[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19524-19539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10432]



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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 5, 20, and 28

[Docket No. 96-11]
RIN 1557-AB26


International Banking Activities

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
comprehensively revising its regulations governing the international 
operations of national banks and the operation of foreign banks through 
Federal branches and agencies in the United States. The revision is 
part of the OCC's Regulation Review Program, which seeks to simplify 
OCC regulations and reduce unnecessary compliance costs, consistent 
with maintaining safety and soundness and furthering the other 
responsibilities of the OCC. The final rule streamlines and 
consolidates into one part of the Code of Federal Regulations 
substantially all provisions relating to international banking, and 
clarifies and simplifies their various requirements.
    The final rule 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.

EFFECTIVE DATE: July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Raija Bettauer, Counselor for 
International Activities, (202) 874-0680, 
[email protected]; Laurie Sears, Attorney, International 
Activities (202) 874-0680, [email protected]; Timothy M. 
Sullivan, Director, International Banking and Finance, (202) 874-4730, 
[email protected]; Comptroller of the Currency, 250 E Street, 
SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

    On July 5, 1995, the OCC published a notice of proposed rulemaking 
(60 FR 34907) (proposal) proposing to revise its regulations governing 
the international operations of national banks and the operation of 
foreign banks through Federal branches and agencies in the United 
States (12 CFR parts 20 and 28). The proposal was another component of 
the OCC's 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 burden and do not contribute 
significantly to maintaining the safety and soundness of national banks 
(and Federal branches and agencies) or to accomplishing the OCC's other 
statutory responsibilities. Another goal of the Program is to clarify 
the OCC's regulations and to better communicate the standards that the 
rules intend to convey.
    The proposal sought to achieve those goals and also to 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 agencies of foreign banks. 
It also added 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 further sought to reduce the complexity of the 
existing regulatory

[[Page 19525]]

framework for international banking by referencing provisions in the 
regulations of the Board of Governors of the Federal Reserve System 
(FRB) and the Federal Deposit Insurance Corporation (FDIC), and, where 
possible, using terms and procedures consistent with the provisions in 
the other agencies' regulations dealing with comparable situations.

Comments Received

    The OCC received four comment letters on the proposal: one from a 
national bank and three from trade associations. The commenters 
generally supported the OCC's efforts to consolidate and streamline the 
current regulations and reduce unnecessary regulatory burden. Overall, 
commenters commended the OCC's efforts, and some commenters offered 
variations on certain of the proposed changes.

Overview of the Final Rule and Response to Comments Received

    The final rule consolidates into a single comprehensive regulation 
the substantive requirements governing international banking operations 
supervised by the OCC. The final rule relocates and incorporates what 
is currently subpart B of part 20, regarding international lending 
supervision, as subpart C of part 28. The OCC originally drafted this 
subpart in consultation with the FRB and the FDIC, and the OCC hopes to 
undertake a review of subpart C of part 28 in the near future in 
consultation with those agencies.
    Under the final rule, the procedural requirements of 12 CFR part 5 
continue to apply to Federal branches and agencies, unless otherwise 
provided, and part 28 cross-references the procedural requirements in 
part 5, as appropriate. The Comptroller's Manual for Corporate 
Activities also provides additional and more specific guidance on the 
application of the general corporate regulations to the Federal 
branches and agencies.
    The four commenters recommended changes that focused on specific 
sections of the proposal. The OCC carefully considered each of the 
comments, and has made changes in the final rule in response to the 
comments received. The following discussion of significant sections 
identifies and discusses the comments the OCC received on the proposal 
and the changes the OCC made to the proposal to address those comments. 
The discussion also notes other changes to the current regulations that 
the OCC has adopted in the final rule. The preamble concludes by 
indicating the technical changes that the final rule makes to remove 
superfluous sections of 12 CFR part 5. A derivation table summarizing 
sections of former parts 20 and 28 changed by the final rule is 
included at the end of this preamble.

Subpart A--Foreign Operations of National Banks

Filing Requirements for Foreign Operations of a National Bank 
(Sec. 28.3)

    The proposal required a national bank to notify the OCC upon 
establishing, opening, relocating, or closing a foreign branch, or when 
filing an application, notice, or report with the FRB regarding the 
acquisition or divestment of certain foreign investments. Under the 
proposal, a national bank could satisfy this requirement by providing 
the OCC with a copy of the appropriate filing made with the FRB. Also, 
the proposal removed the requirement in the current regulation for a 
national bank to make two separate filings when establishing a foreign 
branch or acquiring certain foreign investments.
    One commenter requested that the OCC clarify the requirement that 
notice be provided to the OCC when a national bank ``establishes'' a 
foreign branch. The commenter noted that both the OCC's proposal and 
FRB's Regulation K, 12 CFR 211.3(a), require notice at the opening, 
closing, or relocating of a foreign branch. However, the OCC proposal 
also required a notice for ``establishing'' a foreign branch. The 
commenter requested that the OCC clarify whether ``establish'' has the 
same meaning as ``open,'' and, if not, whether the OCC is requesting 
something beyond that which is required under Regulation K.
    Regulation K states that the establishment of a foreign branch 
generally requires the specific approval of the FRB. See 12 CFR 
211.3(a)(1). Regulation K also requires any member bank that opens, 
closes, or relocates a foreign branch to report those changes in a 
manner prescribed by the FRB. See 12 CFR 211.3(a)(5). In addition, 
Regulation K requires a member bank to obtain the FRB's approval, or 
notify the FRB, when it acquires, divests, or disposes of certain 
foreign investments. See 12 CFR 211.5, 211.7.
    The final rule makes it clear that whenever a national bank is 
required to make a filing with the FRB under Regulation K, as described 
in the paragraph above, it must also provide a copy of that filing or a 
notice of that filing to the OCC. However, even if not required by the 
FRB, the final rule requires a national bank to provide a simple notice 
to the OCC of the opening, closing, or relocation of a foreign branch. 
As the primary supervisor of the national bank and its consolidated 
global operations, it is necessary for the OCC to know the basic 
structure and location of the national bank's operations in order to 
effectively supervise the consolidated operations of the bank.

Liability for Deposits Maintained at Non-United States Offices

    Section 326 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRI Act) (Pub. L. 103-325, 108 Stat. 2160) 
amends the Federal Reserve Act, 12 U.S.C. 221 et seq., to limit a 
United States bank's liability for deposits in its foreign branches if 
the branch cannot repay the deposit due to foreign sovereign action, 
war, insurrection, or civil strife, and the bank has not expressly 
agreed in writing to repay the deposit under those circumstances. The 
proposal specifically solicited public comment on whether additional 
guidance is necessary or desirable to implement this provision of the 
CDRI Act. The OCC received no comments regarding the effect of the 
proposal on United States banks.
    One commenter, however, urged the OCC to adopt a provision in the 
final rule applying section 326 to Federal branches and agencies of 
foreign banks operating in the United States. The suggested provision 
would state that United States offices of foreign banks will not be 
subject to liability for deposits maintained at a non-United States 
office if that non-United States office cannot repay the deposits due 
to foreign sovereign action, war, insurrection, or civil strife. The 
commenter argued that its request is consistent with the protection 
provided United States banks under section 326 and the national 
treatment principle.
    The OCC has decided not to adopt the commenter's suggestion at this 
time. Subpart B of part 28 contains a general provision regarding 
United States laws that apply to Federal branches and agencies, and the 
OCC expects to provide additional and more specific guidance in this 
area in the future. Section 326 was the product of some particular 
concerns. The OCC believes that it will be more appropriate to address 
the commenter's question via a process that better allows those 
concerns to be considered and, if appropriate, specific guidance to be 
issued.

