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7500 - FRB Regulations
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PART 211—INTERNATIONAL BANKING OPERATIONS (REGULATION K)
Subpart A—International Operations of U.S. Banking
Organizations
Sec.
211.1
Authority, purpose, and scope.
211.2
Definitions.
211.3
Foreign branches of U.S. banking organizations.
211.4
Permissible activities and investments of foreign branches of member
banks.
211.5
Edge and agreement corporations.
211.6
Permissible activities of Edge and agreement corporations in the United
States.
211.7
Voluntary liquidation of Edge and agreement corporations.
211.8
Investments and activities abroad.
211.9
Investment procedures.
211.10
Permissible activities abroad.
211.11
Advisory opinions under Regulation K.
211.12
Lending limits and capital requirements.
211.13
Supervision and reporting.
Subpart B—Foreign Banking Organizations
211.20
Authority, purpose, and scope.
211.21
Definitions.
211.22
Interstate banking operations of foreign banking organizations.
211.23
Nonbanking activities of foreign banking organizations.
211.24
Approval of offices of foreign banks; procedures for applications;
standards for approval; representative office activities and standards
for approval; preservation of existing authority.
211.25
Termination of offices of foreign banks.
211.26
Examination of offices and affiliates of foreign banks.
211.27
Disclosure of supervisory information to foreign supervisors.
211.28
Provisions applicable to branches and agencies: limitation on loans to
one borrower.
211.29
Applications by state branches and state agencies to conduct activities
not permissible for federal branches.
211.30
Criteria for evaluating U.S. operations of foreign banks not subject to
consolidated supervision.
Subpart C—Export Trading Companies
211.31
Authority, purpose, and scope.
211.32
Definitions.
211.33
Investments and extensions of credit.
211.34
Procedures for filing and processing notices.
Subpart D—International Lending Supervision
211.41
Authority, purpose and scope.
211.42
Definitions.
211.43
Allocated transfer risk reserve.
211.44
Reporting and disclosure of international assets.
211.45
Accounting for fees on international loans.
Interpretations
211.601
Status of certain offices for purposes of the International Banking Act
restrictions on interstate banking operations.
211.602
Investments by United States banking organizations in foreign companies
that transact business in the United States.
211.603
Commodity swap transactions.
211.604
Data processing activities.
211.605
Permissable underwriting activities of foreign banks.
{{4-30-08 p.7612}}
Authority: 12 U.S.C. 221 et seq., 1818,
1835a, 1841 et seq., 3101 et seq., and 3901 et
seq.; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
SOURCE: The provisions of this Part 211 appear at 44 Fed. Reg.
36007, June 20, 1979, and 66 Fed. Reg. 54346, October 26, 2001, except
as otherwise noted.
Subpart A—International Operations of U.S. Banking
Organizations
§ 211.1 Authority, purpose, and scope.
(a) Authority. This subpart is issued by the Board of
Governors of the Federal Reserve System (Board) under the authority of
the Federal Reserve Act (FRA) (12 U.S.C. 221 et seq.); the
Bank Holding Company Act of 1956 (BHC Act) (12 U.S.C. 1841 et
seq.); and the International Banking Act of 1978 (IBA)
(12 U.S.C. 3101 et
seq.).
(b) Purpose. This subpart sets out rules governing the
international and foreign activities of U.S. banking organizations,
including procedures for establishing foreign branches and Edge and
agreement corporations to engage in international banking, and for
investments in foreign organizations.
(c) Scope. This subpart applies to:
(1) Member banks with respect to their foreign branches and
investments in foreign banks under section 25 of the FRA (12 U.S.C.
601--604a); 1
and
(2) Corporations organized under section 25 A of the FRA (12
U.S.C. 611--631) (Edge corporations);
(3) Corporations having an agreement or undertaking with the
Board under section 25 of the FRA (12 U.S.C. 601--604a) (agreement
corporations); and
(4) Bank holding companies with respect to the exemption from the
nonbanking prohibitions of the BHC Act afforded by section 4(c)(13) of
that act (12 U.S.C.
1843(c)(13)).
[Codified to 12 C.F.R. § 211.1]
§ 211.2 Definitions.
Unless otherwise specified, for purposes of this subpart:
(a) An affiliate of an organization means:
(1) Any entity of which the organization is a direct or indirect
subsidiary; or
(2) Any direct or indirect subsidiary of the organization or such
entity.
(b) Capital Adequacy Guidelines means the "Capital
Adequacy Guidelines for State Member Banks: Risk-Based Measure" (12
CFR Part 208, app. A) or the "Capital Adequacy Guidelines for Bank
Holding Companies: Risk-Based Measure"
(12 CFR part 225, app. A).
(c) Capital and surplus means, unless otherwise provided
in this part:
(1) For organizations subject to the Capital Adequacy Guidelines:
(i) Tier 1 and tier 2 capital included in an organization's
risk-based capital (under the Capital Adequacy Guidelines); and
(ii) The balance of allowance for loan and lease losses not
included in an organization's tier 2 capital for calculation of
risk-based capital, based on the organization's most recent
consolidated Report of Condition and Income.
(2) For all other organizations, paid-in and unimpaired capital
and surplus, and includes undivided profits but does not include the
proceeds of capital notes or debentures.
(d) Directly or indirectly, when used in
reference to activities or investments of an organization, means
activities or investments of the organization or of any subsidiary of
the organization.
(e) Eligible country means any country:
(1) For which an allocated transfer risk reserve is required
pursuant to § 211.43 of this
part and that has restructured its sovereign debt held by foreign
creditors; and
(2) Any other country that the Board deems to be
eligible.
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(f) An Edge corporation is engaged in banking if it is
ordinarily engaged in the business of accepting deposits in the United
States from nonaffiliated persons.
(g) Engaged in business or engaged in activities in the
United States means maintaining and operating an office (other than a
representative office) or subsidiary in the United States.
(h) Equity means an ownership interest in an
organization, whether through:
(1) Voting or nonvoting shares;
(2) General or limited partnership interests;
(3) Any other form of interest conferring ownership rights,
including warrants, debt, or any other interests that are convertible
into shares or other ownership rights in the organization; or
(4) Loans that provide rights to participate in the profits of an
organization, unless the investor receives a determination that such
loans should not be considered equity in the circumstances of the
particular investment.
(i) Foreign or foreign country refers to one
or more foreign nations, and includes the overseas territories,
dependencies, and insular possessions of those nations and of the
United States, and the Commonwealth of Puerto Rico.
(j) Foreign bank means an organization that:
(1) Is organized under the laws of a foreign country;
(2) Engages in the business of banking;
(3) Is recognized as a bank by the bank supervisory or monetary
authority of the country of its organization or principal banking
operations;
(4) Receives deposits to a substantial extent in the regular
course of its business; and
(5) Has the power to accept demand deposits.
(k) Foreign branch means an office of an organization
(other than a representative office) that is located outside the
country in which the organization is legally established and at which a
banking or financing business is conducted.
(l) Foreign person means an office or establishment
located outside the United States, or an individual residing outside
the United States.
(m) Investment means:
(1) The ownership or control of equity;
(2) Binding commitments to acquire equity;
(3) Contributions to the capital and surplus of an organization;
or
(4) The holding of an organization's subordinated debt when the
investor and the investor's affiliates hold more than 5 percent of the
equity of the organization.
(n) Investment grade means a security that is rated in
one of the four highest rating categories by:
(1) Two or more NRSROs; or
(2) One NRSRO if the security has been rated by only one NRSRO.
(o) Investor means an Edge corporation, agreement
corporation, bank holding company, or member bank.
(p) Joint venture means an organization that has 20
percent or more of its voting shares held directly or indirectly by the
investor or by an affiliate of the investor under any authority, but
which is not a subsidiary of the investor or of an affiliate of the
investor.
(q) Loans and extensions of credit means all direct and
indirect advances of funds to a person made on the basis of any
obligation of that person to repay the funds.
(r) NRSRO means a nationally recognized statistical
rating organization as designated by the Securities and Exchange
Commission.
(s) Organization means a corporation, government,
partnership, association, or any other entity.
(t) Person means an individual or an organization.
(u) Portfolio investment means an investment in an
organization other than a subsidiary or joint venture.
(v) Representative office means an office that:
(1) Engages solely in representational and administrative
functions (such as soliciting new business or acting as liaison between
the organization's head office and customers in the United States);
and
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(2) Does not have authority to make any business decision (other
than decisions relating to its premises or personnel) for the account
of the organization it represents, including contracting for any
deposit or deposit-like liability on behalf of the organization.
