORMATION:

Background

    The OCC is proposing comprehensive revisions to its international 
regulations (12 CFR parts 20 and 28) as part of its Regulation Review 
Program (Program). The goal of the Program is to review all of the 
OCC's rules and to eliminate provisions that impose unnecessary 
regulatory burdens and do not contribute significantly to maintaining 
the safety and soundness of national banks or to accomplishing the 
OCC's other statutory responsibilities. Another goal is to improve 
clarity and to better communicate the standards that the rules intend 
to convey. The proposed revisions also update the OCC's rules to 
implement provisions in the FBSEA (Pub. L. 102-242, title II, 105 Stat. 
2286) and Interstate Act (Pub. L. 103-328, 108 Stat. 2338) relating to 
Federal branches and Federal agencies of foreign banks, and add a 
mechanism for the OCC to obtain information on foreign banking 
organizations to improve the OCC's safety and soundness oversight of 
Federal branches and agencies.
    The proposal reduces regulatory burden on national banks and 
Federal branches and agencies by eliminating regulatory requirements 
that are not essential to maintaining the safety and soundness of their 
operations. The proposal also reduces the complexity of the existing 
statutory framework for international banking by referencing and 
dovetailing with, as much as possible, provisions in the regulations of 
the Board of Governors of the Federal Reserve Board (FRB) and the 
Federal Deposit Insurance Corporation (FDIC).

Discussion

    By updating the OCC's international banking regulations, the 
proposal makes the regulations more useful in providing guidance on 
issues arising in today's international banking context. The proposal 
furthers the goals of the OCC's Regulation Review Program by 
simplifying and clarifying applicable requirements, and by reducing 
regulatory duplication and complexity by promoting interagency 
regulatory uniformity.
    The proposal consolidates into a single comprehensive international 
regulation the substantive requirements governing international banking 
operations supervised by the OCC. Currently, the OCC's international 
regulations appear in three different CFR parts: part 28 for Federal 
branches and Federal agencies; part 20 for international operations of 
national banks and international lending supervision; and part 5 for 
provisions specifically addressing corporate applications of Federal 
branches and Federal agencies. The proposal consolidates all 
substantive international banking provisions into part 28, including 
the provisions currently located in part 20 relating to foreign 
operations of national banks.
    The OCC welcomes comments on the advisability of reorganizing its 
international banking regulations into part 28, and solicits 
suggestions regarding alternative organizational approaches that would 
be easier to use.
    Because subpart B of part 20, regarding international lending 
supervision, was originally promulgated as an interagency rulemaking, 
no substantive changes are proposed to be made to the subpart at this 
time. The OCC will coordinate with the other agencies before making any 
changes to subpart B. In the interim, current subpart B of part 20 is 
relocated and incorporated as subpart C of part 28. Commenters may 
still comment on the subpart, however, in order to bring particular 
issues to the OCC's attention at this time.
    The procedural requirements of part 5 continue to apply to Federal 
branches and Federal agencies, unless otherwise provided, and part 28 
cross-references the procedural requirements in part 5, as appropriate. 
The revision of the Comptroller's Corporate Manual will also provide an 
opportunity to provide additional and more comprehensive guidance on 
the application of the general corporate regulations to the foreign 
bank context.
    The OCC invites comment on the best means and extent of guidance 
needed regarding corporate applications by Federal branches and Federal 
agencies.
    The discussion below identifies and explains significant proposed 
changes to the current requirements in parts 20 and 28. A derivation 
table comparing the sections of proposed part 28 to those of 

[[Page 34908]]
the current parts 20 and 28 follows this section of the preamble.
    The OCC requests general comments on all aspects of the proposed 
regulation as well as comments on specific changes in the rules.

Subpart A--Foreign Operations of National Banks

Authority, Purpose, and Scope (Section 28.1)
    The proposal relocates and consolidates the current Sec. 20.1, 
``Authority and policy'', into part 28. The provisions of subpart A 
apply to all national banks that engage in international operations 
through a foreign branch, or acquire an interest in an Edge 
corporation, Agreement corporation, foreign bank, or certain other 
foreign organizations.

Definitions (Section 28.2)

    The proposal updates and revises definitions applicable to foreign 
operations of national banks to reflect the OCC's current practice, and 
to be consistent with the definitions adopted by the FRB in 12 CFR part 
211, subpart A (International Operations of United States Banking 
Organizations) (Regulation K). The proposal adds the definitions of 
``foreign branch'' and ``foreign country'', and updates the definition 
of ``foreign bank.''

Foreign Bank (Section 28.2(c))

    The proposal defines ``foreign bank'' as an organization that is 
organized under the laws of a foreign country, engages in the business 
of banking, is recognized as a bank by the home country supervisor, 
receives deposits, and has the power to accept demand deposits. This is 
modelled on the definition in Regulation K.

Foreign Branch (Section 28.2(d))

    The proposal includes a new definition to define the term ``foreign 
branch'' as it is used in proposed Sec. 20.3, ``Filing requirements for 
foreign operations of national banks.'' The proposal defines ``foreign 
branch'' as an office of a national bank that is located outside the 
United States at which banking or financial business is conducted. This 
definition is modelled on the definition in Regulation K.

Foreign Country (Section 28.2(e))

    The definition of the term ``foreign country'' is also new. The 
proposal defines ``foreign country'' as one or more foreign nations, 
and includes the overseas territories, dependencies, and insular 
possessions of those nations and of the United States, and Puerto Rico. 
This definition is similar to the definition in Regulation K.

Filing Requirements for Foreign Operations of National Banks (Section 
28.3)

    The proposal requires a national bank to notify the OCC when it 
opens, relocates, or closes a foreign branch. This is necessary and 
desirable in order for the OCC to supervise consolidated national bank 
operations. The national bank may satisfy this requirement by providing 
the OCC with a copy of the appropriate filing made with the FRB. Thus, 
while the proposal may require notification in some instances where it 
is not currently required, it does not require a bank to fill out new 
reports. The proposal also removes the requirement for two separate 
filings that national banks must make currently when they establish a 
foreign branch or acquire certain foreign investments.
    The proposal removes the requirement for reports on certain foreign 
exchange activities, currently found at Sec. 20.5. The FRB's current 
reporting requirements for member banks requires comparable information 
and the reports described in current Sec. 20.5 are not, therefore, 
necessary for OCC's bank supervisory purposes, since the OCC may obtain 
the reports from the FRB.

Permissible Activities (Section 28.4)

    The proposal clarifies that a national bank may engage abroad in 
any activity that is available to it domestically and that is usual in 
connection with the banking business at the foreign location where the 
national bank transacts business. The proposal also notes that under 
Regulation K, a national bank may engage in other activities approved 
by the FRB. Pursuant to section 25 of the Federal Reserve Act (FRA) (12 
U.S.C. 604a), the FRB also may authorize foreign branches of member 
banks to exercise powers that are consistent with the charter of the 
bank and are usual in the banking business at the location where the 
branch operates. The OCC's examination and supervision of national 
banks currently includes these overseas branches and activities.
    The proposal also restates the provision previously found at 12 CFR 
7.7012 regarding the permissibility of national bank guarantees of 
liabilities of its Edge corporations and other foreign operations. In 
connection with revising 12 CFR part 7, the OCC determined that this 
provision would be more logically placed in the international 
regulation.

Liability of National Banks for Foreign Branch Deposits

    Section 326 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRI Act) (12 U.S.C. 633), limits a United 
States bank's liability for deposits in its foreign branches in case of 
a sovereign action by the foreign country in question, or in cases of 
war, insurrection, or civil strife. This provision was included in the 
CDRI Act because the issue of liability for foreign branch accounts in 
the past has been a subject of protracted litigation. The CDRI Act 
permits the OCC and FRB to prescribe regulations as they deem necessary 
to implement this section.
    The OCC invites comment on whether regulatory guidance or 
clarification is needed to implement the statutory provision. The 
comments should set forth in detail the subject areas or terms, such as 
``inability to repay'' and ``due to'', for which guidance and 
clarification may be needed and recommendations for that guidance and 
clarification.

Subpart B--Federal Branches and Agencies of Foreign Banks

Authority, Purpose, and Scope (Section 28.10)

    The proposal updates current Sec. 28.1, ``Scope'', to include and 
clarify the authority and purpose of this subpart. The proposal 
clarifies that this subpart implements and clarifies the International 
Banking Act of 1978 (IBA) (12 U.S.C. 3101 et seq.), pertaining to the 
licensing, supervision, and operations of Federal branches and agencies 
of foreign banks in the United States.

Definitions (Section 28.11)

    The proposal revises this section to add several definitions and 
update others. The changes assist in the implementation of new 
statutory requirements and make the OCC's regulations more consistent 
with FRB and FDIC regulations. By promoting uniformity among bank 
regulatory agencies, these changes reduce the burden of compliance with 
different sets of applicable regulations. The proposal adds or updates 
the following key definitions:

Change the Status (Section 28.11(b)) and Establish (Section 28.11(d))

    These are new definitions describing the corporate activities for 
which OCC approval is required. The proposal defines ``change the 
status'' of an office to include conversion from a state branch or 
state agency to a Federal 

[[Page 34909]]
branch, Federal agency, or limited Federal branch, and from a Federal 
branch, Federal agency, or limited Federal branch to another Federal 
office (branch, limited branch, or agency).
    The proposal defines ``establish'' as opening and engaging in 
business at a new Federal branch or Federal agency. It also includes 
the acquisition of a Federal branch or agency through a merger, 
consolidation, or similar transaction with another foreign bank or a 
foreign bank subsidiary, and various conversions and relocations within 
a state, or from one state to another.

Federal Agency (Section 28.11(e))

    The proposal makes this definition consistent with the definition 
in Regulation K and the IBA by clarifying that a Federal agency may 
maintain credit balances, cash checks, and lend money, but generally 
may not accept deposits from citizens or residents of the United 
States. Usage of the term ``credit balances'' is also consistent with 
Regulation K.

Federal Branch (Section 28.11(f))

    The proposal makes this definition consistent with the definition 
in Regulation K and the IBA by clarifying that a Federal branch is an 
office licensed by the OCC that is not a Federal agency as defined in 
proposed Sec. 28.11(e).

Foreign Bank (Section 28.11(g))

    The proposal makes this definition consistent with the definition 
in Regulation K and the IBA by clarifying that a foreign bank is 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, and that engages directly in the business of 
banking outside the United States.