[[Page 19526]]

Subpart B--Federal Branches and Agencies of Foreign Banks

Authority, Purpose, Scope, and Filing Requirements (Sec. 28.10)

    The proposal set out the legal authority, purpose, and scope of 
subpart B. The final rule adds a new paragraph (c) to this section to 
explain that, unless otherwise provided, the rules of general 
applicability in 12 CFR part 5 apply to a filing by a foreign bank or a 
Federal branch or agency as they would apply to a similar filing by a 
national bank. The final rule tells filers where to file and where to 
obtain forms. The final rule also informs filers that 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 that would be required by the OCC.

Definitions (Sec. 28.11)

    The proposal included new and updated definitions to assist in the 
implementation of new statutory requirements and to make the 
definitions more consistent with those of the FRB and FDIC. The final 
rule adopts the definitions as proposed, except as discussed below.
    The final rule includes a new definition for ``affiliate'' that was 
discussed in the preamble of the proposal. The final rule extends the 
exemption for those from whom an uninsured Federal branch may take 
deposits of less than $100,000 to include persons to whom the branch, 
or foreign bank (including any affiliate thereof) has extended credit 
or provided other nondeposit banking services within the past 12 
months. Therefore, it was necessary to add a definition for 
``affiliate.''
    The final rule adds a definition of ``capital equivalency deposit'' 
that refers to section 4 of the International Banking Act of 1978 
(IBA), 12 U.S.C. 3102(g).
    The final rule also adds a separate definition of ``control'' that 
was not in the proposal. However, the proposal described this term in 
two other definitions, so the final rule eliminates this redundancy.
    The final rule defines ``initial deposit'' to clarify that ``first 
deposit'' means any deposit made when there is no current deposit 
relationship between the depositor and the Federal branch. This issue 
is discussed more thoroughly in the discussion of Sec. 28.16 in 
reference to a comment received regarding accounts established with a 
deposit of $100,000 or more before the effective date of the 
regulation.
    The OCC received a comment suggesting changes to the definition of 
``managed or controlled,'' but the final rule adopts the definition as 
proposed. The Interstate Act, 12 U.S.C. 3105(k), provides that United 
States branches and agencies of foreign banks cannot manage any type of 
activity that is conducted through an offshore office of the foreign 
bank that is managed or controlled by the branch or agency unless a 
United States bank is permitted to manage that activity at its offshore 
branch or subsidiary.
    The proposal defined ``managed or controlled'' to mean that the 
majority of the responsibility for business decisions, including 
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 agency. This definition is consistent with the definition 
used in the Federal Financial Institutions Examinations Council (FFIEC) 
Supplement to the quarterly Report of Assets and Liabilities of U.S. 
Branches and Agencies of Foreign Banks, FFIEC 002S, for the purpose of 
determining which United States branches and agencies of foreign banks 
manage or control offshore offices and must complete FFIEC 002S. 57 FR 
61907, Dec. 29, 1992.
    One commenter proposed that the OCC exclude from the definition of 
``managed or controlled'' recordkeeping for a non-United States office 
by the United States office. The commenter recommended that, for 
various cost and efficiency reasons, a foreign bank may maintain 
records at a United States location for non- United States offices that 
the United States office does not otherwise manage or control, and that 
FFIEC 002S is intended for other purposes. Therefore, the broad 
definition of ``managed or controlled'' in FFIEC 002S that is used for 
reporting purposes should not automatically be used for applying 
restrictions on the types of activities that may be managed at offshore 
branches.
    The OCC carefully considered this comment and decided not to adopt 
the commenter's recommendation. The OCC believes that two different 
definitions of ``managed or controlled'' would be impractical and 
confusing. In most, if not virtually all, cases where a United States 
office is performing recordkeeping functions for a non-United States 
office, the United States office would otherwise satisfy the definition 
of ``managed or controlled.'' The OCC recognizes, however, that if a 
United States office of the foreign bank simply compiles or forwards to 
the parent foreign bank data or information regarding offshore 
operations in the normal course of business, that activity would not 
constitute recordkeeping for this purpose. Thus, that United States 
office of the foreign bank would not ``manage or control'' the foreign 
bank's offshore activities for purposes of this provision.
    Consequently, the final rule defines ``managed or controlled'' to 
apply to those offshore offices for which a Federal branch or agency 
has substantial responsibility with regard to assets or liabilities or 
recordkeeping. For example, consistent with FFIEC 002S, a Federal 
branch or agency would be deemed to manage or control its offshore 
office if: (1) The manager for the Federal branch or agency and the 
manager for 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 Federal branch or agency; or (3) 
recordkeeping systems for either assets or liabilities of the offshore 
office are maintained in the Federal branch or agency. The 
restrictions, however, generally would not apply to offshore branches 
that are full-service facilities managed or controlled by staff located 
at the offshore office or at a location outside the United States.

Approval of a Federal Branch or Agency (Sec. 28.12)

    The proposal updated and clarified criteria for OCC approval of 
applications to establish a Federal branch or agency, or a limited 
Federal branch. The proposal also streamlined the procedures and 
provided for expedited review for certain corporate applications by 
eligible foreign banks.
    Commenters generally commended the OCC's efforts to streamline the 
approval process. The OCC received no suggestions to improve this 
section, and the final rule adopts this section as proposed. Commenters 
especially favored the OCC's proposal to expedite the review procedure 
for eligible foreign banks.
    For purposes of the expedited review procedures in the final rule, 
a foreign bank is an ``eligible foreign bank'' if each Federal branch 
and agency of the foreign bank in the United States: (1) Has a 
composite rating of 1 or 2 under the interagency rating system used by 
the OCC for United States branches and agencies of foreign banks 
(ROCA); (2) is not subject to a cease and desist order, consent order, 
formal written agreement, or Prompt Corrective Action

[[Page 19527]]

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.'' 
The OCC will not provide expedited review, however, if it concludes, 
and advises the applicant in writing, that the filing presents 
significant supervisory or compliance concerns, or raises significant 
legal or policy issues.
    The final rule also adds a paragraph to allow a foreign bank 
proposing to establish a Federal branch or agency through acquisition, 
merger, or consolidation with another foreign bank to obtain after-the-
fact approval from the OCC in certain circumstances. This type of an 
establishment occurs when there is a change in the corporate form of 
the foreign bank operating the Federal branch or agency, for instance, 
through a merger of a foreign bank operating a Federal branch or agency 
into another foreign bank. This could also occur, in certain 
circumstances, through the acquisition of the assets or operations of a 
foreign bank operating a Federal branch or agency by another foreign 
bank.
    The regulation provides the minimum requirements for an after-the-
fact application, and further criteria and information regarding these 
transactions and procedures may be contained in the Manual. The OCC 
reserves, however, the right to deny the application, and an applicant 
must agree to abide by the OCC's decision, including terminating the 
activity or activities of an Federal branch or agency, if the OCC so 
requires.
    The final rule expands the types of change of status that may be 
granted expedited review by including the conversion of a state branch 
or 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.

