Thorn son, Don 

§ 606. When superintendent may 

organization; when possession may be 

may, in his discretion, forthwith 

property of any banking organization 

banking organization: 

(a) Has violated any law; 

take possession of banking 

surrendered. 1. The superintendent 

take possession of the business and 

whenever it shall appear that such 

(b) Is conducting its business in an unauthorized or unsafe manner; 

(c) Is in an unsound or unsafe condition to transact its business; 

(d) Cannot with safety and expediency continue business; 

(e) Has an impairment of its capital; or, in the case of a mutual 

savings and loan association or credit union, has assets insufficient to 

pay its debts and the amount due members upon their shares; 

(f) Has suspended payment of its obligations; or, in the case of a 

mutual savings and loan association, has failed for sixty days after a 

withdrawal application has been filed with it by any shareholder to pay 

such withdrawal application in full; 

(g) Has neglected or refused to comply with the terms of a duly issued 

order of the superintendent; 

(h) Has refused, upon proper demand, to submit its records and affairs 

for inspection to an examiner of the department; 

(i) Has refused to be examined upon oath regarding its affairs. 

(j) Has neglected, refused or failed to take or continue proceedings 

for voluntary liquidation in accordance with any of the provisions of 

this chapter. 

2. The superintendent may, in his discretion, and upon such conditions 

as may be approved by him, surrender possession and permit such banking 

organization to resume business. 

3. When the superintendent shall have duly taken possession of the 

property and business of any such banking organization, he may hold such 

possession until its affairs are finally liquidated by him, unless he 

shall surrender possession as provided in subdivision two of this 

section or be enjoined from continuing possession as provided in section 

six hundred seven of this article, or unless such banking organization 

shall, with the written approval of the superintendent, voluntarily wind 

up its affairs as provided in section six hundred five of this article. 

4. (a) The superintendent may also, in his or her discretion, 

forthwith take possession of the business and property in this state of 

any foreign banking corporation that has been licensed by the 

superintendent under the provisions of this chapter, including, for the 

purposes of this article, any such corporation whose license has been 

surrendered or revoked, upon his or her finding that any of the reasons 

enumerated in subdivision one of this section exist with respect to such 

corporation or that it is in liquidation at its domicile or elsewhere or 

that there is reason to doubt its ability or willingness to pay in full 

the claims of the creditors hereinbelow described. Title to such 

business and property shall vest by operation of law in the 

superintendent and his or her successors forthwith upon taking 

possession. Thereafter the superi'ntendent shall liquidate or otherwise 

deal with. such business and property in ac,cordance with the provisions 

of this chapter applicable to the liquidation of banking organizations, 

except that the superintendent may deal with $Uchbusiness and property 

and prosecute and defend any and all actions relating thereto in his or 

.her ·own name as superintendent. Only the claims of creditors of such 

corporation arising out of transactions had by them with its New York 

agency .or agencies, or with its New York branch or branches, shall be 

accepted by the superintendent for payment' out of such business and 

property in this state as provided in this article. Acceptance or 

rejection of such claims by the superintendent shall not prejudice such 

1 
creditors' rights to otherwise share in the assets of such corporation. 

The following claims shall not be accepted by the superintendent for 

payment out of such business and property in this state: (1) claims 

which would not represent an enforceable legal obligation against such 

branch or agency if such branch or agency were a separate and 

independent legal entity; and (2) amounts due and other liabilities to 

other offices, agencies or branches of, and affiliates of, such foreign 

banking corporation. 

(b) Whenever the accepted claims, together with interest thereon, if 

interest was paid, • and the expenses of tht2 liquidation have been paid in 

full or properly provided for, the superintendent upon the order of the 

supreme court shall turn over the remaining assets to, in the first 

instance 1 otl:ler offices .of the foreign bank].ng corporation that are 

being liquidated in the United States, upon the reques.t of the 

liquidators of those offices, in amounts which the liquidators of those 

offices demonstrate to the superintendent are needed. to pay .the claims 

accepted by thos.e liquidators and any expenses incurred by the 

liquidators in liquidating. those other offices of the foreign banking 

corporation. After such payments, if any, have been made, any assets of 

the foreign banking corporation remaining in the hands of the 

superintendent shall be turned over to the principal office of such 

foreign banking corporation, or to the duly appointed domiciliary 

liquidator or receiver of said foreign banking corporation. Dividends 

and other amounts remaining unclaimed or unpaid in the hands of the 

superintendent for six months after such turn-over shall be deposited by 

him or her as provided in article two of this chapter. 

