19524 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

(1) Act as trustees until discharged by

the Secretary;

(2) Carry out the obligations of the

Board under any contracts or

agreements entered into by the Board

pursuant to § 1280.223(b);

(3) From time to time account for all

receipts and disbursements and deliver

all property on hand, together with all

books and records of the Board and of

the trustees, to such persons as the

Secretary may direct; and

(4) Upon the request of the Secretary,

execute such assignment of other

instruments necessary or appropriate to

transfer to such persons full title and

right to all of the funds, property, and

claims of the Board or the trustees

pursuant to this subpart.

(c) Any person to whom funds,

property or claims have been transferred

or delivered pursuant to this subpart

shall be subject to the same obligation

imposed upon the Board and upon the

trustees.

(d) Any residual funds not required to

pay the necessary costs of liquidation

shall be turned over to the Secretary to

be used, to the extent practicable, for

continuing one or more of the

promotion, research, consumer

information, education, industry

information, and producer information

plans or projects authorized pursuant to

this subpart.

§ 1280.242 Effect of termination or

amendment.

Unless otherwise expressly provided

by the Secretary, the termination of this

subpart or of any regulation issued

pursuant thereto, or the issuance of any

amendment to either thereof, shall not:

(a) Affect or waive any right, duty,

obligation, or liability that has arisen or

may hereafter arise in connection with

any provision of this subpart or any

regulation issued thereunder; or

(b) Release or extinguish any violation

of this subpart or any regulation issued

thereunder; or

(c) Affect or impair any rights or

remedies of the United States, the

Secretary or any person with respect to

any such violation.

§ 1280.243 Personal liability.

No member, employee, or agent of the

Board, including employees, agents, or

Board members of the QSSB, acting

pursuant to the authority provided in

this subpart, shall be held personally

responsible, either individually or

jointly, in any way whatsoever, to any

person for errors in judgment, mistakes,

or other acts of either commission or

omission, of such member, employee, or

agent except for acts of dishonesty or

willful misconduct.

§ 1280.244 Patents, copyrights, inventions,

and publication.

Any patents, copyrights, inventions,

or publications developed through the

use of funds remitted to the Board under

the provisions of this subpart shall be

the property of the United States

Government as represented by the

Board, and shall, along with any rents,

royalties, residual payments, or other

income from the rental, sales, leasing,

franchising, or other uses of such

patents, copyrights, inventions, or

publications, inure to the benefit of the

Board. Upon termination of this subpart,

§ 1280.240 shall apply to determine

disposition of all such property.

§ 1280.245 Amendments.

Amendments to the subpart may be

proposed, from time to time, by the

Board or by any interested person

affected by the provisions of the Act,

including the Secretary.

§ 1280.246 Separability.

If any provision of this subpart is

declared invalid or its applicability to

any person or circumstances is held

invalid, the validity of the remainder of

this subpart of the applicability thereof

to other persons or circumstances shall

not be affected thereby.

Dated: April 26, 1996.

Lon Hatamiya,

Administrator.

[FR Doc. 96–10887 Filed 5–1–96; 8:45 am]

BILLING CODE 3410–02–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Parts 5, 20, and 28

[Docket No. 96–11]

RIN 1557–AB26

International Banking Activities

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is

comprehensively revising its regulations

governing the international operations

of national banks and the operation of

foreign banks through Federal branches

and agencies in the United States. The

revision is part of the OCC’s Regulation

Review Program, which seeks to

simplify OCC regulations and reduce

unnecessary compliance costs,

consistent with maintaining safety and

soundness and furthering the other

responsibilities of the OCC. The final

rule streamlines and consolidates into

one part of the Code of Federal

Regulations substantially all provisions

relating to international banking, and

clarifies and simplifies their various

requirements.

The final rule also updates the rules

to implement provisions of the Foreign

Bank Supervisory Enhancement Act of

1991 (FBSEA) and the Riegle-Neal

Interstate Banking and Branching

Efficiency Act of 1994 (Interstate Act)

relating to Federal branches and

agencies.

EFFECTIVE DATE: July 1, 1996.

FOR FURTHER INFORMATION CONTACT:

Raija Bettauer, Counselor for

International Activities, (202) 874–0680,

Raija.Bettauer@OCC.treas.gov.; Laurie

Sears, Attorney, International Activities

(202) 874–0680,

Laurie.Sears@OCC.treas.gov.; Timothy

M. Sullivan, Director, International

Banking and Finance, (202) 874–4730,

Tim.Sullivan@OCC.treas.gov.;

Comptroller of the Currency, 250 E

Street, SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

On July 5, 1995, the OCC published

a notice of proposed rulemaking (60 FR

34907) (proposal) proposing to revise its

regulations governing the international

operations of national banks and the

operation of foreign banks through

Federal branches and agencies in the

United States (12 CFR parts 20 and 28).

The proposal was another component of

the OCC’s Regulation Review Program

(Program). The goal of the Program is to

review all of the OCC’s rules and to

eliminate provisions that impose

unnecessary regulatory burden and do

not contribute significantly to

maintaining the safety and soundness of

national banks (and Federal branches

and agencies) or to accomplishing the

OCC’s other statutory responsibilities.

Another goal of the Program is to clarify

the OCC’s regulations and to better

communicate the standards that the

rules intend to convey.

The proposal sought to achieve those

goals and also to update the OCC’s rules

to implement provisions in the FBSEA

(Pub. L. 102–242, title II, 105 Stat. 2286)

and Interstate Act (Pub. L. 103–328, 108

Stat. 2338) relating to Federal branches

and agencies of foreign banks. It also

added a mechanism for the OCC to

obtain information on foreign banking

organizations to improve the OCC’s

safety and soundness oversight of

Federal branches and agencies.

The proposal further sought to reduce

the complexity of the existing regulatory
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19525

framework for international banking by

referencing provisions in the regulations

of the Board of Governors of the Federal

Reserve System (FRB) and the Federal

Deposit Insurance Corporation (FDIC),

and, where possible, using terms and

procedures consistent with the

provisions in the other agencies’

regulations dealing with comparable

situations.

Comments Received

The OCC received four comment

letters on the proposal: one from a

national bank and three from trade

associations. The commenters generally

supported the OCC’s efforts to

consolidate and streamline the current

regulations and reduce unnecessary

regulatory burden. Overall, commenters

commended the OCC’s efforts, and some

commenters offered variations on

certain of the proposed changes.

Overview of the Final Rule and

Response to Comments Received

The final rule consolidates into a

single comprehensive regulation the

substantive requirements governing

international banking operations

supervised by the OCC. The final rule

relocates and incorporates what is

currently subpart B of part 20, regarding

international lending supervision, as

subpart C of part 28. The OCC originally

drafted this subpart in consultation with

the FRB and the FDIC, and the OCC

hopes to undertake a review of subpart

C of part 28 in the near future in

consultation with those agencies.

Under the final rule, the procedural

requirements of 12 CFR part 5 continue

to apply to Federal branches and

agencies, unless otherwise provided,

and part 28 cross-references the

procedural requirements in part 5, as

appropriate. The Comptroller’s Manual

for Corporate Activities also provides

additional and more specific guidance

on the application of the general

corporate regulations to the Federal

branches and agencies.

The four commenters recommended

changes that focused on specific

sections of the proposal. The OCC

carefully considered each of the

comments, and has made changes in the

final rule in response to the comments

received. The following discussion of

significant sections identifies and

discusses the comments the OCC

received on the proposal and the

changes the OCC made to the proposal

to address those comments. The

discussion also notes other changes to

the current regulations that the OCC has

adopted in the final rule. The preamble

concludes by indicating the technical

changes that the final rule makes to

remove superfluous sections of 12 CFR

part 5. A derivation table summarizing

sections of former parts 20 and 28

changed by the final rule is included at

the end of this preamble.

Subpart A—Foreign Operations of

National Banks

Filing Requirements for Foreign

Operations of a National Bank (§ 28.3)

The proposal required a national bank

to notify the OCC upon establishing,

opening, relocating, or closing a foreign

branch, or when filing an application,

notice, or report with the FRB regarding

the acquisition or divestment of certain

foreign investments. Under the

proposal, a national bank could satisfy

this requirement by providing the OCC

with a copy of the appropriate filing

made with the FRB. Also, the proposal

removed the requirement in the current

regulation for a national bank to make

two separate filings when establishing a

foreign branch or acquiring certain

foreign investments.

One commenter requested that the

OCC clarify the requirement that notice

be provided to the OCC when a national

bank ‘‘establishes’’ a foreign branch. The

commenter noted that both the OCC’s

proposal and FRB’s Regulation K, 12

CFR 211.3(a), require notice at the

opening, closing, or relocating of a

foreign branch. However, the OCC

proposal also required a notice for

‘‘establishing’’ a foreign branch. The

commenter requested that the OCC

clarify whether ‘‘establish’’ has the same

meaning as ‘‘open,’’ and, if not, whether

the OCC is requesting something beyond

that which is required under Regulation

K.

Regulation K states that the

establishment of a foreign branch

generally requires the specific approval

of the FRB. See 12 CFR 211.3(a)(1).

Regulation K also requires any member

bank that opens, closes, or relocates a

foreign branch to report those changes

in a manner prescribed by the FRB. See

12 CFR 211.3(a)(5). In addition,

Regulation K requires a member bank to

obtain the FRB’s approval, or notify the

FRB, when it acquires, divests, or

disposes of certain foreign investments.

See 12 CFR 211.5, 211.7.

