International Banking

Monday,

July 19, 2004

Part II

Federal Deposit

Insurance

Corporation

12 CFR Parts 303, 325, 327, and 347

International Banking; Proposed Rule

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Parts 303, 325, 327, and 347

RIN 3064–AC85

International Banking

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Notice of proposed rulemaking

with request for comment.

SUMMARY: The FDIC is publishing for

notice and comment proposed

amendments to subpart J of part 303 on

international banking and revisions to

subpart A of part 347, relating to the

international activities and investments

of insured state nonmember banks, and

subpart B of part 347, relating

principally to insured and noninsured

U.S. branches of foreign banks. The

proposed amendments address the

relocation of grandfathered insured

branches. They also reorganize, clarify,

and revise subparts A and B of part 347,

and address various issues raised as part

of the FDIC’s ongoing effort under the

Economic Growth and Regulatory

Paperwork Reduction Act of 1996 (12

U.S.C. 3311) to address regulatory

burden issues. Included in the revisions

affecting grandfathered insured

branches are revisions to the FDIC’s

asset pledge requirement to establish a

risk-based system and revision of the

FDIC’s asset maintenance requirement

to calculate the asset maintenance

percentage based on the daily third-

party liabilities of the branch. In

addition, the FDIC is proposing to

strengthen FDIC’s supervisory processes

and make conforming amendments for

other FDIC rules as part of the proposal.

The FDIC is also requesting

comments, as part of this document, on

whether deposits in wholesale U.S.

branches of foreign banks should be

covered by deposit insurance and on the

accounting rules contained in subpart C

of part 347

nch. In

addition, the FDIC is proposing to

strengthen FDIC’s supervisory processes

and make conforming amendments for

other FDIC rules as part of the proposal.

The FDIC is also requesting

comments, as part of this document, on

whether deposits in wholesale U.S.

branches of foreign banks should be

covered by deposit insurance and on the

accounting rules contained in subpart C

of part 347.

DATES: Written comments must be

received on or before September 17,

2004.

ADDRESSES: You may submit comments,

identified by RIN number 3064–AC85,

by any of the following methods:

• Agency Web site: http://

www.FDIC.gov/regulations/laws/

federal/propose.html.

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments/Legal

ESS, Federal Deposit Insurance

Corporation, 550 17th Street, NW.,

Washington, DC 20429.

• Hand Delivered/Courier: The guard

station at the rear of the 550 17th Street

Building (located on F Street), on

business days between 7 a.m. and 5 p.m.

• E-mail: comments@FDIC.gov.

Include RIN number 3064-AC85 in the

subject line of the message.

• Public Inspection: Comments may

be inspected and photocopied in the

FDIC Public Information Center, Room

100, 801 17th Street, NW, Washington,

DC, between 9 a.m. and 4:30 p.m. on

business days.

Instructions: Submissions received

must include the agency name and RIN

for this rulemaking. Comments received

will be posted without change to

http://www.FDIC.gov/regulations/laws/

federal/propose.html, including any

personal information provided.

FOR FURTHER INFORMATION CONTACT: John

Di Clemente, Chief, International

Section, Division of Supervision and

Consumer Protection, (202) 898–3540 or

jdiclemente@fdic.gov or Rodney D. Ray,

Counsel, Legal Division, (202) 898–3556

or rray@fdic.gov, Federal Deposit

Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429

deral/propose.html, including any

personal information provided.

FOR FURTHER INFORMATION CONTACT: John

Di Clemente, Chief, International

Section, Division of Supervision and

Consumer Protection, (202) 898–3540 or

jdiclemente@fdic.gov or Rodney D. Ray,

Counsel, Legal Division, (202) 898–3556

or rray@fdic.gov, Federal Deposit

Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The FDIC

is proposing to amend and revise its

rules concerning international banking

activities of insured state nonmember

banks operating in foreign countries and

insured U.S. branches of foreign banks.

This is being done to implement the

‘‘plain language’’ requirement contained

in section 722 of the Gramm-Leach-

Bliley Act of 1999 (12 U.S.C. 4809).

Also, as part of the FDIC’s ongoing effort

under the Economic Growth and

Regulatory Paperwork Reduction Act of

1996 (12 U.S.C. 3311) (EGRPRA), the

FDIC is proposing amendments to its

existing rules to address certain

regulatory burden issues raised in

public comments. The FDIC is also

proposing revisions to existing rules and

new rules to update the FDIC’s

supervisory processes.

The proposed changes will be made to

subpart J of part 303 and to subparts A

and B of part 347 of title 12 of the Code

of Federal Regulations. As a result of the

proposed changes, conforming changes

also will be made to subpart B of part

325, relating to the FDIC’s Prompt

Corrective Action rules, and subpart A

of part 327, regarding the FDIC’s

assessment rules for insured U.S.

branches of foreign banks.

Subpart J of part 303 contains the

procedural rules that implement part

347. The rules in subpart A of part 347

address issues related to the

international activities and investments

of insured state nonmember banks. In

general, they implement the FDIC’s

statutory authority under section

18(d)(2) of the Federal Deposit

Insurance Act (FDI Act) (12 U.S.C

ed U.S.

branches of foreign banks.

Subpart J of part 303 contains the

procedural rules that implement part

347. The rules in subpart A of part 347

address issues related to the

international activities and investments

of insured state nonmember banks. In

general, they implement the FDIC’s

statutory authority under section

18(d)(2) of the Federal Deposit

Insurance Act (FDI Act) (12 U.S.C.

1828(d)(2)), regarding branches of

insured state nonmember banks in

foreign countries, and section 18(l) of

the FDI Act, regarding insured state

nonmember bank investments in foreign

entities. The rules in subpart B of part

347 principally address issues related to

insured and noninsured U.S. branches

of foreign banks under section 6 of the

International Banking Act (IBA) (12

U.S.C. 3104).

Although subpart C of part 347 also

contains rules regarding accounting and

reporting rules relating to international

lending activities of insured state

nonmember banks, the FDIC is not

proposing to revise subpart C at this

time. The Office of the Comptroller of

the Currency (‘‘OCC’’) and Board of

Governors of the Federal Reserve

System (‘‘FRB’’) have similar rules

implementing the same statutory

provisions for the institutions under

their supervision that were originally

issued in a joint rulemaking proceeding

with the FDIC. Therefore, proposed

revisions to the rules in subpart C may

require discussion and coordination

with the other agencies. Commenters

may still comment on the rules

contained in subpart C of part 347,

however, in order to bring particular

issues to the FDIC’s attention at this

time.

I. Background

Although the FDIC made significant

amendments and consolidated its

international banking rules in 1998,

various events that have transpired

since then have influenced the FDIC’s

decision to propose further revisions to

its international banking rules

ules

contained in subpart C of part 347,

however, in order to bring particular

issues to the FDIC’s attention at this

time.

I. Background

Although the FDIC made significant

amendments and consolidated its

international banking rules in 1998,

various events that have transpired

since then have influenced the FDIC’s

decision to propose further revisions to

its international banking rules. First,

when the FDIC finalized its

international banking rules, the FRB

was proposing amendments to

Regulation K (12 CFR part 211). The

FDIC noted in 63 FR 17056 (April 8,

1998) (1998 Final Rule) that subpart A

of part 347 maintained parity with the

existing version of Regulation K,

governing foreign branching and

investments by member banks, and that

the FDIC may need to make further

revisions to subpart A of part 347 once

the FRB finalized its revisions to

Regulation K. The revisions of

Regulation K that are relevant to this

rulemaking proceeding were finalized

on October 26, 2001, and the FDIC is

proposing certain revisions to the part

347 rules because of changes made to

Regulation K. Second, the FDIC has

received written comments from the

public suggesting that the language in

part 347 needs to be simplified and the

FDIC believes that some additional

reorganization and clarification of the

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ons to the part

347 rules because of changes made to

Regulation K. Second, the FDIC has

received written comments from the

public suggesting that the language in

part 347 needs to be simplified and the

FDIC believes that some additional

reorganization and clarification of the

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

FDIC’s rules may be beneficial. It is also

believed that strengthening the existing

supervisory structure in a few areas is

appropriate. In addition, Congress

enacted the ‘‘plain language’’

requirement for all proposed and final

rulemakings published in the Federal

Register after January 1, 2000, in section

722 of the Gramm-Leach-Bliley Act of

1999. Therefore, several revisions to

part 347 are included to address this

requirement. Finally, the FDIC and the

other Federal banking agencies solicited

and received public comments in 2003

as part of the ERGPRA regulatory

burden reduction process on three

categories of agency rules. Part 347 was

included in one of those categories, and

the comments relating to them have

been reviewed and are discussed in

greater detail in the section-by-section

discussion in this document.

In general, FDIC is proposing to revise

subpart J of part 303 to provide new

cross-references to the appropriate

revised rule(s) in subparts A and B of

part 347. Since many of the revisions to

the text in subpart J merely provide new

cross-references to the appropriate

sections in subparts A and B of part 347

or make stylistic changes in the text,

they will not be further addressed in the

subpart J section-by-section analysis.

The existing sections in subpart A of

part 347 are being reorganized in the

proposal by moving, consolidating, and

breaking particularly complex sections,

such as existing section 347.104, into

multiple sections based on the subject

matter addressed

A and B of part 347

or make stylistic changes in the text,

they will not be further addressed in the

subpart J section-by-section analysis.

The existing sections in subpart A of

part 347 are being reorganized in the

proposal by moving, consolidating, and

breaking particularly complex sections,

such as existing section 347.104, into

multiple sections based on the subject

matter addressed. The sections

addressing general consent, expedited

processing, and specific consent for

foreign branches and investments,

contained in existing sections 347.103

and 347.108, are also being reorganized

and consolidated into separate sections

addressing each type of approval. The

existing sections in subpart B are being

reorganized in the proposal by grouping

them with other sections that address

the same or similar subject matter. In

addition, several existing sections in

subpart B are being revised in the

proposal to update and clarify the

regulatory requirements. Finally, a few

additional sections are being added to

subparts A and B in the proposal to

address issues that are not addressed in

the existing rules.

The proposed amendments and

revisions are discussed below, by

subpart, in the section-by-section

description. The FDIC invites public

comments on all aspects of the proposal.

In addition, public comments are

specifically invited on the following

items:

• Providing for expedited processing

of proposed relocations of insured U.S.

branches of foreign banks (section

303.184);

• Revising existing sections that

address authorized activities for foreign

investments and foreign branches to

more closely track the sections of

Regulation K addressing those issues in

connection with member banks

s are

specifically invited on the following

items:

• Providing for expedited processing

of proposed relocations of insured U.S.

branches of foreign banks (section

303.184);

• Revising existing sections that

address authorized activities for foreign

investments and foreign branches to

more closely track the sections of

Regulation K addressing those issues in

connection with member banks. The

revisions also address approval of

activities requiring consideration under

parts 347 and 362 (sections 347.105 and

347.115);

• Providing that, except for certain

merger and acquisition transactions, the

grandfathered status of an insured

branch of a foreign bank may not be

transferred (section 347.206);

• Revising the FDIC’s asset pledge

requirement for insured branches of

foreign banks to a risk-based approach

(section 347.209);

• Revising the FDIC’s asset

maintenance rule for insured branches

of foreign banks to calculate the asset

maintenance percentage based on daily

third-party liabilities (section 347.210);

and

• Providing deposit insurance for

wholesale U.S. branches of foreign

banks (section V of the preamble).

II. Section-by-Section Analysis of

Proposed Amendments to Part 303,

Subpart J

1. Moving an Insured Branch of a

Foreign Bank (Revised § 303.184)

Section 303.184 contains the filing

procedures and approval criteria

applicable to the relocation of an

insured U.S. branch of a foreign bank.

As part of the EGRPRA process, an

industry trade association observed that

section 303.41(b), which addresses

branch relocations in the context of

domestic branches of insured state

nonmember banks, differentiates

between a branch closing or relocation

based upon whether the proposed move

is within the same immediate

neighborhood

e relocation of an

insured U.S. branch of a foreign bank.

As part of the EGRPRA process, an

industry trade association observed that

section 303.41(b), which addresses

branch relocations in the context of

domestic branches of insured state

nonmember banks, differentiates

between a branch closing or relocation

based upon whether the proposed move

is within the same immediate

neighborhood. The trade association

expressed concern that, if the FDIC

applied a similar geographic standard to

proposed relocations of grandfathered

insured branches, relocations of those

branches would effectively be precluded

because those branches could not close

and reopen as insured branches. This is

because of the statutory provision

contained in section 6(d) of the

International Banking Act (IBA) (12

U.S.C. 3104(d)) requiring foreign banks

engaging in domestic retail deposit

activities after December 19, 1991 that

require deposit insurance protection to

do so through one or more insured bank

subsidiaries. The FDIC does not believe

such a construction was intended by the

statute or existing rule but recognizes

that the existing rule does not address

the geographic proximity of the

proposed relocation. Section 303.184(b)

is being amended, to address this issue,

by making expedited processing

available for proposed relocations of

grandfathered insured branches within

the same state. The FDIC notes that 12

CFR 28.12(e)(1) provides for expeditious

processing of intrastate relocations of

federal branches regulated by the OCC.

Therefore, although the FDIC’s

processing requirements differ from

those utilized by the OCC, the approach

of providing expedited processing for

proposed relocations of insured

branches of foreign banks within the

same state is consistent with the OCC’s

overall approach of expediting proposed

relocations of federal branches within

the same state.

III. Section-by-Section Analysis of

Proposed Revisions to Part 347,

Subpart A

1

g requirements differ from

those utilized by the OCC, the approach

of providing expedited processing for

proposed relocations of insured

branches of foreign banks within the

same state is consistent with the OCC’s

overall approach of expediting proposed

relocations of federal branches within

the same state.

III. Section-by-Section Analysis of

Proposed Revisions to Part 347,

Subpart A

1. Authority, Purpose, and Scope

(Revised § 347.101)

The proposal amends section 347.101

to provide a more comprehensive list of

the major areas addressed by the rules

in the subpart. The order of the subjects

mentioned in the section is also revised

to correspond to the order in which

those subjects are addressed in the

revised subpart.

2. Definitions (Revised § 347.102)

Four additional definitions are added

to this section by the proposal. Proposed

revisions to the rules in the subpart use

the term ‘‘domestic’’ in sections 347.104

and 347.105, and that term is defined in

paragraph (c) of this section. Paragraph

(m) defining ‘‘insured state nonmember

bank’’ or ‘‘bank’’ is added to minimize

the repetitive use of the former term that

currently exists in the rules. Paragraphs

(o) and (r) are new definitions that

would adopt the same definition for

‘‘investment grade’’ and ‘‘NRSRO’’ that

the FRB adopted in 12 CFR 211.2(n) and

(r). The effect of the inclusion of the

latter two terms will be discussed in

greater detail in the description of

proposed section 347.115.

3. Effect of State Law on Actions Taken

Under This Subpart (Revised § 347.103)

Section 347.103 combines the

requirement contained in paragraph (a)

of existing sections 347.103 and 347.104

into a single section

the FRB adopted in 12 CFR 211.2(n) and

(r). The effect of the inclusion of the

latter two terms will be discussed in

greater detail in the description of

proposed section 347.115.

3. Effect of State Law on Actions Taken

Under This Subpart (Revised § 347.103)

Section 347.103 combines the

requirement contained in paragraph (a)

of existing sections 347.103 and 347.104

into a single section. The rule specifies

that an insured state nonmember bank

may acquire or retain equity interests in

foreign organizations or establish a

foreign branch, if authorized to do so by

the law of the state where the bank is

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1 The omitted activities were: financing; acting as

a fiduciary; providing investment, financial or

economic advisory services; leasing real or personal

property or acting as agent, broker or advisor in

connection with such transactions if the lease

serves as the functional equivalent of an extension

of credit to the lessee; acting as a futures

commission merchant; and acting as principal or

agent in swap transactions.

2 The six activities being added to the list of

approved activities are being added, subject to the

attendant restrictions contained in section 225.28(b)

of Regulation Y, because those activities are

considered to be subject to the Regulation Y

restrictions by the cross-reference to that authority

in existing section 347.104(b)(10).

chartered, by complying with the

requirements of this subpart.