Permissible Activities (Sec. 28.13)

    In paragraph (a) of this section the proposal restated the general 
provision on the applicability of domestic law to Federal branches and 
agencies and requested comment on forms of supplemental guidance that 
interested parties thought would be most useful. The OCC received no 
comments on this paragraph and accordingly no substantive changes are 
made to paragraph (a) in the final rule.
    In paragraph (b) of this section, the proposal restated the 
requirement in the Interstate Act regarding the management of certain 
offshore activities, 12 U.S.C. 3105(k), and clarified, in general 
terms, the activities that a United States bank may manage at its 
offshore branch or subsidiary. The Interstate Act provides that a 
United States branch or agency of a foreign bank shall not, through an 
offshore shell branch that it manages and controls, manage the types of 
activities that a United States bank may not manage at its foreign 
branch or subsidiary.
    A commenter suggested that in accordance with the legislative 
history of the Interstate Act, the OCC should clarify that 
Sec. 28.13(b) applies to offshore shell branches. The OCC agrees that 
this clarification is warranted and has changed the title of paragraph 
(b) of this section to mirror section 107(e) of the Interstate Act, 12 
U.S.C. 3105(k).
    In the preamble to the proposal, the OCC solicited comment on 
whether procedural or quantitative supervisory requirements that may 
apply to an activity of a United States bank at its foreign branches or 
subsidiaries should also apply to a Federal branch or agency in this 
context. One commenter noted that the Interstate Act does not require 
such limits to be imposed and that in other relevant contexts the 
Federal banking agencies have not imposed such limits. The OCC agrees 
with the commenter. The final rule refers to the ``types'' of 
activities and explicitly excludes United States procedural or 
quantitative supervisory requirements that may apply to the offshore 
branch or subsidiary of a United States bank.
    The OCC notes, however, that the Interstate Act does not confer on 
a foreign bank the right to manage activities of an offshore office 
from its Federal branch or agency. The OCC will continue to monitor 
relationships between Federal branches and agencies and offshore 
offices of foreign banks and to evaluate the compliance of law and 
safety and soundness of the United States operations of Federal 
branches and agencies.

Capital Equivalency Deposit (Sec. 28.15)

    The proposal restated the current provision that eligible capital 
equivalency deposits (CED) for Federal branches and agencies may 
include dollar deposits or investment securities that are permissible 
investments for a national bank. The proposal also stated that high-
grade commercial paper and bankers' acceptances are the functional 
equivalents of deposits. The proposal required that permissible CED 
instruments be valued at the lower of the principal amount or market 
value. The proposal provided that if no published source for market 
value is available, the instruments must be priced by an independent 
pricing service at least quarterly.
    One commenter recommended that the OCC not subject negotiable 
certificates of deposits or bankers' acceptances issued by United 
States banks or United States offices of foreign banks to the 
requirement that the instruments have a market value that is available 
from either a published source or from an independent pricing service. 
The commenter was concerned that this requirement may in practice 
prevent Federal branches and agencies from pledging negotiable 
certificates of deposit or bankers' acceptances issued by banks that 
are regulated by United States authorities and that are in a safe and 
sound financial condition solely because their prices are not 
published.
    The proposal was not intended to make it impractical for Federal 
branches or agencies to pledge high quality instruments as CED. As 
mentioned in the proposal, the quality of bank certificates of deposit 
offered as CED has been occasionally questionable or difficult to 
ascertain. Also, certain securities used as CED may be volatile or 
difficult to price at market value. Therefore, the OCC included the 
published source requirement in the proposal.
    The OCC recognizes, however, that this requirement may 
unnecessarily exclude certain high quality certificates of deposit or 
other instruments. Therefore, the final rule does not adopt the 
published source requirement for certificates of deposit and banker's 
acceptances. Instead, the final rule requires that for an instrument to 
qualify as CED it must be: (1) An investment security eligible for 
investment by a national bank; (2) a United States dollar deposit 
payable in the United States, other than a certificate of deposit; (3) 
a certificate of deposit, payable in the United States, or bankers' 
acceptance, provided that, in either case, the issuer or the instrument 
is rated investment grade by an internationally recognized rating 
organization, and neither the issuer nor the instrument is rated lower 
than investment grade by any such rating organization that has rated 
the issuer or the instrument; or (4) another asset permitted by the OCC 
to qualify as CED. Although currently under OCC supervisory policy 
dollar deposits include dollar denominated certificates of deposit 
payable in the United States, the final rule categorizes certificates 
of deposits separately to clarify the

[[Page 19528]]

treatment of these instruments. The final rule also restates the 
requirement in section 4 of the IBA, 12 U.S.C. 3102(g)(2), that the 
obligations used for CED must be valued at principal amount or market 
value, whichever is lower. The OCC believes that these requirements 
strike a reasonable balance between the OCC's concerns about the 
quality of these instruments offered as CED and providing flexibility 
to Federal branches and agencies in their choice of instruments that 
can be properly pledged as CED. In addition, the OCC retains the 
authority to disallow any particular CED investment that it concludes 
is inappropriate.
    The OCC recognizes that, on the effective date of this regulation, 
CED accounts of some Federal branches and agencies may contain 
instruments that do not meet the investment grade rating standard of 
the final rule. In order to avoid unnecessary operational disruption, 
the OCC will not require immediate replacement of those instruments. 
Instead, an instrument in the CED account that does not qualify under 
this regulation must be replaced with a qualifying instrument, i.e., 
one that satisfies the requirements of this regulation, upon maturity 
of that instrument. This accommodation applies, however, only to 
instruments already properly pledged as CED under the current 
regulation.

Deposit-Taking by an Uninsured Federal Branch (Sec. 28.16)

    The Interstate Act, 12 U.S.C. 3104 note, requires the OCC and the 
FDIC to review and revise their regulations regarding deposit-taking by 
foreign branches to ensure that the agencies' regulations are 
consistent with the principle of national treatment articulated in the 
IBA, 12 U.S.C. 3104(a). Specifically, the OCC and FDIC are directed to 
consider whether foreign branches may accept initial deposits of less 
than $100,000 from six categories of depositors listed in the statute. 
The Interstate Act also directs the agencies to reduce the amount of 
deposits of less than $100,000, not otherwise permissible under this 
regulation, that may be accepted by foreign branches. This exemption, 
characterized as a ``regulatory de minimis exemption'' by the 
Interstate Act, reduces the amount of those deposits maintained by an 
uninsured Federal branch under the exemption from 5% to 1% of the 
average deposits held by that Federal branch.
    The Interstate Act also directs the OCC to consider equal 
competitive opportunities among foreign banks and United States banks 
and the availability of credit to all sectors of the United States 
economy, including international trade finance. One objective that 
Congress expected the agencies to achieve in the implementation of this 
regulation is to afford equal competitive opportunities to foreign and 
United States banks by ensuring that foreign banks do not receive an 
unfair competitive advantage in taking uninsured deposits.
    The OCC proposal, in general, adopted the exceptions suggested by 
Congress in the Interstate Act, but added several limited exemptions. 
The OCC believes these additional limited exemptions are consistent 
with the purposes of the Interstate Act. The preamble to the OCC's 
proposal set forth in detail the information and data that the OCC 
reviewed in considering this question. See 60 FR 34907, July 5, 1995. 
The final rule adopts this provision as proposed with some changes as 
described in the following discussion.