(c) As used in this subdivision the phrase "business and property in 

this state" includes, but is not limited to, all property of the foreign 

corporation, real, personal or mixed, whether tangible or intangible, 

(1) wherever situated, constituting part of the business of the New York 

agency or branch and appearing on its books as such, and (2) situated 

within this state whether or not constituting part of the business of 

the New York agency or branch or so appearing on its books. 

(d) For the purposes of this subdivision, the words "debts", 

"obligations", "deposits" and other similar terms as used in subsequent 

sections of this article, shall be deemed to refer to the claims that 

the superintendent shall accept pursuant to paragraph (a) of this 

subdivision, the words "creditors" and "depositors" shall be deemed to 

refer to the owners of such accepted claims and, except when the context 

shall otherwise require, the terms "banking organization" and 

"corporation" shall be deemed to refer to the New York agency or 

agencies or branch or branches and the word "officer" shall include the 

agent or other person in charge of such agency or agencies and any 

person in charge of or who is an officer of such branch or branches. As 

used in this subdivision, (i) "affiliate" shall mean any person, or 

group of persons acting in concert, that controls, is controlled by or 

is under common control with such foreign banking corporation and (ii) 

"control" means any person, or group of persons acting in concert, 

directly or indirectly, owning, controlling or holding with power to 

vote, more than fifty percent of the voting stock of a company, or 

having the ability in any manner to elect a majority of the directors of 

a company, or otherwise exercising a controlling influence over the 

management and policies of a company as defined by the superintendent by 

regulation. For purposes of this subdivision, the term "person" shall 

mean a corporation, unincorporated association, partnership, or any 

other entity or individual. 

5. The term "banking organization" as used in this and subsequent 

sections of this article shall be deemed to include a corporation which 

has engaged in any business or other activity prohibited by section one 

hundred thirty-one of this chapter, and an unincorporated association, 

2 
partnership, fiduciary or individual who has engaged in any business or 

other activity prohibited by section one hundred eighty of this chapter. 

6. (a} In the case of the liquidation of an investment company by the 

superintendent, accepted claims, amounts due and other liabilities owed 

to affiliates of such investment company shall be paid only after all 

accepted claims, amounts due and other liabilities owed have been fully 

paid to such creditors and other claimants of the investment company 

that are not affiliates of such investment company. 

(b) For the purposes of this subdivision, (i) "affiliate" shall mean 

any person, or group of persons acting in concert, that controls, is 

controlled by or is under common control with such investment company, 

and (ii) "control" means any person, or group of persons acting in 

concert, directly or indirectly, owning, controlling, or holding with 

power to vote, more than fifty percent of the voting stock of a company, 

or having the ability in any manner to elect a majority of the directors 

of a company, or otherwise exercising a controlling influence over the 

management and policies of a company as defined by the superintendent by 

regulation. For purposes of this subdivision, the term "person" shall 

mean a corporation, unincorporated association, partnership, or any 

other entity or individual. 

3 
Thompson, Don 

From: 

Sent: 

To: 

Subject: 

Attachments: 

Lenczowski, Mark 

Monday, October 03, 2011 11:19 AM 

Thompson, Don 

Foreign Branch exemption 

OCC Retail FX Rule.pdf 

The OCC exempts transactions entered into by foreign branches of a US national bank from the Retail Foreign Exchange 

Transaction Rule. Following is the pertinent section from 12 CFR Section 48.1 (full rule attached): 

(d) International applicability. Sections 48.3 and 48.5 to 48.16 do not apply to retail foreign exchange transactions between a foreign branch of a 

national bank and a non-U.S. customer. With respect to those transactions, the foreign branch remains subject to any disclosure, recordkeeping, 

capital, margin, reporting, business conduct, documentation, and other requirements of foreign law applicable to the branch. 

The Federal Reserve Board exempts transactions executed by a US bank outside the US from its Regulation U, which 

governs extensions of credit for the purpose of purchasing or carrying margin stock. Following is the pertinent section 

from 12 CFR 225.6 (link to full Regulation below that): 

§ 221.6 Exempted transactions. 