(w) Subsidiary means an organization that has more than
50 percent of its voting shares held directly or indirectly, or that
otherwise is controlled or capable of being controlled, by the investor
or an affiliate of the investor under any authority. Among other
circumstances, an investor is considered to control an organization if:
(1) The investor or an affiliate is a general partner of the
organization; or
(2) The investor and its affiliates directly or indirectly own or
control more than 50 percent of the equity of the organization.
(x) Tier 1 capital has the same meaning as provided
under the Capital Adequacy Guidelines.
(y) Well capitalized means:
(1) In relation to a parent member or insured bank, that the
standards set out in § 208.43(b)(1) of Regulation H (12 CFR
208.43(b)(1)) are satisfied;
(2) In relation to a bank holding company, that the standards set
out in § 225.2(r)(1) of Regulation Y
(12 CFR 225.2(r)(1)) are
satisfied; and
(3) In relation to an Edge or agreement corporation, that it has
tier 1 and total risk-based capital ratios of 6.0 and 10.0 percent,
respectively, or greater.
(z) Well managed means that the Edge or agreement
corporation, any parent insured bank, and the bank holding company
received a composite rating of 1 or 2, and at least a satisfactory
rating for management if such a rating is given, at their most recent
examination or review.
[Codified to 12 C.F.R. § 211.2]
§ 211.3 Foreign branches of U.S. banking organizations.
(a) General--(1) Definition of banking
organization. For purposes of this section, a banking organization
is defined as a member bank and its affiliates.
(2) A banking organization is considered to be operating a branch
in a foreign country if it has an affiliate that is a member bank, Edge
or agreement corporation, or foreign bank that operates an office
(other than a representative office) in that country.
(3) For purposes of this subpart, a foreign office of an
operating subsidiary of a member bank shall be treated as a foreign
branch of the member bank and may engage only in activities permissible
for a branch of a member bank.
(4) At any time upon notice, the Board may modify or suspend
branching authority conferred by this section with respect to any
banking organization.
(b) (1) Establishment of foreign branches. (i) Foreign
branches may be established by any member bank having capital and
surplus of $1,000,000 or more, an Edge corporation, an agreement
corporation, any subsidiary the shares of which are held directly by
the member bank, or any other subsidiary held pursuant to this subpart.
(ii) The Board grants its general consent under section 25 of the
FRA (12 U.S.C. 601--604a) for a member bank to establish a branch in
the Commonwealth of Puerto Rico and the overseas territories,
dependencies, and insular possessions of the United States.
(2) Prior notice. Unless otherwise provided in this
section, the establishment of a foreign branch requires 30 days' prior
written notice to the Board.
(3) Branching into additional foreign countries. After
giving the Board 12 business days prior written notice, a banking
organization that operates branches in two or more foreign countries
may establish a branch in an additional foreign country.
(4) Additional branches within a foreign country. No
prior notice is required to establish additional branches in any
foreign country where the banking organization operates one or more
branches.
(5) Branching by nonbanking affiliates. No prior
notice is required for a nonbanking affiliate of a banking organization
(i.e., an organization that is not a member bank, an Edge or
agreement corporation, or foreign bank) to establish branches within a
foreign country or in additional foreign countries.
(6) Expiration of branching authority. Authority to
establish branches, when granted following prior written notice to the
Board, shall expire one year from the earliest date on which the
authority could have been exercised, unless extended by the
Board.
{{10-31-01 p.7615}}
(c) Reporting. Any banking organization that opens,
closes, or relocates a branch shall report such change in a manner
prescribed by the Board.
(d) Reserves of foreign branches of member banks. Member
banks shall maintain reserves against foreign branch deposits when
required by Regulation D (12 CFR part
204).
(e) Conditional approval; access to information. The
Board may impose such conditions on authority granted by it under this
section as it deems necessary, and may require termination of any
activities conducted under authority of this section if a member bank
is unable to provide information on its activities or those of its
affiliates that the Board deems necessary to determine and enforce
compliance with U.S. banking laws.
[Codified to 12 C.F.R. § 211.3]
§ 211.4 Permissible activities and investments of foreign
branches of member banks.
(a) Permissible activities and investments. In addition
to its general banking powers, and to the extent consistent with its
charter, a foreign branch of a member bank may engage in the following
activities and make the following investments, so far as is usual in
connection with the business of banking in the country where it
transacts business:
(1) Guarantees. Guarantee debts, or otherwise agree to
make payments on the occurrence of readily ascertainable events
(including, but not limited to, nonpayment of taxes, rentals, customs
duties, or costs of transport, and loss or nonconformance of shipping
documents) if the guarantee or agreement specifies a maximum monetary
liability; however, except to the extent that the member bank is fully
secured, it may not have liabilities outstanding for any person on
account of such guarantees or agreements which, when aggregated with
other unsecured obligations of the same person, exceed the limit
contained in section 5200(a)(1) of the Revised Statutes (12 U.S.C. 84)
for loans and extensions of credit;
(2) Government obligations. (i) Underwrite,
distribute, but, sell, and hold obligations of:
(A) The national government of the country where the branch is
located and any political subdivision of that country;
(B) An agency or instrumentality of the national government of
the country where the branch is located where such obligations are
supported by the taxing authority, guarantee, or full faith and credit
of that government;
(C) The national government or political subdivision of any
country, where such obligations are rated investment grade; and
(D) An agency or instrumentality of any national government where
such obligations are rated investment grade and are supported by the
taxing authority, guarantee or full faith and credit of that
government.
(ii) No member bank, under authority of this paragraph (a)(2),
may hold, or be under commitment with respect to, such obligations for
its own account in relation to any one country in an amount exceeding
the greater of:
(A) 10 percent of its tier 1 capital; or
(B) 10 percent of the total deposits of the bank's branches in
that country on the preceding year-end call report date (or the date of
acquisition of the branch, in the case of a branch that has not been so
reported);
(3) Other investments. (i) Invest in:
(A) The securities of the central bank, clearinghouses,
governmental entities other than those authorized under paragraph
(a)(2) of this section, and government-sponsored development banks of
the country where the foreign branch is located;
(B) Other debt securities eligible to meet local reserve or
similar requirements; and
(C) Shares of automated electronic-payments networks,
professional societies, schools, and the like necessary to the business
of the branch;
(ii) The total investments of a bank's branches in a country
under this paragraph (a)(3) (exclusive of securities held as required
by the law of that country or as authorized under section 5136 of the
Revised Statutes (12 U.S.C. 24, Seventh)) may not exceed 1 percent of
the total deposits of the bank's branches in that country on the
preceding year-end call report date (or on the date of acquisition of
the branch, in the case of a branch that has not been so
reported);
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(4) Real estate loans. Take liens or other
encumbrances on foreign real estate in connection with its extensions
of credit, whether or not of first priority and whether or not the real
estate has been improved;
(5) Insurance. Act as insurance agent or broker;
(6) Employee benefits program. Pay to an employee of
the branch, as part of an employee benefits program, a greater rate of
interest than that paid to other depositors of the branch;
(7) Repurchase agreements. Engage in repurchase
agreements involving securities and commodities that are the functional
equivalents of extensions of credit;
(8) Investment in subsidiaries. With the Board's
prior approval, acquire all of the shares of a company (except where
local law requires other investors to hold directors' qualifying
shares or similar types of instruments) that engages solely in
activities:
(i) In which the member bank is permitted to engage; or
(ii) That are incidental to the activities of the foreign branch.
(b) Other activities. With the Board's prior approval,
engage in other activities that the Board determines are usual in
connection with the transaction of the business of banking in the
places where the member bank's branches transact business.
[Codified to 12 C.F.R. § 211.4]
§ 211.5 Edge and agreement corporations.
(a) Board Authority. The Board shall have the authority
to approve:
(1) the establishment of Edge corporations;
(2) Investments in agreement corporations; and
(3) A member bank's proposal to invest more than 10 percent of
its capital and surplus in the aggregate amount of stock held in all
Edge and agreement corporations.
(b) Organization of an Edge corporation--(1) Permit. A
proposed Edge corporation shall become a body corporate when the Board
issues a permit approving its proposed name, articles of association,
and organization certificate.
(2) Name. The name of the Edge corporation shall
include international, foreign, overseas, or a similar word, but may
not resemble the name of another organization to an extent that might
mislead or deceive the public.
(3) Federal Register notice. The Board shall publish
in the Federal Register notice of any proposal to organize an Edge
corporation and shall give interested persons an opportunity to express
their views on the proposal.
(4) Factors considered by Board. The factors
considered by the Board in acting on a proposal to organize an Edge
corporation include:
(i) The financial condition and history of the applicant;
(ii) The general character of its management;
(iii) The convenience and needs of the community to be served
with respect to international banking and financing services; and
(iv) The effects of the proposal on competition.