Foreign Business (Section 28.11(h))

    This new definition clarifies the term ``foreign business'' as it 
is used in proposed Sec. 28.16, ``Deposit-taking by uninsured Federal 
branches'', which permits uninsured Federal branches to accept initial 
deposits of less than $100,000 from a ``foreign business''. The 
proposed definition attempts to balance Congress' concern that foreign 
banks not receive an unfair advantage over United States banks by 
engaging in retail deposit-taking through uninsured branches and the 
importance of maintaining credit availability to all sectors of the 
United States economy, including international trade finance.
    The proposal defines ``foreign business'' to mean any entity, 
including a corporation, partnership, sole proprietorship, association, 
or trust that is organized under the laws of a foreign country, or any 
United States entity that is controlled by a foreign entity or foreign 
national. A foreign entity or foreign national shall be deemed to 
control a United States entity if the foreign entity or individual 
directly controls, or has the power to vote 25 percent or more of any 
class of voting securities of, the United States entity or controls in 
any manner the election of a majority of the directors or trustees of 
the other entity.
    This definition accommodates businesses owned by foreign nationals 
who are residents of the United States and concerned about credit 
availability to their businesses. These businesses may prefer to do 
business with a branch of a foreign bank from their home country 
regardless of whether the branch is FDIC insured.
    The OCC specifically invites commenters to address the scope of 
this definition.

Foreign Country (Section 28.11(i))

    This new definition clarifies the term ``foreign country'' as used 
in this subpart to mean one or more foreign nations, and includes the 
overseas territories, dependencies, and insular possessions of those 
nations and of the United States, and the Commonwealth of Puerto Rico.

Home Country (Section 28.11(j))

    This new definition clarifies the term ``home country'' as used in 
proposed Sec. 28.12, and is similar to the definition in Regulation K. 
The proposal defines ``home country'' as the country in which the 
foreign bank is chartered or incorporated.

Home Country Supervisor (Section 28.11(k))

    This new definition clarifies the term ``home country supervisor'' 
as it is used in proposed Sec. 28.12, and is similar to the definition 
in Regulation K. The proposal defines ``home country supervisor'' as 
the governmental entity or entities in the foreign bank's home country 
with responsibility for supervising and regulating the foreign bank.

Home State (Section 28.11(l))

    This new definition of ``home state'', as it is used in proposed 
Sec. 28.17, is consistent with the description of ``home state'' in 
section 104(d) of the Interstate Act amending section 5(c) of the IBA, 
12 U.S.C. 3103(c). The proposal defines ``home state'' to mean the 
state in which the foreign bank has an office. If a foreign bank has an 
office in more than one state, the home state of the foreign bank is 
one state of those states that is selected to be the home state by the 
foreign bank or, in default of such selection, by the FRB. The FRB's 
Regulation K, 12 CFR 211.22(b), also permits a foreign bank to change 
its home state designation once by providing 30 days prior notice to 
the FRB.

Initial Deposit (Section 28.11(m))

    This new definition clarifies the term ``initial deposit'' as used 
in proposed Sec. 28.16, and is similar to the definition found in the 
comparable FDIC regulation, 12 CFR 346.1(k). The proposal defines 
``initial deposit'' to mean the first deposit transaction between a 
depositor and the branch made on or after the effective date of this 
regulation. The initial deposit may be placed into different deposit 
accounts or into different kinds of deposit accounts, such as demand, 
savings, or time accounts. Deposit accounts that are held by a 
depositor in the same right and capacity may be added together for the 
purpose of determining the dollar amount of the initial deposit.

International Banking Facility (Section 28.11(n))
    This new definition clarifies the term ``International banking 
facility'' as it is used in proposed Sec. 28.20, and incorporates the 
definition found in 12 CFR 204.8. The proposal defines ``international 
banking facility'' to mean a set of asset and liability accounts 
segregated on the books and records of a bank, a United States branch 
or agency of a foreign bank, or an Edge or Agreement Corporation, that 
includes only international banking facility time deposits and 
extensions of credit.

Large United States Business (Section 28.11(o))

    This new definition clarifies an exception to the general 
prohibition of deposit taking by Federal branches in proposed 
Sec. 28.16, which permits uninsured Federal branches to accept initial 
deposits of less than $100,000 from ``large United States businesses''. 
The proposal attempts to balance Congress' concern that foreign banks 
not receive an unfair competitive advantage over United States banks by 
engaging in retail deposit-taking through uninsured branches and the 
importance of maintaining credit availability to all sectors of the 
United States economy. There does not appear to be a commonly-accepted 
or standard definition for a ``large business''. Therefore, the 
proposal describes 

[[Page 34910]]
alternative criteria for determining whether a business is a ``large 
United States business'' for purposes of proposed Sec. 28.16.
    The proposal defines ``large United States business'' to mean any 
business entity that is organized under the laws of the United States, 
and (1) the securities of which are registered on a national securities 
exchange or quoted on the National Association of Securities Dealers 
Automated Quotation System; or (2) has more than $1.0 million in annual 
revenues for the fiscal year preceding the year of the initial deposit. 
The OCC believes that this definition meets the Congress' concern 
without having a negative impact on the competitive position of foreign 
and United States banks and the availability of credit to all sectors 
of the United States economy.
    Commenters are requested to provide detailed comments on this 
definition, including the appropriateness of the criteria, or 
alternative criteria.

Managed or Controlled (Section 28.11(q))

    This new definition clarifies the term ``managed or controlled'' as 
used in proposed Sec. 28.13. The definition is consistent with the 
definition used for the purposes of determining which entities must 
file the Supplement (FFIEC 002S) to the Report of Assets and 
Liabilities of United States Branches and Agencies of Foreign Banks 
(FFIEC 002). The proposal defines ``managed or controlled'' to mean 
that a majority of the responsibility for business decisions, including 
decisions with regard to lending or asset management or funding or 
liability management, or the responsibility for recordkeeping in 
respect of assets or liabilities for that non-United States office, 
resides at the United States branch or agency.
    The OCC invites comment on whether to adopt this definition or some 
other definition of ``managed or controlled''.

Parent Foreign Bank Senior Management (Section 28.11(s))

    This new definition clarifies the term ``parent foreign bank senior 
management'' as that term is used in proposed Sec. 28.13(c). The 
proposal defines ``parent foreign bank senior management'' to mean 
individuals at the executive level of the parent foreign bank who are 
responsible for supervising and authorizing activities at the Federal 
branch or Federal agency.

Approval of Federal Branches and Federal Agencies (Section 28.12)

    The proposal updates and clarifies the applicable criteria for OCC 
approval of the establishment of a Federal branch, Federal agency, or a 
limited Federal branch. In reviewing an application by a foreign bank 
to establish a Federal branch or Federal agency, the OCC will consider 
the criteria listed in sections 4(c) and 7(d) of the IBA, 12 U.S.C. 
3102(c) and 3105(d). These criteria include the financial and 
managerial resources and future prospects of the applicant foreign bank 
and the Federal branch or Federal agency, information necessary to 
process the application, assurances regarding the prospective 
availability of information necessary for supervisory purposes, 
compliance with applicable United States law, competitive effects, the 
home country supervisor's consent to the proposed establishment of the 
Federal branch or Federal agency, and the extent of consolidated and 
comprehensive supervision and regulation by the home country supervisor 
of the applicant foreign bank.
    In 1991, the FBSEA added section 7(d) to the IBA, 12 U.S.C. 
3105(d), listing mandatory and discretionary criteria that the FRB was 
to apply in approving applications by foreign banking organizations. 
Many of the discretionary criteria, such as the financial and 
managerial resources, consent of the home country supervisor, 
prospective availability of information, and compliance with law are 
consistent with factors already considered by the OCC as a matter of 
practice and supervisory discretion. The proposal clarifies that the 
OCC continues to consider these criteria in the approval process. The 
FBSEA's mandatory requirement at 12 U.S.C. 3105(d) for the FRB 
regarding the consolidated and comprehensive supervision of the 
applicant bank by its home country supervisor generally is consistent 
with, although more stringent than, the Minimum Standards for the 
Supervision of International Banking Groups recommended by the Basle 
Committee on Banking Supervision. The proposal notes that the OCC 
considers, as part of its approval criteria, the extent to which the 
applicant foreign bank is subject to comprehensive and consolidated 
supervision and regulation by its home country.
    The proposal also streamlines procedures for certain intrastate 
relocation, conversion, and fiduciary activities applications by 
eligible foreign banks for Federal branches and Federal agencies. An 
application by an eligible foreign bank to convert its Federal agency, 
Federal branch, or limited Federal branch to another Federal office 
(branch, limited branch, or agency) is deemed approved 45 days after 
filing with the OCC, unless the OCC notifies the bank prior to that 
date that the filing is not eligible for expedited approval. An 
application by an eligible foreign bank to exercise fiduciary powers at 
an established Federal branch shall be deemed approved 30 days after 
filing, unless the OCC notifies the bank prior to that date that the 
filing is not eligible for expedited approval. Expedited processing is 
not available if the OCC concludes that the filing presents significant 
supervisory or compliance concerns, or raises significant legal or 
policy issues.
    For purposes of this section, a foreign bank is an ``eligible 
foreign bank'' if each Federal branch and Federal agency of the foreign 
bank in the United States: (1) has a composite rating of 1 or 2 under 
the rating system for United States branches and agencies of foreign 
banking organizations; (2) is not subject to a cease and desist order, 
consent order, formal written agreement, or Prompt Corrective Action 
directive (see 12 CFR part 6) or, if subject to such order, agreement, 
or directive, is informed in writing by the OCC that the parent foreign 
bank may be treated as an ``eligible foreign bank'' for purposes of 
this section; and (3) has, if applicable, a Community Reinvestment Act 
(CRA), 12 U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory''.
    Twelve CFR part 5 contains procedural provisions applicable to 
Federal branches and Federal agencies. The proposal cross-references 
part 5 and also refers applicants to the Comptroller's Corporate Manual 
for additional clarification.

