[Federal Register Volume 60, Number 128 (Wednesday, July 5, 1995)]
[Proposed Rules]
[Pages 34907-34922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16201]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 128 / Wednesday, July 5, 1995 /
Proposed Rules
[[Page 34907]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 20 and 28
[Docket No. 95-13]
RIN 1557-AB26
International Banking
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to revise its regulations governing the international
operations of national banks and the operation of foreign banks through
Federal branches and Federal agencies in the United States. The
proposal is part of the OCC's Regulation Review Program, which seeks to
simplify OCC regulations and reduce compliance costs, consistent with
maintaining safety and soundness. The proposal streamlines and
consolidates into one CFR part substantially all provisions relating to
international banking that were previously included in 12 CFR parts 20
and 28, and clarifies and simplifies their various requirements.
The proposal 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.
DATES: Comments must be received by September 5, 1995.
ADDRESSES: Comments should be directed to: Communications Division, 250
E Street SW, Washington, DC 20219, Attention: Docket No. 95-13.
Comments will be available for public inspection and photocopying at
the same location.
FOR FURTHER INFORMATION CONTACT: Raija Bettauer, Counselor for
International Activities, (202) 874-0680; Manpreet Singh, Attorney,
International Activities, (202) 874-0680; Timothy M. Sullivan,
Director, International Banking and Finance, (202) 874-4730.
SUPPLEMENTARY INFORMATION:
Background
The OCC is proposing comprehensive revisions to its international
regulations (12 CFR parts 20 and 28) as part of its 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 burdens and do not contribute significantly to maintaining
the safety and soundness of national banks or to accomplishing the
OCC's other statutory responsibilities. Another goal is to improve
clarity and to better communicate the standards that the rules intend
to convey. The proposed revisions also 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 Federal agencies of foreign banks, and add 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 reduces regulatory burden on national banks and
Federal branches and agencies by eliminating regulatory requirements
that are not essential to maintaining the safety and soundness of their
operations. The proposal also reduces the complexity of the existing
statutory framework for international banking by referencing and
dovetailing with, as much as possible, provisions in the regulations of
the Board of Governors of the Federal Reserve Board (FRB) and the
Federal Deposit Insurance Corporation (FDIC).
Discussion
By updating the OCC's international banking regulations, the
proposal makes the regulations more useful in providing guidance on
issues arising in today's international banking context. The proposal
furthers the goals of the OCC's Regulation Review Program by
simplifying and clarifying applicable requirements, and by reducing
regulatory duplication and complexity by promoting interagency
regulatory uniformity.
The proposal consolidates into a single comprehensive international
regulation the substantive requirements governing international banking
operations supervised by the OCC. Currently, the OCC's international
regulations appear in three different CFR parts: part 28 for Federal
branches and Federal agencies; part 20 for international operations of
national banks and international lending supervision; and part 5 for
provisions specifically addressing corporate applications of Federal
branches and Federal agencies. The proposal consolidates all
substantive international banking provisions into part 28, including
the provisions currently located in part 20 relating to foreign
operations of national banks.
The OCC welcomes comments on the advisability of reorganizing its
international banking regulations into part 28, and solicits
suggestions regarding alternative organizational approaches that would
be easier to use.
Because subpart B of part 20, regarding international lending
supervision, was originally promulgated as an interagency rulemaking,
no substantive changes are proposed to be made to the subpart at this
time. The OCC will coordinate with the other agencies before making any
changes to subpart B. In the interim, current subpart B of part 20 is
relocated and incorporated as subpart C of part 28. Commenters may
still comment on the subpart, however, in order to bring particular
issues to the OCC's attention at this time.
The procedural requirements of part 5 continue to apply to Federal
branches and Federal agencies, unless otherwise provided, and part 28
cross-references the procedural requirements in part 5, as appropriate.
The revision of the Comptroller's Corporate Manual will also provide an
opportunity to provide additional and more comprehensive guidance on
the application of the general corporate regulations to the foreign
bank context.
The OCC invites comment on the best means and extent of guidance
needed regarding corporate applications by Federal branches and Federal
agencies.
The discussion below identifies and explains significant proposed
changes to the current requirements in parts 20 and 28. A derivation
table comparing the sections of proposed part 28 to those of
[[Page 34908]]
the current parts 20 and 28 follows this section of the preamble.
The OCC requests general comments on all aspects of the proposed
regulation as well as comments on specific changes in the rules.
Subpart A--Foreign Operations of National Banks
Authority, Purpose, and Scope (Section 28.1)
The proposal relocates and consolidates the current Sec. 20.1,
``Authority and policy'', into part 28. The provisions of subpart A
apply to all national banks that engage in international operations
through a foreign branch, or acquire an interest in an Edge
corporation, Agreement corporation, foreign bank, or certain other
foreign organizations.
Definitions (Section 28.2)
The proposal updates and revises definitions applicable to foreign
operations of national banks to reflect the OCC's current practice, and
to be consistent with the definitions adopted by the FRB in 12 CFR part
211, subpart A (International Operations of United States Banking
Organizations) (Regulation K). The proposal adds the definitions of
``foreign branch'' and ``foreign country'', and updates the definition
of ``foreign bank.''
Foreign Bank (Section 28.2(c))
The proposal defines ``foreign bank'' as an organization that is
organized under the laws of a foreign country, engages in the business
of banking, is recognized as a bank by the home country supervisor,
receives deposits, and has the power to accept demand deposits. This is
modelled on the definition in Regulation K.
Foreign Branch (Section 28.2(d))
The proposal includes a new definition to define the term ``foreign
branch'' as it is used in proposed Sec. 20.3, ``Filing requirements for
foreign operations of national banks.'' The proposal defines ``foreign
branch'' as an office of a national bank that is located outside the
United States at which banking or financial business is conducted. This
definition is modelled on the definition in Regulation K.
Foreign Country (Section 28.2(e))
The definition of the term ``foreign country'' is also new. The
proposal defines ``foreign country'' as one or more foreign nations,
and includes the overseas territories, dependencies, and insular
possessions of those nations and of the United States, and Puerto Rico.
This definition is similar to the definition in Regulation K.
Filing Requirements for Foreign Operations of National Banks (Section
28.3)
The proposal requires a national bank to notify the OCC when it
opens, relocates, or closes a foreign branch. This is necessary and
desirable in order for the OCC to supervise consolidated national bank
operations. The national bank may satisfy this requirement by providing
the OCC with a copy of the appropriate filing made with the FRB. Thus,
while the proposal may require notification in some instances where it
is not currently required, it does not require a bank to fill out new
reports. The proposal also removes the requirement for two separate
filings that national banks must make currently when they establish a
foreign branch or acquire certain foreign investments.