(5) Authority to commence business. After the Broad
issues a permit, the Edge corporation may elect officers and otherwise
complete its organization, invest in obligations of the U.S.
government, and maintain deposits with depository institutions, but it
may not exercise any other powers until at least 25 percent of the
authorized capital stock specified in the articles of association has
been paid in cash, and each shareholder has paid in cash at least 25
percent of that shareholder's stock subscription.
(6) Expiration of unexercised authority. Unexercised
authority to commence business as an Edge corporation shall expire one
year after issuance of the permit, unless the Board extends the period.
(c) Other provisions regarding Edge corporations--(1)
Amendments to articles of association. No amendment to the
articles of association shall become effective until approved by the
Board.
(2) Shareholders' meeting. An Edge corporation shall
provide in its bylaws that:
(i) A shareholders' meeting shall be convened at the request of
the Board within five business days after the Board gives notice of the
request to the Edge corporation;
{{12-31-01 p.7617}}
(ii) Any shareholder or group of shareholders that owns or
controls 25 percent or more of the shares of the Edge corporation shall
attend such a meeting in person or by proxy; and
(iii) Failure by a shareholder or authorized representative to
attend such meeting in person or by proxy may result in removal or
barring of the shareholder or representative from further participation
in the management or affairs of the Edge corporation.
(3) Nature and ownership of shares--(i) Shares.
Shares of stock in an Edge corporation may not include
no-par-value shares and shall be issued and transferred only on its
books and in compliance with section 25A of the FRA
(12 U.S.C. 611 et seq.)
and this subpart.
(ii) Contents of share certificates. The share
certificates of an Edge corporation shall:
(A) Name and describe each class of shares, indicating its
character and any unusual attributes, such as preferred status or lack
of voting rights; and
(B) Conspicuously set forth the substance of:
(1) Any limitations on the rights of ownership and
transfer of shares imposed by section 25A of the FRA (12 U.S.C. 611
et seq.); and
(2) Any rules that the Edge corporation prescribes in
its bylaws to ensure compliance with this paragraph (c).
(4) Change in status of shareholder. Any change in
status of a shareholder that causes a violation of section 25A of the
FRA (12 U.S.C. 611 et seq.) shall be reported to the Board
as soon as possible, and the Edge corporation shall take such action as
the Board may direct.
(d) Ownership of Edge corporations by foreign
institutions--(1) Prior Board approval. One or more
foreign or foreign-controlled domestic institutions referred to in
section 25A(11) of the FRA (12 U.S.C. 619) may apply for the Board's
prior approval to acquire, directly or indirectly, a majority of the
shares of the capital stock of an Edge corporation.
(2) Conditions and requirements. Such an institution
shall:
(i) Provide the Board with information related to its financial
condition and activities and such other information as the Board may
require;
(ii) Ensure that any transaction by an Edge corporation with an
affiliate 2
is on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable
transactions by the Edge corporation with nonaffiliated persons, and
does not involve more than the normal risk of repayment or present
other unfavorable features;
(iii) Ensure that the Edge corporation will not provide funding
on a continual or substantial basis to any affiliate or office of the
foreign institution through transactions that would be inconsistent
with the international and foreign business purposes for which Edge
corporations are organized; and
(iv) Comply with the limitation on aggregate investments in all
Edge and agreement corporations set forth in paragraph (h) of this
section.
(3) Foreign institutions not subject to the BHC Act.
In the case of a foreign institution not subject to section 4 of
the BHC Act (12 U.S.C. 1843),
that institution shall:
(i) Comply with any conditions that the Board may impose that are
necessary to prevent undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices
in the United States; and
(ii) Give the Board 30 days' prior written notice before
engaging in any nonbanking activity in the United States, or making any
initial or additional investments in another organization, that would
require prior Board approval or notice by an organization subject to
section 4 of the BHC Act (12 U.S.C. 1843); in connection with such
notice, the Board may impose conditions necessary to prevent adverse
effects that may result from such activity or investment.
(e) Change in control of an Edge corporation--(1)
Prior notice. (i) Any person shall give the Board 60 days' prior
written notice before acquiring, directly or indirectly, 25
{{12-31-01 p.7618}}
percent or more of the voting shares, or otherwise acquiring control,
of an Edge corporation.
(ii) The Board may extend the 60-day period for an additional 30
days by notifying the acquiring party.
(iii) A notice under this paragraph (e) need not be filed where a
change in control is effected through a transaction requiring the
Board's approval under section 3 of the BHC Act
(12 U.S.C. 1842).
(2) Board review. In reviewing a notice filed under
this paragraph (e), the Board shall consider the factors set forth in
paragraph (b)(4) of this section, and may disapprove a notice or impose
any conditions that it finds necessary to assure the safe and sound
operation of the Edge corporation, to assure the international
character of its operation, and to prevent adverse effects, such as
decreased or unfair competition, conflicts of interest, or undue
concentration of resources.
(f) Domestic branching by Edge corporations--(1)
Prior notice. (i) An Edge corporation may establish branches
in the United States 30 days after the Edge corporation has given
written notice of its intention to do so to its Reserve Bank, unless
the Edge corporation is notified to the contrary within that time.
(ii) The notice to the Reserve Bank shall include a copy of the
notice of the proposal published in a newspaper of general circulation
in the communities to be served by the branch.
(iii) The newspaper notice may appear no earlier than 90 calendar
days prior to submission of notice of the proposal to the Reserve Bank.
The newspaper notice shall provide an opportunity for the public to
give written comment on the proposal to the appropriate Federal Reserve
Bank for at least 30 days after the date of publication.
(2) Factors considered. The factors considered in
acting upon a proposal to establish a branch are enumerated in
paragraph (b)(4) of this section.
(3) Expiration of authority. Authority to establish a
branch under prior notice shall expire one year form the earliest date
on which that authority could have been exercised, unless the Board
extends the period.
(g) Agreement corporations--(1) General. With
the prior approval of the Board, a member bank or bank holding company
may invest in a federally or state-chartered corporation that has
entered into an agreement or undertaking with the Board that it will
not exercise any power that is impermissible for an Edge corporation
under this subpart.
(2) Factors considered by Board. The factors
considered in acting upon a proposal to establish an agreement
corporation are enumerated in paragraph (b)(4) of this section.
(h) (1) Limitation on investment in Edge and agreement
corporations. A member bank may invest up to 10 percent of its
capital and surplus in the capital stock of Edge and agreement
corporations or, with the prior approval of the Board, up to 20 percent
of its capital and surplus in such stock.
(2) Factors considered by Board. The factors
considered by the Board in acting on a proposal under paragraph (h)(1)
of this section shall include:
(i) The composition of the assets of the bank's Edge and
agreement corporations;
(ii) The total capital invested by the bank in its Edge and
agreement corporations when combined with retained earnings of the Edge
and agreement corporations (including amounts invested in and retained
earnings of any foreign bank subsidiaries) as a percentage of the
bank's capital;
(iii) Whether the bank, bank holding company, and Edge and
agreement corporations are well-capitalized and well-managed;
(iv) Whether the bank is adequately capitalized after
deconsolidating and deducting the aggregate investment in and assets of
all Edge or agreement corporations and all foreign bank subsidiaries;
and
(v) Any other factor the Board deems relevant to the safety and
soundness of the member bank.
(i) Reserve requirements and interest rate limitations.
The deposits of an Edge or agreement corporation are subject to
Regulations D and Q (12 CFR parts
204 and 217) in the
same manner and to the same extent as if the Edge or agreement
corporation were a member bank.
{{4-28-06 p.7619}}
(j) Liquid funds. Funds of an Edge or agreement
corporation that are not currently employed in its international or
foreign business, if held or invested in the United States, shall be in
the form of:
(1) Cash;
(2) Deposits with depository institutions, as described in
Regulation D (12 CFR part 204), and other Edge and agreement
corporations;
(3) Money-market instruments (including repurchase agreements
with respect to such instruments), such as bankers' acceptances,
federal funds sold, and commercial paper; and
(4) Short- or long-term obligations of, or fully guaranteed by,
federal, state, and local governments and their instrumentalities.
(k) Reports by Edge and agreement corporations of crimes and
suspected crimes. An Edge or agreement corporation, or any branch
or subsidiary thereof, shall file a suspicious-activity report in
accordance with the provisions of § 208.62 of Regulation H (12 CFR
208.62).
