[Federal Register Volume 60, Number 249 (Thursday, December 28, 1995)]
[Proposed Rules]
[Pages 67100-67102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31364]



-----------------------------------------------------------------------


FEDERAL RESERVE SYSTEM
12 CFR Part 211

[Regulation K; Docket No. R-0911]


International Banking Operations

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is proposing to amend its Regulation K regarding interstate banking 
operations of foreign banking organizations. The Riegle-Neal Interstate 
Banking and Branching Efficiency Act of 1994 (Interstate Act) removed 
geographic restrictions on interstate banking by foreign banks 
effective September 29, 1995, and requires certain foreign banks 
without U.S. deposit-taking offices to select a home state for the 
first time. The proposed amendments to Regulation K would require these 
foreign banks to select a home state by March 31, 1996, and would 
immediately remove outdated restrictions on certain mergers by U.S. 
bank subsidiaries of foreign banks outside the home state of the 
foreign bank. Obsolete and superseded provisions of Regulation K 
concerning home state selection would be deleted. The Board is also 
requesting comment on other aspects of the Interstate Act as it applies 
to foreign banks.

DATES: Comments must be received by February 5, 1996.

ADDRESSES: Comments should refer to Docket No. R-0911 and may be mailed 
to William W. Wiles, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, N.W., Washington 
D.C. 20551. Comments also may be delivered to Room B-2222 of the Eccles 
Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard 
station in the Eccles building courtyard on 20th Street, N.W. (between 
Constitution Avenue and C Street, N.W.) at any time. Comments may be 
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and 
5:00 p.m. weekdays, except as provided in Sec. 261.8 of the Board's 
rules regarding availability of information, 12 CFR 261.8.

FOR FURTHER INFORMATION CONTACT: Kathleen M. O'Day, Associate General 
Counsel (202/452-3786), Ann E. Misback, Managing Senior Counsel (202/
452-3788), Douglas M. Ely, Senior Attorney (202/452-5289), Legal 
Division; Michael G. Martinson, Assistant Director (202/452-3640), 
Division of Banking Supervision and Regulation, Board of Governors of 
the Federal Reserve System. For users of Telecommunication Device for 
the Deaf [TDD] only, please contact Dorothea Thompson (202/452-3544), 
Board of Governors of the Federal Reserve System, 20th and C Streets, 
N.W., Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION: The Interstate Act amended section 5 of the 
International Banking Act of 1978 (IBA), which governs interstate 
banking and branching operations of foreign banks. The Interstate Act 
also amended the Bank Holding Company Act of 1956 (BHC Act), the 
Federal Deposit Insurance Act and several other statutes regarding 
interstate banking operations of bank holding companies, national banks 
and state banks. In light of these amendments, the Board proposes to 
amend the provisions of its Regulation K regarding interstate banking 
operations of foreign banking organizations (12 CFR 211.22) as 
discussed below.

Determination of Home State

    Section 104(d) of the Interstate Act modifies the existing 
definition of a foreign bank's home state under section 5(c) of the 
IBA. Section 104(d) retains the provision of the IBA stating that the 
home state of a foreign bank that has any combination of branches, 
agencies, subsidiary commercial lending companies and subsidiary banks 
(U.S. banking operations) in more than one state is whichever of these 
states is selected by the foreign bank, or by the Board if the foreign 
bank fails to choose. Section 104(d) also provides, for the first time, 
that if a foreign bank has U.S. banking operations, including agencies 
or subsidiary commercial lending companies, in one state only, that 
state is the foreign bank's home state for purposes of interstate 
branching. The Board proposes the following amendments to 12 CFR 
211.22(a) in order to reflect and implement these changes to the 
definition of a foreign bank's home state.

Abolition of Distinction Between Deposit-Taking Offices and Nondeposit-
Taking Offices

    Prior to the Interstate Act, the Board interpreted the IBA to 
require a foreign bank to have a home state only if the foreign bank 
had deposit-taking offices, i.e., branches or subsidiary banks. 44 FR 
62903 (November 1, 1979). This interpretation is set forth in 
Sec. 211.22(a)(2) of Regulation K. Section 104(d) of the Interstate Act 
superseded this interpretation by providing for the first time that 
foreign banks with only agencies or subsidiary commercial lending 
companies have a home state. Accordingly, the Board proposes that 
Sec. 211.22(a)(2) be deleted.
    The Board also proposes that Sec. 211.22(a)(5) be deleted. This 
provision follows the Board's interpretation of the IBA in 
Sec. 211.22(a)(2) by requiring foreign banks to select as their home 
state the state where their first U.S. deposit-taking office is 
located. Since the Interstate Act has superseded that interpretation, 
Sec. 211.22(a)(5) is proposed to be removed. 

