[Federal Register Volume 66, Number 187 (Wednesday, September 26, 2001)]
[Rules and Regulations]
[Pages 49093-49098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24005]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 5 and 28

[Docket No. 01-21]
RIN 1557-AB92


Operating Subsidiaries of Federal Branches and Agencies

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

ACTION: Final 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) is amending its regulations to provide that a Federal 
branch or agency may establish, acquire, or maintain an operating 
subsidiary in generally the same manner that a national bank may 
acquire or establish an operating subsidiary.

EFFECTIVE DATE: October 26, 2001.

FOR FURTHER INFORMATION CONTACT: Martha Clarke, Counsel, or Heidi M. 
Thomas, Counsel, Legislative and Regulatory Activities Division, 202-
874-5090; or Carlos Hernandez, International Advisor, International

[[Page 49094]]

Banking and Finance Division, 202-874-4730.

SUPPLEMENTARY INFORMATION:

The Proposal

    On December 5, 2000, the OCC published a notice of proposed 
rulemaking in the Federal Register (65 FR 75870) requesting comments on 
a proposal to clarify that a Federal branch or agency may establish and 
maintain an operating subsidiary in accordance with the procedures and 
requirements of 12 CFR 5.34.
    12 CFR 5.34 sets forth application or notice procedures for 
national banks engaging in activities through an operating subsidiary. 
The procedures vary according to the condition of the bank and the 
character of the activities conducted through the operating subsidiary. 
Specifically, Sec. 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 certain conditions are satisfied. These 
conditions are that: (1) The bank must be at least adequately 
capitalized; (2) the activities of the new subsidiary must be limited 
to those previously reported by the bank in connection with a prior 
operating subsidiary; (3) the activities must continue to be legally 
permissible; and (4) the activities of the new subsidiary must be 
conducted in accordance with any conditions imposed by the OCC when it 
approved the activities for the prior subsidiary.
    The proposal specifically provided 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 acquire or 
establish under Sec. 5.34. However, the procedures of Sec. 5.34 would 
apply to the Federal branch or agency with certain modifications to 
reflect the differences in the relationship between a Federal branch or 
agency and a subsidiary of the foreign bank as compared with a national 
bank and its operating subsidiary. Unlike a national bank, a Federal 
branch or agency is not a separate corporate entity but rather is an 
office of the parent foreign bank, separately recognized for regulatory 
purposes. Although a Federal branch or agency cannot directly own stock 
in the same manner as a national bank, the Federal branch or agency can 
book the stock as an asset and manage and operate the subsidiary.
    However, as we noted in the proposal, 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. Under the national treatment principle, the operations 
of a foreign bank conducted through a Federal branch or agency 
generally are 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 or orders.\1\ 12 U.S.C. 
3102(b). Thus, the IBA currently provides authority for Federal 
branches and agencies to take advantage of powers authorized for 
national banks, including the power to establish an operating 
subsidiary.
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    \1\ See Conference of State Bank Supervisors v. Conover, 715 
F.2d 604, 615 (D.C. Cir. 1983), cert. denied, 466 U.S. 927 (1984) 
(confirming that Congress' overriding objective in enacting the IBA 
was to accord national treatment to foreign banks so that foreign 
banks are treated as competitive equals with their domestic 
counterparts).
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    A branch or agency may obtain various legal, business or tax 
advantages by conducting certain activities or holding investments 
through an operating subsidiary. For example, a special purpose vehicle 
may be useful to engage in some asset-securitization transactions. In 
addition, legal restrictions, including the ``securities push-out'' 
provisions of the Gramm-Leach-Bliley Act, may make conduct of certain 
activities through a subsidiary necessary or advantageous for a branch 
or agency of a foreign bank.\2\
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    \2\ For similar reasons, the State of New York Banking 
Department authorized branches and agencies to establish 
subsidiaries to offer flexibility to foreign banking organizations 
to structure their businesses to attain efficiency and 
functionality. See State of New York Banking Department, Foreign 
Branches and Agencies Establishing Operating Subsidiaries--Guidance 
Letter (June 4, 2001). http://www.banking.state.ny.us/lt010604.htm.
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Description of Comments Received and Final Rule