(l) Protection of customer information and
consumer information. An Edge or agreement corporation shall
comply with the Interagency Guidelines Establishing Information
Security Standards prescribed pursuant to sections 501 and 505 of the
Gramm-Leach-Bliley Act (15 U.S.C. 6801 and 6805) and, with respect to
the proper disposal of consumer information, section 216 of the Fair
and Accurate Credit Transactions Act of 2003 (15 U.S.C. 1681w), set
forth in appendix D--2 to part 208 of this chapter.
(m) Procedures for monitoring Bank Secrecy Act compliance.
(1) Establishment of Compliance Program. Each Edge
corporation and each agreement corporation shall, in accordance with
the provisions of § 208.63 of the Board's Regulation H, 12 CFR
208.63, develop and provide for the continued administration of a
program reasonably designed to assure and monitor compliance with the
provisions of subchapter II of chapter 53 of title 31, United States
Code, the Bank Secrecy Act, and the implementing regulations
promulgated thereunder by the Department of the Treasury at 31 CFR part
103. The compliance program shall be reduced to writing, approved by
the board of directors, and noted in the minutes.
(2) Customer identification program. Each Edge or
agreement corporation is subject to the requirements of 31 U.S.C.
5318(l) and the implementing regulation jointly promulgated by the
Board and the Department of the Treasury at 31 CFR 103.121, which
require a customer identification program.
[Codified to 12 C.F.R. § 211.5]
[Source: Section 211.5 amended at 66 Fed. Reg. 58655, November 23,
2001, effective November 26, 2002; 68 Fed. Reg. 25112, May 9, 2003,
effective June 9, 2003, compliance date October 1, 2003; 69 Fed. Reg.
77618, December 28, 2004, effective July 1, 2005; 71 Fed. Reg. 13936,
March 20, 2006, effective April 19, 2006]
§ 211.6 Permissible activities of Edge and agreement
corporations in the United States.
(a) Activities incidental to international or foreign
business. An Edge or agreement corporation may engage, directly or
indirectly, in activities in the United States that are permitted by
section 25A(6) of the FRA (12 U.S.C. 615) and are incidental to
international or foreign business, and in such other activities as the
Board determines are incidental to international or foreign business.
The following activities will ordinarily be considered incidental to an
Edge or agreement corporation's international or foreign business:
(1) Deposit-taking activities--(i) Deposits from
foreign governments and foreign persons. An Edge or agreement
corporation may receive in the United States transaction accounts,
savings, and time deposits (including issuing negotiable certificates
of deposits) from foreign governments and their agencies and
instrumentalities, and from foreign persons.
(ii) Deposits from other persons. An Edge or agreement
corporation may receive from any other person in the United States
transaction accounts, savings, and time deposits (including issuing
negotiable certificates of deposit) if such deposits:
(A) Are to be transmitted abroad;
(B) Consist of funds to be used for payment of obligations to the
Edge or agreement corporation or collateral securing such
obligations;
{{4-28-06 p.7620}}
(C) Consist of the proceeds of collections abroad that are to be
used to pay for exported or imported goods or for other costs of
exporting or importing or that are to be periodically transferred to
the depositor's account at another financial institution;
(D) Consist of the proceeds of extensions of credit by the Edge
or agreement corporation;
(E) Represent compensation to the Edge or agreement corporation
for extensions of credit or services to the customer;
(F) Are received from Edge or agreement corporations, foreign
banks, and other depository institutions (as described in Regulation D
(12 CFR part 204)); or
(G) Are received from an organization that by its charter,
license, or enabling law is limited to business that is of an
international character, including foreign sales corporations, as
defined in 26 U.S.C. 922; transportation organizations engaged
exclusively in the international transportation of passengers or in the
movement of goods, wares, commodities, or merchandise in international
or foreign commerce; and export trading companies established under
subpart C of this part.
(2) Borrowings. An Edge or agreement corporation may:
(i) Borrow from offices of other Edge and agreement corporations,
foreign banks, and depository institutions (as described in Regulation
D (12 CFR part 204));
(ii) Issue obligations to the United States or any of its
agencies or instrumentalities;
(iii) Incur indebtedness from a transfer of direct obligations
of, or obligations that are fully guaranteed as to principal and
interest by, the United States or any agency or instrumentality thereof
that the Edge or agreement corporation is obligated to repurchase; and
(iv) Issue long-term subordinated debt that does not qualify as a
deposit under Regulation D (12 CFR part 204).
(3) Credit activities. An Edge or agreement
corporation may:
(i) Finance the following:
(A) Contracts, projects, or activities performed substantially
abroad;
(B) The importation into or exportation from the United States of
goods, whether direct or through brokers or other intermediaries;
(C) The domestic shipment or temporary storage of goods being
imported or exported (or accumulated for export); and
(D) The assembly or repackaging of goods imported or to be
exported;
(ii) Finance the costs of production of goods and services for
which export orders have been received or which are identifiable as
being directly for export;
(iii) Assume or acquire participations in extensions of credit,
or acquire obligations arising from transactions the Edge or agreement
corporation could have financed, including acquisition of obligations
of foreign governments;
(iv) Guarantee debts, or otherwise agree to make payments on the
occurrence of readily ascertainable events (including, but not limited
to, nonpayment of taxes, rentals, customs duties, or cost of transport,
and loss of nonconformance of shipping documents), so long as the
guarantee or agreement specifies the maximum monetary liability
thereunder and is related to a type of transaction described in
paragraphs (a)(3)(i) and (ii) of this section; and
(v) Provide credit and other banking services for domestic and
foreign purposes to foreign governments and their agencies and
instrumentalities, foreign persons, and organizations of the type
described in paragraph (a)(1)(ii)(G) of this section.
(4) Payments and collections. An Edge or agreement
corporation may receive checks, bills, drafts, acceptances, notes,
bonds, coupons, and other instruments for collection abroad, and
collect such instruments in the United States for a customer abroad;
and may transmit and receive wire transfers of funds and securities for
depositors.
(5) Foreign exchange. An Edge or agreement corporation
may engage in foreign exchange activities.
(6) Fiduciary and investment advisory activities. An
Edge or agreement corporation may:
(i) Hold securities in safekeeping for, or buy and sell
securities upon the order and for the account and risk of, a person,
provided such services for U.S. persons are with respect to foreign
securities only;
{{4-28-06 p.7620.01}}
(ii) Act as paying agent for securities issued by foreign
governments or other entities organized under foreign law;
(iii) Act as trustee, registrar, conversion agent, or paying
agent with respect to any class of securities issued to finance foreign
activities and distributed solely outside the United States;
(iv) Make private placements of participations in its investments
and extensions of credit; however, except to the extent permissible for
member banks under section 5136 of the Revised Statutes (12 U.S.C.
24(Seventh)), no Edge or agreement corporation otherwise may engage in
the business of underwriting, distributing, or buying or selling
securities in the United States;
(v) Act as investment or financial adviser by providing portfolio
investment advice and portfolio management with respect to securities,
other financial instruments, real-
{{12-31-01 p.7621}}property interests, and other
investment assets, 3
and by providing advice on mergers and acquisitions, provided such
services for U.S. persons are with respect to foreign assets only; and
(vi) Provide general economic information and advice, general
economic statistical forecasting services, and industry studies,
provided such services for U.S. persons shall be with respect to
foreign economies and industries only.
(7) Banking services for employees. Provide banking
services, including deposit services, to the officers and employees of
the Edge or agreement corporation and its affiliates; however,
extensions of credit to such persons shall be subject to the
restrictions of Regulation O (12 CFR
part 215) as if the Edge or agreement corporation were a member
bank.
(b) Other activities. With the Board's prior approval,
an Edge or agreement corporation may engage, directly or indirectly, in
other activities in the United States that the Board determines are
incidental to their international or foreign business.
[Codified to 12 C.F.R.
§ 211.6]
§ 211.7 Voluntary liquidation of Edge and agreement
corporations.
(a) Prior notice. An Edge or agreement corporation
desiring voluntarily to discontinue normal business and dissolve, shall
provide the Board with 45 days' prior written notice of its intent to
do so.
(b) Waiver of notice period. The Board may waive the
45-day period if it finds that immediate action is required by the
circumstances presented.
§ 211.8 Investments and activities abroad.
(a) General policy. Activities abroad, whether conducted
directly or indirectly, shall be confined to activities of a banking or
financial nature and those that are necessary to carry on such
activities. In doing so,
investors 4
shall at all times act in accordance with high standards of banking or
financial prudence, having due regard for diversification of risks,
suitable liquidity, and adequacy of capital. Subject to these
considerations and the other provisions of this section, it is the
Board's policy to allow activities abroad to be organized and operated
as best meets corporate policies.
