[Federal Register Volume 68, Number 244 (Friday, December 19, 2003)]
[Rules and Regulations]
[Pages 70691-70701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31342]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 5 and 28

[Docket No. 03-26]
RIN 1557-AC04


Rules, Policies, and Procedures for Corporate Activities; 
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 
finalizing the proposed rule published on April 23, 2003 amending our 
regulations pertaining to the foreign operations of national banks, and 
Federal branches and agencies of foreign banks operating in the United 
States. The final rule generally makes regulatory requirements more 
streamlined and risk-focused. It clarifies certain regulatory 
definitions and simplifies approval procedures for foreign banks 
seeking to establish Federal branches and agencies in the United 
States. These changes will further conform the treatment of Federal 
branches and agencies of foreign banks to that of their domestic 
national bank counterparts consistent with the national treatment 
principles of the International Banking Act of 1978.

EFFECTIVE DATE: This rule is effective on January 20, 2004.

FOR FURTHER INFORMATION CONTACT: Lee Walzer, Counsel, Legislative & 
Regulatory Activities Division, (202) 874-5090; Carlos Hernandez, 
Senior International Advisor, International Banking & Finance, (202) 
874-4730; or Crystal Maddox, Senior Licensing Analyst, Licensing Policy 
& Systems, (202) 874-5060.

SUPPLEMENTARY INFORMATION:

I. Introduction and Overview of Comments Received

    As part of our ongoing effort to streamline regulatory requirements 
to reduce unnecessary regulatory burdens, the OCC published a notice of 
proposed rulemaking (NPRM) to amend 12 CFR parts 5 and 28 in the 
Federal Register on April 23, 2003 (68 FR 19949). In the NPRM, we 
proposed streamlining certain application processes for Federal 
branches and agencies and updating the types of activities in which 
they may engage in light of developments in Federal banking law and in 
furtherance of the principle of national treatment. The proposal was 
also designed to reduce regulatory burden on national banks conducting 
foreign activities and on Federal branches and agencies supervised by 
the OCC by eliminating outdated requirements and replacing them with 
more streamlined procedures.
    The OCC received eight comments on the NPRM. The commenters 
included several Members of Congress, Federal and state banking 
agencies, a bank trade association, and an association of state banking 
officials. Four of the commenters generally supported the OCC's efforts 
to streamline our regulatory processes and reduce regulatory burden, 
but offered suggestions to modify various portions of the proposal. Two 
commenters did not favor the proposal, asserting that the NPRM exceeds 
the OCC's statutory authority and is inconsistent with congressional 
intent. These commenters requested that the OCC withdraw the proposal 
until Congress provides the necessary authority. One of the commenters 
focused exclusively on a narrow legal question involving interstate 
branching. Another commenter focused only on the impact on pending 
legislation if the OCC were to apply certain definitions used in the 
NPRM to define those same terms in pending legislation if it were to be 
enacted by the U.S. Congress.
    As we explain in the discussion that follows, the OCC has concluded 
that there is ample authority supporting the revisions to our 
regulations that we proposed. We also explain why the concerns raised 
by certain commenters are not, in fact, raised by this proposal. 
Accordingly, we decline to withdraw the proposal. However, the final 
rule includes modifications to the proposal intended to address certain 
of the

[[Page 70692]]

suggestions made by the commenters and clarify points about which there 
may have been misunderstandings. The following discussion highlights 
those modifications.

II. Discussion

A. Changes to 12 CFR Part 5

1. Definitions (Revised Sec.  5.3)
    The proposal revised Sec.  5.3 to update references to the OCC 
units that should receive certain applications. The OCC received no 
comments on this technical amendment and adopts it as proposed.
2. Permissible Non-Controlling Equity Investments (Revised Sec.  5.36)
    The proposal stated that a well-capitalized, well-managed Federal 
branch may make non-controlling investments and use the after-the-fact 
notice procedure set forth in 12 CFR 5.36 in the same manner as a 
national bank.
    Three commenters addressed this amendment. One commenter supported 
the proposed change, stating that it is consistent with national 
treatment principles. The second was also supportive, indicating that 
it would have no objection to the proposed regulatory change as long as 
any investment made by the branch is a permissible investment under the 
Bank Holding Company Act and the foreign bank obtains any necessary 
authorizations from the Board of Governors of the Federal Reserve 
System (FRB). The commenter requested that OCC clarify that these 
conditions apply to these investments. As discussed below, to address 
this point, we are adding language to the final regulation in 12 CFR 
28.10(c) clarifying that nothing in the OCC's rules relieves a foreign 
bank from complying with requirements imposed by the FRB in accordance 
with applicable law.
    A third commenter opposed allowing Federal branches to make non-
controlling equity investments, stating that there is ``no statutory 
authorization [in the International Banking Act of 1978] for the 
investments referred to [in] the new proposed section, which relies 
solely on the principle of national treatment.'' This commenter 
disagreed with the OCC's interpretation of national treatment under the 
International Banking Act of 1978 (IBA), asserting that the IBA's 
national treatment scheme does not treat Federal branches as national 
banks but rather treats Federal branches as branches of national banks.
    The OCC disagrees. The commenter's interpretation is not supported 
by the plain language of the statute or its legislative history, court 
cases that have interpreted the statute, or the Congressional intent of 
the IBA.
    The plain language of section 4(b) of the IBA \1\ states:

    \1\ 12 U.S.C. 3102(b).

    Except as otherwise specifically provided in this Act or in 
rules, regulations, or orders adopted by the Comptroller under this 
section, operations of a foreign bank at a Federal branch or agency 
shall be conducted with the same rights and privileges as a national 
bank at the same location and shall be subject to all the same 
duties, restrictions, penalties, liabilities, conditions, and 
limitations that would apply under the National Bank Act to a 
national bank doing business at the same location. * * * (emphasis 
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added).