Nondeposit Banking Services (Sec. 28.16(b)(3))

    The Interstate Act requires the OCC to consider whether to permit 
an uninsured Federal branch to accept initial deposits of less than 
$100,000 from persons to whom the branch or foreign bank has extended 
credit or provided other nondeposit banking services. The OCC's 
proposal provided that an uninsured Federal branch may accept initial 
deposits of less than $100,000 from persons to whom the branch or 
foreign bank has extended credit or provided other nondeposit banking 
services within the past 12 months or has entered into an agreement to 
provide those services within the next 12 months.
    The proposal recognized that in a banking relationship a deposit 
may, in some cases, precede the extension of credit or the provision of 
other nondeposit banking services by the uninsured Federal branch or 
foreign bank. In the proposal, the OCC also indicated that it was 
considering clarifying this exemption 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 
service within the past 12 months, or with whom the branch, bank, or 
its financial institution affiliate has a written agreement to extend 
credit to provide such services. The OCC did not receive any comments 
opposing the clarification of this exemption.
    One commenter strongly supported expanding the scope of this 
exemption to include nondeposit banking services provided to the 
depositor, or its affiliates, by financial affiliates of the foreign 
bank. The commenter noted that, like United States banks, foreign banks 
provide nondeposit banking services through affiliates for a variety of 
regulatory and business reasons. Financial affiliates frequently 
provide banking services to customers that can also be provided 
directly by the bank. Similarly, depositors frequently conduct their 
operations through affiliates. The commenter also suggested that the 
OCC exercise its discretion under the Interstate Act to expand this 
category to cover deposit services provided by the foreign bank or its 
financial institution affiliates.
    The OCC has adopted one of the commenter's recommendations. The 
final rule expands the scope of this exemption to permit an uninsured 
Federal branch to accept initial deposits of less than $100,000 from a 
person to whom the branch, foreign bank, or an affiliate of the foreign 
bank has extended credit or provided other nondeposit banking services 
within the past 12 months or has a written agreement to provide credit 
or those services within the next 12 months. The OCC believes that this 
expansion is warranted by the connection among the foreign entity's 
various components. Similarly, a customer who has a business 
relationship with an affiliate of the foreign bank may prefer the 
convenience of a deposit relationship with a Federal branch of the 
foreign bank. Moreover, the deposit relationship with the branch may, 
in some cases, precede the extension of credit or providing of other 
nondeposit banking services by the branch or foreign bank or its 
affiliates.
    This expansion is supported by the language of the IBA, which 
defines ``foreign bank'' to include any affiliate of a foreign bank. 
See 12 U.S.C. 3101(7). Consistent with this exemption, affiliates of a 
foreign bank include companies that are capable of extending credit or 
providing some other nondeposit banking service to prospective 
depositors. For example, affiliates of a foreign bank that provide 
credit or other nondeposit banking services may include investment 
advisors, broker-dealers, futures commission merchants, finance 
companies, Edge corporations and Agreement corporations, commodity 
trading advisors, other banks, or any other comparable institution.
    The OCC does not find equally compelling the commenter's argument 
to expand the exemption to include affiliates of the depositor, or to 
expand

[[Page 19529]]

the transactions triggering the exemption to include providing deposit 
services. There is no explicit statutory support in the IBA for this 
expansion, or any indication in the Interstate Act that Congress 
intended to include affiliates of persons to whom the branch or foreign 
bank (including its affiliates) has extended credit or provided any 
other nondeposit banking service. However, as a matter of convenience 
to depositors, the final rule includes a provision in the exemption to 
permit a Federal branch to accept deposits from immediate family 
members of an individual to whom the branch or foreign bank (including 
its affiliates) has extended credit or other nondeposit banking 
services within the past 12 months or has entered into a written 
agreement to provide such services within the next 12 months. The OCC 
notes that it specifically requested comment on an exemption for 
immediate family members in this section, and one commenter strongly 
supported this proposal. The OCC received no opposing comments.

Business Deposits (Sec. 28.16(b)(4))

    The Interstate Act requires the OCC to consider whether to permit 
an uninsured branch to accept initial deposits of less than $100,000 
from a foreign business or large United States business. The OCC has 
determined that this exemption is consistent with the objectives in 
section 6(a) of the IBA, 12 U.S.C. 3104. Consequently, the OCC,s 
proposal provided that an uninsured Federal branch may accept initial 
deposits of less than $100,000 from foreign businesses and large United 
States businesses. The proposal defined ``large United States 
business'' to mean any business entity organized under the laws of the 
United States, and that has: (1) securities registered on a national 
securities exchange or quoted on the National Associate of Securities 
Dealers Automated Quotation System (NASDAQ); or (2) more than $1 
million in annual gross revenues. The proposal specifically requested 
comment on this definition, including the appropriateness of the 
criteria and suggestions for alternative criteria. Two commenters 
suggested modifications to this exemption.
    One commenter urged the OCC to expand this exemption to permit an 
uninsured Federal branch to accept deposits from all businesses. The 
commenter believed that the Interstate Act gives the OCC and the FDIC 
discretion because the Interstate Act directs the agencies to 
``consider'' adopting the exemption categories listed in the statute. 
The commenter noted that the ability of an uninsured Federal branch to 
accept initial deposits of less than $100,000 from all businesses is 
significant in maintaining and expanding credit availability to the 
United States economy. However, the commenter did not offer more 
specific information to support this assertion.
    Alternatively, the commenter recommended that the OCC expand the 
exemption criteria to include businesses with: (1) $1 million in total 
assets; (2) 50 or more employees; or (3) affiliates of large United 
States businesses. The commenter suggested that the OCC expand the 
proposed criteria for large United States businesses to accommodate the 
wide range of different circumstances of business entities. For 
example, a foundation or trust would not be listed on a national 
securities exchange and may not generate revenues, although it could be 
considered large in terms of its total assets or employees. Also, the 
commenter proposed that the OCC should treat a large United States 
business and its affiliates as a group.
    Another commenter, however, recommended narrowing the exemption by 
increasing the $1 million annual gross revenue amount required for 
large United States businesses to between $25 and $100 million. 
Furthermore, the commenter suggested imposing conditions under which a 
domestic business may open an account with an uninsured Federal branch. 
The commenter argued that using a $1 million cut-off would include a 
great number of domestic businesses and would undermine the purpose of 
the restriction. This commenter did not offer any more specific 
arguments to support its recommendation.
    In the final rule, the OCC clarifies that the definition of ``large 
United States business'' includes non-profit institutions, such as 
foundations. In the absence of data supporting an alternative 
definition of ``large United States business,'' however, the OCC has 
decided not to make any other changes in the definition in the final 
rule. The OCC believes that the proposal represents a reasonable 
balance between Congress' concern that foreign banks and United States 
banks be provided equal competitive opportunities and the importance of 
maintaining credit to all sectors of the United States economy. At the 
same time, additional criteria or more specific conditions under which 
business deposits can be made, as proposed by one commenter, would make 
the exemption more complex and difficult to administer by uninsured 
Federal branches, without clear evidence that it would further the 
purposes of the Interstate Act.

Other Categories of Depositors (Sec. 28.16(b) (1), (2), (6) and (8))

    One commenter expressed support for the other categories of exempt 
depositors proposed by the OCC. The proposal included a list of nine 
types of persons or entities from which an uninsured Federal branch may 
accept initial deposits of less than $100,000. In particular, the 
commenter supported the exemptions for Federal and state governments, 
individuals who are neither citizens nor residents of the United 
States, individuals who are not United States citizens, but who are 
residents of the United States and are employed by a foreign bank, 
foreign business, foreign government or recognized international 
organization, and deposits made in connection with the issuance of a 
financial instrument for the transmission of funds. The OCC did not 
receive any comments suggesting changes to these categories, and the 
final rule adopts the other depositor exemption categories as proposed.