The proposal removes the requirement for reports on certain foreign
exchange activities, currently found at Sec. 20.5. The FRB's current
reporting requirements for member banks requires comparable information
and the reports described in current Sec. 20.5 are not, therefore,
necessary for OCC's bank supervisory purposes, since the OCC may obtain
the reports from the FRB.
Permissible Activities (Section 28.4)
The proposal clarifies that a national bank may engage abroad in
any activity that is available to it domestically and that is usual in
connection with the banking business at the foreign location where the
national bank transacts business. The proposal also notes that under
Regulation K, a national bank may engage in other activities approved
by the FRB. Pursuant to section 25 of the Federal Reserve Act (FRA) (12
U.S.C. 604a), the FRB also may authorize foreign branches of member
banks to exercise powers that are consistent with the charter of the
bank and are usual in the banking business at the location where the
branch operates. The OCC's examination and supervision of national
banks currently includes these overseas branches and activities.
The proposal also restates the provision previously found at 12 CFR
7.7012 regarding the permissibility of national bank guarantees of
liabilities of its Edge corporations and other foreign operations. In
connection with revising 12 CFR part 7, the OCC determined that this
provision would be more logically placed in the international
regulation.
Liability of National Banks for Foreign Branch Deposits
Section 326 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRI Act) (12 U.S.C. 633), limits a United
States bank's liability for deposits in its foreign branches in case of
a sovereign action by the foreign country in question, or in cases of
war, insurrection, or civil strife. This provision was included in the
CDRI Act because the issue of liability for foreign branch accounts in
the past has been a subject of protracted litigation. The CDRI Act
permits the OCC and FRB to prescribe regulations as they deem necessary
to implement this section.
The OCC invites comment on whether regulatory guidance or
clarification is needed to implement the statutory provision. The
comments should set forth in detail the subject areas or terms, such as
``inability to repay'' and ``due to'', for which guidance and
clarification may be needed and recommendations for that guidance and
clarification.
Subpart B--Federal Branches and Agencies of Foreign Banks
Authority, Purpose, and Scope (Section 28.10)
The proposal updates current Sec. 28.1, ``Scope'', to include and
clarify the authority and purpose of this subpart. The proposal
clarifies that this subpart implements and clarifies the International
Banking Act of 1978 (IBA) (12 U.S.C. 3101 et seq.), pertaining to the
licensing, supervision, and operations of Federal branches and agencies
of foreign banks in the United States.
Definitions (Section 28.11)
The proposal revises this section to add several definitions and
update others. The changes assist in the implementation of new
statutory requirements and make the OCC's regulations more consistent
with FRB and FDIC regulations. By promoting uniformity among bank
regulatory agencies, these changes reduce the burden of compliance with
different sets of applicable regulations. The proposal adds or updates
the following key definitions:
Change the Status (Section 28.11(b)) and Establish (Section 28.11(d))
These are new definitions describing the corporate activities for
which OCC approval is required. The proposal defines ``change the
status'' of an office to include conversion from a state branch or
state agency to a Federal
[[Page 34909]]
branch, Federal agency, or limited Federal branch, and from a Federal
branch, Federal agency, or limited Federal branch to another Federal
office (branch, limited branch, or agency).
The proposal defines ``establish'' as opening and engaging in
business at a new Federal branch or Federal agency. It also includes
the acquisition of a Federal branch or agency through a merger,
consolidation, or similar transaction with another foreign bank or a
foreign bank subsidiary, and various conversions and relocations within
a state, or from one state to another.
Federal Agency (Section 28.11(e))
The proposal makes this definition consistent with the definition
in Regulation K and the IBA by clarifying that a Federal agency may
maintain credit balances, cash checks, and lend money, but generally
may not accept deposits from citizens or residents of the United
States. Usage of the term ``credit balances'' is also consistent with
Regulation K.
Federal Branch (Section 28.11(f))
The proposal makes this definition consistent with the definition
in Regulation K and the IBA by clarifying that a Federal branch is an
office licensed by the OCC that is not a Federal agency as defined in
proposed Sec. 28.11(e).
Foreign Bank (Section 28.11(g))
The proposal makes this definition consistent with the definition
in Regulation K and the IBA by clarifying that a foreign bank is 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 outside the United States.
Foreign Business (Section 28.11(h))
This new definition clarifies the term ``foreign business'' as it
is used in proposed Sec. 28.16, ``Deposit-taking by uninsured Federal
branches'', which permits uninsured Federal branches to accept initial
deposits of less than $100,000 from a ``foreign business''. The
proposed definition attempts to balance Congress' concern that foreign
banks not receive an unfair advantage over United States banks by
engaging in retail deposit-taking through uninsured branches and the
importance of maintaining credit availability to all sectors of the
United States economy, including international trade finance.
The proposal defines ``foreign business'' to mean any entity,
including a corporation, partnership, sole proprietorship, association,
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. A foreign entity or foreign national shall be deemed to
control a United States entity if the foreign entity or individual
directly controls, or has the power to vote 25 percent or more of any
class of voting securities of, the United States entity or controls in
any manner the election of a majority of the directors or trustees of
the other entity.
This definition accommodates businesses owned by foreign nationals
who are residents of the United States and concerned about credit
availability to their businesses. These businesses may prefer to do
business with a branch of a foreign bank from their home country
regardless of whether the branch is FDIC insured.
The OCC specifically invites commenters to address the scope of
this definition.
Foreign Country (Section 28.11(i))
This new definition clarifies the term ``foreign country'' as used
in this subpart to mean 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.
Home Country (Section 28.11(j))
This new definition clarifies the term ``home country'' as used in
proposed Sec. 28.12, and is similar to the definition in Regulation K.
The proposal defines ``home country'' as the country in which the
foreign bank is chartered or incorporated.
Home Country Supervisor (Section 28.11(k))
This new definition clarifies the term ``home country supervisor''
as it is used in proposed Sec. 28.12, and is similar to the definition
in Regulation K. The proposal defines ``home country supervisor'' as
the governmental entity or entities in the foreign bank's home country
with responsibility for supervising and regulating the foreign bank.
Home State (Section 28.11(l))
This new definition of ``home state'', as it is used in proposed
Sec. 28.17, is consistent with the description of ``home state'' in
section 104(d) of the Interstate Act amending section 5(c) of the IBA,
12 U.S.C. 3103(c). The proposal defines ``home state'' to mean the
state in which the foreign bank has an office. If a foreign bank has an
office in more than one state, the home state of the foreign bank is
one state of those states that is selected to be the home state by the
foreign bank or, in default of such selection, by the FRB. The FRB's
Regulation K, 12 CFR 211.22(b), also permits a foreign bank to change
its home state designation once by providing 30 days prior notice to
the FRB.
