96-10432. International Banking Activities  

  • [Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
    [Rules and Regulations]
    [Pages 19524-19539]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-10432]
    
    
    
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    DEPARTMENT OF THE TREASURY
    
    Office of the Comptroller of the Currency
    
    12 CFR Parts 5, 20, and 28
    
    [Docket No. 96-11]
    RIN 1557-AB26
    
    
    International Banking Activities
    
    AGENCY: Office of the Comptroller of the Currency, Treasury.
    
    ACTION: Final rule.
    
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    SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
    comprehensively revising its regulations governing the international 
    operations of national banks and the operation of foreign banks through 
    Federal branches and agencies in the United States. The revision is 
    part of the OCC's Regulation Review Program, which seeks to simplify 
    OCC regulations and reduce unnecessary compliance costs, consistent 
    with maintaining safety and soundness and furthering the other 
    responsibilities of the OCC. The final rule streamlines and 
    consolidates into one part of the Code of Federal Regulations 
    substantially all provisions relating to international banking, and 
    clarifies and simplifies their various requirements.
        The final rule also updates the rules to implement provisions of 
    the Foreign Bank Supervisory Enhancement Act of 1991 (FBSEA) and the 
    Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 
    (Interstate Act) relating to Federal branches and agencies.
    
    EFFECTIVE DATE: July 1, 1996.
    
    FOR FURTHER INFORMATION CONTACT: Raija Bettauer, Counselor for 
    International Activities, (202) 874-0680, 
    [email protected]; Laurie Sears, Attorney, International 
    Activities (202) 874-0680, [email protected]; Timothy M. 
    Sullivan, Director, International Banking and Finance, (202) 874-4730, 
    [email protected]; Comptroller of the Currency, 250 E Street, 
    SW, Washington, DC 20219.
    
    SUPPLEMENTARY INFORMATION:
    
    Background
    
        On July 5, 1995, the OCC published a notice of proposed rulemaking 
    (60 FR 34907) (proposal) proposing to revise its regulations governing 
    the international operations of national banks and the operation of 
    foreign banks through Federal branches and agencies in the United 
    States (12 CFR parts 20 and 28). The proposal was another component of 
    the OCC's Regulation Review Program (Program). The goal of the Program 
    is to review all of the OCC's rules and to eliminate provisions that 
    impose unnecessary regulatory burden and do not contribute 
    significantly to maintaining the safety and soundness of national banks 
    (and Federal branches and agencies) or to accomplishing the OCC's other 
    statutory responsibilities. Another goal of the Program is to clarify 
    the OCC's regulations and to better communicate the standards that the 
    rules intend to convey.
        The proposal sought to achieve those goals and also to update the 
    OCC's rules to implement provisions in the FBSEA (Pub. L. 102-242, 
    title II, 105 Stat. 2286) and Interstate Act (Pub. L. 103-328, 108 
    Stat. 2338) relating to Federal branches and agencies of foreign banks. 
    It also added a mechanism for the OCC to obtain information on foreign 
    banking organizations to improve the OCC's safety and soundness 
    oversight of Federal branches and agencies.
        The proposal further sought to reduce the complexity of the 
    existing regulatory
    
    [[Page 19525]]
    
    framework for international banking by referencing provisions in the 
    regulations of the Board of Governors of the Federal Reserve System 
    (FRB) and the Federal Deposit Insurance Corporation (FDIC), and, where 
    possible, using terms and procedures consistent with the provisions in 
    the other agencies' regulations dealing with comparable situations.
    
    Comments Received
    
        The OCC received four comment letters on the proposal: one from a 
    national bank and three from trade associations. The commenters 
    generally supported the OCC's efforts to consolidate and streamline the 
    current regulations and reduce unnecessary regulatory burden. Overall, 
    commenters commended the OCC's efforts, and some commenters offered 
    variations on certain of the proposed changes.
    
    Overview of the Final Rule and Response to Comments Received
    
        The final rule consolidates into a single comprehensive regulation 
    the substantive requirements governing international banking operations 
    supervised by the OCC. The final rule relocates and incorporates what 
    is currently subpart B of part 20, regarding international lending 
    supervision, as subpart C of part 28. The OCC originally drafted this 
    subpart in consultation with the FRB and the FDIC, and the OCC hopes to 
    undertake a review of subpart C of part 28 in the near future in 
    consultation with those agencies.
        Under the final rule, the procedural requirements of 12 CFR part 5 
    continue to apply to Federal branches and agencies, unless otherwise 
    provided, and part 28 cross-references the procedural requirements in 
    part 5, as appropriate. The Comptroller's Manual for Corporate 
    Activities also provides additional and more specific guidance on the 
    application of the general corporate regulations to the Federal 
    branches and agencies.
        The four commenters recommended changes that focused on specific 
    sections of the proposal. The OCC carefully considered each of the 
    comments, and has made changes in the final rule in response to the 
    comments received. The following discussion of significant sections 
    identifies and discusses the comments the OCC received on the proposal 
    and the changes the OCC made to the proposal to address those comments. 
    The discussion also notes other changes to the current regulations that 
    the OCC has adopted in the final rule. The preamble concludes by 
    indicating the technical changes that the final rule makes to remove 
    superfluous sections of 12 CFR part 5. A derivation table summarizing 
    sections of former parts 20 and 28 changed by the final rule is 
    included at the end of this preamble.
    
    Subpart A--Foreign Operations of National Banks
    
    Filing Requirements for Foreign Operations of a National Bank 
    (Sec. 28.3)
    
        The proposal required a national bank to notify the OCC upon 
    establishing, opening, relocating, or closing a foreign branch, or when 
    filing an application, notice, or report with the FRB regarding the 
    acquisition or divestment of certain foreign investments. Under the 
    proposal, a national bank could satisfy this requirement by providing 
    the OCC with a copy of the appropriate filing made with the FRB. Also, 
    the proposal removed the requirement in the current regulation for a 
    national bank to make two separate filings when establishing a foreign 
    branch or acquiring certain foreign investments.
        One commenter requested that the OCC clarify the requirement that 
    notice be provided to the OCC when a national bank ``establishes'' a 
    foreign branch. The commenter noted that both the OCC's proposal and 
    FRB's Regulation K, 12 CFR 211.3(a), require notice at the opening, 
    closing, or relocating of a foreign branch. However, the OCC proposal 
    also required a notice for ``establishing'' a foreign branch. The 
    commenter requested that the OCC clarify whether ``establish'' has the 
    same meaning as ``open,'' and, if not, whether the OCC is requesting 
    something beyond that which is required under Regulation K.
        Regulation K states that the establishment of a foreign branch 
    generally requires the specific approval of the FRB. See 12 CFR 
    211.3(a)(1). Regulation K also requires any member bank that opens, 
    closes, or relocates a foreign branch to report those changes in a 
    manner prescribed by the FRB. See 12 CFR 211.3(a)(5). In addition, 
    Regulation K requires a member bank to obtain the FRB's approval, or 
    notify the FRB, when it acquires, divests, or disposes of certain 
    foreign investments. See 12 CFR 211.5, 211.7.
        The final rule makes it clear that whenever a national bank is 
    required to make a filing with the FRB under Regulation K, as described 
    in the paragraph above, it must also provide a copy of that filing or a 
    notice of that filing to the OCC. However, even if not required by the 
    FRB, the final rule requires a national bank to provide a simple notice 
    to the OCC of the opening, closing, or relocation of a foreign branch. 
    As the primary supervisor of the national bank and its consolidated 
    global operations, it is necessary for the OCC to know the basic 
    structure and location of the national bank's operations in order to 
    effectively supervise the consolidated operations of the bank.
    
    Liability for Deposits Maintained at Non-United States Offices
    
        Section 326 of the Riegle Community Development and Regulatory 
    Improvement Act of 1994 (CDRI Act) (Pub. L. 103-325, 108 Stat. 2160) 
    amends the Federal Reserve Act, 12 U.S.C. 221 et seq., to limit a 
    United States bank's liability for deposits in its foreign branches if 
    the branch cannot repay the deposit due to foreign sovereign action, 
    war, insurrection, or civil strife, and the bank has not expressly 
    agreed in writing to repay the deposit under those circumstances. The 
    proposal specifically solicited public comment on whether additional 
    guidance is necessary or desirable to implement this provision of the 
    CDRI Act. The OCC received no comments regarding the effect of the 
    proposal on United States banks.
        One commenter, however, urged the OCC to adopt a provision in the 
    final rule applying section 326 to Federal branches and agencies of 
    foreign banks operating in the United States. The suggested provision 
    would state that United States offices of foreign banks will not be 
    subject to liability for deposits maintained at a non-United States 
    office if that non-United States office cannot repay the deposits due 
    to foreign sovereign action, war, insurrection, or civil strife. The 
    commenter argued that its request is consistent with the protection 
    provided United States banks under section 326 and the national 
    treatment principle.
        The OCC has decided not to adopt the commenter's suggestion at this 
    time. Subpart B of part 28 contains a general provision regarding 
    United States laws that apply to Federal branches and agencies, and the 
    OCC expects to provide additional and more specific guidance in this 
    area in the future. Section 326 was the product of some particular 
    concerns. The OCC believes that it will be more appropriate to address 
    the commenter's question via a process that better allows those 
    concerns to be considered and, if appropriate, specific guidance to be 
    issued.
    
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    Subpart B--Federal Branches and Agencies of Foreign Banks
    
    Authority, Purpose, Scope, and Filing Requirements (Sec. 28.10)
    
        The proposal set out the legal authority, purpose, and scope of 
    subpart B. The final rule adds a new paragraph (c) to this section to 
    explain that, unless otherwise provided, the rules of general 
    applicability in 12 CFR part 5 apply to a filing by a foreign bank or a 
    Federal branch or agency as they would apply to a similar filing by a 
    national bank. The final rule tells filers where to file and where to 
    obtain forms. The final rule also informs filers that the OCC accepts a 
    copy of an application form, notice, or report submitted to another 
    Federal regulatory agency that covers the proposed action and contains 
    substantially the same information that would be required by the OCC.
    
    Definitions (Sec. 28.11)
    