De minimis Deposits (Sec. 28.16(b)(9)) and Transition rule 
(Sec. 28.16(f))

    The Interstate Act, 12 U.S.C. 3104 note, requires that the OCC 
reduce the amount of deposits of less than $100,000 that an uninsured 
Federal branch may accept from any party under the de minimis exemption 
from 5% to 1% of the branch's average deposits.1 The Interstate 
Act also permits the OCC to establish reasonable transition rules to 
facilitate the termination of any deposit-taking activities that would 
no longer be permissible under the new regulatory exemptions.
---------------------------------------------------------------------------

     1  The de minimis calculation methodology remains 
unchanged from the current rule and is consistent with the 
calculation methodology used by the FDIC for state-licensed 
branches.
---------------------------------------------------------------------------

    As required, the OCC's proposal reduced the amount of the de 
minimis exemption from 5% to 1% of an uninsured Federal branch's 
average deposits. In addition, the proposal provided a five-year 
transition period for all currently exempted accounts, other than time 
deposits. During the transition period, branches would have to 
reclassify deposits accepted under the current set of exemptions into 
one of the new exemptions, or terminate those deposit accounts that do 
not qualify for an exemption under this regulation as of the end of the 
transition period. The transition period for a time deposit would be 
until maturity of the deposit, at which time the branch must reclassify 
the deposit under a new exemption,

[[Page 19530]]

obtain a special exemption from the OCC for the specific deposit, or 
terminate the deposit relationship. An uninsured branch may continue to 
accept deposits for an existing account that does not qualify for an 
exemption until the end of the transition period.
    One commenter addressed the de minimis deposit and transition 
provisions of the proposal. The commenter supported the general 
approach of the five-year phase-in period. However, the commenter 
suggested the following modifications. First, the commenter suggested 
that the reclassification of initial deposits of less than $100,000 
that were accepted under the current regulation should apply only to 
those deposits that were accepted under the current 5% de minimis test. 
In other words, the commenter thought it unnecessary to apply the 
reclassification requirement to all deposits maintained by uninsured 
branches under the current set of exemptions as the proposal provided.
    The OCC considered this option and decided to adopt the requirement 
as proposed. The OCC interprets the Interstate Act to require 
reclassification of all deposits maintained by an uninsured Federal 
branch under the current exemptions. Those exemptions include deposits 
received, not only under the 5% de minimis exemption, but also deposits 
received under other current exemptions that no longer apply under the 
final rule. The OCC believes that its interpretation is more consistent 
with the Interstate Act and its legislative history which appear to 
contemplate a transition period for all existing exempted deposits, 
i.e., not only for the de minimis deposits. In addition, the OCC has 
provided a five-year transition period for reclassification to reduce 
any disruption imposed by reclassification. In the final rule, the OCC 
clarifies that accounts accepted under all the existing regulatory 
exemptions must be reclassified during the transition period.
    Second, the commenter requested clarification regarding the 
transition rule. The commenter requested that the OCC confirm that the 
reclassification of initial deposits of less than $100,000 could take 
place at any time during the phase-in period depending on the 
circumstances of the deposit account. The OCC confirms that a deposit, 
including a time deposit, may be reclassified at any time during the 
five-year transition period, but a time deposit is not required to be 
reclassified until its maturity date.
    Third, the commenter addressed the transition period for time 
deposits. The proposal provided that the transition period for a time 
deposit would be until maturity of the deposit, at which time the 
branch must reclassify the deposit under a new exemption or obtain a 
special exemption from the OCC for the specific deposit. The commenter 
pointed out that time deposits can be as short as seven days in 
duration, and, therefore, a branch would have an unreasonably short 
period of time to reclassify many of its time deposits. The commenter 
recommended that the OCC delay the effective date for the requirement 
to begin reclassifying time deposits once they mature until six months 
after publication of the final rule.
    The OCC recognizes that the proposal may provide insufficient time 
to reclassify time deposits that mature shortly after the effective 
date of the regulation. Therefore, the final rule provides, in the case 
of time deposits, that an uninsured Federal branch has until the 
maturity of the time deposit or 90 days after the effective date of the 
final rule, whichever is longer, to reclassify the deposit. The OCC 
believes that 90 days from the effective date of the final rule is a 
reasonable period of time to reclassify time deposits that mature 
shortly after the effective date of the regulation.
    Fourth, the commenter requested clarification regarding the 
applicability of Sec. 28.16 to accounts established with deposits of 
$100,000 or more before the effective date of this regulation. 
Specifically, the commenter pointed out that the proposed definition of 
``initial deposit'' may conflict with the commenter's understanding 
that accounts established with a deposit of $100,000 or more before the 
effective date of the final rule would not be subject to the 
reclassification requirement. The proposal defined ``initial deposit'' 
as the first deposit received after the effective date of the final 
rule. The commenter noted that, under the proposal, after the effective 
date of the final rule the first deposit to an existing account of, for 
example, $10,000 that was initially opened with a deposit of $100,000 
or more would be subject to this section although the original deposit 
of $100,000 or more was not subject to the current regulation. The 
commenter requested confirmation that existing deposits that were not 
subject to the exemptions because the initial deposit was $100,000 or 
more would not be subject to the revised regulation, even if the first 
deposit in the account after the effective date of the revised 
regulation was less than $100,000.
    The commenter's interpretation is correct. Only initial deposits of 
less than $100,000 that were received under one of the current sets of 
exemptions under the current regulation are subject to the 
reclassification requirements in the final rule. Accordingly, the OCC 
changed the proposed definition of ``initial deposit'' to provide that 
a ``first deposit'' means any deposit when there is no current deposit 
relationship between the depositor and the Federal branch.

Notice of Change in Activity or Operations (Sec. 28.17)

    The proposal added this section to clarify the OCC's policy 
regarding notice requirements for certain changes in activities and 
operations. The proposal required a Federal branch or agency to provide 
a notice to the OCC when changing its corporate title or mailing 
address, converting to a state branch, state agency, or a 
representative office, or when its parent foreign bank changes its home 
state designation.
    The final rule removes proposed paragraphs (b) and (c) of this 
section concerning where to file and when the OCC would accept notices 
filed with other banking agencies. In order to provide this information 
for all filings and requests under this subpart, the final rule 
contains this information in Sec. 28.10(c).

Recordkeeping and Reporting (Sec. 28.18)

    The proposal restated current OCC policy and practice requiring a 
parent foreign bank to provide the OCC with information regarding its 
affairs. The proposal also added a specific requirement that a foreign 
bank operating a Federal branch or agency in the United States provide 
the OCC with a copy of regulatory reports that it files with other 
Federal regulatory agencies that are designated in guidance issued by 
the OCC. The proposal also clarified that, while a Federal branch or 
agency does not need to maintain all records in English, it must 
maintain sufficient records in English to permit examiners to perform 
their responsibilities. The OCC received no comments on this section 
and has made no changes in the final rule.

Maintenance of Assets (Sec. 28.20)

    The proposal clarified the current asset maintenance requirements 
for Federal branches and agencies. Because the OCC believes that the 
importance of the asset maintenance requirement as a supervisory tool 
may increase in the future, the proposal requested comment on whether 
the level of detail provided in the proposal adequately clarified the 
use and scope of the provision to the industry. The OCC also requested 
comment on the exclusion of classified assets. The OCC received no 
comments

[[Page 19531]]

on either issue and made no changes in the final rule.