Initial Deposit (Section 28.11(m))
This new definition clarifies the term ``initial deposit'' as used
in proposed Sec. 28.16, and is similar to the definition found in the
comparable FDIC regulation, 12 CFR 346.1(k). The proposal defines
``initial deposit'' to mean the first deposit transaction between a
depositor and the branch made on or after the effective date of this
regulation. 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.
International Banking Facility (Section 28.11(n))
This new definition clarifies the term ``International banking
facility'' as it is used in proposed Sec. 28.20, and incorporates the
definition found in 12 CFR 204.8. The proposal defines ``international
banking facility'' to mean a set of asset and liability accounts
segregated on the books and records of a bank, a United States branch
or agency of a foreign bank, or an Edge or Agreement Corporation, that
includes only international banking facility time deposits and
extensions of credit.
Large United States Business (Section 28.11(o))
This new definition clarifies an exception to the general
prohibition of deposit taking by Federal branches in proposed
Sec. 28.16, which permits uninsured Federal branches to accept initial
deposits of less than $100,000 from ``large United States businesses''.
The proposal attempts to balance Congress' concern that foreign banks
not receive an unfair competitive advantage over United States banks by
engaging in retail deposit-taking through uninsured branches and the
importance of maintaining credit availability to all sectors of the
United States economy. There does not appear to be a commonly-accepted
or standard definition for a ``large business''. Therefore, the
proposal describes
[[Page 34910]]
alternative criteria for determining whether a business is a ``large
United States business'' for purposes of proposed Sec. 28.16.
The proposal defines ``large United States business'' to mean any
business entity that is organized under the laws of the United States,
and (1) the securities of which are registered on a national securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotation System; or (2) has more than $1.0 million in annual
revenues for the fiscal year preceding the year of the initial deposit.
The OCC believes that this definition meets the Congress' concern
without having a negative impact on the competitive position of foreign
and United States banks and the availability of credit to all sectors
of the United States economy.
Commenters are requested to provide detailed comments on this
definition, including the appropriateness of the criteria, or
alternative criteria.
Managed or Controlled (Section 28.11(q))
This new definition clarifies the term ``managed or controlled'' as
used in proposed Sec. 28.13. The definition is consistent with the
definition used for the purposes of determining which entities must
file the Supplement (FFIEC 002S) to the Report of Assets and
Liabilities of United States Branches and Agencies of Foreign Banks
(FFIEC 002). The proposal defines ``managed or controlled'' to mean
that a majority of the responsibility for business decisions, including
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-United States office,
resides at the United States branch or agency.
The OCC invites comment on whether to adopt this definition or some
other definition of ``managed or controlled''.
Parent Foreign Bank Senior Management (Section 28.11(s))
This new definition clarifies the term ``parent foreign bank senior
management'' as that term is used in proposed Sec. 28.13(c). The
proposal defines ``parent foreign bank senior management'' to mean
individuals at the executive level of the parent foreign bank who are
responsible for supervising and authorizing activities at the Federal
branch or Federal agency.
Approval of Federal Branches and Federal Agencies (Section 28.12)
The proposal updates and clarifies the applicable criteria for OCC
approval of the establishment of a Federal branch, Federal agency, or a
limited Federal branch. In reviewing an application by a foreign bank
to establish a Federal branch or Federal agency, the OCC will consider
the criteria listed in sections 4(c) and 7(d) of the IBA, 12 U.S.C.
3102(c) and 3105(d). These criteria include the financial and
managerial resources and future prospects of the applicant foreign bank
and the Federal branch or Federal agency, information necessary to
process the application, assurances regarding the prospective
availability of information necessary for supervisory purposes,
compliance with applicable United States law, competitive effects, the
home country supervisor's consent to the proposed establishment of the
Federal branch or Federal agency, and the extent of consolidated and
comprehensive supervision and regulation by the home country supervisor
of the applicant foreign bank.
In 1991, the FBSEA added section 7(d) to the IBA, 12 U.S.C.
3105(d), listing mandatory and discretionary criteria that the FRB was
to apply in approving applications by foreign banking organizations.
Many of the discretionary criteria, such as the financial and
managerial resources, consent of the home country supervisor,
prospective availability of information, and compliance with law are
consistent with factors already considered by the OCC as a matter of
practice and supervisory discretion. The proposal clarifies that the
OCC continues to consider these criteria in the approval process. The
FBSEA's mandatory requirement at 12 U.S.C. 3105(d) for the FRB
regarding the consolidated and comprehensive supervision of the
applicant bank by its home country supervisor generally is consistent
with, although more stringent than, the Minimum Standards for the
Supervision of International Banking Groups recommended by the Basle
Committee on Banking Supervision. The proposal notes that the OCC
considers, as part of its approval criteria, the extent to which the
applicant foreign bank is subject to comprehensive and consolidated
supervision and regulation by its home country.
The proposal also streamlines procedures for certain intrastate
relocation, conversion, and fiduciary activities applications by
eligible foreign banks for Federal branches and Federal agencies. An
application by an eligible foreign bank to convert its Federal agency,
Federal branch, or limited Federal branch to another Federal office
(branch, limited branch, or agency) is deemed approved 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 approval. An
application by an eligible foreign bank to exercise fiduciary powers at
an established Federal branch shall be deemed approved 30 days after
filing, unless the OCC notifies the bank prior to that date that the
filing is not eligible for expedited approval. Expedited processing is
not available if the OCC concludes that the filing presents significant
supervisory or compliance concerns, or raises significant legal or
policy issues.
For purposes of this section, a foreign bank is an ``eligible
foreign bank'' if each Federal branch and Federal agency of the foreign
bank in the United States: (1) has a composite rating of 1 or 2 under
the rating system for United States branches and agencies of foreign
banking organizations; (2) is not subject to a cease and desist order,
consent order, formal written agreement, or 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 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''.
Twelve CFR part 5 contains procedural provisions applicable to
Federal branches and Federal agencies. The proposal cross-references
part 5 and also refers applicants to the Comptroller's Corporate Manual
for additional clarification.
Permissible Activities (Section 28.13)
The proposal restates the current provision regarding the
applicability of domestic law to Federal branches and Federal agencies.
The OCC believes that it is not practical to provide more detailed
guidance on this aspect in a regulation, and will instead use other
vehicles to provide necessary clarification about the applicability of
various statutes, regulations, and supervisory policies to Federal
branches and Federal agencies.
The OCC specifically invites comment on forms of supplemental
guidance that would be most useful.
The proposal also clarifies the OCC's current policy that the
senior management of the parent bank generally must approve a decision
where an applicable statute requires approval by the board of directors
of a national bank.
