International Banking Activities

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 5, 20, and 28

[Docket No. 96-11]

RIN 1557-AB26

International Banking Activities

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is

comprehensively revising its regulations governing the international

operations of national banks and the operation of foreign banks through

Federal branches and agencies in the United States. The revision is

part of the OCC's Regulation Review Program, which seeks to simplify

OCC regulations and reduce unnecessary compliance costs, consistent

with maintaining safety and soundness and furthering the other

responsibilities of the OCC. The final rule streamlines and

consolidates into one part of the Code of Federal Regulations

substantially all provisions relating to international banking, and

clarifies and simplifies their various requirements.

The final rule also updates the rules to implement provisions of

the Foreign Bank Supervisory Enhancement Act of 1991 (FBSEA) and the

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

(Interstate Act) relating to Federal branches and agencies.

EFFECTIVE DATE: July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Raija Bettauer, Counselor for

International Activities, (202) 874-0680,

[email protected]; Laurie Sears, Attorney, International

Activities (202) 874-0680, [email protected]; Timothy M.

Sullivan, Director, International Banking and Finance, (202) 874-4730,

[email protected]; Comptroller of the Currency, 250 E Street,

SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

On July 5, 1995, the OCC published a notice of proposed rulemaking

(60 FR 34907) (proposal) proposing to revise its regulations governing

the international operations of national banks and the operation of

foreign banks through Federal branches and agencies in the United

States (12 CFR parts 20 and 28). The proposal was another component of

the OCC's Regulation Review Program (Program). The goal of the Program

is to review all of the OCC's rules and to eliminate provisions that

impose unnecessary regulatory burden and do not contribute

significantly to maintaining the safety and soundness of national banks

(and Federal branches and agencies) or to accomplishing the OCC's other

statutory responsibilities. Another goal of the Program is to clarify

the OCC's regulations and to better communicate the standards that the

rules intend to convey.

The proposal sought to achieve those goals and also to update the

OCC's rules to implement provisions in the FBSEA (Pub. L. 102-242,

title II, 105 Stat. 2286) and Interstate Act (Pub. L. 103-328, 108

Stat. 2338) relating to Federal branches and agencies of foreign banks.

It also added a mechanism for the OCC to obtain information on foreign

banking organizations to improve the OCC's safety and soundness

oversight of Federal branches and agencies.

The proposal further sought to reduce the complexity of the

existing regulatory

[[Page 19525]]

framework for international banking by referencing provisions in the

regulations of the Board of Governors of the Federal Reserve System

(FRB) and the Federal Deposit Insurance Corporation (FDIC), and, where

possible, using terms and procedures consistent with the provisions in

the other agencies' regulations dealing with comparable situations.

Comments Received

The OCC received four comment letters on the proposal: one from a

national bank and three from trade associations. The commenters

generally supported the OCC's efforts to consolidate and streamline the

current regulations and reduce unnecessary regulatory burden. Overall,

commenters commended the OCC's efforts, and some commenters offered

variations on certain of the proposed changes.

Overview of the Final Rule and Response to Comments Received

The final rule consolidates into a single comprehensive regulation

the substantive requirements governing international banking operations

supervised by the OCC. The final rule relocates and incorporates what

is currently subpart B of part 20, regarding international lending

supervision, as subpart C of part 28. The OCC originally drafted this

subpart in consultation with the FRB and the FDIC, and the OCC hopes to

undertake a review of subpart C of part 28 in the near future in

consultation with those agencies.

Under the final rule, the procedural requirements of 12 CFR part 5

continue to apply to Federal branches and agencies, unless otherwise

provided, and part 28 cross-references the procedural requirements in

part 5, as appropriate. The Comptroller's Manual for Corporate

Activities also provides additional and more specific guidance on the

application of the general corporate regulations to the Federal

branches and agencies.

The four commenters recommended changes that focused on specific

sections of the proposal. The OCC carefully considered each of the

comments, and has made changes in the final rule in response to the

comments received. The following discussion of significant sections

identifies and discusses the comments the OCC received on the proposal

and the changes the OCC made to the proposal to address those comments.

The discussion also notes other changes to the current regulations that

the OCC has adopted in the final rule. The preamble concludes by

indicating the technical changes that the final rule makes to remove

superfluous sections of 12 CFR part 5. A derivation table summarizing

sections of former parts 20 and 28 changed by the final rule is

included at the end of this preamble.

Subpart A--Foreign Operations of National Banks

Filing Requirements for Foreign Operations of a National Bank

(Sec. 28.3)

The proposal required a national bank to notify the OCC upon

establishing, opening, relocating, or closing a foreign branch, or when

filing an application, notice, or report with the FRB regarding the

acquisition or divestment of certain foreign investments. Under the

proposal, a national bank could satisfy this requirement by providing

the OCC with a copy of the appropriate filing made with the FRB. Also,

the proposal removed the requirement in the current regulation for a

national bank to make two separate filings when establishing a foreign

branch or acquiring certain foreign investments.

One commenter requested that the OCC clarify the requirement that

notice be provided to the OCC when a national bank ``establishes'' a

foreign branch. The commenter noted that both the OCC's proposal and

FRB's Regulation K, 12 CFR 211.3(a), require notice at the opening,

closing, or relocating of a foreign branch. However, the OCC proposal

also required a notice for ``establishing'' a foreign branch. The

commenter requested that the OCC clarify whether ``establish'' has the

same meaning as ``open,'' and, if not, whether the OCC is requesting

something beyond that which is required under Regulation K.

Regulation K states that the establishment of a foreign branch

generally requires the specific approval of the FRB. See 12 CFR

211.3(a)(1). Regulation K also requires any member bank that opens,

closes, or relocates a foreign branch to report those changes in a

manner prescribed by the FRB. See 12 CFR 211.3(a)(5). In addition,

Regulation K requires a member bank to obtain the FRB's approval, or

notify the FRB, when it acquires, divests, or disposes of certain

foreign investments. See 12 CFR 211.5, 211.7.

The final rule makes it clear that whenever a national bank is

required to make a filing with the FRB under Regulation K, as described

in the paragraph above, it must also provide a copy of that filing or a

notice of that filing to the OCC. However, even if not required by the

FRB, the final rule requires a national bank to provide a simple notice

to the OCC of the opening, closing, or relocation of a foreign branch.

As the primary supervisor of the national bank and its consolidated

global operations, it is necessary for the OCC to know the basic

structure and location of the national bank's operations in order to

effectively supervise the consolidated operations of the bank.

Liability for Deposits Maintained at Non-United States Offices

Section 326 of the Riegle Community Development and Regulatory

Improvement Act of 1994 (CDRI Act) (Pub. L. 103-325, 108 Stat. 2160)

amends the Federal Reserve Act, 12 U.S.C. 221 et seq., to limit a

United States bank's liability for deposits in its foreign branches if

the branch cannot repay the deposit due to foreign sovereign action,

war, insurrection, or civil strife, and the bank has not expressly

agreed in writing to repay the deposit under those circumstances. The

proposal specifically solicited public comment on whether additional

guidance is necessary or desirable to implement this provision of the

CDRI Act. The OCC received no comments regarding the effect of the

proposal on United States banks.

One commenter, however, urged the OCC to adopt a provision in the

final rule applying section 326 to Federal branches and agencies of

foreign banks operating in the United States. The suggested provision

would state that United States offices of foreign banks will not be

subject to liability for deposits maintained at a non-United States

office if that non-United States office cannot repay the deposits due

to foreign sovereign action, war, insurrection, or civil strife. The

commenter argued that its request is consistent with the protection

provided United States banks under section 326 and the national

treatment principle.

The OCC has decided not to adopt the commenter's suggestion at this

time. Subpart B of part 28 contains a general provision regarding

United States laws that apply to Federal branches and agencies, and the

OCC expects to provide additional and more specific guidance in this

area in the future. Section 326 was the product of some particular

concerns. The OCC believes that it will be more appropriate to address

the commenter's question via a process that better allows those

concerns to be considered and, if appropriate, specific guidance to be

issued.

[[Page 19526]]

Subpart B--Federal Branches and Agencies of Foreign Banks

Authority, Purpose, Scope, and Filing Requirements (Sec. 28.10)

The proposal set out the legal authority, purpose, and scope of

subpart B. The final rule adds a new paragraph (c) to this section to

explain that, unless otherwise provided, the rules of general

applicability in 12 CFR part 5 apply to a filing by a foreign bank or a

Federal branch or agency as they would apply to a similar filing by a

national bank. The final rule tells filers where to file and where to

obtain forms. The final rule also informs filers that the OCC accepts a

copy of an application form, notice, or report submitted to another

Federal regulatory agency that covers the proposed action and contains

substantially the same information that would be required by the OCC.

Definitions (Sec. 28.11)

The proposal included new and updated definitions to assist in the

implementation of new statutory requirements and to make the

definitions more consistent with those of the FRB and FDIC. The final

rule adopts the definitions as proposed, except as discussed below.

The final rule includes a new definition for ``affiliate'' that was

discussed in the preamble of the proposal. The final rule extends the

exemption for those from whom an uninsured Federal branch may take

deposits of less than $100,000 to include persons to whom the branch,

or foreign bank (including any affiliate thereof) has extended credit

or provided other nondeposit banking services within the past 12

months. Therefore, it was necessary to add a definition for

``affiliate.''

The final rule adds a definition of ``capital equivalency deposit''

that refers to section 4 of the International Banking Act of 1978

(IBA), 12 U.S.C. 3102(g).

The final rule also adds a separate definition of ``control'' that

was not in the proposal. However, the proposal described this term in

two other definitions, so the final rule eliminates this redundancy.

The final rule defines ``initial deposit'' to clarify that ``first

deposit'' means any deposit made when there is no current deposit

relationship between the depositor and the Federal branch. This issue

is discussed more thoroughly in the discussion of Sec. 28.16 in

reference to a comment received regarding accounts established with a

deposit of $100,000 or more before the effective date of the

regulation.

The OCC received a comment suggesting changes to the definition of

``managed or controlled,'' but the final rule adopts the definition as

proposed. The Interstate Act, 12 U.S.C. 3105(k), provides that United

States branches and agencies of foreign banks cannot manage any type of

activity that is conducted through an offshore office of the foreign

bank that is managed or controlled by the branch or agency unless a

United States bank is permitted to manage that activity at its offshore

branch or subsidiary.

The proposal defined ``managed or controlled'' to mean that the

majority of the responsibility for business decisions, including

decisions with regard to lending, asset management, funding, or

liability management, or the responsibility for recordkeeping of assets

or liabilities for a non-United States office, resides at the Federal

branch or agency. This definition is consistent with the definition

used in the Federal Financial Institutions Examinations Council (FFIEC)

Supplement to the quarterly Report of Assets and Liabilities of U.S.

Branches and Agencies of Foreign Banks, FFIEC 002S, for the purpose of

determining which United States branches and agencies of foreign banks

manage or control offshore offices and must complete FFIEC 002S. 57 FR

61907, Dec. 29, 1992.