        The proposal included new and updated definitions to assist in the 
    implementation of new statutory requirements and to make the 
    definitions more consistent with those of the FRB and FDIC. The final 
    rule adopts the definitions as proposed, except as discussed below.
        The final rule includes a new definition for ``affiliate'' that was 
    discussed in the preamble of the proposal. The final rule extends the 
    exemption for those from whom an uninsured Federal branch may take 
    deposits of less than $100,000 to include persons to whom the branch, 
    or foreign bank (including any affiliate thereof) has extended credit 
    or provided other nondeposit banking services within the past 12 
    months. Therefore, it was necessary to add a definition for 
    ``affiliate.''
        The final rule adds a definition of ``capital equivalency deposit'' 
    that refers to section 4 of the International Banking Act of 1978 
    (IBA), 12 U.S.C. 3102(g).
        The final rule also adds a separate definition of ``control'' that 
    was not in the proposal. However, the proposal described this term in 
    two other definitions, so the final rule eliminates this redundancy.
        The final rule defines ``initial deposit'' to clarify that ``first 
    deposit'' means any deposit made when there is no current deposit 
    relationship between the depositor and the Federal branch. This issue 
    is discussed more thoroughly in the discussion of Sec. 28.16 in 
    reference to a comment received regarding accounts established with a 
    deposit of $100,000 or more before the effective date of the 
    regulation.
        The OCC received a comment suggesting changes to the definition of 
    ``managed or controlled,'' but the final rule adopts the definition as 
    proposed. The Interstate Act, 12 U.S.C. 3105(k), provides that United 
    States branches and agencies of foreign banks cannot manage any type of 
    activity that is conducted through an offshore office of the foreign 
    bank that is managed or controlled by the branch or agency unless a 
    United States bank is permitted to manage that activity at its offshore 
    branch or subsidiary.
        The proposal defined ``managed or controlled'' to mean that the 
    majority of the responsibility for business decisions, including 
    decisions with regard to lending, asset management, funding, or 
    liability management, or the responsibility for recordkeeping of assets 
    or liabilities for a non-United States office, resides at the Federal 
    branch or agency. This definition is consistent with the definition 
    used in the Federal Financial Institutions Examinations Council (FFIEC) 
    Supplement to the quarterly Report of Assets and Liabilities of U.S. 
    Branches and Agencies of Foreign Banks, FFIEC 002S, for the purpose of 
    determining which United States branches and agencies of foreign banks 
    manage or control offshore offices and must complete FFIEC 002S. 57 FR 
    61907, Dec. 29, 1992.
        One commenter proposed that the OCC exclude from the definition of 
    ``managed or controlled'' recordkeeping for a non-United States office 
    by the United States office. The commenter recommended that, for 
    various cost and efficiency reasons, a foreign bank may maintain 
    records at a United States location for non- United States offices that 
    the United States office does not otherwise manage or control, and that 
    FFIEC 002S is intended for other purposes. Therefore, the broad 
    definition of ``managed or controlled'' in FFIEC 002S that is used for 
    reporting purposes should not automatically be used for applying 
    restrictions on the types of activities that may be managed at offshore 
    branches.
        The OCC carefully considered this comment and decided not to adopt 
    the commenter's recommendation. The OCC believes that two different 
    definitions of ``managed or controlled'' would be impractical and 
    confusing. In most, if not virtually all, cases where a United States 
    office is performing recordkeeping functions for a non-United States 
    office, the United States office would otherwise satisfy the definition 
    of ``managed or controlled.'' The OCC recognizes, however, that if a 
    United States office of the foreign bank simply compiles or forwards to 
    the parent foreign bank data or information regarding offshore 
    operations in the normal course of business, that activity would not 
    constitute recordkeeping for this purpose. Thus, that United States 
    office of the foreign bank would not ``manage or control'' the foreign 
    bank's offshore activities for purposes of this provision.
        Consequently, the final rule defines ``managed or controlled'' to 
    apply to those offshore offices for which a Federal branch or agency 
    has substantial responsibility with regard to assets or liabilities or 
    recordkeeping. For example, consistent with FFIEC 002S, a Federal 
    branch or agency would be deemed to manage or control its offshore 
    office if: (1) The manager for the Federal branch or agency and the 
    manager for the offshore office are the same person or there is other 
    significant overlap in personnel; (2) substantial responsibility for 
    decisions regarding either assets or liabilities of the offshore office 
    resides with staff in the Federal branch or agency; or (3) 
    recordkeeping systems for either assets or liabilities of the offshore 
    office are maintained in the Federal branch or agency. The 
    restrictions, however, generally would not apply to offshore branches 
    that are full-service facilities managed or controlled by staff located 
    at the offshore office or at a location outside the United States.
    
    Approval of a Federal Branch or Agency (Sec. 28.12)
    
        The proposal updated and clarified criteria for OCC approval of 
    applications to establish a Federal branch or agency, or a limited 
    Federal branch. The proposal also streamlined the procedures and 
    provided for expedited review for certain corporate applications by 
    eligible foreign banks.
        Commenters generally commended the OCC's efforts to streamline the 
    approval process. The OCC received no suggestions to improve this 
    section, and the final rule adopts this section as proposed. Commenters 
    especially favored the OCC's proposal to expedite the review procedure 
    for eligible foreign banks.
        For purposes of the expedited review procedures in the final rule, 
    a foreign bank is an ``eligible foreign bank'' if each Federal branch 
    and agency of the foreign bank in the United States: (1) Has a 
    composite rating of 1 or 2 under the interagency rating system used by 
    the OCC for United States branches and agencies of foreign banks 
    (ROCA); (2) is not subject to a cease and desist order, consent order, 
    formal written agreement, or Prompt Corrective Action
    
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    directive (see 12 CFR part 6) or, if subject to such order, agreement, 
    or directive, is informed in writing by the OCC that the parent foreign 
    bank may be treated as an ``eligible foreign bank'' for purposes of 
    this section; and (3) has, if applicable, a Community Reinvestment Act 
    (CRA), 12 U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory.'' 
    The OCC will not provide expedited review, however, if it concludes, 
    and advises the applicant in writing, that the filing presents 
    significant supervisory or compliance concerns, or raises significant 
    legal or policy issues.
        The final rule also adds a paragraph to allow a foreign bank 
    proposing to establish a Federal branch or agency through acquisition, 
    merger, or consolidation with another foreign bank to obtain after-the-
    fact approval from the OCC in certain circumstances. This type of an 
    establishment occurs when there is a change in the corporate form of 
    the foreign bank operating the Federal branch or agency, for instance, 
    through a merger of a foreign bank operating a Federal branch or agency 
    into another foreign bank. This could also occur, in certain 
    circumstances, through the acquisition of the assets or operations of a 
    foreign bank operating a Federal branch or agency by another foreign 
    bank.
        The regulation provides the minimum requirements for an after-the-
    fact application, and further criteria and information regarding these 
    transactions and procedures may be contained in the Manual. The OCC 
    reserves, however, the right to deny the application, and an applicant 
    must agree to abide by the OCC's decision, including terminating the 
    activity or activities of an Federal branch or agency, if the OCC so 
    requires.
        The final rule expands the types of change of status that may be 
    granted expedited review by including the conversion of a state branch 
    or agency operated by a foreign bank, or a commercial lending company 
    controlled by a foreign bank into a Federal branch, limited Federal 
    branch, or Federal agency.
    
    Permissible Activities (Sec. 28.13)
    
        In paragraph (a) of this section the proposal restated the general 
    provision on the applicability of domestic law to Federal branches and 
    agencies and requested comment on forms of supplemental guidance that 
    interested parties thought would be most useful. The OCC received no 
    comments on this paragraph and accordingly no substantive changes are 
    made to paragraph (a) in the final rule.
        In paragraph (b) of this section, the proposal restated the 
    requirement in the Interstate Act regarding the management of certain 
    offshore activities, 12 U.S.C. 3105(k), and clarified, in general 
    terms, the activities that a United States bank may manage at its 
    offshore branch or subsidiary. The Interstate Act provides that a 
    United States branch or agency of a foreign bank shall not, through an 
    offshore shell branch that it manages and controls, manage the types of 
    activities that a United States bank may not manage at its foreign 
    branch or subsidiary.
        A commenter suggested that in accordance with the legislative 
    history of the Interstate Act, the OCC should clarify that 
    Sec. 28.13(b) applies to offshore shell branches. The OCC agrees that 
    this clarification is warranted and has changed the title of paragraph 
    (b) of this section to mirror section 107(e) of the Interstate Act, 12 
    U.S.C. 3105(k).
        In the preamble to the proposal, the OCC solicited comment on 
    whether procedural or quantitative supervisory requirements that may 
    apply to an activity of a United States bank at its foreign branches or 
    subsidiaries should also apply to a Federal branch or agency in this 
    context. One commenter noted that the Interstate Act does not require 
    such limits to be imposed and that in other relevant contexts the 
    Federal banking agencies have not imposed such limits. The OCC agrees 
    with the commenter. The final rule refers to the ``types'' of 
    activities and explicitly excludes United States procedural or 
    quantitative supervisory requirements that may apply to the offshore 
    branch or subsidiary of a United States bank.
        The OCC notes, however, that the Interstate Act does not confer on 
    a foreign bank the right to manage activities of an offshore office 
    from its Federal branch or agency. The OCC will continue to monitor 
    relationships between Federal branches and agencies and offshore 
    offices of foreign banks and to evaluate the compliance of law and 
    safety and soundness of the United States operations of Federal 
    branches and agencies.
    
    Capital Equivalency Deposit (Sec. 28.15)
    
        The proposal restated the current provision that eligible capital 
    equivalency deposits (CED) for Federal branches and agencies may 
    include dollar deposits or investment securities that are permissible 
    investments for a national bank. The proposal also stated that high-
    grade commercial paper and bankers' acceptances are the functional 
    equivalents of deposits. The proposal required that permissible CED 
    instruments be valued at the lower of the principal amount or market 
    value. The proposal provided that if no published source for market 
    value is available, the instruments must be priced by an independent 
    pricing service at least quarterly.
        One commenter recommended that the OCC not subject negotiable 
    certificates of deposits or bankers' acceptances issued by United 
    States banks or United States offices of foreign banks to the 
    requirement that the instruments have a market value that is available 
    from either a published source or from an independent pricing service. 
    The commenter was concerned that this requirement may in practice 
    prevent Federal branches and agencies from pledging negotiable 
    certificates of deposit or bankers' acceptances issued by banks that 
    are regulated by United States authorities and that are in a safe and 
    sound financial condition solely because their prices are not 
    published.
        The proposal was not intended to make it impractical for Federal 
    branches or agencies to pledge high quality instruments as CED. As 
    mentioned in the proposal, the quality of bank certificates of deposit 
    offered as CED has been occasionally questionable or difficult to 
    ascertain. Also, certain securities used as CED may be volatile or 
    difficult to price at market value. Therefore, the OCC included the 
    published source requirement in the proposal.
        The OCC recognizes, however, that this requirement may 
    unnecessarily exclude certain high quality certificates of deposit or 
    other instruments. Therefore, the final rule does not adopt the 
    published source requirement for certificates of deposit and banker's 
    acceptances. Instead, the final rule requires that for an instrument to 
    qualify as CED it must be: (1) An investment security eligible for 
    investment by a national bank; (2) a United States dollar deposit 
    payable in the United States, other than a certificate of deposit; (3) 
    a certificate of deposit, payable in the United States, or bankers' 
    acceptance, provided that, in either case, the issuer or the instrument 
    is rated investment grade by an internationally recognized rating 
    organization, and neither the issuer nor the instrument is rated lower 
    than investment grade by any such rating organization that has rated 
    the issuer or the instrument; or (4) another asset permitted by the OCC 
    to qualify as CED. Although currently under OCC supervisory policy 
    dollar deposits include dollar denominated certificates of deposit 
    payable in the United States, the final rule categorizes certificates 
    of deposits separately to clarify the
    
    [[Page 19528]]
    
    treatment of these instruments. The final rule also restates the 
    requirement in section 4 of the IBA, 12 U.S.C. 3102(g)(2), that the 
    obligations used for CED must be valued at principal amount or market 
    value, whichever is lower. The OCC believes that these requirements 
    strike a reasonable balance between the OCC's concerns about the 
    quality of these instruments offered as CED and providing flexibility 
    to Federal branches and agencies in their choice of instruments that 
    can be properly pledged as CED. In addition, the OCC retains the 
    authority to disallow any particular CED investment that it concludes 
    is inappropriate.
        The OCC recognizes that, on the effective date of this regulation, 
    CED accounts of some Federal branches and agencies may contain 
    instruments that do not meet the investment grade rating standard of 
    the final rule. In order to avoid unnecessary operational disruption, 
    the OCC will not require immediate replacement of those instruments. 
    Instead, an instrument in the CED account that does not qualify under 
    this regulation must be replaced with a qualifying instrument, i.e., 
    one that satisfies the requirements of this regulation, upon maturity 
    of that instrument. This accommodation applies, however, only to 
    instruments already properly pledged as CED under the current 
    regulation.
    
    Deposit-Taking by an Uninsured Federal Branch (Sec. 28.16)
    
        The Interstate Act, 12 U.S.C. 3104 note, requires the OCC and the 
    FDIC to review and revise their regulations regarding deposit-taking by 
    foreign branches to ensure that the agencies' regulations are 
    consistent with the principle of national treatment articulated in the 
    IBA, 12 U.S.C. 3104(a). Specifically, the OCC and FDIC are directed to 
    consider whether foreign branches may accept initial deposits of less 
    than $100,000 from six categories of depositors listed in the statute. 
    The Interstate Act also directs the agencies to reduce the amount of 
    deposits of less than $100,000, not otherwise permissible under this 
    regulation, that may be accepted by foreign branches. This exemption, 
    characterized as a ``regulatory de minimis exemption'' by the 
    Interstate Act, reduces the amount of those deposits maintained by an 
    uninsured Federal branch under the exemption from 5% to 1% of the 
    average deposits held by that Federal branch.
        The Interstate Act also directs the OCC to consider equal 
    competitive opportunities among foreign banks and United States banks 
    and the availability of credit to all sectors of the United States 
    economy, including international trade finance. One objective that 
    Congress expected the agencies to achieve in the implementation of this 
    regulation is to afford equal competitive opportunities to foreign and 
    United States banks by ensuring that foreign banks do not receive an 
    unfair competitive advantage in taking uninsured deposits.
        The OCC proposal, in general, adopted the exceptions suggested by 
    Congress in the Interstate Act, but added several limited exemptions. 
    The OCC believes these additional limited exemptions are consistent 
    with the purposes of the Interstate Act. The preamble to the OCC's 
    proposal set forth in detail the information and data that the OCC 
    reviewed in considering this question. See 60 FR 34907, July 5, 1995. 
    The final rule adopts this provision as proposed with some changes as 
    described in the following discussion.
    