The proposal adds a new provision to implement the provisions of
the Interstate Act regarding the ability of a
[[Page 34911]]
United States branch or agency of a foreign bank to manage the foreign
bank's offshore office activities. The Interstate Act amended the IBA,
12 U.S.C. 3105(k), to limit a branch or agency of a foreign bank to
managing only those types of activities at its offshore offices that a
United States bank is permitted to manage at its offshore branch or
subsidiary. This prohibition applies only to those offshore offices
that are ``managed or controlled'' by a foreign bank's United States
branches or agencies, and the proposal defines this phrase, as
discussed in the definitions section (Sec. 28.11(p)). Accordingly, the
proposed restrictions only apply to those offshore offices for which a
United States branch or agency has substantial responsibility with
regard to assets or liabilities or recordkeeping.
The OCC believes that a determination that the restrictions apply
should be made based on where substantive decision making authority or
responsibility lies. For example, a United States branch or agency
would be deemed to manage or control an offshore office if: (1) the
manager for both the United States branch or agency and 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 United States office; or (3) recordkeeping systems for either
assets or liabilities of the offshore office are maintained in the
United States office. The proposed restrictions generally would not
apply with respect to offshore offices that are operating facilities
managed and controlled by staff located at the offshore office or at
locations other than the United States.
The types of activities that United States branches or agencies of
foreign banks may manage through a controlled offshore office are the
same types of activities that a United States bank may manage at its
foreign branch or subsidiary. These include activities permissible
under the bank's charter and applicable regulations. In addition,
foreign branches and subsidiaries of national banks may, to the extent
permissible in the relevant offshore location, engage in activities and
make investments under sections 25 and 25(a) of the FRA, 12 U.S.C. 601
through 604a and 12 U.S.C. 611 through 631, respectively.
The OCC invites comment on this new provision, including whether
the procedural or quantitative supervisory requirements that may apply
to an activity by a United States bank at its foreign branches or
subsidiaries should also apply to the United States branch or agency of
the foreign bank in this context.
Finally, the proposal adds a new provision regarding the
application of section 7(h) of the IBA, 12 U.S.C. 3105(h). The FBSEA
amended section 7 to provide that, unless the appropriate Federal
banking agencies determine otherwise, a state branch or state agency
may not engage in any type of activity that is not permissible for a
Federal branch. The proposal clarifies that the OCC may issue opinions,
interpretations, or rulings regarding the types of activities
permissible for Federal branches. Thus, the OCC may respond to relevant
inquiries by providing the OCC position in instances where there is no
explicit statutory provision, current regulation, or precedent
regarding permissible activities for Federal branches, in order to
assist in determining whether those activities are permissible for
state branches and state agencies pursuant to section 7(h).
Limitations Based on Capital of Foreign Banks (Section 28.14)
The proposal clarifies that a foreign bank's capital must be
calculated in a manner similar to a national bank's capital, i.e.,
consistent with 12 CFR part 3. However, foreign banks' financial
statements may not readily lend themselves to a calculation that
results in determining its ``part 3 capital'', particularly since the
Basle risk-based capital standards have not been adopted globally.
Therefore, the OCC expects that this provision often will require case-
by-case application, and it will exercise discretion in implementing
this provision.
The proposal also requires that the business transacted by all
Federal branches and Federal agencies be aggregated with business
transacted by all state branches and state agencies in determining the
foreign bank's compliance with limitations based upon the capital of
the foreign bank. This approach parallels the requirements applicable
to state-licensed branches and agencies.
The OCC invites comments on this aspect of the proposal.
Capital Equivalency Deposits (CED) (Section 28.15)
The proposal restates the current provision that eligible CED
instruments for Federal branches and Federal agencies include dollar
deposits or investment securities that are permissible investments for
a national bank. The proposal also permits high-grade commercial paper
and bankers' acceptances, as functional equivalents of deposits. In the
past, the OCC has noted that the quality of bank certificates of
deposit offered as CED has occasionally been questionable or difficult
to ascertain. Also, the securities used as CED may be very volatile or
difficult to price at market value. Therefore, the proposal requires
that the CED securities be marketable and, if not priced in a published
source (such as the Wall Street Journal or the Financial Times), be
priced by an independent pricing service at least quarterly. The
proposal also authorizes the OCC to disallow, on a case-by-case basis,
specific certificates of deposit or securities. As a general rule, the
proposal parallels in many respects asset pledge requirements that
apply to state branches and agencies, such as those operating in New
York.
Deposit-Taking by Uninsured Federal Branches (Section 28.16)
The proposal implements amendments to section 6 of the IBA
regarding deposit-taking by uninsured Federal branches, 12 U.S.C. 3104.
First, section 214 of the FBSEA, as amended by section 302(a) of the
Defense Production Act Amendments of 1992 (Pub. L. 102-558, 106 Stat.
4198), amended section 6 of the IBA in 1991 to generally prohibit a
foreign bank from establishing any new branches that take domestic
retail deposits of less than $100,000. Subsequently, section 107(b) of
the Interstate Act amended the IBA to require the OCC and the FDIC,
after consultation with the other Federal banking agencies, to revise
their regulations regarding deposit-taking by uninsured branches. The
objective of this amendment was to ensure that foreign banks do not
enjoy an unfair competitive advantage over United States banks through
their remaining ability to accept certain types of deposits. At the
same time, the Congress was concerned about, and required the bank
regulatory agencies to consider, any negative impact that further
restrictions in this regard might have on maintaining and improving the
credit availability to all sectors of the United States economy,
including trade finance.
Section 107(b) of the Interstate Act requires the OCC and the FDIC,
in reviewing their regulations, to consider whether to permit an
uninsured branch of a foreign bank to accept initial deposits of less
$100,000 only from the six types of customers specified in the statute.
The OCC notes that the Interstate Act does not require the OCC to
implement the six exemptions
[[Page 34912]]
described in the Interstate Act verbatim, or only just those six.
Rather, the statute specifically provides that the OCC ``shall consider
whether to permit'' uninsured branches to accept initial deposits of
less than $100,000 from the enumerated exemptions, and also consider
the importance of maintaining and improving credit availability to all
sectors of the United States economy, including international trade
finance. By inviting the agencies to consider the enumerated
exemptions, Congress intended the agencies to utilize their expertise
in implementing this provision.
The Interstate Act also provides that the agencies must reduce,
from the current 5 percent of average branch deposits, to no more than
1 percent, the exemption that allows uninsured branches to accept
initial deposits of less than $100,000 from any party on a de minimis
basis. The agencies also are allowed to establish reasonable transition
rules to facilitate termination of any deposit taking activity that
previously was permissible.
The OCC has carefully considered Congress' concern that foreign
banking organizations not receive an unfair competitive advantage over
United States banking organizations. An OCC study conducted in 1994,
entitled ``Are Foreign Banks Out-Competing U.S. Banks in the U.S.
