International Banking

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