[[Page 67101]]


Initial Home State Selection Under the Interstate Act

    As noted, the Interstate Act for the first time requires foreign 
banks with only subsidiary commercial lending companies or agencies in 
the United States to have a home state. In order to implement this 
requirement, the Board proposes that any foreign bank required for the 
first time to have a home state because it has subsidiary commercial 
lending companies or agencies in more than one state, and no other U.S. 
banking operations, be permitted to select its home state. (Foreign 
banks with domestic agencies and subsidiary commercial lending 
companies in one state only are assigned that state as their home state 
by section 5(c)(2) of the IBA, as amended by section 104(d) of the 
Interstate Act.) Each foreign bank covered by the rule would be 
required to select its home state from those states in which the 
foreign bank established U.S. agencies and subsidiary commercial 
lending companies before September 29, 1994 (the date of enactment of 
the Interstate Act), and has continuously operated such offices. A 
foreign bank covered by the rule shall select its home state by filing 
with the Board a declaration of home state by March 31, 1996.
    In the event a foreign bank required to select a home state fails 
to do so, the Board would exercise its authority, as contemplated by 
section 104(d) of the Interstate Act, to determine a foreign bank's 
home state. In such cases, the Board proposes to designate as a foreign 
bank's home state the state in which the total assets of all its 
offices, net of claims on affiliates or other offices of the foreign 
bank, is the largest, as reflected in the foreign bank's most recent 
report of condition.
    The Board also proposes to state in its new rule that, as is 
provided in section 5(c)(2) of the IBA as amended by section 104(d) of 
the Interstate Act, a foreign bank with branches, agencies, subsidiary 
commercial lending companies or subsidiary banks in one state only 
shall have that state as its home state. A foreign bank that has 
already chosen a home state would not be affected by the proposed rule.
    The Board intends to review other issues raised by the Interstate 
Act relating to the interstate operations of foreign banks in a future 
rule-making proceeding. The Board accordingly invites comment 
concerning all aspects of the application of the Interstate Act to 
foreign banks.

Deletions of Other Obsolete Sections

    The Board proposes that current Secs. 211.22(a)(1),(3) and (4) be 
deleted. These sections governed initial selection of home states for 
foreign banks under the IBA as enacted in 1978 and the Board's 
implementing regulations, which were adopted in 1980. The foreign banks 
affected by these provisions selected a home state, or had one selected 
for them by the Board or through operation of Regulation K, several 
years ago. Accordingly, the Board proposes that these provisions be 
deleted.

Bank Mergers Outside Home State

    Section 211.22(c) of Regulation K provides that a foreign bank with 
one or more domestic banking subsidiaries outside its home state shall 
notify the Board if it proposes to acquire through a subsidiary bank 
all or substantially all of the assets of a U.S. bank which is larger 
than the subsidiary bank and is located outside of the foreign bank's 
home state under the IBA. The Board may direct the foreign bank to 
redesignate as its home state the state in which its subsidiary bank is 
located if the Board finds the proposed acquisition would be 
inconsistent with the foreign bank's home state selection under the 
IBA.
    The Board adopted this rule in 1980 due to a concern that allowing 
a foreign bank to expand its deposit-taking capabilities both by 
branching in its IBA home state and through major acquisitions by 
merger outside its home state might permit evasion of the interstate 
restrictions then in place under the IBA and the BHC Act. At that time, 
a foreign bank with a subsidiary bank in one state (State X) and a 
branch in another state (State Y) which declared State Y as its home 
state under the IBA generally could not acquire more than 5 per cent of 
the shares of an additional bank in State Y, because such acquisitions 
were subject to the geographic restrictions of section 3(d) of the BHC 
Act. These restricted purchases of banks outside a foreign bank's home 
state for purposes of the BHC Act, in this case State X. In addition, 
such a foreign bank generally could not acquire more than 5 per cent of 
the shares of an additional bank in State X as a result of section 
5(a)(5) of the IBA, which also applied the limits of section 3(d) of 
the BHC Act to interstate bank acquisitions by foreign banks outside 
their home state as determined under the IBA (in this case, State Y). 
The Board concluded that a foreign bank might circumvent these 
restrictions on interstate banking by engaging, through a subsidiary 
bank, in a large merger outside its IBA home state (in this case, State 
X), and framed its interstate bank merger rule to allow the Board to 
redesignate the foreign bank's home state to prevent this 
circumvention.
    The concerns underlying the rule no longer apply due to the changes 
made by the Interstate Act. The geographic limits on interstate bank 
purchases by foreign banks outside their IBA home state under section 
5(a)(5) of the IBA have been abolished. In addition, section 3(d) of 
the BHC Act was amended as of September 29, 1995 to phase out the 
principal geographic restrictions on interstate banking acquisitions 
applicable to domestic and foreign acquirors under the BHC Act. As of 
that date, there is no need to prevent foreign banks from circumventing 
geographic limits that no longer apply. Accordingly, the Board proposes 
that the bank merger rule of Sec. 211.22(c) be deleted effective 
immediately.