One commenter proposed that the OCC exclude from the definition of

``managed or controlled'' recordkeeping for a non-United States office

by the United States office. The commenter recommended that, for

various cost and efficiency reasons, a foreign bank may maintain

records at a United States location for non- United States offices that

the United States office does not otherwise manage or control, and that

FFIEC 002S is intended for other purposes. Therefore, the broad

definition of ``managed or controlled'' in FFIEC 002S that is used for

reporting purposes should not automatically be used for applying

restrictions on the types of activities that may be managed at offshore

branches.

The OCC carefully considered this comment and decided not to adopt

the commenter's recommendation. The OCC believes that two different

definitions of ``managed or controlled'' would be impractical and

confusing. In most, if not virtually all, cases where a United States

office is performing recordkeeping functions for a non-United States

office, the United States office would otherwise satisfy the definition

of ``managed or controlled.'' The OCC recognizes, however, that if a

United States office of the foreign bank simply compiles or forwards to

the parent foreign bank data or information regarding offshore

operations in the normal course of business, that activity would not

constitute recordkeeping for this purpose. Thus, that United States

office of the foreign bank would not ``manage or control'' the foreign

bank's offshore activities for purposes of this provision.

Consequently, the final rule defines ``managed or controlled'' to

apply to those offshore offices for which a Federal branch or agency

has substantial responsibility with regard to assets or liabilities or

recordkeeping. For example, consistent with FFIEC 002S, a Federal

branch or agency would be deemed to manage or control its offshore

office if: (1) The manager for the Federal branch or agency and the

manager for the offshore office are the same person or there is other

significant overlap in personnel; (2) substantial responsibility for

decisions regarding either assets or liabilities of the offshore office

resides with staff in the Federal branch or agency; or (3)

recordkeeping systems for either assets or liabilities of the offshore

office are maintained in the Federal branch or agency. The

restrictions, however, generally would not apply to offshore branches

that are full-service facilities managed or controlled by staff located

at the offshore office or at a location outside the United States.

Approval of a Federal Branch or Agency (Sec. 28.12)

The proposal updated and clarified criteria for OCC approval of

applications to establish a Federal branch or agency, or a limited

Federal branch. The proposal also streamlined the procedures and

provided for expedited review for certain corporate applications by

eligible foreign banks.

Commenters generally commended the OCC's efforts to streamline the

approval process. The OCC received no suggestions to improve this

section, and the final rule adopts this section as proposed. Commenters

especially favored the OCC's proposal to expedite the review procedure

for eligible foreign banks.

For purposes of the expedited review procedures in the final rule,

a foreign bank is an ``eligible foreign bank'' if each Federal branch

and agency of the foreign bank in the United States: (1) Has a

composite rating of 1 or 2 under the interagency rating system used by

the OCC for United States branches and agencies of foreign banks

(ROCA); (2) is not subject to a cease and desist order, consent order,

formal written agreement, or Prompt Corrective Action

[[Page 19527]]

directive (see 12 CFR part 6) or, if subject to such order, agreement,

or directive, is informed in writing by the OCC that the parent foreign

bank may be treated as an ``eligible foreign bank'' for purposes of

this section; and (3) has, if applicable, a Community Reinvestment Act

(CRA), 12 U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory.''

The OCC will not provide expedited review, however, if it concludes,

and advises the applicant in writing, that the filing presents

significant supervisory or compliance concerns, or raises significant

legal or policy issues.

The final rule also adds a paragraph to allow a foreign bank

proposing to establish a Federal branch or agency through acquisition,

merger, or consolidation with another foreign bank to obtain after-the-

fact approval from the OCC in certain circumstances. This type of an

establishment occurs when there is a change in the corporate form of

the foreign bank operating the Federal branch or agency, for instance,

through a merger of a foreign bank operating a Federal branch or agency

into another foreign bank. This could also occur, in certain

circumstances, through the acquisition of the assets or operations of a

foreign bank operating a Federal branch or agency by another foreign

bank.

The regulation provides the minimum requirements for an after-the-

fact application, and further criteria and information regarding these

transactions and procedures may be contained in the Manual. The OCC

reserves, however, the right to deny the application, and an applicant

must agree to abide by the OCC's decision, including terminating the

activity or activities of an Federal branch or agency, if the OCC so

requires.

The final rule expands the types of change of status that may be

granted expedited review by including the conversion of a state branch

or agency operated by a foreign bank, or a commercial lending company

controlled by a foreign bank into a Federal branch, limited Federal

branch, or Federal agency.

Permissible Activities (Sec. 28.13)

In paragraph (a) of this section the proposal restated the general

provision on the applicability of domestic law to Federal branches and

agencies and requested comment on forms of supplemental guidance that

interested parties thought would be most useful. The OCC received no

comments on this paragraph and accordingly no substantive changes are

made to paragraph (a) in the final rule.

In paragraph (b) of this section, the proposal restated the

requirement in the Interstate Act regarding the management of certain

offshore activities, 12 U.S.C. 3105(k), and clarified, in general

terms, the activities that a United States bank may manage at its

offshore branch or subsidiary. The Interstate Act provides that a

United States branch or agency of a foreign bank shall not, through an

offshore shell branch that it manages and controls, manage the types of

activities that a United States bank may not manage at its foreign

branch or subsidiary.

A commenter suggested that in accordance with the legislative

history of the Interstate Act, the OCC should clarify that

Sec. 28.13(b) applies to offshore shell branches. The OCC agrees that

this clarification is warranted and has changed the title of paragraph

(b) of this section to mirror section 107(e) of the Interstate Act, 12

U.S.C. 3105(k).

In the preamble to the proposal, the OCC solicited comment on

whether procedural or quantitative supervisory requirements that may

apply to an activity of a United States bank at its foreign branches or

subsidiaries should also apply to a Federal branch or agency in this

context. One commenter noted that the Interstate Act does not require

such limits to be imposed and that in other relevant contexts the

Federal banking agencies have not imposed such limits. The OCC agrees

with the commenter. The final rule refers to the ``types'' of

activities and explicitly excludes United States procedural or

quantitative supervisory requirements that may apply to the offshore

branch or subsidiary of a United States bank.

The OCC notes, however, that the Interstate Act does not confer on

a foreign bank the right to manage activities of an offshore office

from its Federal branch or agency. The OCC will continue to monitor

relationships between Federal branches and agencies and offshore

offices of foreign banks and to evaluate the compliance of law and

safety and soundness of the United States operations of Federal

branches and agencies.

Capital Equivalency Deposit (Sec. 28.15)

The proposal restated the current provision that eligible capital

equivalency deposits (CED) for Federal branches and agencies may

include dollar deposits or investment securities that are permissible

investments for a national bank. The proposal also stated that high-

grade commercial paper and bankers' acceptances are the functional

equivalents of deposits. The proposal required that permissible CED

instruments be valued at the lower of the principal amount or market

value. The proposal provided that if no published source for market

value is available, the instruments must be priced by an independent

pricing service at least quarterly.

One commenter recommended that the OCC not subject negotiable

certificates of deposits or bankers' acceptances issued by United

States banks or United States offices of foreign banks to the

requirement that the instruments have a market value that is available

from either a published source or from an independent pricing service.

The commenter was concerned that this requirement may in practice

prevent Federal branches and agencies from pledging negotiable

certificates of deposit or bankers' acceptances issued by banks that

are regulated by United States authorities and that are in a safe and

sound financial condition solely because their prices are not

published.

The proposal was not intended to make it impractical for Federal

branches or agencies to pledge high quality instruments as CED. As

mentioned in the proposal, the quality of bank certificates of deposit

offered as CED has been occasionally questionable or difficult to

ascertain. Also, certain securities used as CED may be volatile or

difficult to price at market value. Therefore, the OCC included the

published source requirement in the proposal.

The OCC recognizes, however, that this requirement may

unnecessarily exclude certain high quality certificates of deposit or

other instruments. Therefore, the final rule does not adopt the

published source requirement for certificates of deposit and banker's

acceptances. Instead, the final rule requires that for an instrument to

qualify as CED it must be: (1) An investment security eligible for

investment by a national bank; (2) a United States dollar deposit

payable in the United States, other than a certificate of deposit; (3)

a certificate of deposit, payable in the United States, or bankers'

acceptance, provided that, in either case, the issuer or the instrument

is rated investment grade by an internationally recognized rating

organization, and neither the issuer nor the instrument is rated lower

than investment grade by any such rating organization that has rated

the issuer or the instrument; or (4) another asset permitted by the OCC

to qualify as CED. Although currently under OCC supervisory policy

dollar deposits include dollar denominated certificates of deposit

payable in the United States, the final rule categorizes certificates

of deposits separately to clarify the

[[Page 19528]]

treatment of these instruments. The final rule also restates the

requirement in section 4 of the IBA, 12 U.S.C. 3102(g)(2), that the

obligations used for CED must be valued at principal amount or market

value, whichever is lower. The OCC believes that these requirements

strike a reasonable balance between the OCC's concerns about the

quality of these instruments offered as CED and providing flexibility

to Federal branches and agencies in their choice of instruments that

can be properly pledged as CED. In addition, the OCC retains the

authority to disallow any particular CED investment that it concludes

is inappropriate.

The OCC recognizes that, on the effective date of this regulation,

CED accounts of some Federal branches and agencies may contain

instruments that do not meet the investment grade rating standard of

the final rule. In order to avoid unnecessary operational disruption,

the OCC will not require immediate replacement of those instruments.

Instead, an instrument in the CED account that does not qualify under

this regulation must be replaced with a qualifying instrument, i.e.,

one that satisfies the requirements of this regulation, upon maturity

of that instrument. This accommodation applies, however, only to

instruments already properly pledged as CED under the current

regulation.

Deposit-Taking by an Uninsured Federal Branch (Sec. 28.16)

The Interstate Act, 12 U.S.C. 3104 note, requires the OCC and the

FDIC to review and revise their regulations regarding deposit-taking by

foreign branches to ensure that the agencies' regulations are

consistent with the principle of national treatment articulated in the

IBA, 12 U.S.C. 3104(a). Specifically, the OCC and FDIC are directed to

consider whether foreign branches may accept initial deposits of less

than $100,000 from six categories of depositors listed in the statute.

The Interstate Act also directs the agencies to reduce the amount of

deposits of less than $100,000, not otherwise permissible under this

regulation, that may be accepted by foreign branches. This exemption,

characterized as a ``regulatory de minimis exemption'' by the

Interstate Act, reduces the amount of those deposits maintained by an

uninsured Federal branch under the exemption from 5% to 1% of the

average deposits held by that Federal branch.

The Interstate Act also directs the OCC to consider equal

competitive opportunities among foreign banks and United States banks

and the availability of credit to all sectors of the United States

economy, including international trade finance. One objective that

Congress expected the agencies to achieve in the implementation of this

regulation is to afford equal competitive opportunities to foreign and

United States banks by ensuring that foreign banks do not receive an

unfair competitive advantage in taking uninsured deposits.

The OCC proposal, in general, adopted the exceptions suggested by

Congress in the Interstate Act, but added several limited exemptions.