    The OCC received seven comments on the proposal. These comments 
include three from Federal branches or foreign banks with Federal 
branches; two from banking trade associations; one from a law firm; and 
one from the Board of Governors of the Federal Reserve System (Federal 
Reserve Board or Board). We are adopting the rule as proposed but with 
several clarifications to address differences in how the standards 
apply to Federal branches and agencies versus domestic banks.
    A majority of the commenters strongly endorsed amending 12 CFR 5.34 
to permit Federal branches and agencies to establish or maintain 
operating subsidiaries to the same extent as national banks. Most 
commenters also thought that amending the IBA is not necessary to 
accomplish this goal. A majority of commenters also stated that the 
establishment and maintenance of these operating subsidiaries should be 
subject only to regulation by the OCC, as are subsidiaries of national 
banks, unless they are subject to functional regulation by the 
Securities and Exchange Commission, Commodity Futures Trading 
Commission, or state insurance commissioners. See 12 U.S.C. 1831v.
    The Federal Reserve Board stated that it strongly supports the 
principle of national treatment for both foreign and domestic banking 
organizations. The Board said, however, that, in its view, an 
investment by a Federal branch or agency in an operating subsidiary is 
a direct investment by the foreign bank itself and is, therefore, 
subject to the Bank Holding Company Act (BHC Act). The Board 
recommended clarifying that a foreign bank that is establishing a 
nonbanking subsidiary in the United States must comply with section 4 
of the BHC Act, including any requirement to file a prior notice with 
the Board under section 4(c)(8) of the BHC Act.
    The Federal Reserve Board is the agency charged with the 
administration and interpretation of the BHC Act. Our proposal does not 
relieve a foreign bank that operates a Federal branch or agency from 
complying with laws administered by any other regulators, including the 
Federal Reserve Board, that might be applicable to the establishment or 
operation of a nonbanking subsidiary in the United States.\3\
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    \3\ We note, however, the Board's procedures are similar to the 
OCC's in that the applicable requirements depend both on the 
condition of the bank and the nature of the activities to be 
conducted. As the Federal Reserve Board commented, under its 
regulations, a well capitalized and well managed foreign bank that 
satisfies the eligibility requirements that apply to financial 
holding companies is not required to file any prior notice with, or 
receive prior approval from, the Federal Reserve Board before 
investing in a nonbanking subsidiary that engages in activities that 
are financial in nature or incidental to a financial activity as 
identified in 12 CFR 225.86. This list includes many activities that 
could be conducted by an operating subsidiary of a national bank or 
Federal branch or agency. In addition, foreign banks that are not 
financial holding companies but that satisfy the Federal Reserve 
Board's criteria may engage in certain nonbanking activities and 
acquisitions either subject to expedited notice procedures or 
without obtaining the Board's prior approval. See 12 CFR 225, 
Subpart C.

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[[Page 49095]]