Permissible Activities (Section 28.13)

    The proposal restates the current provision regarding the 
applicability of domestic law to Federal branches and Federal agencies. 
The OCC believes that it is not practical to provide more detailed 
guidance on this aspect in a regulation, and will instead use other 
vehicles to provide necessary clarification about the applicability of 
various statutes, regulations, and supervisory policies to Federal 
branches and Federal agencies.
    The OCC specifically invites comment on forms of supplemental 
guidance that would be most useful.
    The proposal also clarifies the OCC's current policy that the 
senior management of the parent bank generally must approve a decision 
where an applicable statute requires approval by the board of directors 
of a national bank.
    The proposal adds a new provision to implement the provisions of 
the Interstate Act regarding the ability of a 

[[Page 34911]]
United States branch or agency of a foreign bank to manage the foreign 
bank's offshore office activities. The Interstate Act amended the IBA, 
12 U.S.C. 3105(k), to limit a branch or agency of a foreign bank to 
managing only those types of activities at its offshore offices that a 
United States bank is permitted to manage at its offshore branch or 
subsidiary. This prohibition applies only to those offshore offices 
that are ``managed or controlled'' by a foreign bank's United States 
branches or agencies, and the proposal defines this phrase, as 
discussed in the definitions section (Sec. 28.11(p)). Accordingly, the 
proposed restrictions only apply to those offshore offices for which a 
United States branch or agency has substantial responsibility with 
regard to assets or liabilities or recordkeeping.
    The OCC believes that a determination that the restrictions apply 
should be made based on where substantive decision making authority or 
responsibility lies. For example, a United States branch or agency 
would be deemed to manage or control an offshore office if: (1) the 
manager for both the United States branch or agency and the offshore 
office are the same person or there is other significant overlap in 
personnel; (2) substantial responsibility for decisions regarding 
either assets or liabilities of the offshore office resides with staff 
in the United States office; or (3) recordkeeping systems for either 
assets or liabilities of the offshore office are maintained in the 
United States office. The proposed restrictions generally would not 
apply with respect to offshore offices that are operating facilities 
managed and controlled by staff located at the offshore office or at 
locations other than the United States.
    The types of activities that United States branches or agencies of 
foreign banks may manage through a controlled offshore office are the 
same types of activities that a United States bank may manage at its 
foreign branch or subsidiary. These include activities permissible 
under the bank's charter and applicable regulations. In addition, 
foreign branches and subsidiaries of national banks may, to the extent 
permissible in the relevant offshore location, engage in activities and 
make investments under sections 25 and 25(a) of the FRA, 12 U.S.C. 601 
through 604a and 12 U.S.C. 611 through 631, respectively.
    The OCC invites comment on this new provision, including whether 
the procedural or quantitative supervisory requirements that may apply 
to an activity by a United States bank at its foreign branches or 
subsidiaries should also apply to the United States branch or agency of 
the foreign bank in this context.
    Finally, the proposal adds a new provision regarding the 
application of section 7(h) of the IBA, 12 U.S.C. 3105(h). The FBSEA 
amended section 7 to provide that, unless the appropriate Federal 
banking agencies determine otherwise, a state branch or state agency 
may not engage in any type of activity that is not permissible for a 
Federal branch. The proposal clarifies that the OCC may issue opinions, 
interpretations, or rulings regarding the types of activities 
permissible for Federal branches. Thus, the OCC may respond to relevant 
inquiries by providing the OCC position in instances where there is no 
explicit statutory provision, current regulation, or precedent 
regarding permissible activities for Federal branches, in order to 
assist in determining whether those activities are permissible for 
state branches and state agencies pursuant to section 7(h).

Limitations Based on Capital of Foreign Banks (Section 28.14)

    The proposal clarifies that a foreign bank's capital must be 
calculated in a manner similar to a national bank's capital, i.e., 
consistent with 12 CFR part 3. However, foreign banks' financial 
statements may not readily lend themselves to a calculation that 
results in determining its ``part 3 capital'', particularly since the 
Basle risk-based capital standards have not been adopted globally. 
Therefore, the OCC expects that this provision often will require case-
by-case application, and it will exercise discretion in implementing 
this provision.
    The proposal also requires that the business transacted by all 
Federal branches and Federal agencies be aggregated with business 
transacted by all state branches and state agencies in determining the 
foreign bank's compliance with limitations based upon the capital of 
the foreign bank. This approach parallels the requirements applicable 
to state-licensed branches and agencies.
    The OCC invites comments on this aspect of the proposal.

Capital Equivalency Deposits (CED) (Section 28.15)

    The proposal restates the current provision that eligible CED 
instruments for Federal branches and Federal agencies include dollar 
deposits or investment securities that are permissible investments for 
a national bank. The proposal also permits high-grade commercial paper 
and bankers' acceptances, as functional equivalents of deposits. In the 
past, the OCC has noted that the quality of bank certificates of 
deposit offered as CED has occasionally been questionable or difficult 
to ascertain. Also, the securities used as CED may be very volatile or 
difficult to price at market value. Therefore, the proposal requires 
that the CED securities be marketable and, if not priced in a published 
source (such as the Wall Street Journal or the Financial Times), be 
priced by an independent pricing service at least quarterly. The 
proposal also authorizes the OCC to disallow, on a case-by-case basis, 
specific certificates of deposit or securities. As a general rule, the 
proposal parallels in many respects asset pledge requirements that 
apply to state branches and agencies, such as those operating in New 
York.

Deposit-Taking by Uninsured Federal Branches (Section 28.16)

    The proposal implements amendments to section 6 of the IBA 
regarding deposit-taking by uninsured Federal branches, 12 U.S.C. 3104. 
First, section 214 of the FBSEA, as amended by section 302(a) of the 
Defense Production Act Amendments of 1992 (Pub. L. 102-558, 106 Stat. 
4198), amended section 6 of the IBA in 1991 to generally prohibit a 
foreign bank from establishing any new branches that take domestic 
retail deposits of less than $100,000. Subsequently, section 107(b) of 
the Interstate Act amended the IBA to require the OCC and the FDIC, 
after consultation with the other Federal banking agencies, to revise 
their regulations regarding deposit-taking by uninsured branches. The 
objective of this amendment was to ensure that foreign banks do not 
enjoy an unfair competitive advantage over United States banks through 
their remaining ability to accept certain types of deposits. At the 
same time, the Congress was concerned about, and required the bank 
regulatory agencies to consider, any negative impact that further 
restrictions in this regard might have on maintaining and improving the 
credit availability to all sectors of the United States economy, 
including trade finance.
    Section 107(b) of the Interstate Act requires the OCC and the FDIC, 
in reviewing their regulations, to consider whether to permit an 
uninsured branch of a foreign bank to accept initial deposits of less 
$100,000 only from the six types of customers specified in the statute. 
The OCC notes that the Interstate Act does not require the OCC to 
implement the six exemptions 

[[Page 34912]]
described in the Interstate Act verbatim, or only just those six. 
Rather, the statute specifically provides that the OCC ``shall consider 
whether to permit'' uninsured branches to accept initial deposits of 
less than $100,000 from the enumerated exemptions, and also consider 
the importance of maintaining and improving credit availability to all 
sectors of the United States economy, including international trade 
finance. By inviting the agencies to consider the enumerated 
exemptions, Congress intended the agencies to utilize their expertise 
in implementing this provision.
    The Interstate Act also provides that the agencies must reduce, 
from the current 5 percent of average branch deposits, to no more than 
1 percent, the exemption that allows uninsured branches to accept 
initial deposits of less than $100,000 from any party on a de minimis 
basis. The agencies also are allowed to establish reasonable transition 
rules to facilitate termination of any deposit taking activity that 
previously was permissible.
    The OCC has carefully considered Congress' concern that foreign 
banking organizations not receive an unfair competitive advantage over 
United States banking organizations. An OCC study conducted in 1994, 
entitled ``Are Foreign Banks Out-Competing U.S. Banks in the U.S. 
Market?'' (OCC Study), found that although the market share of foreign-
owned banks (subsidiaries, branches, and agencies) in the United States 
grew during the 1980s and early 1990s, foreign-owned banks in the 
United States, including Federal branches and agencies, persistently 
underperformed United States banks as measured by profitability, 
efficiency, and, recently, credit quality. In addition, the OCC has 
reviewed data that updates available figures on the deposit taking 
activities of uninsured United States branches of foreign banks. As of 
year-end 1994, these offices of foreign banks held $386 billion of 
total deposits, which funded just over half of the total United States 
assets of these offices. All available data relating to these deposits 
suggest that, as a group, uninsured United States offices of foreign 
banks do not compete for retail deposits. Of the total deposits 
accepted by these offices, 78 percent were accepted from other banks or 
non-United States entities. The data also suggests that these uninsured 
offices obtain less than 2 percent of their total funding from small 
deposits.
    The proposal states the OCC policy to interpret and implement the 
relevant statutory provisions in view of the Congressional concerns 
that prompted the IBA amendment, such as ensuring equal competitive 
opportunities among United States and foreign banks and credit 
availability to all sectors of the economy, including trade finance. 
The proposal provides that an uninsured Federal branch may accept 
initial deposits of less than $100,000 from the six types of customers 
specified in the Interstate Act. The proposal also includes certain 
other relationships within the exemptions, where those relationships 
appear to be consistent with the purposes of the Act. Proposed 
Sec. 28.16(b)(3) permits an uninsured branch to accept deposits from 
persons with whom the branch or foreign bank has a written agreement to 
extend credit or provide nondeposit banking services within 12 months 
after the date of the initial deposit. This approach recognizes that in 
a banking relationship, a deposit may, in some cases, precede the 
extension of credit or providing of other nondeposit banking services 
by the branch or foreign bank. Proposed Sec. 28.16(b)(6) also permits 
an uninsured branch to accept deposits from Federal and state 
governmental units. The data described earlier suggests that the 
ability of uninsured branches of foreign banks to accept deposits from 
Federal and state governments does not confer an unfair competitive 
advantage to uninsured branches of foreign banks compared to domestic 
banking organizations. Proposed Sec. 28.16(b)(8) permits an uninsured 
branch to accept deposits from persons that may deposit funds with an 
Edge corporation pursuant to Regulation K, 12 CFR 211.4 (generally 
including foreign persons, foreign governments, and other persons 
engaged in international business activity). This exemption is 
consistent with the Congressional concern not to impair international 
trade or trade finance.
    The OCC invites comment on the proposed categories of exemptions. 
If additional exemptions are suggested, the commenters are requested to 
specify why the additional exemption is needed and its impact on the 
United States and foreign banks' competitive opportunities, as well as 
on improving credit availability in the United States.
    In addition, the proposal includes the 1 percent de minimis 
exemption, and provides for criteria and procedure for requesting 
additional exemptions. Currently, the de minimis amount is based on the 
average daily deposits of the branch for the last thirty days of the 
previous calendar quarter. The OCC solicits comment on streamlining and 
simplifying the method for calculating the de minimis amount, such as 
basing the de minimis amount on the branch's average deposits 
calculated using the branch's deposits at the end of each month for the 
previous calendar quarter. The commenters are requested to address 
whether that alternative approach, or any other, would reduce 
regulatory burden while still providing a reliable indicator of 
compliance with the de minimis amount.
    The OCC also is considering extending the exemption in 
Sec. 28.16(b)(3) to permit uninsured Federal branches to accept 
deposits from persons, and their affiliates, to whom the branch, 
foreign bank, or any financial institution affiliate thereof has 
extended credit or provided other non-deposit banking services within 
the past 12 months, or with whom the branch, bank, or financial 
institution affiliate has a written agreement to extend credit or 
provide such services. The term ``affiliate'' might be defined to mean 
any entity (including an individual) that controls, is controlled by, 
or is under common control with, another entity. An entity would be 
deemed to control another entity if the entity directly 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. The term 
``financial institution'' could be defined to mean any depository 
institution, depository institution holding company, or foreign bank as 
those terms are defined in section 3 of the Federal Deposit Insurance 
Act, 12 U.S.C. 1813, any broker or dealer, or futures commission 
merchant as defined in 12 U.S.C. 4402, and any investment advisor.
    These additional exemptions may be warranted by the close 
connection among the foreign entity's various components. For instance, 
affiliates of the foreign bank and its depositors may prefer to do 
business with a branch of the foreign bank with which they have a 
direct or indirect relationship. This deposit relationship may, in some 
cases, precede the extension of credit or providing of other nondeposit 
banking services by the branch, foreign bank, or financial institution 
affiliate.
    The OCC is also considering adding a new exemption, not specified 
in the Interstate Act, that permits uninsured branches, as a matter of 
convenience to its customers, to accept deposits from immediate family 
members of individuals that may qualify for an exemption under 
Sec. 28.16(b)(1) through (b)(7).
    The OCC requests comment on extending the proposed exemption in the 
above manner. Commenters are requested to specify the effect on 
competitive opportunities among 