    Nondeposit Banking Services (Sec. 28.16(b)(3))
    
        The Interstate Act requires the OCC to consider whether to permit 
    an uninsured Federal branch to accept initial deposits of less than 
    $100,000 from persons to whom the branch or foreign bank has extended 
    credit or provided other nondeposit banking services. The OCC's 
    proposal provided that an uninsured Federal branch may accept initial 
    deposits of less than $100,000 from persons to whom the branch or 
    foreign bank has extended credit or provided other nondeposit banking 
    services within the past 12 months or has entered into an agreement to 
    provide those services within the next 12 months.
        The proposal recognized that in a banking relationship a deposit 
    may, in some cases, precede the extension of credit or the provision of 
    other nondeposit banking services by the uninsured Federal branch or 
    foreign bank. In the proposal, the OCC also indicated that it was 
    considering clarifying this exemption to permit uninsured Federal 
    branches to accept deposits from persons, and their affiliates, to whom 
    the branch, foreign bank, or any financial institution affiliate 
    thereof has extended credit or provided other non-deposit banking 
    service within the past 12 months, or with whom the branch, bank, or 
    its financial institution affiliate has a written agreement to extend 
    credit to provide such services. The OCC did not receive any comments 
    opposing the clarification of this exemption.
        One commenter strongly supported expanding the scope of this 
    exemption to include nondeposit banking services provided to the 
    depositor, or its affiliates, by financial affiliates of the foreign 
    bank. The commenter noted that, like United States banks, foreign banks 
    provide nondeposit banking services through affiliates for a variety of 
    regulatory and business reasons. Financial affiliates frequently 
    provide banking services to customers that can also be provided 
    directly by the bank. Similarly, depositors frequently conduct their 
    operations through affiliates. The commenter also suggested that the 
    OCC exercise its discretion under the Interstate Act to expand this 
    category to cover deposit services provided by the foreign bank or its 
    financial institution affiliates.
        The OCC has adopted one of the commenter's recommendations. The 
    final rule expands the scope of this exemption to permit an uninsured 
    Federal branch to accept initial deposits of less than $100,000 from a 
    person to whom the branch, foreign bank, or an affiliate of the foreign 
    bank has extended credit or provided other nondeposit banking services 
    within the past 12 months or has a written agreement to provide credit 
    or those services within the next 12 months. The OCC believes that this 
    expansion is warranted by the connection among the foreign entity's 
    various components. Similarly, a customer who has a business 
    relationship with an affiliate of the foreign bank may prefer the 
    convenience of a deposit relationship with a Federal branch of the 
    foreign bank. Moreover, the deposit relationship with the branch may, 
    in some cases, precede the extension of credit or providing of other 
    nondeposit banking services by the branch or foreign bank or its 
    affiliates.
        This expansion is supported by the language of the IBA, which 
    defines ``foreign bank'' to include any affiliate of a foreign bank. 
    See 12 U.S.C. 3101(7). Consistent with this exemption, affiliates of a 
    foreign bank include companies that are capable of extending credit or 
    providing some other nondeposit banking service to prospective 
    depositors. For example, affiliates of a foreign bank that provide 
    credit or other nondeposit banking services may include investment 
    advisors, broker-dealers, futures commission merchants, finance 
    companies, Edge corporations and Agreement corporations, commodity 
    trading advisors, other banks, or any other comparable institution.
        The OCC does not find equally compelling the commenter's argument 
    to expand the exemption to include affiliates of the depositor, or to 
    expand
    
    [[Page 19529]]
    
    the transactions triggering the exemption to include providing deposit 
    services. There is no explicit statutory support in the IBA for this 
    expansion, or any indication in the Interstate Act that Congress 
    intended to include affiliates of persons to whom the branch or foreign 
    bank (including its affiliates) has extended credit or provided any 
    other nondeposit banking service. However, as a matter of convenience 
    to depositors, the final rule includes a provision in the exemption to 
    permit a Federal branch to accept deposits from immediate family 
    members of an individual to whom the branch or foreign bank (including 
    its affiliates) has extended credit or other nondeposit banking 
    services within the past 12 months or has entered into a written 
    agreement to provide such services within the next 12 months. The OCC 
    notes that it specifically requested comment on an exemption for 
    immediate family members in this section, and one commenter strongly 
    supported this proposal. The OCC received no opposing comments.
    
    Business Deposits (Sec. 28.16(b)(4))
    
        The Interstate Act requires the OCC to consider whether to permit 
    an uninsured branch to accept initial deposits of less than $100,000 
    from a foreign business or large United States business. The OCC has 
    determined that this exemption is consistent with the objectives in 
    section 6(a) of the IBA, 12 U.S.C. 3104. Consequently, the OCC,s 
    proposal provided that an uninsured Federal branch may accept initial 
    deposits of less than $100,000 from foreign businesses and large United 
    States businesses. The proposal defined ``large United States 
    business'' to mean any business entity organized under the laws of the 
    United States, and that has: (1) securities registered on a national 
    securities exchange or quoted on the National Associate of Securities 
    Dealers Automated Quotation System (NASDAQ); or (2) more than $1 
    million in annual gross revenues. The proposal specifically requested 
    comment on this definition, including the appropriateness of the 
    criteria and suggestions for alternative criteria. Two commenters 
    suggested modifications to this exemption.
        One commenter urged the OCC to expand this exemption to permit an 
    uninsured Federal branch to accept deposits from all businesses. The 
    commenter believed that the Interstate Act gives the OCC and the FDIC 
    discretion because the Interstate Act directs the agencies to 
    ``consider'' adopting the exemption categories listed in the statute. 
    The commenter noted that the ability of an uninsured Federal branch to 
    accept initial deposits of less than $100,000 from all businesses is 
    significant in maintaining and expanding credit availability to the 
    United States economy. However, the commenter did not offer more 
    specific information to support this assertion.
        Alternatively, the commenter recommended that the OCC expand the 
    exemption criteria to include businesses with: (1) $1 million in total 
    assets; (2) 50 or more employees; or (3) affiliates of large United 
    States businesses. The commenter suggested that the OCC expand the 
    proposed criteria for large United States businesses to accommodate the 
    wide range of different circumstances of business entities. For 
    example, a foundation or trust would not be listed on a national 
    securities exchange and may not generate revenues, although it could be 
    considered large in terms of its total assets or employees. Also, the 
    commenter proposed that the OCC should treat a large United States 
    business and its affiliates as a group.
        Another commenter, however, recommended narrowing the exemption by 
    increasing the $1 million annual gross revenue amount required for 
    large United States businesses to between $25 and $100 million. 
    Furthermore, the commenter suggested imposing conditions under which a 
    domestic business may open an account with an uninsured Federal branch. 
    The commenter argued that using a $1 million cut-off would include a 
    great number of domestic businesses and would undermine the purpose of 
    the restriction. This commenter did not offer any more specific 
    arguments to support its recommendation.
        In the final rule, the OCC clarifies that the definition of ``large 
    United States business'' includes non-profit institutions, such as 
    foundations. In the absence of data supporting an alternative 
    definition of ``large United States business,'' however, the OCC has 
    decided not to make any other changes in the definition in the final 
    rule. The OCC believes that the proposal represents a reasonable 
    balance between Congress' concern that foreign banks and United States 
    banks be provided equal competitive opportunities and the importance of 
    maintaining credit to all sectors of the United States economy. At the 
    same time, additional criteria or more specific conditions under which 
    business deposits can be made, as proposed by one commenter, would make 
    the exemption more complex and difficult to administer by uninsured 
    Federal branches, without clear evidence that it would further the 
    purposes of the Interstate Act.
    
    Other Categories of Depositors (Sec. 28.16(b) (1), (2), (6) and (8))
    
        One commenter expressed support for the other categories of exempt 
    depositors proposed by the OCC. The proposal included a list of nine 
    types of persons or entities from which an uninsured Federal branch may 
    accept initial deposits of less than $100,000. In particular, the 
    commenter supported the exemptions for Federal and state governments, 
    individuals who are neither citizens nor residents of the United 
    States, individuals who are not United States citizens, but who are 
    residents of the United States and are employed by a foreign bank, 
    foreign business, foreign government or recognized international 
    organization, and deposits made in connection with the issuance of a 
    financial instrument for the transmission of funds. The OCC did not 
    receive any comments suggesting changes to these categories, and the 
    final rule adopts the other depositor exemption categories as proposed.
    
    De minimis Deposits (Sec. 28.16(b)(9)) and Transition rule 
    (Sec. 28.16(f))
    
        The Interstate Act, 12 U.S.C. 3104 note, requires that the OCC 
    reduce the amount of deposits of less than $100,000 that an uninsured 
    Federal branch may accept from any party under the de minimis exemption 
    from 5% to 1% of the branch's average deposits.1 The Interstate 
    Act also permits the OCC to establish reasonable transition rules to 
    facilitate the termination of any deposit-taking activities that would 
    no longer be permissible under the new regulatory exemptions.
    ---------------------------------------------------------------------------
    
         1  The de minimis calculation methodology remains 
    unchanged from the current rule and is consistent with the 
    calculation methodology used by the FDIC for state-licensed 
    branches.
    ---------------------------------------------------------------------------
    
        As required, the OCC's proposal reduced the amount of the de 
    minimis exemption from 5% to 1% of an uninsured Federal branch's 
    average deposits. In addition, the proposal provided a five-year 
    transition period for all currently exempted accounts, other than time 
    deposits. During the transition period, branches would have to 
    reclassify deposits accepted under the current set of exemptions into 
    one of the new exemptions, or terminate those deposit accounts that do 
    not qualify for an exemption under this regulation as of the end of the 
    transition period. The transition period for a time deposit would be 
    until maturity of the deposit, at which time the branch must reclassify 
    the deposit under a new exemption,
    
    [[Page 19530]]
    