4. Insured State Nonmember Bank

Investments in Foreign Organizations

(Revised § 347.104)

Section 347.104(a) of the proposal is

derived from existing section 347.104(f).

The rationale for the requirement was

discussed in the preamble to the 1998

Final Rule. That rationale, which is

restated below, remains unchanged

104(b)(10).

chartered, by complying with the

requirements of this subpart.

4. Insured State Nonmember Bank

Investments in Foreign Organizations

(Revised § 347.104)

Section 347.104(a) of the proposal is

derived from existing section 347.104(f).

The rationale for the requirement was

discussed in the preamble to the 1998

Final Rule. That rationale, which is

restated below, remains unchanged.

Thus, the substance of paragraph (f) of

the existing rule is retained. It is placed

in a separate section, however, apart

from the section addressing authorized

activities of foreign organizations, and is

reworded and reorganized for clarity.

The FDIC recognizes that direct

investments in foreign organizations by

member banks (and thus national banks)

are only permitted for certain types of

investments specified in Regulation K,

such as investments in foreign banks,

because of language in section 25 of the

Federal Reserve Act (12 U.S.C. 601)

limiting direct foreign investments by

member banks. Other types of foreign

investments by member banks are

required to be made indirectly through

an Edge corporation subsidiary or a

foreign bank subsidiary of a member

bank. In contrast, section 18(l) of the

FDI Act (12 U.S.C. 1828(l)) permits state

nonmember banks, to the extent

authorized by state law, to invest in

foreign ‘‘banks and other entities.’’ As a

consequence, and because the

legislative history of section 18(l) shows

that Congress was aware of the FRB’s

parallel authority over member banks at

the time section 18(l) was enacted, the

difference in language between the two

statutes is significant and deliberate and

results in the type of foreign

organizations that state nonmember

banks may invest in directly not being

restricted by section 18(l)

and because the

legislative history of section 18(l) shows

that Congress was aware of the FRB’s

parallel authority over member banks at

the time section 18(l) was enacted, the

difference in language between the two

statutes is significant and deliberate and

results in the type of foreign

organizations that state nonmember

banks may invest in directly not being

restricted by section 18(l).

Because national banks are unable to

invest directly in nonbank foreign

organizations, however, the ability of

insured state nonmember banks to

invest in other types of foreign

organizations raises issues under section

24 of the FDI Act (12 U.S.C. 1831a) and

12 CFR part 362. Section 24 prohibits an

insured state nonmember bank from

acquiring an equity investment that a

national bank is not permitted to

acquire. Such an investment may be

made under section 24, however, if the

investment is made through a majority-

owned subsidiary of the bank. It may

also be made if a company becomes

majority-owned by the bank as a result

of the investment and the ‘‘as principal’’

activities of the company are ones in

which a subsidiary of a national bank

could engage. Ownership of more than

50 percent of the equity in a nonbank

foreign organization makes that

organization a majority-owned

subsidiary and, thus, no section 24

analysis is required because such a

subsidiary is authorized only to engage

in the same activities that the FRB has

authorized for subsidiaries of member

banks (and thus national banks) under

Regulation K. In addition, while it is not

necessary for insured state nonmember

bank investments of 50 percent or less

of the equity of a nonbank foreign

organization to be held through an

intermediate foreign bank subsidiary or

Edge subsidiary as required under

Regulation K, those investments are

required to be held through some form

of U.S. or foreign majority-owned

subsidiary in order to comply with the

requirements of section 24 and part 362.

5

d state nonmember

bank investments of 50 percent or less

of the equity of a nonbank foreign

organization to be held through an

intermediate foreign bank subsidiary or

Edge subsidiary as required under

Regulation K, those investments are

required to be held through some form

of U.S. or foreign majority-owned

subsidiary in order to comply with the

requirements of section 24 and part 362.

5. Permissible Financial Activities

Outside the United States (Revised

§ 347.105)

Section 347.105 (a) and (b) of the

proposal are derived from existing

section 347.104(b). As amended, the

language in existing section 347.104(b)

that limits the activities of certain types

of investments in foreign organizations

to those authorized by the section, is

restructured, reworded slightly, and

placed in section 347.105(a). Under

section 347.105(b) the same financial

activities will be authorized that are

presently authorized under section

347.104(b) of the existing rule.

The proposed rule also revises the

activities list contained in the existing

rule. As the FDIC noted in the preamble

to the 1998 Final Rule, the activities

contained in existing section 347.104(b)

were modeled after the FRB’s

corresponding provision in Regulation

K, but the list of authorized activities

was reordered. In addition, the FDIC

considered certain activities listed in

the FRB’s corresponding section of

Regulation K to be authorized under

Regulation Y and incorporated by the

cross-reference to Regulation Y

activities contained in section

347.104(b)(10) of the existing rule.

Therefore, those activities were not

separately listed in existing section

347.104(b). Time has shown this

approach to have made the interplay

between the FDIC and FRB lists of

permissible activities difficult in certain

circumstances to understand and apply

tion Y and incorporated by the

cross-reference to Regulation Y

activities contained in section

347.104(b)(10) of the existing rule.

Therefore, those activities were not

separately listed in existing section

347.104(b). Time has shown this

approach to have made the interplay

between the FDIC and FRB lists of

permissible activities difficult in certain

circumstances to understand and apply.

The FDIC recognizes that insured

state nonmember banks or their

subsidiaries may want to engage in

activities outside the United States that

are not listed by the FDIC as permissible

activities but that have been approved

for member banks or their subsidiaries

under Regulation K. Including those

items in the FDIC list of permissible

activities facilitates banks doing so. In

addition, as discussed in more detail

below, the banks or their subsidiaries

may want to engage in activities outside

the United States, as principal, that have

not been authorized for member banks

(and thus national banks) in Regulation

K. To do so, banks must comply with

section 24 of the FDI Act and the

requirements of part 362, as well as part

347.

Considering these issues, the FDIC is

proposing to revise the order of the

activities listed in section 347.105(b) to

more closely track the order of the

activities listed as permissible in 12 CFR

211.10, the corresponding provision in

Regulation K. The activities listed in the

proposal also include activities that the

FDIC did not specifically list as being

authorized in the 1998 Final Rule

because they were considered to overlap

with activities authorized by Regulation

Y.1 Including them makes the

comparison easier between activities

authorized under section 347.105(b) and

those authorized for member banks and

their subsidiaries.2

Paragraphs (c) and (d) of section

347.105 are being added for

clarification. Paragraph (c) is based on

language contained in the preamble to

the 1998 Final Rule but not included in

the text of the existing rule. Paragraph

on

Y.1 Including them makes the

comparison easier between activities

authorized under section 347.105(b) and

those authorized for member banks and

their subsidiaries.2

Paragraphs (c) and (d) of section

347.105 are being added for

clarification. Paragraph (c) is based on

language contained in the preamble to

the 1998 Final Rule but not included in

the text of the existing rule. Paragraph

(d) addresses an issue that was raised in

the preamble to the 1998 Final Rule, but

not addressed in the existing rule,

concerning the applicability in certain

instances of section 24 of the FDI Act

and part 362 to issues arising under

subpart A of part 347. Briefly stated, in

relevant part, section 24(a) of the FDI

Act and part 362 prohibit a state bank

from engaging, as principal, in any type

of activity that is not permissible for a

national bank, unless the FDIC

determines that the activity would not

pose a significant risk of loss to the

deposit insurance fund and the bank

meets its minimum capital

requirements. Likewise, section 24(d) of

the FDI Act and part 362 prohibit a

subsidiary of a state bank from engaging,

as principal, in any type of activity that

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3 Proposed paragraph (d) is, of necessity, a rule of

general applicability. For example, as the FDIC

noted in the preamble to the 1998 Final Rule, an

activity authorized under Regulation K concerning

a foreign investment entity’s ability to underwrite

life, annuity, pension fund-related, and other types

of insurance where the associated risks have been

previously determined to be actuarially predictable

(see, 12 CFR 211.10(a)(17)) was not included in

existing section 347.104

, as the FDIC

noted in the preamble to the 1998 Final Rule, an

activity authorized under Regulation K concerning

a foreign investment entity’s ability to underwrite

life, annuity, pension fund-related, and other types

of insurance where the associated risks have been

previously determined to be actuarially predictable

(see, 12 CFR 211.10(a)(17)) was not included in

existing section 347.104. Although Regulation K

included these activities on its list of permissible

activities abroad, the regulation required specific

consent before those activities could be conducted

by a subsidiary of an insured U.S. bank. Since no

general authorization had been given under

Regulation K for this activity to be conducted

directly or indirectly by a subsidiary of a member

bank, there was an issue under section 24 of the FDI

Act. Section 24(b) and 24(d)(2) of the FDI Act do

not permit the FDIC to give approval for a state

bank or its subsidiary to engage in insurance

underwriting if such underwriting is not

permissible for a national bank or its subsidiary

(unless that activity is expressly excepted by other

subsections of section 24 covering limited types of

insurance underwriting). Therefore, the FDIC

observed when adopting the 1998 Final Rule, that

it was foreclosed at that time from granting general

regulatory authorization for banks to indirectly

underwrite life, pension-fund related and other

types of insurance abroad. Insurance underwriting

represents an example of specific types of activities

that are listed in 12 CFR 211.10 that could not be

authorized under either part 347 or part 362.

In proposing paragraph (d) the FDIC desires to

lend a degree of clarity to this area but also wants

to provide banks with more notice that approval to

engage in certain foreign activities may require

compliance with requirements beyond those

contained in part 347

of specific types of activities

that are listed in 12 CFR 211.10 that could not be

authorized under either part 347 or part 362.

In proposing paragraph (d) the FDIC desires to

lend a degree of clarity to this area but also wants

to provide banks with more notice that approval to

engage in certain foreign activities may require

compliance with requirements beyond those

contained in part 347. In these situations, for the

FDIC to process such applications in a timely

manner, the applicants will need to provide

sufficiently detailed and relevant information

regarding proposed foreign activities for the FDIC

to properly evaluate the issues raised by the

application.

is not permissible for a subsidiary of a

national bank, unless the FDIC first

determines that it would not pose a

significant risk of loss to the deposit

insurance fund and the bank meets its

minimum capital requirements. Thus,

when a state nonmember bank wants to

engage in financial activities, as

principal, that are not specifically

authorized by part 347, the question

becomes whether authorization to

engage in those types of activities must

be obtained under part 347, part 362, or

both parts. The FDIC is proposing to add

paragraph (d) which would generally

address when authorization to engage in

activities through a subsidiary other

than those specified in paragraph (b)

may be authorized by specific consent

under part 347 and when authorization

for those activities must be obtained

under part 362 as well as subpart A of

part 347.3

6. Going Concerns (Revised § 347.106)

Section 347.106 of the proposal is

derived from the ‘‘going concern’’

provision contained in existing section

347.104(c). The text has been made a

separate section and reworded slightly

for ease of reference

y specific consent

under part 347 and when authorization

for those activities must be obtained

under part 362 as well as subpart A of

part 347.3

6. Going Concerns (Revised § 347.106)

Section 347.106 of the proposal is

derived from the ‘‘going concern’’

provision contained in existing section

347.104(c). The text has been made a

separate section and reworded slightly

for ease of reference.

As under the existing rule, a bank

subsidiary (as defined in proposed

section 347.102(t)) in a foreign country

will be limited to conducting activities

authorized under proposed section

347.105(b), unless the bank acquires its

subsidiary as a going concern. In this

case, under proposed section 347.106,

no more than 5 percent of the foreign

subsidiary’s assets or revenues may be

attributable to activities that are not on

the list of authorized activities. In

addition, any foreign organization

which is controlled (as defined in

proposed section 347.102(b)) by a bank

and its affiliates (as defined in proposed

section 347.102(a)), regardless of the

percent of voting stock owned by the

bank, is limited to conducting financial

activities authorized under proposed

section 347.105(b), subject to the same

5 percent exception for going concerns.

7. Joint Ventures (Revised § 347.107)

Section 347.107(a) of the proposal is

derived from the ‘‘joint venture’’

provision contained in existing section

347.104(d). The text has been made a

separate section and reworded slightly

for ease of reference. As is the case

under the existing rule, if a bank and its

affiliates hold 20 to 50 percent of the

voting equity securities of a foreign

organization and do not control the

organization, no more than 10 percent of

the foreign organization’s assets or

revenues may be attributable to

activities that are not on the section

347.105(b) list of authorized activities.

8

y

for ease of reference. As is the case

under the existing rule, if a bank and its

affiliates hold 20 to 50 percent of the

voting equity securities of a foreign

organization and do not control the

organization, no more than 10 percent of

the foreign organization’s assets or

revenues may be attributable to

activities that are not on the section

347.105(b) list of authorized activities.

8. Portfolio Investments (Revised

§ 347.108)

Section 347.108(a) of the proposal is

derived from the ‘‘portfolio investment’’

provision contained in existing section

347.104(e). The text has been made a

separate section and reworded slightly

for ease of reference. As is the case

under the existing rule, if a bank and its

affiliates’ holdings are less than 20

percent of the voting equity securities of

a foreign organization and the bank and

its affiliates do not control the

organization, no more than 10 percent of

the foreign organization’s assets or

revenues may be attributable to

activities that are not on the section

347.105(b) list of authorized activities.

In addition, the bank is prohibited from

making any loans or extensions of credit

to the organization that are not on the

same terms as those prevailing at the

time for comparable transactions with

nonaffiliated organizations.

9. Limitations on Indirect Investments in

Nonfinancial Foreign Organizations

(Revised § 347.109)

Section 347.109 of the proposal is

derived from existing section

347.104(g). The text of the paragraph is

retained but is reworded for

clarification, and the references to other

sections of subpart A are revised to

conform to the new section numbers

contained in the proposal. The

paragraph is also being made a separate

section for ease of reference

eign Organizations

(Revised § 347.109)

Section 347.109 of the proposal is

derived from existing section

347.104(g). The text of the paragraph is

retained but is reworded for

clarification, and the references to other

sections of subpart A are revised to

conform to the new section numbers

contained in the proposal. The

paragraph is also being made a separate

section for ease of reference.

Like paragraph (g) of the existing rule,

this section authorizes a bank to make

indirect portfolio investments in

nonfinancial foreign organizations

through a foreign subsidiary or an Edge

corporation subsidiary, to an amount

equal to 15 percent of the bank’s Tier 1

capital, without regard to whether the

activities of the foreign organization are

authorized under section 347.105(b). In

addition, the following requirements

must be met:

• The aggregate holdings of a

particular foreign organization’s equity

interests by the bank and its affiliates

must be less than 20 percent of the

foreign organization’s voting interests

and 40 percent of its total voting and

nonvoting equity interests;

• The bank and its affiliates are not

permitted to control the foreign

organization; and

• Any loan or extension of credit to

the foreign organization must be on

substantially the same terms as those

prevailing at the time for comparable

transactions with nonaffiliated

organizations.

10. Affiliate Holdings (Revised

§ 347.110)

Section 347.110 of the proposal is

derived from existing section

347.104(h). The text of the paragraph is

retained, and cross-references to subpart

A are added for ease of reference due to

other proposed revisions to the rules in

subpart A. The reference to section

337.4 in the existing rule is also

changed to reflect the removal and

replacement of section 337.4 with

section 362.8 or, for financial

subsidiaries, section 362.18. See, 66 FR

1018 (January 5, 2001). The paragraph

also is made a separate section for ease

of reference.

11

are added for ease of reference due to

other proposed revisions to the rules in

subpart A. The reference to section

337.4 in the existing rule is also

changed to reflect the removal and

replacement of section 337.4 with

section 362.8 or, for financial

subsidiaries, section 362.18. See, 66 FR

1018 (January 5, 2001). The paragraph

also is made a separate section for ease

of reference.

11. Underwriting and Dealing Limits

Applicable to Foreign Organizations

Held by Insured State Nonmember

Banks (Revised § 347.111)

Section 347.111 of the proposal is

derived from existing section 347.105.