    After carefully examining legislative history and Congressional 
intent, a U.S. Court of Appeals interpreted the national treatment 
language in the IBA and concluded that the IBA is intended to ``treat 
federally-chartered foreign and domestic banks as similarly as possible 
under the [IBA] (emphasis added).'' \2\ The court expressly addressed 
the issue of whether establishing a Federally chartered office of a 
foreign bank parallels the opening of a national bank's principal 
office or the opening of a branch of a national bank. The court 
addressed this issue in the context of upholding the OCC's authority to 
license a foreign bank's Federal interstate branch or agency in a state 
that permits foreign banks to establish state-chartered interstate 
branches or agencies. The court concluded that, subject to the 
requirements of the IBA, Congress intended that the opening of a 
foreign bank's initial Federal home-state office is analogous to the 
opening of a domestic national bank's principal office, and the opening 
of additional intrastate and interstate Federal offices by the foreign 
bank under the IBA would be comparable to the opening of branches of a 
national bank.\3\ Thus, the court found that a Federal branch can be 
treated as a national bank or branch thereof depending on the context. 
The OCC's regulations and this final rule are consistent with this 
interpretation.
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    \2\ CSBS v. Conover, 715 F.2d 604, 616 (D.C. Cir. 1983), cert 
denied, 466 U.S. 927 (1984).
    \3\ Id. at 616-617. See also 12 U.S.C. 3103(a) (providing that a 
foreign bank may establish an Federal branch or agency outside of 
its home state if such establishment would be permitted for a 
national bank establishing an interstate branch office and subject 
to certain other criteria (enacted in 1994 in the Riegle-Neal 
Interstate Banking and Branching Efficiency Act)).
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    The legislative history of the IBA indicates that the national 
treatment language in the IBA was not intended to be an inflexible 
standard for applying national bank laws to Federal branches and 
agencies. Congress recognized that, because Federal branches and 
agencies are offices of foreign banks and not separately incorporated 
entities, certain adjustments in the strict application of the national 
bank laws may be necessary in order to observe this legal and 
operational reality. Congress charged the OCC with the primary 
responsibility to administer this comprehensive framework for Federal 
offices of foreign banks.\4\
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    \4\ See S. Rep. No. 95-1073, 95th Cong., 2d Sess. 7 (1978), 
reprinted in 1978 U.S.C.C.A.N. at 1427.
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    The commenter further argues that the IBA does not give Federal 
branches and agencies the authority to engage in activities permitted 
for national banks under the National Bank Act (NBA) unless the 
authority is also found in the IBA. This interpretation also is not 
consistent with the plain language of the statute or its legislative 
history.
    The legislative history of the IBA describes the language in 
section 4(b) quoted above to provide that, ``[w]ith certain exceptions, 
statutory or regulatory, the activities of a Federal branch or agency 
shall be conducted in the same manner as a national bank (emphasis 
added).'' \5\ Moreover, a court found that, in light of the overriding 
national treatment objective of the IBA, the IBA should be construed in 
such a way as to minimize the extent to which a Federal branch or 
agency is treated differently from a national bank.\6\ As a result, a 
Federal branch operating in a state has the same rights and privileges 
as, and is subject to the same restrictions, penalties, and conditions 
that apply to, a national bank operating in that same state unless the 
IBA or the Comptroller provides otherwise. While the IBa does not 
specifically mention the NBA as the source of authority for a Federal 
branch's ``rights and privileges'' to engage in activities, it 
incorporates all of the laws that provide authority to national banks, 
including the NBA, subject to any applicable statutory or regulatory 
exceptions.
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    \5\ Id. at 21, reprinted in 1978 U.S.C.C.A.N. at 1441.
    \6\ See CSBS v. Conover, 715 F.2d at 617.
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    For all of these reasons, the OCC adopts Sec.  5.36 as proposed.
3. Federal Branches and Agencies (Revised Sec.  5.70)
    The proposal amended Sec.  5.70, which describes filing 
requirements for corporate activities and transactions involving 
Federal branches and agencies, to ensure consistency with proposed 
changes to 12 CFR part 28 described elsewhere in this proposal. The 
proposal deleted the definition of

[[Page 70693]]

``change the status of an office'' while the definition of 
``establish'' a Federal branch or agency was revised to comport with 
other proposed changes to those definitions in part 28. No comments 
were received on this provision and, thus, the OCC is adopting it as 
proposed with only a minor, technical change.

B. Changes to 12 CFR Part 28: Foreign Operations of a National Bank

1. Filing Requirements for Foreign Operations of a National Bank 
(Revised Sec.  28.3)
    The proposed rule amended Sec.  28.3 to provide that no notice to 
the OCC is required if a national bank closes or relocates a foreign 
branch. No comments were received on this proposed change and we are 
adopting it as proposed.
2. Filing of Notice (Revised Sec.  28.5)
    The proposed rule made a technical change to Sec.  28.5 with 
respect to identifying the appropriate OCC office to receive certain 
notices. We did not receive any comments on this change and we, thus, 
are adopting it as proposed.

C. Changes in 12 CFR Part 28: Operations of Federal Branches and 
Agencies of Foreign Banks

1. Authority, Purpose, and Scope (Revised Sec.  28.10(b) and New Sec.  
28.10(c))
    The proposal did not include revisions to Sec.  28.10, which sets 
out the authority, purpose, and scope for subpart B of part 28, which 
pertains to Federal branches and agencies of foreign banks. One 
commenter thought that we should clarify that other legal requirements, 
in addition to those contained in the OCC's rules, may apply to certain 
transactions involving Federal branches and agencies. This 
clarification is simply an express statement of current law and 12 CFR 
28.12(i) already has a limited statement of this principle with respect 
to the approval requirements for a Federal branch or agency.\7\ 
However, we agree that it is helpful to include a broader statement in 
the regulatory text. Accordingly, we have added a sentence, at Sec.  
28.10(c), saying that nothing in any of the OCC's rules relieves a 
foreign bank of requirements that may be imposed under other provisions 
of applicable law. We also made a conforming technical amendment to the 
heading in Sec.  28.10(b) and deleted current Sec.  28.12(i).
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    \7\ Prior to the changes made by this final rule, 12 CFR 
28.12(i) provided that nothing in Sec.  28.12 relieved a foreign 
bank from the requirement to obtain any approval that may be 
necessary under the FRB's Regulation K, 12 CFR part 211.
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    These changes clarify that none of the revisions adopted in the 
final rule supersedes any legal requirements that are imposed by the 
FRB in the FRB's Regulation K \8\ or are imposed under any other 
applicable law. For example, Federal law provides that, subject to 
certain exceptions, the operations of a Federal branch or agency are 
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.'' 12 CFR 
28.13(a)(1). Accordingly, U.S. domestic laws also may apply to a 
Federal branch or agency to the same extent that they would apply to a 
national bank operating at the same location.
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    \8\ 12 CFR part 211.
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2. Definitions (Revised Sec.  28.11)
    The IBA, which governs the operations of foreign banks in the 
United States through branches and agencies and other offices, sets 
standards for establishing the offices of foreign banks and requires 
the OCC to approve the ``establishment'' of Federal branches and 
agencies of foreign banks. Part 28 currently defines the term 
``establish'' to mean initial entry of a foreign bank into the United 
States via a Federal branch or agency; the opening of additional 
branches and agencies, whether through intrastate or interstate 
branching; mergers and other consolidations; and ``changes in status.'' 
The term ``changes in status'' means both expansions (e.g., from a 
Federal agency to a Federal branch) and contractions in activities 
(e.g. from a Federal branch into a Federal agency).
    The NPRM deleted the separate definition of ``changes in status'' 
from part 28 and incorporated certain elements of that definition in a 
revised definition of the term ``establish a Federal branch or 
agency''. These amendments result in contractions in activities, e.g., 
conversion from a Federal branch to a Federal agency, being deleted 
from the type of transactions that would require a filing with the OCC. 
Most commenters generally supported the OCC's efforts to reduce 
regulatory burden such as this change to Sec.  28.11 and one commenter 
specifically supported eliminating the requirement that a foreign bank 
must give prior notice to the OCC when contracting the level of its 
U.S. activities by converting from a Federal branch to a Federal 
agency. Accordingly, we are adopting this amendment as proposed.
    In addition, we are making one clarifying and technical change to 
the definitions in Sec.  28.11 that was not proposed in the NPRM. The 
definition of ``manual'' in Sec.  28.11(u) (as redesignated herein) 
means the Comptroller's Corporate Manual as defined in 12 CFR 5.2(c). 
In an interim rule effective April 14, 2003 (68 FR 17890), the OCC 
amended Sec.  5.2(c) to reflect that the Comptroller's Corporate Manual 
has been replaced with the Comptroller's Licensing Manual. We are, 
thus, making a conforming change to Sec.  28.11(u) to clarify that the 
term ``manual'' has the same meaning as in Sec.  5.2(c).
3. Approval and Licensing Requirements for a Federal Branch or Agency 
(Revised Sec.  28.12(a))
    The proposed rule provided that, consistent with national 
treatment, and analogous to the national bank chartering process, the 
OCC would license a foreign bank's initial Federal branch or agency. 
However, while subsequent offices would require regulatory approval in 
accordance with applicable law, no additional license would be required 
for those subsequent establishments unless the additional office 
constitutes an expansion of activities in the U.S. (e.g., the foreign 
bank's license is for a limited Federal branch or an agency and the 
additional office would be a full-service branch).
    One commenter praised this provision in the NPRM because it would 
reduce the burdens associated with the licensing process when a foreign 
bank is establishing additional Federal branches and agencies. Another 
commenter, however, thought that ``[i]t may be possible to issue a 
single license to a foreign bank with branches and agencies in multiple 
states'' but opposed the change on the basis of the same national 
treatment arguments as presented in connection with the change to 12 
CFR 5.36. The commenter also was concerned about the OCC using the 
single licensing procedure to change substantive legal requirements.
    We disagree with the national treatment arguments raised for the 
same reasons that we explained above when discussing the comments on 
our proposed change to 12 CFR 5.36.
    Most important, however, is that the substantive legal requirements 
applicable to Federal branches and agencies are unaffected by 
permitting those entities to operate under a single license. As 
explained in the NPRM, ``[t]his change in licensing procedures would 
not affect the substance of the OCC's regulatory and supervisory 
responsibilities. The OCC would