The OCC believes these additional limited exemptions are consistent

with the purposes of the Interstate Act. The preamble to the OCC's

proposal set forth in detail the information and data that the OCC

reviewed in considering this question. See 60 FR 34907, July 5, 1995.

The final rule adopts this provision as proposed with some changes as

described in the following discussion.

Nondeposit Banking Services (Sec. 28.16(b)(3))

The Interstate Act requires the OCC to consider whether to permit

an uninsured Federal branch to accept initial deposits of less than

$100,000 from persons to whom the branch or foreign bank has extended

credit or provided other nondeposit banking services. The OCC's

proposal provided that an uninsured Federal branch may accept initial

deposits of less than $100,000 from persons to whom the branch or

foreign bank has extended credit or provided other nondeposit banking

services within the past 12 months or has entered into an agreement to

provide those services within the next 12 months.

The proposal recognized that in a banking relationship a deposit

may, in some cases, precede the extension of credit or the provision of

other nondeposit banking services by the uninsured Federal branch or

foreign bank. In the proposal, the OCC also indicated that it was

considering clarifying this exemption to permit uninsured Federal

branches to accept deposits from persons, and their affiliates, to whom

the branch, foreign bank, or any financial institution affiliate

thereof has extended credit or provided other non-deposit banking

service within the past 12 months, or with whom the branch, bank, or

its financial institution affiliate has a written agreement to extend

credit to provide such services. The OCC did not receive any comments

opposing the clarification of this exemption.

One commenter strongly supported expanding the scope of this

exemption to include nondeposit banking services provided to the

depositor, or its affiliates, by financial affiliates of the foreign

bank. The commenter noted that, like United States banks, foreign banks

provide nondeposit banking services through affiliates for a variety of

regulatory and business reasons. Financial affiliates frequently

provide banking services to customers that can also be provided

directly by the bank. Similarly, depositors frequently conduct their

operations through affiliates. The commenter also suggested that the

OCC exercise its discretion under the Interstate Act to expand this

category to cover deposit services provided by the foreign bank or its

financial institution affiliates.

The OCC has adopted one of the commenter's recommendations. The

final rule expands the scope of this exemption to permit an uninsured

Federal branch to accept initial deposits of less than $100,000 from a

person to whom the branch, foreign bank, or an affiliate of the foreign

bank has extended credit or provided other nondeposit banking services

within the past 12 months or has a written agreement to provide credit

or those services within the next 12 months. The OCC believes that this

expansion is warranted by the connection among the foreign entity's

various components. Similarly, a customer who has a business

relationship with an affiliate of the foreign bank may prefer the

convenience of a deposit relationship with a Federal branch of the

foreign bank. Moreover, the deposit relationship with the branch may,

in some cases, precede the extension of credit or providing of other

nondeposit banking services by the branch or foreign bank or its

affiliates.

This expansion is supported by the language of the IBA, which

defines ``foreign bank'' to include any affiliate of a foreign bank.

See 12 U.S.C. 3101(7). Consistent with this exemption, affiliates of a

foreign bank include companies that are capable of extending credit or

providing some other nondeposit banking service to prospective

depositors. For example, affiliates of a foreign bank that provide

credit or other nondeposit banking services may include investment

advisors, broker-dealers, futures commission merchants, finance

companies, Edge corporations and Agreement corporations, commodity

trading advisors, other banks, or any other comparable institution.

The OCC does not find equally compelling the commenter's argument

to expand the exemption to include affiliates of the depositor, or to

expand

[[Page 19529]]

the transactions triggering the exemption to include providing deposit

services. There is no explicit statutory support in the IBA for this

expansion, or any indication in the Interstate Act that Congress

intended to include affiliates of persons to whom the branch or foreign

bank (including its affiliates) has extended credit or provided any

other nondeposit banking service. However, as a matter of convenience

to depositors, the final rule includes a provision in the exemption to

permit a Federal branch to accept deposits from immediate family

members of an individual to whom the branch or foreign bank (including

its affiliates) has extended credit or other nondeposit banking

services within the past 12 months or has entered into a written

agreement to provide such services within the next 12 months. The OCC

notes that it specifically requested comment on an exemption for

immediate family members in this section, and one commenter strongly

supported this proposal. The OCC received no opposing comments.

Business Deposits (Sec. 28.16(b)(4))

The Interstate Act requires the OCC to consider whether to permit

an uninsured branch to accept initial deposits of less than $100,000

from a foreign business or large United States business. The OCC has

determined that this exemption is consistent with the objectives in

section 6(a) of the IBA, 12 U.S.C. 3104. Consequently, the OCC,s

proposal provided that an uninsured Federal branch may accept initial

deposits of less than $100,000 from foreign businesses and large United

States businesses. The proposal defined ``large United States

business'' to mean any business entity organized under the laws of the

United States, and that has: (1) securities registered on a national

securities exchange or quoted on the National Associate of Securities

Dealers Automated Quotation System (NASDAQ); or (2) more than $1

million in annual gross revenues. The proposal specifically requested

comment on this definition, including the appropriateness of the

criteria and suggestions for alternative criteria. Two commenters

suggested modifications to this exemption.

One commenter urged the OCC to expand this exemption to permit an

uninsured Federal branch to accept deposits from all businesses. The

commenter believed that the Interstate Act gives the OCC and the FDIC

discretion because the Interstate Act directs the agencies to

``consider'' adopting the exemption categories listed in the statute.

The commenter noted that the ability of an uninsured Federal branch to

accept initial deposits of less than $100,000 from all businesses is

significant in maintaining and expanding credit availability to the

United States economy. However, the commenter did not offer more

specific information to support this assertion.

Alternatively, the commenter recommended that the OCC expand the

exemption criteria to include businesses with: (1) $1 million in total

assets; (2) 50 or more employees; or (3) affiliates of large United

States businesses. The commenter suggested that the OCC expand the

proposed criteria for large United States businesses to accommodate the

wide range of different circumstances of business entities. For

example, a foundation or trust would not be listed on a national

securities exchange and may not generate revenues, although it could be

considered large in terms of its total assets or employees. Also, the

commenter proposed that the OCC should treat a large United States

business and its affiliates as a group.

Another commenter, however, recommended narrowing the exemption by

increasing the $1 million annual gross revenue amount required for

large United States businesses to between $25 and $100 million.

Furthermore, the commenter suggested imposing conditions under which a

domestic business may open an account with an uninsured Federal branch.

The commenter argued that using a $1 million cut-off would include a

great number of domestic businesses and would undermine the purpose of

the restriction. This commenter did not offer any more specific

arguments to support its recommendation.

In the final rule, the OCC clarifies that the definition of ``large

United States business'' includes non-profit institutions, such as

foundations. In the absence of data supporting an alternative

definition of ``large United States business,'' however, the OCC has

decided not to make any other changes in the definition in the final

rule. The OCC believes that the proposal represents a reasonable

balance between Congress' concern that foreign banks and United States

banks be provided equal competitive opportunities and the importance of

maintaining credit to all sectors of the United States economy. At the

same time, additional criteria or more specific conditions under which

business deposits can be made, as proposed by one commenter, would make

the exemption more complex and difficult to administer by uninsured

Federal branches, without clear evidence that it would further the

purposes of the Interstate Act.

Other Categories of Depositors (Sec. 28.16(b) (1), (2), (6) and (8))

One commenter expressed support for the other categories of exempt

depositors proposed by the OCC. The proposal included a list of nine

types of persons or entities from which an uninsured Federal branch may

accept initial deposits of less than $100,000. In particular, the

commenter supported the exemptions for Federal and state governments,

individuals who are neither citizens nor residents of the United

States, individuals who are not United States citizens, but who are

residents of the United States and are employed by a foreign bank,

foreign business, foreign government or recognized international

organization, and deposits made in connection with the issuance of a

financial instrument for the transmission of funds. The OCC did not

receive any comments suggesting changes to these categories, and the

final rule adopts the other depositor exemption categories as proposed.

De minimis Deposits (Sec. 28.16(b)(9)) and Transition rule

(Sec. 28.16(f))

The Interstate Act, 12 U.S.C. 3104 note, requires that the OCC

reduce the amount of deposits of less than $100,000 that an uninsured

Federal branch may accept from any party under the de minimis exemption

from 5% to 1% of the branch's average deposits.1 The Interstate

Act also permits the OCC to establish reasonable transition rules to

facilitate the termination of any deposit-taking activities that would

no longer be permissible under the new regulatory exemptions.

---------------------------------------------------------------------------

1 The de minimis calculation methodology remains

unchanged from the current rule and is consistent with the

calculation methodology used by the FDIC for state-licensed

branches.

---------------------------------------------------------------------------

As required, the OCC's proposal reduced the amount of the de

minimis exemption from 5% to 1% of an uninsured Federal branch's

average deposits. In addition, the proposal provided a five-year

transition period for all currently exempted accounts, other than time

deposits. During the transition period, branches would have to

reclassify deposits accepted under the current set of exemptions into

one of the new exemptions, or terminate those deposit accounts that do

not qualify for an exemption under this regulation as of the end of the

transition period. The transition period for a time deposit would be

until maturity of the deposit, at which time the branch must reclassify

the deposit under a new exemption,

[[Page 19530]]

obtain a special exemption from the OCC for the specific deposit, or

terminate the deposit relationship. An uninsured branch may continue to

accept deposits for an existing account that does not qualify for an

exemption until the end of the transition period.

One commenter addressed the de minimis deposit and transition

provisions of the proposal. The commenter supported the general

approach of the five-year phase-in period. However, the commenter

suggested the following modifications. First, the commenter suggested

that the reclassification of initial deposits of less than $100,000

that were accepted under the current regulation should apply only to

those deposits that were accepted under the current 5% de minimis test.

In other words, the commenter thought it unnecessary to apply the

reclassification requirement to all deposits maintained by uninsured

branches under the current set of exemptions as the proposal provided.

The OCC considered this option and decided to adopt the requirement

as proposed. The OCC interprets the Interstate Act to require

reclassification of all deposits maintained by an uninsured Federal

branch under the current exemptions. Those exemptions include deposits

received, not only under the 5% de minimis exemption, but also deposits

received under other current exemptions that no longer apply under the

final rule. The OCC believes that its interpretation is more consistent

with the Interstate Act and its legislative history which appear to

contemplate a transition period for all existing exempted deposits,

i.e., not only for the de minimis deposits. In addition, the OCC has

provided a five-year transition period for reclassification to reduce

any disruption imposed by reclassification. In the final rule, the OCC

clarifies that accounts accepted under all the existing regulatory

exemptions must be reclassified during the transition period.

Second, the commenter requested clarification regarding the

transition rule. The commenter requested that the OCC confirm that the

reclassification of initial deposits of less than $100,000 could take

place at any time during the phase-in period depending on the

circumstances of the deposit account. The OCC confirms that a deposit,

including a time deposit, may be reclassified at any time during the

five-year transition period, but a time deposit is not required to be

reclassified until its maturity date.