Cross-references are being added, for

ease of reference, to other rules in

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

4 The omitted activities relevant to this discussion

are: engaging in repurchase agreements that are the

functional equivalent of extensions of credit and

paying branch employees a greater rate of interest

on their deposits than the rate paid to other

depositors on similar deposits. A third activity,

concerning extending credit to an officer of the

branch in the foreign country in which the branch

is located to finance the officer’s living quarters, is

not included in the list of activities authorized by

the FDIC’s existing rule. Considering that this

activity was not among the list of permissible

activities for foreign branches of member banks in

the recent revisions to Regulation K and that the

FDIC previously concluded that the activity was

within the general banking powers of a foreign

branch, the inclusion of this additional activity in

the list of activities that are permissible under

proposed section 347.115 does not appear to be

necessary

as not among the list of permissible

activities for foreign branches of member banks in

the recent revisions to Regulation K and that the

FDIC previously concluded that the activity was

within the general banking powers of a foreign

branch, the inclusion of this additional activity in

the list of activities that are permissible under

proposed section 347.115 does not appear to be

necessary. It also does not appear to advance the

goal of making the comparison of activities

authorized under Regulation K and those

authorized by the FDIC’s corresponding provision

easier. Therefore, this particular activity is not

being included in the list of permissible activities

contained in the proposed rule.

subpart A that affect this rule because of

other revisions being made in this

proposal. Appropriate revisions to

section citations in Regulation K are

also being made.

Under the proposed rule, as with

existing section 347.105, a foreign

investment entity of a bank is permitted

to underwrite, distribute, and deal

equity securities outside the United

States, subject to the three main

limitations described generally below:

• Underwriting commitments for a

single issuer may not exceed an amount

equal to the lesser of $60 million or 25

percent of the bank’s Tier 1 capital. This

underwriting commitment limit may be

exceeded, however, to the extent the

commitment is covered by binding

commitments from sub-underwriters or

purchasers.

• Distribution and dealing shares of a

single entity may not exceed an amount

equal to the lesser of $30 million or 5

percent of the bank’s Tier 1 capital. This

limit is subject to two exceptions. First,

to facilitate underwritings, any equity

securities acquired pursuant to an

underwriting commitment extending up

to 90 days after the payment date of the

underwriting are not included in the

limit

ution and dealing shares of a

single entity may not exceed an amount

equal to the lesser of $30 million or 5

percent of the bank’s Tier 1 capital. This

limit is subject to two exceptions. First,

to facilitate underwritings, any equity

securities acquired pursuant to an

underwriting commitment extending up

to 90 days after the payment date of the

underwriting are not included in the

limit. Second, up to 75 percent of the

position in an equity security may be

reduced by netting long and short

positions in the identical equity

security, or by offsetting cash positions

against derivative instruments

referenced to the same security.

• The sum of underwriting

commitments, distribution and dealing

shares, and any portfolio investments in

nonfinancial organizations under

proposed section 347.109 may not

exceed an amount equal to 25 percent

of the bank’s Tier 1 capital.

12. Restrictions on Activities Applicable

to Foreign Organizations That Act as

Futures Commission Merchants

(Revised § 347.112)

Section 347.112 of the proposal is

derived from existing section 347.106.

As proposed, the title to the section is

revised, and the text of the existing rule

is reorganized and retained. Cross-

references are added, for ease of

reference, to subpart A that affect this

rule because of other revisions made in

this proposal.

As with existing section 347.106, the

proposed rule imposes an additional

restriction beyond those imposed by

section 225.28(b) of Regulation Y on

acting as a futures commission

merchant. Under section 347.112, a

foreign investment entity may not,

without the FDIC’s prior approval, have

potential liability to a mutual exchange

or clearing association of which the

foreign investment entity is a member

that exceeds 2 percent of the bank’s Tier

1 capital.

13. Restrictions Applicable to Activities

by a Foreign Organization in the United

States. (Revised § 347.113)

Section 347.113 of the proposal is

derived from existing section 347.107

ithout the FDIC’s prior approval, have

potential liability to a mutual exchange

or clearing association of which the

foreign investment entity is a member

that exceeds 2 percent of the bank’s Tier

1 capital.

13. Restrictions Applicable to Activities

by a Foreign Organization in the United

States. (Revised § 347.113)

Section 347.113 of the proposal is

derived from existing section 347.107.

The title to the section is revised, and

the text of the existing rule is

reorganized and retained.

As with the existing rule, the

proposed rule prohibits a state

nonmember bank from investing in any

foreign organization that engages in the

general business of buying or selling

goods, wares, merchandise, or

commodities in the U.S. It also prohibits

investments totaling over 5 percent of

equity interests in any foreign

organization if the organization engages

in any business activities in the U.S.

that are not incidental to its

international or foreign business. The

rule also provides that a foreign

organization will not be considered to

be engaged in business or activities in

the U.S. unless it maintains an office in

the U.S. other than a representative

office. Beyond these thresholds, foreign

organizations are authorized to conduct

activities that are permissible in the U.S.

for an Edge corporation, or such other

business activities as are approved by

the FDIC.

14. Extensions of Credit to Foreign

Organizations Held by Insured State

Nonmember Banks; Shares of Foreign

Organizations Held in Connection With

Debts Previously Contracted (Revised

§ 347.114)

Section 347.114 of the proposal is

derived from existing section 347.109.

The text of the existing rule is

reorganized and retained with only

minor revisions.

15. Activities Permissible for a Foreign

Branch of an Insured State Nonmember

Bank (Revised § 347.115)

Proposed section 347.115 is largely

derived from existing section

347.103(a)

Debts Previously Contracted (Revised

§ 347.114)

Section 347.114 of the proposal is

derived from existing section 347.109.

The text of the existing rule is

reorganized and retained with only

minor revisions.

15. Activities Permissible for a Foreign

Branch of an Insured State Nonmember

Bank (Revised § 347.115)

Proposed section 347.115 is largely

derived from existing section

347.103(a). Although most of the

existing text is not being changed

substantively, a few revisions are made

to incorporate changes made by the FRB

in section 211.4 of Regulation K. For

example, the reference to ‘‘development

bank’’ in existing section

347.103(a)(2)(i) has been changed to

‘‘government sponsored development

bank’’ in section 347.115(c)(1)(i). The

authorization for an insured state

nonmember bank to underwrite,

distribute and deal, invest in or trade

specified foreign government

obligations that are rated as investment

grade by at least two established

international rating agencies under

existing section 347.103(a)(3)(ii) is also

being changed. As amended, section

347.115(b)(2) would require only that

these obligations be rated as

‘‘investment grade.’’ As mentioned

earlier, because the FDIC is proposing to

adopt the same definition of

‘‘investment grade’’ that the FRB

adopted in its recent revisions to

Regulation K, an obligation would

qualify as ‘‘investment grade’’ under the

proposed rule if it received a rating in

one of the four highest investment

categories by two or more NRSROs

(nationally recognized statistical rating

organization, as designated by the

Securities and Exchange Commission).

If it had only been rated by one NRSRO

and received the appropriate rating, it

could be considered ‘‘investment grade’’

with only that one rating

ent grade’’ under the

proposed rule if it received a rating in

one of the four highest investment

categories by two or more NRSROs

(nationally recognized statistical rating

organization, as designated by the

Securities and Exchange Commission).

If it had only been rated by one NRSRO

and received the appropriate rating, it

could be considered ‘‘investment grade’’

with only that one rating.

In addition, as with section 347.105 of

this proposal, in the preamble to the

1998 Final Rule, the FDIC determined

that certain activities the FRB had

specifically listed as being authorized in

the corresponding section of Regulation

K for foreign branches of national banks

were within the general banking powers

of a national bank. Therefore, it was

considered unnecessary to separately

enumerate them for foreign branches of

insured state nonmember banks in

existing section 347.103(a). Because the

same issues that were previously

discussed in connection with the

revisions to section 347.105 of the

proposal would be applicable to this

section regarding the applicability of

section 24 of the FDI Act and part 362,

the FDIC is including the activities that

were previously omitted from the text of

the FDIC’s existing rule but which are

included in the corresponding provision

of Regulation K.4 The activities

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is

section regarding the applicability of

section 24 of the FDI Act and part 362,

the FDIC is including the activities that

were previously omitted from the text of

the FDIC’s existing rule but which are

included in the corresponding provision

of Regulation K.4 The activities

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

5 As with proposed section 347.105(d), this

paragraph is considered a rule of general

applicability to provide guidance and notice to

banks with an interest in this area.

authorized under the proposed rule also

are reorganized to correspond more

closely to those activities authorized in

12 CFR 211.4 for foreign branches of

member banks. Finally, the paragraph

addressing ‘‘other activities’’ is revised

to indicate that the FDIC may authorize

foreign branches of state nonmember

banks to engage in activities that are not

specifically listed in the proposed rule,

and a new paragraph (h) is being added

to clarify when other activities may be

approved under this subpart or,

alternatively, when they also must be

authorized under section 24 of the FDI

Act and part 362.5

16. Recordkeeping and Supervision of

Foreign Activities of Insured State

Nonmember Banks Under This Subpart

(Revised § 347.116)

Section 347.116 of the proposal is

derived from existing section 347.110.

The language in section 347.110(b)(2) of

the existing rule is eliminated in the

proposed rule because it addresses

application processing and the

requirement for specific consent in

jurisdictions that limit access to

financial information. Those issues are

addressed in section 347.119 of the

proposal.

17

347.116)

Section 347.116 of the proposal is

derived from existing section 347.110.

The language in section 347.110(b)(2) of

the existing rule is eliminated in the

proposed rule because it addresses

application processing and the

requirement for specific consent in

jurisdictions that limit access to

financial information. Those issues are

addressed in section 347.119 of the

proposal.

17. General Consent (Revised § 347.117)

Section 347.117 of the proposal

consolidates the general consent

requirements related to foreign branches

that are presently contained in section

347.103(b) with the general consent

requirements for investments in foreign

organizations that are presently

contained in section 347.108(a) into a

single rule.

Under proposed section 347.117(a), as

in existing section 347.103(b), general

consent is provided for an eligible

insured state nonmember bank to

establish branches within a foreign

country in which it has a branch or a

foreign bank subsidiary and for

relocation of existing foreign branches

within a foreign country. As part of the

EGRPRA process, it was suggested that

U.S. banks that are well-managed, well-

capitalized, maintain at least a

satisfactory CRA rating, and have

experience operating overseas, such as

through one or two branches, should be

allowed to branch overseas using

procedures available to them for

domestic branching. After considering

this comment, the FDIC is concerned

that such broad authority may allow

branching into foreign countries without

adequate familiarity with the banking

system and regulatory requirements that

may exist in the host country.

Nonetheless, the proposal introduces

some additional flexibility in the

branching area, by allowing insured

state nonmember banks to branch into a

foreign country under general consent

in circumstances covered by (a)(1)(ii) or

ty may allow

branching into foreign countries without

adequate familiarity with the banking

system and regulatory requirements that

may exist in the host country.

Nonetheless, the proposal introduces

some additional flexibility in the

branching area, by allowing insured

state nonmember banks to branch into a

foreign country under general consent

in circumstances covered by (a)(1)(ii) or

(iii) of the proposed rule. This change

will allow an eligible state nonmember

bank to establish additional branches in

a country in which the bank’s holding

company operates a foreign bank

subsidiary, or in which an affiliated

bank or Edge or Agreement corporation

operates one or more foreign branches

or foreign bank subsidiaries. This will

allow for after-the-fact notification to

the FDIC in those circumstances, rather

than requiring prior approval under

expedited processing, as is presently

required under section 347.103(c)(1).

Under proposed section 347.117(b),

general consent for investments in

foreign organizations is provided in the

same circumstances covered by existing

section 347.108(a). In addition, the

proposal would grant general consent to

invest in a foreign organization, under

proposed section 347.117(b)(2), when at

least one insured state nonmember bank

operates a foreign branch in the relevant

foreign country where the organization

will be located because of the FDIC’s

familiarity with the banking laws and

practices of that country. This

amendment was suggested in a

comment on the 1998 Final Rule, but

the FDIC declined to adopt it because of

concerns that banks could operate

‘‘nameplate’’ branches in foreign

countries and, because they would lack

a physical presence in those countries,

more extensive analysis and

coordination with the host country

supervisors may be needed before the

FDIC authorized free-standing foreign

organizations

uggested in a

comment on the 1998 Final Rule, but

the FDIC declined to adopt it because of

concerns that banks could operate

‘‘nameplate’’ branches in foreign

countries and, because they would lack

a physical presence in those countries,

more extensive analysis and

coordination with the host country

supervisors may be needed before the

FDIC authorized free-standing foreign

organizations. Upon further

consideration of this issue, however, the

FDIC believes most nameplate branches

would be operated in jurisdictions

where authority to invest in foreign

organizations by general consent would

be inapplicable under section 347.119(a)

of the proposal. Therefore, if that issue

arises, specific consent would be

required to authorize such an

investment, and the previously stated

concern could be addressed at that time.

18. Expedited Processing (Revised

§ 347.118)

Section 347.118 of the proposal

consolidates the expedited processing

provisions for foreign branches in

existing section 347.103(c)(2) with the

expedited processing provisions for

investments in foreign organizations in

existing section 347.108(b) into a single

rule for ease of reference.

19. Specific Consent (Revised § 347.119)

Section 347.119 of the proposal

consolidates the specific consent

requirements for foreign branches in

existing section 347.103(d)–(e) with the

specific consent requirements for

investments in foreign organizations in

existing section 347.108(c)–(d) into a

single rule for ease of reference and

because the existing provisions are

largely duplicative.

20. Computation of Investment

Amounts (Revised § 347.120)

Section 347.120 of the proposal is

derived from existing section

347.108(e). It is placed in a separate

section in the proposal to indicate its

applicability to the general consent,

expedited processing, and specific

consent sections for foreign investments

because those subjects are addressed by

separate sections of the proposal.

21

Computation of Investment

Amounts (Revised § 347.120)

Section 347.120 of the proposal is

derived from existing section

347.108(e). It is placed in a separate

section in the proposal to indicate its

applicability to the general consent,

expedited processing, and specific

consent sections for foreign investments

because those subjects are addressed by

separate sections of the proposal.

21. Requirements for Insured State

Nonmember Bank to Close a Foreign

Branch. (Revised § 347.121)

Section 347.121 of the proposal is

derived from 347.103(f) and is placed in

a separate section for ease of reference

and because the approval provisions of

that section are separated from the

authorized activities section for foreign

branches in the proposal.

22. Limitations Applicable to the

Authority Provided in This Subpart

(New § 347.122)

The FDIC is proposing to add a new

section 347.122. This section recognizes

that the FDIC may, under section

18(d)(2) and 18(l) of the FDI Act,

condition the authority granted under

this subpart A as it considers

appropriate. The section also provides

for termination of activities or

divestiture of investments permitted

under the subpart, after giving the bank

notice and a reasonable opportunity to

be heard, if a bank is unable or fails to

comply with the requirements of the

subpart or any conditions imposed by

the FDIC regarding transactions under

the subpart.

IV. Section-by-Section Analysis of

Proposed Revisions to Part 347,

Subpart B

1. Authority, Purpose and Scope

(Revised § 347.201)

The FDIC is proposing to revise

existing section 347.201 to reflect the

authority and coverage of subpart B, as

amended. In addition, the scope of the

subpart is revised to reflect the grouping

of the sections therein based primarily

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ity, Purpose and Scope

(Revised § 347.201)

The FDIC is proposing to revise

existing section 347.201 to reflect the

authority and coverage of subpart B, as

amended. In addition, the scope of the

subpart is revised to reflect the grouping

of the sections therein based primarily

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6 Unlike the existing section, which requires the

foreign bank to provide information regarding the

affairs of the foreign bank and its affiliates outside

the U.S. and examination of the affairs of any office,

agency, branch or affiliate of the foreign bank

located in the United States, the proposed section

will require the foreign bank to permit examination

of itself and its affiliates for the purposes specified

in the statute, without regard to their location. This

requirement is based on the relevant underlying

statutory provisions in the FDI Act. See, sections

3(w)(6) and 10(b)(4) of the FDI Act (12 U.S.C.

1813(w)(6), 1820(b)(4)).

upon whether they apply to both

insured state and federal branches or

only to state branches. The section also

recognizes that section 347.204 applies

to foreign banks seeking deposit

insurance coverage for their state or

federal depository institution

subsidiaries.