[[Page 70694]]

continue to review and approve applications for additional offices in 
accordance with applicable law * * * and would continue to supervise 
these additional offices in the same manner as it [currently] does. * * 
*'' 68 FR 19950 (April 23, 2003).
    Therefore, the single licensing proposal is adopted without 
substantive modification but with one technical change. The final rule 
clarifies that the single license will be the method of licensing 
Federal branches and agencies after the effective date of the final 
rule. Foreign banks already operating in the United States with 
multiple Federal branches or agencies will have the option of 
converting to a single license or continuing to maintain multiple 
licenses for their offices, however.
4. CCS Requirements (Revised Sec.  28.12(b)(5))
    The proposal provided that the OCC generally would consider whether 
a foreign bank applicant is subject to comprehensive supervision on a 
consolidated basis by its home country supervisor (CCS) only in certain 
cases and may, in its discretion, consider it in other cases as deemed 
appropriate. Under the proposal, as required by statute, the OCC would 
apply the standards of CCS when acting on applications for interstate 
establishments. See 12 U.S.C. 3103(a)(3)(A). In connection with other 
applications to establish a Federal branch or agency, the OCC may 
consider CCS if necessary based on the circumstances of a particular 
case. This change in the OCC's rule would have no effect on the 
statutory requirement that the FRB make a CCS determination in 
connection with any application by a foreign bank to establish a U.S. 
office, as that requirement is interpreted by the FRB.
    One commenter specifically supported this amendment to streamline 
the OCC's application procedures. No commenter opposed the change. 
Thus, the OCC is adopting this amendment as proposed.
5. Expedited Approval Procedures (New Sec.  28.12(e)(2) and (e)(3), 
Revised Sec.  28.12(e)(4), and New Sec.  28.12(i))
    The proposal provided for expedited review of additional types of 
applications to establish a Federal branch or agency. Under proposed 
new Sec.  28.12(e)(2), a foreign bank could establish a new intrastate 
Federal branch or agency after providing written notice to the OCC 45 
days in advance of the proposed establishment. The OCC may waive the 
45-day period in certain circumstances, as well as suspend the notice 
period or require an application if the notice raises significant 
policy or supervisory issues.
    In addition, under proposed new Sec.  28.12(e)(3), an eligible 
foreign bank's \9\ application to establish a Federal branch or agency 
interstate would be conditionally approved as of the 45th day after the 
OCC receives the completed application, unless the OCC notified the 
bank that the filing was not eligible for expedited review. The 
proposal also revised Sec.  28.12(e)(4) to provide for expedited 
approval of certain other applications submitted by an eligible foreign 
bank. In addition, because a contraction in U.S. activities (i.e., 
converting an existing Federal branch into a limited Federal branch or 
into a Federal agency) will no longer be considered as an 
establishment, proposed new Sec.  28.12(i) would provide that such 
contractions in operations would require only a written notice to the 
OCC within 10 days after the conversion.
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    \9\ The term ``eligible foreign bank'' is defined in Sec.  
28.12(f) and generally includes a foreign bank that (1) has Federal 
branches and agencies that have a composite rating of ``1'' or ``2'' 
under the interagency rating system for U.S. branches and agencies 
of foreign banks, (2) is not subject to an enforcement action (but, 
if subject to such an action, the OCC can waive this requirement), 
and, (3) if applicable, has an ``outstanding'' or ``satisfactory'' 
rating under the Community Reinvestment Act. The NPRM amends this 
definition in Sec.  28.12(f) to permit foreign banks that have no 
Federal branches or agencies to be considered ``eligible foreign 
banks'' when engaging in certain transactions. As described herein, 
the OCC is adopting this amendment to Sec.  28.12(f) as proposed.
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    One commenter supported the proposed streamlined approval 
procedures and urged the OCC to shorten the period for processing 
notices for intrastate expansions and de novo interstate branching 
applications submitted by eligible foreign banks. Shortening the time 
period to 30 days, the commenter said, would enable such notices to be 
processed in the same timeframe as applications by foreign banks to 
convert state offices to Federal offices. When processing applications 
for such conversions, the OCC may have no prior experience with the 
foreign bank parent. Thus, according to the commenter, the processing 
period should not be longer for notices for intrastate and interstate 
expansions than for state-to-Federal conversions because, in the case 
of the expansions, the OCC already is familiar with the foreign bank 
since it has an existing federally licensed office.
    The OCC agrees with this commenter and has changed the final rule 
to reduce the prior approval period from 45 days to 30 days in the case 
of intrastate expansions by foreign banks and interstate expansions by 
eligible foreign banks. The OCC believes that 30 days is sufficient 
time for the OCC to review the notice or application and advise the 
foreign bank that the proposed expansion is disapproved, or that 
additional time is needed to evaluate the notice or application.
    Another commenter argued that the OCC's proposed notice and 
application procedures for certain foreign banks to expand through 
intrastate and interstate offices does not satisfy the IBA's prior 
approval requirements.
    The OCC disagrees. It is crucial to recognize that the proposal did 
not alter the statutory prior approval requirements. The proposal 
established streamlined procedures permitting certain foreign banks to 
seek approval through a notice or application procedure to be filed 
prior to establishing an additional intrastate branch or agency or an 
interstate branch or agency, respectively. In particular, under the 
proposal, the OCC is deemed to have given its prior approval under 
these streamlined procedures if we do not advise the foreign bank that 
the proposed expansion is disapproved within a specified time period. 
Our regulations contain similar procedures to provide for streamlined 
and expedited review for qualifying national banks in other situations 
where OCC approval is required by law. See, e.g., 12 CFR 5.39(i) 
(approval to acquire or commence activities in a financial subsidiary), 
12 CFR 5.30(f)(5) (approval for establishment or relocation of a 
branch).
    Five commenters argued that the OCC's interstate branching 
procedures for eligible foreign banks may be interpreted as providing 
substantive authority for foreign banks to branch interstate in 
violation of law. Two comment letters sought clarification in the final 
rule regarding whether a foreign bank may establish a de novo branch 
within a state that does not permit de novo branching, contending that 
the NPRM left the matter ambiguous. The commenter said that section 102 
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 
1994, Pub. L. No. 103-328,\10\ authorizes interstate branching for 
foreign banks with Federal branches and agencies to the same extent as 
national banks. However, section 103 of that Act \11\ requires that, in 
the case of an application by a national bank to establish a de novo 
branch in a state that is not the bank's home state, the