Termination of a Federal Branch or Agency (Sec. 28.23)

    The proposal clarified the OCC's authority to terminate Federal 
branches and agencies. The proposal explicitly spelled out the grounds 
for termination in section 4(i) of the IBA, 12 U.S.C. 3102(i), and the 
grounds for national bank termination in 12 U.S.C. 191 and 12 U.S.C. 
1821(c)(5). It also stated that a recommendation from the FRB to 
terminate a Federal branch or agency could constitute grounds for 
termination. The OCC received no comments on this section.
    The OCC further clarifies this section in the final rule by 
including a reference to termination of a Federal branch or agency 
based on the foreign bank's insolvency, as specified in section 4(j)(1) 
of the IBA, 12 U.S.C. 3102(j)(1). In other respects, the final rule is 
unchanged from the proposal.

Subpart C--International Lending Supervision

Allocated Transfer Risk Reserve (Sec. 28.52) and Accounting for Fees on 
International Loans (Sec. 28.53)

    This subpart implements the requirements of the International 
Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.). Subpart C 
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.
    This subpart is subpart B of part 20 in the current regulation. The 
proposal relocated this subpart to subpart C of part 28. Because 
subpart B of part 20 was originally promulgated in cooperation with the 
FRB and the FDIC, the OCC intends to review the subpart with those 
agencies in the future, and, therefore, the OCC made no substantive 
changes to this subpart in the proposal. Public comment was invited on 
the subpart in order to bring particular issues to the OCC's attention.
    One commenter recommended that the accounting provisions in the 
proposal be amended to be uniform among the Federal banking regulatory 
agencies and consistent with generally accepted accounting principles 
and various Financial Accounting Standards Board Statements. The 
commenter also requested clarification of regulatory accounting 
practices for the allocated transfer risk reserve as it relates to the 
allowance for loan and lease losses. The OCC will address these issues 
when the subpart is reviewed with the FRB and the FDIC.

Technical Changes to Part 5

    Insofar as the final rule consolidates all substantive rules 
regarding the corporate activities of Federal branches and agencies 
into part 28, the OCC removes those sections in 12 CFR part 5 that 
concern Federal branches and agencies. However, the final rule points 
out, in Sec. 28.10(c), that the rules of general applicability in part 
5 apply to a Federal branch or agency as they would to a national bank 
undertaking a similar transaction, unless otherwise stated in part 28.

Derivation Table

    This table directs readers to the original provision upon which the 
revised provision is based.

------------------------------------------------------------------------
        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(a)...................  ..................  Added.            
Sec.  28.4(b)...................  12 CFR 7.7010(b)    Modified.         
                                   (1995).                              
Sec.  28.4(c)...................  12 CFR 7.1012       No change.        
                                   (1995).                              
                                  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   No change.        
                                   20.                                  
                                  Sec.  5.23........  Removed.          
                                  Sec.  5.25........  Removed.          
                                  Sec.  5.32........  Removed.          
                                  Sec.  5.41........  Removed.          
                                  Sec.  5.43........  Removed .         
------------------------------------------------------------------------

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 agencies of foreign banks, regardless of size, by 
simplifying and clarifying existing regulations.

Executive Order 12866

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

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4, 109 Stat. 48 (March 22, 1995) (Unfunded Mandates Act), 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 final rule will not 
result in expenditures by state, local, and tribal governments, or by 
the private sector, of more than $100 million 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 final rule has the effect of reducing burden.

Paperwork Reduction Act of 1995

    The collection of information requirements contained in this final 
rule have received approval from the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)), under OMB control number 1557-0102. Comments on the 
collection of information should be sent to the Office of Management 
and Budget, Paperwork Reduction Project 1557-0204, Washington, DC 
20503, with copies to the Legislative and Regulatory Activities 
Division 1557- 0204, Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219. The OCC will submit the collection of 
information requirements contained in this final rule for renewal of 
OMB approval following publication of this final rule.
    The collection of information requirements in this rule are found 
in 12 CFR 28.3, 28.10, 28.13, 28.14, 28.15, 28.16, 28.17, 28.18, 28.20, 
28.52, 28.53, and 28.54. The collections of information are necessary 
for regulatory and examination purposes, for Federal

[[Page 19532]]

branches and agencies and national banks with foreign operations to 
ensure their compliance with Federal law and regulations, and to 
evidence compliance with various regulatory requirements. This 
information assists management in its safe and sound operation of the 
institution. The OCC uses the information to evaluate national banks 
with international operations and Federal branches and agencies for 
supervisory, prudential, and legal purposes, and for statistical and 
examination purposes.
    Respondents are not required to respond to the foregoing collection 
of information unless it displays a currently valid OMB control number. 
The likely respondents are foreign banks and national banks.
    Estimated average annual burden hours per recordkeeper: 36.3 hours.
    Estimated number of recordkeepers: 185.
    Estimated total annual recordkeeping burden: One per year.
    Start-up costs to respondents: none.

List of Subjects

12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 20

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

12 CFR Part 28

    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, 602, and 3108, chapter I of title 12 of the Code of 
Federal Regulations is amended as set forth below:

PART 5--[AMENDED]

    1. The authority citation for part 5 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 93a.


Sec. 5.23   [Removed]

    2. Section 5.23 is removed.


Sec. 5.25   [Removed]

    3. Section 5.25 is removed.


Sec. 5.32   [Removed]

    4. Section 5.32 is removed.


Sec. 5.41   [Removed]

    5. Section 5.41 is removed.


Sec. 5.43   [Removed]

    6. Section 5.43 is removed.

PART 20--[REMOVED]

    7. Part 20 is removed.
    8. 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 a national bank.
28.4  Permissible activities.
28.5  Filing of notice.

Subpart B--Federal Branches and Agencies of Foreign Banks

28.10  Authority, purpose, scope, and filing requirements.
28.11  Definitions.
28.12  Approval of a Federal branch or agency.
28.13  Permissible activities.
28.14  Limitations based upon capital of a foreign bank.
28.15  Capital equivalency deposits.
28.16  Deposit-taking by an uninsured Federal branch.
28.17  Notice of change in activity or 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 a Federal branch or agency.

Subpart C--International Lending Supervision

28.50  Authority, purpose, and scope.
28.51  Definitions.
28.52  Allocated transfer risk reserve.
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 any national bank that engages 
in international operations through a foreign branch, or acquires 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 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 a national 
bank.

    (a) Notice requirement. A national bank shall notify the OCC when 
it:
    (1) Files an application, notice, or report with the FRB to:
    (i) Establish, open, close, or relocate a foreign branch; or
    (ii) Acquire or divest of an interest in, or close, an Edge 
corporation, Agreement corporation, foreign bank, or other foreign 
organization; or
    (2) Opens, closes, or relocates a foreign branch, and no 
application or notice is required by the FRB for such transaction.
    (b) Other applications and notices accepted. In lieu of a notice 
under paragraph (a)(1) of this section, the OCC may accept a copy of an 
application, 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 the OCC may require in connection with 
the national bank's foreign operations.

[[Page 19533]]

Sec. 28.4  Permissible activities.

    (a) General. Subject to the applicable approval process, if any, a 
national bank may engage in any activity in a foreign country that is:
    (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 activity in a foreign country 
that is 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 corporations 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, scope, and filing requirements.