2. Definitions (Revised § 347.202)

The definitions contained in existing

section 347.202 are revised by amending

an existing paragraph, moving an

existing paragraph, and adding three

new paragraphs. In the proposal, the

definition of ‘‘domestic retail deposit

activity’’ contained in paragraph (e) is

being amended to add ‘‘federal’’

branches because the prohibition

contained in section 347.206 of the

proposal, concerning taking domestic

retail deposits through U.S. bank

subsidiaries or certain grandfathered

branches, is applicable equally to state

or federal branches of foreign banks

In the proposal, the

definition of ‘‘domestic retail deposit

activity’’ contained in paragraph (e) is

being amended to add ‘‘federal’’

branches because the prohibition

contained in section 347.206 of the

proposal, concerning taking domestic

retail deposits through U.S. bank

subsidiaries or certain grandfathered

branches, is applicable equally to state

or federal branches of foreign banks.

The addition of ‘‘federal’’ branches to

section 347.202(e) is not intended,

however, to create a discrepancy

regarding the application of section

347.216 of the proposal, which also uses

the term ‘‘domestic retail deposit

activity,’’ because section 347.216, by its

own terms, applies specifically to state

branches. The corresponding rule for

federal branches is 12 CFR 28.16.

Paragraph (m) of the proposal revises

the definition of ‘‘initial deposit’’ that is

contained in paragraph (l) of the

existing rule to eliminate the need for

the separate definition of ‘‘first deposit’’

that is included at the end of the

paragraph in the existing rule. In

addition, paragraphs (j) and (s) are

added to the section and are consistent

with the definitions for the same terms

that are utilized in subpart A.

3. Deposit Insurance Required for All

Branches of Foreign Banks Engaged in

Domestic Retail Deposit Activity in the

Same State (Revised § 347.203)

Existing section 347.203 is retained in

the proposal, but the text is revised to

clarify the requirements of the section.

The title to the section also is revised to

make it more descriptive of the contents

of the section.

4. Commitment To Be Examined and

Provide Information (Revised § 347.204)

Section 347.204 of the proposal

substantially revises existing section

347.208 to update the rule and enhance

the FDIC’s supervisory authority. The

existing rule was initially issued in 1979

to implement section 10(b) of the FDI

Act (12 U.S.C. 1820(b)) with regard to

U.S. branches of foreign banks

s

of the section.

4. Commitment To Be Examined and

Provide Information (Revised § 347.204)

Section 347.204 of the proposal

substantially revises existing section

347.208 to update the rule and enhance

the FDIC’s supervisory authority. The

existing rule was initially issued in 1979

to implement section 10(b) of the FDI

Act (12 U.S.C. 1820(b)) with regard to

U.S. branches of foreign banks. Section

10(b) requires a foreign bank, in

connection with obtaining deposit

insurance for a branch or depository

institution subsidiary, to submit a

binding written commitment to the

FDIC to permit any examination of the

affairs of any affiliate of the branch or

depository institution subsidiary to the

extent necessary to determine: (1) The

relationship between the depository

institution and the affiliate and (2) the

effect of such relationship on such

depository institution.

Like the existing rule, the proposed

rule addresses a foreign bank seeking

deposit insurance for a U.S. branch.

However, the proposed rule, if adopted,

will apply whenever a foreign bank

seeks deposit insurance for a banking

subsidiary.

Accordingly, the rule, as revised, will

require a foreign bank applying for

deposit insurance for a U.S. branch or

depository institution subsidiary to

provide the FDIC with a written

commitment (including a consent to

U.S. court jurisdiction and designation

of agent for service of process,

acceptable to the FDIC) to:

1. Permit examination, for the reasons

specified in section 10(b)(4), of the

foreign bank and affiliates located

outside the U.S.; 6

2. Provide information, for the reasons

specified in section 10(b)(4), regarding

the foreign bank and affiliates located

outside the U.S.; and

3. Allow examination and provide

information, for the reasons specified in

section 10(b)(4), regarding the offices

and affiliates of the foreign bank that are

located in the U.S

b)(4), of the

foreign bank and affiliates located

outside the U.S.; 6

2. Provide information, for the reasons

specified in section 10(b)(4), regarding

the foreign bank and affiliates located

outside the U.S.; and

3. Allow examination and provide

information, for the reasons specified in

section 10(b)(4), regarding the offices

and affiliates of the foreign bank that are

located in the U.S.

The proposed rule also will allow the

foreign examination provision to be

waived in instances where the FRB has

already made a comprehensive

consolidated supervision determination

for the foreign bank at issue.

In addition, under the proposed rule,

if an equivalent commitment has been

made by a foreign bank to another

Federal banking agency that provides

the FDIC with the same rights and

privileges that the FDIC would have if

it obtained such commitment on its own

behalf, the FDIC may waive all or part

of the commitment requirements

imposed by this section in lieu of

requiring its own separate commitment

from the foreign bank. If such waiver is

granted, however, the foreign bank will

be required to provide the FDIC with the

commitments required by the section

before the foreign bank terminates any

commitments provided to any other

Federal banking agency which provide

a basis for such waiver.

The FDIC recognizes that there may

be situations when a foreign bank has

not been determined to be subject to

comprehensive consolidated

supervision; has not provided a

commitment to any other Federal

banking agency that the FDIC finds

acceptable; and cannot or will not

provide the written commitment to

permit examination required under

section 347.204(a)(1). In this

circumstance, it is envisioned that

under section 347.204(a)(3) the deposit

insurance application for the U.S.

branch or depository institution will not

be processed because the application

will not be considered substantially

complete without the required

commitment

and cannot or will not

provide the written commitment to

permit examination required under

section 347.204(a)(1). In this

circumstance, it is envisioned that

under section 347.204(a)(3) the deposit

insurance application for the U.S.

branch or depository institution will not

be processed because the application

will not be considered substantially

complete without the required

commitment. It is also recognized,

however, that the foreign bank may be

willing to provide the required

commitment, but obstacles to the FDIC’s

ability to utilize the commitment may

be posed by the laws or regulatory

regime governing the foreign bank. In

this situation, it is envisioned that the

foreign bank would be responsible for

addressing and resolving these issues in

consultation with the appropriate FDIC

staff. To the extent the issues cannot be

resolved acceptably, but the foreign

bank provides the required

commitment, the rule provides for

consideration of these issues, in section

347.204(b)(3), in determining whether

the deposit insurance application of the

foreign bank’s U.S. branch or depository

institution should be granted or denied.

5. Records Maintenance (Revised

§ 347.205)

Section 347.205 of the proposal

addresses record maintenance

requirements for insured U.S. branches

of foreign banks. The new section

reorders and combines the paragraphs of

existing section 347.209, which

addresses the same issues.

6. Conduct of Domestic Retail Deposit

Activity by U.S. Branch of a Foreign

Bank (Revised § 347.206)

Section 347.206 of the proposal

implements section 6(d) of the IBA (12

U.S.C. 3104(d)). Paragraphs (a)–(c) are

derived from existing section

347.204(a)–(c) but have been reworded

slightly for clarity. Paragraph (a)

requires any foreign bank intending to

conduct domestic retail deposit

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47.206 of the proposal

implements section 6(d) of the IBA (12

U.S.C. 3104(d)). Paragraphs (a)–(c) are

derived from existing section

347.204(a)–(c) but have been reworded

slightly for clarity. Paragraph (a)

requires any foreign bank intending to

conduct domestic retail deposit

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

7 See e.g., FDIC Advisory Opinion 92–12, March

25, 1992, reprinted in [1991–1992 Transfer Binder]

Fed. Banking L. Rep. (CCH) P81,482 (The

grandfathered branch exception was intended only

to permit existing insured branches of foreign banks

to continue to operate after the enactment of

FDICIA without the requirement of being ‘‘rolled

up’’ into a newly chartered subsidiary bank. The

provision does not permit a foreign bank with a

grandfathered branch to subsequently open

additional insured branches which accept and

maintain deposit accounts having balances of less

than $100,000.)

8 Reading the statute as a whole, the proposed

broad reading of the exception also is contrary to

the direction provided in section 6(a) of the IBA

regarding implementation of the section because

purchasers of grandfathered branches could avoid

forming and capitalizing banking subsidiaries to

engage in domestic retail deposit activity in the

U.S., rather than following the same process

required for domestic banks of establishing and

capitalizing a distinct corporate entity and applying

for deposit insurance.

activities requiring deposit insurance in

any state after December 19, 1991, to

establish one or more insured U.S. bank

subsidiaries to conduct those deposit

activities. Paragraph (b) provides an

exception to this general rule, based on

section 6(d)(3) of the IBA, for any FDIC-

insured bank organized under the laws

of any territory of the United States,

Puerto Rico, Guam, American Samoa, or

the Virgin Islands

deposit insurance in

any state after December 19, 1991, to

establish one or more insured U.S. bank

subsidiaries to conduct those deposit

activities. Paragraph (b) provides an

exception to this general rule, based on

section 6(d)(3) of the IBA, for any FDIC-

insured bank organized under the laws

of any territory of the United States,

Puerto Rico, Guam, American Samoa, or

the Virgin Islands. This allows insured

banks organized under the laws of the

specified jurisdictions to conduct any

domestic retail deposit activities in the

United States through an insured

branch, rather than through insured

bank subsidiaries. Paragraph (c) is based

upon the ‘‘grandfathered branch’’

exception in the statute, which allows

any insured branches that were

accepting or maintaining domestic retail

deposit accounts on December 19, 1991,

to continue to operate as insured

branches conducting domestic retail

deposit activities. Existing section

347.204(d), which authorizes foreign

banks to operate noninsured state

branches meeting the criteria specified

therein, is made into proposed section

347.213 because it only applies to state

branches.

Paragraph (d) of the proposed rule is

added to address an issue raised with

the FDIC through the EGRPRA process.

In that process, an industry trade

association requested that the FDIC

clarify that the grandfathered status of

an insured branch survives the sale or

transfer of the branch from one foreign

bank to another foreign bank. The trade

association suggested that the

transferability of the grandfathered

status of a U.S. branch of a foreign bank

to a new owner was supported by

applying the ‘‘plain meaning’’ rule of

statutory construction to section 6(d) of

the IBA

clarify that the grandfathered status of

an insured branch survives the sale or

transfer of the branch from one foreign

bank to another foreign bank. The trade

association suggested that the

transferability of the grandfathered

status of a U.S. branch of a foreign bank

to a new owner was supported by

applying the ‘‘plain meaning’’ rule of

statutory construction to section 6(d) of

the IBA. The trade association’s view

was that because the availability of the

grandfather exception appears to be

conditioned upon a single exception

(that the branch was insured as of

December 19, 1991), it was inconsistent

with the plain meaning of the statute to

read into it an additional condition (that

the branch was not transferred after

December 19, 1991). The trade

association also observed that other

grandfather provisions enacted by

Congress in the same statute expressly

state that those grandfather rights

terminate upon a change in control.

Therefore, the absence of such a

provision in the grandfathered branch

exception, it was argued, indicates that

Congress did not intend that an insured

branch would lose its grandfathered

status upon its sale or transfer.

Additionally, the trade association

observed that permitting transfers of

grandfathered branches would provide

an option for other foreign banks that

would like to establish FDIC-insured

branches but are constrained from doing

so by the subsidiary requirement in

section 6(d). Finally, it was observed

that depositors would not lose the

protections of deposit insurance solely

as a result of the sale or transfer of an

insured branch.

The FDIC has considered these

observations and others presented by

the trade association. It appreciates the

arguments supporting a broad reading of

the grandfathered branch exception but

the exception has been construed more

narrowly in the past 7 and, at this time,

the FDIC is not persuaded that a change

in position is justified

as a result of the sale or transfer of an

insured branch.

The FDIC has considered these

observations and others presented by

the trade association. It appreciates the

arguments supporting a broad reading of

the grandfathered branch exception but

the exception has been construed more

narrowly in the past 7 and, at this time,

the FDIC is not persuaded that a change

in position is justified. The broad

reading of the grandfather exception

requested would be at odds with the

distinct preference Congress stated in

section 6(d) of the IBA of making foreign

banks desiring to engage in new

domestic retail deposit activities

requiring deposit insurance after

December 19, 1991 do so through

insured banking subsidiaries. Since it is

a well recognized rule of statutory

construction that in ascertaining the

plain meaning of a statute it is

appropriate to look to the particular

statutory language at issue, as well as

the language and design of the statute as

a whole, this construction of paragraph

(d) appears to be more appropriate than

the alternative construction of the

statute advanced by the trade

association.8 It also does not appear to

be appropriate, as a matter of policy, to

adopt an interpretation that will make

the grandfathered status the object of

bargain among foreign banks and allow

entry to and departure from the insured

domestic retail deposit market based on

the highest bid for the privilege.

The FDIC recognizes that the existing

rule does not address this issue. It also

recognizes, however, that there may be

other situations, such as certain merger

and acquisition transactions, that are

not designed or motivated by the desire

to obtain access to the domestic retail

deposit market and avoid compliance

with the subsidiary requirement in

section 6(d) of the IBA, where the

grandfathered status of an insured

branch should remain intact. Therefore,

the FDIC is addressing the issue in

paragraph (d) of the proposed rule and

inviting public comments.

7

on transactions, that are

not designed or motivated by the desire

to obtain access to the domestic retail

deposit market and avoid compliance

with the subsidiary requirement in

section 6(d) of the IBA, where the

grandfathered status of an insured

branch should remain intact. Therefore,

the FDIC is addressing the issue in

paragraph (d) of the proposed rule and

inviting public comments.

7. Disclosure of Supervisory Information

to Foreign Supervisors (New § 347.207)

Section 347.207 is proposed to

facilitate cross-border supervision of

insured branches of foreign banks and

insured bank subsidiaries by providing

for the sharing of supervisory

information between the FDIC and

foreign bank regulatory or supervisory

authorities. It is patterned after section

15 of the IBA (12 U.S.C. 3109) and 12

CFR 211.27. The section also addresses

the confidentiality of such information,

based upon the FDIC’s interpretation of

section 8(v) of the FDI Act (12 U.S.C.

1818(v)), by providing that the

disclosure or transfer of such

information to a foreign bank regulatory

or supervisory authority does not waive

any privilege applicable to such

information.

8. Assessment Base Deductions by

Insured Branch (Revised § 347.208)

Section 347.208 is revised text of

existing section 347.212.

9. Pledge of Assets (Revised § 347.209)

The asset pledge requirement

contained in existing section 347.210 is

revised in proposed section 347.209 by

imposing a risk-based asset pledge

requirement. The existing 5 percent

asset pledge requirement has been in

place since 1984. As part of the

EGRPRA process, an industry trade

association observed that the existing

asset pledge requirement fails to take

into account the specific circumstances

of each insured branch and advances in

risk-based bank supervision that have

taken place in recent years. The trade

association also observed that the asset

pledge requirements do not apply to

U.S

been in

place since 1984. As part of the

EGRPRA process, an industry trade

association observed that the existing

asset pledge requirement fails to take

into account the specific circumstances

of each insured branch and advances in

risk-based bank supervision that have

taken place in recent years. The trade

association also observed that the asset

pledge requirements do not apply to

U.S. banks and asserted that the existing

asset pledge requirement adversely

affects the earnings and liquidity of

insured U.S. branches by making them

maintain and pledge specific amounts of

generally lower yielding assets.

The FDIC recognizes that the asset

pledge requirement may have

competitive implications for foreign

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

9 The ROCA system represents the rating of risk

management, operational controls, compliance, and

asset quality of a Foreign Banking Organization’s

U.S. operations.

banks with regard to their insured

branches operating in the United States,

but does not believe elimination of the

asset pledge requirement is appropriate.