The final rule makes it clear that

whenever a national bank is required to

make a filing with the FRB under

Regulation K, as described in the

paragraph above, it must also provide a

copy of that filing or a notice of that

filing to the OCC. However, even if not

required by the FRB, the final rule

requires a national bank to provide a

simple notice to the OCC of the opening,

closing, or relocation of a foreign

branch. As the primary supervisor of the

national bank and its consolidated

global operations, it is necessary for the

OCC to know the basic structure and

location of the national bank’s

operations in order to effectively

supervise the consolidated operations of

the bank.

Liability for Deposits Maintained at

Non-United States Offices

Section 326 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRI Act)

(Pub. L. 103–325, 108 Stat. 2160)

amends the Federal Reserve Act, 12

U.S.C. 221 et seq., to limit a United

States bank’s liability for deposits in its

foreign branches if the branch cannot

repay the deposit due to foreign

sovereign action, war, insurrection, or

civil strife, and the bank has not

expressly agreed in writing to repay the

deposit under those circumstances. The

proposal specifically solicited public

comment on whether additional

guidance is necessary or desirable to

implement this provision of the CDRI

Act. The OCC received no comments

regarding the effect of the proposal on

United States banks.

One commenter, however, urged the

OCC to adopt a provision in the final

rule applying section 326 to Federal

branches and agencies of foreign banks

operating in the United States. The

suggested provision would state that

United States offices of foreign banks

will not be subject to liability for

deposits maintained at a non-United

States office if that non-United States

office cannot repay the deposits due to

foreign sovereign action, war,

insurrection, or civil strife. The

commenter argued that its request is

consistent with the protection provided

United States banks under section 326

and the national treatment principle.

The OCC has decided not to adopt the

commenter’s suggestion at this time.

Subpart B of part 28 contains a general

provision regarding United States laws

that apply to Federal branches and

agencies, and the OCC expects to

provide additional and more specific

guidance in this area in the future.

Section 326 was the product of some

particular concerns. The OCC believes

that it will be more appropriate to

address the commenter’s question via a

process that better allows those

concerns to be considered and, if

appropriate, specific guidance to be

issued.
19526 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

Subpart B—Federal Branches and

Agencies of Foreign Banks

Authority, Purpose, Scope, and Filing

Requirements (§ 28.10)

The proposal set out the legal

authority, purpose, and scope of subpart

B. The final rule adds a new paragraph

(c) to this section to explain that, unless

otherwise provided, the rules of general

applicability in 12 CFR part 5 apply to

a filing by a foreign bank or a Federal

branch or agency as they would apply

to a similar filing by a national bank.

The final rule tells filers where to file

and where to obtain forms. The final

rule also informs filers that the OCC

accepts a copy of an application form,

notice, or report submitted to another

Federal regulatory agency that covers

the proposed action and contains

substantially the same information that

would be required by the OCC.

Definitions (§ 28.11)

The proposal included new and

updated definitions to assist in the

implementation of new statutory

requirements and to make the

definitions more consistent with those

of the FRB and FDIC. The final rule

adopts the definitions as proposed,

except as discussed below.

The final rule includes a new

definition for ‘‘affiliate’’ that was

discussed in the preamble of the

proposal. The final rule extends the

exemption for those from whom an

uninsured Federal branch may take

deposits of less than $100,000 to

include persons to whom the branch, or

foreign bank (including any affiliate

thereof) has extended credit or provided

other nondeposit banking services

within the past 12 months. Therefore, it

was necessary to add a definition for

‘‘affiliate.’’

The final rule adds a definition of

‘‘capital equivalency deposit’’ that refers

to section 4 of the International Banking

Act of 1978 (IBA), 12 U.S.C. 3102(g).

The final rule also adds a separate

definition of ‘‘control’’ that was not in

the proposal. However, the proposal

described this term in two other

definitions, so the final rule eliminates

this redundancy.

The final rule defines ‘‘initial

deposit’’ to clarify that ‘‘first deposit’’

means any deposit made when there is

no current deposit relationship between

the depositor and the Federal branch.

This issue is discussed more thoroughly

in the discussion of § 28.16 in reference

to a comment received regarding

accounts established with a deposit of

$100,000 or more before the effective

date of the regulation.

The OCC received a comment

suggesting changes to the definition of

‘‘managed or controlled,’’ but the final

rule adopts the definition as proposed.

The Interstate Act, 12 U.S.C. 3105(k),

provides that United States branches

and agencies of foreign banks cannot

manage any type of activity that is

conducted through an offshore office of

the foreign bank that is managed or

controlled by the branch or agency

unless a United States bank is permitted

to manage that activity at its offshore

branch or subsidiary.

The proposal defined ‘‘managed or

controlled’’ to mean that the majority of

the responsibility for business

decisions, including decisions with

regard to lending, asset management,

funding, or liability management, or the

responsibility for recordkeeping of

assets or liabilities for a non-United

States office, resides at the Federal

branch or agency. This definition is

consistent with the definition used in

the Federal Financial Institutions

Examinations Council (FFIEC)

Supplement to the quarterly Report of

Assets and Liabilities of U.S. Branches

and Agencies of Foreign Banks, FFIEC

002S, for the purpose of determining

which United States branches and

agencies of foreign banks manage or

control offshore offices and must

complete FFIEC 002S. 57 FR 61907,

Dec. 29, 1992.

One commenter proposed that the

OCC exclude from the definition of

‘‘managed or controlled’’ recordkeeping

for a non-United States office by the

United States office. The commenter

recommended that, for various cost and

efficiency reasons, a foreign bank may

maintain records at a United States

location for non- United States offices

that the United States office does not

otherwise manage or control, and that

FFIEC 002S is intended for other

purposes. Therefore, the broad

definition of ‘‘managed or controlled’’ in

FFIEC 002S that is used for reporting

purposes should not automatically be

used for applying restrictions on the

types of activities that may be managed

at offshore branches.

The OCC carefully considered this

comment and decided not to adopt the

commenter’s recommendation. The OCC

believes that two different definitions of

‘‘managed or controlled’’ would be

impractical and confusing. In most, if

not virtually all, cases where a United

States office is performing

recordkeeping functions for a nonUnited States office, the United States

office would otherwise satisfy the

definition of ‘‘managed or controlled.’’

The OCC recognizes, however, that if a

United States office of the foreign bank

simply compiles or forwards to the

parent foreign bank data or information

regarding offshore operations in the

normal course of business, that activity

would not constitute recordkeeping for

this purpose. Thus, that United States

office of the foreign bank would not

‘‘manage or control’’ the foreign bank’s

offshore activities for purposes of this

provision.

Consequently, the final rule defines

‘‘managed or controlled’’ to apply to

those offshore offices for which a

Federal branch or agency has substantial

responsibility with regard to assets or

liabilities or recordkeeping. For

example, consistent with FFIEC 002S, a

Federal branch or agency would be

deemed to manage or control its

offshore office if: (1) The manager for

the Federal branch or agency and the

manager for the offshore office are the

same person or there is other significant

overlap in personnel; (2) substantial

responsibility for decisions regarding

either assets or liabilities of the offshore

office resides with staff in the Federal

branch or agency; or (3) recordkeeping

systems for either assets or liabilities of

the offshore office are maintained in the

Federal branch or agency. The

restrictions, however, generally would

not apply to offshore branches that are

full-service facilities managed or

controlled by staff located at the

offshore office or at a location outside

the United States.

Approval of a Federal Branch or Agency

(§ 28.12)

The proposal updated and clarified

criteria for OCC approval of applications

to establish a Federal branch or agency,

or a limited Federal branch. The

proposal also streamlined the

procedures and provided for expedited

review for certain corporate applications

by eligible foreign banks.

Commenters generally commended

the OCC’s efforts to streamline the

approval process. The OCC received no

suggestions to improve this section, and

the final rule adopts this section as

proposed. Commenters especially

favored the OCC’s proposal to expedite

the review procedure for eligible foreign

banks.

For purposes of the expedited review

procedures in the final rule, a foreign

bank is an ‘‘eligible foreign bank’’ if

each Federal branch and agency of the

foreign bank in the United States: (1)

Has a composite rating of 1 or 2 under

the interagency rating system used by

the OCC for United States branches and

agencies of foreign banks (ROCA); (2) is

not subject to a cease and desist order,

consent order, formal written

agreement, or Prompt Corrective Action
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19527

directive (see 12 CFR part 6) or, if

subject to such order, agreement, or

directive, is informed in writing by the

OCC that the parent foreign bank may be

treated as an ‘‘eligible foreign bank’’ for

purposes of this section; and (3) has, if

applicable, a Community Reinvestment

Act (CRA), 12 U.S.C. 2906, rating of

‘‘Outstanding’’ or ‘‘Satisfactory.’’ The

OCC will not provide expedited review,

however, if it concludes, and advises

the applicant in writing, that the filing

presents significant supervisory or

compliance concerns, or raises

significant legal or policy issues.

The final rule also adds a paragraph

to allow a foreign bank proposing to

establish a Federal branch or agency

through acquisition, merger, or

consolidation with another foreign bank

to obtain after-the-fact approval from the

OCC in certain circumstances. This type

of an establishment occurs when there

is a change in the corporate form of the

foreign bank operating the Federal

branch or agency, for instance, through

a merger of a foreign bank operating a

Federal branch or agency into another

foreign bank. This could also occur, in

certain circumstances, through the

acquisition of the assets or operations of

a foreign bank operating a Federal

branch or agency by another foreign

bank.