    obtain a special exemption from the OCC for the specific deposit, or 
    terminate the deposit relationship. An uninsured branch may continue to 
    accept deposits for an existing account that does not qualify for an 
    exemption until the end of the transition period.
        One commenter addressed the de minimis deposit and transition 
    provisions of the proposal. The commenter supported the general 
    approach of the five-year phase-in period. However, the commenter 
    suggested the following modifications. First, the commenter suggested 
    that the reclassification of initial deposits of less than $100,000 
    that were accepted under the current regulation should apply only to 
    those deposits that were accepted under the current 5% de minimis test. 
    In other words, the commenter thought it unnecessary to apply the 
    reclassification requirement to all deposits maintained by uninsured 
    branches under the current set of exemptions as the proposal provided.
        The OCC considered this option and decided to adopt the requirement 
    as proposed. The OCC interprets the Interstate Act to require 
    reclassification of all deposits maintained by an uninsured Federal 
    branch under the current exemptions. Those exemptions include deposits 
    received, not only under the 5% de minimis exemption, but also deposits 
    received under other current exemptions that no longer apply under the 
    final rule. The OCC believes that its interpretation is more consistent 
    with the Interstate Act and its legislative history which appear to 
    contemplate a transition period for all existing exempted deposits, 
    i.e., not only for the de minimis deposits. In addition, the OCC has 
    provided a five-year transition period for reclassification to reduce 
    any disruption imposed by reclassification. In the final rule, the OCC 
    clarifies that accounts accepted under all the existing regulatory 
    exemptions must be reclassified during the transition period.
        Second, the commenter requested clarification regarding the 
    transition rule. The commenter requested that the OCC confirm that the 
    reclassification of initial deposits of less than $100,000 could take 
    place at any time during the phase-in period depending on the 
    circumstances of the deposit account. The OCC confirms that a deposit, 
    including a time deposit, may be reclassified at any time during the 
    five-year transition period, but a time deposit is not required to be 
    reclassified until its maturity date.
        Third, the commenter addressed the transition period for time 
    deposits. The proposal provided that the transition period for a time 
    deposit would be until maturity of the deposit, at which time the 
    branch must reclassify the deposit under a new exemption or obtain a 
    special exemption from the OCC for the specific deposit. The commenter 
    pointed out that time deposits can be as short as seven days in 
    duration, and, therefore, a branch would have an unreasonably short 
    period of time to reclassify many of its time deposits. The commenter 
    recommended that the OCC delay the effective date for the requirement 
    to begin reclassifying time deposits once they mature until six months 
    after publication of the final rule.
        The OCC recognizes that the proposal may provide insufficient time 
    to reclassify time deposits that mature shortly after the effective 
    date of the regulation. Therefore, the final rule provides, in the case 
    of time deposits, that an uninsured Federal branch has until the 
    maturity of the time deposit or 90 days after the effective date of the 
    final rule, whichever is longer, to reclassify the deposit. The OCC 
    believes that 90 days from the effective date of the final rule is a 
    reasonable period of time to reclassify time deposits that mature 
    shortly after the effective date of the regulation.
        Fourth, the commenter requested clarification regarding the 
    applicability of Sec. 28.16 to accounts established with deposits of 
    $100,000 or more before the effective date of this regulation. 
    Specifically, the commenter pointed out that the proposed definition of 
    ``initial deposit'' may conflict with the commenter's understanding 
    that accounts established with a deposit of $100,000 or more before the 
    effective date of the final rule would not be subject to the 
    reclassification requirement. The proposal defined ``initial deposit'' 
    as the first deposit received after the effective date of the final 
    rule. The commenter noted that, under the proposal, after the effective 
    date of the final rule the first deposit to an existing account of, for 
    example, $10,000 that was initially opened with a deposit of $100,000 
    or more would be subject to this section although the original deposit 
    of $100,000 or more was not subject to the current regulation. The 
    commenter requested confirmation that existing deposits that were not 
    subject to the exemptions because the initial deposit was $100,000 or 
    more would not be subject to the revised regulation, even if the first 
    deposit in the account after the effective date of the revised 
    regulation was less than $100,000.
        The commenter's interpretation is correct. Only initial deposits of 
    less than $100,000 that were received under one of the current sets of 
    exemptions under the current regulation are subject to the 
    reclassification requirements in the final rule. Accordingly, the OCC 
    changed the proposed definition of ``initial deposit'' to provide that 
    a ``first deposit'' means any deposit when there is no current deposit 
    relationship between the depositor and the Federal branch.
    
    Notice of Change in Activity or Operations (Sec. 28.17)
    
        The proposal added this section to clarify the OCC's policy 
    regarding notice requirements for certain changes in activities and 
    operations. The proposal required a Federal branch or agency to provide 
    a notice to the OCC when changing its corporate title or mailing 
    address, converting to a state branch, state agency, or a 
    representative office, or when its parent foreign bank changes its home 
    state designation.
        The final rule removes proposed paragraphs (b) and (c) of this 
    section concerning where to file and when the OCC would accept notices 
    filed with other banking agencies. In order to provide this information 
    for all filings and requests under this subpart, the final rule 
    contains this information in Sec. 28.10(c).
    
    Recordkeeping and Reporting (Sec. 28.18)
    
        The proposal restated current OCC policy and practice requiring a 
    parent foreign bank to provide the OCC with information regarding its 
    affairs. The proposal also added a specific requirement that a foreign 
    bank operating a Federal branch or agency in the United States provide 
    the OCC with a copy of regulatory reports that it files with other 
    Federal regulatory agencies that are designated in guidance issued by 
    the OCC. The proposal also clarified that, while a Federal branch or 
    agency does not need to maintain all records in English, it must 
    maintain sufficient records in English to permit examiners to perform 
    their responsibilities. The OCC received no comments on this section 
    and has made no changes in the final rule.
    
    Maintenance of Assets (Sec. 28.20)
    
        The proposal clarified the current asset maintenance requirements 
    for Federal branches and agencies. Because the OCC believes that the 
    importance of the asset maintenance requirement as a supervisory tool 
    may increase in the future, the proposal requested comment on whether 
    the level of detail provided in the proposal adequately clarified the 
    use and scope of the provision to the industry. The OCC also requested 
    comment on the exclusion of classified assets. The OCC received no 
    comments
    
    [[Page 19531]]
    
    on either issue and made no changes in the final rule.
    
    Termination of a Federal Branch or Agency (Sec. 28.23)
    
        The proposal clarified the OCC's authority to terminate Federal 
    branches and agencies. The proposal explicitly spelled out the grounds 
    for termination in section 4(i) of the IBA, 12 U.S.C. 3102(i), and the 
    grounds for national bank termination in 12 U.S.C. 191 and 12 U.S.C. 
    1821(c)(5). It also stated that a recommendation from the FRB to 
    terminate a Federal branch or agency could constitute grounds for 
    termination. The OCC received no comments on this section.
        The OCC further clarifies this section in the final rule by 
    including a reference to termination of a Federal branch or agency 
    based on the foreign bank's insolvency, as specified in section 4(j)(1) 
    of the IBA, 12 U.S.C. 3102(j)(1). In other respects, the final rule is 
    unchanged from the proposal.
    
    Subpart C--International Lending Supervision
    
    Allocated Transfer Risk Reserve (Sec. 28.52) and Accounting for Fees on 
    International Loans (Sec. 28.53)
    
        This subpart implements the requirements of the International 
    Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.). Subpart C 
    requires national banks and District of Columbia banks to establish 
    reserves against the risks presented in certain international assets 
    and sets forth the accounting for various fees received by the banks 
    when making international loans.
        This subpart is subpart B of part 20 in the current regulation. The 
    proposal relocated this subpart to subpart C of part 28. Because 
    subpart B of part 20 was originally promulgated in cooperation with the 
    FRB and the FDIC, the OCC intends to review the subpart with those 
    agencies in the future, and, therefore, the OCC made no substantive 
    changes to this subpart in the proposal. Public comment was invited on 
    the subpart in order to bring particular issues to the OCC's attention.
        One commenter recommended that the accounting provisions in the 
    proposal be amended to be uniform among the Federal banking regulatory 
    agencies and consistent with generally accepted accounting principles 
    and various Financial Accounting Standards Board Statements. The 
    commenter also requested clarification of regulatory accounting 
    practices for the allocated transfer risk reserve as it relates to the 
    allowance for loan and lease losses. The OCC will address these issues 
    when the subpart is reviewed with the FRB and the FDIC.
    
    Technical Changes to Part 5
    
        Insofar as the final rule consolidates all substantive rules 
    regarding the corporate activities of Federal branches and agencies 
    into part 28, the OCC removes those sections in 12 CFR part 5 that 
    concern Federal branches and agencies. However, the final rule points 
    out, in Sec. 28.10(c), that the rules of general applicability in part 
    5 apply to a Federal branch or agency as they would to a national bank 
    undertaking a similar transaction, unless otherwise stated in part 28.
    
    Derivation Table
    
        This table directs readers to the original provision upon which the 
    revised provision is based.
    
    ------------------------------------------------------------------------
            Revised provision         Original provision       Comments     
    ------------------------------------------------------------------------
    Sec.  28.2......................  Sec.  20.2........  Modified.         
    Sec.  28.3......................  Secs.  20.3, 20.4.  Significant       
                                                           change.          
    Sec.  28.4(a)...................  ..................  Added.            
    Sec.  28.4(b)...................  12 CFR 7.7010(b)    Modified.         
                                       (1995).                              
    Sec.  28.4(c)...................  12 CFR 7.1012       No change.        
                                       (1995).                              
                                      Sec.  20.5........  Removed.          
    Sec.  28.11.....................  Sec.  28.2........  Significant       
                                                           change.          
    Sec.  28.12.....................  Sec.  28.3........  Significant       
                                                           change.          
    Sec.  28.13.....................  Sec.  28.4........  Significant       
                                                           change.          
    Sec.  28.14.....................  Sec.  28.5........  Modified.         
    Sec.  28.15.....................  Sec.  28.6........  Significant       
                                                           change.          
    Sec.  28.16.....................  Sec.  28.8........  Significant       
                                                           change.          
    Sec.  28.17.....................  ..................  Added.            
    Sec.  28.18.....................  Sec.  28.10.......  Significant       
                                                           change.          
    Sec.  28.19.....................  ..................  Added.            
    Sec.  28.20.....................  Sec.  28.9........  Significant       
                                                           change.          
    Sec.  28.22.....................  ..................  Added.            
    Sec.  28.23.....................  ..................  Added.            
    Subpart C.......................  Subpart B of part   No change.        
                                       20.                                  
                                      Sec.  5.23........  Removed.          
                                      Sec.  5.25........  Removed.          
                                      Sec.  5.32........  Removed.          
                                      Sec.  5.41........  Removed.          
                                      Sec.  5.43........  Removed .         
    ------------------------------------------------------------------------
    
    Regulatory Flexibility Act
    
        It is hereby certified that this regulation will not have a 
    significant economic impact on a substantial number of small entities. 
    Accordingly, a regulatory flexibility analysis is not required. This 
    regulation will reduce the regulatory burden on national banks and 
    Federal branches and agencies of foreign banks, regardless of size, by 
    simplifying and clarifying existing regulations.
    
    Executive Order 12866
    
        The OCC has determined that this final rule is not a significant 
    regulatory action.
    
    Unfunded Mandates Reform Act of 1995
    
        Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
    104-4, 109 Stat. 48 (March 22, 1995) (Unfunded Mandates Act), requires 
    that an agency prepare a budgetary impact statement before promulgating 
    a rule that includes a Federal mandate that may result in the 
    expenditure by state, local, and tribal governments, in the aggregate, 
    or by the private sector, of $100 million or more in any one year. If a 
    budgetary impact statement is required, section 205 of the Unfunded 
    Mandates Act also requires an agency to identify and consider a 
    reasonable number of regulatory alternatives before promulgating a 
    rule. Because the OCC has determined that the final rule will not 
    result in expenditures by state, local, and tribal governments, or by 
    the private sector, of more than $100 million in any one year, the OCC 
    has not prepared a budgetary impact statement or specifically addressed 
    the regulatory alternatives considered. Nevertheless, as discussed in 
    the preamble, the final rule has the effect of reducing burden.
    
    Paperwork Reduction Act of 1995
    
        The collection of information requirements contained in this final 
    rule have received approval from the Office of Management and Budget in 
    accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
    3507(d)), under OMB control number 1557-0102. Comments on the 
    collection of information should be sent to the Office of Management 
    and Budget, Paperwork Reduction Project 1557-0204, Washington, DC 
    20503, with copies to the Legislative and Regulatory Activities 
    Division 1557- 0204, Office of the Comptroller of the Currency, 250 E 
    Street, SW, Washington, DC 20219. The OCC will submit the collection of 
    information requirements contained in this final rule for renewal of 
    OMB approval following publication of this final rule.
        The collection of information requirements in this rule are found 
    in 12 CFR 28.3, 28.10, 28.13, 28.14, 28.15, 28.16, 28.17, 28.18, 28.20, 
    28.52, 28.53, and 28.54. The collections of information are necessary 
    for regulatory and examination purposes, for Federal
    
    [[Page 19532]]
    
    branches and agencies and national banks with foreign operations to 
    ensure their compliance with Federal law and regulations, and to 
    evidence compliance with various regulatory requirements. This 
    information assists management in its safe and sound operation of the 
    institution. The OCC uses the information to evaluate national banks 
    with international operations and Federal branches and agencies for 
    supervisory, prudential, and legal purposes, and for statistical and 
    examination purposes.
        Respondents are not required to respond to the foregoing collection 
    of information unless it displays a currently valid OMB control number. 
    The likely respondents are foreign banks and national banks.
        Estimated average annual burden hours per recordkeeper: 36.3 hours.
        Estimated number of recordkeepers: 185.
        Estimated total annual recordkeeping burden: One per year.
        Start-up costs to respondents: none.
    
    List of Subjects
    
    12 CFR Part 5
    
        Administrative practice and procedure, National banks, Reporting 
    and recordkeeping requirements, Securities.
    
    12 CFR Part 20
    
        Foreign banking, National banks, Reporting and recordkeeping 
    requirements.
    
    12 CFR Part 28
    
        Foreign banking, National banks, Reporting and recordkeeping 
    requirements.
    