Third, the commenter addressed the transition period for time

deposits. The proposal provided that the transition period for a time

deposit would be until maturity of the deposit, at which time the

branch must reclassify the deposit under a new exemption or obtain a

special exemption from the OCC for the specific deposit. The commenter

pointed out that time deposits can be as short as seven days in

duration, and, therefore, a branch would have an unreasonably short

period of time to reclassify many of its time deposits. The commenter

recommended that the OCC delay the effective date for the requirement

to begin reclassifying time deposits once they mature until six months

after publication of the final rule.

The OCC recognizes that the proposal may provide insufficient time

to reclassify time deposits that mature shortly after the effective

date of the regulation. Therefore, the final rule provides, in the case

of time deposits, that an uninsured Federal branch has until the

maturity of the time deposit or 90 days after the effective date of the

final rule, whichever is longer, to reclassify the deposit. The OCC

believes that 90 days from the effective date of the final rule is a

reasonable period of time to reclassify time deposits that mature

shortly after the effective date of the regulation.

Fourth, the commenter requested clarification regarding the

applicability of Sec. 28.16 to accounts established with deposits of

$100,000 or more before the effective date of this regulation.

Specifically, the commenter pointed out that the proposed definition of

``initial deposit'' may conflict with the commenter's understanding

that accounts established with a deposit of $100,000 or more before the

effective date of the final rule would not be subject to the

reclassification requirement. The proposal defined ``initial deposit''

as the first deposit received after the effective date of the final

rule. The commenter noted that, under the proposal, after the effective

date of the final rule the first deposit to an existing account of, for

example, $10,000 that was initially opened with a deposit of $100,000

or more would be subject to this section although the original deposit

of $100,000 or more was not subject to the current regulation. The

commenter requested confirmation that existing deposits that were not

subject to the exemptions because the initial deposit was $100,000 or

more would not be subject to the revised regulation, even if the first

deposit in the account after the effective date of the revised

regulation was less than $100,000.

The commenter's interpretation is correct. Only initial deposits of

less than $100,000 that were received under one of the current sets of

exemptions under the current regulation are subject to the

reclassification requirements in the final rule. Accordingly, the OCC

changed the proposed definition of ``initial deposit'' to provide that

a ``first deposit'' means any deposit when there is no current deposit

relationship between the depositor and the Federal branch.

Notice of Change in Activity or Operations (Sec. 28.17)

The proposal added this section to clarify the OCC's policy

regarding notice requirements for certain changes in activities and

operations. The proposal required a Federal branch or agency to provide

a notice to the OCC when changing its corporate title or mailing

address, converting to a state branch, state agency, or a

representative office, or when its parent foreign bank changes its home

state designation.

The final rule removes proposed paragraphs (b) and (c) of this

section concerning where to file and when the OCC would accept notices

filed with other banking agencies. In order to provide this information

for all filings and requests under this subpart, the final rule

contains this information in Sec. 28.10(c).

Recordkeeping and Reporting (Sec. 28.18)

The proposal restated current OCC policy and practice requiring a

parent foreign bank to provide the OCC with information regarding its

affairs. The proposal also added a specific requirement that a foreign

bank operating a Federal branch or agency in the United States provide

the OCC with a copy of regulatory reports that it files with other

Federal regulatory agencies that are designated in guidance issued by

the OCC. The proposal also clarified that, while a Federal branch or

agency does not need to maintain all records in English, it must

maintain sufficient records in English to permit examiners to perform

their responsibilities. The OCC received no comments on this section

and has made no changes in the final rule.

Maintenance of Assets (Sec. 28.20)

The proposal clarified the current asset maintenance requirements

for Federal branches and agencies. Because the OCC believes that the

importance of the asset maintenance requirement as a supervisory tool

may increase in the future, the proposal requested comment on whether

the level of detail provided in the proposal adequately clarified the

use and scope of the provision to the industry. The OCC also requested

comment on the exclusion of classified assets. The OCC received no

comments

[[Page 19531]]

on either issue and made no changes in the final rule.

Termination of a Federal Branch or Agency (Sec. 28.23)

The proposal clarified the OCC's authority to terminate Federal

branches and agencies. The proposal explicitly spelled out the grounds

for termination in section 4(i) of the IBA, 12 U.S.C. 3102(i), and the

grounds for national bank termination in 12 U.S.C. 191 and 12 U.S.C.

1821(c)(5). It also stated that a recommendation from the FRB to

terminate a Federal branch or agency could constitute grounds for

termination. The OCC received no comments on this section.

The OCC further clarifies this section in the final rule by

including a reference to termination of a Federal branch or agency

based on the foreign bank's insolvency, as specified in section 4(j)(1)

of the IBA, 12 U.S.C. 3102(j)(1). In other respects, the final rule is

unchanged from the proposal.

Subpart C--International Lending Supervision

Allocated Transfer Risk Reserve (Sec. 28.52) and Accounting for Fees on

International Loans (Sec. 28.53)

This subpart implements the requirements of the International

Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.). Subpart C

requires national banks and District of Columbia banks to establish

reserves against the risks presented in certain international assets

and sets forth the accounting for various fees received by the banks

when making international loans.

This subpart is subpart B of part 20 in the current regulation. The

proposal relocated this subpart to subpart C of part 28. Because

subpart B of part 20 was originally promulgated in cooperation with the

FRB and the FDIC, the OCC intends to review the subpart with those

agencies in the future, and, therefore, the OCC made no substantive

changes to this subpart in the proposal. Public comment was invited on

the subpart in order to bring particular issues to the OCC's attention.

One commenter recommended that the accounting provisions in the

proposal be amended to be uniform among the Federal banking regulatory

agencies and consistent with generally accepted accounting principles

and various Financial Accounting Standards Board Statements. The

commenter also requested clarification of regulatory accounting

practices for the allocated transfer risk reserve as it relates to the

allowance for loan and lease losses. The OCC will address these issues

when the subpart is reviewed with the FRB and the FDIC.

Technical Changes to Part 5

Insofar as the final rule consolidates all substantive rules

regarding the corporate activities of Federal branches and agencies

into part 28, the OCC removes those sections in 12 CFR part 5 that

concern Federal branches and agencies. However, the final rule points

out, in Sec. 28.10(c), that the rules of general applicability in part

5 apply to a Federal branch or agency as they would to a national bank

undertaking a similar transaction, unless otherwise stated in part 28.

Derivation Table

This table directs readers to the original provision upon which the

revised provision is based.

------------------------------------------------------------------------

Revised provision Original provision Comments

------------------------------------------------------------------------

Sec. 28.2...................... Sec. 20.2........ Modified.

Sec. 28.3...................... Secs. 20.3, 20.4. Significant

change.

Sec. 28.4(a)................... .................. Added.

Sec. 28.4(b)................... 12 CFR 7.7010(b) Modified.

(1995).

Sec. 28.4(c)................... 12 CFR 7.1012 No change.

(1995).

Sec. 20.5........ Removed.

Sec. 28.11..................... Sec. 28.2........ Significant

change.

Sec. 28.12..................... Sec. 28.3........ Significant

change.

Sec. 28.13..................... Sec. 28.4........ Significant

change.

Sec. 28.14..................... Sec. 28.5........ Modified.

Sec. 28.15..................... Sec. 28.6........ Significant

change.

Sec. 28.16..................... Sec. 28.8........ Significant

change.

Sec. 28.17..................... .................. Added.

Sec. 28.18..................... Sec. 28.10....... Significant

change.

Sec. 28.19..................... .................. Added.

Sec. 28.20..................... Sec. 28.9........ Significant

change.

Sec. 28.22..................... .................. Added.

Sec. 28.23..................... .................. Added.

Subpart C....................... Subpart B of part No change.

20.

Sec. 5.23........ Removed.

Sec. 5.25........ Removed.

Sec. 5.32........ Removed.

Sec. 5.41........ Removed.

Sec. 5.43........ Removed .

------------------------------------------------------------------------

Regulatory Flexibility Act

It is hereby certified that this regulation will not have a

significant economic impact on a substantial number of small entities.

Accordingly, a regulatory flexibility analysis is not required. This

regulation will reduce the regulatory burden on national banks and

Federal branches and agencies of foreign banks, regardless of size, by

simplifying and clarifying existing regulations.

Executive Order 12866

The OCC has determined that this final rule is not a significant

regulatory action.

Unfunded Mandates Reform Act of 1995

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

104-4, 109 Stat. 48 (March 22, 1995) (Unfunded Mandates Act), requires

that an agency prepare a budgetary impact statement before promulgating

a rule that includes a Federal mandate that may result in the

expenditure by state, local, and tribal governments, in the aggregate,

or by the private sector, of $100 million or more in any one year. If a

budgetary impact statement is required, section 205 of the Unfunded

Mandates Act also requires an agency to identify and consider a

reasonable number of regulatory alternatives before promulgating a

rule. Because the OCC has determined that the final rule will not

result in expenditures by state, local, and tribal governments, or by

the private sector, of more than $100 million in any one year, the OCC

has not prepared a budgetary impact statement or specifically addressed

the regulatory alternatives considered. Nevertheless, as discussed in

the preamble, the final rule has the effect of reducing burden.

Paperwork Reduction Act of 1995

The collection of information requirements contained in this final

rule have received approval from the Office of Management and Budget in

accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.

3507(d)), under OMB control number 1557-0102. Comments on the

collection of information should be sent to the Office of Management

and Budget, Paperwork Reduction Project 1557-0204, Washington, DC

20503, with copies to the Legislative and Regulatory Activities

Division 1557- 0204, Office of the Comptroller of the Currency, 250 E

Street, SW, Washington, DC 20219. The OCC will submit the collection of

information requirements contained in this final rule for renewal of

OMB approval following publication of this final rule.

The collection of information requirements in this rule are found

in 12 CFR 28.3, 28.10, 28.13, 28.14, 28.15, 28.16, 28.17, 28.18, 28.20,

28.52, 28.53, and 28.54. The collections of information are necessary

for regulatory and examination purposes, for Federal

[[Page 19532]]

branches and agencies and national banks with foreign operations to

ensure their compliance with Federal law and regulations, and to

evidence compliance with various regulatory requirements. This

information assists management in its safe and sound operation of the

institution. The OCC uses the information to evaluate national banks

with international operations and Federal branches and agencies for

supervisory, prudential, and legal purposes, and for statistical and

examination purposes.

Respondents are not required to respond to the foregoing collection

of information unless it displays a currently valid OMB control number.

The likely respondents are foreign banks and national banks.

Estimated average annual burden hours per recordkeeper: 36.3 hours.

Estimated number of recordkeepers: 185.

Estimated total annual recordkeeping burden: One per year.

Start-up costs to respondents: none.

List of Subjects

12 CFR Part 5

Administrative practice and procedure, National banks, Reporting

and recordkeeping requirements, Securities.

12 CFR Part 20

Foreign banking, National banks, Reporting and recordkeeping

requirements.

12 CFR Part 28

Foreign banking, National banks, Reporting and recordkeeping

requirements.