The regulation provides the minimum

requirements for an after-the-fact

application, and further criteria and

information regarding these transactions

and procedures may be contained in the

Manual. The OCC reserves, however,

the right to deny the application, and an

applicant must agree to abide by the

OCC’s decision, including terminating

the activity or activities of an Federal

branch or agency, if the OCC so

requires.

The final rule expands the types of

change of status that may be granted

expedited review by including the

conversion of a state branch or agency

operated by a foreign bank, or a

commercial lending company controlled

by a foreign bank into a Federal branch,

limited Federal branch, or Federal

agency.

Permissible Activities (§ 28.13)

In paragraph (a) of this section the

proposal restated the general provision

on the applicability of domestic law to

Federal branches and agencies and

requested comment on forms of

supplemental guidance that interested

parties thought would be most useful.

The OCC received no comments on this

paragraph and accordingly no

substantive changes are made to

paragraph (a) in the final rule.

In paragraph (b) of this section, the

proposal restated the requirement in the

Interstate Act regarding the management

of certain offshore activities, 12 U.S.C.

3105(k), and clarified, in general terms,

the activities that a United States bank

may manage at its offshore branch or

subsidiary. The Interstate Act provides

that a United States branch or agency of

a foreign bank shall not, through an

offshore shell branch that it manages

and controls, manage the types of

activities that a United States bank may

not manage at its foreign branch or

subsidiary.

A commenter suggested that in

accordance with the legislative history

of the Interstate Act, the OCC should

clarify that § 28.13(b) applies to offshore

shell branches. The OCC agrees that this

clarification is warranted and has

changed the title of paragraph (b) of this

section to mirror section 107(e) of the

Interstate Act, 12 U.S.C. 3105(k).

In the preamble to the proposal, the

OCC solicited comment on whether

procedural or quantitative supervisory

requirements that may apply to an

activity of a United States bank at its

foreign branches or subsidiaries should

also apply to a Federal branch or agency

in this context. One commenter noted

that the Interstate Act does not require

such limits to be imposed and that in

other relevant contexts the Federal

banking agencies have not imposed

such limits. The OCC agrees with the

commenter. The final rule refers to the

‘‘types’’ of activities and explicitly

excludes United States procedural or

quantitative supervisory requirements

that may apply to the offshore branch or

subsidiary of a United States bank.

The OCC notes, however, that the

Interstate Act does not confer on a

foreign bank the right to manage

activities of an offshore office from its

Federal branch or agency. The OCC will

continue to monitor relationships

between Federal branches and agencies

and offshore offices of foreign banks and

to evaluate the compliance of law and

safety and soundness of the United

States operations of Federal branches

and agencies.

Capital Equivalency Deposit (§ 28.15)

The proposal restated the current

provision that eligible capital

equivalency deposits (CED) for Federal

branches and agencies may include

dollar deposits or investment securities

that are permissible investments for a

national bank. The proposal also stated

that high-grade commercial paper and

bankers’ acceptances are the functional

equivalents of deposits. The proposal

required that permissible CED

instruments be valued at the lower of

the principal amount or market value.

The proposal provided that if no

published source for market value is

available, the instruments must be

priced by an independent pricing

service at least quarterly.

One commenter recommended that

the OCC not subject negotiable

certificates of deposits or bankers’

acceptances issued by United States

banks or United States offices of foreign

banks to the requirement that the

instruments have a market value that is

available from either a published source

or from an independent pricing service.

The commenter was concerned that this

requirement may in practice prevent

Federal branches and agencies from

pledging negotiable certificates of

deposit or bankers’ acceptances issued

by banks that are regulated by United

States authorities and that are in a safe

and sound financial condition solely

because their prices are not published.

The proposal was not intended to

make it impractical for Federal branches

or agencies to pledge high quality

instruments as CED. As mentioned in

the proposal, the quality of bank

certificates of deposit offered as CED has

been occasionally questionable or

difficult to ascertain. Also, certain

securities used as CED may be volatile

or difficult to price at market value.

Therefore, the OCC included the

published source requirement in the

proposal.

The OCC recognizes, however, that

this requirement may unnecessarily

exclude certain high quality certificates

of deposit or other instruments.

Therefore, the final rule does not adopt

the published source requirement for

certificates of deposit and banker’s

acceptances. Instead, the final rule

requires that for an instrument to

qualify as CED it must be: (1) An

investment security eligible for

investment by a national bank; (2) a

United States dollar deposit payable in

the United States, other than a

certificate of deposit; (3) a certificate of

deposit, payable in the United States, or

bankers’ acceptance, provided that, in

either case, the issuer or the instrument

is rated investment grade by an

internationally recognized rating

organization, and neither the issuer nor

the instrument is rated lower than

investment grade by any such rating

organization that has rated the issuer or

the instrument; or (4) another asset

permitted by the OCC to qualify as CED.

Although currently under OCC

supervisory policy dollar deposits

include dollar denominated certificates

of deposit payable in the United States,

the final rule categorizes certificates of

deposits separately to clarify the
19528 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

treatment of these instruments. The

final rule also restates the requirement

in section 4 of the IBA, 12 U.S.C.

3102(g)(2), that the obligations used for

CED must be valued at principal amount

or market value, whichever is lower.

The OCC believes that these

requirements strike a reasonable balance

between the OCC’s concerns about the

quality of these instruments offered as

CED and providing flexibility to Federal

branches and agencies in their choice of

instruments that can be properly

pledged as CED. In addition, the OCC

retains the authority to disallow any

particular CED investment that it

concludes is inappropriate.

The OCC recognizes that, on the

effective date of this regulation, CED

accounts of some Federal branches and

agencies may contain instruments that

do not meet the investment grade rating

standard of the final rule. In order to

avoid unnecessary operational

disruption, the OCC will not require

immediate replacement of those

instruments. Instead, an instrument in

the CED account that does not qualify

under this regulation must be replaced

with a qualifying instrument, i.e., one

that satisfies the requirements of this

regulation, upon maturity of that

instrument. This accommodation

applies, however, only to instruments

already properly pledged as CED under

the current regulation.

Deposit-Taking by an Uninsured

Federal Branch (§ 28.16)

The Interstate Act, 12 U.S.C. 3104

note, requires the OCC and the FDIC to

review and revise their regulations

regarding deposit-taking by foreign

branches to ensure that the agencies’

regulations are consistent with the

principle of national treatment

articulated in the IBA, 12 U.S.C.

3104(a). Specifically, the OCC and FDIC

are directed to consider whether foreign

branches may accept initial deposits of

less than $100,000 from six categories of

depositors listed in the statute. The

Interstate Act also directs the agencies

to reduce the amount of deposits of less

than $100,000, not otherwise

permissible under this regulation, that

may be accepted by foreign branches.

This exemption, characterized as a

‘‘regulatory de minimis exemption’’ by

the Interstate Act, reduces the amount of

those deposits maintained by an

uninsured Federal branch under the

exemption from 5% to 1% of the

average deposits held by that Federal

branch.

The Interstate Act also directs the

OCC to consider equal competitive

opportunities among foreign banks and

United States banks and the availability

of credit to all sectors of the United

States economy, including international

trade finance. One objective that

Congress expected the agencies to

achieve in the implementation of this

regulation is to afford equal competitive

opportunities to foreign and United

States banks by ensuring that foreign

banks do not receive an unfair

competitive advantage in taking

uninsured deposits.

The OCC proposal, in general,

adopted the exceptions suggested by

Congress in the Interstate Act, but added

several limited exemptions. The OCC

believes these additional limited

exemptions are consistent with the

purposes of the Interstate Act. The

preamble to the OCC’s proposal set forth

in detail the information and data that

the OCC reviewed in considering this

question. See 60 FR 34907, July 5, 1995.

The final rule adopts this provision as

proposed with some changes as

described in the following discussion.

Nondeposit Banking Services

(§ 28.16(b)(3))

The Interstate Act requires the OCC to

consider whether to permit an

uninsured Federal branch to accept

initial deposits of less than $100,000

from persons to whom the branch or

foreign bank has extended credit or

provided other nondeposit banking

services. The OCC’s proposal provided

that an uninsured Federal branch may

accept initial deposits of less than

$100,000 from persons to whom the

branch or foreign bank has extended

credit or provided other nondeposit

banking services within the past 12

months or has entered into an

agreement to provide those services

within the next 12 months.

The proposal recognized that in a

banking relationship a deposit may, in

some cases, precede the extension of

credit or the provision of other

nondeposit banking services by the

uninsured Federal branch or foreign

bank. In the proposal, the OCC also

indicated that it was considering

clarifying this exemption to permit

uninsured Federal branches to accept

deposits from persons, and their

affiliates, to whom the branch, foreign

bank, or any financial institution

affiliate thereof has extended credit or

provided other non-deposit banking

service within the past 12 months, or

with whom the branch, bank, or its

financial institution affiliate has a

written agreement to extend credit to

provide such services. The OCC did not

receive any comments opposing the

clarification of this exemption.

One commenter strongly supported

expanding the scope of this exemption

to include nondeposit banking services

provided to the depositor, or its

affiliates, by financial affiliates of the

foreign bank. The commenter noted

that, like United States banks, foreign

banks provide nondeposit banking

services through affiliates for a variety

of regulatory and business reasons.

Financial affiliates frequently provide

banking services to customers that can

also be provided directly by the bank.

Similarly, depositors frequently conduct

their operations through affiliates. The

commenter also suggested that the OCC

exercise its discretion under the

Interstate Act to expand this category to

cover deposit services provided by the

foreign bank or its financial institution

affiliates.