A bank may extend and maintain purpose credit without regard to the provisions of this part if such credit is extended: 

(a) To any bank; 

(b) To any foreign banking institution; [or] 

(c) Outside the United States; 

http:// ecfr .gpo access .gov I cgi/t/text/textidx?c=ecfr&sid=2835c36420ae726d49b80cfc701a7692&rgn=div8&view=text&node=12:3.0.1.1.2.0.2.6&idno=12 

1 
Issues in Cross-Border Bank Insolvency: The European 

Community Directive on the Reorganization and Winding-Up 

of Credit Institutions 

Andrew Campbell1 

Introduction 

It is becoming increasingly likely that a bank that is experiencing financial difficulties 

will have operations, or interests, in more than one jurisdiction. This was certainly the 

case in the collapse of Bank of Credit and Commerce International (BCCI) in 1991 and 

Barings in 1995. At the time of its collapse BCCI was operating in more than seventy 

jurisdictions and although Barings was a merchant bank with headquarters in the City of 

London its problems resulted from overseas operations in Singapore. 

The insolvency of a bank that is operating on an international basis raises many legal 

problems and difficulties. For example, different jurisdictions approach insolvency from 

different philosophical perspectives. Some jurisdictions are more pro-debtor than others 

while some may favour judicial rather than administrative procedures for dealing with the 

insolvency procedures. Some of the problems also include conflicts of laws, differences 

of procedure, different treatment of assets and different approaches to set-off and 

. 2 nettmg . 

1 Andrew Campbell, Faculty of Law, University of Wales, Aberystwyth, United Kingdom and Consulting 

Counsel to the International Monetary Fund, Washington, D.C. The views expressed herein are those ofthe 

author alone. 2 The different treatment of set-off led to problems in the BCCI liquidation where the ·laws in Luxembourg 

were different to those in the United Kingdom. This led to creditors not all being treated equally. 
One particular problem is in relation to the recognition and implementation of insolvency 

proceedings, court orders or administrative actions in the context of an international bank 

insolvency. This paper focuses on the European approach to resolving this issue by 

examining the new European Community Directive on the Reorganization and WindingUp of Credit Institutions (hereafter referred to as "the Directive").3 The introduction of 

the Directive is generally viewed as a significant development within the European Union 

which will hopefully provide a greater deal of efficiency and certainty in bank insolvency 

proceedings. That the scope of the Directive also extends to reorganization measures is an 

interesting and welcome development. This paper is not intended to be a complete guide 

to the Directive but instead seeks to consider some of the more important aspects. 

Bank Insolvency issues 

Before going on to consider the background to the introduction of the Directive and to 

then examine some of its significant provisions, it may be helpful to highlight some of the 

issues that arise in the context of a bank insolvency that contains a cross-border 

dimension and which are of relevance before turning attention to the Directive. A brief 

account of these topics should assist in promoting a better understanding of the 

provisions of the Directive and the reasons why they have been included. 

The following issues are all relevant: 

• Single entity versus separate entity 

3 Directive 2001/24/EC of the European Parliament and of the Council of 4th April 2001 on the 

Reorganization and Winding-Up of Credit Institutions. 

2 
• Comity 

• Ring-fencing 

• Regulatory issues in international bank insolvencies 

• Universality versus territoriality 

• Harmonization of bank insolvency laws? 

Single Entity versus Separate Entity 

One issue of fundamental importance in bank bankruptcy laws is whether the insolvent 

bank should be treated as a "separate entity" or a "single entity". Where the separate 

entity approach is used the various parts of the financial institution located in different 

legal jurisdictions will be dealt with in separate legal proceedings. For example a branch 

of a foreign bank in jurisdiction X will be liquidated as a separate entity in jurisdiction Y4 

Where, however, the single entity approach is adopted there will only be one set of 

insolvency proceedings in which the financial institution is treated as one entity. In this 

situation all the assets of the institution, no matter where they are located, will be 

included in a single liquidation, or reorganization, process. Where the single entity 

approach is adopted all creditors, no matter where situated, will be entitled to lodge their 

claims in that one set of proceedings and will be entitled to receive the same treatment as 

all creditors of the same class. It is arguably fairer to use the single entity approach and it 

has been suggested, quite correctly, that to resolve a bank failure using the separate entity 

4 See, for example, France and the United States. 

3 
approach "further hampers the rational determination of the method of resolution."5 It is 

certainly much harder to attempt a reorganization under the separate entity method and it 

is likely also to prove more expensive to administer thereby increasing costs and reducing 

efficiency. 