[[Page 70695]]

Comptroller may approve an application if the host state has in effect 
a non-discriminatory law that expressly permits all out-of-state banks 
to establish de novo branches in the state. The commenters in those 
letters said that Florida has not passed such authorizing legislation 
and has, in fact, passed a statute prohibiting interstate de novo 
branching. The commenters concluded by requesting that the OCC clarify 
in the final rule that foreign banks will not be able to branch 
interstate in a manner prohibited to domestic national banks.
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    \10\ 12 U.S.C. 1831u.
    \11\ 12 U.S.C. 36(g).
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    The procedural changes we proposed do not permit this result. As we 
said in the NPRM, none of the proposed changes affects any legal 
requirements that are otherwise applicable under law with respect to a 
national bank's foreign activities ``or the operations of foreign banks 
in the United States.'' As a commenter pointed out, the IBA contains 
provisions that expressly apply to branching by Federal branches and 
agencies. See 12 U.S.C. 3102(h)(A), 3103. Section 3103(a)(1) generally 
references domestic national banking law to determine the interstate 
branching authority of Federal branches and agencies. It permits a 
foreign bank to establish a Federal branch or agency outside of its 
home state ``to the extent that the establishment and operation of such 
branch would be permitted under section 5155(g) of the Revised Statutes 
(12 U.S.C. 36(g)) or section 44 of the Federal Deposit Insurance Act 
(12 U.S.C. 1831u) if the foreign bank were a national bank whose home 
State is the same State as the home State of the foreign bank.'' 12 
U.S.C. 3103(a)(1). Moreover, the statute directs the OCC to apply not 
only the requirements of the IBA with respect to the establishment of a 
Federal branch or agency but also capital and merger requirements under 
domestic banking law. 12 U.S.C. 3103(a)(3). The legislative history 
likewise states that ``a foreign bank would be permitted to establish 
or acquire [F]ederal branches in states other than its home state to 
the same extent that a national bank from the foreign bank's home state 
may engage in interstate branching.'' H. Rep. 103-448, 103d Cong., 2d 
Sess., 18 (1994).
    The IBA, however, also authorizes branches and agencies of foreign 
banks to branch interstate and to upgrade interstate offices under 
circumstances that may be different from those permitted for domestic 
banks. See 12 U.S.C. 3103(a)(7). Notwithstanding the domestic bank 
parity provisions, a foreign bank may establish a branch or agency in a 
state other than its home state if the host state permits the 
establishment and operation of the branch or agency and any such branch 
accepts only deposits permissible for Edge Act corporations.\12\ Also, 
notwithstanding the domestic bank parity provisions, foreign banks may 
upgrade interstate offices subject to certain conditions.
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    \12\ See 12 CFR 211.6.
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    We proposed to establish expedited procedures for eligible foreign 
banks to obtain OCC approval of applications to open a Federal branch 
or agency on an interstate basis. The proposal did not provide a new 
source of authority for a foreign bank to establish such an interstate 
office. Nor did it make any substantive changes in the legal 
requirements for interstate branching under the IBA.
    For these reasons, we have not changed the final rule in the manner 
suggested by these commenters. In addition, we do not believe that it 
is appropriate to include a provision in the regulation clarifying that 
the OCC will not approve an application of a foreign bank to establish 
a de novo branch in a state in which de novo banking is not permitted 
for domestic institutions. As explained above, the statement is 
unnecessary. The regulation provides only for expedited approval 
procedures for such applications and does not address any of the 
substantive legal requirements for interstate branching.
    Thus, the changes discussed above to shorten the period for 
processing notices for intrastate expansions by foreign banks and de 
novo interstate branching applications submitted by eligible foreign 
banks are the only changes that are made in the final rule that apply 
to the expedited approval procedures proposed in the NPRM.
6. Eligible Foreign Bank (Revised Sec.  28.12(f))
    Under current part 28, foreign banks with Federal branches and 
agencies that all are rated ``1'' or ``2'' under the applicable 
interagency rating system are eligible for expedited processing of 
certain applications and other filings. 12 CFR 28.12(e) and (f). The 
proposed rule would revise Sec.  28.12(f) to provide that a foreign 
bank that has no Federal branches or agencies also is ``eligible'' if 
it is engaging in a state-to-Federal conversion and its state offices 
satisfy the eligibility criteria. This change would simply codify 
procedures that we have already adopted in our Manual.
    No comments were received on this proposal and the OCC is adopting 
it as proposed.
7. After-the-Fact Notice for Certain Acquisitions (New Sec.  28.12(h))
    Under current part 28, if foreign bank A, which has a Federal 
branch, merges with foreign bank B, which does not have a Federal 
branch or agency, an application to establish the Federal branch would 
have to be submitted to the OCC if B were the surviving institution. 
Under current Sec.  28.12(g), the two foreign banks may proceed with 
their merger without approval of B's establishment of the branch if B 
provides reasonable advance notice of the transaction to the OCC. Prior 
to the merger, B must also apply to the OCC or commit to abide by the 
OCC's decision on the application.
    Proposed new Sec.  28.12(h) provided an expedited procedure for 
foreign bank B if B already has banking offices in the United States. 
However, we would retain the discretion to require prior approval to 
establish the Federal branch or agency if necessary for prudential 
reasons.
    One commenter supported streamlining this procedure in the manner 
proposed by the OCC. The OCC is, thus, adopting this provision without 
change.
8. Exceptions to Usual Filing Procedures (Revised Sec.  28.12(j))
    This technical change revised Sec.  28.12(j) (as redesignated in 
this proposal) to clarify that the OCC also reserves the right to adopt 
different procedures with respect to a part 28 filing or class of 
filings.
    No comments were received on this provision and we are adopting it 
without change.
9. Other Applications Accepted (New Sec.  28.12(k) (Designated as Sec.  
28.12(l) in the NPRM))
    This technical amendment added Sec.  28.12(k) to codify the current 
OCC practice of accepting applications or notices filed with other 
Federal agencies that contain the necessary information required by the 
OCC to approve an application or act on a particular request. Under the 
proposal, we retained the discretion to request additional information 
from an applicant as deemed necessary. This amendment is adopted 
without change.
10. Capital Equivalency Deposits (Revised Sec.  28.15(a)(1) and New 
Sec.  28.15(a)(3))
    The IBA requires Federal branches and agencies to establish and 
maintain a CED. 12 U.S.C. 3102(g). In 2002, the OCC issued a final rule 
revising certain requirements regarding CED deposit arrangements based 
on a supervisory

[[Page 70696]]

assessment of the risks presented by the particular institutions.\13\ 
The additional changes proposed in the NPRM further reduce unnecessary 
burden and simplify compliance with the CED requirements.
---------------------------------------------------------------------------