Retained Provisions

    The Board proposes that Secs. 211.22(b) and (d) of Regulation K be 
retained with no change at this time. Section 211.22(b), which allows 
foreign banks to change their home states once, will be reviewed in the 
Board's future rule-making process discussed above. Until such time, 
foreign banks which have not previously changed their home states may 
change their home state in accordance with Sec. 211.22(b). Section 
211.22(d), which concerns attribution of home states to foreign banking 
organizations controlled by other foreign banking organizations, also 
is proposed to be retained pending future review.

Request for Comment

    The Board requests comment on all aspects of the proposed changes 
to Regulation K, and on all other aspects of the application of the 
Interstate Act to foreign banks which may be dealt with appropriately 
through rulemaking.

Paperwork Reduction Act

    In accordance with section 3506 of the Paperwork Reduction Act of 
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed 
the proposed rule under the authority delegated to the Board by the 
Office of Management and Budget. No collections of information pursuant 
to the Paperwork Reduction Act are contained in the proposed rule.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub. 
L. 96-354, 5 U.S.C. 601 et seq.), the Board certifies that the proposed 
revisions to 

[[Page 67102]]
Regulation K would not have a significant economic impact on a 
substantial number of small entities that are subject to its 
regulation.

List of Subjects in 12 CFR Part 211

    Exports, Federal Reserve System, Foreign banking, Holding 
companies, Investments, Reporting and recordkeeping requirements.
    For the reasons set out in the preamble, the Board proposes to 
amend 12 CFR Part 211 as set forth below:

PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)

    1. The authority citation for Part 211 continues to read as 
follows:

    Authority: 12 U.S.C. 221 et seq., 1818, 1841 et seq., 3101 et 
seq., 3901 et seq.

    2. In Sec. 211.22, paragraph (a) is revised; paragraph (c) is 
removed; and paragraph (d) is redesignated as paragraph (c) to read as 
follows:


Sec. 211.22  Interstate banking operations of foreign banking 
organizations.

    (a) Determination of home state. (1) A foreign bank (except a 
foreign bank to which paragraph (a)(2) of this section applies) that 
has any combination of domestic agencies or subsidiary commercial 
lending companies that were established before September 29, 1994, in 
more than one state and have been continuously operated shall select 
its home state from those states in which such offices or subsidiaries 
are located. A foreign bank shall do so by filing with the Board a 
declaration of home state by March 31, 1996. In the absence of such 
selection, the Board shall designate the home state for such foreign 
banks.
    (2) A foreign bank that, as of September 29, 1994, had declared a 
home state or had a home state determined pursuant to the law and 
regulations in effect prior to that date shall have that state as its 
home state.
    (3) A foreign bank that has any branches, agencies, subsidiary 
commercial lending companies, or subsidiary banks in one state, and has 
no such offices or subsidiaries in any other states, shall have as its 
home state the state in which such offices or subsidiaries are located.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, December 21, 1995.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 95-31364 Filed 12-27-95; 8:45 am]
BILLING CODE 6210-01-P