[[Page 34913]]
United States and foreign banks and credit availability to all sectors 
of the economy as a result of the extension.
    The Interstate Act permits the OCC to establish reasonable 
transition rules to facilitate termination of any deposit-taking 
activity that previously was permissible. The proposal provides for a 
five-year transition period for existing transaction accounts. The 
transition period for a time deposit is proposed to be until the 
maturity of the deposit. Thus, an uninsured branch may not retain 
deposits accepted before the effective date of this section for longer 
than five years or, in the case of time deposits, until maturity of the 
deposit, unless the deposit falls within a new exemption under 
paragraph (b) or is granted an exception by the OCC under paragraph 
(c).
    Deposits received after the effective date of the regulation would 
be regarded as initial deposits that must qualify under one of the new 
exemptions, or be accepted under the new 1 percent de minimis 
exemption. With regard to the de minimis exemption, uninsured Federal 
branches will start with a clean slate, i.e. the new 1 percent limit 
will apply prospectively. It will exclude deposits in the existing 5 
percent de minimis account that are phased out, as described above.
    The OCC invites comment on this transition rule. If an alternate 
approach is recommended, commenters are requested to detail whether the 
alternate imposes a recordkeeping burden on uninsured branches and the 
extent of the burden, particularly in comparison to the approach 
contained in the proposal.

Changes in Activities and Operations (Section 28.17)

    The proposal adds a new provision to clarify the OCC's current 
policy regarding certain changes in activities and operations. The 
proposal requires a Federal branch or Federal agency simply to provide 
a notice to the OCC when it changes its corporate title or mailing 
address, converts to a state branch, state agency, or a representative 
office, or when its parent foreign bank changes its home state 
designation.

Recordkeeping and Reporting. (Section 28.18)

    The proposal reorganizes and clarifies the recordkeeping and 
reporting requirements in current Sec. 28.10 for Federal branches and 
Federal agencies. The proposal restates current OCC policy and practice 
that the OCC may require a parent foreign bank to provide the OCC with 
the information regarding its affairs. The proposal also adds a 
specific requirement that a foreign bank operating a Federal branch or 
Federal agency in the United States provide the OCC with a copy of 
regulatory reports designated by the OCC that are filed with other 
Federal regulatory agencies. These reports may be necessary for the OCC 
to effectively supervise Federal branches and agencies. The OCC 
believes that asking only for copies of information that is already 
prepared to satisfy existing requirements for other United States 
regulators would preclude the need, in most cases, to impose new 
report-preparation requirements on Federal branches and agencies.
    The proposal also clarifies the current requirement that a Federal 
branch or Federal agency maintain a set of accounts and records in 
English reflecting all transactions on a daily basis. To eliminate 
unnecessary burden and translation costs, the proposal does not require 
that all records be maintained in English; however, a Federal branch or 
Federal agency must maintain sufficient records in English to permit 
examiners to perform their responsibilities.

Enforcement (Section 28.19)

    The proposal clarifies the OCC's enforcement authority, pursuant to 
12 U.S.C. 3108(b), to bring actions under 12 U.S.C. 1818 for violations 
of the IBA in addition to any other remedies provided by the IBA or any 
other law.

Maintenance of Assets (Section 28.20)

    The proposal amplifies and clarifies the current asset maintenance 
requirement for Federal branches and Federal agencies contained in the 
IBA and current Sec. 28.9. The proposal contains provisions regarding 
the minimum amount of required assets, valuation of assets, and 
eligibility of assets for asset maintenance purposes. The proposal is 
in most respects identical to the FDIC's asset maintenance requirements 
for insured branches 12 CFR 346.20. The proposed provision is also 
similar to the comparable provisions in the New York state banking law 
and regulations.
    In the past, the OCC has imposed asset maintenance requirements in 
a few cases as a condition of licensing and has exercised this 
authority in connection with certain enforcement actions. In the 
future, the asset maintenance requirement may increase in importance as 
a tool that the OCC uses in its overall supervision of foreign banks. 
Therefore, the OCC believes that the proposal will be helpful in 
clarifying aspects of the asset maintenance requirement.
    The OCC invites comment on whether the detail provided by the 
proposal is helpful in clarifying the use and scope of the provision to 
the industry.
    Also, the OCC invites comment on whether to exclude any classified 
asset entirely, as the provided in proposed Sec. 28.20(c)(2)(ii), or 
whether to include certain classified assets (e.g. ``substandard'') in 
eligible assets in full or in part based on different risk weights and 
percentages.

Voluntary Liquidation (Section 28.22)

    Currently, the OCC's regulations do not provide guidance on the 
procedures and standards applicable to a voluntary liquidation or 
termination of a Federal branch or Federal agency. In the past, the OCC 
has applied and modified the standards applicable in a national bank 
liquidation pursuant to 12 U.S.C. 181. The proposal clarifies the 
voluntary liquidation process for Federal branches and Federal agencies 
by referencing the applicable provisions in 12 CFR part 5. It also adds 
requirements that are specific to a Federal branch or Federal agency, 
such as notice to customers and creditors, and return of examination 
reports and the branch certificate.

Termination of Federal Branches and Agencies (Section 28.23)

    The proposal clarifies the OCC's authority to terminate Federal 
branches and Federal agencies. The termination grounds include those 
stated in section 4(i) of the IBA, 12 U.S.C. 3102(i), the grounds for 
national bank termination referred to in 12 U.S.C. 191 and 12 U.S.C. 
1821(c)(5), including unsafe and unsound practices, insufficiency or 
dissipation of assets, concealment of books and records, a money 
laundering offense, or a recommendation from the FRB to terminate a 
Federal branch or Federal agency pursuant to section 7(e)(5) of the 
IBA, 12 U.S.C. 3105(e)(5).

Derivation Table

    Only substantive modifications, additions, and changes are 
indicated.

------------------------------------------------------------------------
   Revised provision        Original provision           Comments       
------------------------------------------------------------------------
Sec. 28.2..............  Sec. 20.2..............  Modified.             
Sec. 28.3..............  Secs. 20.3, 20.4.......  Significant change.   
Sec. 28.4..............  .......................  Added.                

[[Page 34914]]
                                                                        
                         Sec. 20.5..............  Removed.              
Sec. 28.11.............  Sec. 28.2..............  Significant change.   
Sec. 28.12.............  Sec. 28.3..............  Significant change.   
Sec. 28.13.............  Sec. 28.4..............  Significant change.   
Sec. 28.14.............  Sec. 28.5..............  Modified.             
Sec. 28.15.............  Sec. 28.6..............  Significant change.   
Sec. 28.16.............  Sec. 28.8..............  Significant change.   
Sec. 28.17.............  .......................  Added.                
Sec. 28.18.............  Sec. 28.10.............  Significant change.   
Sec. 28.19.............  .......................  Added.                
Sec. 28.20.............  Sec. 28.9..............  Significant change.   
Sec. 28.22.............  .......................  Added.                
Sec. 28.23.............  .......................  Added.                
Subpart C..............  Subpart B of part 20...  No change.            
------------------------------------------------------------------------



Regulatory Flexibility Act

    It is hereby certified that this regulation will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. This 
regulation will reduce the regulatory burden on national banks and 
Federal branches and Federal agencies of foreign banks, regardless of 
size, by simplifying and clarifying existing regulations.

Executive Order 12866

    The OCC has determined that this proposed rule is not a significant 
regulatory action.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates 
Act) (signed into law on March 22, 1995) requires that an agency 
prepare a budgetary impact statement before promulgating a rule that 
includes a Federal mandate that may result in the expenditure by state, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. If a budgetary impact 
statement is required, section 205 of the Unfunded Mandates Act also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. Because the OCC has 
determined that the proposed rule will not result in expenditures by 
state, local, and tribal governments, or by the private sector, of $100 
million or more in any one year, the OCC has not prepared a budgetary 
impact statement or specifically addressed the regulatory alternatives 
considered. Nevertheless, as discussed in the preamble, the rule has 
the effect of reducing burden.
Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1980 (44 
U.S.C. 3504(h)). Comments on the collections of information should be 
sent to Legislative and Regulatory Activities Division, Attention: 
1557-0102, Office of the Comptroller of the Currency, 250 E Street, SW, 
Washington, DC 20219, with a copy to the Office of Management and 
Budget, Paperwork Reduction Project (1557-0102), Washington, D.C. 
20503.
    The collections of information in this proposed regulation are in 
12 CFR Secs. 28.3, 28.13, 28.14, 28.15, 28.16, 28.17, 28.18, 28.20, 
28.52, 28.53, and 28.54.
    Much of this information is required by statute. Other items of 
information are needed by the OCC to maintain the safety and soundness 
of Federal branches and agencies and of national bank operations in the 
United States and abroad. This information will be used by the OCC to 
evaluate national banks with international operations and Federal 
branches and agencies for supervisory, prudential, and legal purposes 
and for statistical and examination purposes.
    The likely respondents/recordkeepers are for-profit institutions.
    The estimated annual burden per respondent varies from 9 hours to 
64 or more hours, depending on individual circumstances, with an 
estimated average of 36.3 hours.
    Estimated number of respondents: 185
    Estimated annual frequency of responses: One per year.

List of Subjects

12 CFR Part 20

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

12 CFR Part 28

    Federal agencies, Federal branches, Foreign banking, National 
banks, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set out in the preamble and under the authority of 
12 U.S.C. 93a, chapter I of title 12 of the Code of Federal Regulations 
is proposed to be amended as set forth below:

PART 20--[REMOVED]

    1. Part 20 is removed.
    2. Part 28 is revised to read as follows:

PART 28--INTERNATIONAL BANKING ACTIVITIES

Subpart A--Foreign Operations of National Banks

Sec.
28.1  Authority, purpose, and scope.
28.2  Definitions.
28.3  Filing requirements for foreign operations of national banks.
28.4  Permissible activities.
28.5  Filing of notice.