Authority and Issuance

For the reasons set out in the preamble and under the authority of

12 U.S.C. 93a, 602, and 3108, chapter I of title 12 of the Code of

Federal Regulations is amended as set forth below:

PART 5--[AMENDED]

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

Authority: 12 U.S.C. 1 et seq., 93a.

Sec. 5.23 [Removed]

2. Section 5.23 is removed.

Sec. 5.25 [Removed]

3. Section 5.25 is removed.

Sec. 5.32 [Removed]

4. Section 5.32 is removed.

Sec. 5.41 [Removed]

5. Section 5.41 is removed.

Sec. 5.43 [Removed]

6. Section 5.43 is removed.

PART 20--[REMOVED]

7. Part 20 is removed.

8. Part 28 is revised to read as follows:

PART 28--INTERNATIONAL BANKING ACTIVITIES

Subpart A--Foreign Operations of National Banks

Sec.

28.1 Authority, purpose, and scope.

28.2 Definitions.

28.3 Filing requirements for foreign operations of a national bank.

28.4 Permissible activities.

28.5 Filing of notice.

Subpart B--Federal Branches and Agencies of Foreign Banks

28.10 Authority, purpose, scope, and filing requirements.

28.11 Definitions.

28.12 Approval of a Federal branch or agency.

28.13 Permissible activities.

28.14 Limitations based upon capital of a foreign bank.

28.15 Capital equivalency deposits.

28.16 Deposit-taking by an uninsured Federal branch.

28.17 Notice of change in activity or operations.

28.18 Recordkeeping and reporting.

28.19 Enforcement.

28.20 Maintenance of assets.

28.21 Service of process.

28.22 Voluntary liquidation.

28.23 Termination of a Federal branch or agency.

Subpart C--International Lending Supervision

28.50 Authority, purpose, and scope.

28.51 Definitions.

28.52 Allocated transfer risk reserve.

28.53 Accounting for fees on international loans.

28.54 Reporting and disclosure of international assets.

Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108,

and 3901 et seq.

Subpart A--Foreign Operations of National Banks

Sec. 28.1 Authority, purpose, and scope.

(a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et

seq., 24(Seventh), 93a, and 602.

(b) Purpose. This subpart sets forth filing requirements for

national banks that engage in international operations and clarifies

permissible foreign activities of national banks.

(c) Scope. This subpart applies to any national bank that engages

in international operations through a foreign branch, or acquires an

interest in an Edge corporation, Agreement corporation, foreign bank,

or certain other foreign organizations.

Sec. 28.2 Definitions.

For purposes of this subpart:

(a) Agreement corporation means a corporation having an agreement

or undertaking with the Board of Governors of the Federal Reserve

System (FRB) under section 25 of the Federal Reserve Act (FRA), 12

U.S.C. 601 through 604a.

(b) Edge corporation means a corporation that is organized under

section 25(a) of the FRA, 12 U.S.C. 611 through 631.

(c) Foreign bank means an organization that:

(1) Is organized under the laws of a foreign country;

(2) Engages in the business of banking;

(3) Is recognized as a bank by the bank supervisory or monetary

authority of the country of its organization or principal banking

operations;

(4) Receives deposits to a substantial extent in the regular course

of its business; and

(5) Has the power to accept demand deposits.

(d) Foreign branch means an office of a national bank (other than a

representative office) that is located outside the United States at

which banking or financing business is conducted.

(e) Foreign country means one or more foreign nations, and includes

the overseas territories, dependencies, and insular possessions of

those nations and of the United States, and the Commonwealth of Puerto

Rico.

Sec. 28.3 Filing requirements for foreign operations of a national

bank.

(a) Notice requirement. A national bank shall notify the OCC when

it:

(1) Files an application, notice, or report with the FRB to:

(i) Establish, open, close, or relocate a foreign branch; or

(ii) Acquire or divest of an interest in, or close, an Edge

corporation, Agreement corporation, foreign bank, or other foreign

organization; or

(2) Opens, closes, or relocates a foreign branch, and no

application or notice is required by the FRB for such transaction.

(b) Other applications and notices accepted. In lieu of a notice

under paragraph (a)(1) of this section, the OCC may accept a copy of an

application, notice, or report submitted to another Federal agency that

covers the proposed action and contains substantially the same

information required by the OCC.

(c) Additional information. A national bank shall furnish the OCC

with any additional information the OCC may require in connection with

the national bank's foreign operations.

[[Page 19533]]

Sec. 28.4 Permissible activities.

(a) General. Subject to the applicable approval process, if any, a

national bank may engage in any activity in a foreign country that is:

(1) Permissible for a national bank in the United States; and

(2) Usual in connection with the business of banking in the country

where it transacts business.

(b) Additional activities. In addition to its general banking

powers, a national bank may engage in any activity in a foreign country

that is permissible under the FRB's Regulation K, 12 CFR part 211.

(c) Foreign operations guarantees. A national bank may guarantee

the deposits and other liabilities of its Edge corporations and

Agreement corporations and of its corporate instrumentalities in

foreign countries.

Sec. 28.5 Filing of notice.

(a) Where to file. A national bank shall file any notice or

submission required under this subpart with the Office of the

Comptroller of the Currency, International Banking and Finance, 250 E

Street SW, Washington, DC 20219.

(b) Availability of forms. Individual forms and instructions for

filings are available from International Banking and Finance.

Subpart B--Federal Branches and Agencies of Foreign Banks

Sec. 28.10 Authority, purpose, scope, and filing requirements.

(a) Authority. This subpart is issued pursuant to the authority in

the International Banking Act of 1978 (IBA), 12 U.S.C. 3101 et seq.,

and 12 U.S.C. 93a.

(b) Purpose and scope. This subpart implements the IBA pertaining

to the licensing, supervision, and operations of Federal branches and

agencies in the United States.

(c) Filing requirements--(1) Rules of general applicability. Except

as otherwise provided by the OCC, the rules of general applicability in

12 CFR part 5 apply to any filing by a foreign bank, or Federal branch

or agency as they would to a similar filing by a national bank.

(2) Where to file. A foreign bank or a Federal branch or agency

shall file any notice or submission required under this subpart with

the Office of the Comptroller of the Currency, International Banking

and Finance, 250 E Street SW, Washington, DC 20219.

(3) Availability of forms. Individual forms and instructions for

filings are available from International Banking and Finance.

(4) Other notices accepted. The OCC accepts a copy of an

application form, notice, or report submitted to another Federal

regulatory agency that covers the proposed action and contains

substantially the same information as would be required by the OCC. The

OCC may also require the applicant to submit supplemental information.

Sec. 28.11 Definitions.

For purposes of this subpart:

(a) Affiliate means any entity that controls, is controlled by, or

is under common control with another entity.

(b) Agreement corporation means a corporation having an agreement

or undertaking with the FRB under section 25 of the FRA, 12 U.S.C. 601

through 604a.

(c) Capital equivalency deposit means a deposit by a Federal branch

or agency in a member bank as described in section 4 of the IBA, 12

U.S.C. 3102(g).

(d) Change the status of an office means conversion of a:

(1) State branch or state agency operated by a foreign bank, or a

commercial lending company controlled by a foreign bank, into a Federal

branch, limited Federal branch, or Federal agency;

(2) Federal agency into a Federal branch or limited Federal branch;

(3) Federal branch into a limited Federal branch or Federal agency;

or

(4) Limited Federal branch into a Federal branch or Federal agency.

(e) Control. An entity controls another entity if the entity

directly or indirectly controls or has the power to vote 25 percent or

more of any class of voting securities of the other entity or controls

in any manner the election of a majority of the directors or trustees

of the other entity.

(f) Edge corporation means a corporation that is organized under

section 25(a) of the FRA, 12 U.S.C. 611 through 631.

(g) Establish a Federal branch or agency means to:

(1) Open and conduct business through a Federal branch or agency;

(2) Acquire directly or indirectly through merger, consolidation,

or similar transaction with another foreign bank, the operations of a

Federal branch or agency that is open and conducting business;

(3) Acquire a Federal branch or agency through the acquisition of a

foreign bank subsidiary that will cease to operate in the same

corporate form following the acquisition;

(4) Change the status of an office; or

(5) Relocate a Federal branch or agency within a state or from one

state to another.

(h) Federal agency means an office or place of business, licensed

by the OCC and operated by a foreign bank in any state, that may engage

in the business of banking, including maintaining credit balances,

cashing checks, and lending money, but may not accept deposits from

citizens or residents of the United States. Obligations may not be

considered credit balances unless they are:

(1) Incidental to, or arise out of the exercise of, other lawful

banking powers;

(2) To serve a specific purpose;

(3) Not solicited from the general public;

(4) Not used to pay routine operating expenses in the United States

such as salaries, rent, or taxes;

(5) Withdrawn within a reasonable period of time after the specific

purpose for which they were placed has been accomplished; and

(6) Drawn upon in a manner reasonable in relation to the size and

nature of the account.

(i) Federal branch means an office or place of business, licensed

by the OCC and operated by a foreign bank in any state, that may engage

in the business of banking, including accepting deposits, that is not a

Federal agency as defined in paragraph (h) of this section.

(j) Foreign bank means an organization that is organized under the

laws of a foreign country, a territory of the United States, Puerto

Rico, Guam, American Samoa, or the Virgin Islands, and that engages

directly in the business of banking in a foreign country.

(k) Foreign business means any entity, including a corporation,

partnership, sole proprietorship, association, foundation or trust that

is organized under the laws of a foreign country, or any United States

entity that is controlled by a foreign entity or foreign national.

(l) Foreign country means one or more foreign nations, and includes

the overseas territories, dependencies, and insular possessions of

those nations and of the United States, and the Commonwealth of Puerto

Rico.

(m) Home country means the country in which the foreign bank is

chartered or incorporated.

(n) Home country supervisor means the governmental entity or

entities in the foreign bank's home country responsible for supervising

and regulating the foreign bank.

(o) Home state of a foreign bank means the state in which the

foreign bank has a branch, agency, subsidiary commercial lending

company, or subsidiary bank. If a foreign bank has an office in more

than one state, the home

[[Page 19534]]

state of the foreign bank is the state that is selected to be the home

state by the foreign bank or, in default of the foreign bank's

selection, by the FRB.

(p) Immediate family member of an individual means the spouse,

father, mother, brother, sister, son, or daughter of that individual.

(q) Initial deposit means the first deposit transaction between a

depositor and the Federal branch made on or after July 1, 1996. The

initial deposit may be placed into different deposit accounts or into

different kinds of deposit accounts, such as demand, savings, or time

accounts. Deposit accounts that are held by a depositor in the same

right and capacity may be added together for the purpose of determining

the dollar amount of the initial deposit. First deposit means the

deposit made when there is no current deposit relationship between the

depositor and the Federal branch.

(r) International banking facility means a set of asset and

liability accounts segregated on the books and records of a depository

institution, a United States branch or agency of a foreign bank, or an

Edge corporation or Agreement corporation, that includes only

international banking facility time deposits and extensions of credit.