Unlike their domestic counterparts, the

activities, assets, and personnel of

foreign banks operating insured

branches in the United States are, in

large part, outside the jurisdiction of the

United States. While the parent bank

may, in theory, add financial support to

the branch structure, the FDIC is

concerned that indications of financial

weakness that become apparent in an

insured branch may also be indicative of

financial weakness at the parent level

that may result in less financial support

from the parent of the insured branch in

times of financial stress

iction of the

United States. While the parent bank

may, in theory, add financial support to

the branch structure, the FDIC is

concerned that indications of financial

weakness that become apparent in an

insured branch may also be indicative of

financial weakness at the parent level

that may result in less financial support

from the parent of the insured branch in

times of financial stress. This could

result either from voluntary decisions of

the parent or regulatory restrictions

imposed by the home country regulator,

and may precipitate significant deposit

outflows from the insured branch.

Therefore, to mitigate this risk and the

potential risks associated with

providing deposit insurance for deposits

in an insured branch, the FDIC

continues to believe that an asset pledge

requirement in some amount is

appropriate.

The FDIC recognizes that it may be

appropriate, however, to revise the asset

pledge requirement to make it more

risk-focused and to take into

consideration characteristics that may

be unique to each insured branch. As

revised in the proposal, the asset pledge

requirement will be determined in a

manner similar to the approach the

FDIC has taken with its risk-based

deposit insurance assessment system.

Under the proposal, any newly insured

branch will be subject to a 5 percent

asset pledge requirement until the end

of the first three years of its operation

as an insured branch. This differs from

the one-year requirement in paragraph

sset pledge

requirement will be determined in a

manner similar to the approach the

FDIC has taken with its risk-based

deposit insurance assessment system.

Under the proposal, any newly insured

branch will be subject to a 5 percent

asset pledge requirement until the end

of the first three years of its operation

as an insured branch. This differs from

the one-year requirement in paragraph

(b)(2) of the existing rule, but the FDIC

believes that the standard in the existing

rule is outdated and that it is prudent

to impose more stringent requirements

on newly insured institutions during the

first three years of their operations to

compensate for potential risks

associated with the commencement of

insured operations. Three years will

also allow a newly insured branch to

experience at least one examination

cycle, which will result in supervisory

information that the FDIC can utilize to

adjust the asset pledge requirement for

the branch. After the first three years of

operation as an insured branch, the rule

envisions that the asset pledge amount

will be adjusted by taking into

consideration the percentage of assets

maintained by the insured branch,

pursuant to section 347.210, and the

supervisory information relative to the

branch at issue. It is envisioned that the

most recent ROCA rating 9 for the

insured branch will be a focal point of

such supervisory information but, as

with the risk-based premium system,

the FDIC could also consider other

supervisory information that it believes

is appropriate to fully evaluate the

potential risk posed by the insured

branch in determining the supervisory

subgroup assignment for the branch.

The appropriate percentage of assets

required to be pledged will then be

determined based on the supervisory

risk subgroup assigned and the asset

maintenance level applicable to the

branch

nsider other

supervisory information that it believes

is appropriate to fully evaluate the

potential risk posed by the insured

branch in determining the supervisory

subgroup assignment for the branch.

The appropriate percentage of assets

required to be pledged will then be

determined based on the supervisory

risk subgroup assigned and the asset

maintenance level applicable to the

branch. The proposal will generally

permit the asset pledge to be lowered to

not less than 2 percent of third-party

liabilities for insured branches that are

perceived to pose a lower potential risk

and up to 8 percent of liabilities for

insured branches that are perceived to

pose a higher potential risk to the

deposit insurance fund. In addition the

FDIC’s ability to require a higher

percentage of pledged assets in

appropriate circumstances will remain

unchanged in the proposed rule.

Although the proposed rule could

potentially increase the asset pledge

requirement above the existing 5

percent requirement for some insured

branches, most of the existing insured

branches traditionally exceed the

minimum asset maintenance

requirements imposed by existing

section 347.210, and most of their

supervisory ratings are also favorable.

Therefore, if the rule is adopted as

proposed, the FDIC’s asset pledge

requirement for most of the existing

insured branches will be reduced from

its current level. Moreover, the risk-

based proposal is designed to increase

the degree of protection provided to the

FDIC deposit insurance fund as the risk

profile for the insured branch

deteriorates.

The proposed rule also makes

amendments and deletions to the

existing rule. Paragraph (d)(1) of the

existing rule specifies that certificates of

deposit may be pledged as collateral

from

its current level. Moreover, the risk-

based proposal is designed to increase

the degree of protection provided to the

FDIC deposit insurance fund as the risk

profile for the insured branch

deteriorates.

The proposed rule also makes

amendments and deletions to the

existing rule. Paragraph (d)(1) of the

existing rule specifies that certificates of

deposit may be pledged as collateral.

The additional term ‘‘negotiable’’ is

being added to the corresponding

portion of the proposed rule to clarify

this requirement because negotiable

certificates of deposit are marketable,

while other types of certificates of

deposit may exist that could provide

less protection to the FDIC in the event

they had to be liquidated quickly. Thus,

certificates of deposit that are not

negotiable will not qualify as acceptable

collateral for purposes of the asset

pledge requirement. In addition, the

FDIC is proposing to amend paragraph

(d)(2) to add U.S. Treasury bills as an

additional form of eligible collateral.

Finally, paragraph (f) of the existing rule

is removed in the proposed rule because

it is essentially a delegation of authority.

Over the past several years the FDIC has

removed its delegations of authority for

supervisory matters from its rules and

now generally addresses these matters

by internal delegations of authority from

the FDIC’s Board of Directors.

10. Asset Maintenance (Revised

§ 347.210)

Proposed section 347.210 contains

revisions to existing section 347.211

that are largely related to the asset

maintenance calculation for insured

branches. As revised, the proposed rule

will require insured branches to

maintain eligible assets on a daily basis

in an amount not less than 106 percent

of the insured branch’s daily third-party

liabilities, rather than based upon the

preceding quarter’s average book value

of the insured branch’s liabilities

7.211

that are largely related to the asset

maintenance calculation for insured

branches. As revised, the proposed rule

will require insured branches to

maintain eligible assets on a daily basis

in an amount not less than 106 percent

of the insured branch’s daily third-party

liabilities, rather than based upon the

preceding quarter’s average book value

of the insured branch’s liabilities.

Although the existing calculation

method has been in place for a number

of years, there have been some instances

where insured branches were winding

down their operations and needed to be

allowed to calculate their asset

maintenance on a daily basis to

maintain compliance with the asset

maintenance requirement. The FDIC

believes that requiring that the

calculation be made based on the daily

third-party liabilities of the branch will

avoid these and other potential

anomalies that can be caused by using

liability information from the preceding

quarter.

In addition, although requiring the

asset maintenance ratio to be calculated

based on the daily assets and liabilities

of a branch may require some

adjustment of existing processes, the

FDIC does not believe it will require

much additional preparation by insured

branches. The FDIC also believes this

formula’s application will be more

straightforward and the asset

maintenance calculation will be easier

for the insured branches to determine.

Nevertheless, the FDIC is soliciting

public comment regarding this proposal.

Other revisions to paragraph (a) of the

existing rule include elimination of the

alternative calculation for newly-

established branches and the reference

to the ‘‘Board of Directors.’’ Paragraph

l be more

straightforward and the asset

maintenance calculation will be easier

for the insured branches to determine.

Nevertheless, the FDIC is soliciting

public comment regarding this proposal.

Other revisions to paragraph (a) of the

existing rule include elimination of the

alternative calculation for newly-

established branches and the reference

to the ‘‘Board of Directors.’’ Paragraph

(d) of the existing rule is revised to

require that the asset maintenance

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

10 For example, Senator Donald W. Riegle, who

introduced the amendment adding the subsidiary

requirement to section 6 of the IBA, explained the

rationale for the amendment, at 137 Cong. Rec.

S18617, S18623 (daily ed. November 27, 1991), as

follows:

‘‘Another section of the conference report foreign

bank subtitle ensures that foreign banks, that wish

to accept or maintain insured deposit accounts, do

Continued

calculations for the branch be retained

until the next Federal examination.

11. Examination of Branches of Foreign

Banks (Revised § 347.211)

Section 347.211 of the proposal

contains the text of existing section

347.214.

12. FDIC Approval to Conduct Activities

That Are Not Permissible for Federal

Branches (Revised § 347.212)

Section 347.212 revises the text of

existing section 347.213. In addition, a

specific citation is added to the

appropriate section in subpart J that

applies to this section for ease of

reference.

13. Establishment and Operation of

Noninsured Branch (Revised § 347.213)

Section 347.213 of the proposal

contains the revised text of existing

section 347.204(d)

l

Branches (Revised § 347.212)

Section 347.212 revises the text of

existing section 347.213. In addition, a

specific citation is added to the

appropriate section in subpart J that

applies to this section for ease of

reference.

13. Establishment and Operation of

Noninsured Branch (Revised § 347.213)

Section 347.213 of the proposal

contains the revised text of existing

section 347.204(d). As in the existing

rule, the section authorizes foreign

banks to operate noninsured branches if

any such branch:

• Is conducting only a wholesale

deposit taking operation;

• Is accepting only deposits that are

permissible for an Edge Act corporation

pursuant to proposed rule 347.214; or

• Meets the requirements for an

exemption from the definition of

‘‘domestic retail deposit activity’’

pursuant to proposed rule 347.215.

The paragraph is separated from the

other paragraphs in existing section

347.204 because paragraphs (a)–(c) are

equally applicable to state and federal

branches that are insured. As indicated

earlier, paragraphs (a)–(c) of section

347.204 are contained in proposed

section 347.206. Because this paragraph

addresses only noninsured state

branches, it is placed in its own section

and grouped with other sections of the

subpart that relate only to noninsured

state branches.

14. Branch Established Under Section 5

of the International Banking Act

(Revised § 347.214)

Section 347.214 of the proposal

contains the revised text of existing

section 347.205.

15. Exemption From Deposit Insurance

Requirement (Revised § 347.215)

Section 347.215 of the proposal

contains revised text of existing section

347.206. Paragraph (c)(2) has been

revised to delete the exception for non-

time deposits because the timeframe

stated in the existing rule has expired.

Other revisions to the text are not

substantive, and a specific citation has

been added to the section of subpart J

of part 303 that applies to this section.

16

5)

Section 347.215 of the proposal

contains revised text of existing section

347.206. Paragraph (c)(2) has been

revised to delete the exception for non-

time deposits because the timeframe

stated in the existing rule has expired.

Other revisions to the text are not

substantive, and a specific citation has

been added to the section of subpart J

of part 303 that applies to this section.

16. Depositor Notification (Revised

§ 347.216)

Section 347.216 of the proposal

contains the text of existing section

347.207.

V. Request for Comments on Deposit

Insurance for Wholesale U.S. Branches

of Foreign Banks

As part of the EGRPRA process, an

industry trade association indicated that

some foreign banks with U.S. wholesale

branches (i.e., branches that are not

engaged in domestic retail deposit

activities that require FDIC insurance)

may be interested in obtaining deposit

insurance and recommended that the

FDIC should no longer discourage

international banks from applying for

‘‘optional’’ deposit insurance.

To place this observation in context,

prior to 1998, the FDIC had a rule

authorizing ‘‘optional insurance’’ for

U.S. branches of foreign banks. In 1998

the optional insurance rule was

eliminated as part of the revision and

consolidation of various parts of the

FDIC rules into part 347. At that time,

to summarize the discussion contained

in the 1998 Final Rule, the FDIC

observed that the subsidiary

requirement imposed by section 6(d) of

the IBA appeared to reach only

domestic retail deposit taking activities

of foreign banks. Because section 5(b) of

the FDI Act (12 U.S.C. 1815(b)),

addressing deposit insurance

applications for U.S. branches of foreign

banks, had not been repealed, it

arguably may be possible for a U.S.

branch of a foreign bank that does not

engage in domestic retail deposit

activity to seek deposit insurance from

the FDIC

reach only

domestic retail deposit taking activities

of foreign banks. Because section 5(b) of

the FDI Act (12 U.S.C. 1815(b)),

addressing deposit insurance

applications for U.S. branches of foreign

banks, had not been repealed, it

arguably may be possible for a U.S.

branch of a foreign bank that does not

engage in domestic retail deposit

activity to seek deposit insurance from

the FDIC. The FDIC further observed,

however, that as a practical matter, it

did not foresee many circumstances in

which it could be appropriate for the

FDIC’s Board of Directors to approve

such an application, but that the

elimination of the optional insurance

rule would not affect a foreign bank’s

ability to argue that it may make such

an application under section 5(b) of the

FDI Act.

Finally, the FDIC observed that the

FDIC Board of Directors would have to

determine whether to actually accept

and approve such an application, based

on its review of the facts and

circumstances involved, in addition to

the pertinent legal and policy

considerations.

Among the arguments advanced to

support an expanded view of the

availability of deposit insurance for

wholesale branches was that:

• A ‘‘plain meaning’’ construction of

section 5(b) permits ‘‘any branch’’—

including a wholesale branch—to

become insured;

• Congress expressly prohibited

foreign banks from obtaining FDIC

insurance for branches ‘‘engaged in

domestic retail deposit activities’’ but

did not remove the statutory provisions

authorizing foreign banks to apply for

deposit insurance for wholesale

branches;

• The FDIC’s approach ignores

significant changes in regulatory

practices and structures that have

occurred since 1991 with regard to

foreign banks; broader acceptance of the

principle of ‘‘investor choice;’’ and

rejection of a broader policy to force

foreign banks to operate in the U.S

statutory provisions

authorizing foreign banks to apply for

deposit insurance for wholesale

branches;

• The FDIC’s approach ignores

significant changes in regulatory

practices and structures that have

occurred since 1991 with regard to

foreign banks; broader acceptance of the

principle of ‘‘investor choice;’’ and

rejection of a broader policy to force

foreign banks to operate in the U.S. only

through subsidiaries;

• Wholesale depositors often seek the

benefits of FDIC insurance—even

though the full amount of their deposits

may not be insured. The ability to offer

these benefits through a U.S. branch

would provide a benefit to customers

and increase a foreign bank’s funding

options;

• Optional FDIC insurance is likely to

be attractive primarily to foreign banks

already operating FDIC-insured

branches and subsidiaries in the U.S.

and to a relatively small number of

other foreign banks, especially those

seeking to serve particular ethnic

markets. As a result, a more liberal

policy likely would have a minimal

effect on the deposit insurance fund;

and

• Permitting wholesale branches to

obtain deposit insurance is consistent

with the business model that has been

followed by some major U.S. banks that

have retained insurance while focusing

on wholesale markets.

While the FDIC recognizes the

arguments advanced by the trade

association and appreciates that some

foreign banks may be reluctant to file

deposit insurance applications, the

FDIC believes that it is difficult to

reconcile the concept that Congress

imposed the subsidiary requirement

with regard to domestic retail deposit

activity requiring deposit insurance for

the protection of the FDIC with the

implicit assumption that Congress did

not believe such protection was needed

with regard to wholesale branches of

foreign banks.10 In this respect, it

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quirement

with regard to domestic retail deposit

activity requiring deposit insurance for

the protection of the FDIC with the

implicit assumption that Congress did

not believe such protection was needed

with regard to wholesale branches of

foreign banks.10 In this respect, it

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

so only in subsidiary banks incorporated in the

United States. Although the taking of retail deposits

in insured branches is not presently a widespread

practice by foreign banks, I pushed for enactment

of this provision as a safeguard against any future

expansion of this practice in order to better

safeguard the bank insurance fund from losses by

branches of banks whose full operations we do not

oversee or control. In the past the FDIC has

expressed concerns that in the event of insolvency

of a foreign bank, assets could easily be shifted from

the U.S. branch and out of U.S. jurisdiction while

deposits could be shifted to the U.S. branch. Such

practices, of course, would create new risks for the

bank insurance fund and taxpayers who stand

behind it. During his September 24, 1991

confirmation hearing William Taylor, Chairman of

the FDIC, endorsed this provision.’’

should be noted that even though the

deposits of such branches may be

characterized as ‘‘wholesale,’’ the

branch deposits would be insured to the

same extent as any other deposits

maintained in an insured depository

institution and that it is possible to

obtain more than $100,000 in deposit

insurance coverage if the customer

accounts are structured correctly.

In addition, many of the reasons

offered in the past against insuring retail

branches apply equally to wholesale

branches

esale,’’ the

branch deposits would be insured to the

same extent as any other deposits

maintained in an insured depository

institution and that it is possible to

obtain more than $100,000 in deposit

insurance coverage if the customer

accounts are structured correctly.

