[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
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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