Comity 

This has been defined as the "the courteous and friendly understanding, by which each 

nation respects the laws and usages of every other, so far as may be without prejudice to 

its own rights and interests"6 and "that body of rules which the states observe towards 

one another from courtesy or convenience, but which are not binding as rules of 

internationallaw".7 

The approach taken by countries to the recognition of foreign proceedings tends to be 

quite variable but is, of course, of great significance in the context of an international 

bank insolvency. See, for example, section 426 of the Insolvency Act 1986 in the United 

Kingdom which provides for cooperation between courts which exercise jurisdiction in 

insolvency cases. In the United Kingdom the courts have a discretion to refuse 

recognition if this would be contrary to public policy (although this unlikely in practice) 

and under section 426 the cou1ts are required to give assistance, on the request of the 

5 E. Hupkes, The Legal Aspects of Bank Insolvency, (Kluwer, 2000) 143. 6 The Oxford Dictionary (Clarendon Press, 2"d Edition, 1989). 7 Osborn's Concise Law Dictionary, (Sweet & Maxwell, 9th Ed, 2001). 

4 
relevant foreign court, provided it is a 'relevant' territory i.e. designated as such8

. Section 

304 of the United States Bankruptcy Code provides the approach taken in that 

jurisdiction. In the United States the courts have to take various factors into account 

including the protection of United States creditors plus the existence in the other 

jurisdiction of a broadly similar legal framework to the United States. This will obviously 

limit the number of situations where a comi in the United States will be either willing or 

able to assist a request from a foreign couti. 

Ring-fencing 

This practice is contrary to the pari passu principle that all claims of a similar type should 

be treated equally. Where ring-fencing is allowed branches of foreign banks will be 

treated as separate legal entities and, if necessary, will be wound-up as such. Indeed the 

purpose of using ring-fencing is to ensure that assets in a particular jurisdiction actually 

receive special protection at the expense of others. Essentially the aim is to ensure that 

local creditors receive preferential treatment over foreign creditors. Ring-fencing is 

permitted in some jurisdictions; the United States is an example of this where in the 

BCCI liquidation the New York court refused to make assets available to the UK 

liquidator. The practice of ring-fencing is frequently criticised and the UNCITRAL 

Model Law on Cross-Border Insolvency does not permit this. Atiicle 13(1) of the Model 

Law provides " ... foreign creditors have the same rights regarding the opening of, and 

participation in, a proceeding under (name of State) .... as creditors ... in this State." 

8 This covers all parts of the United Kingdom, including the Channel Isles. All of the other jurisdictions, 

with the exception of Ireland, are Commonwealth countries -there are only about 19 in total. 

5 
While it may be difficult to support the use of ring-fencing in principle it is worth asking 

whether the use of ring-fencing ever be justified? It is possible that foreign regulators 

may be perceived to be inefficient or lacking in powers and it may also sometimes be the 

case that serious concerns exist that domestic creditors will not receive equal treatment in 

the foreign proceedings. 

Regulat01y Issues in International Bank Insolvencies 

The role of regulators in the period prior to insolvency differs between jurisdictions and it 

is important to distinguish between regulatory intervention and measures which are 

considered to go beyond this and form part of the insolvency process. The reasons for 

drawing this distinction are impotiant in relation to multi-national bank insolvency and 

this is a feature of the Directive which is examined below. 

Clearly there is a need for co-operation between banking regulators from separate 

jurisdictions in both the pre-insolvency and post-insolvency phases. It is beyond the 

scope of this paper to discuss regulatory intervention in detail9 but it is a matter of some 

importance as the role of the supervisory authority in the pre-insolvency phase may have 

a significant bearing on whether or not some form of insolvency procedure becomes 

necessary. This is especially relevant when banks are operating internationally as the 

9 For further information on this topic see, for example, T. Asser, The Regulatory Treatment of Banks in 

Distress, (IMP, 2001), E. Hupkes, supra n 5., M. Giovanoli & G. Heinrich, International Bank 

Insolvencies: A Central Bank Perspective, (Kluwer, 1999). 

6