    \13\ 67 FR 41619 (June 19, 2002)
---------------------------------------------------------------------------

    The proposal amended Sec.  28.15(a)(1) to clarify the types of 
assets eligible to be deposited in a CED. Currently, a CED must consist 
of bank-eligible securities, dollar deposits payable in the United 
States, certificates of deposit payable in the United States, and other 
assets permitted by the OCC. The proposal included dollar deposits 
payable in any Group of Ten (G-10) country and added repurchase 
agreements to the list of permissible CED assets. The proposal also 
clarified that the OCC's authority to permit other assets to qualify 
for the CED is limited to other assets that are ``similar'' to those 
expressly included in the statute.
    In addition, the proposal clarified the OCC's current policy to 
exclude liabilities of an international banking facility to third 
parties, and of a Federal branch to an international banking facility, 
when calculating the required amount of a CED. Also, the proposed rule 
permitted the OCC, like some other regulators, to exclude liabilities 
from repurchase agreements on a case-by-case basis.
    One commenter generally supported the OCC's efforts to alleviate 
burden associated with the CED requirements and specifically supported 
these changes to part 28. Consequently, the OCC is adopting this 
amendment as proposed.
11. Capital Equivalency Deposits (Revised Sec.  28.15(e))
    In the NPRM, we proposed to clarify the meaning of the term 
``located'' in the context of the location of a depository bank that 
holds a CED deposit, relative to a Federal branch or agency subject to 
the CED requirement. Under the IBA, for purposes of the CED 
requirement, a depository bank must be located in the state where the 
branch or agency is located. 12 U.S.C. 3102(g)(1). The proposal 
provided that a depository bank is ``located'' in the state where it 
has its main office or a branch and a Federal branch or agency is 
``located'' in the state in which it is licensed or in the state that 
is its parent foreign bank's home state. The proposal further clarified 
that a foreign bank with interstate offices has the discretion to 
consolidate all or some of its CEDs into one depository bank. We 
specifically requested comments on whether such a consolidated account 
should provide for segregated assets for specific offices or whether it 
would be sufficient for the account to contain a consolidated amount 
large enough to cover the CEDs of all of the individual offices.
    One commenter supported the proposed changes in the NPRM with 
respect to CEDs, particularly the proposal to allow multiple Federal 
branches and agencies to maintain a single consolidated CED at a U.S. 
depository bank. The commenter expressed its view that it would not be 
necessary for the consolidated CED account to contain segregated assets 
to cover specific offices; instead, the commenter said that maintaining 
a consolidated account large enough to cover the operations of all of 
the individual offices would be sufficient.
    Another commenter opposed the proposed changes, contending first 
that the NPRM should have stated that a Federal branch or agency is 
located in each state in which it maintains an office under the plain 
meaning of the term ``located.'' Second, the commenter stated that the 
legislative history of the CED requirement ``demonstrates Congressional 
concern that assets be available to local creditors in the event that a 
foreign bank becomes insolvent.'' The commenter added that segregated 
accounts promote efficient liquidations by minimizing the need for 
local creditors to pursue remedies in other states. Segregated 
accounts, according to the commenter, would better protect local 
creditors in situations where the foreign bank operated both Federal 
and state branches or agencies.\14\
---------------------------------------------------------------------------

    \14\ Three commenters criticized the proposed definition of 
where a Federal branch or agency is ``located'' on the basis that 
the proposed definition would be inconsistent with Congressional 
intent and would ``administratively overturn'' language included in 
pending legislation in the House of Representatives in the 108th 
Congress--section 107 of H.R. 1375, the proposed ``Financial 
Services Regulatory Relief Act of 2003.''
    As explained above, our proposed definition of ``located'' is an 
interpretation of current law for purposes of determining which 
depository banks are eligible to hold a foreign bank's CED deposit 
for its Federal branch or agency. It does not affect the amount of 
the CED that is required, or the determination of where a branch or 
agency is located, for purposes of any future standard that keys a 
CED requirement to the requirements of the state in which a branch 
or agency is ``located.''
---------------------------------------------------------------------------

    The OCC agrees that in order to be eligible to hold a foreign 
bank's CED for its Federal branches and agencies, a depository bank's 
main office or a branch must be located in the state in which the 
Federal branch or agency's foreign bank parent has its home office or 
in any state in which a Federal branch or agency office is maintained. 
In the latter case, the state may not necessarily be the state in which 
the Federal branch or agency is licensed under the single-licensing 
approach described above but may be any state in which the foreign bank 
has a Federal branch or agency office.
    This interpretation of the term ``located'' is reasonable and 
consistent with national treatment and the intent of the IBA. As one 
commenter agrees, the CED statute does not define the term ``located.'' 
Thus, by analogy to national banking law,\15\ the OCC has determined 
that a U.S. depository bank holding a foreign bank's CED is located in 
the state in which the depository bank has its main office or a branch 
and the final rule clarifies this interpretation.
---------------------------------------------------------------------------

    \15\ See 12 U.S.C. 81.
---------------------------------------------------------------------------

    Under the IBA, the OCC has the authority to establish limitations 
and conditions for the CED and its administration. 12 U.S.C. 
3102(g)(1). Section 3102(g)(3) further extends this authority, stating 
that ``[t]he deposit shall be maintained with any such member bank 
pursuant to a deposit agreement in such form and containing such 
limitations and conditions as the Comptroller may provide.'' This very 
specific authority is enhanced by the IBA's general grant of authority 
to the OCC to issue rules, regulations, and orders pertaining to the 
establishment and administration of Federal branches. 12 U.S.C. 
3102(b). Moreover, the legislative history of the IBA recognized that, 
while the objective of Federal regulation under the IBA is to achieve 
equal treatment between foreign and domestic banks, some discretion was 
necessary to develop a regulatory framework that is appropriate to the 
actual operations of foreign banking institutions.\16\
---------------------------------------------------------------------------

    \16\ See supra note 4 (and accompanying text).
---------------------------------------------------------------------------

    With regard to requiring foreign banks to segregate assets in a 
consolidated CED account, we have considered the comments received and 
have decided that foreign banks with multiple branches and/or agencies 
that consolidate their CED deposits should maintain book entry 
segregation of assets for each office. We are clarifying new Sec.  
28.18(c)(3) to add such a requirement. This will help to promote 
orderly liquidations and will help to ensure that local creditors of 
each office of a foreign bank are protected. In addition, we are 
revising new Sec.  28.15(e) to clarify that the total amount of the CED 
will continue to be calculated on an office-by-office basis to ensure 
that there are sufficient assets available for each individual office.