In addition, many of the reasons

offered in the past against insuring retail

branches apply equally to wholesale

branches. For example, various legal

issues arise in the branch context that

are more difficult to predict and address

than those involving banking

subsidiaries and, thus, potentially pose

additional risks to the deposit insurance

fund. As the FDIC noted even prior to

the 1991 statutory amendments

regarding insured domestic retail

deposit activities by U.S. branches of

foreign banks, directors of a foreign

bank are not usually subject to the U.S.

jurisdiction, and domestic branch

personnel essential to explaining certain

transactions could be transferred

beyond the reach of U.S. authorities.

Essential records could also be difficult

to reach if they are kept at the head

office or at branches in other countries.

The FDIC also has recognized in the

past that a U.S. branch could be

subjected to requirements under foreign

laws or to political or economic

decisions of a foreign government which

conflict with domestic bank regulatory

policies. In addition, a recognized

advantage of operating through a

branch, as opposed to subsidiary

structure, is the ability to engage in

transactions with the home office

without significant operational

restrictions that might otherwise be

applied to transactions with affiliates of

insured U.S. banks. Finally, insolvency

of a foreign bank with a multinational

branch structure may pose complicated

and time-consuming issues regarding

the resolution of the branch that could

more likely be avoided in situations

involving banking subsidiaries.

The proposed expansive approach to

deposit insurance for wholesale U.S

t otherwise be

applied to transactions with affiliates of

insured U.S. banks. Finally, insolvency

of a foreign bank with a multinational

branch structure may pose complicated

and time-consuming issues regarding

the resolution of the branch that could

more likely be avoided in situations

involving banking subsidiaries.

The proposed expansive approach to

deposit insurance for wholesale U.S.

branches also appears to raise additional

concerns, including the following:

• The size and legal structure of

cross-border wholesale branch

operations, as opposed to similar

operations through domestic banking

subsidiaries, may pose additional risks

to the deposit insurance fund. Regarding

the size of the operations, for example,

the trade association indicated that

foreign banks hold over $3 trillion in

assets through their U.S. operations,

including over $1 trillion in assets in

nearly 300 U.S. branches and agencies

of foreign banks. Although it has been

represented that only a small number of

these branches and U.S. subsidiaries

would be interested in obtaining deposit

insurance, the potential for a larger

number of branches seeking the benefit

of FDIC deposit insurance could present

a considerable and imprudent

expansion of the deposit insurance

safety net. Regarding the legal structure

of cross-border wholesale branches,

while the branch structure theoretically

can provide more economic support

from the foreign bank than a subsidiary

structure, the livelihood of a branch is

highly dependent on the continued

economic viability of the foreign bank.

Unlike a subsidiary bank, which is

separately capitalized and can continue

to operate independently of the foreign

bank, if the foreign bank becomes

insolvent, in all likelihood the bank’s

branches will also be rendered insolvent

or require intervention

ank than a subsidiary

structure, the livelihood of a branch is

highly dependent on the continued

economic viability of the foreign bank.

Unlike a subsidiary bank, which is

separately capitalized and can continue

to operate independently of the foreign

bank, if the foreign bank becomes

insolvent, in all likelihood the bank’s

branches will also be rendered insolvent

or require intervention.

• The potential benefit to the

wholesale branch depositors of the

liberalized approach may not be as

significant for the branch’s depositors as

the potential benefits that may accrue to

the foreign bank, through potentially

reduced funding costs as a result of

obtaining FDIC deposit insurance. This

raises concerns, from a policy

perspective, about whether this should

be considered a proper use of the

deposit insurance funds and about the

FDIC’s reputation as a deposit insurer.

It also raises concerns about the

potential for foreign citizens being

confused or misled by foreign bank

marketing of FDIC deposit insurance

coverage for wholesale branch deposits.

• It may also be difficult to ensure

that deposit insurance for wholesale

branches would not be utilized as a

mechanism to circumvent or weaken the

subsidiary requirement imposed by

section 6(d) of the IBA. For example, an

argument might be made that an initial

deposit for a nominal amount in excess

of $100,000 qualifies as a ‘‘wholesale

deposit,’’ even thought the balance in

the account immediately falls below

$100,000 and, even with subsequent

deposits, the balance in the account

never again exceeds the $100,000.

Based on the foregoing discussion, the

FDIC continues to believe the

statements made in the 1998 Final Rule

are appropriate with regard to deposit

insurance for wholesale U.S. branches

of foreign banks, but welcomes public

comments on this issue. The FDIC

expects to take appropriate action after

consideration of the comments received.

VI

in the account

never again exceeds the $100,000.

Based on the foregoing discussion, the

FDIC continues to believe the

statements made in the 1998 Final Rule

are appropriate with regard to deposit

insurance for wholesale U.S. branches

of foreign banks, but welcomes public

comments on this issue. The FDIC

expects to take appropriate action after

consideration of the comments received.

VI. Regulatory Flexibility Act Analysis

The FDIC is required by section 3(a)

of the Regulatory Flexibility Act (5

U.S.C. 603(a)) to publish an initial

regulatory flexibility analysis with this

rulemaking or certify that the proposed

rule, if adopted, will not have a

significant economic impact on a

substantial number of small entities. For

purposes of the analysis or certification,

financial institutions with assets of $150

million or less are considered ‘‘small

entities.’’ For the reasons stated below,

the FDIC certifies, pursuant to 5 U.S.C.

605(b), that the amendments and

revisions contained in this proposed

rule will not, if promulgated through a

final rule, have a significant economic

impact on a substantial number of small

entities.

The proposed rule makes primarily

technical revisions to update,

reorganize, and clarify the existing rules

in subpart A of part 347 and subpart J

of part 303. Subpart J of part 303

contains the procedural rules that

implement part 347. The rules in

subpart A of part 347 address issues

related to the international activities

and investments of insured state

nonmember banks. In general, they

implement the FDIC’s statutory

authority under section 18(d)(2) of the

Federal Deposit Insurance Act (FDI Act)

(12 U.S.C. 1828(d)(2)), regarding

branches of insured state nonmember

banks in foreign countries, and section

18(l) of the FDI Act, regarding insured

state nonmember bank investments in

foreign entities

tivities

and investments of insured state

nonmember banks. In general, they

implement the FDIC’s statutory

authority under section 18(d)(2) of the

Federal Deposit Insurance Act (FDI Act)

(12 U.S.C. 1828(d)(2)), regarding

branches of insured state nonmember

banks in foreign countries, and section

18(l) of the FDI Act, regarding insured

state nonmember bank investments in

foreign entities. As of December 31,

2003, there were approximately 4,833

state nonmember banks, but fewer than

50 of those institutions had foreign

investments or foreign branches.

Available information indicates that

state nonmember banks with foreign

investments or foreign branches are not

small entities. For example, none of the

state nonmember banks with foreign

branches is a small entity, and none of

the foreign investment applications

processed in 2003 involved small

entities.

The proposed rule also makes

revisions to update, reorganize, and

clarify the existing rules in subpart B of

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

347, as well as additional revisions and

amendments that address supervisory

issues. The rules in subpart B of part

347 principally address issues related to

insured and noninsured U.S. branches

of foreign banks under section 6 of the

International Banking Act (IBA)(12

U.S.C. 3104). As of December 31, 2003,

there were approximately 237 U.S.

branches of foreign banks, including 12

insured branches. Of this number, there

were approximately 71 U.S. branches of

foreign banks that appear to qualify as

small entities, including 6 insured

branches. The 12 insured branches are

presently subject to the FDIC’s asset

pledge and asset maintenance

requirements, which are revised in

sections 347.209 and 347.210 of the

proposed rule

U.S.

branches of foreign banks, including 12

insured branches. Of this number, there

were approximately 71 U.S. branches of

foreign banks that appear to qualify as

small entities, including 6 insured

branches. The 12 insured branches are

presently subject to the FDIC’s asset

pledge and asset maintenance

requirements, which are revised in

sections 347.209 and 347.210 of the

proposed rule. Although the revision of

the asset pledge requirement to

implement a risk-based approach may

result in an increase in the amount of

assets pledged for insured branches

with low supervisory ratings, the FDIC

does not believe this will affect the

insured branches that qualify as small

entities. The FDIC also is simplifying

the asset maintenance calculation in

section 347.210. The formula will

require that third-party liabilities be

calculated on a daily basis, rather than

based upon the preceding quarter’s

average book value of the insured

branch’s liabilities (as required in

existing section 347.211). This revision

will apply to all insured branches,

including the small entities, but the

FDIC believes this calculation method

will make compliance with the

regulatory requirement less difficult for

the affected institutions. Although the

change may require some modifications

to existing computer programs, these

should not be significant because there

should already be a daily reconcilement

of assets and liabilities occurring in the

branches. The requirement that the asset

maintenance calculations be retained

until the next Federal examination also

should not result in a significant

economic impact on the small entities

because retention of each branch’s

liability calculations until the next

Federal examination is already required

under the existing asset maintenance

rule. Other revisions being proposed to

the rules affecting noninsured branches

are not substantive and, thus, should

have no significant economic impact on

noninsured branches that qualify as

small entities

mic impact on the small entities

because retention of each branch’s

liability calculations until the next

Federal examination is already required

under the existing asset maintenance

rule. Other revisions being proposed to

the rules affecting noninsured branches

are not substantive and, thus, should

have no significant economic impact on

noninsured branches that qualify as

small entities.

Finally, no amendments are being

proposed to the rules in subpart C. The

public merely is being given an

opportunity, in this rulemaking

proceeding, to comment on the

accounting and reporting rules related

to international lending that are

contained in subpart C of part 347.

VII. Paperwork Reduction Act

In accordance with the requirements

of the Paperwork Reduction Act of 1995

(44 U.S.C. 3501 et seq.), the FDIC may

not conduct or sponsor, and the

respondent is not required to respond

to, an information collection unless it

displays a currently valid Office of

Management and Budget (OMB) control

number. The FDIC has two OMB-

approved information collections

(3064–0125, Foreign Branching and

Investment by Insured State

Nonmember Banks, and 3064–0114,

Foreign Banks) which cover the

paperwork burden associated with

Subparts A and B of Part 347. The

information collections in 3064–0125

consist of applications related to

establishing and closing a foreign

branch; applications related to acquiring

stock of a foreign organization; and

records and reports which a nonmember

bank must maintain once it has

established a foreign branch or foreign

organization. The information

collections in 3064–0114 consist of

applications to operate as a noninsured

state-licensed branch of a foreign bank;

applications from an insured state-

licensed branch of a foreign bank to

conduct activities which are not

permissible for a federally-licensed

branch; internal recordkeeping by

insured branches of foreign banks; and

reporting requirements related to an

insured branch’s pledge of assets to the

FDIC

consist of

applications to operate as a noninsured

state-licensed branch of a foreign bank;

applications from an insured state-

licensed branch of a foreign bank to

conduct activities which are not

permissible for a federally-licensed

branch; internal recordkeeping by

insured branches of foreign banks; and

reporting requirements related to an

insured branch’s pledge of assets to the

FDIC. This proposal to amend Part 347,

Subparts A and B will not result in any

change in the current estimated

paperwork burden associated with the

regulation, therefore no submission has

been made to OMB under the

Paperwork Reduction Act.

VIII. Plain Language Requirement

Section 722 of the Gramm-Leach-

Bliley Act of 1999 requires the federal

banking agencies to use ‘‘plain

language’’ in all proposed and final

rules published after January 1, 2000.

We invite your comments on how to

make this proposal easier to understand.

For example:

(1) Have we organized the material to

suit your needs?

(2) Are the requirements in the rule

clearly stated?

(3) Does the rule contain technical

language or jargon that isn’t clear?

(4) What else could we do to make the

rule easier to understand?

IX. Assessment of Impact of Federal

Regulation on Families

The FDIC has determined that the

proposed rule will not affect family

well-being within the meaning of

section 654 of the Treasury and General

Government Appropriations Act, 1999,

enacted as part of the Omnibus

Consolidated and Emergency

Supplemental Appropriations Act, 1999

(Public Law 105–277, 112 Stat. 2681).

List of Subjects

12 CFR Part 303

Administrative practice and

procedure, Authority delegations

(Government agencies), Bank deposit

insurance, Banks, banking, Reporting

and recordkeeping requirements,

Savings associations.

12 CFR Part 325

Banks, banking, Reporting and

recordkeeping requirements.

12 CFR Part 327

Bank deposit insurance, Banks,

banking, Savings associations

12 Stat. 2681).

List of Subjects

12 CFR Part 303

Administrative practice and

procedure, Authority delegations

(Government agencies), Bank deposit

insurance, Banks, banking, Reporting

and recordkeeping requirements,

Savings associations.

12 CFR Part 325

Banks, banking, Reporting and

recordkeeping requirements.

12 CFR Part 327

Bank deposit insurance, Banks,

banking, Savings associations.

12 CFR Part 347

Authority delegations (Government

agencies), Bank deposit insurance,

Banks, banking, Credit, Foreign banking,

Investments, Reporting and

recordkeeping requirements, United

States investments abroad.

For the reasons set forth above and

under the authority of 12 U.S.C.

1819(a)(Tenth), the FDIC Board of

Directors hereby proposes to amend 12

CFR chapter III as follows:

PART 303—FILING PROCEDURES

Subpart J—International Banking

1. The authority citation for part 303

continues to read as follows:

Authority: 12 U.S.C. 378, 1813, 1815, 1817,

1818, 1819 (Seventh and Tenth), 1820, 1823,

1828, 1831a, 1831e, 1831o, 1831p-1, 1831w,

1835a, 1843(l), 3104, 3105, 3108, 3207; 15

U.S.C. 1601–1607.

2. Revise § 303.182 to read as follows:

§ 303.182

Establishing, moving or closing

a foreign branch of an insured state

nonmember bank.

(a) Notice procedures for general

consent. Notice in the form of a letter

from an eligible depository institution

establishing or relocating a foreign

branch pursuant to § 347.117(a) of this

chapter must be provided to the

appropriate FDIC office no later than 30

days after taking such action. The notice

must include the location of the foreign

branch, including a street address, and

a statement that the foreign branch has

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branch pursuant to § 347.117(a) of this

chapter must be provided to the

appropriate FDIC office no later than 30

days after taking such action. The notice

must include the location of the foreign

branch, including a street address, and

a statement that the foreign branch has

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

not been located on a site on the World

Heritage List or on the foreign country’s

equivalent of the National Register of

Historic Places (National Register), in

accordance with section 402 of the

National Historic Preservation Act

Amendments of 1980 (NHPA

Amendments Act) (16 U.S.C. 470a–2).

The FDIC will provide written

acknowledgment of receipt of the

notice.

(b) Filing procedures for other branch

establishments—(1) Where to file. An

applicant seeking to establish a foreign

branch other than under § 347.117(a) of

this chapter shall submit an application

to the appropriate FDIC office.

(2) Content of filing. A complete letter

application must include the following

information:

(i) The exact location of the proposed

foreign branch, including the street

address, and a statement whether the

foreign branch will be located on a site

on the World Heritage List or on the

foreign country’s equivalent of the

National Register, in accordance with

section 402 of the NHPA Amendments

Act;

(ii) Details concerning any

involvement in the proposal by an

insider of the applicant, as defined in

§ 303.2(u) of this part, including any

financial arrangements relating to fees,

the acquisition of property, leasing of

property, and construction contracts;

(iii) A brief description of the

applicant’s business plan with respect

to the foreign branch; and

2 of the NHPA Amendments

Act;

(ii) Details concerning any

involvement in the proposal by an

insider of the applicant, as defined in

§ 303.2(u) of this part, including any

financial arrangements relating to fees,

the acquisition of property, leasing of

property, and construction contracts;

(iii) A brief description of the

applicant’s business plan with respect

to the foreign branch; and

(iv) A brief description of the

proposed activities of the branch and, to

the extent any of the proposed activities

are not authorized by § 347.115 of this

chapter, the applicant’s reasons why

they should be approved.

(3) Additional information. The FDIC

may request additional information to

complete processing.