Market?'' (OCC Study), found that although the market share of foreign-
owned banks (subsidiaries, branches, and agencies) in the United States
grew during the 1980s and early 1990s, foreign-owned banks in the
United States, including Federal branches and agencies, persistently
underperformed United States banks as measured by profitability,
efficiency, and, recently, credit quality. In addition, the OCC has
reviewed data that updates available figures on the deposit taking
activities of uninsured United States branches of foreign banks. As of
year-end 1994, these offices of foreign banks held $386 billion of
total deposits, which funded just over half of the total United States
assets of these offices. All available data relating to these deposits
suggest that, as a group, uninsured United States offices of foreign
banks do not compete for retail deposits. Of the total deposits
accepted by these offices, 78 percent were accepted from other banks or
non-United States entities. The data also suggests that these uninsured
offices obtain less than 2 percent of their total funding from small
deposits.
The proposal states the OCC policy to interpret and implement the
relevant statutory provisions in view of the Congressional concerns
that prompted the IBA amendment, such as ensuring equal competitive
opportunities among United States and foreign banks and credit
availability to all sectors of the economy, including trade finance.
The proposal provides that an uninsured Federal branch may accept
initial deposits of less than $100,000 from the six types of customers
specified in the Interstate Act. The proposal also includes certain
other relationships within the exemptions, where those relationships
appear to be consistent with the purposes of the Act. Proposed
Sec. 28.16(b)(3) permits an uninsured branch to accept deposits from
persons with whom the branch or foreign bank has a written agreement to
extend credit or provide nondeposit banking services within 12 months
after the date of the initial deposit. This approach recognizes that in
a banking relationship, a deposit may, in some cases, precede the
extension of credit or providing of other nondeposit banking services
by the branch or foreign bank. Proposed Sec. 28.16(b)(6) also permits
an uninsured branch to accept deposits from Federal and state
governmental units. The data described earlier suggests that the
ability of uninsured branches of foreign banks to accept deposits from
Federal and state governments does not confer an unfair competitive
advantage to uninsured branches of foreign banks compared to domestic
banking organizations. Proposed Sec. 28.16(b)(8) permits an uninsured
branch to accept deposits from persons that may deposit funds with an
Edge corporation pursuant to Regulation K, 12 CFR 211.4 (generally
including foreign persons, foreign governments, and other persons
engaged in international business activity). This exemption is
consistent with the Congressional concern not to impair international
trade or trade finance.
The OCC invites comment on the proposed categories of exemptions.
If additional exemptions are suggested, the commenters are requested to
specify why the additional exemption is needed and its impact on the
United States and foreign banks' competitive opportunities, as well as
on improving credit availability in the United States.
In addition, the proposal includes the 1 percent de minimis
exemption, and provides for criteria and procedure for requesting
additional exemptions. Currently, the de minimis amount is based on the
average daily deposits of the branch for the last thirty days of the
previous calendar quarter. The OCC solicits comment on streamlining and
simplifying the method for calculating the de minimis amount, such as
basing the de minimis amount on the branch's average deposits
calculated using the branch's deposits at the end of each month for the
previous calendar quarter. The commenters are requested to address
whether that alternative approach, or any other, would reduce
regulatory burden while still providing a reliable indicator of
compliance with the de minimis amount.
The OCC also is considering extending the exemption in
Sec. 28.16(b)(3) 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 services within
the past 12 months, or with whom the branch, bank, or financial
institution affiliate has a written agreement to extend credit or
provide such services. The term ``affiliate'' might be defined to mean
any entity (including an individual) that controls, is controlled by,
or is under common control with, another entity. An entity would be
deemed to control another entity if the entity directly 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. The term
``financial institution'' could be defined to mean any depository
institution, depository institution holding company, or foreign bank as
those terms are defined in section 3 of the Federal Deposit Insurance
Act, 12 U.S.C. 1813, any broker or dealer, or futures commission
merchant as defined in 12 U.S.C. 4402, and any investment advisor.
These additional exemptions may be warranted by the close
connection among the foreign entity's various components. For instance,
affiliates of the foreign bank and its depositors may prefer to do
business with a branch of the foreign bank with which they have a
direct or indirect relationship. This deposit relationship may, in some
cases, precede the extension of credit or providing of other nondeposit
banking services by the branch, foreign bank, or financial institution
affiliate.
The OCC is also considering adding a new exemption, not specified
in the Interstate Act, that permits uninsured branches, as a matter of
convenience to its customers, to accept deposits from immediate family
members of individuals that may qualify for an exemption under
Sec. 28.16(b)(1) through (b)(7).
The OCC requests comment on extending the proposed exemption in the
above manner. Commenters are requested to specify the effect on
competitive opportunities among
[[Page 34913]]
United States and foreign banks and credit availability to all sectors
of the economy as a result of the extension.
The Interstate Act permits the OCC to establish reasonable
transition rules to facilitate termination of any deposit-taking
activity that previously was permissible. The proposal provides for a
five-year transition period for existing transaction accounts. The
transition period for a time deposit is proposed to be until the
maturity of the deposit. Thus, an uninsured branch may not retain
deposits accepted before the effective date of this section for longer
than five years or, in the case of time deposits, until maturity of the
deposit, unless the deposit falls within a new exemption under
paragraph (b) or is granted an exception by the OCC under paragraph
(c).
Deposits received after the effective date of the regulation would
be regarded as initial deposits that must qualify under one of the new
exemptions, or be accepted under the new 1 percent de minimis
exemption. With regard to the de minimis exemption, uninsured Federal
branches will start with a clean slate, i.e. the new 1 percent limit
will apply prospectively. It will exclude deposits in the existing 5
percent de minimis account that are phased out, as described above.
The OCC invites comment on this transition rule. If an alternate
approach is recommended, commenters are requested to detail whether the
alternate imposes a recordkeeping burden on uninsured branches and the
extent of the burden, particularly in comparison to the approach
contained in the proposal.
Changes in Activities and Operations (Section 28.17)
The proposal adds a new provision to clarify the OCC's current
policy regarding certain changes in activities and operations. The
proposal requires a Federal branch or Federal agency simply to provide
a notice to the OCC when it changes its corporate title or mailing
address, converts to a state branch, state agency, or a representative
office, or when its parent foreign bank changes its home state
designation.