Subpart B--Federal Branches and Agencies of Foreign Banks

28.10  Authority, purpose, and scope.
28.11  Definitions.
28.12  Approval of Federal branches and Federal agencies.
28.13  Permissible activities.
28.14  Limitations based upon capital of foreign banks.
28.15  Capital equivalency deposits.
28.16  Deposit-taking by uninsured Federal branches.
28.17  Changes in activities and operations.
28.18  Recordkeeping and reporting.
28.19  Enforcement.
28.20  Maintenance of assets.
28.21  Service of process.
28.22  Voluntary liquidation.
28.23  Termination of Federal branches and Federal agencies.

Subpart C--International Lending Supervision

28.50  Authority, purpose, and scope.
28.51  Definitions.
28.52  Allocated transfer risk reserve. 

[[Page 34915]]

28.53  Accounting for fees on international loans.
28.54  Reporting and disclosure of international assets.

    Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108, 
and 3901 et seq.

Subpart A--Foreign Operations of National Banks


Sec. 28.1  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
seq., 24(Seventh), 93a, and 602.
    (b) Purpose. This subpart sets forth filing requirements for 
national banks that engage in international operations and clarifies 
permissible foreign activities of national banks.
    (c) Scope. This subpart applies to all national banks that engage 
in international operations through a foreign branch, or acquire an 
interest in an Edge corporation, Agreement corporation, foreign bank, 
or certain other foreign organizations.


Sec. 28.2  Definitions.

    For purposes of this subpart:
    (a) Agreement corporation means a corporation having an agreement 
or undertaking with the Board of Governors of the Federal Reserve 
System (FRB) under section 25 of the Federal Reserve Act (FRA), 12 
U.S.C. 601 through 604a.
    (b) Edge corporation means a corporation that is organized under 
section 25(a) of the FRA, 12 U.S.C. 611 through 631.
    (c) Foreign bank means an organization that:
    (1) Is organized under the laws of a foreign country;
    (2) Engages in the business of banking;
    (3) Is recognized as a bank by the bank supervisory or monetary 
authority of the country of its organization or principal banking 
operations;
    (4) Receives deposits to a substantial extent in the regular course 
of its business; and
    (5) Has the power to accept demand deposits.
    (d) Foreign branch means an office of a national bank (other than a 
representative office) that is located outside the United States at 
which a banking or financing business is conducted.
    (e) Foreign country means one or more foreign nations, and includes 
the overseas territories, dependencies, and insular possessions of 
those nations and of the United States, and the Commonwealth of Puerto 
Rico.


Sec. 28.3  Filing requirements for foreign operations of national 
banks.

    (a) Notice requirement. A national bank shall notify the OCC when 
it:
    (1) Establishes, opens, closes, or relocates a foreign branch; or
    (2) Files an application, notice, or report with the FRB regarding 
the acquisition or divestment of an interest in, or closing of, an Edge 
corporation, Agreement corporation, foreign bank, or other foreign 
organization.
    (b) Other applications and notices accepted. The OCC accepts a copy 
of an application form, notice, or report submitted to another Federal 
agency that covers the proposed action and contains substantially the 
same information required by the OCC.
    (c) Additional information. A national bank shall furnish the OCC 
with any additional information as the OCC may require in connection 
with the national bank's foreign operations.


Sec. 28.4  Permissible activities.

    (a) Generally. Subject to the applicable approval process, if any, 
a national bank may engage in activities in a foreign country that are:
    (1) Permissible for a national bank in the United States; and
    (2) Usual in connection with the business of banking in the country 
where it transacts business.
    (b) Additional activities. In addition to its general banking 
powers, a national bank may engage in any activities in a foreign 
country that are permissible under the FRB's Regulation K, 12 CFR part 
211.
    (c) Foreign operations guarantees. A national bank may guarantee 
the deposits and other liabilities of its Edge and Agreement 
corporations and of its corporate instrumentalities in foreign 
countries.


Sec. 28.5  Filing of notice.

    (a) Where to file. A national bank shall file any notice or 
submission required under this subpart with the Office of the 
Comptroller of the Currency, International Banking and Finance, 250 E 
Street SW, Washington, DC 20219.
    (b) Availability of forms. Individual forms and instructions for 
filings are available from International Banking and Finance.

Subpart B--Federal Branches and Agencies of Foreign Banks


Sec. 28.10  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to the authority in 
the International Banking Act of 1978 (IBA), 12 U.S.C. 3101 et seq., 
and 12 U.S.C. 93a.
    (b) Purpose and scope. This subpart implements and clarifies the 
IBA pertaining to the licensing, supervision, and operations of Federal 
branches and Federal agencies in the United States.


Sec. 28.11  Definitions.

    For purposes of this subpart:
    (a) Agreement corporation means a corporation having an agreement 
or undertaking with the FRB under section 25 of the FRA, 12 U.S.C. 601 
through 604a.
    (b) Change the status of an office means conversion of a:
    (1) State branch or state agency operated by a foreign bank, or a 
commercial lending company controlled by a foreign bank, into a Federal 
branch, limited Federal branch, or Federal agency;
    (2) Federal agency into a Federal branch or limited Federal branch;
    (3) Federal branch into a limited Federal branch or Federal agency; 
or
    (4) Limited Federal branch into a Federal branch or Federal agency.
    (c) Edge corporation means a corporation that is organized under 
section 25(a) of the FRA, 12 U.S.C. 611 through 631.
    (d) Establish a Federal branch or Federal agency means to:
    (1) Open and conduct business through a Federal branch or Federal 
agency;
    (2) Acquire directly, through merger, consolidation, or similar 
transaction with another foreign bank, the operations of a Federal 
branch or Federal agency that is open and conducting business;
    (3) Acquire a Federal branch or Federal agency through the 
acquisition of a foreign bank subsidiary that will cease to operate in 
the same corporate form following the acquisition;
    (4) Change the status of an office; or
    (5) Relocate a Federal branch or Federal agency within a state or 
from one state to another.
    (e) Federal agency means an office or place of business, licensed 
by the OCC and operated by a foreign bank in any state, that may engage 
in the business of banking, including maintaining credit balances, 
cashing checks, and lending money, but may not accept deposits from 
citizens or residents of the United States. Obligations may not be 
considered credit balances unless they are:
    (1) Incidental to, or arise out of the exercise of, other lawful 
banking powers;
    (2) To serve a specific purpose;
    (3) Not solicited from the general public;

[[Page 34916]]

    (4) Not used to pay routine operating expenses in the United States 
such as salaries, rent, or taxes;
    (5) Withdrawn within a reasonable period of time after the specific 
purpose for which they were placed has been accomplished; and
    (6) Drawn upon in a manner reasonable in relation to the size and 
nature of the account.
    (f) Federal branch means an office or place of business, licensed 
by the OCC and operated by a foreign bank in any state, that may engage 
in the business of banking, including accepting deposits, that is not a 
Federal agency as defined in paragraph (e) of this section.
    (g) 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, and that engages 
directly in the business of banking outside the United States.
    (h) Foreign business means any entity, including a corporation, 
partnership, sole proprietorship, association, or trust that is 
organized under the laws of a foreign country, or any United States 
entity that is controlled by a foreign entity or foreign national. A 
foreign entity or foreign national shall be deemed to control a United 
States entity if the foreign entity or individual directly controls, or 
has the power to vote 25 percent or more of any class of voting 
securities of, the United States entity or controls in any manner the 
election of a majority of the directors or trustees of the other 
entity.
    (i) Foreign country means one or more foreign nations, and includes 
the overseas territories, dependencies, and insular possessions of 
those nations and of the United States, and the Commonwealth of Puerto 
Rico.
    (j) Home country means the country in which the foreign bank is 
chartered or incorporated.
    (k) Home country supervisor means the governmental entity or 
entities in the foreign bank's home country responsible for supervising 
and regulating the foreign bank.
    (l) Home state of a foreign bank means the state in which the 
foreign bank has a branch, agency, subsidiary commercial lending 
company, or subsidiary bank. If a foreign bank has an office in more 
than one state, the home state of the foreign bank is the state that is 
selected to be the home state by the foreign bank or, in default of the 
foreign bank's selection, by the FRB.
    (m) Initial deposit means the first deposit transaction between a 
depositor and the Federal branch made on or after [effective date of 
the final regulation]. The initial deposit may be placed into different 
deposit accounts or into different kinds of deposit accounts, such as 
demand, savings, or time accounts. Deposit accounts that are held by a 
depositor in the same right and capacity may be added together for the 
purpose of determining the dollar amount of the initial deposit.
    (n) International banking facility means a set of asset and 
liability accounts segregated on the books and records of a depository 
institution, a United States branch or agency of a foreign bank, or an 
Edge corporation or Agreement corporation, that includes only 
international banking facility time deposits and extensions of credit.
    (o) Large United States business means any business entity 
including a corporation, partnership, sole proprietorship, association, 
or trust that engages in commercial activity for profit, is organized 
under the laws of the United States or any state, and:
    (1) The securities of which are registered on a national securities 
exchange or quoted on the National Association of Securities Dealers 
Automated Quotation System; or
    (2) Has more than $1.0 million in annual revenues for the fiscal 
year preceding the year of the initial deposit.
    (p) Limited Federal branch means a Federal branch that, pursuant to 
an agreement between the parent foreign bank and the FRB, may receive 
only those deposits that would be permissible for an Edge corporation 
to receive.
    (q) Managed or controlled by a Federal branch or agency means that 
a majority of the responsibility for business decisions, including but 
not limited to decisions with regard to lending, asset management, 
funding, or liability management, or the responsibility for 
recordkeeping of assets or liabilities for a non-United States office, 
resides at the Federal branch or Federal agency.
    (r) Manual means the Comptroller's Corporate Manual (12 CFR 
5.2(c)).
    (s) Parent foreign bank senior management means individuals at the 
executive level of the parent foreign bank who are responsible for 
supervising and authorizing activities of the Federal branch or Federal 
agency.
    (t) Person means an individual or a corporation, government, 
partnership, association, or any other entity.
    (u) State means any state of the United States or the District of 
Columbia.
    (v) United States bank means a bank organized under the laws of the 
United States or any state of the United States.


Sec. 28.12  Approval of Federal branches and Federal agencies.