The OCC has adopted one of the

commenter’s recommendations. The

final rule expands the scope of this

exemption to permit an uninsured

Federal branch to accept initial deposits

of less than $100,000 from a person to

whom the branch, foreign bank, or an

affiliate of the foreign bank has

extended credit or provided other

nondeposit banking services within the

past 12 months or has a written

agreement to provide credit or those

services within the next 12 months. The

OCC believes that this expansion is

warranted by the connection among the

foreign entity’s various components.

Similarly, a customer who has a

business relationship with an affiliate of

the foreign bank may prefer the

convenience of a deposit relationship

with a Federal branch of the foreign

bank. Moreover, the deposit relationship

with the branch may, in some cases,

precede the extension of credit or

providing of other nondeposit banking

services by the branch or foreign bank

or its affiliates.

This expansion is supported by the

language of the IBA, which defines

‘‘foreign bank’’ to include any affiliate of

a foreign bank. See 12 U.S.C. 3101(7).

Consistent with this exemption,

affiliates of a foreign bank include

companies that are capable of extending

credit or providing some other

nondeposit banking service to

prospective depositors. For example,

affiliates of a foreign bank that provide

credit or other nondeposit banking

services may include investment

advisors, broker-dealers, futures

commission merchants, finance

companies, Edge corporations and

Agreement corporations, commodity

trading advisors, other banks, or any

other comparable institution.

The OCC does not find equally

compelling the commenter’s argument

to expand the exemption to include

affiliates of the depositor, or to expand
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19529

1 The de minimis calculation methodology

remains unchanged from the current rule and is

consistent with the calculation methodology used

by the FDIC for state-licensed branches.

the transactions triggering the

exemption to include providing deposit

services. There is no explicit statutory

support in the IBA for this expansion,

or any indication in the Interstate Act

that Congress intended to include

affiliates of persons to whom the branch

or foreign bank (including its affiliates)

has extended credit or provided any

other nondeposit banking service.

However, as a matter of convenience to

depositors, the final rule includes a

provision in the exemption to permit a

Federal branch to accept deposits from

immediate family members of an

individual to whom the branch or

foreign bank (including its affiliates) has

extended credit or other nondeposit

banking services within the past 12

months or has entered into a written

agreement to provide such services

within the next 12 months. The OCC

notes that it specifically requested

comment on an exemption for

immediate family members in this

section, and one commenter strongly

supported this proposal. The OCC

received no opposing comments.

Business Deposits (§ 28.16(b)(4))

The Interstate Act requires the OCC to

consider whether to permit an

uninsured branch to accept initial

deposits of less than $100,000 from a

foreign business or large United States

business. The OCC has determined that

this exemption is consistent with the

objectives in section 6(a) of the IBA, 12

U.S.C. 3104. Consequently, the OCC,s

proposal provided that an uninsured

Federal branch may accept initial

deposits of less than $100,000 from

foreign businesses and large United

States businesses. The proposal defined

‘‘large United States business’’ to mean

any business entity organized under the

laws of the United States, and that has:

(1) securities registered on a national

securities exchange or quoted on the

National Associate of Securities Dealers

Automated Quotation System

(NASDAQ); or (2) more than $1 million

in annual gross revenues. The proposal

specifically requested comment on this

definition, including the

appropriateness of the criteria and

suggestions for alternative criteria. Two

commenters suggested modifications to

this exemption.

One commenter urged the OCC to

expand this exemption to permit an

uninsured Federal branch to accept

deposits from all businesses. The

commenter believed that the Interstate

Act gives the OCC and the FDIC

discretion because the Interstate Act

directs the agencies to ‘‘consider’’

adopting the exemption categories listed

in the statute. The commenter noted

that the ability of an uninsured Federal

branch to accept initial deposits of less

than $100,000 from all businesses is

significant in maintaining and

expanding credit availability to the

United States economy. However, the

commenter did not offer more specific

information to support this assertion.

Alternatively, the commenter

recommended that the OCC expand the

exemption criteria to include businesses

with: (1) $1 million in total assets; (2)

50 or more employees; or (3) affiliates of

large United States businesses. The

commenter suggested that the OCC

expand the proposed criteria for large

United States businesses to

accommodate the wide range of

different circumstances of business

entities. For example, a foundation or

trust would not be listed on a national

securities exchange and may not

generate revenues, although it could be

considered large in terms of its total

assets or employees. Also, the

commenter proposed that the OCC

should treat a large United States

business and its affiliates as a group.

Another commenter, however,

recommended narrowing the exemption

by increasing the $1 million annual

gross revenue amount required for large

United States businesses to between $25

and $100 million. Furthermore, the

commenter suggested imposing

conditions under which a domestic

business may open an account with an

uninsured Federal branch. The

commenter argued that using a $1

million cut-off would include a great

number of domestic businesses and

would undermine the purpose of the

restriction. This commenter did not

offer any more specific arguments to

support its recommendation.

In the final rule, the OCC clarifies that

the definition of ‘‘large United States

business’’ includes non-profit

institutions, such as foundations. In the

absence of data supporting an

alternative definition of ‘‘large United

States business,’’ however, the OCC has

decided not to make any other changes

in the definition in the final rule. The

OCC believes that the proposal

represents a reasonable balance between

Congress’ concern that foreign banks

and United States banks be provided

equal competitive opportunities and the

importance of maintaining credit to all

sectors of the United States economy. At

the same time, additional criteria or

more specific conditions under which

business deposits can be made, as

proposed by one commenter, would

make the exemption more complex and

difficult to administer by uninsured

Federal branches, without clear

evidence that it would further the

purposes of the Interstate Act.

Other Categories of Depositors

(§ 28.16(b) (1), (2), (6) and (8))

One commenter expressed support for

the other categories of exempt

depositors proposed by the OCC. The

proposal included a list of nine types of

persons or entities from which an

uninsured Federal branch may accept

initial deposits of less than $100,000. In

particular, the commenter supported the

exemptions for Federal and state

governments, individuals who are

neither citizens nor residents of the

United States, individuals who are not

United States citizens, but who are

residents of the United States and are

employed by a foreign bank, foreign

business, foreign government or

recognized international organization,

and deposits made in connection with

the issuance of a financial instrument

for the transmission of funds. The OCC

did not receive any comments

suggesting changes to these categories,

and the final rule adopts the other

depositor exemption categories as

proposed.

De minimis Deposits (§ 28.16(b)(9)) and

Transition rule (§ 28.16(f))

The Interstate Act, 12 U.S.C. 3104

note, requires that the OCC reduce the

amount of deposits of less than

$100,000 that an uninsured Federal

branch may accept from any party under

the de minimis exemption from 5% to

1% of the branch’s average deposits.1

The Interstate Act also permits the OCC

to establish reasonable transition rules

to facilitate the termination of any

deposit-taking activities that would no

longer be permissible under the new

regulatory exemptions.

As required, the OCC’s proposal

reduced the amount of the de minimis

exemption from 5% to 1% of an

uninsured Federal branch’s average

deposits. In addition, the proposal

provided a five-year transition period

for all currently exempted accounts,

other than time deposits. During the

transition period, branches would have

to reclassify deposits accepted under the

current set of exemptions into one of the

new exemptions, or terminate those

deposit accounts that do not qualify for

an exemption under this regulation as of

the end of the transition period. The

transition period for a time deposit

would be until maturity of the deposit,

at which time the branch must reclassify

the deposit under a new exemption,
19530 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

obtain a special exemption from the

OCC for the specific deposit, or

terminate the deposit relationship. An

uninsured branch may continue to

accept deposits for an existing account

that does not qualify for an exemption

until the end of the transition period.

One commenter addressed the de

minimis deposit and transition

provisions of the proposal. The

commenter supported the general

approach of the five-year phase-in

period. However, the commenter

suggested the following modifications.

First, the commenter suggested that the

reclassification of initial deposits of less

than $100,000 that were accepted under

the current regulation should apply only

to those deposits that were accepted

under the current 5% de minimis test.

In other words, the commenter thought

it unnecessary to apply the

reclassification requirement to all

deposits maintained by uninsured

branches under the current set of

exemptions as the proposal provided.

The OCC considered this option and

decided to adopt the requirement as

proposed. The OCC interprets the

Interstate Act to require reclassification

of all deposits maintained by an

uninsured Federal branch under the

current exemptions. Those exemptions

include deposits received, not only

under the 5% de minimis exemption,

but also deposits received under other

current exemptions that no longer apply

under the final rule. The OCC believes

that its interpretation is more consistent

with the Interstate Act and its legislative

history which appear to contemplate a

transition period for all existing

exempted deposits, i.e., not only for the

de minimis deposits. In addition, the

OCC has provided a five-year transition

period for reclassification to reduce any

disruption imposed by reclassification.

In the final rule, the OCC clarifies that

accounts accepted under all the existing

regulatory exemptions must be

reclassified during the transition period.

Second, the commenter requested

clarification regarding the transition

rule. The commenter requested that the

OCC confirm that the reclassification of

initial deposits of less than $100,000

could take place at any time during the

phase-in period depending on the

circumstances of the deposit account.

The OCC confirms that a deposit,

including a time deposit, may be

reclassified at any time during the fiveyear transition period, but a time

deposit is not required to be reclassified

until its maturity date.

Third, the commenter addressed the

transition period for time deposits. The

proposal provided that the transition

period for a time deposit would be until

maturity of the deposit, at which time

the branch must reclassify the deposit

under a new exemption or obtain a

special exemption from the OCC for the

specific deposit. The commenter

pointed out that time deposits can be as

short as seven days in duration, and,

therefore, a branch would have an

unreasonably short period of time to

reclassify many of its time deposits. The

commenter recommended that the OCC

delay the effective date for the

requirement to begin reclassifying time

deposits once they mature until six

months after publication of the final

rule.