Recordkeeping and Reporting. (Section 28.18)
The proposal reorganizes and clarifies the recordkeeping and
reporting requirements in current Sec. 28.10 for Federal branches and
Federal agencies. The proposal restates current OCC policy and practice
that the OCC may require a parent foreign bank to provide the OCC with
the information regarding its affairs. The proposal also adds a
specific requirement that a foreign bank operating a Federal branch or
Federal agency in the United States provide the OCC with a copy of
regulatory reports designated by the OCC that are filed with other
Federal regulatory agencies. These reports may be necessary for the OCC
to effectively supervise Federal branches and agencies. The OCC
believes that asking only for copies of information that is already
prepared to satisfy existing requirements for other United States
regulators would preclude the need, in most cases, to impose new
report-preparation requirements on Federal branches and agencies.
The proposal also clarifies the current requirement that a Federal
branch or Federal agency maintain a set of accounts and records in
English reflecting all transactions on a daily basis. To eliminate
unnecessary burden and translation costs, the proposal does not require
that all records be maintained in English; however, a Federal branch or
Federal agency must maintain sufficient records in English to permit
examiners to perform their responsibilities.
Enforcement (Section 28.19)
The proposal clarifies the OCC's enforcement authority, pursuant to
12 U.S.C. 3108(b), to bring actions under 12 U.S.C. 1818 for violations
of the IBA in addition to any other remedies provided by the IBA or any
other law.
Maintenance of Assets (Section 28.20)
The proposal amplifies and clarifies the current asset maintenance
requirement for Federal branches and Federal agencies contained in the
IBA and current Sec. 28.9. The proposal contains provisions regarding
the minimum amount of required assets, valuation of assets, and
eligibility of assets for asset maintenance purposes. The proposal is
in most respects identical to the FDIC's asset maintenance requirements
for insured branches 12 CFR 346.20. The proposed provision is also
similar to the comparable provisions in the New York state banking law
and regulations.
In the past, the OCC has imposed asset maintenance requirements in
a few cases as a condition of licensing and has exercised this
authority in connection with certain enforcement actions. In the
future, the asset maintenance requirement may increase in importance as
a tool that the OCC uses in its overall supervision of foreign banks.
Therefore, the OCC believes that the proposal will be helpful in
clarifying aspects of the asset maintenance requirement.
The OCC invites comment on whether the detail provided by the
proposal is helpful in clarifying the use and scope of the provision to
the industry.
Also, the OCC invites comment on whether to exclude any classified
asset entirely, as the provided in proposed Sec. 28.20(c)(2)(ii), or
whether to include certain classified assets (e.g. ``substandard'') in
eligible assets in full or in part based on different risk weights and
percentages.
Voluntary Liquidation (Section 28.22)
Currently, the OCC's regulations do not provide guidance on the
procedures and standards applicable to a voluntary liquidation or
termination of a Federal branch or Federal agency. In the past, the OCC
has applied and modified the standards applicable in a national bank
liquidation pursuant to 12 U.S.C. 181. The proposal clarifies the
voluntary liquidation process for Federal branches and Federal agencies
by referencing the applicable provisions in 12 CFR part 5. It also adds
requirements that are specific to a Federal branch or Federal agency,
such as notice to customers and creditors, and return of examination
reports and the branch certificate.
Termination of Federal Branches and Agencies (Section 28.23)
The proposal clarifies the OCC's authority to terminate Federal
branches and Federal agencies. The termination grounds include those
stated in section 4(i) of the IBA, 12 U.S.C. 3102(i), the grounds for
national bank termination referred to in 12 U.S.C. 191 and 12 U.S.C.
1821(c)(5), including unsafe and unsound practices, insufficiency or
dissipation of assets, concealment of books and records, a money
laundering offense, or a recommendation from the FRB to terminate a
Federal branch or Federal agency pursuant to section 7(e)(5) of the
IBA, 12 U.S.C. 3105(e)(5).
Derivation Table
Only substantive modifications, additions, and changes are
indicated.
------------------------------------------------------------------------
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.............. ....................... Added.
[[Page 34914]]
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 20... No change.
------------------------------------------------------------------------
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 Federal agencies of foreign banks, regardless of
size, by simplifying and clarifying existing regulations.
Executive Order 12866
The OCC has determined that this proposed rule is not a significant
regulatory action.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates
Act) (signed into law on March 22, 1995) 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 proposed rule will not result in expenditures by
state, local, and tribal governments, or by the private sector, of $100
million or more in any one year, the OCC has not prepared a budgetary
impact statement or specifically addressed the regulatory alternatives
considered. Nevertheless, as discussed in the preamble, the rule has
the effect of reducing burden.
Paperwork Reduction Act
The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1980 (44
U.S.C. 3504(h)). Comments on the collections of information should be
sent to Legislative and Regulatory Activities Division, Attention:
1557-0102, Office of the Comptroller of the Currency, 250 E Street, SW,
Washington, DC 20219, with a copy to the Office of Management and
Budget, Paperwork Reduction Project (1557-0102), Washington, D.C.
20503.
The collections of information in this proposed regulation are in
12 CFR Secs. 28.3, 28.13, 28.14, 28.15, 28.16, 28.17, 28.18, 28.20,
28.52, 28.53, and 28.54.
Much of this information is required by statute. Other items of
information are needed by the OCC to maintain the safety and soundness
of Federal branches and agencies and of national bank operations in the
United States and abroad. This information will be used by the OCC to
evaluate national banks with international operations and Federal
branches and agencies for supervisory, prudential, and legal purposes
and for statistical and examination purposes.
The likely respondents/recordkeepers are for-profit institutions.
The estimated annual burden per respondent varies from 9 hours to
64 or more hours, depending on individual circumstances, with an
estimated average of 36.3 hours.
Estimated number of respondents: 185
Estimated annual frequency of responses: One per year.
List of Subjects
12 CFR Part 20
Foreign banking, National banks, Reporting and recordkeeping
requirements.
12 CFR Part 28
Federal agencies, Federal branches, 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, chapter I of title 12 of the Code of Federal Regulations
is proposed to be amended as set forth below:
PART 20--[REMOVED]
1. Part 20 is removed.
2. 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 national banks.
28.4 Permissible activities.
28.5 Filing of notice.
Subpart B--Federal Branches and Agencies of Foreign Banks
28.10 Authority, purpose, and scope.
28.11 Definitions.
28.12 Approval of Federal branches and Federal agencies.
28.13 Permissible activities.
28.14 Limitations based upon capital of foreign banks.
28.15 Capital equivalency deposits.
28.16 Deposit-taking by uninsured Federal branches.
28.17 Changes in activities and 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 Federal branches and Federal agencies.
Subpart C--International Lending Supervision
28.50 Authority, purpose, and scope.
28.51 Definitions.
28.52 Allocated transfer risk reserve.
[[Page 34915]]
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 all national banks that engage
in international operations through a foreign branch, or acquire 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 a 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 national
banks.
