[Federal Register Volume 65, Number 234 (Tuesday, December 5, 2000)]
[Proposed Rules]
[Pages 75870-75872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30885]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 5

[Docket No. 00-32]
RIN 1557-AB92


Operating Subsidiaries of Federal Branches and Agencies

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

ACTION: Proposed rule.

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SUMMARY: Consistent with the principle of national treatment for 
foreign banks operating in the United States established by the 
International Banking Act of 1978, the Office of the Comptroller of the 
Currency (OCC) proposes to enable a Federal branch or agency to 
establish or maintain an operating subsidiary in generally the same 
manner that a national bank may establish or control an operating 
subsidiary.

DATES: Comments must be received by February 5, 2001.

ADDRESSES: Please direct comments to: Office of the Comptroller of the 
Currency, Public Information Room, 250 E Street, SW, Mail Stop 1-5, 
Washington, DC, 20219, Attention: Docket No. 00-32. In addition, 
comments may be sent by facsimile transmission to fax number 202-874-
5274, or by electronic mail to regs. [email protected]. Comments 
may be inspected and photocopied at the OCC's Public Reference Room, 
250 E. Street, SW, Washington, DC, between 9 a.m. and 4:30 p.m. on 
business days. You can make an appointment to inspect the comments by 
calling 202-874-5043.

FOR FURTHER INFORMATION CONTACT: Martha Clarke, Senior Attorney, 
International Activities Division, 202-874-0680; Stuart Feldstein, 
Assistant Director, Legislative and Regulatory Activities Division, 
202-874-5090; Heidi M. Thomas, Senior Attorney, Legislative and 
Regulatory Activities Division, 202-874-5090, or Carlos Hernandez, 
Senior International Advisor, International Banking and Finance 
Division, 202-874-4730.

SUPPLEMENTARY INFORMATION:

Background

    The International Banking Act of 1978 (12 U.S.C. 3101 et seq.) (the 
IBA) applies the national treatment principle to the regulation of 
foreign bank activities in the United States. Specifically, under the 
national treatment principle established by the IBA, the operations of 
a foreign bank conducted through a Federal branch or agency shall be 
conducted with the same rights, privileges, conditions, and limitations 
that apply to a national bank operating at the same location, subject 
to the OCC's regulations.\1\ 12 U.S.C. 3102(b). For example, the powers 
of national banks that are set forth in the National Bank Act, such as 
lending money and engaging in certain securities and insurance sales 
activities, are not expressly repeated in the IBA but are provided to 
Federal branches and agencies by operation of section 3102(b).
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    \1\ See Conference of State Bank Supervisors v. Conover, 715 
F.2d 604, 615 (D.C. Cir. 1983) (confirming the OCC's interpretation 
of how the national treatment principle applies).
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    Congress has subsequently enacted other legislation that confirms 
that the IBA need not be amended each time there is a change to the 
banking laws that affects national banks, unless the IBA prohibits or 
limits that specific activity. For example, when Congress authorized 
broader leasing authority for national banks in 1987, Federal branches 
and agencies could avail themselves of this authority by operation of 
section 3102(b) of the IBA. Thus, it is not necessary to amend the IBA 
to authorize Federal branches and agencies to take advantage of powers 
authorized for national banks. Consistent with these principles, this 
proposal provides that a Federal branch or agency may establish an 
operating subsidiary to the same extent as a similarly situated 
national bank.