The OCC recognizes that the proposal

may provide insufficient time to

reclassify time deposits that mature

shortly after the effective date of the

regulation. Therefore, the final rule

provides, in the case of time deposits,

that an uninsured Federal branch has

until the maturity of the time deposit or

90 days after the effective date of the

final rule, whichever is longer, to

reclassify the deposit. The OCC believes

that 90 days from the effective date of

the final rule is a reasonable period of

time to reclassify time deposits that

mature shortly after the effective date of

the regulation.

Fourth, the commenter requested

clarification regarding the applicability

of § 28.16 to accounts established with

deposits of $100,000 or more before the

effective date of this regulation.

Specifically, the commenter pointed out

that the proposed definition of ‘‘initial

deposit’’ may conflict with the

commenter’s understanding that

accounts established with a deposit of

$100,000 or more before the effective

date of the final rule would not be

subject to the reclassification

requirement. The proposal defined

‘‘initial deposit’’ as the first deposit

received after the effective date of the

final rule. The commenter noted that,

under the proposal, after the effective

date of the final rule the first deposit to

an existing account of, for example,

$10,000 that was initially opened with

a deposit of $100,000 or more would be

subject to this section although the

original deposit of $100,000 or more

was not subject to the current

regulation. The commenter requested

confirmation that existing deposits that

were not subject to the exemptions

because the initial deposit was $100,000

or more would not be subject to the

revised regulation, even if the first

deposit in the account after the effective

date of the revised regulation was less

than $100,000.

The commenter’s interpretation is

correct. Only initial deposits of less than

$100,000 that were received under one

of the current sets of exemptions under

the current regulation are subject to the

reclassification requirements in the final

rule. Accordingly, the OCC changed the

proposed definition of ‘‘initial deposit’’

to provide that a ‘‘first deposit’’ means

any deposit when there is no current

deposit relationship between the

depositor and the Federal branch.

Notice of Change in Activity or

Operations (§ 28.17)

The proposal added this section to

clarify the OCC’s policy regarding notice

requirements for certain changes in

activities and operations. The proposal

required a Federal branch or agency to

provide a notice to the OCC when

changing its corporate title or mailing

address, converting to a state branch,

state agency, or a representative office,

or when its parent foreign bank changes

its home state designation.

The final rule removes proposed

paragraphs (b) and (c) of this section

concerning where to file and when the

OCC would accept notices filed with

other banking agencies. In order to

provide this information for all filings

and requests under this subpart, the

final rule contains this information in

§ 28.10(c).

Recordkeeping and Reporting (§ 28.18)

The proposal restated current OCC

policy and practice requiring a parent

foreign bank to provide the OCC with

information regarding its affairs. The

proposal also added a specific

requirement that a foreign bank

operating a Federal branch or agency in

the United States provide the OCC with

a copy of regulatory reports that it files

with other Federal regulatory agencies

that are designated in guidance issued

by the OCC. The proposal also clarified

that, while a Federal branch or agency

does not need to maintain all records in

English, it must maintain sufficient

records in English to permit examiners

to perform their responsibilities. The

OCC received no comments on this

section and has made no changes in the

final rule.

Maintenance of Assets (§ 28.20)

The proposal clarified the current

asset maintenance requirements for

Federal branches and agencies. Because

the OCC believes that the importance of

the asset maintenance requirement as a

supervisory tool may increase in the

future, the proposal requested comment

on whether the level of detail provided

in the proposal adequately clarified the

use and scope of the provision to the

industry. The OCC also requested

comment on the exclusion of classified

assets. The OCC received no comments
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19531

on either issue and made no changes in

the final rule.

Termination of a Federal Branch or

Agency (§ 28.23)

The proposal clarified the OCC’s

authority to terminate Federal branches

and agencies. The proposal explicitly

spelled out the grounds for termination

in section 4(i) of the IBA, 12 U.S.C.

3102(i), and the grounds for national

bank termination in 12 U.S.C. 191 and

12 U.S.C. 1821(c)(5). It also stated that

a recommendation from the FRB to

terminate a Federal branch or agency

could constitute grounds for

termination. The OCC received no

comments on this section.

The OCC further clarifies this section

in the final rule by including a reference

to termination of a Federal branch or

agency based on the foreign bank’s

insolvency, as specified in section

4(j)(1) of the IBA, 12 U.S.C. 3102(j)(1).

In other respects, the final rule is

unchanged from the proposal.

Subpart C—International Lending

Supervision

Allocated Transfer Risk Reserve

(§ 28.52) and Accounting for Fees on

International Loans (§ 28.53)

This subpart implements the

requirements of the International

Lending Supervision Act of 1983 (12

U.S.C. 3901 et seq.). Subpart C requires

national banks and District of Columbia

banks to establish reserves against the

risks presented in certain international

assets and sets forth the accounting for

various fees received by the banks when

making international loans.

This subpart is subpart B of part 20 in

the current regulation. The proposal

relocated this subpart to subpart C of

part 28. Because subpart B of part 20

was originally promulgated in

cooperation with the FRB and the FDIC,

the OCC intends to review the subpart

with those agencies in the future, and,

therefore, the OCC made no substantive

changes to this subpart in the proposal.

Public comment was invited on the

subpart in order to bring particular

issues to the OCC’s attention.

One commenter recommended that

the accounting provisions in the

proposal be amended to be uniform

among the Federal banking regulatory

agencies and consistent with generally

accepted accounting principles and

various Financial Accounting Standards

Board Statements. The commenter also

requested clarification of regulatory

accounting practices for the allocated

transfer risk reserve as it relates to the

allowance for loan and lease losses. The

OCC will address these issues when the

subpart is reviewed with the FRB and

the FDIC.

Technical Changes to Part 5

Insofar as the final rule consolidates

all substantive rules regarding the

corporate activities of Federal branches

and agencies into part 28, the OCC

removes those sections in 12 CFR part

5 that concern Federal branches and

agencies. However, the final rule points

out, in § 28.10(c), that the rules of

general applicability in part 5 apply to

a Federal branch or agency as they

would to a national bank undertaking a

similar transaction, unless otherwise

stated in part 28.

Derivation Table

This table directs readers to the

original provision upon which the

revised provision is based.

Revised provisionOriginal provision Comments

§ 28.2 ............ § 20.2 ........... Modified.

§ 28.3 ............ §§ 20.3, 20.4 Significant

change.

§ 28.4(a) ....... ...................... Added.

§ 28.4(b) ....... 12 CFR

7.7010(b)

(1995).

Modified.

§ 28.4(c) ....... 12 CFR

7.1012

(1995).

No change.

§ 20.5 ........... Removed.

§ 28.11 .......... § 28.2 ........... Significant

change.

§ 28.12 .......... § 28.3 ........... Significant

change.

§ 28.13 .......... § 28.4 ........... Significant

change.

§ 28.14 .......... § 28.5 ........... Modified.

§ 28.15 .......... § 28.6 ........... Significant

change.

§ 28.16 .......... § 28.8 ........... Significant

change.

§ 28.17 .......... ...................... Added.

§ 28.18 .......... § 28.10 ......... Significant

change.

§ 28.19 .......... ...................... Added.

§ 28.20 .......... § 28.9 ........... Significant

change.

§ 28.22 .......... ...................... Added.

§ 28.23 .......... ...................... Added.

Subpart C ..... Subpart B of

part 20.

No change.

§ 5.23 ........... Removed.

§ 5.25 ........... Removed.

§ 5.32 ........... Removed.

§ 5.41 ........... Removed.

§ 5.43 ........... Removed .

Regulatory Flexibility Act

It is hereby certified that this

regulation will not have a significant

economic impact on a substantial

number of small entities. Accordingly, a

regulatory flexibility analysis is not

required. This regulation will reduce the

regulatory burden on national banks and

Federal branches and agencies of foreign

banks, regardless of size, by simplifying

and clarifying existing regulations.

Executive Order 12866

The OCC has determined that this

final rule is not a significant regulatory

action.

Unfunded Mandates Reform Act of

1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Pub. L.

104–4, 109 Stat. 48 (March 22, 1995)

(Unfunded Mandates Act), requires that

an agency prepare a budgetary impact

statement before promulgating a rule

that includes a Federal mandate that

may result in the expenditure by state,

local, and tribal governments, in the

aggregate, or by the private sector, of

$100 million or more in any one year.

If a budgetary impact statement is

required, section 205 of the Unfunded

Mandates Act also requires an agency to

identify and consider a reasonable

number of regulatory alternatives before

promulgating a rule. Because the OCC

has determined that the final rule will

not result in expenditures by state,

local, and tribal governments, or by the

private sector, of more than $100

million in any one year, the OCC has

not prepared a budgetary impact

statement or specifically addressed the

regulatory alternatives considered.

Nevertheless, as discussed in the

preamble, the final rule has the effect of

reducing burden.

Paperwork Reduction Act of 1995

The collection of information

requirements contained in this final rule

have received approval from the Office

of Management and Budget in

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C.

3507(d)), under OMB control number

1557–0102. Comments on the collection

of information should be sent to the

Office of Management and Budget,

Paperwork Reduction Project 1557–

0204, Washington, DC 20503, with

copies to the Legislative and Regulatory

Activities Division 1557- 0204, Office of

the Comptroller of the Currency, 250 E

Street, SW, Washington, DC 20219. The

OCC will submit the collection of

information requirements contained in

this final rule for renewal of OMB

approval following publication of this

final rule.

