96-3911. International Banking Operations  

  • [Federal Register Volume 61, Number 37 (Friday, February 23, 1996)]
    [Proposed Rules]
    [Pages 6956-6958]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-3911]
    
    
    
    =======================================================================
    -----------------------------------------------------------------------
    
    FEDERAL RESERVE SYSTEM
    
    12 CFR Part 211
    
    [Regulation K; Docket No. R-0916]
    
    
    International Banking Operations
    
    AGENCY: Board of Governors of the Federal Reserve System.
    
    ACTION: Proposed rule and request for comments.
    
    -----------------------------------------------------------------------
    
    [[Page 6957]]
    
    
    SUMMARY: The Board proposes to amend Regulation K to implement a 
    provision of the Riegle-Neal Interstate Banking and Branching 
    Efficiency Act of 1994 (the Interstate Act) that amended the 
    International Banking Act of 1978 (the IBA) by adding a new subsection 
    regarding the management of shell branches of foreign banks by such 
    banks' U.S. offices. The provision prohibits foreign banks from using 
    their U.S. branches or agencies to manage types of activities through 
    offshore offices that could not be managed by a U.S. bank at its 
    foreign branches or subsidiaries. This prohibition applies with respect 
    to those offshore offices that are ``managed or controlled'' by a 
    foreign bank's U.S. branches or agencies.
    
    DATES: Comments must be received on or before March 25, 1996.
    
    ADDRESSES: Comments should refer to Docket No. R-0916, and may be 
    mailed to William W. Wiles, Secretary, Board of Governors of the 
    Federal Reserve System, 20th Street and Constitution Avenue NW., 
    Washington, DC 20551. Comments also may be delivered to Room B-2222 of 
    the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the 
    guard station in the Eccles Building courtyard on 20th Street NW. 
    (between Constitution Avenue and C Street) at any time. Comments may be 
    inspected in Room MP-500 of the Martin Building between 9:00 a.m. and 
    5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's 
    rules regarding availability of information.
    
    FOR FURTHER INFORMATION CONTACT: Kathleen O'Day, Associate General 
    Counsel (202/452-3786), Sandra L. Richardson, Managing Senior Counsel 
    (202/452-6406), Janet S. Crossen, Senior Attorney (202/452-3281), Legal 
    Division; Michael G. Martinson, Assistant Director, Division of Banking 
    Supervision and Regulation (202/452-3640), Board of Governors of the 
    Federal Reserve System. For users of Telecommunication Device for the 
    Deaf (TDD) only, please contact Dorthea Thompson, (202/452-3544), Board 
    of Governors of the Federal Reserve System, 20th and C Streets NW., 
    Washington, DC 20551.
    
    SUPPLEMENTARY INFORMATION: In the Interstate Act, Congress amended 
    section 7 of the IBA (12 U.S.C. 3105) to prevent a foreign bank from 
    using a U.S. branch or agency to manage types of activities at offshore 
    offices that are managed or controlled by the foreign bank's U.S. 
    branch or agency if those types of activities could not be managed by a 
    U.S. bank at its foreign branches or subsidiaries. The proposed rule 
    implements section 7(k) of the IBA and defines the term ``managed or 
    controlled'' for purposes of the restrictions on activities set out in 
    that section.
        The Board notes that section 7(k) does not confer upon foreign 
    banks any right to manage activities at an offshore office from a U.S. 
    office. The Board will continue to monitor relationships between the 
    U.S. and offshore offices of foreign banks in the supervisory process 
    in order to determine whether such activities are consistent with 
    considerations relating to the safety and soundness of the U.S. 
    operations of the foreign bank and its affiliates and compliance with 
    law. Board staff is reviewing the use made of offshore shell branches 
    by foreign and U.S. banks in order to gain insight into the purposes 
    they currently serve and what, if any, supervisory risks they might 
    pose.
    
    Definition of ``Managed and Controlled''
    
        For purposes of the proposed rule, a non-U.S. office is considered 
    to be ``managed or controlled'' by a U.S. branch or agency of a foreign 
    bank if a majority of the responsibility for business decisions, 
    including but not limited to decisions with regard to lending or asset 
    management or funding or liability management, or the responsibility 
    for recordkeeping in respect of assets or liabilities for that non-U.S. 
    office, resides at the U.S. branch or agency. This definition is 
    consistent with that adopted by the Federal Financial Institutions 
    Examination Council with respect to the Supplement (FFIEC 002S) to the 
    quarterly Report of Assets and Liabilities of U.S. Branches and 
    Agencies of Foreign Banks (FFIEC 002) for the purpose of determining 
    which U.S. branches or agencies of foreign banks ``manage or control'' 
    offshore offices and thus must complete the FFIEC 002S. 57 FR 61907, 
    Dec. 29, 1992.
        In accordance with this definition, the restrictions on activities 
    imposed by new section 7(k) of the IBA apply to those offshore offices 
    for which a U.S. branch or agency has substantial responsibility with 
    regard to assets or liabilities or recordkeeping. The Board considers 
    that a determination that the restrictions apply should be made with 
    regard to where substantive decision-making authority or responsibility 
    for recordkeeping lies. For example, consistent with the approach taken 
    with regard to the FFIEC 002S, a U.S. branch or agency would be deemed 
    to ``manage or control'' its offshore office if (1) the manager for the 
    U.S. 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 U.S. 
    branch or agency; or (3) recordkeeping systems for either assets or 
    liabilities of the offshore office are maintained in the U.S. branch or 
    agency. The restrictions, however, generally would not apply with 
    respect to offshore branches that are full-service facilities managed 
    or controlled by staff located at the offshore office or at locations 
    other than in the United States. Furthermore, the fact that an offshore 
    office manager may report to a U.S. branch or agency manager pursuant 
    to reporting lines established by the foreign bank will not, by itself, 
    necessarily mean that the offshore office would be considered to be 
    ``managed or controlled'' by the U.S. branch or agency for the purposes 
    of restrictions on activities.
    