(b) Direct investments by member banks. A member bank's
direct investments under section 25 of the FRA (12 U.S.C. 601 et
seq.) shall be limited to:
(1) Foreign banks;
(2) Domestic or foreign organizations formed for the sole purpose
of holding shares of a foreign bank;
(3) Foreign organizations formed for the sole purpose of
performing nominee, fiduciary, or other banking services incidental to
the activities of a foreign branch or foreign bank affiliate of the
member bank; and
(4) Subsidiaries established pursuant to § 211.4(a)(8) of this
part.
(c) Eligible investments. Subject to the limitations set
out in paragraphs (b) and (d) of this section, an investor may,
directly or indirectly:
(1) Investment in subsidiary. Invest in a subsidiary
that engages solely in activities listed in § 211.10 of this part, or
in such other activities as the Board has determined in the
circumstances of a particular case are permissible; provided that, in
the case of an acquisition of a going concern, existing activities that
are not otherwise permissible for a subsidiary may account for not more
than 5 percent of either the consolidated assets or consolidated
revenues of the acquired organization;
(2) Investment in joint venture. Invest in a joint
venture; provided that, unless otherwise permitted by the Board, not
more than 10 percent of the joint venture's consolidated assets or
consolidated revenues are attributable to activities not listed in
§ 211.10 of this part; and
(3) Portfolio investments. Make portfolio investments
in an organization, provided that:
{{12-31-01 p.7622}}
(i) Individual investment limits. The total direct and
indirect portfolio investments by the investor and its affiliates in an
organization engaged in activities that are not
permissible for joint ventures, when combined with all other shares
in the organization held under any other authority, do not exceed:
(A) 40 percent of the total equity of the organization; or
(B) 19.9 percent of the organization's voting shares.
(ii) Aggregate Investment Limit. Portfolio investmens
made under authority of this subpart shall be subject to the aggregate
equity limit of § 211.10(a)(15)(iii).
(iii) Loans and extensions of credit. Any loans and
extensions of credit made by an investor or its affiliates to the
organization are on substantially the same terms, including interest
rates and collateral, as those prevailing at the same time for
comparable transactions between the investor or its affiliates and
nonaffiliated persons; and
(iv) Protecting shareholder rights. Nothing in this
paragraph (c)(3) shall prohibit an investor from otherwise exercising
rights it may have as shareholder to protect the value of its
investment, so long as the exercise of such rights does not result in
the investor's direct or indirect control of the organization.
(d) Investment limit. In calculating the amount that may
be invested in any organization under this section and §§ 211.9 and
211.10 of this part, there shall be included any unpaid amount for
which the investor is liable and any investments in the same
organization held by affiliates under any authority.
(e) Divestiture. An investor shall dispose of an
investment promptly (unless the Board authorizes retention) if:
(1) The organization invested in:
(i) Engages in impermissible activities to an extent not
permitted under paragraph (c) of this section; or
(ii) Engages directly or indirectly in other business in the
United States that is not permitted to an Edge corporation in the
United States; provided that an investor may:
(A) Retain portfolio investments in companies that derive no more
than 10 percent of their total revenue from activities in the United
States; and
(B) Hold up to 5 percent of the shares of a foreign company that
engages directly or indirectly in business in the United States that is
not permitted to an Edge corporation; or
(2) After notice and opportunity for hearing, the investor is
advised by the Board that such investment is inappropriate under the
FRA, the BHC Act, or this subpart.
(f) Debts previously contracted. Shares or other
ownership interests acquired to prevent a loss upon a debt previously
contracted in good faith are not subject to the limitations or
procedures of this section; provided that such interests shall be
disposed of promptly but in no event later than two years after their
acquisition, unless the Board authorizes retention for a longer period.
(g) Investments made through debt-for-equity conversions.
(1) Permissible investments. A bank holding company
may make investments through the conversion of sovereign- or
private-debt obligations of an eligible country, either through direct
exchange of the debt obligations for the investment, or by a payment
for the debt in local currency, the proceeds of which, including an
additional cash investment not exceeding in the aggregate more than 10
percent of the fair value of the debt obligations being converted as
part of such investment, are used to purchase the following
investments:
(i) Public-sector companies. A bank holding company
may acquire up to and including 100 percent of the shares of (or other
ownership interests in) any foreign company located in an eligible
country, if the shares are acquired from the government of the eligible
country or form its agencies or instrumentalities.
(ii) Private-sector companies. A bank holding company
may acquire up to and including 40 percent of the shares, including
voting shares, of (or other ownership interests in) any other foreign
company located in an eligible country subject to the following
conditions:
(A) A bank holding company may acquire more than 25 percent of
the voting shares of the foreign company only if another shareholder or
group of shareholders unaffiliated with the bank holding company holds
a larger block of voting shares of the company;
{{12-31-01 p.7623}}
(B) The bank holding company and its affiliates may not lend or
otherwise extend credit to the foreign company in amounts greater than
50 percent of the total loans and extensions of credit to the foreign
company; and
(C) The bank holding company's representation on the board of
directors or on management committees of the foreign company may be no
more than proportional to its shareholding in the foreign company.
(2) Investments by bank subsidiary of bank holding company.
Upon application, the Board may permit an indirect investment to
be made pursuant to this paragraph (g) through an insured bank
subsidiary of the bank holding company, where the bank holding company
demonstrates that such ownership is consistent with the purposes of the
FRA. In granting its consent, the Board may impose such conditions as
it deems necessary or appropriate to prevent adverse effects, including
prohibiting loans from the bank to the company in which the investment
is made.
(3) Divestiture--(i) Time limits for
divestiture. A bank holding company shall divest the shares of, or
other ownership interests in, any company acquired pursuant to this
paragraph (g) within the longer of:
(A) Ten years from the date of acquisition of the investment,
except that the Board may extend such period if, in the Board's
judgment, such an extension would not be detrimental to the public
interest; or
(B) Two years from the date on which the bank holding company is
permitted to repatriate in full the investment in the foreign company.
(ii) Maximum retention period. Notwithstanding the
provisions of paragraph (g)(3)(i) of this section:
(A) Divestiture shall occur within 15 years of the date of
acquisition of the shares of, or other ownership interests in, any
company acquired pursuant to this paragraph (g); and
(B) A bank holding company may retain such shares or ownership
interests if such retention is otherwise permissible at the time
required for divestiture.
(iii) Report to Board. The bank holding company shall
report to the Board on its plans for divesting an investment made under
this paragraph (g) two years prior to the final date for divestiture,
in a manner to be prescribed by the Board.
(iv) Other conditions requiring divestiture. All
investments made pursuant to this paragraph (g) are subject to
paragraph (e) of this section requiring prompt divestiture (unless the
Board upon application authorizes retention), if the company invested
in engages in impermissible business in the United States that exceeds
in the aggregate 10 percent of the company's consolidated assets or
revenues calculated on an annual basis; provided that such company may
not engage in activities in the United States that consist of banking
or financial operations (as defined in § 211.23(f)(5)(iii)(B)) of
this part, or types of activities permitted by regulation or order
under section 4(c)(8) of the BHC Act (12 U.S.C. 1843(c)(8)), except
under regulations of the Board or with the prior approval of the Board.
(4) Investment procedures--(i) General consent.
Subject to the other limitations of this paragraph (g), the Board
grants its general consent for investments made under this paragraph
(g) if the total amount invested does not exceed the greater of $25
million or 1 percent of the tier 1 capital of the investor.
(ii) All other investments shall be made in accordance with the
procedures of § 211.9(f) and (g) of this part, requiring prior notice
or specific consent.
(5) Conditions--(i) Name. Any company
acquired pursuant to this paragraph (g) shall not bear a name similar
to the name of the acquiring bank holding company or any of its
affiliates.
(ii) Confidentiality. Neither the bank holding company
nor its affiliates shall provide to any company acquired pursuant to
this paragraph (g) any confidential business information or other
information concerning customers that are engaged in the same or
related lines of business as the company.
[Codified to 12 C.F.R. § 211.8]
[Source: 211.8 amended at 66 Fed. Reg. 58655, November 23, 2001,
effective November 26, 2001]
{{12-31-01 p.7624}}
§ 211.9 Investment procedures.
(a) General
provisions. 5
Direct and indirect investments shall be made in accordance with the
general consent, limited general consent, prior notice, or specific
consent procedures contained in this section.
(1) Minimum capital adequacy standards. Except as the
Board may otherwise determine, in order for an investor to make
investments pursuant to the procedures set out in this section, the
investor, the bank holding company, and the member bank shall be in
compliance with applicable minimum standards for capital adequacy set
out in the Capital Adequacy Guidelines; provided that, if the investor
is an Edge or agreement corporation, the minimum capital required is
total and tier 1 capital ratios of 8 percent and 4 percent,
respectively.