The collection of information

requirements in this rule are found in 12

CFR 28.3, 28.10, 28.13, 28.14, 28.15,

28.16, 28.17, 28.18, 28.20, 28.52, 28.53,

and 28.54. The collections of

information are necessary for regulatory

and examination purposes, for Federal
19532 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

branches and agencies and national

banks with foreign operations to ensure

their compliance with Federal law and

regulations, and to evidence compliance

with various regulatory requirements.

This information assists management in

its safe and sound operation of the

institution. The OCC uses the

information to evaluate national banks

with international operations and

Federal branches and agencies for

supervisory, prudential, and legal

purposes, and for statistical and

examination purposes.

Respondents are not required to

respond to the foregoing collection of

information unless it displays a

currently valid OMB control number.

The likely respondents are foreign banks

and national banks.

Estimated average annual burden

hours per recordkeeper: 36.3 hours.

Estimated number of recordkeepers:

185.

Estimated total annual recordkeeping

burden: One per year.

Start-up costs to respondents: none.

List of Subjects

12 CFR Part 5

Administrative practice and

procedure, National banks, Reporting

and recordkeeping requirements,

Securities.

12 CFR Part 20

Foreign banking, National banks,

Reporting and recordkeeping

requirements.

12 CFR Part 28

Foreign banking, National banks,

Reporting and recordkeeping

requirements.

Authority and Issuance

For the reasons set out in the

preamble and under the authority of 12

U.S.C. 93a, 602, and 3108, chapter I of

title 12 of the Code of Federal

Regulations is amended as set forth

below:

PART 5—[AMENDED]

1. The authority citation for part 5

continues to read as follows:

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

§ 5.23 [Removed]

2. Section 5.23 is removed.

§ 5.25 [Removed]

3. Section 5.25 is removed.

§ 5.32 [Removed]

4. Section 5.32 is removed.

§ 5.41 [Removed]

5. Section 5.41 is removed.

§ 5.43 [Removed]

6. Section 5.43 is removed.

PART 20—[REMOVED]

7. Part 20 is removed.

8. Part 28 is revised to read as follows:

PART 28—INTERNATIONAL BANKING

ACTIVITIES

Subpart A—Foreign Operations of National

Banks

Sec.

28.1 Authority, purpose, and scope.

28.2 Definitions.

28.3 Filing requirements for foreign

operations of a national bank.

28.4 Permissible activities.

28.5 Filing of notice.

Subpart B—Federal Branches and Agencies

of Foreign Banks

28.10 Authority, purpose, scope, and filing

requirements.

28.11 Definitions.

28.12 Approval of a Federal branch or

agency.

28.13 Permissible activities.

28.14 Limitations based upon capital of a

foreign bank.

28.15 Capital equivalency deposits.

28.16 Deposit-taking by an uninsured

Federal branch.

28.17 Notice of change in activity or

operations.

28.18 Recordkeeping and reporting.

28.19 Enforcement.

28.20 Maintenance of assets.

28.21 Service of process.

28.22 Voluntary liquidation.

28.23 Termination of a Federal branch or

agency.

Subpart C—International Lending

Supervision

28.50 Authority, purpose, and scope.

28.51 Definitions.

28.52 Allocated transfer risk reserve.

28.53 Accounting for fees on international

loans.

28.54 Reporting and disclosure of

international assets.

Authority: 12 U.S.C. 1 et seq., 93a, 161,

602, 1818, 3102, 3108, and 3901 et seq.

Subpart A—Foreign Operations of

National Banks

§ 28.1 Authority, purpose, and scope.

(a) Authority. This subpart is issued

pursuant to 12 U.S.C. 1 et seq.,

24(Seventh), 93a, and 602.

(b) Purpose. This subpart sets forth

filing requirements for national banks

that engage in international operations

and clarifies permissible foreign

activities of national banks.

(c) Scope. This subpart applies to any

national bank that engages in

international operations through a

foreign branch, or acquires an interest in

an Edge corporation, Agreement

corporation, foreign bank, or certain

other foreign organizations.

§ 28.2 Definitions.

For purposes of this subpart:

(a) Agreement corporation means a

corporation having an agreement or

undertaking with the Board of

Governors of the Federal Reserve

System (FRB) under section 25 of the

Federal Reserve Act (FRA), 12 U.S.C.

601 through 604a.

(b) Edge corporation means a

corporation that is organized under

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

through 631.

(c) Foreign bank means an

organization that:

(1) Is organized under the laws of a

foreign country;

(2) Engages in the business of

banking;

(3) Is recognized as a bank by the bank

supervisory or monetary authority of the

country of its organization or principal

banking operations;

(4) Receives deposits to a substantial

extent in the regular course of its

business; and

(5) Has the power to accept demand

deposits.

(d) Foreign branch means an office of

a national bank (other than a

representative office) that is located

outside the United States at which

banking or financing business is

conducted.

(e) Foreign country means one or

more foreign nations, and includes the

overseas territories, dependencies, and

insular possessions of those nations and

of the United States, and the

Commonwealth of Puerto Rico.

§ 28.3 Filing requirements for foreign

operations of a national bank.

(a) Notice requirement. A national

bank shall notify the OCC when it:

(1) Files an application, notice, or

report with the FRB to:

(i) Establish, open, close, or relocate a

foreign branch; or

(ii) Acquire or divest of an interest in,

or close, an Edge corporation,

Agreement corporation, foreign bank, or

other foreign organization; or

(2) Opens, closes, or relocates a

foreign branch, and no application or

notice is required by the FRB for such

transaction.

(b) Other applications and notices

accepted. In lieu of a notice under

paragraph (a)(1) of this section, the OCC

may accept a copy of an application,

notice, or report submitted to another

Federal agency that covers the proposed

action and contains substantially the

same information required by the OCC.

(c) Additional information. A national

bank shall furnish the OCC with any

additional information the OCC may

require in connection with the national

bank’s foreign operations.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19533

§ 28.4 Permissible activities.

(a) General. Subject to the applicable

approval process, if any, a national bank

may engage in any activity in a foreign

country that is:

(1) Permissible for a national bank in

the United States; and

(2) Usual in connection with the

business of banking in the country

where it transacts business.

(b) Additional activities. In addition

to its general banking powers, a national

bank may engage in any activity in a

foreign country that is permissible

under the FRB’s Regulation K, 12 CFR

part 211.

(c) Foreign operations guarantees. A

national bank may guarantee the

deposits and other liabilities of its Edge

corporations and Agreement

corporations and of its corporate

instrumentalities in foreign countries.

§ 28.5 Filing of notice.

(a) Where to file. A national bank shall

file any notice or submission required

under this subpart with the Office of the

Comptroller of the Currency,

International Banking and Finance, 250

E Street SW, Washington, DC 20219.

(b) Availability of forms. Individual

forms and instructions for filings are

available from International Banking

and Finance.

Subpart B—Federal Branches and

Agencies of Foreign Banks

§ 28.10 Authority, purpose, scope, and

filing requirements.

(a) Authority. This subpart is issued

pursuant to the authority in the

International Banking Act of 1978 (IBA),

12 U.S.C. 3101 et seq., and 12 U.S.C.

93a.

(b) Purpose and scope. This subpart

implements the IBA pertaining to the

licensing, supervision, and operations of

Federal branches and agencies in the

United States.

(c) Filing requirements—(1) Rules of

general applicability. Except as

otherwise provided by the OCC, the

rules of general applicability in 12 CFR

part 5 apply to any filing by a foreign

bank, or Federal branch or agency as

they would to a similar filing by a

national bank.

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

Federal branch or agency shall file any

notice or submission required under

this subpart with the Office of the

Comptroller of the Currency,

International Banking and Finance, 250

E Street SW, Washington, DC 20219.

(3) Availability of forms. Individual

forms and instructions for filings are

available from International Banking

and Finance.

(4) Other notices accepted. The OCC

accepts a copy of an application form,

notice, or report submitted to another

Federal regulatory agency that covers

the proposed action and contains

substantially the same information as

would be required by the OCC. The OCC

may also require the applicant to submit

supplemental information.

§ 28.11 Definitions.

For purposes of this subpart:

(a) Affiliate means any entity that

controls, is controlled by, or is under

common control with another entity.

(b) Agreement corporation means a

corporation having an agreement or

undertaking with the FRB under section

25 of the FRA, 12 U.S.C. 601 through

604a.

(c) Capital equivalency deposit means

a deposit by a Federal branch or agency

in a member bank as described in

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

(d) Change the status of an office

means conversion of a:

(1) State branch or state agency

operated by a foreign bank, or a

commercial lending company controlled

by a foreign bank, into a Federal branch,

limited Federal branch, or Federal

agency;

(2) Federal agency into a Federal

branch or limited Federal branch;

(3) Federal branch into a limited

Federal branch or Federal agency; or

(4) Limited Federal branch into a

Federal branch or Federal agency.

(e) Control. An entity controls another

entity if the entity directly or indirectly

controls or has the power to vote 25

percent or more of any class of voting

securities of the other entity or controls

in any manner the election of a majority

of the directors or trustees of the other

entity.

(f) Edge corporation means a

corporation that is organized under

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

through 631.

(g) Establish a Federal branch or

agency means to:

(1) Open and conduct business

through a Federal branch or agency;

(2) Acquire directly or indirectly

through merger, consolidation, or

similar transaction with another foreign

bank, the operations of a Federal branch

or agency that is open and conducting

business;

(3) Acquire a Federal branch or

agency through the acquisition of a

foreign bank subsidiary that will cease

to operate in the same corporate form

following the acquisition;

(4) Change the status of an office; or

(5) Relocate a Federal branch or

agency within a state or from one state

to another.