    Types of Activities
    
        Section 7(k) restricts the activities that U.S. branches or 
    agencies of foreign banks may manage through an offshore office to 
    those types of activities that U.S. banks may manage at their foreign 
    branches and subsidiaries, that is, those authorized under U.S. banks' 
    state or federal charters and regulations issued by the chartering or 
    regulatory authorities (the States, the Board, the Federal Deposit 
    Insurance Corporation and the Office of the Comptroller of the 
    Currency). In addition, foreign branches and subsidiaries of member 
    banks may engage in activities and make and hold investments under 
    sections 25 and 25A of the Federal Reserve Act.
        Consistent with section 7(k), the proposed amendment to Regulation 
    K, 12 CFR Part 211, refers to the types of activities conducted and not 
    the various procedural or quantitative supervisory requirements that 
    may apply when a particular activity is conducted by a U.S. bank at its 
    foreign branches or subsidiaries. Section 7(k) by its terms regulates 
    conduct of the U.S. branch or agency of the foreign bank. It does not 
    extend U.S. supervisory requirements to non-U.S. offices of foreign 
    banks as such offices are not supervised or regulated by the Board. 
    Supervision of such non-U.S. offices remains the responsibility of the 
    home country supervisor.
    
    Request for Comments
    
        The Board requests comments on the proposed rule, in particular 
    with respect to the proposed definition of ``managed or controlled'' 
    and the approach contemplated for determining the types of activities 
    that may be conducted by 
    
    [[Page 6958]]
    U.S. branches or agencies through their offshore offices.
    
    Paperwork Reduction Act
    
        The proposed rule does not require any ``collection of 
    information,'' as that term is defined in the Paperwork Reduction Act 
    (44 U.S.C. 3501 et seq.).
    
    Regulatory Flexibility Act Analysis
    
        Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
    U.S.C. 601-612), the Board certifies that the proposed amendments will 
    not have a significant economic impact on a substantial number of small 
    entities.
    
    List of Subjects in 12 CFR Part 211
    
        Exports, Federal Reserve System, Foreign banking, Holding 
    companies, Investments, Reporting and recordkeeping requirements.
    
        For the reasons set out in the preamble, the Board of Governors 
    proposes to amend 12 CFR Part 211 as set forth below.
    
    PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
    
        1. The authority citation for 12 CFR Part 211 continues to read as 
    follows:
    
        Authority: 12 U.S.C. 221 et seq., 1818, 1841 et seq., 3101 et 
    seq., 3901 et seq.
    
        2. Section 211.20 is amended by removing ``and'' at the end of 
    paragraph (b)(8), by removing the period at the end of paragraph (b)(9) 
    and adding ``; and'' in its place, and by adding a new paragraph 
    (b)(10) to read as follows:
    
    
    Sec. 211.20  Authority, purpose, and scope.
    
    * * * * *
        (b) * * *
        (10) The management of shell branches (12 U.S.C. 3105(k)).
    * * * * *
        3. Section 211.24 is amended by adding a new paragraph (g) to read 
    as follows:
    
    
    Sec. 211.24  Approval of offices of foreign banks; procedures for 
    applications; standards for approval; representative office activities 
    and standards for approval; preservation of existing authority.
    
    * * * * *
        (g) Management of shell branches. (1) A state-licensed branch or 
    agency shall not manage, through an office of the foreign bank which is 
    located outside the United States and is managed or controlled by such 
    state-licensed branch or agency, any type of activity that a bank 
    organized under the laws of the United States or any State is not 
    permitted to manage at any branch or subsidiary of such bank which is 
    located outside the United States.
        (2) For purposes of this paragraph (g), an office of a foreign bank 
    located outside the United States is ``managed or controlled'' by a 
    state-licensed branch or agency if a majority of the responsibility for 
    business decisions, including but not limited to decisions with regard 
    to lending or asset management or funding or liability management, or 
    the responsibility for recordkeeping in respect of assets or 
    liabilities for that non-U.S. office, resides at the state-licensed 
    branch or agency.
        (3) The types of activities that a state-licensed branch or agency 
    may manage through an office located outside the United States that it 
    manages or controls include the types of activities authorized to a 
    U.S. bank by state or federal charters, regulations issued by 
    chartering or regulatory authorities, and other U.S. banking laws, 
    including the Federal Reserve Act, and the implementing regulations, 
    but U.S. procedural or quantitative requirements that may be applicable 
    to the conduct of such activities by U.S. banks shall not apply.
    
        By order of the Board of Governors of the Federal Reserve 
    System, February 15, 1996.
    William W. Wiles,
    Secretary of the Board.
    [FR Doc. 96-3911 Filed 2-22-96; 8:45 am]
    BILLING CODE 6210-01-P
    
    

Document Information

Published:
02/23/1996
Department:
Federal Reserve System
Entry Type:
Proposed Rule
Action:
Proposed rule and request for comments.
Document Number:
96-3911
Dates:
Comments must be received on or before March 25, 1996.
Pages:
6956-6958 (3 pages)
Docket Numbers:
Regulation K, Docket No. R-0916
PDF File:
96-3911.pdf
CFR: (2)
12 CFR 211.20
12 CFR 211.24