(c) Processing—(1) Expedited

processing for eligible depository

institutions. An application filed under

§ 347.118(a) of this chapter by an

eligible depository institution as defined

in § 303.2(r) of this part seeking to

establish a foreign branch by expedited

processing will be acknowledged in

writing by the FDIC and will receive

expedited processing, unless the

applicant is notified in writing to the

contrary and provided with the basis for

that decision. The FDIC may remove the

application from expedited processing

for any of the reasons set forth in

§ 303.11(c)(2) of this part. Absent such

removal, an application processed

under expedited processing is deemed

approved 45 days after receipt of a

substantially complete application by

the FDIC, or on such earlier date

authorized by the FDIC in writing.

(2) Standard processing. For those

applications that are not processed

pursuant to the expedited procedures,

the FDIC will provide the applicant

with written notification of the final

action when the decision is rendered.

ted processing is deemed

approved 45 days after receipt of a

substantially complete application by

the FDIC, or on such earlier date

authorized by the FDIC in writing.

(2) Standard processing. For those

applications that are not processed

pursuant to the expedited procedures,

the FDIC will provide the applicant

with written notification of the final

action when the decision is rendered.

(d) Closing. Notices of branch closing

under § 347.121 of this chapter, in the

form of a letter including the name,

location, and date of closing of the

closed branch, shall be filed with the

appropriate FDIC office no later than 30

days after the branch is closed.

3. In § 303.183, revise the title and

paragraphs (a), (b)(1), and (c)(1) to read

as follows:

§ 303.183

Investment by insured state

nonmember banks in foreign organization.

(a) Notice procedures for general

consent. Notice in the form of a letter

from an eligible depository institution

making direct or indirect investments in

a foreign organization pursuant to

§ 347.117(b) of this chapter shall be

provided to the appropriate FDIC office

no later than 30 days after taking such

action. The FDIC will provide written

acknowledgment of receipt of the

notice.

(b) Filing procedures for other

investments—(1) Where to file. An

applicant seeking to make a foreign

investment other than under

§ 347.117(b) of this chapter shall submit

an application to the appropriate FDIC

office.

*

*

*

*

*

ovided to the appropriate FDIC office

no later than 30 days after taking such

action. The FDIC will provide written

acknowledgment of receipt of the

notice.

(b) Filing procedures for other

investments—(1) Where to file. An

applicant seeking to make a foreign

investment other than under

§ 347.117(b) of this chapter shall submit

an application to the appropriate FDIC

office.

*

*

*

*

*

(c) Processing—(1) Expedited

processing for eligible depository

institutions. An application filed under

§ 347.118(b) of this chapter by an

eligible depository institution as defined

in § 303.2(r) of this part seeking to make

direct or indirect investments in a

foreign organization will be

acknowledged in writing by the FDIC

and will receive expedited processing,

unless the applicant is notified in

writing to the contrary and provided

with the basis for that decision. The

FDIC may remove the application from

expedited processing for any of the

reasons set forth in § 303.11(c)(2) of this

part. Absent such removal, an

application processed under expedited

processing is deemed approved 45 days

after receipt of a substantially complete

application by the FDIC, or on such

earlier date authorized by the FDIC in

writing.

*

*

*

*

*

4. In § 303.184, revise paragraph (b)(1)

to read as follows:

§ 303.184

Moving an insured branch of a

foreign bank.

*

*

*

*

*

(b) Processing—(1) Expedited

processing for eligible insured branches.

An application filed by an eligible

insured branch as defined in

§ 303.181(c) of this part will be

acknowledged in writing by the FDIC

and will receive expedited processing if

the applicant is proposing to move

within the same state, unless the

applicant is notified to the contrary and

provided with the basis for that

decision. The FDIC may remove an

application from expedited processing

for any of the reasons set forth in

§ 303.11(c)(2) of this part

§ 303.181(c) of this part will be

acknowledged in writing by the FDIC

and will receive expedited processing if

the applicant is proposing to move

within the same state, unless the

applicant is notified to the contrary and

provided with the basis for that

decision. The FDIC may remove an

application from expedited processing

for any of the reasons set forth in

§ 303.11(c)(2) of this part. Absent such

removal, an application processed

under expedited processing will be

deemed approved on the latest of the

following:

(i) The 21st day after the FDIC’s

receipt of a substantially complete

application; or

(ii) The 5th day after expiration of the

comment period described in paragraph

(c) of this section.

*

*

*

*

*

5. In § 303.186, revise the title and

paragraphs (a)(1) to read as follows:

§ 303.186

Exemptions from insurance

requirements for a state branch of a foreign

bank.

(a) Filing procedures—(1) Where to

file. An application by a foreign bank for

consent to operate as a noninsured state

branch, as permitted by § 347.215(b) of

this chapter, shall be submitted in

writing to the appropriate FDIC office.

*

*

*

*

*

6. In § 303.187, revise the title and

paragraphs (a)(1), (a)(2)(iv) and (b)(1) to

read as follows:

§ 303.187

Approval for an insured state

branch of a foreign bank to conduct

activities not permissible for federal

branches.

(a) Filing procedures—(1) Where to

file. An application by an insured state

branch seeking approval to conduct

activities not permissible for a federal

branch, as required by § 347.212(a) of

this chapter, shall be submitted in

writing to the appropriate FDIC office.

(2) * * *

(iv) A statement by the applicant of

whether it is in compliance with

§§ 347.209 and 347.210 of this chapter;

*

*

*

*

*

procedures—(1) Where to

file. An application by an insured state

branch seeking approval to conduct

activities not permissible for a federal

branch, as required by § 347.212(a) of

this chapter, shall be submitted in

writing to the appropriate FDIC office.

(2) * * *

(iv) A statement by the applicant of

whether it is in compliance with

§§ 347.209 and 347.210 of this chapter;

*

*

*

*

*

(b) Divestiture or cessation—(1) Where

to file. Divestiture plans necessitated by

a change in law or other authority, as

required by § 347.212(e) of this chapter,

shall be submitted in writing to the

appropriate FDIC office.

*

*

*

*

*

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

PART 325—CAPITAL MAINTENANCE

7. The authority citation for part 325

continues to read as follows:

Authority: 12 U.S.C. 1815(a), 1815(b),

1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819

(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),

1828(o), 1831o, 1835, 3907, 3909, 4808; Pub.

L. 102–233, 105 Stat. 1761, 1789, 1790 (12

U.S.C. 1831n note); Pub. L. 102–242, 105

Stat. 2236, 2355, as amended by Pub. L. 103–

325, 108 Stat. 2160, 2233 (12 U.S.C. 1828

note); Pub. L. 102–242, 105 Stat. 2236, 2386,

as amended by Pub. L. 102–550, 106 Stat.

3672, 4089 (12 U.S.C. 1828 note).

8. In § 325.103, revise paragraph (c) to

read as follows:

§ 325.103

Capital measures and capital

category definitions.

*

*

*

*

*

(c) Capital categories for insured

branches of foreign banks. For purposes

of the provisions of section 38 and this

subpart, an insured branch of a foreign

bank shall be deemed to be:

(1) Well capitalized if the insured

branch:

2, 4089 (12 U.S.C. 1828 note).

8. In § 325.103, revise paragraph (c) to

read as follows:

§ 325.103

Capital measures and capital

category definitions.

*

*

*

*

*

(c) Capital categories for insured

branches of foreign banks. For purposes

of the provisions of section 38 and this

subpart, an insured branch of a foreign

bank shall be deemed to be:

(1) Well capitalized if the insured

branch:

(i) Maintains the pledge of assets

required under § 347.209 of this chapter;

and

(ii) Maintains the eligible assets

prescribed under § 347.210 of this

chapter at 108 percent of the insured

branch’s daily third-party liabilities; and

(iii) Has not received written

notification from:

(A) The OCC to increase its capital

equivalency deposit pursuant to 12 CFR

28.15(b), or to comply with asset

maintenance requirements pursuant to

12 CFR 28.20; or

(B) The FDIC to pledge additional

assets pursuant to § 347.209 of this

chapter or to maintain a higher ratio of

eligible assets pursuant to § 347.210 of

this chapter.

(2) Adequately capitalized if the

insured branch:

(i) Maintains the pledge of assets

required under § 347.209 of this chapter;

and

(ii) Maintains the eligible assets

prescribed under § 347.210 of this

chapter at 106 percent of the insured

branch’s daily third-party liabilities; and

(iii) Does not meet the definition of a

well capitalized insured branch.

(3) Undercapitalized if the insured

branch:

ly capitalized if the

insured branch:

(i) Maintains the pledge of assets

required under § 347.209 of this chapter;

and

(ii) Maintains the eligible assets

prescribed under § 347.210 of this

chapter at 106 percent of the insured

branch’s daily third-party liabilities; and

(iii) Does not meet the definition of a

well capitalized insured branch.

(3) Undercapitalized if the insured

branch:

(i) Fails to maintain the pledge of

assets required under § 347.209 of this

chapter; or

(ii) Fails to maintain the eligible

assets prescribed under § 347.210 of this

chapter at 106 percent or more of the

insured branch’s daily third-party

liabilities.

(4) Significantly undercapitalized if it

fails to maintain the eligible assets

prescribed under § 347.210 of this

chapter at 104 percent of the insured

branch’s daily third-party liabilities.

(5) Critically undercapitalized if it

fails to maintain the eligible assets

prescribed under § 347.210 of this

chapter at 102 percent or more of the

insured branch’s daily third-party

liabilities.

*

*

*

*

*

PART 327—ASSESSMENTS

9. The authority citation for part 327

continues to read as follows:

Authority: 12 U.S.C. 1441, 1441b, 1813,

1815, 1817–1819; Pub. L. 104–208, 110 Stat.

3009–479 (12 U.S.C. 1821).

10. In § 327.4, revise paragraphs

(a)(1)(i)(B)(1), (a)(1)(i)(B)(2),

(a)(1)(ii)(B)(1), and (a)(1)(ii)(B)(2) to read

as follows:

§ 327.4

Annual assessment rate.

(a) * * *

(1) * * *

*

*

*

*

PART 327—ASSESSMENTS

9. The authority citation for part 327

continues to read as follows:

Authority: 12 U.S.C. 1441, 1441b, 1813,

1815, 1817–1819; Pub. L. 104–208, 110 Stat.

3009–479 (12 U.S.C. 1821).

10. In § 327.4, revise paragraphs

(a)(1)(i)(B)(1), (a)(1)(i)(B)(2),

(a)(1)(ii)(B)(1), and (a)(1)(ii)(B)(2) to read

as follows:

§ 327.4

Annual assessment rate.

(a) * * *

(1) * * *

(i) * * *

(B) * * *

(1) Maintains the pledge of assets

required under § 347.209 of this chapter;

and

(2) Maintains the eligible assets

prescribed under § 347.210 of this

chapter at 108 percent of the insured

branch’s daily third-party liabilities.

(ii) * * *

(B) * * *

(1) Maintains the pledge of assets

required under § 347.209 of this chapter;

and

(2) Maintains the eligible assets

prescribed under § 347.210 of this

chapter at 106 percent of the insured

branch’s daily third-party liabilities; and

*

*

*

*

*

11. Revise part 347 to read as follows:

PART 347—INTERNATIONAL

BANKING

Subpart A—Foreign Banking and

Investment by Insured State Nonmember

Banks

Sec.

347.101

Authority, purpose, and scope.

347.102

Definitions.

347.103

Effect of state law on actions taken

under this subpart.

347.104

Insured state nonmember bank

investment in foreign organizations.

347.105

Permissible financial activities

outside the United States.

347.106

Going concerns.

347.107

Joint ventures.

347.108

Portfolio investments.

347.109

Limitations on indirect

investments in nonfinancial

organizations.

347.110

Affiliate holdings.

347.111

Underwriting and dealing limits

applicable to foreign organizations held

by insured state nonmember banks.

347.112

Restrictions applicable to foreign

organizations that act as futures

commission merchants.

347.113

Restrictions applicable to activities

by a foreign organization in the United

States

n indirect

investments in nonfinancial

organizations.

347.110

Affiliate holdings.

347.111

Underwriting and dealing limits

applicable to foreign organizations held

by insured state nonmember banks.

347.112

Restrictions applicable to foreign

organizations that act as futures

commission merchants.

347.113

Restrictions applicable to activities

by a foreign organization in the United

States.

347.114

Extensions of credit to foreign

organizations held by insured state

nonmember banks; shares of foreign

organizations held in connection with

debts previously contracted.

347.115

Permissible activities for a foreign

branch of an insured state nonmember

bank.

347.116

Recordkeeping and supervision of

the foreign activities of insured state

nonmember banks.

347.117

General consent.

347.118

Expedited processing.

347.119

Specific consent.

347.120

Computation of investment

amounts.

347.121

Requirements for insured state

nonmember bank to close a foreign

branch.

347.122

Limitations applicable to the

authority provided in this subpart.

Subpart B—Foreign Banks

347.201

Authority, purpose, and scope.

347.202

Definitions.

347.203

Deposit insurance required for all

branches of foreign banks engaged in

domestic retail deposit activity in the

same state.

347.204

Commitment to be examined and

provide information.

347.205

Record maintenance.

347.206

Domestic retail deposit activity

requiring deposit insurance by U.S.

branch of a foreign bank.

347.207

Disclosure of supervisory

information to foreign supervisors.

347.208

Assessment base deductions by

insured branch.

347.209

Pledge of assets.

347.210

Asset maintenance.

347.211

Examination of branches of foreign

banks.

347.212

FDIC approval to conduct activities

that are not permissible for federal

branches.

347.213

Establishment or operation of

noninsured foreign branch.

347.214

Branch established under section 5

of the International Banking Act.

347.215

Exemptions from deposit insurance

requirement

47.209

Pledge of assets.

347.210

Asset maintenance.

347.211

Examination of branches of foreign

banks.

347.212

FDIC approval to conduct activities

that are not permissible for federal

branches.

347.213

Establishment or operation of

noninsured foreign branch.

347.214

Branch established under section 5

of the International Banking Act.

347.215

Exemptions from deposit insurance

requirement.

347.216

Depositor notification.

Subpart C—International Lending

347.301

Purpose, authority, and scope.

347.302

Definitions.

347.303

Allocated transfer risk reserve.

347.304

Accounting for fees on

international loans.

347.305

Reporting and disclosure of

international assets.

Authority: 12 U.S.C. 1813, 1815, 1817,

1819, 1820, 1828, 3103, 3104, 3105, 3108,

3109; Title IX, Pub. L. 98–181, 97 Stat. 1153.

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

Subpart A—Foreign Banking and

Investment by Insured State

Nonmember Banks

§ 347.101

Authority, purpose, and scope.

(a) This subpart is issued pursuant to

section 18(d) and (l) of the Federal

Deposit Insurance Act (12 U.S.C.

1828(d), 1828(l)).

(b) The rules in subpart A address the

FDIC’s requirements for insured state

nonmember bank investments in foreign

organizations, permissible foreign

financial activities, loans or extensions

of credit to or for the account of foreign

organizations, and the FDIC’s

recordkeeping, supervision, and

approval requirements. The rules also

address the permissible activities for

foreign branches of insured state

nonmember banks, as well as the FDIC’s

requirements for establishing, operating,

relocating and closing of branches in

foreign countries.

§ 347.102

Definitions.

For the purposes of this subpart:

he account of foreign

organizations, and the FDIC’s

recordkeeping, supervision, and

approval requirements. The rules also

address the permissible activities for

foreign branches of insured state

nonmember banks, as well as the FDIC’s

requirements for establishing, operating,

relocating and closing of branches in

foreign countries.

§ 347.102

Definitions.

For the purposes of this subpart:

(a) An affiliate of an insured state

nonmember bank means:

(1) Any entity of which the insured

state nonmember bank is a direct or

indirect subsidiary or which otherwise

controls the insured state nonmember

bank;

(2) Any organization which is a direct

or indirect subsidiary of such entity or

which is otherwise controlled by such

entity; or

(3) Any other organization that is a

direct or indirect subsidiary of the

insured state nonmember bank or is

otherwise controlled by the insured

state nonmember bank.

(b) Control means the ability to

control in any manner the election of a

majority of an organization’s directors or

trustees; or the ability to exercise a

controlling influence over the

management and policies of an

organization. An insured state

nonmember bank is deemed to control

an organization of which it is a general

partner or its affiliate is a general

partner.