(h) Federal agency means an office or

place of business, licensed by the OCC

and operated by a foreign bank in any

state, that may engage in the business of

banking, including maintaining credit

balances, cashing checks, and lending

money, but may not accept deposits

from citizens or residents of the United

States. Obligations may not be

considered credit balances unless they

are:

(1) Incidental to, or arise out of the

exercise of, other lawful banking

powers;

(2) To serve a specific purpose;

(3) Not solicited from the general

public;

(4) Not used to pay routine operating

expenses in the United States such as

salaries, rent, or taxes;

(5) Withdrawn within a reasonable

period of time after the specific purpose

for which they were placed has been

accomplished; and

(6) Drawn upon in a manner

reasonable in relation to the size and

nature of the account.

(i) Federal branch means an office or

place of business, licensed by the OCC

and operated by a foreign bank in any

state, that may engage in the business of

banking, including accepting deposits,

that is not a Federal agency as defined

in paragraph (h) of this section.

(j) Foreign bank means an

organization that is organized under the

laws of a foreign country, a territory of

the United States, Puerto Rico, Guam,

American Samoa, or the Virgin Islands,

and that engages directly in the business

of banking in a foreign country.

(k) Foreign business means any entity,

including a corporation, partnership,

sole proprietorship, association,

foundation or trust that is organized

under the laws of a foreign country, or

any United States entity that is

controlled by a foreign entity or foreign

national.

(l) Foreign country means one or more

foreign nations, and includes the

overseas territories, dependencies, and

insular possessions of those nations and

of the United States, and the

Commonwealth of Puerto Rico.

(m) Home country means the country

in which the foreign bank is chartered

or incorporated.

(n) Home country supervisor means

the governmental entity or entities in

the foreign bank’s home country

responsible for supervising and

regulating the foreign bank.

(o) Home state of a foreign bank

means the state in which the foreign

bank has a branch, agency, subsidiary

commercial lending company, or

subsidiary bank. If a foreign bank has an

office in more than one state, the home
19534 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

state of the foreign bank is the state that

is selected to be the home state by the

foreign bank or, in default of the foreign

bank’s selection, by the FRB.

(p) Immediate family member of an

individual means the spouse, father,

mother, brother, sister, son, or daughter

of that individual.

(q) Initial deposit means the first

deposit transaction between a depositor

and the Federal branch made on or after

July 1, 1996. The initial deposit may be

placed into different deposit accounts or

into different kinds of deposit accounts,

such as demand, savings, or time

accounts. Deposit accounts that are held

by a depositor in the same right and

capacity may be added together for the

purpose of determining the dollar

amount of the initial deposit. First

deposit means the deposit made when

there is no current deposit relationship

between the depositor and the Federal

branch.

(r) International banking facility

means a set of asset and liability

accounts segregated on the books and

records of a depository institution, a

United States branch or agency of a

foreign bank, or an Edge corporation or

Agreement corporation, that includes

only international banking facility time

deposits and extensions of credit.

(s) Large United States business

means any business entity including a

corporation, company, partnership, sole

proprietorship, association, foundation

or trust that is organized under the laws

of the United States or any state thereof,

and has:

(1) Securities registered on a national

securities exchange or quoted on the

National Association of Securities

Dealers Automated Quotation System;

or

(2) More than $1 million in annual

gross revenues for the fiscal year

immediately preceding the year of the

initial deposit.

(t) Limited Federal branch means a

Federal branch that, pursuant to an

agreement between the parent foreign

bank and the FRB, may receive only

those deposits permissible for an Edge

corporation to receive.

(u) Managed or controlled by a

Federal branch or agency means that a

majority of the responsibility for

business decisions, including decisions

with regard to lending, asset

management, funding, or liability

management, or the responsibility for

recordkeeping of assets or liabilities for

a non-United States office, resides at the

Federal branch or agency. For purposes

of this definition, forwarding data or

information of offshore operations

gathered or compiled by the United

States office in the normal course of

business to the parent foreign bank does

not constitute recordkeeping.

(v) Manual means the Comptroller’s

Manual for Corporate Activities (see 12

CFR part 5).

(w) Parent foreign bank senior

management means individuals at the

executive level of the parent foreign

bank who are responsible for

supervising and authorizing activities of

the Federal branch or agency.

(x) Person means an individual or a

corporation, government, partnership,

association, or any other entity.

(y) State means any state of the

United States and the District of

Columbia.

(z) United States bank means a bank

organized under the laws of the United

States or any state.

§ 28.12 Approval of a Federal branch or

agency.

(a) Approval requirements. A foreign

bank shall submit an application to and

obtain prior approval from the OCC

before it:

(1) Establishes a Federal branch,

Federal agency, or limited Federal

branch; or

(2) Exercises fiduciary powers at a

Federal branch. (A foreign bank may

submit an application to exercise

fiduciary powers at the time of filing an

application for a Federal branch or at

any subsequent date.)

(b) Standards for approval. Generally,

in reviewing an application by a foreign

bank to establish a Federal branch or

agency, the OCC considers:

(1) The financial and managerial

resources and future prospects of the

applicant foreign bank and the Federal

branch or agency;

(2) Whether the foreign bank has

furnished to the OCC the information

the OCC requires to assess the

application adequately, and provided

the OCC with adequate assurances that

information will be made available to

the OCC on the operations or activities

of the foreign bank or any of its affiliates

that the OCC deems necessary to

determine and enforce compliance with

the IBA and other applicable Federal

banking statutes;

(3) Whether the foreign bank and its

United States affiliates are in

compliance with applicable United

States law;

(4) The convenience and needs of the

community to be served and the effects

of the proposal on competition in the

domestic and foreign commerce of the

United States;

(5) Whether the foreign bank is

subject to comprehensive supervision or

regulation on a consolidated basis by its

home country supervisor; and

(6) Whether the home country

supervisor has consented to the

proposed establishment of the Federal

branch or agency.

(c) Comprehensive supervision or

regulation on a consolidated basis. In

determining whether a foreign bank is

subject to comprehensive supervision or

regulation on a consolidated basis, the

OCC reviews various factors, including

whether the foreign bank is supervised

or regulated in a manner so that its

home country supervisor receives

sufficient information on the worldwide

operations of the foreign bank to assess

the foreign bank’s overall financial

condition and compliance with laws

and regulations as specified in the FRB’s

Regulation K, 12 CFR 211.24.

(d) Conditions on approval. The OCC

may impose conditions on its approval

including a condition permitting future

termination of activities based on the

inability of the foreign bank to provide

information on its activities, or those of

its affiliate, that the OCC deems

necessary to determine and enforce

compliance with United States banking

laws.

(e) Expedited review. Unless the OCC

concludes that the filing presents

significant supervisory or compliance

concerns, or raises significant legal or

policy issues, the OCC generally

processes the following filings by an

eligible foreign bank, as defined in

paragraph (f) of this section, under

expedited review procedures:

(1) Intrastate relocations. An

application submitted by an eligible

foreign bank to relocate a Federal

branch or agency within a state is

deemed approved by the OCC as of the

seventh day after the close of the

applicable public comment period in 12

CFR part 5, unless the OCC notifies the

bank prior to that date that the filing is

not eligible for expedited review.

(2) Change of status. An application

to change the status of an office

submitted by an eligible foreign bank is

deemed approved by the OCC 45 days

after filing with the OCC, unless the

OCC notifies the bank prior to that date

that the filing is not eligible for

expedited review.

(3) Fiduciary powers. An application

submitted by an eligible foreign bank to

exercise fiduciary powers at an

established Federal branch is deemed

approved by the OCC 30 days after filing

with the OCC, unless the OCC notifies

the bank prior to that date that the filing

is not eligible for expedited review.

(4) Other filings. Any other

application submitted by an eligible

foreign bank may be approved by the

OCC on an expedited basis as described

in the Manual.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19535

(f) Eligible foreign bank. For purposes

of this section, a foreign bank is an

eligible foreign bank if each Federal

branch and agency of the foreign bank

in the United States:

(1) Has a composite rating of 1 or 2

under the interagency rating system for

United States branches and agencies of

foreign banks;

(2) Is not subject to a cease and desist

order, consent order, formal written

agreement, Prompt Corrective Action

directive (see 12 CFR part 6) or, if

subject to such order, agreement, or

directive, is informed in writing by the

OCC that the Federal branch or agency

may be treated as an ‘‘eligible foreign

bank’’ for purposes of this section; and

(3) Has, if applicable, a Community

Reinvestment Act (CRA), 12 U.S.C.

2906, rating of ‘‘Outstanding’’ or

‘‘Satisfactory’’.

(g) After-the-fact approval. Unless

otherwise provided by the OCC, a

foreign bank proposing to establish a

Federal branch or agency through the

acquisition of, or merger or

consolidation with, a foreign bank that

has an office in the United States, may

proceed with the transaction before an

application to establish the Federal

branch or agency has been filed or acted

upon, if the applicant:

(1) Gives the OCC reasonable advance

notice of the proposed acquisition,

merger, or consolidation;

(2) Prior to consummation of the

acquisition, merger, or consolidation,

commits in writing to comply with the

OCC application procedures within a

reasonable period of time, or has already

submitted an application; and

(3) Commits in writing to abide by the

OCC’s decision on the application,

including a decision to terminate

activities of the Federal branch or

agency.