(s) Large United States business means any business entity

including a corporation, company, partnership, sole proprietorship,

association, foundation or trust that is organized under the laws of

the United States or any state thereof, and has:

(1) Securities registered on a national securities exchange or

quoted on the National Association of Securities Dealers Automated

Quotation System; or

(2) More than $1 million in annual gross revenues for the fiscal

year immediately preceding the year of the initial deposit.

(t) Limited Federal branch means a Federal branch that, pursuant to

an agreement between the parent foreign bank and the FRB, may receive

only those deposits permissible for an Edge corporation to receive.

(u) Managed or controlled by a Federal branch or agency means that

a majority of the responsibility for business decisions, including

decisions with regard to lending, asset management, funding, or

liability management, or the responsibility for recordkeeping of assets

or liabilities for a non-United States office, resides at the Federal

branch or agency. For purposes of this definition, forwarding data or

information of offshore operations gathered or compiled by the United

States office in the normal course of business to the parent foreign

bank does not constitute recordkeeping.

(v) Manual means the Comptroller's Manual for Corporate Activities

(see 12 CFR part 5).

(w) Parent foreign bank senior management means individuals at the

executive level of the parent foreign bank who are responsible for

supervising and authorizing activities of the Federal branch or agency.

(x) Person means an individual or a corporation, government,

partnership, association, or any other entity.

(y) State means any state of the United States and the District of

Columbia.

(z) United States bank means a bank organized under the laws of the

United States or any state.

Sec. 28.12 Approval of a Federal branch or agency.

(a) Approval requirements. A foreign bank shall submit an

application to and obtain prior approval from the OCC before it:

(1) Establishes a Federal branch, Federal agency, or limited

Federal branch; or

(2) Exercises fiduciary powers at a Federal branch. (A foreign bank

may submit an application to exercise fiduciary powers at the time of

filing an application for a Federal branch or at any subsequent date.)

(b) Standards for approval. Generally, in reviewing an application

by a foreign bank to establish a Federal branch or agency, the OCC

considers:

(1) The financial and managerial resources and future prospects of

the applicant foreign bank and the Federal branch or agency;

(2) Whether the foreign bank has furnished to the OCC the

information the OCC requires to assess the application adequately, and

provided the OCC with adequate assurances that information will be made

available to the OCC on the operations or activities of the foreign

bank or any of its affiliates that the OCC deems necessary to determine

and enforce compliance with the IBA and other applicable Federal

banking statutes;

(3) Whether the foreign bank and its United States affiliates are

in compliance with applicable United States law;

(4) The convenience and needs of the community to be served and the

effects of the proposal on competition in the domestic and foreign

commerce of the United States;

(5) Whether the foreign bank is subject to comprehensive

supervision or regulation on a consolidated basis by its home country

supervisor; and

(6) Whether the home country supervisor has consented to the

proposed establishment of the Federal branch or agency.

(c) Comprehensive supervision or regulation on a consolidated

basis. In determining whether a foreign bank is subject to

comprehensive supervision or regulation on a consolidated basis, the

OCC reviews various factors, including whether the foreign bank is

supervised or regulated in a manner so that its home country supervisor

receives sufficient information on the worldwide operations of the

foreign bank to assess the foreign bank's overall financial condition

and compliance with laws and regulations as specified in the FRB's

Regulation K, 12 CFR 211.24.

(d) Conditions on approval. The OCC may impose conditions on its

approval including a condition permitting future termination of

activities based on the inability of the foreign bank to provide

information on its activities, or those of its affiliate, that the OCC

deems necessary to determine and enforce compliance with United States

banking laws.

(e) Expedited review. Unless the OCC concludes that the filing

presents significant supervisory or compliance concerns, or raises

significant legal or policy issues, the OCC generally processes the

following filings by an eligible foreign bank, as defined in paragraph

(f) of this section, under expedited review procedures:

(1) Intrastate relocations. An application submitted by an eligible

foreign bank to relocate a Federal branch or agency within a state is

deemed approved by the OCC as of the seventh day after the close of the

applicable public comment period in 12 CFR part 5, unless the OCC

notifies the bank prior to that date that the filing is not eligible

for expedited review.

(2) Change of status. An application to change the status of an

office submitted by an eligible foreign bank is deemed approved by the

OCC 45 days after filing with the OCC, unless the OCC notifies the bank

prior to that date that the filing is not eligible for expedited

review.

(3) Fiduciary powers. An application submitted by an eligible

foreign bank to exercise fiduciary powers at an established Federal

branch is deemed approved by the OCC 30 days after filing with the OCC,

unless the OCC notifies the bank prior to that date that the filing is

not eligible for expedited review.

(4) Other filings. Any other application submitted by an eligible

foreign bank may be approved by the OCC on an expedited basis as

described in the Manual.

[[Page 19535]]

(f) Eligible foreign bank. For purposes of this section, a foreign

bank is an eligible foreign bank if each Federal branch and agency of

the foreign bank in the United States:

(1) Has a composite rating of 1 or 2 under the interagency rating

system for United States branches and agencies of foreign banks;

(2) Is not subject to a cease and desist order, consent order,

formal written agreement, Prompt Corrective Action directive (see 12

CFR part 6) or, if subject to such order, agreement, or directive, is

informed in writing by the OCC that the Federal branch or agency may be

treated as an ``eligible foreign bank'' for purposes of this section;

and

(3) Has, if applicable, a Community Reinvestment Act (CRA), 12

U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory''.

(g) After-the-fact approval. Unless otherwise provided by the OCC,

a foreign bank proposing to establish a Federal branch or agency

through the acquisition of, or merger or consolidation with, a foreign

bank that has an office in the United States, may proceed with the

transaction before an application to establish the Federal branch or

agency has been filed or acted upon, if the applicant:

(1) Gives the OCC reasonable advance notice of the proposed

acquisition, merger, or consolidation;

(2) Prior to consummation of the acquisition, merger, or

consolidation, commits in writing to comply with the OCC application

procedures within a reasonable period of time, or has already submitted

an application; and

(3) Commits in writing to abide by the OCC's decision on the

application, including a decision to terminate activities of the

Federal branch or agency.

(h) Procedures for approval. A foreign bank shall file an

application for approval pursuant to this section in accordance with 12

CFR part 5 and the Manual.

(i) Additional requirements. Nothing in this section relieves a

foreign bank of any requirement to obtain the approval of the FRB as

may be necessary under the FRB's Regulation K, 12 CFR part 211.

Sec. 28.13 Permissible activities.

(a) Applicability of laws--(1) General. Except as otherwise

provided by the IBA, other Federal laws or regulations, or otherwise

determined by the OCC, the operations of a foreign bank at a Federal

branch or agency shall be conducted with the same rights and privileges

and subject to the same duties, restrictions, penalties, liabilities,

conditions, and limitations that would apply if the Federal branch or

agency were a national bank operating at the same location.

(2) Parent foreign bank senior management approval. Unless

otherwise provided by the OCC, any provision in law, regulation,

policy, or procedure that requires a national bank to obtain the

approval of its board of directors will be deemed to require a Federal

branch or agency to obtain the approval of parent foreign bank senior

management.

(b) Management of shell branches-- (1) Federal branches and

agencies. A Federal branch or agency of a foreign bank shall not

manage, through an office of the foreign bank that is located outside

the United States and that is managed or controlled by that Federal

branch or agency, any type of activity that a United States bank is not

permitted to manage at any branch or subsidiary of the United States

bank that is located outside the United States.

(2) Activities managed in foreign branches or subsidiaries of

United States banks. The types of activities referred to in paragraph

(b)(1) of this section include the types of activities authorized to a

United States bank by state or Federal charters, regulations issued by

chartering or regulatory authorities, and other United States banking

laws. However, United States procedural or quantitative requirements

that may be applicable to the conduct of those activities by United

States banks do not apply.

(c) Additional guidance regarding permissible activities. For

purposes of section 7(h) of the IBA, 12 U.S.C. 3105(h), the OCC may

issue opinions, interpretations, or rulings regarding permissible

activities of Federal branches.

Sec. 28.14 Limitations based upon capital of a foreign bank.

(a) General. Any limitation or restriction based upon the capital

of a national bank shall be deemed to refer, as applied to a Federal

branch or agency, to the dollar equivalent of the capital of the

foreign bank.

(b) Calculation. Unless otherwise provided by the OCC, a foreign

bank must calculate its capital in a manner consistent with 12 CFR part

3, for purposes of this section.

(c) Aggregation. The foreign bank shall aggregate business

transacted by all Federal branches and agencies with the business

transacted by all state branches and state agencies controlled by the

foreign bank in determining its compliance with limitations based upon

the capital of the foreign bank. The foreign bank shall designate one

Federal branch or agency office in the United States to maintain

consolidated information so that the OCC can monitor compliance.

Sec. 28.15 Capital equivalency deposits.

(a) Capital equivalency deposits--(1) General. For purposes of

section 4(g) of the IBA, 12 U.S.C. 3102(g), unless otherwise provided

by the OCC, a foreign bank's capital equivalency deposits (CED) must

consist of:

(i) Investment securities eligible for investment by national

banks;

(ii) United States dollar deposits payable in the United States,

other than certificates of deposit;

(iii) Certificates of deposit, payable in the United States, and

banker's acceptances, provided that, in either case, the issuer or the

instrument is rated investment grade by an internationally recognized

rating organization, and neither the issuer nor the instrument is rated

lower than investment grade by any such rating organization that has

rated the issuer or the instrument; or

(iv) Other assets permitted by the OCC to qualify as CED.

(2) Legal requirements. The agreement with the depository bank to

hold the CED and the amount of the deposit must comply with the

requirements in section 4(g) of the IBA, 12 U.S.C. 3102(g). If a

foreign bank has more than one Federal branch or agency in a state, it

shall determine the CED and the amount of liabilities requiring capital

equivalency coverage on an aggregate basis for all the foreign bank's

Federal branches or agencies in that state.

(b) Increase in capital equivalency deposits. For prudential or

supervisory reasons, the OCC may require, in individual cases or

otherwise, that a foreign bank increase its CED above the minimum

amount.

(c) Value of assets. The obligations referred to in paragraph (a)

of this section must be valued at principal amount or market value,

whichever is lower.

(d) Deposit arrangements. A foreign bank should require its

depository bank to segregate its CED on the depository bank's books and

records. The funds deposited and obligations referred to in paragraph

(a) of this section that are placed in safekeeping at a depository bank

to satisfy a foreign bank's CED requirement:

(1) May not be reduced in aggregate value by withdrawal without the

prior approval of the OCC;

(2) Must be pledged and maintained pursuant to an agreement

prescribed by the OCC; and

[[Page 19536]]

(3) Must be free from any lien, charge, right of setoff, credit, or

preference in connection with any claim of the depository bank against

the foreign bank.

(e) Maintenance of capital equivalency ledger account. Each Federal

branch or agency shall maintain a capital equivalency account and keep

records of the amount of liabilities requiring capital equivalency

coverage in a manner and form prescribed by the OCC.

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

(a) Policy. In carrying out this section, the OCC shall consider

the importance of according foreign banks competitive opportunities

equal to those of United States banks and the availability of credit to

all sectors of the United States economy, including international trade

finance.