[[Page 70697]]

12. Deposit-Taking by an Uninsured Federal Branch (Revised Sec.  
28.16(b)(8))
    As proposed, the final rule makes a technical correction to Sec.  
28.16(b)(8) to correct the citation to the FRB's Regulation K (12 CFR 
211.6).
13. Maintenance of Accounts, Books, and Records (New Sec.  28.18(c)(3))
    Proposed new Sec.  28.18(c)(3) required a foreign bank that has 
interstate Federal branches or agencies and combines its CEDs into one 
account to designate one of its Federal offices to maintain 
consolidated information about the Federal branches and agencies 
covered by the CEDs. The final rule includes this provision without 
change. In addition, the final rule includes the provision described 
above that will require consolidated CED deposits to reflect book entry 
segregation of assets for each Federal branch or agency office.
14. Maintenance of Assets (Revised Sec.  28.20(a)(2))
    Under current law, we may impose asset maintenance requirements on 
a foreign bank to hold certain assets in the state in which its Federal 
branch or agency is located if necessary for prudential, supervisory, 
or enforcement reasons. 12 CFR 28.20(a)(1). These requirements are in 
addition to the CED requirements but, in determining compliance with 
any asset maintenance requirements imposed by the OCC, we must give 
credit to the amount of assets held in the CED and other reserves or 
assets required under the IBA. 12 U.S.C. 3102(g)(4).
    The proposal revised Sec.  28.20(a)(2) to delete the requirement 
that the amount of assets held by the foreign bank cannot be less than 
105% of the aggregate amount of liabilities of the Federal branch or 
agency, payable at or through the Federal branch or agency. Under the 
proposal, we would prescribe the amount of assets on a case-by-case 
basis and there would be no set minimum. This change is adopted in the 
final rule.
15. Voluntary Liquidation (Revised Sec.  28.22(a) and (b))
    The proposal made certain changes in the voluntary liquidation 
procedures for Federal branches and agencies. We received no comments 
on this provision and we are adopting it as proposed.
16. Procedures for Closing Some (But Not All) of a Foreign Bank's 
Federal Branches and/or Agencies (New Sec.  28.23)
    To be consistent with the IBA's national treatment standard, the 
proposal treated a foreign bank that is closing some but not all of its 
Federal branches and/or agencies like a national bank that is closing a 
branch office. We received no comments on this change and we are 
adopting it as proposed.
17. After-the-Fact Notice of Change in Control (New Sec.  28.25)
    The proposal added a new section to part 28 to require a foreign 
bank to submit a written notice to the OCC when there is a change in 
control of the foreign bank. The notice would be submitted within 14 
days after the foreign bank became aware of the change if no other 
filing is required under part 28. A foreign bank could provide its 
supervisory office with the copy of a notice submitted to another 
Federal regulator to satisfy the requirements of this section. See 12 
CFR 28.12(k).
    No comments were received on this provision and it is adopted as 
proposed.
18. Loan Production Offices (New Sec.  28.26)
    In the NPRM, the OCC provided that a Federal branch may operate a 
loan production office (LPO), an administrative office, or a regional 
administrative office that conducts other types of representational 
activities, as part of a branch license. The OCC noted that, since 
national banks may operate such offices, allowing Federal branches to 
do so is consistent with national treatment.
    Two commenters addressed this proposal. One noted that it would 
view loan production offices as representative offices and their 
activities would be limited as such and noted that such offices would 
need to be approved by the FRB in accordance with applicable law. The 
commenter requested that the final rule refer to these requirements.
    The second commenter stated that the IBA does not permit the 
establishment of such offices and that, if Congress wished to authorize 
them, it would have expressly done so. This commenter added that 
offices that are not branches or agencies are treated under Regulation 
K as representative offices. Since there is no basis for chartering 
federal representative offices, the IBA does not permit the 
establishment of loan production offices and other types of non-branch 
offices, according to the commenter.
    With respect to the first comment, as discussed above, we are 
adding a statement to Sec.  28.10(c) to clarify that nothing in our 
regulations relieves a foreign bank of any requirement that is imposed 
by the FRB under applicable law.
    We believe that the second commenter is wrong as a matter of law. 
The fact that certain non-branch offices may be subject to other 
regulatory requirements does not diminish the ability of the OCC to 
permit Federal branches to establish such offices. The OCC's authority 
to allow a Federal branch to establish LPOs or other administrative 
offices or regional administrative offices as part of its Federal 
branch license is derived from separate authority. See 12 U.S.C. 3102. 
In addition, as discussed above, the OCC disagrees that the IBA does 
not provide the authority for a Federal branch to engage in the same 
activities as a national bank subject to certain statutory and 
regulatory exemptions.
    For these reasons, we have adopted Sec.  28.26 substantially as 
proposed.

Regulatory Flexibility Act

    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 604 of the RFA is not required if the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this final rule will not have a significant economic impact on a 
substantial number of small entities. Specifically the proposed rule 
will reduce burden by: (1) Streamlining procedures for national banks' 
foreign operations through branches; (2) eliminating the requirement to 
file an application with the OCC in certain circumstances when a 
foreign bank downgrades its U.S. operations; (3) requiring approval, 
but not a new license, for additional Federal branches or agencies 
opened after the establishment of the initial branch office; and (4) 
clarifying that a foreign bank with Federal branches and agencies in 
more than one state may consolidate its capital equivalency deposits in 
one deposit account in a depository bank that satisfies certain 
criteria. These revisions will result in cost reductions for national 
banks and for the U.S. operations of Federal branches and agencies of 
foreign banks. Accordingly, a regulatory flexibility analysis is not 
needed.

Executive Order 12866

    The OCC has determined that this final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

[[Page 70698]]

104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in 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. 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 $100 million or more in any one year. Accordingly, this 
rulemaking is not subject to section 202 of the Unfunded Mandates Act.

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.), the OCC may not conduct or sponsor, 
and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB)) control number.
    The information collection requirements contained in the NPRM have 
been reviewed and approved by OMB in accordance with the Paperwork 
Reduction Act of 1995 under OMB control number 1557-0102.
    However, the paperwork burden for these requirements likely will be 
transferred to OMB control number 1557-0014. OMB control number 1557-
0014 covers the Comptroller's Licensing Manual (Manual). The Manual 
explains the OCC's policies and procedures for the formation of a new 
national bank, entry into the national banking system by other 
institutions, and corporate expansion and structural changes by 
existing national banks. The Manual includes sample documents to assist 
the respondent in understanding the types of information the OCC needs 
to process a filing. The documents are samples only. An applicant may 
use any format that provides sufficient information for the OCC to act 
on a particular filing.
    The NPRM and this final rule generally eased regulatory 
requirements and reduced paperwork burden somewhat. The OMB approved 
burden attributable to the NPRM and this final rule is as follows:
    The burden for 12 CFR part 5 is as follows:

12 CFR 5.36:
    17 respondents x 1 response per year = 17 responses
    17 responses x 1 hour per response = 17 burden hours

    The burden for 12 CFR part 28 is as follows:

12 CFR 28.3(a):
    45 respondents x 1 response = 45 responses
    45 responses x .5 hour per response = 23 burden hours

12 CFR 28.12(a):
    4 respondents x 1 response per year = 4 responses
    4 responses x 41 hours per response = 164 burden hours

12 CFR 28.12(e)(2):
    1 respondent x 1 response per year = 1 response
    1 response x 1 hour per response = 1 burden hour

12 CFR 28.12(h):
    2 respondents x 1 response per year = 2 responses
    2 responses x 1 hour per response = 2 burden hours.

12 CFR 28.12(i):

    1 respondent x 1 response per year = 1 response
    1 response x 1 hour per response = 1 burden hour.

Executive Order 13132

    The Comptroller of the Currency has determined that this final rule 
does not have any Federalism implications, as required by Executive 
Order 13132.

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

0
For the reasons set forth in the preamble, parts 5 and 28 of chapter I 
of title 12 of the Code of Federal Regulations are revised to read as 
follows:

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

0
1. The authority citation for part 5 continues to read as follows:

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

0
2. In Sec.  5.3, revise paragraphs (c)(1) and (c)(4) to read as 
follows:


Sec.  5.3  Definitions.