    Authority and Issuance
    
        For the reasons set out in the preamble and under the authority of 
    12 U.S.C. 93a, 602, and 3108, chapter I of title 12 of the Code of 
    Federal Regulations is amended as set forth below:
    
    PART 5--[AMENDED]
    
        1. The authority citation for part 5 continues to read as follows:
    
        Authority: 12 U.S.C. 1 et seq., 93a.
    
    
    Sec. 5.23   [Removed]
    
        2. Section 5.23 is removed.
    
    
    Sec. 5.25   [Removed]
    
        3. Section 5.25 is removed.
    
    
    Sec. 5.32   [Removed]
    
        4. Section 5.32 is removed.
    
    
    Sec. 5.41   [Removed]
    
        5. Section 5.41 is removed.
    
    
    Sec. 5.43   [Removed]
    
        6. Section 5.43 is removed.
    
    PART 20--[REMOVED]
    
        7. Part 20 is removed.
        8. Part 28 is revised to read as follows:
    
    PART 28--INTERNATIONAL BANKING ACTIVITIES
    
    Subpart A--Foreign Operations of National Banks
    
    Sec.
    28.1  Authority, purpose, and scope.
    28.2  Definitions.
    28.3  Filing requirements for foreign operations of a national bank.
    28.4  Permissible activities.
    28.5  Filing of notice.
    
    Subpart B--Federal Branches and Agencies of Foreign Banks
    
    28.10  Authority, purpose, scope, and filing requirements.
    28.11  Definitions.
    28.12  Approval of a Federal branch or agency.
    28.13  Permissible activities.
    28.14  Limitations based upon capital of a foreign bank.
    28.15  Capital equivalency deposits.
    28.16  Deposit-taking by an uninsured Federal branch.
    28.17  Notice of change in activity or operations.
    28.18  Recordkeeping and reporting.
    28.19  Enforcement.
    28.20  Maintenance of assets.
    28.21  Service of process.
    28.22  Voluntary liquidation.
    28.23  Termination of a Federal branch or agency.
    
    Subpart C--International Lending Supervision
    
    28.50  Authority, purpose, and scope.
    28.51  Definitions.
    28.52  Allocated transfer risk reserve.
    28.53  Accounting for fees on international loans.
    28.54  Reporting and disclosure of international assets.
    
        Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108, 
    and 3901 et seq.
    
    Subpart A--Foreign Operations of National Banks
    
    
    Sec. 28.1   Authority, purpose, and scope.
    
        (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
    seq., 24(Seventh), 93a, and 602.
        (b) Purpose. This subpart sets forth filing requirements for 
    national banks that engage in international operations and clarifies 
    permissible foreign activities of national banks.
        (c) Scope. This subpart applies to any national bank that engages 
    in international operations through a foreign branch, or acquires an 
    interest in an Edge corporation, Agreement corporation, foreign bank, 
    or certain other foreign organizations.
    
    
    Sec. 28.2   Definitions.
    
        For purposes of this subpart:
        (a) Agreement corporation means a corporation having an agreement 
    or undertaking with the Board of Governors of the Federal Reserve 
    System (FRB) under section 25 of the Federal Reserve Act (FRA), 12 
    U.S.C. 601 through 604a.
        (b) Edge corporation means a corporation that is organized under 
    section 25(a) of the FRA, 12 U.S.C. 611 through 631.
        (c) Foreign bank means an organization that:
        (1) Is organized under the laws of a foreign country;
        (2) Engages in the business of banking;
        (3) Is recognized as a bank by the bank supervisory or monetary 
    authority of the country of its organization or principal banking 
    operations;
        (4) Receives deposits to a substantial extent in the regular course 
    of its business; and
        (5) Has the power to accept demand deposits.
        (d) Foreign branch means an office of a national bank (other than a 
    representative office) that is located outside the United States at 
    which banking or financing business is conducted.
        (e) Foreign country means one or more foreign nations, and includes 
    the overseas territories, dependencies, and insular possessions of 
    those nations and of the United States, and the Commonwealth of Puerto 
    Rico.
    
    
    Sec. 28.3  Filing requirements for foreign operations of a national 
    bank.
    
        (a) Notice requirement. A national bank shall notify the OCC when 
    it:
        (1) Files an application, notice, or report with the FRB to:
        (i) Establish, open, close, or relocate a foreign branch; or
        (ii) Acquire or divest of an interest in, or close, an Edge 
    corporation, Agreement corporation, foreign bank, or other foreign 
    organization; or
        (2) Opens, closes, or relocates a foreign branch, and no 
    application or notice is required by the FRB for such transaction.
        (b) Other applications and notices accepted. In lieu of a notice 
    under paragraph (a)(1) of this section, the OCC may accept a copy of an 
    application, notice, or report submitted to another Federal agency that 
    covers the proposed action and contains substantially the same 
    information required by the OCC.
        (c) Additional information. A national bank shall furnish the OCC 
    with any additional information the OCC may require in connection with 
    the national bank's foreign operations.
    
    [[Page 19533]]
    
    Sec. 28.4  Permissible activities.
    
        (a) General. Subject to the applicable approval process, if any, a 
    national bank may engage in any activity in a foreign country that is:
        (1) Permissible for a national bank in the United States; and
        (2) Usual in connection with the business of banking in the country 
    where it transacts business.
        (b) Additional activities. In addition to its general banking 
    powers, a national bank may engage in any activity in a foreign country 
    that is permissible under the FRB's Regulation K, 12 CFR part 211.
        (c) Foreign operations guarantees. A national bank may guarantee 
    the deposits and other liabilities of its Edge corporations and 
    Agreement corporations and of its corporate instrumentalities in 
    foreign countries.
    
    
    Sec. 28.5  Filing of notice.
    
        (a) Where to file. A national bank shall file any notice or 
    submission required under this subpart with the Office of the 
    Comptroller of the Currency, International Banking and Finance, 250 E 
    Street SW, Washington, DC 20219.
        (b) Availability of forms. Individual forms and instructions for 
    filings are available from International Banking and Finance.
    
    Subpart B--Federal Branches and Agencies of Foreign Banks
    
    
    Sec. 28.10  Authority, purpose, scope, and filing requirements.
    
        (a) Authority. This subpart is issued pursuant to the authority in 
    the International Banking Act of 1978 (IBA), 12 U.S.C. 3101 et seq., 
    and 12 U.S.C. 93a.
        (b) Purpose and scope. This subpart implements the IBA pertaining 
    to the licensing, supervision, and operations of Federal branches and 
    agencies in the United States.
        (c) Filing requirements--(1) Rules of general applicability. Except 
    as otherwise provided by the OCC, the rules of general applicability in 
    12 CFR part 5 apply to any filing by a foreign bank, or Federal branch 
    or agency as they would to a similar filing by a national bank.
        (2) Where to file. A foreign bank or a Federal branch or agency 
    shall file any notice or submission required under this subpart with 
    the Office of the Comptroller of the Currency, International Banking 
    and Finance, 250 E Street SW, Washington, DC 20219.
        (3) Availability of forms. Individual forms and instructions for 
    filings are available from International Banking and Finance.
        (4) Other notices accepted. The OCC accepts a copy of an 
    application form, notice, or report submitted to another Federal 
    regulatory agency that covers the proposed action and contains 
    substantially the same information as would be required by the OCC. The 
    OCC may also require the applicant to submit supplemental information.
    
    
    Sec. 28.11  Definitions.
    
        For purposes of this subpart:
        (a) Affiliate means any entity that controls, is controlled by, or 
    is under common control with another entity.
        (b) Agreement corporation means a corporation having an agreement 
    or undertaking with the FRB under section 25 of the FRA, 12 U.S.C. 601 
    through 604a.
        (c) Capital equivalency deposit means a deposit by a Federal branch 
    or agency in a member bank as described in section 4 of the IBA, 12 
    U.S.C. 3102(g).
        (d) Change the status of an office means conversion of a:
        (1) State branch or state agency operated by a foreign bank, or a 
    commercial lending company controlled by a foreign bank, into a Federal 
    branch, limited Federal branch, or Federal agency;
        (2) Federal agency into a Federal branch or limited Federal branch;
        (3) Federal branch into a limited Federal branch or Federal agency; 
    or
        (4) Limited Federal branch into a Federal branch or Federal agency.
        (e) Control. An entity controls another entity if the entity 
    directly or indirectly controls or has the power to vote 25 percent or 
    more of any class of voting securities of the other entity or controls 
    in any manner the election of a majority of the directors or trustees 
    of the other entity.
        (f) Edge corporation means a corporation that is organized under 
    section 25(a) of the FRA, 12 U.S.C. 611 through 631.
        (g) Establish a Federal branch or agency means to:
        (1) Open and conduct business through a Federal branch or agency;
        (2) Acquire directly or indirectly through merger, consolidation, 
    or similar transaction with another foreign bank, the operations of a 
    Federal branch or agency that is open and conducting business;
        (3) Acquire a Federal branch or agency through the acquisition of a 
    foreign bank subsidiary that will cease to operate in the same 
    corporate form following the acquisition;
        (4) Change the status of an office; or
        (5) Relocate a Federal branch or agency within a state or from one 
    state to another.
        (h) Federal agency means an office or place of business, licensed 
    by the OCC and operated by a foreign bank in any state, that may engage 
    in the business of banking, including maintaining credit balances, 
    cashing checks, and lending money, but may not accept deposits from 
    citizens or residents of the United States. Obligations may not be 
    considered credit balances unless they are:
        (1) Incidental to, or arise out of the exercise of, other lawful 
    banking powers;
        (2) To serve a specific purpose;
        (3) Not solicited from the general public;
        (4) Not used to pay routine operating expenses in the United States 
    such as salaries, rent, or taxes;
        (5) Withdrawn within a reasonable period of time after the specific 
    purpose for which they were placed has been accomplished; and
        (6) Drawn upon in a manner reasonable in relation to the size and 
    nature of the account.
        (i) Federal branch means an office or place of business, licensed 
    by the OCC and operated by a foreign bank in any state, that may engage 
    in the business of banking, including accepting deposits, that is not a 
    Federal agency as defined in paragraph (h) of this section.
        (j) Foreign bank means an organization that is organized under the 
    laws of a foreign country, a territory of the United States, Puerto 
    Rico, Guam, American Samoa, or the Virgin Islands, and that engages 
    directly in the business of banking in a foreign country.
        (k) Foreign business means any entity, including a corporation, 
    partnership, sole proprietorship, association, foundation or trust that 
    is organized under the laws of a foreign country, or any United States 
    entity that is controlled by a foreign entity or foreign national.
        (l) Foreign country means one or more foreign nations, and includes 
    the overseas territories, dependencies, and insular possessions of 
    those nations and of the United States, and the Commonwealth of Puerto 
    Rico.
        (m) Home country means the country in which the foreign bank is 
    chartered or incorporated.
        (n) Home country supervisor means the governmental entity or 
    entities in the foreign bank's home country responsible for supervising 
    and regulating the foreign bank.
        (o) Home state of a foreign bank means the state in which the 
    foreign bank has a branch, agency, subsidiary commercial lending 
    company, or subsidiary bank. If a foreign bank has an office in more 
    than one state, the home
    
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    state of the foreign bank is the state that is selected to be the home 
    state by the foreign bank or, in default of the foreign bank's 
    selection, by the FRB.
        (p) Immediate family member of an individual means the spouse, 
    father, mother, brother, sister, son, or daughter of that individual.
        (q) Initial deposit means the first deposit transaction between a 
    depositor and the Federal branch made on or after July 1, 1996. The 
    initial deposit may be placed into different deposit accounts or into 
    different kinds of deposit accounts, such as demand, savings, or time 
    accounts. Deposit accounts that are held by a depositor in the same 
    right and capacity may be added together for the purpose of determining 
    the dollar amount of the initial deposit. First deposit means the 
    deposit made when there is no current deposit relationship between the 
    depositor and the Federal branch.
        (r) International banking facility means a set of asset and 
    liability accounts segregated on the books and records of a depository 
    institution, a United States branch or agency of a foreign bank, or an 
    Edge corporation or Agreement corporation, that includes only 
    international banking facility time deposits and extensions of credit.
        (s) Large United States business means any business entity 
    including a corporation, company, partnership, sole proprietorship, 
    association, foundation or trust that is organized under the laws of 
    the United States or any state thereof, and has:
        (1) Securities registered on a national securities exchange or 
    quoted on the National Association of Securities Dealers Automated 
    Quotation System; or
        (2) More than $1 million in annual gross revenues for the fiscal 
    year immediately preceding the year of the initial deposit.
        (t) Limited Federal branch means a Federal branch that, pursuant to 
    an agreement between the parent foreign bank and the FRB, may receive 
    only those deposits permissible for an Edge corporation to receive.
        (u) Managed or controlled by a Federal branch or agency means that 
    a majority of the responsibility for business decisions, including 
    decisions with regard to lending, asset management, funding, or 
    liability management, or the responsibility for recordkeeping of assets 
    or liabilities for a non-United States office, resides at the Federal 
    branch or agency. For purposes of this definition, forwarding data or 
    information of offshore operations gathered or compiled by the United 
    States office in the normal course of business to the parent foreign 
    bank does not constitute recordkeeping.
        (v) Manual means the Comptroller's Manual for Corporate Activities 
    (see 12 CFR part 5).
        (w) Parent foreign bank senior management means individuals at the 
    executive level of the parent foreign bank who are responsible for 
    supervising and authorizing activities of the Federal branch or agency.
        (x) Person means an individual or a corporation, government, 
    partnership, association, or any other entity.
        (y) State means any state of the United States and the District of 
    Columbia.
        (z) United States bank means a bank organized under the laws of the 
    United States or any state.
    