Qualification Criteria

    Under the proposal, a Federal branch or agency would be considered 
well capitalized 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).\4\ 
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 
consistently with applicable Federal and state law), and sufficient 
liquidity is currently available to meet obligations to third parties.
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    \4\ 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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    In addition, the proposal provided that a Federal branch or agency 
would be well managed if the Federal branch or agency had 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 Federal Reserve Board commented that the proposal might provide 
certain foreign banks with an advantage over U.S. banking organizations 
because it would allow a foreign bank to establish a subsidiary based 
solely on capital and managerial considerations at the local branch. 
The Board expressed a concern that this potentially would allow a 
foreign bank to expand its U.S. operations in a manner that a similarly 
situated national bank or bank holding company might not. It also 
stated that this differs from treatment under the BHC Act, which 
requires a foreign bank's capital and management factors to be 
evaluated on a consolidated basis. A number of other commenters 
strongly supported the proposed use of the composite ROCA rating to 
determine whether a Federal branch or agency is well managed, however, 
and at least one commenter supported the use of the rating as 
consistent with national treatment.
    On balance we have concluded that the proposed qualification 
criteria are appropriate. The definition of ``well capitalized'' is 
consistent with the definition of that term that is applied for 
purposes of Prompt Corrective Action by the OCC to insured Federal 
branches and by the Federal Deposit Insurance Corporation (FDIC) to 
insured branches of foreign banks. See 12 CFR 6.5(c)(1) (OCC), 
325.103(c)(1) (FDIC). As explained previously, it is the same 
definition used by all the Federal banking agencies for purposes of 
determining which branches and agencies of foreign banks are eligible 
for an extended examination cycle. See 12 CFR 4.7(b)(1)(iii); 
211.26(c)(2)(i)(C), 347.214(b)(iii). We also note that the New York 
State Banking Department, which charters the largest number of state 
branches and agencies of foreign banks, permits state branches and 
agencies of foreign banks to establish operating subsidiaries. It has 
adopted the same definition of ``well capitalized'' as set forth in our 
proposal.\5\ In addition, the definition only determines whether a 
notice or application procedure applies. Thus, any perceived advantage 
for foreign banks would be minimal. For these reasons, we are adopting 
the definition of ``well capitalized'' as proposed.
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    \5\ See State of New York Banking Department, Foreign Branches 
and Agencies Establishing Operating Subsidiaries--Guidance Letter 
(June 4, 2001). http://www.banking.state.ny.us/lt010604.htm.
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    In addition, we do not believe that the proposal's definition of 
``well-managed'' gives a competitive advantage to foreign banks. First, 
the definition does reflect the management of the foreign bank as a 
whole, because the composite ROCA supervisory rating currently takes 
into account the management of the foreign bank. In addition, the 
proposed definition is consistent with national treatment because it 
uses the same test as is used in 12 CFR 5.34(e)(5)(iv) for national 
banks acquiring or establishing an operating subsidiary or performing a 
new activity in an existing operating subsidiary subject to a 10-day 
after-the-fact notice requirement. Therefore, the final rule retains 
the proposal's definition of ``well-managed.''
    Two commenters thought that the proposal should calculate Tier 1 
and total risk-based capital ratios according to the home country 
standard for those international banks whose home country supervisors 
have adopted risk-based capital standards consistent with the Basel 
Capital Accord. The proposal's definition of ``well-capitalized'' is 
derived from the definition in 12 CFR 4.7(b)(1)(iii), which, as noted, 
is the standard that the Board, the FDIC, and the OCC adopted in a 
joint rulemaking extending the examination cycle for well-capitalized 
and well-managed branches and agencies of foreign banks that satisfy 
certain other criteria. See 64 FR 56949-53 (October 22, 1999). Thus, 
foreign banks are familiar with the standard. Moreover, in our view, it 
is preferable for purposes of eligibility to have an operating 
subsidiary, to use a standard that can be applied consistently to 
Federal branches and agencies rather than a standard that could vary 
depending on the details of implementation of the Basel Accord in 
different countries. We note, however, that in the examination-cycle 
rulemaking, the agencies stated that, in implementing the well-
capitalized standard in individual cases, the home country supervisor's 
capital standards may be considered if those standards are in all 
respects consistent with the Basel Capital Accord. Id. at 56950 
(preamble discussion). Similarly, for purposes of determining whether a 
foreign bank's consolidated capital position consists of, or is 
equivalent to, Tier 1 and total risk-based capital ratios of at least 
6% and 10%, respectively, we may consider the capital standards of the 
home country supervisor if they are in all respects consistent with the 
Basel Accord.
    Under Sec. 5.34, an adequately capitalized national bank may 
acquire or establish an operating subsidiary without filing an 
application or notice under certain circumstances.\6\ One commenter 
pointed out that the proposed rule does not specify how the 
``adequately capitalized'' standard would be applied to foreign banks 
and suggests that an international bank is adequately capitalized for 
purposes of Sec. 5.34 if its Tier 1 and total risk-based capital 
ratios, calculated under

[[Page 49096]]

applicable home country standards, are at least 4% and 8%, 
respectively. No OCC regulation currently defines ``adequately 
capitalized'' for foreign banks, nor do the Federal Reserve Board's 
regulations include such a definition. The OCC's regulations contain a 
definition of ``adequately capitalized'' that applies to insured 
Federal branches for purposes of Prompt Corrective Action but could not 
be applied to uninsured Federal branches. See 12 CFR 6.4(c)(2). Because 
this definition could not be applied to all of the Federal branches or 
agencies that may wish to have operating subsidiaries, the OCC will 
determine what ``adequately capitalized'' means for a Federal branch or 
agency in the context of acquiring, establishing, or maintaining an 
operating subsidiary on a case-by-case basis. Therefore, we have 
decided not to amend the proposal to include this definition.
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    \6\ To acquire or establish an operating subsidiary without 
filing an application or providing notice, a national bank must be 
at least adequately capitalized and must meet the following 
requirements: (A) activities of the new subsidiary must be limited 
to those activities previously reported by the bank in connection 
with the establishment or acquisition of a prior operating 
subsidiary; (B) activities in which the new subsidiary will engage 
must continue to be legally permissible for the subsidiary; and (C) 
activities of the new subsidiary must be conducted in accordance 
with any conditions imposed by the OCC in approving the conduct of 
these activities for any prior operating subsidiary of the bank. 12 
CFR 5.34(e)(5)(vi).
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Calculation of Capital Equivalency Deposit