(b) General. An uninsured Federal branch may accept initial

deposits of less than $100,000 only from:

(1) Individuals who are not citizens or residents of the United

States at the time of the initial deposit;

(2) Individuals who are not citizens of the United States, but are

residents of the United States, and are employed by a foreign bank,

foreign business, foreign government, or recognized international

organization;

(3) Persons (including immediate family members of an individual)

to whom the branch or foreign bank (including any affiliate thereof)

has extended credit or provided other nondeposit banking services

within the past 12 months, or with whom the branch or foreign bank has

a written agreement to extend credit or provide such services within 12

months after the date of the initial deposit;

(4) Foreign businesses and large United States businesses;

(5) Foreign governmental units, including political subdivisions,

and recognized international organizations;

(6) Federal and state governmental units, including political

subdivisions and agencies thereof;

(7) Persons who are depositing funds in connection with the

issuance of a financial instrument by the branch for transmission of

funds, or transmission of funds by any electronic means;

(8) Persons who may deposit funds with an Edge corporation as

provided in the FRB's Regulation K, 12 CFR 211.4, including persons

engaged in certain international business activities; and

(9) Any other depositor if:

(i) The aggregate amount of deposits received from those depositors

does not exceed, on an average daily basis, 1 percent of the average of

the branch's deposits for the last 30 days of the most recent calendar

quarter, excluding deposits of other offices, branches, agencies, or

wholly owned subsidiaries of the foreign bank; and

(ii) The branch does not solicit deposits from the general public

by advertising, display of signs, or similar activity designed to

attract the attention of the general public.

(c) Application for an exemption. A foreign bank may apply to the

OCC for an exemption to permit an uninsured Federal branch to accept or

maintain deposit accounts that are not listed in paragraph (b) of this

section. The request should describe:

(1) The types, sources, and estimated amounts of such deposits and

explain why the OCC should grant an exemption; and

(2) How the exemption maintains and furthers the policies described

in paragraph (a) of this section.

(d) Aggregation of deposits. For purposes of paragraph (b)(9) of

this section, a foreign bank that has more than one Federal branch in

the same state may aggregate deposits in all of its Federal branches in

that state, but exclude deposits of other branches, agencies or wholly

owned subsidiaries of the bank. The Federal branch shall compute the

average amount by using the sum of deposits as of the close of business

of the last 30 calendar days ending with and including the last day of

the calendar quarter, divided by 30. The Federal branch shall maintain

records of the calculation until its next examination by the OCC.

(e) Notification to depositors. A Federal branch that accepts

deposits pursuant to this section shall provide notice to depositors

pursuant to 12 CFR 346.7, which generally requires that the Federal

branch conspicuously display a sign at the branch and include a

statement on each signature card, passbook, and instrument evidencing a

deposit that the deposit is not insured by the Federal Deposit

Insurance Corporation (FDIC).

(f) Transition period. (1) An uninsured Federal branch may maintain

a deposit lawfully accepted under the exemptions existing prior to July

1, 1996 if the deposit would qualify for an exemption under paragraph

(b) of this section, except for the fact that the deposit was made

before July 1, 1996.

(2) If a deposit lawfully accepted under the exemption existing

prior to July 1, 1996 would not qualify for an exemption under

paragraph (b) or (c) of this section, the uninsured Federal branch must

terminate the deposit no later than:

(i) In the case of time deposits, the maturity of a time deposit or

October 1, 1996, whichever is longer; or

(ii) In the case of all other deposits, five years after July 1,

1996.

(g) Insured banks in United States territories. For purposes of

this section, the term ``foreign bank'' does not include any bank

organized under the laws of any territory of the United States, Puerto

Rico, Guam, American Samoa, or the Virgin Islands whose deposits are

insured by the FDIC pursuant to the Federal Deposit Insurance Act, 12

U.S.C. 1811 et seq.

Sec. 28.17 Notice of change in activity or operations.

Notice. A Federal branch or agency shall notify the OCC if:

(a) It changes its corporate title;

(b) It changes its mailing address;

(c) It converts to a state branch, state agency, or representative

office; or

(d) The parent foreign bank changes the designation of its home

state.

Sec. 28.18 Recordkeeping and reporting.

(a) General. A Federal branch or agency shall comply with

applicable recordkeeping and reporting requirements that apply to

national banks and with any additional requirements that may be

prescribed by the OCC. A Federal branch or agency, and the parent

foreign bank, shall furnish information relating to the affairs of the

parent foreign bank and its affiliates that the OCC may from time to

time request.

(b) Regulatory reports filed with other agencies. A foreign bank

operating a Federal branch or agency in the United States shall provide

the OCC with a copy of reports filed with other Federal regulatory

agencies that are designated in guidance issued by the OCC.

(c) Maintenance of accounts, books, and records. (1) Each Federal

branch or agency shall maintain a set of accounts and records

reflecting its transactions that are separate from those of the foreign

bank and any other branch or agency. The Federal branch or agency shall

keep a set of accounts and records in English sufficient to permit the

OCC to examine the condition of the Federal branch or agency and its

compliance with applicable laws and regulations. The Federal branch or

agency shall promptly provide any additional records requested by the

OCC for examination or supervisory purposes.

(2) A foreign bank with more than one Federal branch or agency in a

state shall designate one of those offices to maintain consolidated

asset, liability, and capital equivalency accounts for all Federal

branches or agencies in that state.

[[Page 19537]]

Sec. 28.19 Enforcement.

As provided by section 13 of the IBA, 12 U.S.C. 3108(b), the OCC

may enforce compliance with the requirements of the IBA, other

applicable banking laws, and OCC regulations or orders under section 8

of the Federal Deposit Insurance Act, 12 U.S.C. 1818. This enforcement

authority is in addition to any other remedies otherwise provided by

the IBA or any other law.

Sec. 28.20 Maintenance of assets.

(a) General rule. (1) For prudential, supervisory, or enforcement

reasons, the OCC may require a foreign bank to hold certain assets in

the state in which its Federal branch or agency is located. Those

assets may only consist of currency, bonds, notes, debentures, drafts,

bills of exchange, or other evidence of indebtedness including loan

participation agreements or certificates, or other obligations payable

in the United States or in United States funds or, with the approval of

the OCC, funds freely convertible into United States funds.

(2) If the OCC requires asset maintenance, the amount of assets

held by a foreign bank shall be prescribed by the OCC, but may not be

less than 105 percent of the aggregate amount of liabilities of the

Federal branch or agency, payable at or through the Federal branch or

agency. To determine the aggregate amount of liabilities for purposes

of this section, the foreign bank shall include bankers' acceptances,

but exclude liabilities to the head office and any other branches,

offices, agencies, subsidiaries, and affiliates of the foreign bank.

(b) Valuation. For the purposes of this section, marketable

securities must be valued at principal amount or market value,

whichever is lower.

(c) Credits. In determining compliance with the asset maintenance

requirements, the OCC will give the Federal branch or agency credit

for:

(1) Capital equivalency deposits maintained pursuant to Sec. 28.15;

(2) Reserves required to be maintained by the Federal branch or

agency pursuant to the FRB's authority under 12 U.S.C. 3105(a); and

(3) Assets pledged, and surety bonds payable, to the FDIC to secure

the payment of domestic deposits.

(d) Exclusions. In determining eligible assets for purposes of this

section, the Federal branch or agency shall exclude:

(1) Any amount due from the head office or any other branch,

office, agency, subsidiary, or affiliate of the foreign bank;

(2) Any classified asset;

(3) Any asset that, in the determination of the OCC, is not

supported by sufficient credit information;

(4) Any deposit with a bank in the United States, unless that bank

has executed a valid waiver of offset agreement;

(5) Any asset not in the Federal branch's actual possession unless

the branch holds title to the asset and maintains records sufficient to

enable independent verification of the branch's ownership of the asset,

as determined at the most recent examination; and

(6) Any other particular asset or class of assets as provided by

the OCC, based on a case-by-case assessment of the risks associated

with the asset.

(e) International banking facility. Unless specifically exempted by

the OCC, the eligible assets and liabilities of any international

banking facility operated through the Federal branch or agency must be

included in the computation of eligible assets and liabilities for

purposes of this section.

Sec. 28.21 Service of process.

A foreign bank operating at any Federal branch or agency is subject

to service of process at the location of the Federal branch or agency.

Sec. 28.22 Voluntary liquidation.

(a) Procedures. Unless otherwise provided, a Federal branch or

agency that proposes to close its operations shall comply with the

requirements in 12 CFR 5.48, as applicable, and the Manual.

(b) Notice to customers and creditors. A foreign bank shall provide

any customers and known creditors, not previously notified in writing,

with written notice of the impending closure of the Federal branch or

agency at least 30 days prior to its closure.

(c) Report of condition. The Federal branch or agency shall submit

a Report of Assets and Liabilities of United States Branches and

Agencies of Foreign Banks as of the close of the last business day

prior to the start of liquidation of the Federal branch or agency. This

report must include a certified maturity schedule of all remaining

liabilities, if any.

(d) Return of certificate. The Federal branch or agency shall

return the Federal branch or agency license certificate within 30 days

of closure to the public.

(e) Reports of examination. The Federal branch or agency shall send

the OCC certification that all of its Reports of Examination have been

destroyed or return its Reports of Examination to the OCC.

Sec. 28.23 Termination of a Federal branch or agency.

(a) Grounds for termination. The OCC may revoke the authority of a

foreign bank to operate a Federal branch or agency if:

(1) The OCC determines that there is reasonable cause to believe

that the foreign bank has violated or failed to comply with any of the

provisions of the IBA, other applicable Federal laws or regulations, or

orders of the OCC;

(2) A conservator is appointed for the foreign bank, or a similar

proceeding is initiated in the foreign bank's home country;

(3) One or more grounds for receivership, including insolvency, as

specified in 12 U.S.C. 3102(j), exists;

(4) One or more grounds for termination, including unsafe and

unsound practices, insufficiency or dissipation of assets, concealment

of books and records, a money laundering conviction, or other grounds

as specified in 12 U.S.C. 191, exists; or

(5) The OCC receives a recommendation from the FRB, pursuant to 12

U.S.C. 3105(e)(5), that the license of a Federal branch or agency be

terminated.

(b) Procedures--(1) Notice and hearing. Except as otherwise

provided in this section, the OCC may issue an order to terminate the

license of a Federal branch or agency after providing notice to the

Federal branch or agency and after providing an opportunity for a

hearing.

(2) Procedures for hearing. The OCC shall conduct a hearing under

this section pursuant to the OCC's Rules of Practice and Procedure in

12 CFR part 19.

(3) Expedited procedure. The OCC may act without providing an

opportunity for a hearing if it determines that expeditious action is

necessary in order to protect the public interest. When the OCC finds

that it is necessary to act without providing an opportunity for a

hearing, the OCC in its sole discretion, may:

(i) Provide the Federal branch or agency with notice of the

intended termination order;

(ii) Grant the Federal branch or agency an opportunity to present a

written submission opposing issuance of the order; or

(iii) Take any other action designed to provide the Federal branch

or agency with notice and an opportunity to present its views

concerning the termination order.