    
    Sec. 28.12  Approval of a Federal branch or agency.
    
        (a) Approval requirements. A foreign bank shall submit an 
    application to and obtain prior approval from the OCC before it:
        (1) Establishes a Federal branch, Federal agency, or limited 
    Federal branch; or
        (2) Exercises fiduciary powers at a Federal branch. (A foreign bank 
    may submit an application to exercise fiduciary powers at the time of 
    filing an application for a Federal branch or at any subsequent date.)
        (b) Standards for approval. Generally, in reviewing an application 
    by a foreign bank to establish a Federal branch or agency, the OCC 
    considers:
        (1) The financial and managerial resources and future prospects of 
    the applicant foreign bank and the Federal branch or agency;
        (2) Whether the foreign bank has furnished to the OCC the 
    information the OCC requires to assess the application adequately, and 
    provided the OCC with adequate assurances that information will be made 
    available to the OCC on the operations or activities of the foreign 
    bank or any of its affiliates that the OCC deems necessary to determine 
    and enforce compliance with the IBA and other applicable Federal 
    banking statutes;
        (3) Whether the foreign bank and its United States affiliates are 
    in compliance with applicable United States law;
        (4) The convenience and needs of the community to be served and the 
    effects of the proposal on competition in the domestic and foreign 
    commerce of the United States;
        (5) Whether the foreign bank is subject to comprehensive 
    supervision or regulation on a consolidated basis by its home country 
    supervisor; and
        (6) Whether the home country supervisor has consented to the 
    proposed establishment of the Federal branch or agency.
        (c) Comprehensive supervision or regulation on a consolidated 
    basis. In determining whether a foreign bank is subject to 
    comprehensive supervision or regulation on a consolidated basis, the 
    OCC reviews various factors, including whether the foreign bank is 
    supervised or regulated in a manner so that its home country supervisor 
    receives sufficient information on the worldwide operations of the 
    foreign bank to assess the foreign bank's overall financial condition 
    and compliance with laws and regulations as specified in the FRB's 
    Regulation K, 12 CFR 211.24.
        (d) Conditions on approval. The OCC may impose conditions on its 
    approval including a condition permitting future termination of 
    activities based on the inability of the foreign bank to provide 
    information on its activities, or those of its affiliate, that the OCC 
    deems necessary to determine and enforce compliance with United States 
    banking laws.
        (e) Expedited review. Unless the OCC concludes that the filing 
    presents significant supervisory or compliance concerns, or raises 
    significant legal or policy issues, the OCC generally processes the 
    following filings by an eligible foreign bank, as defined in paragraph 
    (f) of this section, under expedited review procedures:
        (1) Intrastate relocations. An application submitted by an eligible 
    foreign bank to relocate a Federal branch or agency within a state is 
    deemed approved by the OCC as of the seventh day after the close of the 
    applicable public comment period in 12 CFR part 5, unless the OCC 
    notifies the bank prior to that date that the filing is not eligible 
    for expedited review.
        (2) Change of status. An application to change the status of an 
    office submitted by an eligible foreign bank is deemed approved by the 
    OCC 45 days after filing with the OCC, unless the OCC notifies the bank 
    prior to that date that the filing is not eligible for expedited 
    review.
        (3) Fiduciary powers. An application submitted by an eligible 
    foreign bank to exercise fiduciary powers at an established Federal 
    branch is deemed approved by the OCC 30 days after filing with the OCC, 
    unless the OCC notifies the bank prior to that date that the filing is 
    not eligible for expedited review.
        (4) Other filings. Any other application submitted by an eligible 
    foreign bank may be approved by the OCC on an expedited basis as 
    described in the Manual.
    
    [[Page 19535]]
    
        (f) Eligible foreign bank. For purposes of this section, a foreign 
    bank is an eligible foreign bank if each Federal branch and agency of 
    the foreign bank in the United States:
        (1) Has a composite rating of 1 or 2 under the interagency rating 
    system for United States branches and agencies of foreign banks;
        (2) Is not subject to a cease and desist order, consent order, 
    formal written agreement, Prompt Corrective Action directive (see 12 
    CFR part 6) or, if subject to such order, agreement, or directive, is 
    informed in writing by the OCC that the Federal branch or agency may be 
    treated as an ``eligible foreign bank'' for purposes of this section; 
    and
        (3) Has, if applicable, a Community Reinvestment Act (CRA), 12 
    U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory''.
        (g) After-the-fact approval. Unless otherwise provided by the OCC, 
    a foreign bank proposing to establish a Federal branch or agency 
    through the acquisition of, or merger or consolidation with, a foreign 
    bank that has an office in the United States, may proceed with the 
    transaction before an application to establish the Federal branch or 
    agency has been filed or acted upon, if the applicant:
        (1) Gives the OCC reasonable advance notice of the proposed 
    acquisition, merger, or consolidation;
        (2) Prior to consummation of the acquisition, merger, or 
    consolidation, commits in writing to comply with the OCC application 
    procedures within a reasonable period of time, or has already submitted 
    an application; and
        (3) Commits in writing to abide by the OCC's decision on the 
    application, including a decision to terminate activities of the 
    Federal branch or agency.
        (h) Procedures for approval. A foreign bank shall file an 
    application for approval pursuant to this section in accordance with 12 
    CFR part 5 and the Manual.
        (i) Additional requirements. Nothing in this section relieves a 
    foreign bank of any requirement to obtain the approval of the FRB as 
    may be necessary under the FRB's Regulation K, 12 CFR part 211.
    
    
    Sec. 28.13   Permissible activities.
    
        (a) Applicability of laws--(1) General. Except as otherwise 
    provided by the IBA, other Federal laws or regulations, or otherwise 
    determined by the OCC, the operations of a foreign bank at a Federal 
    branch or agency shall be conducted with the same rights and privileges 
    and subject to the same duties, restrictions, penalties, liabilities, 
    conditions, and limitations that would apply if the Federal branch or 
    agency were a national bank operating at the same location.
        (2) Parent foreign bank senior management approval. Unless 
    otherwise provided by the OCC, any provision in law, regulation, 
    policy, or procedure that requires a national bank to obtain the 
    approval of its board of directors will be deemed to require a Federal 
    branch or agency to obtain the approval of parent foreign bank senior 
    management.
        (b) Management of shell branches-- (1) Federal branches and 
    agencies. A Federal branch or agency of a foreign bank shall not 
    manage, through an office of the foreign bank that is located outside 
    the United States and that is managed or controlled by that Federal 
    branch or agency, any type of activity that a United States bank is not 
    permitted to manage at any branch or subsidiary of the United States 
    bank that is located outside the United States.
        (2) Activities managed in foreign branches or subsidiaries of 
    United States banks. The types of activities referred to in paragraph 
    (b)(1) of this section include the types of activities authorized to a 
    United States bank by state or Federal charters, regulations issued by 
    chartering or regulatory authorities, and other United States banking 
    laws. However, United States procedural or quantitative requirements 
    that may be applicable to the conduct of those activities by United 
    States banks do not apply.
        (c) Additional guidance regarding permissible activities. For 
    purposes of section 7(h) of the IBA, 12 U.S.C. 3105(h), the OCC may 
    issue opinions, interpretations, or rulings regarding permissible 
    activities of Federal branches.
    
    
    Sec. 28.14   Limitations based upon capital of a foreign bank.
    
        (a) General. Any limitation or restriction based upon the capital 
    of a national bank shall be deemed to refer, as applied to a Federal 
    branch or agency, to the dollar equivalent of the capital of the 
    foreign bank.
        (b) Calculation. Unless otherwise provided by the OCC, a foreign 
    bank must calculate its capital in a manner consistent with 12 CFR part 
    3, for purposes of this section.
        (c) Aggregation. The foreign bank shall aggregate business 
    transacted by all Federal branches and agencies with the business 
    transacted by all state branches and state agencies controlled by the 
    foreign bank in determining its compliance with limitations based upon 
    the capital of the foreign bank. The foreign bank shall designate one 
    Federal branch or agency office in the United States to maintain 
    consolidated information so that the OCC can monitor compliance.
    
    
    Sec. 28.15   Capital equivalency deposits.
    
        (a) Capital equivalency deposits--(1) General. For purposes of 
    section 4(g) of the IBA, 12 U.S.C. 3102(g), unless otherwise provided 
    by the OCC, a foreign bank's capital equivalency deposits (CED) must 
    consist of:
        (i) Investment securities eligible for investment by national 
    banks;
        (ii) United States dollar deposits payable in the United States, 
    other than certificates of deposit;
        (iii) Certificates of deposit, payable in the United States, and 
    banker's acceptances, provided that, in either case, the issuer or the 
    instrument is rated investment grade by an internationally recognized 
    rating organization, and neither the issuer nor the instrument is rated 
    lower than investment grade by any such rating organization that has 
    rated the issuer or the instrument; or
        (iv) Other assets permitted by the OCC to qualify as CED.
        (2) Legal requirements. The agreement with the depository bank to 
    hold the CED and the amount of the deposit must comply with the 
    requirements in section 4(g) of the IBA, 12 U.S.C. 3102(g). If a 
    foreign bank has more than one Federal branch or agency in a state, it 
    shall determine the CED and the amount of liabilities requiring capital 
    equivalency coverage on an aggregate basis for all the foreign bank's 
    Federal branches or agencies in that state.
        (b) Increase in capital equivalency deposits. For prudential or 
    supervisory reasons, the OCC may require, in individual cases or 
    otherwise, that a foreign bank increase its CED above the minimum 
    amount.
        (c) Value of assets. The obligations referred to in paragraph (a) 
    of this section must be valued at principal amount or market value, 
    whichever is lower.
        (d) Deposit arrangements. A foreign bank should require its 
    depository bank to segregate its CED on the depository bank's books and 
    records. The funds deposited and obligations referred to in paragraph 
    (a) of this section that are placed in safekeeping at a depository bank 
    to satisfy a foreign bank's CED requirement:
        (1) May not be reduced in aggregate value by withdrawal without the 
    prior approval of the OCC;
        (2) Must be pledged and maintained pursuant to an agreement 
    prescribed by the OCC; and
    
    [[Page 19536]]
    
        (3) Must be free from any lien, charge, right of setoff, credit, or 
    preference in connection with any claim of the depository bank against 
    the foreign bank.
        (e) Maintenance of capital equivalency ledger account. Each Federal 
    branch or agency shall maintain a capital equivalency account and keep 
    records of the amount of liabilities requiring capital equivalency 
    coverage in a manner and form prescribed by the OCC.
    
    
    Sec. 28.16  Deposit-taking by an uninsured Federal branch.
    