Description of the Proposal

    12 CFR 5.34 sets forth application or notice procedures for 
national banks engaging in activities through an operating subsidiary 
and lists the activities that qualify for the notice procedures. The 
proposal provides that Sec. 5.34 applies to a Federal branch or agency 
that seeks to establish or maintain any subsidiary that a national bank 
would be authorized to establish or control under Sec. 5.34. The 
procedures of Sec. 5.34 apply to the Federal branch or agency with 
certain modifications that reflect the differences in the nature of 
Federal branches and agencies compared to national banks.
    Section 5.34(e)(5)(iv) provides that a national bank that is well 
capitalized and well managed may acquire or establish an operating 
subsidiary, or perform a new activity in an existing operating 
subsidiary, by filing a notice with the OCC within 10 days after 
acquiring or establishing the subsidiary, or commencing the activity, 
if the activities are listed in Sec. 5.34(e)(5)(v). National banks that 
do not meet the well capitalized and well managed criteria also may 
acquire or establish an operating subsidiary by filing an application 
with, and receiving approval from, the OCC. 12 CFR 5.34(e)(5)(i). 
Finally, Sec. 5.34(e)(5)(vi) provides that a national bank may acquire 
or establish an operating subsidiary without filing an application or 
providing notice to the OCC, if the bank is adequately capitalized or 
well capitalized and the activities of the new subsidiary meet certain 
conditions.
    Under the proposal, a Federal branch or agency is considered well 
capitalized for purposes of Sec. 5.34 if it meets the definition of 
``well capitalized'' that the OCC uses when authorizing an extended 
examination cycle for certain Federal branches and agencies. See 12 CFR 
4.7(b)(1)(iii).\2\ Section 4.7(b)(1)(iii) requires that: a foreign 
bank's most recently reported capital adequacy position consists of, or 
is equivalent to, Tier 1 and total risk-based capital ratios of at 
least 6 percent and 10 percent, respectively, on a consolidated basis; 
or the Federal branch or agency has maintained on a daily basis, over 
the past three quarters, eligible assets in an amount not less than 108 
percent of the preceding quarter's average third party liabilities 
(determined consistent with applicable Federal and state law), and

[[Page 75871]]

sufficient liquidity is currently available to meet obligations to 
third parties.
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    \2\ 12 CFR 4.7 generally provides that the OCC may conduct a 
full-scope, on-site examination of certain well capitalized and well 
managed Federal branches and agencies at least once during each 18-
month period, rather than each 12-month period. The FRB applies the 
same capital and management requirements when determining whether a 
State branch or agency will be subject to the 18-month examination 
schedule. 12 CFR 211.26(c)(2).
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    Under the proposal, a Federal branch or agency is well managed if: 
the Federal branch or agency has a composite Risk Management, 
Operational Controls, Compliance, and Asset Quality (ROCA) supervisory 
rating of 1 or 2 at its most recent examination; or in the case of a 
Federal branch or agency that has not been examined, the Federal branch 
or agency has and uses managerial resources that the OCC determines are 
satisfactory.
    The OCC will apply other relevant regulatory standards to Federal 
branches and agencies that establish and maintain operating 
subsidiaries as appropriate in light of the differences in corporate 
structure between national banks and Federal branches and agencies. For 
example, current Sec. 5.34(e)(4) requires that pertinent book figures 
of the parent bank and its operating subsidiary to be combined for the 
purpose of applying statutory limitations when combination is needed to 
effect the intent of the statute, e.g., for purposes of the statutory 
dividend restrictions, lending limits, or investments in bank premises. 
See 12 U.S.C. 56, 60, 84, and 371d. Any limitation or restriction based 
on the capital of a national bank (e.g., the lending limit at 12 U.S.C. 
84) refers, as applied to a Federal branch or agency, to the dollar 
equivalent of the capital of the foreign bank. See 12 U.S.C. 3102(b). 
For purposes of determining compliance with the limitation or 
restriction, pertinent book figures of the Federal branch or agency and 
its operating subsidiary shall be combined. If the foreign bank has 
more than one Federal branch or agency, pertinent book figures of all 
its Federal branches and agencies and their operating subsidiaries 
shall be combined.