[[Page 19538]]

Subpart C--International Lending Supervision

Sec. 28.50 Authority, purpose, and scope.

(a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et

seq., 93a, 161, and 1818; and the International Lending Supervision Act

of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153, 12 U.S.C. 3901 et

seq.).

(b) Purpose. This subpart implements the requirements of the

International Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.),

(c) Scope. This subpart requires national banks and District of

Columbia banks to establish reserves against the risks presented in

certain international assets and sets forth the accounting for various

fees received by the banks when making international loans.

Sec. 28.51 Definitions.

For the purposes of this subpart:

(a) Banking institution means a national bank or a District of

Columbia bank.

(b) Federal banking agencies means the OCC, the FRB, and the FDIC.

(c) International assets means those assets required to be included

in banking institutions' Country Exposure Report forms (FFIEC 009).

(d) International loan means a loan as defined in the instructions

to the Report of Condition and Income for the respective banking

institution (FFIEC 031, 032, 033 and 034) and made to a foreign

government, or to an individual, a corporation, or other entity not a

citizen of, resident in, or organized or incorporated in the United

States.

(e) International syndicated loan means a loan characterized by the

formation of a group of managing banking institutions and, in the usual

case, assumption by them of underwriting commitments, and participation

in the loan by other banking institutions.

(f) Loan agreement means the document signed by all of the parties

to a loan, containing the amount, terms, and conditions of the loan,

and the interest and fees to be paid by the borrower.

(g) Restructured international loan means a loan that meets the

following criteria:

(1) The borrower is unable to service the existing loan according

to its terms and is a resident of a foreign country in which there is a

generalized inability of public and private sector obligors to meet

their external debt obligations on a timely basis because of a lack of,

or restraints on the availability of, needed foreign exchange in the

country; and

(2) The terms of the existing loan are amended to reduce stated

interest or extend the schedule of payments; or

(3) A new loan is made to, or for the benefit of, the borrower,

enabling the borrower to service or refinance the existing debt.

(h) Transfer risk means the possibility that an asset cannot be

serviced in the currency of payment because of a lack of, or restraints

on the availability of, needed foreign exchange in the country of the

obligor.

Sec. 28.52 Allocated transfer risk reserve.

(a) Establishment of allocated transfer risk reserve. A banking

institution shall establish an allocated transfer risk reserve (ATRR)

for specified international assets when required by the OCC in

accordance with this section.

(b) Procedures and standards--(1) Joint agency determination. At

least annually, the Federal banking agencies shall determine jointly,

based on the standards set forth in paragraph (b)(2) of this section,

the following:

(i) Which international assets subject to transfer risk warrant

establishment of an ATRR;

(ii) The amount of the ATRR for the specified assets; and

(iii) Whether an ATRR established for specified assets may be

reduced.

(2) Standards for requiring ATRR--(i) Evaluation of assets. The

Federal banking agencies shall apply the following criteria in

determining whether an ATRR is required for particular international

assets:

(A) Whether the quality of a banking institution's assets has been

impaired by a protracted inability of public or private obligors in a

foreign country to make payments on their external indebtedness as

indicated by such factors, among others, as whether:

(1) Such obligors have failed to make full interest payments on

external indebtedness;

(2) Such obligors have failed to comply with the terms of any

restructured indebtedness; or

(3) A foreign country has failed to comply with any International

Monetary Fund or other suitable adjustment program; or

(B) Whether no definite prospects exist for the orderly restoration

of debt service.

(ii) Determination of amount of ATRR. (A) In determining the amount

of the ATRR, the Federal banking agencies shall consider:

(1) The length of time the quality of the asset has been impaired;

(2) Recent actions taken to restore debt service capability;

(3) Prospects for restored asset quality; and

(4) Such other factors as the Federal banking agencies may consider

relevant to the quality of the asset.

(B) The initial year's provision for the ATRR shall be 10 percent

of the principal amount of each specified international asset, or such

greater or lesser percentage determined by the Federal banking

agencies. Additional provision, if any, for the ATRR in subsequent

years shall be 15 percent of the principal amount of each specified

international asset, or such greater or lesser percentage determined by

the Federal banking agencies.

(3) Notification. Based on the joint agency determinations under

paragraph (b)(1) of this section, the OCC shall notify each banking

institution holding assets subject to an ATRR:

(i) Of the amount of the ATRR to be established by the institution

for specified international assets; and

(ii) That an ATRR to be established for specified assets may be

reduced.

(c) Accounting treatment of ATRR--(1) Charge to current income. A

banking institution shall establish an ATRR by a charge to current

income and the amounts so charged shall not be included in the banking

institution's capital or surplus.

(2) Separate accounting. A banking institution shall account for an

ATRR separately from the Allowance for Possible Loan Losses, and shall

deduct the ATRR from ``gross loans and leases'' to arrive at ``net

loans and leases.'' The ATRR must be established for each asset subject

to the ATRR in the percentage amount specified.

(3) Consolidation. A banking institution shall establish an ATRR,

as required, on a consolidated basis. Consolidation should be in

accordance with the procedures and tests of significance set forth in

the instructions for preparation of Consolidated Reports of Condition

and Income (FFIEC 031, 032, 033 and 034). For bank holding companies,

the consolidation shall be in accordance with the principles set forth

in the ``Instructions to the Bank Holding Company Financial Supplement

to Report F.R. Y-6'' (Form F.R. Y-9). Edge corporations and Agreement

corporations engaged in banking shall report in accordance with

instructions for preparation of the Report of Condition for Edge

corporations and Agreement corporations (Form F.R. 2886b).

(4) Alternative accounting treatment. A banking institution need

not establish an ATRR if it writes down in the period in which the ATRR

is required, or has written down in prior periods, the value

[[Page 19539]]

of the specified international assets in the requisite amount for each

such asset. For purposes of this paragraph, international assets may be

written down by a charge to the Allowance for Possible Loan Losses or a

reduction in the principal amount of the asset by application of

interest payments or other collections on the asset. However, the

Allowance for Possible Loan Losses must be replenished in such amount

necessary to restore it to a level which adequately provides for the

estimated losses inherent in the banking institution's loan portfolio.

(5) Reduction of ATRR. A banking institution may reduce an ATRR

when notified by the OCC or, at any time, by writing down such amount

of the international asset for which the ATRR was established.

Sec. 28.53 Accounting for fees on international loans.

(a) Restrictions on fees for restructured international loans. No

banking institution shall charge any fee in connection with a

restructured international loan unless all fees exceeding the banking

institution's administrative costs, as described in paragraph (c)(2) of

this section, are deferred and recognized over the term of the loan as

an interest yield adjustment.

(b) Amortizing fees. Except as otherwise provided by this section,

fees received on international loans shall be deferred and amortized

over the term of the loan. The interest method should be used during

the loan period to recognize the deferred fee revenue in relation to

the outstanding loan balance. If it is not practicable to apply the

interest method during the loan period, the straight-line method shall

be used.

(c) Accounting treatment of international loan or syndication

administrative costs and corresponding fees. (1) Administrative costs

of originating, restructuring, or syndicating an international loan

shall be expensed as incurred. A portion of the fee income equal to the

banking institution's administrative costs may be recognized as income

in the same period such costs are expensed.

(2) The administrative costs of originating, restructuring, or

syndicating an international loan include those costs which are

specifically identified with negotiating, processing and consummating

the loan. These costs include, but are not necessarily limited to:

Legal fees; costs of preparing and processing loan documents; and an

allocable portion of salaries and related benefits of employees engaged

in the international lending function and, where applicable, the

syndication function. No portion of supervisory and administrative

expenses or other indirect expenses such as occupancy and other similar

overhead costs shall be included.

(d) Fees received by managing banking institutions in an

international syndicated loan. Fees received on international

syndicated loans representing an adjustment of the yield on the loan

shall be recognized over the loan period using the interest method. If

the interest yield portion of a fee received on an international

syndicated loan by a managing banking institution is unstated or

differs materially from the pro rata portion of fees paid other

participants in the syndication, an amount necessary for an interest

yield adjustment shall be recognized. This amount shall at least be

equivalent (on a pro rata basis) to the largest fee received by a loan

participant in the syndication that is not a managing banking

institution. The remaining portion of the syndication fee may be

recognized as income at the loan closing date to the extent that it is

identified and documented as compensation for services in arranging the

loan. Such documentation shall include the loan agreement. Otherwise,

the fee shall be deemed an adjustment of yield.

(e) Loan Commitment fees. (1) Fees which are based upon the

unfunded portion of a credit for the period until it is drawn and

represent compensation for a binding commitment to provide funds or for

rendering a service in issuing the commitment shall be recognized as

income over the term of the commitment period using the straight-line

method of amortization. Such fees for revolving credit arrangements,

where the fees are received periodically in arrears and are based on

the amount of the unused loan commitment, may be recognized as income

when received provided the income result would not be materially

different.

(2) If it is not practicable to separate the commitment portion

from other components of the fee, the entire fee shall be amortized

over the term of the combined commitment and expected loan period. The

straight-line method of amortization should be used during the

commitment period to recognize the fee revenue. The interest method

should be used during the loan period to recognize the remaining fee

revenue in relation to the outstanding loan balance. If the loan is

funded before the end of the commitment period, any unamortized

commitment fees shall be recognized as revenue at that time.

(f) Agency fees. Fees paid to an agent banking institution for

administrative services in an intentional syndicated loan shall be

recognized at the time of the loan closing or as the service is

performed, if later.

Sec. 28.54 Reporting and disclosure of international assets.

(a) Requirements. (1) Pursuant to section 907(a) of the

International Lending Supervision Act of 1983 (title IX, Pub. L. 98-

181, 97 Stat. 1153, 12 U.S.C. 3906) (ILSA) a banking institution shall

submit to the OCC, at least quarterly, information regarding the

amounts and composition of its holdings of international assets.

(2) Pursuant to section 907(b) of ILSA (12 U.S.C. 3906), a banking

institution shall submit to the OCC information regarding

concentrations in its holdings of international assets that are

material in relation to total assets and to capital of the institution,

such information to be made publicly available by the OCC on request.

(b) Procedures. The format, content, and reporting and filing dates

of the reports required under paragraph (a) of this section shall be

determined jointly by the Federal banking agencies. The requirements to

be prescribed by the agencies may include changes to existing reporting

forms (such as the Country Exposure Report, FFIEC 009) or such other

requirements as the agencies deem appropriate. The agencies also may

determine to exempt from the requirements of paragraph (a) of this

section banking institutions that, in the agencies' judgment, have de

minimis holdings of international assets.

(c) Reservation of authority. Nothing contained in this part shall

preclude the OCC from requiring from a banking institution such

additional or more frequent information on the institution's holdings

of international assets as the OCC may consider necessary.

Dated: April 13, 1996.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 96-10432 Filed 5-1-96; 8:45 am]

BILLING CODE 4810-33-P