(a) Notice requirement. A national bank shall notify the OCC when
it:
(1) Establishes, opens, closes, or relocates a foreign branch; or
(2) Files an application, notice, or report with the FRB regarding
the acquisition or divestment of an interest in, or closing of, an Edge
corporation, Agreement corporation, foreign bank, or other foreign
organization.
(b) Other applications and notices accepted. The OCC accepts a copy
of an application form, 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 as the OCC may require in connection
with the national bank's foreign operations.
Sec. 28.4 Permissible activities.
(a) Generally. Subject to the applicable approval process, if any,
a national bank may engage in activities in a foreign country that are:
(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 activities in a foreign
country that are 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 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, and scope.
(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 and clarifies the
IBA pertaining to the licensing, supervision, and operations of Federal
branches and Federal agencies in the United States.
Sec. 28.11 Definitions.
For purposes of this subpart:
(a) 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.
(b) 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.
(c) Edge corporation means a corporation that is organized under
section 25(a) of the FRA, 12 U.S.C. 611 through 631.
(d) Establish a Federal branch or Federal agency means to:
(1) Open and conduct business through a Federal branch or Federal
agency;
(2) Acquire directly, through merger, consolidation, or similar
transaction with another foreign bank, the operations of a Federal
branch or Federal agency that is open and conducting business;
(3) Acquire a Federal branch or Federal 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 Federal agency within a state or
from one state to another.
(e) 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;
[[Page 34916]]
(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.
(f) 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 (e) of this section.
(g) 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 outside the United States.
(h) Foreign business means any entity, including a corporation,
partnership, sole proprietorship, association, 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. A
foreign entity or foreign national shall be deemed to control a United
States entity if the foreign entity or individual directly controls, or
has the power to vote 25 percent or more of any class of voting
securities of, the United States entity or controls in any manner the
election of a majority of the directors or trustees of the other
entity.
(i) 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.
(j) Home country means the country in which the foreign bank is
chartered or incorporated.
(k) Home country supervisor means the governmental entity or
entities in the foreign bank's home country responsible for supervising
and regulating the foreign bank.
(l) 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 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.
(m) Initial deposit means the first deposit transaction between a
depositor and the Federal branch made on or after [effective date of
the final regulation]. 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.
(n) 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.
(o) Large United States business means any business entity
including a corporation, partnership, sole proprietorship, association,
or trust that engages in commercial activity for profit, is organized
under the laws of the United States or any state, and:
(1) The securities of which are registered on a national securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotation System; or
(2) Has more than $1.0 million in annual revenues for the fiscal
year preceding the year of the initial deposit.
(p) 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 that would be permissible for an Edge corporation
to receive.
(q) Managed or controlled by a Federal branch or agency means that
a majority of the responsibility for business decisions, including but
not limited to 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 Federal agency.
(r) Manual means the Comptroller's Corporate Manual (12 CFR
5.2(c)).
(s) 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 Federal
agency.
(t) Person means an individual or a corporation, government,
partnership, association, or any other entity.
(u) State means any state of the United States or the District of
Columbia.
(v) United States bank means a bank organized under the laws of the
United States or any state of the United States.
Sec. 28.12 Approval of Federal branches and Federal agencies.
(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. In reviewing an application by a
foreign bank to establish a Federal branch or Federal agency, the OCC
shall consider:
(1) The financial and managerial resources and future prospects of
the applicant foreign bank and the Federal branch or Federal 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 Federal 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 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 any conditions on
its
[[Page 34917]]
approval that it deems necessary, including a condition permitting
future termination of any activities based on the inability of the
foreign bank to provide information on its activities or those of its
affiliates, that the OCC deems necessary to determine and enforce
compliance with United States banking laws.
(e) Expedited approval. Unless the OCC concludes that the filing
presents significant supervisory or compliance concerns, or raises
significant legal or policy issues, the OCC shall process the following
filings by an eligible foreign bank under expedited approval
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 approval.
(2) Conversions. An application submitted by an eligible foreign
bank to convert a Federal agency to a Federal branch or limited Federal
branch, a Federal branch to a Federal agency or limited Federal branch,
or a limited Federal branch to a Federal branch or a Federal agency 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 approval.
(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 approval.
(f) Eligible foreign bank. For purposes of this section, a foreign
bank is an eligible foreign bank if each Federal branch and Federal
agency of the foreign bank in the United States:
(1) Has a composite rating of 1 or 2 under the rating system for
United States branches and agencies of foreign banking organizations;
(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 Federal
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) 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.
(h) Additional requirements. Nothing in this section relieves a
foreign bank from obtaining the required approval of the FRB to
establish a Federal branch or Federal agency in accordance with 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 Federal agency shall be conducted with the same rights and
privileges and shall be subject to the same duties, restrictions,
penalties, liabilities, conditions, and limitations that would apply if
the Federal branch or Federal 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 Federal agency to obtain the approval of parent foreign bank
senior management.
(b) Offshore activities.--(1) Federal branches and Federal
agencies. A Federal branch or Federal 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 Federal 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. Activities that a United States bank may manage at
its branch or subsidiary abroad include those activities that the bank
may engage in abroad. A United States bank may engage abroad in
activities permitted by the United States bank's state or Federal
charter, regulations issued by the chartering authority, and other
United States banking laws.
(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 foreign banks.
(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 Comptroller, a
foreign bank's capital must be calculated in a manner consistent with
12 CFR part 3 of this chapter.
(c) Aggregation. The business transacted by all Federal branches
and Federal agencies shall be aggregated with the business transacted
by all state branches and state agencies in determining the foreign
bank's compliance with limitations based upon the capital of the
foreign bank. The foreign bank shall designate one Federal branch or
Federal agency office in the United States to maintain consolidated
information so that compliance can be monitored.
Sec. 28.15 Capital equivalency deposits.
(a) Capital equivalency deposits. (1) 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 shall consist of dollar
deposits, including certificates of deposit and other instruments
evidencing a deposit, investment securities of the type that may be
held by national banks, high-grade commercial paper, bankers'
acceptances, and other assets that the OCC permits for this purpose.
(2) The agreement with the depository bank to hold the capital
equivalency deposit and the amount of the deposit must comply with the
requirements in section 4(g) of the IBA, including the qualifying
components and required minimum amount of the capital equivalency
deposit. If a foreign bank has more than one Federal branch or Federal
agency in a state, it shall determine the capital equivalency deposits
and the amount of liabilities requiring capital equivalency coverage on
an aggregate basis for all the foreign bank's Federal branches or
Federal agencies.
(b) 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. If no market value is available from a published
source, they must be priced by an independent pricing service at least
once every calendar quarter.
[[Page 34918]]
(c) 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 capital equivalency deposit
above the minimum amount.