* * * * *
    (c) * * *
    (1) The Licensing Department for all national bank subsidiaries of 
those holding companies assigned to the Washington, DC, licensing unit;
* * * * *
    (4) The licensing unit in the Northeastern District Office for 
Federal branches and agencies of foreign banks.
* * * * *

0
3. In Sec.  5.36, redesignate paragraph (f) as paragraph (g) and add a 
new paragraph (f) to read as follows:


Sec.  5.36  Other equity investments.

* * * * *
    (f) Non-controlling investments by Federal branches. A Federal 
branch that satisfies the well capitalized and well managed standards 
in 12 CFR 4.7(b)(1)(iii) and Sec.  5.34(d)(3)(ii) may make a non-
controlling investment in accordance with paragraph (e) of this section 
in the same manner and subject to the same conditions and requirements 
as a national bank, and subject to any additional requirements that may 
apply under 12 CFR 28.10(c).
* * * * *

0
4. In Sec.  5.70:
0
a. remove paragraph (c)(1);
0
b. redesignate paragraphs (c)(2)(i) through (v) as paragraphs (c)(1)(i) 
through (v);
0
c. revise newly redesignated paragraphs (c)(1)(i), (iv), and (v);
0
d. add a new paragraph (c)(1)(vi);
0
e. add a new paragraph (c)(2); and
0
f. revise paragraph (d)(2)(i) to read as follows:


Sec.  5.70  Federal branches and agencies.

* * * * *
    (c) * * *
    (1) * * *
    (i) Open and conduct business through an initial or additional 
Federal branch or agency;
* * * * *
    (iv) Convert a state branch or state agency operated by a foreign 
bank, or a commercial lending company controlled by a foreign bank, 
into a Federal branch or agency;
    (v) Relocate a Federal branch or agency within a state or from one 
state to another; or
    (vi) Convert a Federal agency or a limited Federal branch into a 
Federal branch.
    (2) Federal branch includes a limited Federal branch unless 
otherwise provided.
    (d) * * *
* * * * *
    (2) * * *

[[Page 70699]]

    (i) Establishes a Federal branch or agency; or
* * * * *

PART 28--INTERNATIONAL BANKING ACTIVITIES

0
5. 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.

0
6. In Sec.  28.3, revise paragraphs (a)(1)(i) and (a)(2) to read as 
follows:


Sec.  28.3  Filing requirements for foreign operations of a national 
bank:

    (a) * * *
    (1) * * *
    (i) Establish or open a foreign branch;
* * * * *
    (2) Opens a foreign branch, and no application or notice is 
required by the FRB for such transaction.
* * * * *

0
7. In Sec.  28.5, revise paragraphs (a) and (b) to read as follows:


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 appropriate supervisory 
office of the OCC.
    (b) Availability of forms. Individual forms and instructions for 
filings are available from the appropriate supervisory office of the 
OCC.

0
8. In Sec.  28.10:
0
a. revise the heading in paragraph (b); and
0
b. add a new paragraph (c) to read as follows:


Sec.  28.10  Authority, purpose, and scope.

* * * * *
    (b) Purpose. * * *
    (c) Scope. This subpart applies to all Federal branches and 
agencies of foreign banks. Nothing in the OCC's rules relieves a 
Federal branch or agency from complying with requirements that are 
imposed by the FRB under Regulation K (12 CFR part 211) or otherwise 
imposed in accordance with applicable law.
0
9. In Sec.  28.11:
0
a. remove paragraph (d);
0
b. redesignate paragraphs (e) through (z) as paragraphs (d) through 
(y);
0
c. revise newly redesignated paragraphs (f)(1), (4), and (5);
0
d. add a new paragraph (f)(6);
0
e. add a new sentence to the end of newly redesignated paragraph (h); 
and
0
f. revise newly redesignated paragraph (u) to read as follows:


Sec.  28.11  Definitions.

* * * * *
    (f) Establish a Federal branch or agency means to:
    (1) Open and conduct business through an initial or additional 
Federal branch or agency;
* * * * *
    (4) Convert a state branch or agency operated by a foreign bank, or 
a commercial lending company controlled by a foreign bank, into a 
Federal branch or agency;
    (5) Relocate a Federal branch or agency within a state or from one 
state to another; or
    (6) Convert a Federal agency or a limited Federal branch into a 
Federal branch.
* * * * *
    (h) *** Unless otherwise provided, the references in this subpart B 
of part 28 to a Federal branch include a limited Federal branch.
* * * * *
    (u) Manual has the same meaning as in 12 CFR 5.2(c).
* * * * *
0
10. In Sec.  28.12:
0
a. revise paragraphs (a) and (b)(5);
0
b. redesignate paragraphs (e)(2) through (4) as paragraphs (e)(4) 
through (6);
0
c. add new paragraphs (e)(2) and (3);
0
d. revise newly redesignated paragraph (e)(4);
0
e. revise paragraph (f) in the introductory text;
0
f. redesignate paragraph (h) as paragraph (j);
0
g. add a new paragraph (h);
0
h. revise paragraph (i);
0
i. revise newly redesignated paragraph (j); and
0
j. add a new paragraph (k) to read as follows:


Sec.  28.12  Approval of a Federal branch or agency.

    (a) Approval and licensing requirements--(1) General. Except as 
otherwise provided in this section, a foreign bank shall submit an 
application to, and obtain prior approval from, the OCC before it:
    (i) Establishes a Federal branch or agency; or
    (ii) Exercises fiduciary powers at a Federal branch.
    (2) Licensing. A foreign bank must receive a license from the OCC 
to open and operate its initial Federal branch or agency in the United 
States. A foreign bank that has a license to operate and is operating a 
full-service Federal branch need not obtain a new license for any 
additional Federal branches or agencies, or to upgrade or downgrade its 
operations in an existing Federal branch or agency. A foreign bank that 
only has a license to operate and is operating a limited Federal branch 
or Federal agency need not obtain a new license for any additional 
limited Federal branches or Federal agencies, or to convert a limited 
Federal branch into a Federal agency or a Federal agency into a limited 
Federal branch.
    (b) * * *
* * * * *
    (5) With respect to an application to establish a Federal branch or 
agency outside of the foreign bank's home state, whether the foreign 
bank is subject to comprehensive supervision or regulation on a 
consolidated basis by its home country supervisor. The OCC, in its 
discretion, also may consider whether the foreign bank is subject to 
comprehensive supervision or regulation on a consolidated basis by its 
home country supervisor when reviewing any other type of application to 
establish a Federal branch or agency; and
* * * * *
    (e) * * *
* * * * *
    (2) Written notice for an additional intrastate Federal branch or 
agency. (i) In a case where a foreign bank seeks to establish 
intrastate an additional Federal branch or agency, the foreign bank 
shall provide written notice 30 days in advance of the establishment of 
the intrastate Federal branch or agency.
    (ii) The OCC may waive the 30-day period required under paragraph 
(e)(2)(i) of this section if immediate action is required. The OCC also 
may suspend the notice period or require an application if the 
notification raises significant policy or supervisory concerns.
    (3) Expedited approval procedures for an interstate Federal branch 
or agency. An application submitted by an eligible foreign bank to 
establish and operate a de novo Federal branch or agency in any state 
outside the home state of the foreign bank is deemed conditionally 
approved by the OCC as of the 30th day after the OCC receives the 
filing, unless the OCC notifies the foreign bank prior to that date 
that the filing is not eligible for expedited review. In the event that 
the FRB has approved the application prior to the expiration of the 
period, then the OCC's approval shall be deemed a final approval.
    (4) Conversions. An application submitted by an eligible foreign 
bank to establish a Federal branch or agency as defined in 12 CFR 
28.11(f)(4) or (f)(6) is deemed approved by the OCC as of the 30th day 
after the OCC receives the filing, unless the OCC notifies the foreign 
bank prior to that date that the