(2) Composite rating. Except as the Board may
otherwise determine, in order for an investor to make investments under
the general consent or limited general consent procedures of paragraphs
(b) and (c) of this section, the investor and any parent insured bank
must have received a composite rating of at least 2 at the most recent
examination.
(3) Board's authority to modify or suspend procedures.
The Board, at any time upon notice, may modify or suspend the
procedures contained in this section with respect to any investor or
with respect to the acquisition of shares of organizations engaged in
particular kinds of activities.
(4) Long-range investment plan. Any investor may
submit to the Board for its specific consent a long-range investment
plan. Any plan so approved shall be subject to the other procedures of
this section only to the extent determined necessary by the Board to
assure safety and soundness of the operations of the investor and its
affiliates.
(5) Prior specific consent for initial investment. An
investor shall apply for and receive the prior specific consent of the
Board for its initial investment under this subpart in its first
subsidiary or joint venture, unless an affiliate previously has
received approval to make such an investment.
(6) Expiration of investment authority. Authority to
make investments granted under prior notice or specific consent
procedures shall expire one year from the earliest date on which the
authority could have been exercised, unless the Board determines a
longer period shall apply.
(7) Conditional approval; Access to information. The
Board may impose such conditions on authority granted by it under this
section as it deems necessary, and may require termination of any
activities conducted under authority of this subpart if an investor is
unable to provide information in its activities or those of its
affiliates that the Board deems necessary to determine and enforce
compliance with U.S. banking laws.
(b) General consent. The Board grants its general
consent for a well capitalized and well managed investor to make
investments, subject to the following:
(1) Well capitalized and well managed investor. In
order to qualify for making investments under authority of this
paragraph (b), both before and immediately after the proposed
investment, the investor, any parent insured bank, and any parent bank
holding company shall be well capitalized and well managed.
(2) Individual limit for reinvestment in subsidiary.
In the case of an investment in a subsidiary, the total amount
invested directly or indirectly in such subsidiary (in one transaction
or a series of transactions) does not exceed:
(i) 10 percent of the investor's tier 1 capital, where the
investor is a bank holding company; or
(ii) 2 percent of the investor's tier 1 capital, where the
investor is a member bank; or
(iii) The lesser of 2 percent of the tier 1 capital of any parent
insured bank or 10 percent of the investor's tier 1 capital, for any
other investor.
{{12-31-01 p.7625}}
(3) Individual limit for investment in joint venture.
In the case of an investment in a joint venture, the total amount
invested directly or indirectly in such joint venture (in one
transaction or a series of transactions) does not exceed:
(i) 5 percent of the investor's tier 1 capital, where the
investor is a bank holding company; or
(ii) 1 percent of the investor's tier 1 capital, where the
investor is a member bank; or
(iii) The lesser of 1 percent of the tier 1 capital of any parent
insured bank or 5 percent of the investor's tier 1 capital, for any
other investor.
(4) Individual limit for portfolio investment. In the
case of a portfolio investment, the total amount invested directly or
indirectly in such company (in one transaction or a series of
transactions) does not exceed the lesser of $25 million, or
(i) 5 percent of the investor's tier 1 capital in the case of a
bank holding company or its subsidiary, or Edge corporation engaged in
banking; or
(ii) 25 percent of the investor's tier 1 capital in the case of
an Edge corporation not engaged in banking.
(5) Investment in a general partnership or unlimited
liability company. An investment in a general partnership or
unlimited liability company may be made under authority of paragraph
(b) of this section, subject to the limits set out in paragraph (c) of
this section.
(6) Aggregate investment limits--(i) Investment
limits. All investments made, directly or indirectly, during the
previous 12-month period under authority of this section, when
aggregated with the proposed investment, shall not exceed:
(A) 20 percent of the investor's tier 1 capital, where the
investor is a bank holding company;
(B) 10 percent of the investor's tier 1 capital, where the
investor is a member bank; or
(C) The lesser of 10 percent of the tier 1 capital of any parent
insured bank or 50 percent of the tier 1 capital of the investor, for
any other investor.
(ii) Downstream investments. In determining compliance
with the aggregate limits set out in this paragraph (b), an investment
by an investor in a subsidiary shall be counted only once,
notwithstanding that such subsidiary may, within 12 months of the date
of making the investment, downstream all or any part of such investment
to another subsidiary.
(7) Application of limits. In determining compliance
with the limits set out in this paragraph (b), an investor is not
required to combine the value of all shares of an organization held in
trading or dealing accounts under § 211.10(a)(15) of this part with
investments in the same organization.
(c) Limited general consent--(1) Individual limit.
The Board grants its general consent for an investor that is not
well capitalized and well managed to make an investment in a subsidiary
or joint venture, or to make a portfolio investment, if the total
amount invested directly or indirectly (in one transaction or in a
series of transactions) does not exceed the lesser of $25 million or:
(i) 5 percent of the investor's tier 1 capital, where the
investor is a bank holding company;
(ii) 1 percent of the investor's tier 1 capital, where the
investor is a member bank; or
(iii) The lesser of 1 percent of any parent insured bank's tier
1 capital or 5 percent of the investor's tier 1 capital, for any other
investor.
(2) Aggregate limit. The amount of general consent
investments made by any investor directly or indirectly under authority
of this paragraph (c) during the previous 12-month period, when
aggregated with the proposed investment, shall not exceed:
(i) 10 percent of the investor's tier 1 capital, where the
investor is a bank holding company;
(ii) 5 percent of the investor's tier 1 capital, where the
investor is a member bank; and
{{12-31-01 p.7626}}
(iii) The lesser of 5 percent of any parent insured bank's tier
1 capital or 25 percent of the investor's tier 1 capital, for any
other investor.
(3) Application of limits. In calculating compliance
with the limits of this paragraph (c), the rules set forth in
paragraphs (b)(6)(ii) and (b)(7) of this section shall apply.
(d) Other eligible investments under general consent. In
addition to the authority granted under paragraphs (b) and (c) of this
section, the Board grants its general consent for any investor to make
the following investments:
(1) Investment in organization equal to cash dividends.
Any investment in an organization in an amount equal to cash
dividends received from that organization during the preceding 12
calendar months; and
(2) Investment acquired from affiliate. Any investment
that is acquired from an affiliate at net asset value or through a
contribution of shares.
(e) Investments ineligible for general consent. An
investment in a foreign bank may not be made under authority of
paragraphs (b) or (c) of this section if:
(1) After the investment, the foreign bank would be an affiliate
of a member bank; and
(2) The foreign bank is located in a country in which the member
bank and its affiliates have no existing banking presence.
(f) Prior notice. An investment that does not qualify
for general consent under paragraph (b), (c), or (d) of this section
may be made after the investor has given the Board 30 days' prior
written notice, such notice period to commence at the time the notice
is received, provided that:
(1) The Board may waive the 30-day period if it finds the full
period is not required for consideration of the proposed investment, or
that immediate action is required by the circumstances presented; and
(2) The Board may suspend the 30-day period or act on the
investment under the Board's specific consent procedures.
(g) Specific consent. Any investment that does not
qualify for either the general consent or the prior notice procedure
may not be consummated without the specific consent of the Board.
[Codified to 12 C.F.R. § 211.9]
[Source: 211.9 amended at 66 Fed. Reg. November 23, 2001,
effective November 26, 2001]
§ 211.10 Permissible activities abroad.
(a) Activities usual in connection with banking. The
Board has determined that the following activities are usual in
connection with the transaction of banking or other financial
operations abroad:
(1) Commercial and other banking activities;
(2) Financing, including commercial financing, consumer
financing, mortgage banking, and factoring;
(3) Leasing real or personal property, or acting as agent,
broker, or advisor in leasing real or personal property consistent with
the provisions of Regulation Y (12
CFR part 225);
(4) Acting as fiduciary;
(5) Underwriting credit life insurance and credit accident and
health insurance;
(6) Performing services for other direct or indirect operations
of a U.S. banking organization, including representative functions,
sale of long-term debt, name-saving, holding assets acquired to prevent
loss on a debt previously contracted in good faith, and other
activities that are permissible domestically for a bank holding company
under sections 4(a)(2)(A) and 4(c)(1)(C) of the BHC Act
(12 U.S.C. 1843(a)(2)(A),
(c)(1)(C));
(7) Holding the premises of a branch of an Edge or agreement
corporation or member 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 subsidiary;
(8) Providing investment, financial, or economic advisory
services;
(9) General insurance agency and brokerage;
(10) Data processing;
{{10-31-01 p.7627}}
(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 managerial control over
the firms in which it invests;
(12) Performing management consulting services, if such services,
when rendered with respect to the U.S, market, shall be restricted to
the initial entry;
(13) Underwriting, distributing, and dealing in debt securities
outside the United States;
(14) Underwriting and distributing equity securities outside the
United States as follows:
(i) Limits for well-capitalized and well-managed
investor--(A) General. After providing 30 days' prior
written notice to the Board, an investor that is well capitalized and
well managed may underwrite equity securities, provided that
commitments by an investor and its subsidiaries for the shares of a
single organization do not, in the aggregate, exceed;
(1) 15 percent of the bank holding company's tier 1
capital, where the investor is a bank holding company;
(2) 3 percent of the investor's tier 1 capital, where
the investor is a member bank; or
(3) The lesser of 3 percent of any parent insured
bank's tier 1 capital or 15 percent of the investor's tier 1 capital,
for any other investor;
(B) Qualifying criteria. An investor will be
considered well-capitalized and well-managed for purposes of paragraph
(a)(14)(i) of this section only if each of the bank holding company,
member bank, and Edge or agreement corporation qualify as
well-capitalized and well-managed.