    (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 the IBA pertaining 
to the licensing, supervision, and operations of Federal branches and 
agencies in the United States.
    (c) Filing requirements--(1) Rules of general applicability. Except 
as otherwise provided by the OCC, the rules of general applicability in 
12 CFR part 5 apply to any filing by a foreign bank, or Federal branch 
or agency as they would to a similar filing by a national bank.
    (2) Where to file. A foreign bank or a Federal branch or agency 
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.
    (3) Availability of forms. Individual forms and instructions for 
filings are available from International Banking and Finance.
    (4) 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. The 
OCC may also require the applicant to submit supplemental information.


Sec. 28.11  Definitions.

    For purposes of this subpart:
    (a) Affiliate means any entity that controls, is controlled by, or 
is under common control with another entity.
    (b) 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.
    (c) Capital equivalency deposit means a deposit by a Federal branch 
or agency in a member bank as described in section 4 of the IBA, 12 
U.S.C. 3102(g).
    (d) 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.
    (e) Control. An entity controls another entity if the entity 
directly or indirectly 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.
    (f) Edge corporation means a corporation that is organized under 
section 25(a) of the FRA, 12 U.S.C. 611 through 631.
    (g) Establish a Federal branch or agency means to:
    (1) Open and conduct business through a Federal branch or agency;
    (2) Acquire directly or indirectly through merger, consolidation, 
or similar transaction with another foreign bank, the operations of a 
Federal branch or agency that is open and conducting business;
    (3) Acquire a Federal branch or 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 agency within a state or from one 
state to another.
    (h) 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;
    (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.
    (i) 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 (h) of this section.
    (j) 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 in a foreign country.
    (k) Foreign business means any entity, including a corporation, 
partnership, sole proprietorship, association, foundation 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.
    (l) 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.
    (m) Home country means the country in which the foreign bank is 
chartered or incorporated.
    (n) Home country supervisor means the governmental entity or 
entities in the foreign bank's home country responsible for supervising 
and regulating the foreign bank.
    (o) 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

[[Page 19534]]

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.
    (p) Immediate family member of an individual means the spouse, 
father, mother, brother, sister, son, or daughter of that individual.
    (q) Initial deposit means the first deposit transaction between a 
depositor and the Federal branch made on or after July 1, 1996. 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. First deposit means the 
deposit made when there is no current deposit relationship between the 
depositor and the Federal branch.
    (r) 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.
    (s) Large United States business means any business entity 
including a corporation, company, partnership, sole proprietorship, 
association, foundation or trust that is organized under the laws of 
the United States or any state thereof, and has:
    (1) Securities registered on a national securities exchange or 
quoted on the National Association of Securities Dealers Automated 
Quotation System; or
    (2) More than $1 million in annual gross revenues for the fiscal 
year immediately preceding the year of the initial deposit.
    (t) 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 permissible for an Edge corporation to receive.
    (u) Managed or controlled by a Federal branch or agency means that 
a majority of the responsibility for business decisions, including 
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 agency. For purposes of this definition, forwarding data or 
information of offshore operations gathered or compiled by the United 
States office in the normal course of business to the parent foreign 
bank does not constitute recordkeeping.
    (v) Manual means the Comptroller's Manual for Corporate Activities 
(see 12 CFR part 5).
    (w) 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 agency.
    (x) Person means an individual or a corporation, government, 
partnership, association, or any other entity.
    (y) State means any state of the United States and the District of 
Columbia.
    (z) United States bank means a bank organized under the laws of the 
United States or any state.


Sec. 28.12  Approval of a Federal branch or agency.

    (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. Generally, in reviewing an application 
by a foreign bank to establish a Federal branch or agency, the OCC 
considers:
    (1) The financial and managerial resources and future prospects of 
the applicant foreign bank and the Federal branch or 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 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 so 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 conditions on its 
approval including a condition permitting future termination of 
activities based on the inability of the foreign bank to provide 
information on its activities, or those of its affiliate, that the OCC 
deems necessary to determine and enforce compliance with United States 
banking laws.
    (e) Expedited review. Unless the OCC concludes that the filing 
presents significant supervisory or compliance concerns, or raises 
significant legal or policy issues, the OCC generally processes the 
following filings by an eligible foreign bank, as defined in paragraph 
(f) of this section, under expedited review 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 review.
    (2) Change of status. An application to change the status of an 
office submitted by an eligible foreign bank 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 
review.
    (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 review.
    (4) Other filings. Any other application submitted by an eligible 
foreign bank may be approved by the OCC on an expedited basis as 
described in the Manual.

[[Page 19535]]

    (f) Eligible foreign bank. For purposes of this section, a foreign 
bank is an eligible foreign bank if each Federal branch and agency of 
the foreign bank in the United States:
    (1) Has a composite rating of 1 or 2 under the interagency rating 
system for United States branches and agencies of foreign banks;
    (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 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) After-the-fact approval. Unless otherwise provided by the OCC, 
a foreign bank proposing to establish a Federal branch or agency 
through the acquisition of, or merger or consolidation with, a foreign 
bank that has an office in the United States, may proceed with the 
transaction before an application to establish the Federal branch or 
agency has been filed or acted upon, if the applicant:
    (1) Gives the OCC reasonable advance notice of the proposed 
acquisition, merger, or consolidation;
    (2) Prior to consummation of the acquisition, merger, or 
consolidation, commits in writing to comply with the OCC application 
procedures within a reasonable period of time, or has already submitted 
an application; and
    (3) Commits in writing to abide by the OCC's decision on the 
application, including a decision to terminate activities of the 
Federal branch or agency.
    (h) 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.
    (i) Additional requirements. Nothing in this section relieves a 
foreign bank of any requirement to obtain the approval of the FRB as 
may be necessary under 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 agency shall be conducted with the same rights and privileges 
and subject to the same duties, restrictions, penalties, liabilities, 
conditions, and limitations that would apply if the Federal branch or 
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 agency to obtain the approval of parent foreign bank senior 
management.
    (b) Management of shell branches-- (1) Federal branches and 
agencies. A Federal branch or 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 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. The types of activities referred to in paragraph 
(b)(1) of this section include the types of activities authorized to a 
United States bank by state or Federal charters, regulations issued by 
chartering or regulatory authorities, and other United States banking 
laws. However, United States procedural or quantitative requirements 
that may be applicable to the conduct of those activities by United 
States banks do not apply.
    (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 a foreign bank.

    (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 OCC, a foreign 
bank must calculate its capital in a manner consistent with 12 CFR part 
3, for purposes of this section.
    (c) Aggregation. The foreign bank shall aggregate business 
transacted by all Federal branches and agencies with the business 
transacted by all state branches and state agencies controlled by the 
foreign bank in determining its compliance with limitations based upon 
the capital of the foreign bank. The foreign bank shall designate one 
Federal branch or agency office in the United States to maintain 
consolidated information so that the OCC can monitor compliance.


Sec. 28.15   Capital equivalency deposits.

    (a) Capital equivalency deposits--(1) General. 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 (CED) must 
consist of:
    (i) Investment securities eligible for investment by national 
banks;
    (ii) United States dollar deposits payable in the United States, 
other than certificates of deposit;
    (iii) Certificates of deposit, payable in the United States, and 
banker's acceptances, provided that, in either case, the issuer or the 
instrument is rated investment grade by an internationally recognized 
rating organization, and neither the issuer nor the instrument is rated 
lower than investment grade by any such rating organization that has 
rated the issuer or the instrument; or
    (iv) Other assets permitted by the OCC to qualify as CED.
    (2) Legal requirements. The agreement with the depository bank to 
hold the CED and the amount of the deposit must comply with the 
requirements in section 4(g) of the IBA, 12 U.S.C. 3102(g). If a 
foreign bank has more than one Federal branch or agency in a state, it 
shall determine the CED and the amount of liabilities requiring capital 
equivalency coverage on an aggregate basis for all the foreign bank's 
Federal branches or agencies in that state.
    (b) 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 CED above the minimum 
amount.
    (c) 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.
    (d) Deposit arrangements. A foreign bank should require its 
depository bank to segregate its CED on the depository bank's 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 CED 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

[[Page 19536]]

    (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 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 an uninsured Federal branch.