    In addition, one commenter thought that the final rule should state 
expressly that the OCC would not take into account the liabilities of 
an operating subsidiary in determining the amount of the capital 
equivalency deposit (CED) that must be pledged to the OCC. The 
commenter supported its request by stating that the operating 
subsidiary would have a separate corporate existence from the branch, 
and the branch would not be liable for the obligations of the operating 
subsidiary. Consequently, in the commenter's view, no purpose would be 
served by subjecting an operating subsidiary of a Federal branch to a 
CED requirement.
    We disagree with this commenter that the CED should never reflect 
the liabilities of the Federal branch or agency's operating subsidiary. 
Consolidation of the Federal branch or agency with the operating 
subsidiary may increase risk under certain circumstances. For example, 
the Federal branch or agency could use the consolidated assets of the 
branch or agency and the operating subsidiary as the basis to increase 
a loan made to the branch or agency from a third party above the level 
for which it would qualify on an unconsolidated basis, or the operating 
subsidiary could increase its liabilities to fund operations of the 
Federal branch or agency as a way to avoid increasing the CED of the 
branch or agency.\7\ In these situations, the CED may appropriately 
include the liabilities of the operating subsidiary. As a result, we 
have amended the CED provisions of 12 CFR 28.15 to permit the CED to be 
adjusted to include the liabilities of the operating subsidiary, if 
warranted for prudential or supervisory reasons. This action is 
consistent with national treatment since, for regulatory purposes, the 
capital level of a national bank is determined on a consolidated basis 
with its operating subsidiaries.
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    \7\ The statute states that ``amounts due and other liabilities 
to offices, branches, agencies, and subsidiaries'' of the foreign 
bank are excluded from calculations of the minimum amount of the 
CED, which is based on five percent of the total liabilities of the 
branch or agency. See 12 U.S.C. 3102(g)(2)(B).
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Clarification of How Sec. 5.34 Would Apply to Federal Branches and 
Agencies

    The proposal said that the OCC would apply other relevant 
regulatory standards to Federal branches and agencies that establish or 
maintain operating subsidiaries as appropriate in light of the 
differences in corporate structure between national banks and Federal 
branches and agencies. We have amended Sec. 5.34 to further clarify how 
the regulation will apply to Federal branches and agencies.
    For example, current Sec. 5.34(e)(4) requires that pertinent book 
figures of the parent national bank and its operating subsidiary 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. 
However, under the IBA, any limitation or restriction based on the 
capital of a national bank (e.g., the lending limit at 12 U.S.C. 84) 
would refer, as applied to a Federal branch or agency, to the dollar 
equivalent of the capital of the foreign bank. If the foreign bank has 
more than one Federal branch or agency, the business transacted by all 
of the branches and agencies is aggregated for purposes of determining 
compliance with the limitation. See 12 U.S.C. 3102(b). By regulation, 
the OCC and the Federal Reserve Board require that the transactions of 
all of a foreign bank's Federal branches and agencies and State 
branches and agencies be aggregated to determine compliance with the 
lending limits. See 12 CFR 28.14 (OCC), 211.28 (Federal Reserve Board). 
As a result, the final rule provides that, for purposes of the capital 
limitations and restrictions as applied to Federal branches and 
agencies under the IBA and 12 CFR 28.14, the business conducted by a 
foreign bank's Federal branches or agencies and its State branches and 
agencies, and their operating subsidiary, will be combined.
    We have also clarified that the requirements in Secs. 5.34(e)(2) 
and (e)(5)(i)(B) that expressly require that a parent national bank 
must have a specific ownership interest in an operating subsidiary 
apply to the parent foreign bank and not to the Federal branch or 
agency.
    Finally, a commenter suggested that we clarify that the authority 
of a Federal branch or agency regarding operating subsidiaries, like 
that of a national bank extends not only to their establishment and 
maintenance, but also to their acquisition. The final rule reflects 
this suggestion.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA), 
5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required 
under section 603 of the RFA, 5 U.S.C. 603, is not required if the head 
of the agency certifies that the rule will not have a significant 
economic impact on a substantial number of small entities and the 
agency publishes such a certification and a statement explaining the 
factual basis for such certification in the Federal Register along with 
its final rule.
    On the basis of the information currently available, the OCC is of 
the opinion that this final rule will not have a significant impact on 
a substantial number of small entities within the meaning of those 
terms as used in the RFA. The final regulation requires Federal 
branches and agencies that would like to acquire, establish, or 
maintain an operating subsidiary to file a notice or application with 
the OCC. However, the OCC does not believe that this requirement will 
have a significant impact on a substantial number of small entities. 
Fewer than 20 Federal branches and agencies could be considered small 
entities, and only some of these would acquire, establish, or maintain 
an operating subsidiary. Accordingly, a regulatory flexibility analysis 
is not required.