(ii) Limits for investor that is not well capitalized and
well managed. After providing 30 days' prior written notice to
the Board, an investor that is not well capitalized and well managed
may underwrite equity securities, provided that commitments by the
investor and its subsidiaries for the shares of an organization do not,
in the aggregate, exceed $60 million; and
(iii) Application of limits. For purposes of
determining compliance with the limitations of this paragraph (a)(14),
the investor may subtract portions of an underwriting that are covered
by binding commitments obtained by the investor or its affiliates from
sub-underwriters or other purchasers;
(15) Dealing in equity securities outside the United States as
follows:
(i) Grandfathered authority. By an investor, or an
affiliate, that had commenced such activities prior to March 27, 1991,
and subject to the limitations in effect at that time (See 12 CFR part
211, revised January 1, 1991); or
(ii) Limit on shares of a single issuer. After
providing 30 days' prior written notice to the Board, an investor may
deal in the shares of an organization where the shares held in the
trading or dealing accounts of an investor and its affiliates under
authority of this paragraph (a)(15) do not in the aggregate exceed the
lesser of:
(A) $40 million; or
(B) 10 percent of the investor's tier 1 capital;
(iii) Aggregate equity limit. The total shares held
directly and indirectly by the investor and its affiliates under
authority of this paragraph (a)(15) and § 211.8(c)(3) of this part in
organizations engaged in activities that are not permissible for joint
ventures do not exceed:
(A) 25 percent of the bank holding company's tier 1 capital,
where the investor is a bank holding company;
(B) 20 percent of the investor's tier 1 capital, where the
investor is a member
bank; 6
and
(C) The lesser of 20 percent of any parent insured bank's tier 1
capital or 100 percent of the investor's tier 1 capital, for any other
investor;
(iv) Determining compliance with limits--(A)
General. For purposes of determining compliance with all
limits set out in this paragraph (a)(15):
(1) Long and short positions in the same security may
be netted; and
{{10-31-01 p.7628}}
(2) Except as provided in paragraph
(a)(15)(iv)(B)(4) of this section, equity securities held in
order to hedge bank permissible equity derivatives contracts shall not
be included.
(B) Use of internal hedging models. After providing 30
days' prior written notice to the Board the investor may use an
internal hedging model that:
(1) Nets long and short positions in the same security
and offsets positions in a security by futures, forwards, options, and
other similar instruments referenced to the same security, for purposes
of determining compliance with the single issuer limits of paragraph
(a)(15)(ii) of this
section; 7
and
(2) Offsets its long positions in equity securities by
futures, forwards, options, and similar instruments, on a portfolio
basis, and for purposes of determining compliance with the aggregate
equity limits of paragraph (a)(15)(iii) of this section.
(3) With respect to all equity securities held under
authority of paragraph (a)(15) of this section, no net long position in
a security shall be deemed to have been reduced by more than 75 percent
through use of internal hedging models under this paragraph
(a)(15)(iv)(B); and
(4) With respect to equity securities acquired to
hedge bank permissible equity derivatives contracts under authority of
paragraph (a)(1) of this section, any residual position that remains in
the securities of a single issuer after netting and offsetting of
positions relating to the security under the investor's internal
hedging models shall be included in calculating compliance with the
limits of this paragraph (a)(15)(ii) and (iii).
(C) Underwriting commitments. Any shares acquired
pursuant to an underwriting commitment that are held for longer than 90
days after the payment date for such underwriting shall be subject to
the limits set out in paragraph (a)(15) of this section and the
investment provisions of §§ 211.8 and 211.9 of this part.
(v) Authority to deal in shares of U.S. organization.
The authority to deal in shares under paragraph (a)(15) of this
section includes the authority to deal in the shares of a U.S.
organization:
(A) With respect to foreign persons only; and
(B) Subject to the limitations on owning or controlling shares of
a company in section 4(c)(6) of the BHC Act
(12 U.S.C. 1843(c)(6)) and
Regulation Y (12 CFR part
225).
(vi) Report to senior management. Any shares held in
trading or dealing accounts for longer than 90 days shall be reported
to the senior management of the investor;
(16) Operating a travel agency, but only in connection with
financial services offered abroad by the investor or others;
(17) Underwriting life, annuity, pension fund-related, and other
types of insurance, where the associated risks have been previously
determined by the Board to be actuarially predictable; provided that:
(i) Investments in, and loans and extensions of credit (other
than loans and extensions of credit fully secured in accordance with
the requirements of section 23A of the FRA
(12 U.S.C. 371c), or with such
other standards as the Board may require) to, the company by the
investor or its affiliates are deducted from the capital of the
investor (with 50 percent of such capital deduction to be taken from
tier 1 capital); and
(ii) Activities conducted directly or indirectly by a subsidiary
of a U.S. insured bank are excluded from the authority of this
paragraph (a)(17), unless authorized by the Board;
(18) Providing futures commission merchant services (including
clearing without executing and executing without clearing) for
nonaffiliated persons with respect to futures and options on futures
contracts for financial and nonfinancial commodities; provided that
prior notice under § 211.9(f) of this part shall be provided to the
Board before any subsidiaries of a member bank operating pursuant to
this subpart may join a mutual exchange or clearinghouse, unless the
potential liability of the investor to the exchange, clearinghouse, or
other members of the exchange, as the case may be, is legally limited
by
{{12-31-07 p.7628.01}}
the rules of the exchange or clearinghouse to an amount that does not
exceed applicable general consent limits under § 211.9 of this part;
(19) Acting as principal or agent in commodity-swap transactions
in relation to:
(i) Swaps on a cash-settled basis for any commodity, provided
that the investor's portfolio of swaps contracts is hedged in a manner
consistent with safe and sound banking practices; and
(ii) Contracts that require physical delivery of a commodity,
provided that:
(A) Such contracts are entered into solely for the purpose of
hedging the investor's positions in the underlying commodity or
derivative contracts based on the commodity;
(B) The contract allows for assignment, termination or offset
prior to expiration; and
(C) Reasonable efforts are made to avoid delivery.
(b) Regulation Y activities. An investor may engage in
activities that the Board has determined in § 225.28(b) of Regulation
Y (12 CFR 225.28(b)) are
closely related to banking under section 4(c)(8) of the BHC Act
(12 U.S.C. 1843(c)(8)).
(c) Specific approval. With the Board's specific
approval, an investor may engage in other activities that the Board
determines are usual in connection with the transaction of the business
of banking or other financial operations abroad and are consistent with
the FRA or the BHC Act.
[Codified to 12 C.F.R. § 211.10]
§ 211.11 Advisory opinions under Regulation K.
(a) Request for advisory opinion. Any person may submit
a request to the Board for an advisory opinion regarding the scope of
activities permissible under any subpart of this part.
(b) Form and content of the request. Any request for an
advisory opinion under this section shall be:
(1) Submitted in writing to the Board;
(2) Contain a clear description of the proposed parameters of the
activity, or the service or product, at issue; and
(3) Contain a concise explanation of the grounds on which the
submitter contends the activity is or should be considered by the Board
to be permissible under this part.
(c) Response to request. In response to request received
under this section, the Board shall:
(1) Direct the submitter to provide such additional information
as the Board may deem necessary to complete the record for a full
consideration of the issue presented; and
(2) Provide an advisory opinion within 45 days after the record
on the request has been determined to be complete.
[Codified to 12 C.F.R. § 211.11]
§ 211.12 Lending limits and capital requirements.
(a) Acceptances of Edge corporations.