(c) Domestic means United States.

(d) Eligible insured state nonmember

bank means an eligible depository

institution as defined in § 303.2(r) of

this chapter.

(e) Equity interest means any

ownership interest or rights in an

organization, whether through an equity

security, contribution to capital, general

or limited partnership interest, debt or

warrants convertible into ownership

interests or rights, loans providing profit

participation, binding commitments to

acquire any such items, or some other

form of business transaction.

this chapter.

(e) Equity interest means any

ownership interest or rights in an

organization, whether through an equity

security, contribution to capital, general

or limited partnership interest, debt or

warrants convertible into ownership

interests or rights, loans providing profit

participation, binding commitments to

acquire any such items, or some other

form of business transaction.

(f) Equity security means voting or

nonvoting shares, stock, investment

contracts, or other interests representing

ownership or participation in a

company or similar enterprise, as well

as any instrument convertible to any

such interest at the option of the holder

without payment of substantial

additional consideration.

(g) FRB means the Board of Governors

of the Federal Reserve System.

(h) 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

that:

(1) Is recognized as a bank by the bank

supervisory or monetary authority of the

country of its organization or the

country in which its principal banking

operations are located;

(2) Receives deposits to a substantial

extent in the regular course of its

business; and

(3) Has the power to accept demand

deposits.

(i) Foreign banking organization

means a foreign organization that is

formed for the sole purpose of either

holding shares of a foreign bank or

performing nominee, fiduciary, or other

banking services incidental to the

activities of a foreign branch or foreign

bank affiliate of the insured state

nonmember bank.

(j) Foreign branch means an office or

place of business located outside the

United States, its territories, Puerto

Rico, Guam, American Samoa, the Trust

Territory of the Pacific Islands, or the

Virgin Islands, at which banking

operations are conducted, but does not

include a representative office.

ivities of a foreign branch or foreign

bank affiliate of the insured state

nonmember bank.

(j) Foreign branch means an office or

place of business located outside the

United States, its territories, Puerto

Rico, Guam, American Samoa, the Trust

Territory of the Pacific Islands, or the

Virgin Islands, at which banking

operations are conducted, but does not

include a representative office.

(k) Foreign country means any

country other than the United States

and includes any territory, dependency,

or possession of any such country or of

the United States.

(l) Foreign organization means an

organization that is organized under the

laws of a foreign country.

(m) Insured state nonmember bank or

bank means a state bank, as defined by

section 3(a)(2) of the Federal Deposit

Insurance Act (12 U.S.C. 1813(a)(2)),

whose deposits are insured by the FDIC

and that is not a member of the Federal

Reserve System.

(n) Indirectly means investments held

or activities conducted by a subsidiary

of an organization.

(o) Investment grade means a security

that is rated in one of the four highest

categories by:

(1) Two or more NRSROs; or

(2) One NRSRO if the security is rated

by only one NRSRO.

(p) Loan or extension of credit means

all direct and indirect advances of funds

to a person, government, or entity made

on the basis of any obligation of that

person, government, or entity to repay

funds.

(q) Organization or entity means a

corporation, partnership, association,

bank, or other similar entity.

(r) NRSRO means a nationally

recognized statistical rating organization

as designated by the Securities and

Exchange Commission.

(s) Representative office means an

office that engages solely in

representative functions such as

soliciting new business for its home

office or acting as liaison between the

home office and local customers, but

which has no authority to make

business or contracting decisions other

than those relating to the personnel and

premises of the representative office.

and

Exchange Commission.

(s) Representative office means an

office that engages solely in

representative functions such as

soliciting new business for its home

office or acting as liaison between the

home office and local customers, but

which has no authority to make

business or contracting decisions other

than those relating to the personnel and

premises of the representative office.

(t) Subsidiary means any organization

more than 50 percent of the voting

equity interests of which are directly or

indirectly held by another organization.

(u) Tier 1 capital means Tier 1 capital

as defined in section 325.2 of this

chapter.

(v) Well capitalized means well

capitalized as defined in section

325.103 of this chapter.

§ 347.103

Effect of state law on actions

taken under this subpart.

A bank may acquire and retain equity

interests in a foreign organization or

establish a foreign branch, subject to the

requirements of this subpart, if it is

authorized to do so by the law of the

state in which the bank is chartered.

§ 347.104

Insured state nonmember bank

investments in foreign organizations.

(a) Investment in foreign banks or

foreign banking organizations. A bank

may directly or indirectly acquire and

retain equity interests in a foreign bank

or foreign banking organization.

(b) Investment in other foreign

organizations. A bank may only:

(1) acquire and retain equity interests

in foreign organizations, other than

foreign banks or foreign banking

organizations in amounts of 50 percent

or less of the foreign organization’s

voting equity interests, if the equity

interest is held through a domestic or

foreign subsidiary; and

(2) the bank meets its minimum

capital requirements.

§ 347.105

Permissible financial activities

outside the United States.

equity interests

in foreign organizations, other than

foreign banks or foreign banking

organizations in amounts of 50 percent

or less of the foreign organization’s

voting equity interests, if the equity

interest is held through a domestic or

foreign subsidiary; and

(2) the bank meets its minimum

capital requirements.

§ 347.105

Permissible financial activities

outside the United States.

(a) Limitation on authorized activities.

A bank may not directly or indirectly

acquire or hold equity interests in a

foreign organization that will result in

the bank and its affiliates:

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Federal Register / Vol. 69, No. 137 / Monday, July 19, 2004 / Proposed Rules

(1) Holding more than 50 percent, in

the aggregate, of the voting equity

interest in such foreign organization; or

(2) Controlling such foreign

organization, unless the activities of a

foreign organization are limited to those

authorized under paragraph (b) of this

section.

(b) Authorized activities. The

following financial activities are

authorized outside the United States:

(1) Commercial and other banking

activities.

(2) Financing, including commercial

financing, consumer financing,

mortgage banking, and factoring, subject

to compliance with any attendant

restrictions contained in 12 CFR

225.28(b).

(3) Leasing real or personal property,

acting as agent, broker or advisor in

leasing real or personal property, subject

to compliance with any attendant

restrictions in 12 CFR 225.28(b).

(4) Acting as a fiduciary, subject to

compliance with any attendant

restrictions in 12 CFR 225.28(b).

(5) Underwriting credit life, credit

accident and credit health insurance.

ned in 12 CFR

225.28(b).

(3) Leasing real or personal property,

acting as agent, broker or advisor in

leasing real or personal property, subject

to compliance with any attendant

restrictions in 12 CFR 225.28(b).

(4) Acting as a fiduciary, subject to

compliance with any attendant

restrictions in 12 CFR 225.28(b).

(5) Underwriting credit life, credit

accident and credit health insurance.

(6) Performing services for other

direct or indirect operations of a

domestic banking organization,

including representative functions, sale

of long-term debt, name saving,

liquidating assets acquired to prevent

loss on a debt previously contracted in

good faith, and other activities that are

permissible for a bank holding company

under sections 4(a)(2)(A) and 4(c)(1)(C)

of the Bank Holding Company Act.

(7) Holding the premises of a branch

of an Edge corporation or insured state

nonmember bank or the premises of a

direct or indirect subsidiary, or holding

or leasing the residence of an officer or

employee of a branch or a subsidiary.

(8) Providing investment, financial, or

economic services, subject to

compliance with any attendant

restrictions in 12 CFR 225.28(b).

(9) General insurance agency and

brokerage.

(10) Data processing.

(11) Organizing, sponsoring, and

managing a mutual fund if the fund’s

shares are not sold or distributed in the

United States or to U.S. residents and

the fund does not exercise management

control over the firms in which it

invests.

(12) Performing management

consulting services, provided that such

services when rendered with respect to

the domestic market must be restricted

to the initial entry.

(13) Underwriting, distributing, and

dealing in debt securities outside the

United States.

(14) With the prior approval of the

FDIC under § 347.120(d), underwriting,

distributing, and dealing in equity

securities outside the United States.

nagement

consulting services, provided that such

services when rendered with respect to

the domestic market must be restricted

to the initial entry.

(13) Underwriting, distributing, and

dealing in debt securities outside the

United States.

(14) With the prior approval of the

FDIC under § 347.120(d), underwriting,

distributing, and dealing in equity

securities outside the United States.

(15) Operating a travel agency in

connection with financial services

offered outside the United States by the

bank or others.

(16) Providing futures commission

merchant services, subject to

compliance with any attendant

restrictions in 12 CFR 225.28(b).

(17) Engaging in activities that the

FRB has determined in Regulation Y (12

CFR 225.28(b)) are closely related to

banking under section 4(c)(8) of the

Bank Holding Company Act.

(18) Engaging in other activities, with

the prior approval of the FDIC.

(c) Limitation on activities authorized

under Regulation Y. If a bank relies

solely on the cross-reference to

Regulation Y contained in paragraph

(b)(17) of this section as authority to

engage in an activity, compliance with

any attendant restrictions on the activity

that are contained in 12 CFR 225.28(b)

is required.

(d) Approval of other activities.

Activities that are not specifically

authorized by this section, but that are

authorized by 12 CFR 211.10 or FRB

interpretations of activities authorized

by that section, may be authorized by

specific consent of the FDIC on an

individual basis and upon such terms

and conditions as the FDIC may

consider appropriate. Activities that

will be engaged in as principal (defined

by reference to § 362.1(b) of this

chapter), and that are not authorized by

12 CFR 211.10 or FRB interpretations of

activities authorized under that section,

must satisfy the requirements of part

362 of this chapter and be approved by

the FDIC under this part as well as part

362 of this chapter.

§ 347.106

Going concerns.

Going concerns

vities that

will be engaged in as principal (defined

by reference to § 362.1(b) of this

chapter), and that are not authorized by

12 CFR 211.10 or FRB interpretations of

activities authorized under that section,

must satisfy the requirements of part

362 of this chapter and be approved by

the FDIC under this part as well as part

362 of this chapter.

§ 347.106

Going concerns.

Going concerns. If a bank acquires an

equity interest in a foreign organization

that is a going concern, no more than 5

percent of either the consolidated assets

or revenues of the foreign organization

may be attributable to activities that are

not permissible under § 347.105(b).

§ 347.107

Joint ventures.

(a) Joint ventures. If a bank, directly

or indirectly, acquires or holds an

equity interest in a foreign organization

that is a joint venture, and the bank or

its affiliates do not control the foreign

organization, no more than 10 percent of

either the consolidated assets or

revenues of the foreign organization

may be attributable to activities that are

not permissible under § 347.105(b).

(b) Joint venture defined. For

purposes of this section, the term ‘‘joint

venture’’ means any organization in

which 20 percent or more but not in

excess of 50 percent of the voting equity

interests, in the aggregate, are directly or

indirectly held by a bank or its affiliates.

§ 347.108

Portfolio investments.

(a) Portfolio investments. If a bank,

directly or indirectly, acquires or holds

an equity interest in a foreign

organization as a portfolio investment

and the foreign organization is not

controlled, directly or indirectly, by the

bank or its affiliates:

(1) No more than 10 percent of either

the consolidated assets or revenues of

the foreign organization may be

attributable to activities that are not

permissible under § 347.105(b); and

indirectly, acquires or holds

an equity interest in a foreign

organization as a portfolio investment

and the foreign organization is not

controlled, directly or indirectly, by the

bank or its affiliates:

(1) No more than 10 percent of either

the consolidated assets or revenues of

the foreign organization may be

attributable to activities that are not

permissible under § 347.105(b); and

(2) Any loans or extensions of credit

made by the bank and its affiliates to the

foreign organization must be on

substantially the same terms, including

interest rates and collateral, as those

prevailing at the same time for

comparable transactions between the

bank or its affiliates and nonaffiliated

organizations.

(b) Portfolio investment defined. For

purposes of this section, the term

‘‘portfolio investment’’ means an

investment in an organization in which

less than 20 percent of the voting equity

interests, in the aggregate, are directly or

indirectly held by a bank or its affiliates.

§ 347.109

Limitations on indirect

investments in nonfinancial foreign

organizations.

(a) A bank may, through a subsidiary

authorized by § 347.105 or 347.106, or

an Edge corporation if also authorized

by the FRB, acquire and hold equity

interests in foreign organizations that

are not foreign banks or foreign banking

organizations and that engage generally

in activities beyond those listed in

§ 347.105(b), subject to the following:

(1) The amount of the investment

does not exceed 15 percent of the bank’s

Tier 1 capital;

(2) The aggregate holding of voting

equity interests of one foreign

organization by the bank and its

affiliates must be less than:

ions that

are not foreign banks or foreign banking

organizations and that engage generally

in activities beyond those listed in

§ 347.105(b), subject to the following:

(1) The amount of the investment

does not exceed 15 percent of the bank’s

Tier 1 capital;

(2) The aggregate holding of voting

equity interests of one foreign

organization by the bank and its

affiliates must be less than:

(i) 20 percent of the foreign

organization’s voting equity interests;

and

(ii) 40 percent of the foreign

organization’s voting and nonvoting

equity interests;

(3) The bank or its affiliates must not

otherwise control the foreign

organization; and

(4) Loans or extensions of credit made

by the bank and its affiliates to the

foreign organization must be on

substantially the same terms, including

interest rates and collateral, as those

prevailing at the same time for

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comparable transactions between the

bank or its affiliates and nonaffiliated

organizations.

(b) [Reserved]

§ 347.110

Affiliate holdings.

References in §§ 347.107, 347.108,

and 347.109 to equity interests of

foreign organizations held by an affiliate

of a bank include equity interests held

in connection with an underwriting or

for distribution or dealing by an affiliate

permitted to do so by § 362.8 or 362.18

of this chapter or section 4(c)(8) of the

Bank Holding Company Act (12 U.S.C.

1843(c)(8)).

§ 347.111

Underwriting and dealing limits

applicable to foreign organizations held by

insured state nonmember banks.

A bank that holds an equity interest

in one or more foreign organizations

which underwrite, deal, or distribute

equity securities outside the United

States as authorized by section

347.105(b)(14) is subject to the

following limitations:

Company Act (12 U.S.C.

1843(c)(8)).

§ 347.111

Underwriting and dealing limits

applicable to foreign organizations held by

insured state nonmember banks.

A bank that holds an equity interest

in one or more foreign organizations

which underwrite, deal, or distribute

equity securities outside the United

States as authorized by section

347.105(b)(14) is subject to the

following limitations:

(a) Underwriting commitment limits.

(1) The aggregate underwriting

commitments by the foreign

organizations for the equity securities of

a single entity, taken together with

underwriting commitments by any

affiliate of the bank under the authority

of 12 CFR 211.10(b), may not exceed the

lesser of $60 million or 25 percent of the

bank’s Tier 1 capital, except as

otherwise provided in this paragraph.

(2) Underwriting commitments in

excess of this limit must be either:

(i) Covered by binding commitments

from subunderwriters or purchasers; or

(ii) Deducted from the capital of the

bank, with at least 50 percent of the

deduction being taken from Tier 1

capital, with the bank remaining well

capitalized after this deduction.

(b) Distribution and dealing limits.

The equity securities of any single entity

held for distribution or dealing by the

foreign organizations, taken together

with equity securities held for

distribution or dealing by any affiliate of

the bank under the authority of 12 CFR

211.10:

(1) May not exceed the lesser of $30

million or 5 percent of the bank’s Tier

1 capital, subject to the following:

istribution and dealing limits.

The equity securities of any single entity

held for distribution or dealing by the

foreign organizations, taken together

with equity securities held for

distribution or dealing by any affiliate of

the bank under the authority of 12 CFR

211.10:

(1) May not exceed the lesser of $30

million or 5 percent of the bank’s Tier

1 capital, subject to the following:

(i) Any equity securities acquired

pursuant to any underwriting

commitment extending up to 90 days

after the payment date for the

underwriting may be excluded from this

limit;

(ii) Any equity securities of the entity

held under the authority of §§ 347.105

through 347.109 or 12 CFR 211.10 for

purposes other than distribution or

dealing must be included in this limit;

and

(iii) Up to 75 percent of the position

in an equity secur

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