[[Page 70700]]

filing is not eligible for expedited review.
* * * * *
    (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 or, if the foreign bank has no Federal branches or 
agencies and is engaging in an establishment of a Federal branch or 
agency as defined in 12 CFR 28.11(f)(4), each state branch and agency:
* * * * *
    (h) After-the-fact notice for an eligible foreign bank. 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 existing U.S. bank 
subsidiary or a Federal or state branch or agency may proceed with the 
transaction and provide after-the-fact notice to the OCC within 14 days 
of the transaction, if:
    (1) The resulting bank is an ``eligible foreign bank'' under 
paragraph (f) of this section; and
    (2) No Federal branch established by the transaction accepts 
deposits that are insured by the FDIC pursuant to the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.).
    (i) Contraction of operations. A foreign bank shall provide written 
notice to the OCC within 10 days after converting a Federal branch into 
a limited Federal branch or Federal agency.
    (j) 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. The OCC reserves the right to adopt 
materially different procedures for a particular filing, or class of 
filings, pursuant to 12 CFR 5.2(b).
    (k) Other applications accepted. As provided in 12 CFR 5.4(c), the 
OCC may accept an application or other filing submitted to another U.S. 
Government agency that covers the proposed activity or transaction and 
contains substantially the same information as required by the OCC.

0
11. In Sec.  28.15:
0
a. revise paragraph (a)(1)(ii);
0
b. redesignate paragraph (a)(1)(iv) as (a)(1)(v);
0
c. revise paragraph (a)(1)(iii) by removing the word ``or'' at the end;
0
d. add a new paragraph (a)(1)(iv);
0
e. revise newly redesignated paragraph (a)(1)(v);
0
f. add a new paragraph (a)(3);
0
g. redesignate paragraph (e) as (f); and
0
h. add a new paragraph (e) to read as follows:


Sec.  28.15  Capital equivalency deposits.

    (a) * * *
    (1) * * *
    (i) * * *
    (ii) United States dollar deposits payable in the United States or 
payable in any other Group of Ten country;
    (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;
    (iv) Repurchase agreements; or
    (v) Other similar assets permitted by the OCC to qualify to be 
included in the CED.
* * * * *
    (3) Exceptions. In determining the amount of the CED, the OCC 
excludes liabilities of an international banking facility (IBF) to 
third parties and of a Federal branch of a foreign bank to an IBF. The 
OCC may exclude liabilities from repurchase agreements on a case-by-
case basis.
* * * * *
    (e)(1) Deposit and Consolidation. As provided in 12 U.S.C. 3102(g), 
a foreign bank with a Federal branch or agency shall deposit its CED 
into an account in a bank that is located in the state in which the 
Federal branch or agency is located. For this purpose, such depository 
bank is considered to be located in those states in which it has its 
main office or a branch. A foreign bank with Federal branches or 
agencies in more than one state may consolidate some or all of its CEDs 
into one such account.
    (2) Calculation. The total amount of the consolidated CED shall 
continue to be calculated on an office-by-office basis.
* * * * *

0
12. In Sec.  28.16, revise paragraph (b)(8) to read as follows:


Sec.  28.16  Deposit-taking by an uninsured Federal branch.

* * * * *
    (b) * * *
    (8) Persons who may deposit funds with an Edge corporation as 
provided in the FRB's Regulation K, 12 CFR 211.6, including persons 
engaged in certain international business activities; and
* * * * *

0
13. In Sec.  28.18, add a new paragraph (c)(3) to read as follows:


28.18  Recordkeeping and reporting.

* * * * *
    (c) * * *
* * * * *
    (3) A foreign bank with a Federal branch or agency in more than one 
state that consolidates its CEDs into one account in accordance with 
Sec.  28.15(e) shall designate a participating Federal branch or agency 
to maintain consolidated asset, liability, and capital equivalency 
account information for all Federal branches and agencies covered by 
the consolidated deposit. A foreign bank with a consolidated CED shall 
maintain a book entry accounting of assets designated under the 
consolidated CED for each office of that foreign bank.

0
14. In Sec.  28.20, revise the first sentence of paragraph (a)(2) to 
read as follows:


Sec.  28.20  Maintenance of assets.

    (a) * * *
* * * * *
    (2) If the OCC requires asset maintenance, the amount of assets 
held by a foreign bank shall be prescribed by the OCC after 
consideration of the aggregate amount of liabilities of the Federal 
branch or agency, payable at or through the Federal branch or agency. * 
* *
* * * * *

0
15. In Sec.  28.22, revise paragraphs (a) and (b) to read as follows:


Sec.  28.22  Voluntary liquidation.

    (a) Procedures to close all Federal branches and agencies. Unless 
otherwise provided, in cases in which a foreign bank proposes to close 
all of its Federal branches or agencies, the foreign bank shall comply 
with applicable requirements in 12 CFR 5.48 and the Manual, including 
requirements that apply to an expedited liquidation of an insured 
Federal branch.
    (b) Notice to customers and creditors. A foreign bank shall publish 
notice of the impending closure of each Federal branch or agency for a 
period of two months in every issue of a local newspaper where the 
Federal branch or agency is located. If only weekly publication is 
available, the notice must be published for nine consecutive weeks.
* * * * *

0
16. Redesignate Sec.  28.23 as Sec.  28.24.

0
17. Add a new Sec.  28.23 to read as follows:


Sec.  28.23  Procedures for closing of some of a foreign bank's Federal 
branches and/or agencies.

    In cases where Sec.  28.22 does not apply, and a foreign bank is 
closing one or more, but not all, of its Federal branches and/or 
agencies, it shall follow the

[[Page 70701]]

procedures set forth in 12 U.S.C. 1831r-1(a) and (b) (branch closings).

0
18.Add new Sec.  28.25 to read as follows:


Sec.  28.25  Change in control.

    (a) After-the-fact notice. In cases in which no other filing is 
required under subpart B of this part, a foreign bank that operates a 
Federal branch or agency shall inform the OCC in writing of the direct 
or indirect acquisition of control of the foreign bank by any person or 
entity, or group of persons or entities acting in concert, within 14 
calendar days after the foreign bank becomes aware of a change in 
control.
    (b) Additional information. The foreign bank shall furnish the OCC 
with any additional information the OCC may require in connection with 
the acquisition of control.

0
19. Add a new Sec.  28.26 to read as follows:


Sec.  28.26  Loan production offices.

    A Federal branch may establish lending offices, make credit 
decisions, and engage in other representational activities at a site 
other than a Federal branch office, subject to the same rights, 
privileges, requirements and limitations that apply to national banks 
under 12 CFR 7.1003, 7.1004, and 7.1005.

    Dated: December 15, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 03-31342 Filed 12-18-03; 8:45 am]
BILLING CODE 4810-33-P