    (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 not citizens of the United States, but are 
residents of the United States, and are employed by a foreign bank, 
foreign business, foreign government, or recognized international 
organization;
    (3) Persons (including immediate family members of an individual) 
to whom the branch or foreign bank (including any affiliate thereof) 
has extended credit or provided other nondeposit banking services 
within the past 12 months, or with whom the branch or foreign 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, including political subdivisions, 
and recognized international organizations;
    (6) Federal and state governmental units, including political 
subdivisions and agencies 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 aggregate amount of deposits received from those depositors 
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 maintains and furthers the policies described 
in paragraph (a) of this section.
    (d) Aggregation of deposits. For purposes of paragraph (b)(9) of 
this section, a foreign bank that has more than one Federal branch in 
the same state may aggregate deposits in all of its Federal branches in 
that state, but exclude deposits of other branches, agencies or wholly 
owned subsidiaries of the bank. The Federal branch shall compute the 
average amount 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 Federal Deposit 
Insurance Corporation (FDIC).
    (f) Transition period. (1) An uninsured Federal branch may maintain 
a deposit lawfully accepted under the exemptions existing prior to July 
1, 1996 if the deposit would qualify for an exemption under paragraph 
(b) of this section, except for the fact that the deposit was made 
before July 1, 1996.
    (2) If a deposit lawfully accepted under the exemption existing 
prior to July 1, 1996 would not qualify for an exemption under 
paragraph (b) or (c) of this section, the uninsured Federal branch must 
terminate the deposit no later than:
    (i) In the case of time deposits, the maturity of a time deposit or 
October 1, 1996, whichever is longer; or
    (ii) In the case of all other deposits, five years after July 1, 
1996.
    (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  Notice of change in activity or operations.

    Notice. A Federal branch or agency shall notify the OCC if:
    (a) It changes its corporate title;
    (b) It changes its mailing address;
    (c) It converts to a state branch, state agency, or representative 
office; or
    (d) The parent foreign bank changes the designation of its home 
state.


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 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 agency in the United States shall provide 
the OCC with a copy of reports filed with other Federal regulatory 
agencies that are designated in guidance issued by the OCC.
    (c) Maintenance of accounts, books, and records. (1) Each Federal 
branch or 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 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 agency and its 
compliance with applicable laws and regulations. The Federal 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 agency in a 
state shall designate one of those offices to maintain consolidated 
asset, liability, and capital equivalency accounts for all Federal 
branches or agencies in that state.

[[Page 19537]]

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 OCC regulations or orders under section 8 
of the Federal Deposit Insurance Act, 12 U.S.C. 1818. This enforcement 
authority is 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 agency is located. Those 
assets may only 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.
    (2) If the OCC requires asset maintenance, the amount of assets 
held by a foreign bank shall be prescribed by the OCC, but may not be 
less than 105 percent of the aggregate amount of liabilities of the 
Federal branch or agency, payable at or through the Federal branch or 
agency. To determine the aggregate amount of liabilities for purposes 
of this section, the foreign bank shall include bankers' acceptances, 
but exclude liabilities to the head office and any other branches, 
offices, agencies, subsidiaries, and affiliates of the foreign bank.
    (b) Valuation. For the purposes of this section, marketable 
securities must be valued at principal amount or market value, 
whichever is lower.
    (c) Credits. In determining compliance with the asset maintenance 
requirements, the OCC will give the Federal branch or agency credit 
for:
    (1) Capital equivalency deposits maintained pursuant to Sec. 28.15;
    (2) Reserves required to be maintained by the Federal branch or 
agency pursuant to the FRB's authority under 12 U.S.C. 3105(a); and
    (3) Assets pledged, and surety bonds payable, to the FDIC to secure 
the payment of domestic deposits.
    (d) Exclusions. In determining eligible assets for purposes of this 
section, the Federal branch or agency shall exclude:
    (1) Any amount due from the head office or any other branch, 
office, agency, subsidiary, or affiliate of the foreign bank;
    (2) Any classified asset;
    (3) Any asset that, in the determination of the OCC, is not 
supported by sufficient credit information;
    (4) Any deposit with a bank in the United States, unless that bank 
has executed a valid waiver of offset agreement;
    (5) 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
    (6) 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.
    (e) International banking facility. Unless specifically exempted by 
the OCC, the eligible assets and liabilities of any international 
banking facility operated through the Federal branch or 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 agency is subject 
to service of process at the location of the Federal branch or agency.


Sec. 28.22  Voluntary liquidation.

    (a) Procedures. Unless otherwise provided, a Federal branch or 
agency that proposes to close its operations shall comply with the 
requirements in 12 CFR 5.48, as applicable, and the Manual.
    (b) Notice to customers and creditors. A foreign bank shall provide 
any customers and known creditors, not previously notified in writing, 
with written notice of the impending closure of the Federal branch or 
agency at least 30 days prior to its closure.
    (c) Report of condition. The Federal branch or 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 agency. This 
report must include a certified maturity schedule of all remaining 
liabilities, if any.
    (d) Return of certificate. The Federal branch or agency shall 
return the Federal branch or agency license certificate within 30 days 
of closure to the public.
    (e) Reports of examination. The Federal branch or agency shall send 
the OCC certification that all of its Reports of Examination have been 
destroyed or return its Reports of Examination to the OCC.


Sec. 28.23  Termination of a Federal branch or agency.

    (a) Grounds for termination. The OCC may revoke the authority of a 
foreign bank to operate a Federal branch or 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 grounds for receivership, including insolvency, as 
specified in 12 U.S.C. 3102(j), exists;
    (4) One or more 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; or
    (5) 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 agency be 
terminated.
    (b) Procedures--(1) Notice and hearing. Except as otherwise 
provided in this section, the OCC may issue an order to terminate the 
license of a Federal branch or agency after providing notice to the 
Federal branch or agency and after providing an opportunity for a 
hearing.
    (2) Procedures for hearing. The OCC shall conduct a hearing under 
this section pursuant to the OCC's Rules of Practice and Procedure in 
12 CFR part 19.
    (3) Expedited procedure. The OCC may act without providing an 
opportunity for a hearing if it determines that expeditious action is 
necessary in order to protect 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 agency with notice of the 
intended termination order;
    (ii) Grant the Federal branch or 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 agency with notice and an opportunity to present its views 
concerning the termination order.

[[Page 19538]]

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 bank or a District of 
Columbia bank.
    (b) Federal banking agencies means the OCC, the FRB, and the FDIC.
    (c) International assets means those assets required to be included 
in banking institutions' Country Exposure Report forms (FFIEC 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 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 10 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 15 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 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 corporations and Agreement 
corporations engaged in banking shall report in accordance with 
instructions for preparation of the Report of Condition for Edge 
corporations 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

[[Page 19539]]

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) (ILSA) 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 ILSA (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, FFIEC 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 part 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 OCC may consider necessary.

    Dated: April 13, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 96-10432 Filed 5-1-96; 8:45 am]
BILLING CODE 4810-33-P