        (a) Policy. In carrying out this section, the OCC shall consider 
    the importance of according foreign banks competitive opportunities 
    equal to those of United States banks and the availability of credit to 
    all sectors of the United States economy, including international trade 
    finance.
        (b) General. An uninsured Federal branch may accept initial 
    deposits of less than $100,000 only from:
        (1) Individuals who are not citizens or residents of the United 
    States at the time of the initial deposit;
        (2) Individuals who are not citizens of the United States, but are 
    residents of the United States, and are employed by a foreign bank, 
    foreign business, foreign government, or recognized international 
    organization;
        (3) Persons (including immediate family members of an individual) 
    to whom the branch or foreign bank (including any affiliate thereof) 
    has extended credit or provided other nondeposit banking services 
    within the past 12 months, or with whom the branch or foreign bank has 
    a written agreement to extend credit or provide such services within 12 
    months after the date of the initial deposit;
        (4) Foreign businesses and large United States businesses;
        (5) Foreign governmental units, including political subdivisions, 
    and recognized international organizations;
        (6) Federal and state governmental units, including political 
    subdivisions and agencies thereof;
        (7) Persons who are depositing funds in connection with the 
    issuance of a financial instrument by the branch for transmission of 
    funds, or transmission of funds by any electronic means;
        (8) Persons who may deposit funds with an Edge corporation as 
    provided in the FRB's Regulation K, 12 CFR 211.4, including persons 
    engaged in certain international business activities; and
        (9) Any other depositor if:
        (i) The aggregate amount of deposits received from those depositors 
    does not exceed, on an average daily basis, 1 percent of the average of 
    the branch's deposits for the last 30 days of the most recent calendar 
    quarter, excluding deposits of other offices, branches, agencies, or 
    wholly owned subsidiaries of the foreign bank; and
        (ii) The branch does not solicit deposits from the general public 
    by advertising, display of signs, or similar activity designed to 
    attract the attention of the general public.
        (c) Application for an exemption. A foreign bank may apply to the 
    OCC for an exemption to permit an uninsured Federal branch to accept or 
    maintain deposit accounts that are not listed in paragraph (b) of this 
    section. The request should describe:
        (1) The types, sources, and estimated amounts of such deposits and 
    explain why the OCC should grant an exemption; and
        (2) How the exemption maintains and furthers the policies described 
    in paragraph (a) of this section.
        (d) Aggregation of deposits. For purposes of paragraph (b)(9) of 
    this section, a foreign bank that has more than one Federal branch in 
    the same state may aggregate deposits in all of its Federal branches in 
    that state, but exclude deposits of other branches, agencies or wholly 
    owned subsidiaries of the bank. The Federal branch shall compute the 
    average amount by using the sum of deposits as of the close of business 
    of the last 30 calendar days ending with and including the last day of 
    the calendar quarter, divided by 30. The Federal branch shall maintain 
    records of the calculation until its next examination by the OCC.
        (e) Notification to depositors. A Federal branch that accepts 
    deposits pursuant to this section shall provide notice to depositors 
    pursuant to 12 CFR 346.7, which generally requires that the Federal 
    branch conspicuously display a sign at the branch and include a 
    statement on each signature card, passbook, and instrument evidencing a 
    deposit that the deposit is not insured by the Federal Deposit 
    Insurance Corporation (FDIC).
        (f) Transition period. (1) An uninsured Federal branch may maintain 
    a deposit lawfully accepted under the exemptions existing prior to July 
    1, 1996 if the deposit would qualify for an exemption under paragraph 
    (b) of this section, except for the fact that the deposit was made 
    before July 1, 1996.
        (2) If a deposit lawfully accepted under the exemption existing 
    prior to July 1, 1996 would not qualify for an exemption under 
    paragraph (b) or (c) of this section, the uninsured Federal branch must 
    terminate the deposit no later than:
        (i) In the case of time deposits, the maturity of a time deposit or 
    October 1, 1996, whichever is longer; or
        (ii) In the case of all other deposits, five years after July 1, 
    1996.
        (g) Insured banks in United States territories. For purposes of 
    this section, the term ``foreign bank'' does not include any bank 
    organized under the laws of any territory of the United States, Puerto 
    Rico, Guam, American Samoa, or the Virgin Islands whose deposits are 
    insured by the FDIC pursuant to the Federal Deposit Insurance Act, 12 
    U.S.C. 1811 et seq.
    
    
    Sec. 28.17  Notice of change in activity or operations.
    
        Notice. A Federal branch or agency shall notify the OCC if:
        (a) It changes its corporate title;
        (b) It changes its mailing address;
        (c) It converts to a state branch, state agency, or representative 
    office; or
        (d) The parent foreign bank changes the designation of its home 
    state.
    
    
    Sec. 28.18  Recordkeeping and reporting.
    
        (a) General. A Federal branch or agency shall comply with 
    applicable recordkeeping and reporting requirements that apply to 
    national banks and with any additional requirements that may be 
    prescribed by the OCC. A Federal branch or agency, and the parent 
    foreign bank, shall furnish information relating to the affairs of the 
    parent foreign bank and its affiliates that the OCC may from time to 
    time request.
        (b) Regulatory reports filed with other agencies. A foreign bank 
    operating a Federal branch or agency in the United States shall provide 
    the OCC with a copy of reports filed with other Federal regulatory 
    agencies that are designated in guidance issued by the OCC.
        (c) Maintenance of accounts, books, and records. (1) Each Federal 
    branch or agency shall maintain a set of accounts and records 
    reflecting its transactions that are separate from those of the foreign 
    bank and any other branch or agency. The Federal branch or agency shall 
    keep a set of accounts and records in English sufficient to permit the 
    OCC to examine the condition of the Federal branch or agency and its 
    compliance with applicable laws and regulations. The Federal branch or 
    agency shall promptly provide any additional records requested by the 
    OCC for examination or supervisory purposes.
        (2) A foreign bank with more than one Federal branch or agency in a 
    state shall designate one of those offices to maintain consolidated 
    asset, liability, and capital equivalency accounts for all Federal 
    branches or agencies in that state.
    
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    Sec. 28.19  Enforcement.
    
        As provided by section 13 of the IBA, 12 U.S.C. 3108(b), the OCC 
    may enforce compliance with the requirements of the IBA, other 
    applicable banking laws, and OCC regulations or orders under section 8 
    of the Federal Deposit Insurance Act, 12 U.S.C. 1818. This enforcement 
    authority is in addition to any other remedies otherwise provided by 
    the IBA or any other law.
    
    
    Sec. 28.20  Maintenance of assets.
    
        (a) General rule. (1) For prudential, supervisory, or enforcement 
    reasons, the OCC may require a foreign bank to hold certain assets in 
    the state in which its Federal branch or agency is located. Those 
    assets may only consist of currency, bonds, notes, debentures, drafts, 
    bills of exchange, or other evidence of indebtedness including loan 
    participation agreements or certificates, or other obligations payable 
    in the United States or in United States funds or, with the approval of 
    the OCC, funds freely convertible into United States funds.
        (2) If the OCC requires asset maintenance, the amount of assets 
    held by a foreign bank shall be prescribed by the OCC, but may not be 
    less than 105 percent of the aggregate amount of liabilities of the 
    Federal branch or agency, payable at or through the Federal branch or 
    agency. To determine the aggregate amount of liabilities for purposes 
    of this section, the foreign bank shall include bankers' acceptances, 
    but exclude liabilities to the head office and any other branches, 
    offices, agencies, subsidiaries, and affiliates of the foreign bank.
        (b) Valuation. For the purposes of this section, marketable 
    securities must be valued at principal amount or market value, 
    whichever is lower.
        (c) Credits. In determining compliance with the asset maintenance 
    requirements, the OCC will give the Federal branch or agency credit 
    for:
        (1) Capital equivalency deposits maintained pursuant to Sec. 28.15;
        (2) Reserves required to be maintained by the Federal branch or 
    agency pursuant to the FRB's authority under 12 U.S.C. 3105(a); and
        (3) Assets pledged, and surety bonds payable, to the FDIC to secure 
    the payment of domestic deposits.
        (d) Exclusions. In determining eligible assets for purposes of this 
    section, the Federal branch or agency shall exclude:
        (1) Any amount due from the head office or any other branch, 
    office, agency, subsidiary, or affiliate of the foreign bank;
        (2) Any classified asset;
        (3) Any asset that, in the determination of the OCC, is not 
    supported by sufficient credit information;
        (4) Any deposit with a bank in the United States, unless that bank 
    has executed a valid waiver of offset agreement;
        (5) Any asset not in the Federal branch's actual possession unless 
    the branch holds title to the asset and maintains records sufficient to 
    enable independent verification of the branch's ownership of the asset, 
    as determined at the most recent examination; and
        (6) Any other particular asset or class of assets as provided by 
    the OCC, based on a case-by-case assessment of the risks associated 
    with the asset.
        (e) International banking facility. Unless specifically exempted by 
    the OCC, the eligible assets and liabilities of any international 
    banking facility operated through the Federal branch or agency must be 
    included in the computation of eligible assets and liabilities for 
    purposes of this section.
    
    
    Sec. 28.21  Service of process.
    
        A foreign bank operating at any Federal branch or agency is subject 
    to service of process at the location of the Federal branch or agency.
    
    
    Sec. 28.22  Voluntary liquidation.
    
        (a) Procedures. Unless otherwise provided, a Federal branch or 
    agency that proposes to close its operations shall comply with the 
    requirements in 12 CFR 5.48, as applicable, and the Manual.
        (b) Notice to customers and creditors. A foreign bank shall provide 
    any customers and known creditors, not previously notified in writing, 
    with written notice of the impending closure of the Federal branch or 
    agency at least 30 days prior to its closure.
        (c) Report of condition. The Federal branch or agency shall submit 
    a Report of Assets and Liabilities of United States Branches and 
    Agencies of Foreign Banks as of the close of the last business day 
    prior to the start of liquidation of the Federal branch or agency. This 
    report must include a certified maturity schedule of all remaining 
    liabilities, if any.
        (d) Return of certificate. The Federal branch or agency shall 
    return the Federal branch or agency license certificate within 30 days 
    of closure to the public.
        (e) Reports of examination. The Federal branch or agency shall send 
    the OCC certification that all of its Reports of Examination have been 
    destroyed or return its Reports of Examination to the OCC.
    
    
    Sec. 28.23  Termination of a Federal branch or agency.
    
        (a) Grounds for termination. The OCC may revoke the authority of a 
    foreign bank to operate a Federal branch or agency if:
        (1) The OCC determines that there is reasonable cause to believe 
    that the foreign bank has violated or failed to comply with any of the 
    provisions of the IBA, other applicable Federal laws or regulations, or 
    orders of the OCC;
        (2) A conservator is appointed for the foreign bank, or a similar 
    proceeding is initiated in the foreign bank's home country;
        (3) One or more grounds for receivership, including insolvency, as 
    specified in 12 U.S.C. 3102(j), exists;
        (4) One or more grounds for termination, including unsafe and 
    unsound practices, insufficiency or dissipation of assets, concealment 
    of books and records, a money laundering conviction, or other grounds 
    as specified in 12 U.S.C. 191, exists; or
        (5) The OCC receives a recommendation from the FRB, pursuant to 12 
    U.S.C. 3105(e)(5), that the license of a Federal branch or agency be 
    terminated.
        (b) Procedures--(1) Notice and hearing. Except as otherwise 
    provided in this section, the OCC may issue an order to terminate the 
    license of a Federal branch or agency after providing notice to the 
    Federal branch or agency and after providing an opportunity for a 
    hearing.
        (2) Procedures for hearing. The OCC shall conduct a hearing under 
    this section pursuant to the OCC's Rules of Practice and Procedure in 
    12 CFR part 19.
        (3) Expedited procedure. The OCC may act without providing an 
    opportunity for a hearing if it determines that expeditious action is 
    necessary in order to protect the public interest. When the OCC finds 
    that it is necessary to act without providing an opportunity for a 
    hearing, the OCC in its sole discretion, may:
        (i) Provide the Federal branch or agency with notice of the 
    intended termination order;
        (ii) Grant the Federal branch or agency an opportunity to present a 
    written submission opposing issuance of the order; or
        (iii) Take any other action designed to provide the Federal branch 
    or agency with notice and an opportunity to present its views 
    concerning the termination order.
    
    [[Page 19538]]
    
    Subpart C--International Lending Supervision
    
    
    Sec. 28.50   Authority, purpose, and scope.
    
        (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
    seq., 93a, 161, and 1818; and the International Lending Supervision Act 
    of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153, 12 U.S.C. 3901 et 
    seq.).
        (b) Purpose. This subpart implements the requirements of the 
    International Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.),
        (c) Scope. This subpart requires national banks and District of 
    Columbia banks to establish reserves against the risks presented in 
    certain international assets and sets forth the accounting for various 
    fees received by the banks when making international loans.
    