    (a) Approval requirements. A foreign bank shall submit an 
application to and obtain prior approval from the OCC before it:
    (1) Establishes a Federal branch, Federal agency, or limited 
Federal branch; or
    (2) Exercises fiduciary powers at a Federal branch. A foreign bank 
may submit an application to exercise fiduciary powers at the time of 
filing an application for a Federal branch or at any subsequent date.
    (b) Standards for approval. In reviewing an application by a 
foreign bank to establish a Federal branch or Federal agency, the OCC 
shall consider:
    (1) The financial and managerial resources and future prospects of 
the applicant foreign bank and the Federal branch or Federal agency;
    (2) Whether the foreign bank has furnished to the OCC the 
information the OCC requires to assess the application adequately, and 
provided the OCC with adequate assurances that information will be made 
available to the OCC on the operations or activities of the foreign 
bank or any of its affiliates that the OCC deems necessary to determine 
and enforce compliance with the IBA and other applicable Federal 
banking statutes;
    (3) Whether the foreign bank and its United States affiliates are 
in compliance with applicable United States law;
    (4) The convenience and needs of the community to be served and the 
effects of the proposal on competition in the domestic and foreign 
commerce of the United States;
    (5) Whether the foreign bank is subject to comprehensive 
supervision or regulation on a consolidated basis by its home country 
supervisor; and
    (6) Whether the home country supervisor has consented to the 
proposed establishment of the Federal branch or Federal agency.
    (c) Comprehensive supervision or regulation on a consolidated 
basis. In determining whether a foreign bank is subject to 
comprehensive supervision or regulation on a consolidated basis, the 
OCC reviews various factors, including whether the foreign bank is 
supervised or regulated in a manner that its home country supervisor 
receives sufficient information on the worldwide operations of the 
foreign bank to assess the foreign bank's overall financial condition 
and compliance with laws and regulations as specified in the FRB's 
Regulation K, 12 CFR 211.24.
    (d) Conditions on approval. The OCC may impose any conditions on 
its 

[[Page 34917]]
approval that it deems necessary, including a condition permitting 
future termination of any activities based on the inability of the 
foreign bank to provide information on its activities or those of its 
affiliates, that the OCC deems necessary to determine and enforce 
compliance with United States banking laws.
    (e) Expedited approval. Unless the OCC concludes that the filing 
presents significant supervisory or compliance concerns, or raises 
significant legal or policy issues, the OCC shall process the following 
filings by an eligible foreign bank under expedited approval 
procedures:
    (1) Intrastate relocations. An application submitted by an eligible 
foreign bank to relocate a Federal branch or agency within a state is 
deemed approved by the OCC as of the seventh day after the close of the 
applicable public comment period in 12 CFR part 5, unless the OCC 
notifies the bank prior to that date that the filing is not eligible 
for expedited approval.
    (2) Conversions. An application submitted by an eligible foreign 
bank to convert a Federal agency to a Federal branch or limited Federal 
branch, a Federal branch to a Federal agency or limited Federal branch, 
or a limited Federal branch to a Federal branch or a Federal agency is 
deemed approved by the OCC 45 days after filing with the OCC, unless 
the OCC notifies the bank prior to that date that the filing is not 
eligible for expedited approval.
    (3) Fiduciary powers. An application submitted by an eligible 
foreign bank to exercise fiduciary powers at an established Federal 
branch is deemed approved by the OCC 30 days after filing with the OCC, 
unless the OCC notifies the bank prior to that date that the filing is 
not eligible for expedited approval.
    (f) Eligible foreign bank. For purposes of this section, a foreign 
bank is an eligible foreign bank if each Federal branch and Federal 
agency of the foreign bank in the United States:
    (1) Has a composite rating of 1 or 2 under the rating system for 
United States branches and agencies of foreign banking organizations;
    (2) Is not subject to a cease and desist order, consent order, 
formal written agreement, Prompt Corrective Action directive (see 12 
CFR part 6) or, if subject to such order, agreement, or directive, is 
informed in writing by the OCC that the Federal branch or Federal 
agency may be treated as an ``eligible foreign bank'' for purposes of 
this section; and
    (3) Has, if applicable, a Community Reinvestment Act (CRA), 12 
U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory''.
    (g) Procedures for approval. A foreign bank shall file an 
application for approval pursuant to this section in accordance with 12 
CFR part 5 and the Manual.
    (h) Additional requirements. Nothing in this section relieves a 
foreign bank from obtaining the required approval of the FRB to 
establish a Federal branch or Federal agency in accordance with the 
FRB's Regulation K, 12 CFR part 211.


Sec. 28.13  Permissible activities.

    (a) Applicability of laws.--(1) General. Except as otherwise 
provided by the IBA, other Federal laws or regulations, or otherwise 
determined by the OCC, the operations of a foreign bank at a Federal 
branch or Federal agency shall be conducted with the same rights and 
privileges and shall be subject to the same duties, restrictions, 
penalties, liabilities, conditions, and limitations that would apply if 
the Federal branch or Federal agency were a national bank operating at 
the same location.
    (2) Parent foreign bank senior management approval. Unless 
otherwise provided by the OCC, any provision in law, regulation, 
policy, or procedure that requires a national bank to obtain the 
approval of its board of directors will be deemed to require a Federal 
branch or Federal agency to obtain the approval of parent foreign bank 
senior management.
    (b) Offshore activities.--(1) Federal branches and Federal 
agencies. A Federal branch or Federal agency of a foreign bank shall 
not manage, through an office of the foreign bank that is located 
outside the United States and that is managed or controlled by that 
Federal branch or Federal agency, any type of activity that a United 
States bank is not permitted to manage at any branch or subsidiary of 
the United States bank that is located outside the United States.
    (2) Activities managed in foreign branches or subsidiaries of 
United States banks. Activities that a United States bank may manage at 
its branch or subsidiary abroad include those activities that the bank 
may engage in abroad. A United States bank may engage abroad in 
activities permitted by the United States bank's state or Federal 
charter, regulations issued by the chartering authority, and other 
United States banking laws.
    (c) Additional guidance regarding permissible activities. For 
purposes of section 7(h) of the IBA, 12 U.S.C. 3105(h), the OCC may 
issue opinions, interpretations, or rulings regarding permissible 
activities of Federal branches.


Sec. 28.14  Limitations based upon capital of foreign banks.

    (a) General. Any limitation or restriction based upon the capital 
of a national bank shall be deemed to refer, as applied to a Federal 
branch or agency, to the dollar equivalent of the capital of the 
foreign bank.
    (b) Calculation. Unless otherwise provided by the Comptroller, a 
foreign bank's capital must be calculated in a manner consistent with 
12 CFR part 3 of this chapter.
    (c) Aggregation. The business transacted by all Federal branches 
and Federal agencies shall be aggregated with the business transacted 
by all state branches and state agencies in determining the foreign 
bank's compliance with limitations based upon the capital of the 
foreign bank. The foreign bank shall designate one Federal branch or 
Federal agency office in the United States to maintain consolidated 
information so that compliance can be monitored.


Sec. 28.15  Capital equivalency deposits.

    (a) Capital equivalency deposits. (1) For purposes of section 4(g) 
of the IBA, 12 U.S.C. 3102(g), unless otherwise provided by the OCC, a 
foreign bank's capital equivalency deposits shall consist of dollar 
deposits, including certificates of deposit and other instruments 
evidencing a deposit, investment securities of the type that may be 
held by national banks, high-grade commercial paper, bankers' 
acceptances, and other assets that the OCC permits for this purpose.
    (2) The agreement with the depository bank to hold the capital 
equivalency deposit and the amount of the deposit must comply with the 
requirements in section 4(g) of the IBA, including the qualifying 
components and required minimum amount of the capital equivalency 
deposit. If a foreign bank has more than one Federal branch or Federal 
agency in a state, it shall determine the capital equivalency deposits 
and the amount of liabilities requiring capital equivalency coverage on 
an aggregate basis for all the foreign bank's Federal branches or 
Federal agencies.
    (b) Value of assets. The obligations referred to in paragraph (a) 
of this section must be valued at principal amount or market value, 
whichever is lower. If no market value is available from a published 
source, they must be priced by an independent pricing service at least 
once every calendar quarter. 

[[Page 34918]]

    (c) Increase in capital equivalency deposits. For prudential or 
supervisory reasons, the OCC may require, in individual cases or 
otherwise, that a foreign bank increase its capital equivalency deposit 
above the minimum amount.
    (d) Deposit arrangements. A depository bank shall segregate a 
foreign bank's capital equivalency deposit on its books and records. 
The funds deposited and obligations referred to in paragraph (a) of 
this section that are placed in safekeeping at a depository bank to 
satisfy a foreign bank's capital equivalency deposit requirement:
    (1) May not be reduced in aggregate value by withdrawal without the 
prior approval of the OCC;
    (2) Must be pledged and maintained pursuant to an agreement 
prescribed by the OCC; and
    (3) Must be free from any lien, charge, right of setoff, credit or 
preference in connection with any claim of the depository bank against 
the foreign bank.
    (e) Maintenance of capital equivalency ledger account. Each Federal 
branch or Federal agency shall maintain a capital equivalency account 
and keep records of the amount of liabilities requiring capital 
equivalency coverage in a manner and form prescribed by the OCC.


Sec. 28.16  Deposit-taking by uninsured Federal branches.