Comment Solicitation

    The OCC requests comment on all aspects of this proposal.
    The OCC requests comment on whether the proposal is written clearly 
and is easy to understand. On June 1, 1998, the President issued a 
Memorandum directing each agency in the Executive branch to write its 
rules in plain language. This directive applies to all new proposed and 
final rulemaking documents issued on or after January 1, 1999. In 
addition, Public Law 106-102 requires each Federal agency to use plain 
language in all proposed and final rules published after January 1, 
2000. The OCC invites comment on how to make this rule clearer. For 
example, you may wish to discuss:
    (1) Whether we have organized the material to suit your needs;
    (2) Whether the requirements of the rule are clear; or
    (3) Whether there is something else we could do to make the rule 
easier to understand.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Comptroller of the Currency certifies that this proposal will not have 
a significant economic impact on a substantial number of small 
entities.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (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 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. The OCC has determined that 
the proposal will not result in expenditures by State, local, or tribal 
governments or by the private sector of $100 million or more. 
Accordingly, the OCC has not prepared a budgetary impact statement or 
specifically addressed the regulatory alternatives considered.

Executive Order 12866 Determination

    The Comptroller of the Currency has determined that this rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

Paperwork Reduction Act

    Respondents are not required to respond to these collections of 
information unless they display a currently valid Office of Management 
and Budget (OMB) control number.
    The collection of information requirements contained in this notice 
of proposed rulemaking have been submitted to the Office of Management 
and Budget for review in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)). Comments on the collections of information 
should be sent to the Alexander Hunt, Desk Officer, Office of 
Management and Budget, Paperwork Reduction Project (1557-0215), 
Washington, DC 20503, with copies to the Jessie Dunaway, Legislative 
and Regulatory Activities Division (1557-0215, Office of the 
Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219.
    The collection of information requirements in this proposal are 
found in 12 CFR 5.34. The likely respondents are Federal branches and 
agencies of foreign banks.
    Estimated average annual burden hours per Federal branch and agency 
respondent: 1 hour
    Estimated number of Federal branch and agency respondents: 20
    Estimated total annual reporting burden: 20 hours
    The OCC invites comment on:
    (1) Whether the collections of information contained in this notice 
of proposed rulemaking are necessary for the proper performance of the 
agency's functions, including whether the information has practical 
utility;
    (2) The accuracy of the estimate of the burden of the proposed 
information collections;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) Ways to minimize the burden of the information collections on 
respondents, including the use of automated collection techniques or 
other forms of information technology; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchases of services to provide information.

List of Subjects in 12 CFR Part 5

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

Authority and Issuance

    For the reasons set forth in the preamble, the OCC proposes to 
amend part 5 of chapter I of Title 12 of the Code of Federal 
Regulations as follows:

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

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

    Authority: 12 U.S.C. 1 et seq., 93a; and section 5136A of the 
Revised Statutes (12 U.S.C. 24a).

    2. In Sec. 5.34:
    A. Revise paragraph (c); and
    B. Revise paragraphs (d)(2) and (d)(3) to read as follows:


Sec. 5.34  Operating  subsidiaries.

* * * * *
    (c) Scope. This section sets forth authorized activities and 
application or

[[Page 75872]]

notice procedures for national banks engaging in activities through an 
operating subsidiary. The procedures in this section do not apply to 
financial subsidiaries authorized under Sec. 5.39. This section applies 
to a Federal branch or agency that establishes or maintains any 
subsidiary that a national bank is authorized to establish or control 
under this section.
    (d) * * *
    (2) Well capitalized means the capital level described in 12 CFR 
6.4(b)(1) or, in the case of a Federal branch or agency, the capital 
level required by 12 CFR 4.7(b)(1)(iii).
    (3) Well managed means, unless otherwise determined in writing by 
the OCC:
    (i) In the case of a national bank:
    (A) The national bank has received a composite rating of 1 or 2 
under the Uniform Financial Institutions Rating System in connection 
with its most recent examination; or
    (B) In the case of any national bank that has not been examined, 
the existence and use of managerial resources that the OCC determines 
are satisfactory.
    (ii) In the case of a Federal branch or agency:
    (A) The Federal branch or agency has received a composite ROCA 
supervisory rating (which rates risk management, operational controls, 
compliance, and asset quality) of 1 or 2 at its most recent 
examination; or
    (B) In the case of a Federal branch or agency that has not been 
examined, the existence and use of managerial resources that the OCC 
determines are satisfactory.
* * * * *

    Dated: November 28, 2000.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 00-30885 Filed 12-4-00; 8:45 am]
BILLING CODE 4810-33-P