    
    Sec. 28.51   Definitions.
    
        For the purposes of this subpart:
        (a) Banking institution means a national bank or a District of 
    Columbia bank.
        (b) Federal banking agencies means the OCC, the FRB, and the FDIC.
        (c) International assets means those assets required to be included 
    in banking institutions' Country Exposure Report forms (FFIEC 009).
        (d) International loan means a loan as defined in the instructions 
    to the Report of Condition and Income for the respective banking 
    institution (FFIEC 031, 032, 033 and 034) and made to a foreign 
    government, or to an individual, a corporation, or other entity not a 
    citizen of, resident in, or organized or incorporated in the United 
    States.
        (e) International syndicated loan means a loan characterized by the 
    formation of a group of managing banking institutions and, in the usual 
    case, assumption by them of underwriting commitments, and participation 
    in the loan by other banking institutions.
        (f) Loan agreement means the document signed by all of the parties 
    to a loan, containing the amount, terms, and conditions of the loan, 
    and the interest and fees to be paid by the borrower.
        (g) Restructured international loan means a loan that meets the 
    following criteria:
        (1) The borrower is unable to service the existing loan according 
    to its terms and is a resident of a foreign country in which there is a 
    generalized inability of public and private sector obligors to meet 
    their external debt obligations on a timely basis because of a lack of, 
    or restraints on the availability of, needed foreign exchange in the 
    country; and
        (2) The terms of the existing loan are amended to reduce stated 
    interest or extend the schedule of payments; or
        (3) A new loan is made to, or for the benefit of, the borrower, 
    enabling the borrower to service or refinance the existing debt.
        (h) Transfer risk means the possibility that an asset cannot be 
    serviced in the currency of payment because of a lack of, or restraints 
    on the availability of, needed foreign exchange in the country of the 
    obligor.
    
    
    Sec. 28.52  Allocated transfer risk reserve.
    
        (a) Establishment of allocated transfer risk reserve. A banking 
    institution shall establish an allocated transfer risk reserve (ATRR) 
    for specified international assets when required by the OCC in 
    accordance with this section.
        (b) Procedures and standards--(1) Joint agency determination. At 
    least annually, the Federal banking agencies shall determine jointly, 
    based on the standards set forth in paragraph (b)(2) of this section, 
    the following:
        (i) Which international assets subject to transfer risk warrant 
    establishment of an ATRR;
        (ii) The amount of the ATRR for the specified assets; and
        (iii) Whether an ATRR established for specified assets may be 
    reduced.
        (2) Standards for requiring ATRR--(i) Evaluation of assets. The 
    Federal banking agencies shall apply the following criteria in 
    determining whether an ATRR is required for particular international 
    assets:
        (A) Whether the quality of a banking institution's assets has been 
    impaired by a protracted inability of public or private obligors in a 
    foreign country to make payments on their external indebtedness as 
    indicated by such factors, among others, as whether:
        (1) Such obligors have failed to make full interest payments on 
    external indebtedness;
        (2) Such obligors have failed to comply with the terms of any 
    restructured indebtedness; or
        (3) A foreign country has failed to comply with any International 
    Monetary Fund or other suitable adjustment program; or
        (B) Whether no definite prospects exist for the orderly restoration 
    of debt service.
        (ii) Determination of amount of ATRR. (A) In determining the amount 
    of the ATRR, the Federal banking agencies shall consider:
        (1) The length of time the quality of the asset has been impaired;
        (2) Recent actions taken to restore debt service capability;
        (3) Prospects for restored asset quality; and
        (4) Such other factors as the Federal banking agencies may consider 
    relevant to the quality of the asset.
        (B) The initial year's provision for the ATRR shall be 10 percent 
    of the principal amount of each specified international asset, or such 
    greater or lesser percentage determined by the Federal banking 
    agencies. Additional provision, if any, for the ATRR in subsequent 
    years shall be 15 percent of the principal amount of each specified 
    international asset, or such greater or lesser percentage determined by 
    the Federal banking agencies.
        (3) Notification. Based on the joint agency determinations under 
    paragraph (b)(1) of this section, the OCC shall notify each banking 
    institution holding assets subject to an ATRR:
        (i) Of the amount of the ATRR to be established by the institution 
    for specified international assets; and
        (ii) That an ATRR to be established for specified assets may be 
    reduced.
        (c) Accounting treatment of ATRR--(1) Charge to current income. A 
    banking institution shall establish an ATRR by a charge to current 
    income and the amounts so charged shall not be included in the banking 
    institution's capital or surplus.
        (2) Separate accounting. A banking institution shall account for an 
    ATRR separately from the Allowance for Possible Loan Losses, and shall 
    deduct the ATRR from ``gross loans and leases'' to arrive at ``net 
    loans and leases.'' The ATRR must be established for each asset subject 
    to the ATRR in the percentage amount specified.
        (3) Consolidation. A banking institution shall establish an ATRR, 
    as required, on a consolidated basis. Consolidation should be in 
    accordance with the procedures and tests of significance set forth in 
    the instructions for preparation of Consolidated Reports of Condition 
    and Income (FFIEC 031, 032, 033 and 034). For bank holding companies, 
    the consolidation shall be in accordance with the principles set forth 
    in the ``Instructions to the Bank Holding Company Financial Supplement 
    to Report F.R. Y-6'' (Form F.R. Y-9). Edge corporations and Agreement 
    corporations engaged in banking shall report in accordance with 
    instructions for preparation of the Report of Condition for Edge 
    corporations and Agreement corporations (Form F.R. 2886b).
        (4) Alternative accounting treatment. A banking institution need 
    not establish an ATRR if it writes down in the period in which the ATRR 
    is required, or has written down in prior periods, the value
    
    [[Page 19539]]
    
    of the specified international assets in the requisite amount for each 
    such asset. For purposes of this paragraph, international assets may be 
    written down by a charge to the Allowance for Possible Loan Losses or a 
    reduction in the principal amount of the asset by application of 
    interest payments or other collections on the asset. However, the 
    Allowance for Possible Loan Losses must be replenished in such amount 
    necessary to restore it to a level which adequately provides for the 
    estimated losses inherent in the banking institution's loan portfolio.
        (5) Reduction of ATRR. A banking institution may reduce an ATRR 
    when notified by the OCC or, at any time, by writing down such amount 
    of the international asset for which the ATRR was established.
    
    
    Sec. 28.53  Accounting for fees on international loans.
    
        (a) Restrictions on fees for restructured international loans. No 
    banking institution shall charge any fee in connection with a 
    restructured international loan unless all fees exceeding the banking 
    institution's administrative costs, as described in paragraph (c)(2) of 
    this section, are deferred and recognized over the term of the loan as 
    an interest yield adjustment.
        (b) Amortizing fees. Except as otherwise provided by this section, 
    fees received on international loans shall be deferred and amortized 
    over the term of the loan. The interest method should be used during 
    the loan period to recognize the deferred fee revenue in relation to 
    the outstanding loan balance. If it is not practicable to apply the 
    interest method during the loan period, the straight-line method shall 
    be used.
        (c) Accounting treatment of international loan or syndication 
    administrative costs and corresponding fees. (1) Administrative costs 
    of originating, restructuring, or syndicating an international loan 
    shall be expensed as incurred. A portion of the fee income equal to the 
    banking institution's administrative costs may be recognized as income 
    in the same period such costs are expensed.
        (2) The administrative costs of originating, restructuring, or 
    syndicating an international loan include those costs which are 
    specifically identified with negotiating, processing and consummating 
    the loan. These costs include, but are not necessarily limited to: 
    Legal fees; costs of preparing and processing loan documents; and an 
    allocable portion of salaries and related benefits of employees engaged 
    in the international lending function and, where applicable, the 
    syndication function. No portion of supervisory and administrative 
    expenses or other indirect expenses such as occupancy and other similar 
    overhead costs shall be included.
        (d) Fees received by managing banking institutions in an 
    international syndicated loan. Fees received on international 
    syndicated loans representing an adjustment of the yield on the loan 
    shall be recognized over the loan period using the interest method. If 
    the interest yield portion of a fee received on an international 
    syndicated loan by a managing banking institution is unstated or 
    differs materially from the pro rata portion of fees paid other 
    participants in the syndication, an amount necessary for an interest 
    yield adjustment shall be recognized. This amount shall at least be 
    equivalent (on a pro rata basis) to the largest fee received by a loan 
    participant in the syndication that is not a managing banking 
    institution. The remaining portion of the syndication fee may be 
    recognized as income at the loan closing date to the extent that it is 
    identified and documented as compensation for services in arranging the 
    loan. Such documentation shall include the loan agreement. Otherwise, 
    the fee shall be deemed an adjustment of yield.
        (e) Loan Commitment fees. (1) Fees which are based upon the 
    unfunded portion of a credit for the period until it is drawn and 
    represent compensation for a binding commitment to provide funds or for 
    rendering a service in issuing the commitment shall be recognized as 
    income over the term of the commitment period using the straight-line 
    method of amortization. Such fees for revolving credit arrangements, 
    where the fees are received periodically in arrears and are based on 
    the amount of the unused loan commitment, may be recognized as income 
    when received provided the income result would not be materially 
    different.
        (2) If it is not practicable to separate the commitment portion 
    from other components of the fee, the entire fee shall be amortized 
    over the term of the combined commitment and expected loan period. The 
    straight-line method of amortization should be used during the 
    commitment period to recognize the fee revenue. The interest method 
    should be used during the loan period to recognize the remaining fee 
    revenue in relation to the outstanding loan balance. If the loan is 
    funded before the end of the commitment period, any unamortized 
    commitment fees shall be recognized as revenue at that time.
        (f) Agency fees. Fees paid to an agent banking institution for 
    administrative services in an intentional syndicated loan shall be 
    recognized at the time of the loan closing or as the service is 
    performed, if later.
    
    
    Sec. 28.54  Reporting and disclosure of international assets.
    
        (a) Requirements. (1) Pursuant to section 907(a) of the 
    International Lending Supervision Act of 1983 (title IX, Pub. L. 98-
    181, 97 Stat. 1153, 12 U.S.C. 3906) (ILSA) a banking institution shall 
    submit to the OCC, at least quarterly, information regarding the 
    amounts and composition of its holdings of international assets.
        (2) Pursuant to section 907(b) of ILSA (12 U.S.C. 3906), a banking 
    institution shall submit to the OCC information regarding 
    concentrations in its holdings of international assets that are 
    material in relation to total assets and to capital of the institution, 
    such information to be made publicly available by the OCC on request.
        (b) Procedures. The format, content, and reporting and filing dates 
    of the reports required under paragraph (a) of this section shall be 
    determined jointly by the Federal banking agencies. The requirements to 
    be prescribed by the agencies may include changes to existing reporting 
    forms (such as the Country Exposure Report, FFIEC 009) or such other 
    requirements as the agencies deem appropriate. The agencies also may 
    determine to exempt from the requirements of paragraph (a) of this 
    section banking institutions that, in the agencies' judgment, have de 
    minimis holdings of international assets.
        (c) Reservation of authority. Nothing contained in this part shall 
    preclude the OCC from requiring from a banking institution such 
    additional or more frequent information on the institution's holdings 
    of international assets as the OCC may consider necessary.
    
        Dated: April 13, 1996.
    Eugene A. Ludwig,
    Comptroller of the Currency.
    [FR Doc. 96-10432 Filed 5-1-96; 8:45 am]
    BILLING CODE 4810-33-P
    
    

Document Information

Effective Date:
7/1/1996
Published:
05/02/1996
Department:
Comptroller of the Currency
Entry Type:
Rule
Action:
Final rule.
Document Number:
96-10432
Dates:
July 1, 1996.
Pages:
19524-19539 (16 pages)
Docket Numbers:
Docket No. 96-11
RINs:
1557-AB26: International Operations and Federal Branches and Agencies; Regulation Review
RIN Links:
https://www.federalregister.gov/regulations/1557-AB26/international-operations-and-federal-branches-and-agencies-regulation-review
PDF File:
96-10432.pdf
CFR: (54)
12 CFR 28.4(a)
12 CFR 28.4(b)
12 CFR 28.13(b)
12 CFR 28.4(c)
12 CFR 5.23
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