    (a) Policy. In carrying out this section, the OCC shall consider 
the importance of according foreign banks competitive opportunities 
equal to those of United States banks and the availability of credit to 
all sectors of the United States economy, including international trade 
finance.
    (b) General. An uninsured Federal branch may accept initial 
deposits of less than $100,000 only from:
    (1) Individuals who are not citizens or residents of the United 
States at the time of the initial deposit;
    (2) Individuals who are:
    (i) Not citizens of the United States;
    (ii) Residents of the United States; and
    (iii) Employed by a foreign bank, foreign business, foreign 
government, or recognized international organization;
    (3) Persons to whom the branch or foreign bank has extended credit 
or provided other nondeposit banking services within the past 12 
months, or with whom the branch or bank has a written agreement to 
extend credit or provide such services within 12 months after the date 
of the initial deposit;
    (4) Foreign businesses and large United States businesses;
    (5) Foreign governmental units and recognized international 
organizations;
    (6) Federal and state governmental units, including any political 
subdivision or agency thereof;
    (7) Persons who are depositing funds in connection with the 
issuance of a financial instrument by the branch for transmission of 
funds, or transmission of funds by any electronic means;
    (8) Persons who may deposit funds with an Edge corporation as 
provided in the FRB's Regulation K, 12 CFR 211.4, including persons 
engaged in certain international business activities; and
    (9) Any other depositor if:
    (i) The amount of deposits under paragraph (b)(9) of this section 
does not exceed on an average daily basis 1 percent of the average of 
the branch's deposits for the last 30 days of the most recent calendar 
quarter, excluding deposits of other offices, branches, agencies, or 
wholly owned subsidiaries of the foreign bank; and
    (ii) The branch does not solicit deposits from the general public 
by advertising, display of signs, or similar activity designed to 
attract the attention of the general public.
    (c) Application for an exemption. A foreign bank may apply to the 
OCC for an exemption to permit an uninsured Federal branch to accept or 
maintain deposit accounts that are not listed in paragraph (b) of this 
section. The request should describe:
    (1) The types, sources, and estimated amounts of such deposits and 
explain why the OCC should grant an exemption; and
    (2) How the exemption improves and maintains the availability of 
credit to all sectors of the United States economy, including the 
international trade finance sector.
    (d) Aggregation of deposits. For purposes of paragraph (b)(9) of 
this section only, a foreign bank that has more than one Federal branch 
in the same state may aggregate deposits in all the Federal branches in 
that state, but excluding deposits of other branches, agencies or 
wholly owned subsidiaries of the bank. The average amount must be 
computed by using the sum of deposits as of the close of business of 
the last 30 calendar days ending with and including the last day of the 
calendar quarter divided by 30. The Federal branch shall maintain 
records of the calculation until its next examination by the OCC.
    (e) Notification to depositors. A Federal branch that accepts 
deposits pursuant to this section shall provide notice to depositors 
pursuant to 12 CFR 346.7, which generally requires that the Federal 
branch conspicuously display a sign at the branch and include a 
statement on each signature card, passbook, and instrument evidencing a 
deposit that the deposit is not insured by the FDIC.
    (f) Transition period. An uninsured Federal branch may maintain a 
deposit lawfully accepted prior to [the effective date of the final 
regulation]:
    (1) If the deposit qualifies under paragraph (b) or paragraph (c) 
of this section; or
    (2) No later than until:
    (i) The maturity of a time deposit; or
    (ii) Five years after [the effective date of the final regulation] 
for all other deposits.
    (g) Insured banks in United States territories. For purposes of 
this section, the term ``foreign bank'' does not include any bank 
organized under the laws of any territory of the United States, Puerto 
Rico, Guam, American Samoa, or the Virgin Islands whose deposits are 
insured by the FDIC pursuant to the Federal Deposit Insurance Act, 12 
U.S.C. 1811 et seq.


Sec. 28.17  Changes in activities and operations.

    (a) Notification. A Federal branch or Federal agency shall notify 
the OCC if:
    (1) It changes its corporate title;
    (2) It changes its mailing address;
    (3) It converts to a state branch, state agency, or representative 
office; or
    (4) The parent foreign bank changes the designation of its home 
state.
    (b) Where to file. A Federal branch or agency shall file any notice 
under this section with the Office of the Comptroller of the Currency, 
International Banking and Finance, 250 E Street SW, Washington, DC 
20219.
    (c) Other notices accepted. The OCC accepts a copy of an 
application form, notice, or report submitted to another Federal 
regulatory agency that covers the proposed action and contains 
substantially the same information as would be required by the OCC.


Sec. 28.18  Recordkeeping and reporting.

    (a) General. A Federal branch or agency shall comply with 
applicable recordkeeping and reporting requirements that apply to 
national banks and with any additional requirements that may be 
prescribed by the OCC. A Federal branch or Federal agency, and the 
parent foreign bank, shall furnish information relating to the affairs 
of the parent foreign bank and its affiliates that the OCC may from 
time to time request.
    (b) Regulatory reports filed with other agencies. A foreign bank 
operating a Federal branch or Federal agency in the United States shall 
provide the OCC with a copy of reports filed with other Federal 
regulatory agencies that are 

[[Page 34919]]
designated in guidance issued by the OCC.
    (c) Maintenance of accounts, books, and records. (1) Each Federal 
branch or Federal agency shall maintain a set of accounts and records 
reflecting its transactions that are separate from those of the foreign 
bank and any other branch or agency. The Federal branch or Federal 
agency shall keep a set of accounts and records in English sufficient 
to permit the OCC to examine the condition of the Federal branch or 
Federal agency and its compliance with applicable laws and regulations. 
The branch or agency shall promptly provide any additional records 
requested by the OCC for examination or supervisory purposes.
    (2) A foreign bank with more than one Federal branch or Federal 
agency in a state shall designate one of those offices to maintain 
consolidated asset, liability, and capital equivalency accounts for all 
Federal branches or Federal agencies in that state.


Sec. 28.19  Enforcement.

    As provided by section 13 of the IBA, 12 U.S.C. 3108(b), the OCC 
may enforce compliance with the requirements of the IBA, other 
applicable banking laws, and regulations or orders of the OCC under 
section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818, in 
addition to any other remedies otherwise provided by the IBA or any 
other law.


Sec. 28.20  Maintenance of assets.

    (a) General rule. (1) For prudential, supervisory, or enforcement 
reasons, the OCC may require a foreign bank to hold certain assets in 
the state in which its Federal branch or Federal agency is licensed. 
Those assets shall consist of currency, bonds, notes, debentures, 
drafts, bills of exchange, or other evidence of indebtedness including 
loan participation agreements or certificates, or other obligations 
payable in the United States or in United States funds or, with the 
approval of the OCC, funds freely convertible into United States funds 
in an amount prescribed by the OCC.
    (2) If asset maintenance is required, the amount of assets may not 
be less than 105 percent of the aggregate amount of liabilities of the 
Federal branch or Federal agency, payable at or through the branch or 
agency in the state where it is licensed. To determine the aggregate 
amount of liabilities for purposes of this section, the foreign bank 
shall include bankers' acceptances, but exclude accrued expenses, and 
amounts due and other liabilities to the head office and any other 
branches, offices, agencies, subsidiaries, and affiliates of the 
foreign bank.
    (b) Value of assets. For the purposes of this section, marketable 
securities must be valued at principal amount or market value, 
whichever is lower.
    (c) Eligible assets. (1) In determining compliance with the asset 
maintenance requirements, the Federal branch or Federal agency will be 
given credit for:
    (i) Capital equivalency deposits maintained pursuant to Sec. 28.15;
    (ii) Reserves required to be maintained by the Federal branch or 
Federal agency pursuant to the FRB's authority under 12 U.S.C. 3105(a); 
and
    (iii) Assets pledged, and surety bonds payable, to the FDIC to 
secure the payment of domestic deposits.
    (2) In determining eligible assets for purposes of this section, 
the Federal branch or Federal agency shall exclude, at a minimum:
    (i) All amounts due from the head office or any other branch, 
office, agency, subsidiary, or affiliate of the foreign bank;
    (ii) Any classified asset;
    (iii) Any asset that, in the determination of the OCC, is not 
supported by sufficient credit information;
    (iv) Any deposit with a bank in the United States, unless that bank 
has executed a valid waiver of offset agreement;
    (v) Any asset not in the Federal branch's actual possession unless 
the branch holds title to the asset and maintains records sufficient to 
enable independent verification of the branch's ownership of the asset, 
as determined at the most recent examination; and
    (vi) Any other particular asset or class of assets as provided by 
the OCC, based on a case-by-case assessment of the risks associated 
with the asset.
    (d) International banking facility. Unless specifically exempted by 
the OCC, the assets and liabilities of any international banking 
facility operated through the Federal branch or Federal agency must be 
included in the computation of eligible assets and liabilities for 
purposes of this section.


Sec. 28.21  Service of process.

    A foreign bank operating at any Federal branch or Federal agency is 
subject to service of process at the location of the Federal branch or 
Federal agency.


Sec. 28.22  Voluntary liquidation.

    (a) Procedures. Unless otherwise provided, a Federal branch or 
Federal agency that proposes to close its operations shall comply with 
the requirements in 12 CFR 5.48 and the Manual.
    (b) Notice to customers and creditors. A foreign bank shall provide 
any customers and known creditors, not otherwise notified in writing, 
with written notice of the impending closure of the Federal branch or 
Federal agency at least 30 days prior to its closure.
    (c) Report of Condition. The Federal branch or Federal agency shall 
submit a Report of Assets and Liabilities of United States Branches and 
Agencies of Foreign Banks as of the close of the last business day 
prior to the start of liquidation of the Federal branch or Federal 
agency. This report must include a certified maturity schedule of all 
remaining liabilities, if any.
    (d) Return of reports and certificate. The Federal branch or 
Federal agency shall return to the OCC all Reports of Examination and 
the Federal branch or Federal agency license certificate within 30 days 
of closure to the public.


Sec. 28.23  Termination of Federal branches and Federal agencies.

    (a) Grounds for termination. The OCC may revoke the authority of a 
foreign bank to operate a Federal branch or Federal agency if:
    (1) The OCC determines that there is reasonable cause to believe 
that the foreign bank has violated or failed to comply with any of the 
provisions of the IBA, other applicable Federal laws or regulations, or 
orders of the OCC;
    (2) A conservator is appointed for the foreign bank or a similar 
proceeding is initiated in the foreign bank's home country;
    (3) One or more of the grounds for termination, including unsafe 
and unsound practices, insufficiency or dissipation of assets, 
concealment of books and records, a money laundering conviction, or 
other grounds as specified in 12 U.S.C. 191, exists;
    (4) The OCC receives a recommendation from the FRB, pursuant to 12 
U.S.C. 3105(e)(5), that the license of a Federal branch or Federal 
agency be terminated.
    (b) Procedures.--(1) Notice and hearing. Except as otherwise 
provided in this section, an order by the OCC to terminate the license 
of a Federal branch or Federal agency shall be issued after notice to 
the Federal branch or Federal agency and after an opportunity for a 
hearing.
    (2) Procedures for hearing. A hearing under this section shall be 
conducted pursuant to subpart A of the OCC's Rules of Practice and 
Procedure in 12 CFR part 19.
    (3) Expedited procedure. The OCC may act without providing a 
hearing if the OCC determines that expeditious action is necessary in 
order to protect 

[[Page 34920]]
the public interest. When the OCC finds that it is necessary to act 
without providing an opportunity for a hearing, the OCC in its sole 
discretion, may:
    (i) Provide the Federal branch or Federal agency with notice of the 
intended termination order;
    (ii) Grant the Federal branch or Federal agency an opportunity to 
present a written submission opposing issuance of the order; or
    (iii) Take any other action designed to provide the Federal branch 
or Federal agency with notice and an opportunity to present its views 
concerning the termination order.

Subpart C--International Lending Supervision


Sec. 28.50  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
seq., 93a, 161, and 1818; and the International Lending Supervision Act 
of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153, 12 U.S.C. 3901 et 
seq.).
    (b) Purpose. This subpart implements the requirements of the 
International Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.).
    (c) Scope. This subpart requires national banks and District of 
Columbia banks to establish reserves against the risks presented in 
certain international assets and sets forth the accounting for various 
fees received by the banks when making international loans.


Sec. 28.51  Definitions.