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

[[Page 49097]]

an agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. However, an agency is not 
required to assess the effects of its regulatory actions on the private 
sector to the extent that such regulations incorporate requirements 
specifically set forth in law. 2 U.S.C. 1531.
    The OCC has determined that this final rule 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

    The OCC may not conduct or sponsor, and an organization is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number.
    OMB has reviewed and approved the collection of information 
requirements contained in this rule under control number 1557-0215, in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). OMB clearance will expire on January 31, 2004.
    The OCC sought comment on all aspects of the burden estimates for 
the information collection contained in the proposed rule. The OCC 
received no comments.
    The collections of information are contained in 12 CFR 5.34. 
Section 5.34 requires that Federal branches and agencies of foreign 
banks obtain OCC approval prior to establishing or maintaining any 
subsidiary that a national bank is authorized to establish or control 
under section 5.34.
    The respondents are Federal branches and agencies of foreign banks.
    Estimated number of respondents: 20.
    Estimated number of responses: 20.
    Estimated burden hours per response: 1 hour.
    Frequency of response: On occasion.
    Estimated total annual burden: 20 hours.
    The OCC has a continuing interest in the public's opinion regarding 
collections of information. Members of the public may submit comments, 
at any time, regarding any aspects of these collections of information. 
Comments may be sent to Jessie Dunaway, Clearance Officer, Office of 
the Comptroller of the Currency, 250 E Street, SW, Mailstop 8-4, 
Washington, DC 20219.

Effective Date

    This rule is effective on October 26, 2001. The Administrative 
Procedure Act (APA) generally requires that a final rule take effect 30 
days after date of publication in the Federal Register, 5 U.S.C. 
553(d). In addition, section 302 of the Riegle Community Development 
and Regulatory Improvement Act of 1994 (CDRI Act) generally requires 
that a final rule issued by a Federal banking agency that imposes 
additional reporting, disclosures, or other new requirements on insured 
depository institutions must take effect on the first day of a calendar 
quarter after the date of publication of the final rule. The OCC has 
determined that this rule may become effective in accordance with the 
APA requirement and that section 302 of the CDRI Act is not applicable. 
This final rule provides clarification of how existing procedures will 
be applied to Federal branches and agencies that choose to acquire, 
establish, or maintain an operating subsidiary and does not impose 
additional reporting, disclosure, or other new requirements.

List of Subjects

12 CFR Part 5

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

12 CFR Part 28

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

Authority and Issuance

    For the reasons set forth in the preamble, the OCC amends parts 5 
and 28 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 is revised to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24(a), 24 (Seventh), 93a, and 
3101 et seq.

    2. In Sec. 5.34, revise paragraphs (a), (c), (d)(2), (d)(3), and 
(e)(4) to read as follows:


Sec. 5.34  Operating subsidiaries.

    (a) Authority. 12 U.S.C. 24 (Seventh), 24a, 93a, 3101 et seq.
* * * * *
    (c) Scope. This section sets forth authorized activities and 
application or 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. Unless provided otherwise, this section applies to a Federal 
branch or agency that acquires, establishes, or maintains any 
subsidiary that a national bank is authorized to acquire or establish 
under this section in the same manner and to the same extent as if the 
Federal branch or agency were a national bank, except that the 
ownership interest required in paragraphs (e)(2) and (e)(5)(i)(B) of 
this section shall apply to the parent foreign bank of the Federal 
branch or agency and not to the Federal branch or agency.
    (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 described in 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.
    (e) ***
    (4) Consolidation of figures--(i) National banks. Pertinent book 
figures of the parent national bank and its operating subsidiary shall 
be combined for the purpose of applying statutory or regulatory 
limitations when combination is needed to effect the intent of the 
statute or regulation, e.g., for purposes of 12 U.S.C. 56, 60, 84, and 
371d.
    (ii) Federal branch or agencies. Transactions conducted by all of a 
foreign bank's Federal branches and agencies and State branches and 
agencies, and their operating subsidiaries, shall be combined for the

[[Page 49098]]

purpose of applying any limitation or restriction as provided in 12 CFR 
28.14.

PART 28--INTERNATIONAL BANKING ACTIVITIES

    1. The authority citation for part 28 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 93a, 161, 602, 
1818, 3101 et seq., and 3901 et seq.
    2. In Sec. 28.15, revise paragraph (b) to read as follows:


Sec. 28.15  Capital equivalency deposits

* * * * *
    (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. For example, the OCC may require an increase if a Federal 
branch or agency of the foreign bank increases its leverage through the 
establishment, acquisition, or maintenance of an operating subsidiary.

    Dated: September 18, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 01-24005 Filed 9-25-01; 8:45 am]
BILLING CODE 4810-33-P