(d) Deposit arrangements. A depository bank shall segregate a
foreign bank's capital equivalency deposit on its 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 capital equivalency deposit 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
(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 Federal 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 uninsured Federal branches.
(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:
(i) Not citizens of the United States;
(ii) Residents of the United States; and
(iii) Employed by a foreign bank, foreign business, foreign
government, or recognized international organization;
(3) Persons to whom the branch or foreign bank has extended credit
or provided other nondeposit banking services within the past 12
months, or with whom the branch or 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 and recognized international
organizations;
(6) Federal and state governmental units, including any political
subdivision or agency 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 amount of deposits under paragraph (b)(9) of this section
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 improves and maintains the availability of
credit to all sectors of the United States economy, including the
international trade finance sector.
(d) Aggregation of deposits. For purposes of paragraph (b)(9) of
this section only, a foreign bank that has more than one Federal branch
in the same state may aggregate deposits in all the Federal branches in
that state, but excluding deposits of other branches, agencies or
wholly owned subsidiaries of the bank. The average amount must be
computed 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 FDIC.
(f) Transition period. An uninsured Federal branch may maintain a
deposit lawfully accepted prior to [the effective date of the final
regulation]:
(1) If the deposit qualifies under paragraph (b) or paragraph (c)
of this section; or
(2) No later than until:
(i) The maturity of a time deposit; or
(ii) Five years after [the effective date of the final regulation]
for all other deposits.
(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 Changes in activities and operations.
(a) Notification. A Federal branch or Federal agency shall notify
the OCC if:
(1) It changes its corporate title;
(2) It changes its mailing address;
(3) It converts to a state branch, state agency, or representative
office; or
(4) The parent foreign bank changes the designation of its home
state.
(b) Where to file. A Federal branch or agency shall file any notice
under this section with the Office of the Comptroller of the Currency,
International Banking and Finance, 250 E Street SW, Washington, DC
20219.
(c) 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.
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 Federal 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 Federal agency in the United States shall
provide the OCC with a copy of reports filed with other Federal
regulatory agencies that are
[[Page 34919]]
designated in guidance issued by the OCC.
(c) Maintenance of accounts, books, and records. (1) Each Federal
branch or Federal 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 Federal
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
Federal agency and its compliance with applicable laws and regulations.
The 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 Federal
agency in a state shall designate one of those offices to maintain
consolidated asset, liability, and capital equivalency accounts for all
Federal branches or Federal agencies in that state.
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 regulations or orders of the OCC under
section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 1818, 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 Federal agency is licensed.
Those assets shall 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
in an amount prescribed by the OCC.
(2) If asset maintenance is required, the amount of assets may not
be less than 105 percent of the aggregate amount of liabilities of the
Federal branch or Federal agency, payable at or through the branch or
agency in the state where it is licensed. To determine the aggregate
amount of liabilities for purposes of this section, the foreign bank
shall include bankers' acceptances, but exclude accrued expenses, and
amounts due and other liabilities to the head office and any other
branches, offices, agencies, subsidiaries, and affiliates of the
foreign bank.
(b) Value of assets. For the purposes of this section, marketable
securities must be valued at principal amount or market value,
whichever is lower.
(c) Eligible assets. (1) In determining compliance with the asset
maintenance requirements, the Federal branch or Federal agency will be
given credit for:
(i) Capital equivalency deposits maintained pursuant to Sec. 28.15;
(ii) Reserves required to be maintained by the Federal branch or
Federal agency pursuant to the FRB's authority under 12 U.S.C. 3105(a);
and
(iii) Assets pledged, and surety bonds payable, to the FDIC to
secure the payment of domestic deposits.
(2) In determining eligible assets for purposes of this section,
the Federal branch or Federal agency shall exclude, at a minimum:
(i) All amounts due from the head office or any other branch,
office, agency, subsidiary, or affiliate of the foreign bank;
(ii) Any classified asset;
(iii) Any asset that, in the determination of the OCC, is not
supported by sufficient credit information;
(iv) Any deposit with a bank in the United States, unless that bank
has executed a valid waiver of offset agreement;
(v) 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
(vi) 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.
(d) International banking facility. Unless specifically exempted by
the OCC, the assets and liabilities of any international banking
facility operated through the Federal branch or Federal 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 Federal agency is
subject to service of process at the location of the Federal branch or
Federal agency.
Sec. 28.22 Voluntary liquidation.
(a) Procedures. Unless otherwise provided, a Federal branch or
Federal agency that proposes to close its operations shall comply with
the requirements in 12 CFR 5.48 and the Manual.
(b) Notice to customers and creditors. A foreign bank shall provide
any customers and known creditors, not otherwise notified in writing,
with written notice of the impending closure of the Federal branch or
Federal agency at least 30 days prior to its closure.
(c) Report of Condition. The Federal branch or Federal 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 Federal
agency. This report must include a certified maturity schedule of all
remaining liabilities, if any.
(d) Return of reports and certificate. The Federal branch or
Federal agency shall return to the OCC all Reports of Examination and
the Federal branch or Federal agency license certificate within 30 days
of closure to the public.
Sec. 28.23 Termination of Federal branches and Federal agencies.
(a) Grounds for termination. The OCC may revoke the authority of a
foreign bank to operate a Federal branch or Federal 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 of the 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;
(4) 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 Federal
agency be terminated.
(b) Procedures.--(1) Notice and hearing. Except as otherwise
provided in this section, an order by the OCC to terminate the license
of a Federal branch or Federal agency shall be issued after notice to
the Federal branch or Federal agency and after an opportunity for a
hearing.
(2) Procedures for hearing. A hearing under this section shall be
conducted pursuant to subpart A of the OCC's Rules of Practice and
Procedure in 12 CFR part 19.
(3) Expedited procedure. The OCC may act without providing a
hearing if the OCC determines that expeditious action is necessary in
order to protect
[[Page 34920]]
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 Federal agency with notice of the
intended termination order;
(ii) Grant the Federal branch or Federal 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 Federal agency with notice and an opportunity to present its views
concerning the termination order.
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 banking association or a
District of Columbia bank.
(b) Federal banking agencies means the Board of Governors of the
Federal Reserve System, the OCC, and the Federal Deposit Insurance
Corporation.
(c) International assets means those assets required to be included
in banking institutions' Country Exposure Report forms (FFIEC No. 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 Nos. 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 ten 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 fifteen 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 Nos.
[[Page 34921]]
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 and Agreement corporations
engaged in banking shall report in accordance with instructions for
preparation of the Report of Condition for Edge 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 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) (the Act) 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 the Act (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, form FFIEC No. 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 rule 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 office may consider necessary.
[[Page 34922]]
Dated: June 26, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-16201 Filed 7-3-95; 8:45 am]
BILLING CODE 4810-33-P