    For the purposes of this subpart:
    (a) Banking institution means a national banking association or a 
District of Columbia bank.
    (b) Federal banking agencies means the Board of Governors of the 
Federal Reserve System, the OCC, and the Federal Deposit Insurance 
Corporation.
    (c) International assets means those assets required to be included 
in banking institutions' Country Exposure Report forms (FFIEC No. 009).
    (d) International loan means a loan as defined in the instructions 
to the Report of Condition and Income for the respective banking 
institution (FFIEC Nos. 031, 032, 033 and 034) and made to a foreign 
government, or to an individual, a corporation, or other entity not a 
citizen of, resident in, or organized or incorporated in the United 
States.
    (e) International syndicated loan means a loan characterized by the 
formation of a group of managing banking institutions and, in the usual 
case, assumption by them of underwriting commitments, and participation 
in the loan by other banking institutions.
    (f) Loan agreement means the document signed by all of the parties 
to a loan, containing the amount, terms and conditions of the loan, and 
the interest and fees to be paid by the borrower.
    (g) Restructured international loan means a loan that meets the 
following criteria:
    (1) The borrower is unable to service the existing loan according 
to its terms and is a resident of a foreign country in which there is a 
generalized inability of public and private sector obligors to meet 
their external debt obligations on a timely basis because of a lack of, 
or restraints on the availability of, needed foreign exchange in the 
country; and
    (2) The terms of the existing loan are amended to reduce stated 
interest or extend the schedule of payments; or
    (3) A new loan is made to, or for the benefit of, the borrower, 
enabling the borrower to service or refinance the existing debt.
    (h) Transfer risk means the possibility that an asset cannot be 
serviced in the currency of payment because of a lack of, or restraints 
on the availability of, needed foreign exchange in the country of the 
obligor.


Sec. 28.52  Allocated transfer risk reserve.

    (a) Establishment of Allocated Transfer Risk Reserve. A banking 
institution shall establish an allocated transfer risk reserve (ATRR) 
for specified international assets when required by the OCC in 
accordance with this section.
    (b) Procedures and Standards--(1) Joint agency determination. At 
least annually, the Federal banking agencies shall determine jointly, 
based on the standards set forth in paragraph (b)(2) of this section, 
the following:
    (i) Which international assets subject to transfer risk warrant 
establishment of an ATRR;
    (ii) The amount of the ATRR for the specified assets; and
    (iii) Whether an ATRR established for specified assets may be 
reduced.
    (2) Standards for requiring ATRR--(i) Evaluation of assets. The 
Federal banking agencies shall apply the following criteria in 
determining whether an ATRR is required for particular international 
assets:
    (A) Whether the quality of a banking institution's assets has been 
impaired by a protracted inability of public or private obligors in a 
foreign country to make payments on their external indebtedness as 
indicated by such factors, among others, as whether:
    (1) Such obligors have failed to make full interest payments on 
external indebtedness;
    (2) Such obligors have failed to comply with the terms of any 
restructured indebtedness; or
    (3) A foreign country has failed to comply with any International 
Monetary Fund or other suitable adjustment program; or
    (B) Whether no definite prospects exist for the orderly restoration 
of debt service.
    (ii) Determination of amount of ATRR. (A) In determining the amount 
of the ATRR, the Federal banking agencies shall consider:
    (1) The length of time the quality of the asset has been impaired;
    (2) Recent actions taken to restore debt service capability;
    (3) Prospects for restored asset quality; and
    (4) Such other factors as the Federal banking agencies may consider 
relevant to the quality of the asset.
    (B) The initial year's provision for the ATRR shall be ten percent 
of the principal amount of each specified international asset, or such 
greater or lesser percentage determined by the Federal banking 
agencies. Additional provision, if any, for the ATRR in subsequent 
years shall be fifteen percent of the principal amount of each 
specified international asset, or such greater or lesser percentage 
determined by the Federal banking agencies.
    (3) Notification. Based on the joint agency determinations under 
paragraph (b)(1) of this section, the OCC shall notify each banking 
institution holding assets subject to an ATRR:
    (i) Of the amount of the ATRR to be established by the institution 
for specified international assets; and
    (ii) That an ATRR to be established for specified assets may be 
reduced.
    (c) Accounting treatment of ATRR--(1) Charge to current income. A 
banking institution shall establish an ATRR by a charge to current 
income and the amounts so charged shall not be included in the banking 
institution's capital or surplus.
    (2) Separate accounting. A banking institution shall account for an 
ATRR separately from the Allowance for Possible Loan Losses, and shall 
deduct the ATRR from ``gross loans and leases'' to arrive at ``net 
loans and leases.'' The ATRR must be established for each asset subject 
to the ATRR in the percentage amount specified.
    (3) Consolidation. A banking institution shall establish an ATRR, 
as required, on a consolidated basis. Consolidation should be in 
accordance with the procedures and tests of significance set forth in 
the instructions for preparation of Consolidated Reports of Condition 
and Income (FFIEC Nos. 

[[Page 34921]]
031, 032, 033 and 034). For bank holding companies, the consolidation 
shall be in accordance with the principles set forth in the 
``Instructions to the Bank Holding Company Financial Supplement to 
Report F.R. Y-6'' (Form F.R. Y-9). Edge and Agreement corporations 
engaged in banking shall report in accordance with instructions for 
preparation of the Report of Condition for Edge and Agreement 
Corporations (Form F.R. 2886b).
    (4) Alternative accounting treatment. A banking institution need 
not establish an ATRR if it writes down in the period in which the ATRR 
is required, or has written down in prior periods, the value of the 
specified international assets in the requisite amount for each such 
asset. For purposes of this paragraph, international assets may be 
written down by a charge to the Allowance for Possible Loan Losses or a 
reduction in the principal amount of the asset by application of 
interest payments or other collections on the asset. However, the 
Allowance for Possible Loan Losses must be replenished in such amount 
necessary to restore it to a level which adequately provides for the 
estimated losses inherent in the banking institution's loan portfolio.
    (5) Reduction of ATRR. A banking institution may reduce an ATRR 
when notified by the OCC or, at any time, by writing down such amount 
of the international asset for which the ATRR was established.


Sec. 28.53  Accounting for fees on international loans.

    (a) Restrictions on fees for restructured international loans. No 
banking institution shall charge any fee in connection with a 
restructured international loan unless all fees exceeding the banking 
institution's administrative costs, as described in paragraph (c)(2) of 
this section, are deferred and recognized over the term of the loan as 
an interest yield adjustment.
    (b) Amortizing fees. Except as otherwise provided by this section, 
fees received on international loans shall be deferred and amortized 
over the term of the loan. The interest method should be used during 
the loan period to recognize the deferred fee revenue in relation to 
the outstanding loan balance. If it is not practicable to apply the 
interest method during the loan period, the straight-line method shall 
be used.
    (c) Accounting treatment of international loan or syndication 
administrative costs and corresponding fees. (1) Administrative costs 
of originating, restructuring, or syndicating an international loan 
shall be expensed as incurred. A portion of the fee income equal to the 
banking institution's administrative costs may be recognized as income 
in the same period such costs are expensed.
    (2) The administrative costs of originating, restructuring, or 
syndicating an international loan include those costs which are 
specifically identified with negotiating, processing and consummating 
the loan. These costs include, but are not necessarily limited to: 
Legal fees; costs of preparing and processing loan documents; and an 
allocable portion of salaries and related benefits of employees engaged 
in the international lending function and, where applicable, the 
syndication function. No portion of supervisory and administrative 
expenses or other indirect expenses such as occupancy and other similar 
overhead costs shall be included.
    (d) Fees received by managing banking institutions in an 
international syndicated loan. Fees received on international 
syndicated loans representing an adjustment of the yield on the loan 
shall be recognized over the loan period using the interest method. If 
the interest yield portion of a fee received on an international 
syndicated loan by a managing banking institution is unstated or 
differs materially from the pro rata portion of fees paid other 
participants in the syndication, an amount necessary for an interest 
yield adjustment shall be recognized. This amount shall at least be 
equivalent (on a pro rata basis) to the largest fee received by a loan 
participant in the syndication that is not a managing banking 
institution. The remaining portion of the syndication fee may be 
recognized as income at the loan closing date to the extent that it is 
identified and documented as compensation for services in arranging the 
loan. Such documentation shall include the loan agreement. Otherwise, 
the fee shall be deemed an adjustment of yield.
    (e) Loan Commitment fees. (1) Fees which are based upon the 
unfunded portion of a credit for the period until it is drawn and 
represent compensation for a binding commitment to provide funds or for 
rendering a service in issuing the commitment shall be recognized as 
income over the term of the commitment period using the straight-line 
method of amortization. Such fees for revolving credit arrangements, 
where the fees are received periodically in arrears and are based on 
the amount of the unused loan commitment, may be recognized as income 
when received provided the income result would not be materially 
different.
    (2) If it is not practicable to separate the commitment portion 
from other components of the fee, the entire fee shall be amortized 
over the term of the combined commitment and expected loan period. The 
straight-line method of amortization should be used during the 
commitment period to recognize the fee revenue. The interest method 
should be used during the loan period to recognize the remaining fee 
revenue in relation to the outstanding loan balance. If the loan is 
funded before the end of the commitment period, any unamortized 
commitment fees shall be recognized as revenue at that time.
    (f) Agency fees. Fees paid to an agent banking institution for 
administrative services in an intentional syndicated loan shall be 
recognized at the time of the loan closing or as the service is 
performed, if later.


Sec. 28.54  Reporting and disclosure of international assets.

    (a) Requirements. (1) Pursuant to section 907(a) of the 
International Lending Supervision Act of 1983 (title IX, Pub. L. 98-
181, 97 Stat. 1153, 12 U.S.C. 3906) (the Act) a banking institution 
shall submit to the OCC, at least quarterly, information regarding the 
amounts and composition of its holdings of international assets.
    (2) Pursuant to section 907(b) of the Act (12 U.S.C. 3906), a 
banking institution shall submit to the OCC information regarding 
concentrations in its holdings of international assets that are 
material in relation to total assets and to capital of the institution, 
such information to be made publicly available by the OCC on request.
    (b) Procedures. The format, content and reporting and filing dates 
of the reports required under paragraph (a) of this section shall be 
determined jointly by the Federal banking agencies. The requirements to 
be prescribed by the agencies may include changes to existing reporting 
forms (such as the Country Exposure Report, form FFIEC No. 009) or such 
other requirements as the agencies deem appropriate. The agencies also 
may determine to exempt from the requirements of paragraph (a) of this 
section banking institutions that, in the agencies' judgment, have de 
minimis holdings of international assets.
    (c) Reservation of Authority. Nothing contained in this rule shall 
preclude the OCC from requiring from a banking institution such 
additional or more frequent information on the institution's holdings 
of international assets as the office may consider necessary.

 
[[Page 34922]]

    Dated: June 26, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-16201 Filed 7-3-95; 8:45 am]
BILLING CODE 4810-33-P