(1) Limitations. An Edge corporation shall be and
remain fully secured for acceptances of the types described in
section 13(7) of the FRA (12 U.S.C. 372), as follows:
(i) All acceptances outstanding in excess of 200 percent of its
tier 1 capital; and
(ii) All acceptances outstanding for any one person in excess of
10 percent of its tier 1 capital.
(2) Exceptions. These limitations do not apply if the
excess represents the international shipment of goods, and the Edge
corporation is:
(i) Fully covered by primary obligations to reimburse it that are
guaranteed by banks or bankers; or
(ii) Covered by participation agreements from other banks, as
described in 12 CFR 250.165.
{{12-31-07 p.7628.02}}
(b) Loans and extensions of credit to one person--(1)
Loans and extensions of credit defined. Loans and extensions of
credit has the meaning set forth in § 211.2(q) of this
part 8
and, for purposes of this paragraph (b), also include:
(i) Acceptances outstanding that are not of the types described
in section 13(7) of the FRA (12 U.S.C. 372);
(ii) Any liability of the lender to advance funds to or on behalf
of a person pursuant to a guarantee, standby letter of credit, or
similar agreements;
(iii) Investments in the securities of another organization other
than a subsidiary; and
(iv) Any underwriting commitments to an issuer of securities,
where no binding commitments have been secured from subunderwriters or
other purchasers.
(2) Limitations. Except as the Board may otherwise
specify:
(i) The total loans and extensions of credit outstanding to any
person by an Edge corporation engaged in banking, and its direct or
indirect subsidiaries, may not exceed 15 percent of the Edge
corporation's tier 1
capital; 9
and
(ii) The total loans and extensions of credit to any person by a
foreign bank or Edge corporation subsidiary of a member bank, and by
majority-owned subsidiaries of a foreign bank or Edge corporation, when
combined with the total loans and extensions of credit to the same
person by the member bank and its majority-owned subsidiaries, may not
exceed the member bank's limitation on loans and extensions of credit
to one person.
(3) Exceptions. The limitations of paragraph (b)(2) of
this section do not apply to:
(i) Deposits with banks and federal funds sold;
(ii) Bills or drafts drawn in good faith against actual goods and
on which two or more unrelated parties are liable;
(iii) Any banker's acceptance, of the kind described in section
13(7) of the FRA (12 U.S.C. 372), that is issued and outstanding;
(iv) Obligations to the extent secured by cash collateral or by
bonds, notes, certificates of indebtedness, or Treasury bills of the
United States;
(v) Loans and extensions of credit that are covered by bona fide
participation agreements; and
(vi) Obligations to the extent supported by the full faith and
credit of the following:
(A) The United States or any of its departments, agencies,
establishments, or wholly owned corporations (including obligations, to
the extent insured against foreign political and credit risks by the
Export-Import Bank of the United States or the Foreign Credit Insurance
Association), the International Bank for Reconstruction and
Development, the International Finance Corporation, the International
Development Association, the Inter-American Development Bank, the
African Development Bank, the Asian Development Bank, or the European
Bank for Reconstruction and Development;
(B) Any organization, if at least 25 percent of such an
obligation or of the total credit is also supported by the full faith
and credit of, or participated in by, any institution designated in
paragraph (b)(3)(vi)(A) of this section in such manner that default to
the lender would necessarily include default to that entity. The total
loans and extensions of credit under this paragraph (b)(3)(vi)(B) to
any person shall at no time exceed 100 percent of the tier 1 capital of
the Edge corporation.
(c) Capitalization. (1) An Edge corporation shall at all
times be capitalized in an amount that is adequate in relation to the
scope and character of its activities.
(2) In the case of an Edge corporation engaged in banking, the
minimum ratio of qualifying total capital to risk-weighted assets, as
determined under the Capital Adequacy
{{10-31-01 p.7628.03}}
Guidelines, shall not be less than 10 percent, of which at least 50
percent shall consist of tier 1 capital.
(3) For purposes of this paragraph (c), no limitation shall apply
on the inclusion of subordinated debt that qualifies as tier 2 capital
under the Capital Adequacy Guidelines.
[Codified to 12 C.F.R. § 211.12]
§ 211.13 Supervision and reporting.
(a) Supervision. (1) Foreign branches and
subsidiaries. U.S. banking organizations conducting international
operations under this subpart shall supervise and administer their
foreign branches and subsidiaries in such a manner as to ensure that
their operations conform to high standards of banking and financial
prudence.
(i) Effective systems of records, controls, and reports shall be
maintained to keep management informed of their activities and
condition.
(ii) Such systems shall provide, in particular, information on
risk assets, exposure to market risk, liquidity management, operations,
internal controls, legal and operational risk, and conformance to
management policies.
(iii) Reports on risk assets shall be sufficient to permit an
appraisal of credit quality and assessment of exposure to loss, and,
for this purpose, provide full information on the condition of material
borrowers.
(iv) Reports on operations and controls shall include internal
and external audits of the branch or subsidiary.
(2) Joint ventures. Investors shall maintain
sufficient information with respect to joint ventures to keep informed
of their activities and condition.
(i) Such information shall include audits and other reports on
financial performance, risk exposure, management policies, operations,
and controls.
(ii) Complete information shall be maintained on all transactions
with the joint venture by the investor and its affiliates.
(3) Availability of reports and information to examiners.
The reports specified in paragraphs (a)(1) and (2) of this section
and any other information deemed necessary to determine compliance with
U.S banking law shall be made available to examiners of the appropriate
bank supervisory agencies.
(b) Examinations. Examiners appointed by the Board shall
examine each Edge corporation once a year. An Edge or agreement
corporation shall make available to examiners information sufficient to
assess its condition and operations and the condition and activities of
any organization whose shares it holds.
(c) Reports--(1) Reports of condition. Each
Edge or agreement corporation shall make reports of condition to the
Board at such times and in such form as the Board may prescribe. The
Board may require that statements of condition or other reports be
published or made available for public inspection.
(2) Foreign operations. Edge and agreement
corporations, member banks, and bank holding companies shall file such
reports on their foreign operations as the Board may require.
(3) Acquisition or disposition of shares. Member
banks, Edge and agreement corporations, and bank holding companies
shall report, in a manner prescribed by the Board, any acquisition or
disposition of shares.
(d) Filing and processing procedures--(1) Place of
filing. Unless otherwise directed by the Board, applications,
notices, and reports required by this part shall be filed with the
Federal Reserve Bank of the District in which the parent bank or bank
holding company is located or, if none, the Reserve Bank of the
District in which the applying or reporting institution is located.
Instructions and forms for applications, notices, and reports are
available from the Reserve Banks.
(2) Timing. The Board shall act on an application
under this subpart within 60 calendar days after the Reserve Bank has
received the application, unless the Board notifies the investor that
the 60-day period is being extended and states the reasons for the
extension.
[Codified to 12 C.F.R. § 211.13]
1 Section 25 of the FRA (12 U.S.C. 601--604a), which refers to
national banking associations, also applies to state member banks of
the Federal Reserve System by virtue of section 9 of the FRA (12 U.S.C.
321) Go Back to Text
2 For purposes of this paragraph (d)(2), affiliate
means any organization that would be an affiliate under section
23A of the FRA (12 U.S.C. 371c) if
the Edge corporation were a member bank. Go Back to Text
3 For purposes of this section, management of an investment
portfolio does not include operational management of real property, or
industrial or commercial assets. Go Back to Text
4 For purposes of this section and §§ 211.9 and 211.10 of
this part, a direct subsidiary of a member bank is deemed to be an
investor. Go Back to Text
5 When necessary, the provisions of this section relating to
general consent and prior notice constitute the Board's approval under
section 25A(8) of this FRA (12 U.S.C. 615) for investments in excess of
the limitations therein based on capital and surplus. Go Back to Text
6 For this purpose, a direct subsidiary of a member bank is
deemed to be an investor. Go Back to Text
7 A basket of stocks, specifically segregated as an offset to
a position in a stock index derivative product, as computed by the
investor's internal model, may be offset against the stock index. Go Back to Text
8 In the case of a foreign government, these includes loans
and extensions of credit to the foreign government's departments or
agencies deriving their current funds principally from general tax
revenues. In the case of a partnership or firm, these include loans and
extensions of credit to its members and, in the case of a corporation,
these include loans and extensions of credit to the corporation's
affiliates, where the affiliate incurs the liability for the benefit of
the corporation. Go Back to Text
9 For purposes of this paragraph (b), subsidiaries
includes subsidiaries controlled by the Edge corporation, but does not
include companies otherwise controlled by affiliates of the Edge
corporation. Go Back to Text
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