(h) Procedures for approval. A foreign

bank shall file an application for

approval pursuant to this section in

accordance with 12 CFR part 5 and the

Manual.

(i) Additional requirements. Nothing

in this section relieves a foreign bank of

any requirement to obtain the approval

of the FRB as may be necessary under

the FRB’s Regulation K, 12 CFR part

211.

§ 28.13 Permissible activities.

(a) Applicability of laws—(1) General.

Except as otherwise provided by the

IBA, other Federal laws or regulations,

or otherwise determined by the OCC,

the operations of a foreign bank at a

Federal branch or agency shall be

conducted with the same rights and

privileges and subject to the same

duties, restrictions, penalties, liabilities,

conditions, and limitations that would

apply if the Federal branch or agency

were a national bank operating at the

same location.

(2) Parent foreign bank senior

management approval. Unless

otherwise provided by the OCC, any

provision in law, regulation, policy, or

procedure that requires a national bank

to obtain the approval of its board of

directors will be deemed to require a

Federal branch or agency to obtain the

approval of parent foreign bank senior

management.

(b) Management of shell branches—

(1) Federal branches and agencies. A

Federal branch or agency of a foreign

bank shall not manage, through an office

of the foreign bank that is located

outside the United States and that is

managed or controlled by that Federal

branch or agency, any type of activity

that a United States bank is not

permitted to manage at any branch or

subsidiary of the United States bank that

is located outside the United States.

(2) Activities managed in foreign

branches or subsidiaries of United

States banks. The types of activities

referred to in paragraph (b)(1) of this

section include the types of activities

authorized to a United States bank by

state or Federal charters, regulations

issued by chartering or regulatory

authorities, and other United States

banking laws. However, United States

procedural or quantitative requirements

that may be applicable to the conduct of

those activities by United States banks

do not apply.

(c) Additional guidance regarding

permissible activities. For purposes of

section 7(h) of the IBA, 12 U.S.C.

3105(h), the OCC may issue opinions,

interpretations, or rulings regarding

permissible activities of Federal

branches.

§ 28.14 Limitations based upon capital of a

foreign bank.

(a) General. Any limitation or

restriction based upon the capital of a

national bank shall be deemed to refer,

as applied to a Federal branch or

agency, to the dollar equivalent of the

capital of the foreign bank.

(b) Calculation. Unless otherwise

provided by the OCC, a foreign bank

must calculate its capital in a manner

consistent with 12 CFR part 3, for

purposes of this section.

(c) Aggregation. The foreign bank

shall aggregate business transacted by

all Federal branches and agencies with

the business transacted by all state

branches and state agencies controlled

by the foreign bank in determining its

compliance with limitations based upon

the capital of the foreign bank. The

foreign bank shall designate one Federal

branch or agency office in the United

States to maintain consolidated

information so that the OCC can

monitor compliance.

§ 28.15 Capital equivalency deposits.

(a) Capital equivalency deposits—(1)

General. For purposes of section 4(g) of

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

otherwise provided by the OCC, a

foreign bank’s capital equivalency

deposits (CED) must consist of:

(i) Investment securities eligible for

investment by national banks;

(ii) United States dollar deposits

payable in the United States, other than

certificates of deposit;

(iii) Certificates of deposit, payable in

the United States, and banker’s

acceptances, provided that, in either

case, the issuer or the instrument is

rated investment grade by an

internationally recognized rating

organization, and neither the issuer nor

the instrument is rated lower than

investment grade by any such rating

organization that has rated the issuer or

the instrument; or

(iv) Other assets permitted by the OCC

to qualify as CED.

(2) Legal requirements. The agreement

with the depository bank to hold the

CED and the amount of the deposit must

comply with the requirements in section

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

foreign bank has more than one Federal

branch or agency in a state, it shall

determine the CED and the amount of

liabilities requiring capital equivalency

coverage on an aggregate basis for all the

foreign bank’s Federal branches or

agencies in that state.

(b) Increase in capital equivalency

deposits. For prudential or supervisory

reasons, the OCC may require, in

individual cases or otherwise, that a

foreign bank increase its CED above the

minimum amount.

(c) Value of assets. The obligations

referred to in paragraph (a) of this

section must be valued at principal

amount or market value, whichever is

lower.

(d) Deposit arrangements. A foreign

bank should require its depository bank

to segregate its CED on the depository

bank’s books and records. The funds

deposited and obligations referred to in

paragraph (a) of this section that are

placed in safekeeping at a depository

bank to satisfy a foreign bank’s CED

requirement:

(1) May not be reduced in aggregate

value by withdrawal without the prior

approval of the OCC;

(2) Must be pledged and maintained

pursuant to an agreement prescribed by

the OCC; and
19536 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

(3) Must be free from any lien, charge,

right of setoff, credit, or preference in

connection with any claim of the

depository bank against the foreign

bank.

(e) Maintenance of capital

equivalency ledger account. Each

Federal branch or agency shall maintain

a capital equivalency account and keep

records of the amount of liabilities

requiring capital equivalency coverage

in a manner and form prescribed by the

OCC.

§ 28.16 Deposit-taking by an uninsured

Federal branch.

(a) Policy. In carrying out this section,

the OCC shall consider the importance

of according foreign banks competitive

opportunities equal to those of United

States banks and the availability of

credit to all sectors of the United States

economy, including international trade

finance.

(b) General. An uninsured Federal

branch may accept initial deposits of

less than $100,000 only from:

(1) Individuals who are not citizens or

residents of the United States at the time

of the initial deposit;

(2) Individuals who are not citizens of

the United States, but are residents of

the United States, and are employed by

a foreign bank, foreign business, foreign

government, or recognized international

organization;

(3) Persons (including immediate

family members of an individual) to

whom the branch or foreign bank

(including any affiliate thereof) has

extended credit or provided other

nondeposit banking services within the

past 12 months, or with whom the

branch or foreign bank has a written

agreement to extend credit or provide

such services within 12 months after the

date of the initial deposit;

(4) Foreign businesses and large

United States businesses;

(5) Foreign governmental units,

including political subdivisions, and

recognized international organizations;

(6) Federal and state governmental

units, including political subdivisions

and agencies thereof;

(7) Persons who are depositing funds

in connection with the issuance of a

financial instrument by the branch for

transmission of funds, or transmission

of funds by any electronic means;

(8) Persons who may deposit funds

with an Edge corporation as provided in

the FRB’s Regulation K, 12 CFR 211.4,

including persons engaged in certain

international business activities; and

(9) Any other depositor if:

(i) The aggregate amount of deposits

received from those depositors does not

exceed, on an average daily basis, 1

percent of the average of the branch’s

deposits for the last 30 days of the most

recent calendar quarter, excluding

deposits of other offices, branches,

agencies, or wholly owned subsidiaries

of the foreign bank; and

(ii) The branch does not solicit

deposits from the general public by

advertising, display of signs, or similar

activity designed to attract the attention

of the general public.

(c) Application for an exemption. A

foreign bank may apply to the OCC for

an exemption to permit an uninsured

Federal branch to accept or maintain

deposit accounts that are not listed in

paragraph (b) of this section. The

request should describe:

(1) The types, sources, and estimated

amounts of such deposits and explain

why the OCC should grant an

exemption; and

(2) How the exemption maintains and

furthers the policies described in

paragraph (a) of this section.

(d) Aggregation of deposits. For

purposes of paragraph (b)(9) of this

section, a foreign bank that has more

than one Federal branch in the same

state may aggregate deposits in all of its

Federal branches in that state, but

exclude deposits of other branches,

agencies or wholly owned subsidiaries

of the bank. The Federal branch shall

compute the average amount by using

the sum of deposits as of the close of

business of the last 30 calendar days

ending with and including the last day

of the calendar quarter, divided by 30.

The Federal branch shall maintain

records of the calculation until its next

examination by the OCC.

(e) Notification to depositors. A

Federal branch that accepts deposits

pursuant to this section shall provide

notice to depositors pursuant to 12 CFR

346.7, which generally requires that the

Federal branch conspicuously display a

sign at the branch and include a

statement on each signature card,

passbook, and instrument evidencing a

deposit that the deposit is not insured

by the Federal Deposit Insurance

Corporation (FDIC).

(f) Transition period. (1) An

uninsured Federal branch may maintain

a deposit lawfully accepted under the

exemptions existing prior to July 1, 1996

if the deposit would qualify for an

exemption under paragraph (b) of this

section, except for the fact that the

deposit was made before July 1, 1996.

(2) If a deposit lawfully accepted

under the exemption existing prior to

July 1, 1996 would not qualify for an

exemption under paragraph (b) or (c) of

this section, the uninsured Federal

branch must terminate the deposit no

later than:

(i) In the case of time deposits, the

maturity of a time deposit or October 1,

1996, whichever is longer; or

(ii) In the case of all other deposits,

five years after July 1, 1996.

(g) Insured banks in United States

territories. For purposes of this section,

the term ‘‘foreign bank’’ does not

include any bank organized under the

laws of any territory of the United

States, Puerto Rico, Guam, American

Samoa, or the Virgin Islands whose

deposits are insured by the FDIC

pursuant to the Federal Deposit

Insurance Act, 12 U.S.C. 1811 et seq.

§ 28.17 Notice of change in activity or

operations.

Notice. A Federal branch or agency

shall notify the OCC if:

(a) It changes its corporate title;

(b) It changes its mailing address;

(c) It converts to a state branch, state

agency, or representative office; or

(d) The parent foreign bank changes

the designation of its home state.

§ 28.18 Recordkeeping and reporting.

(a) General. A Federal branch or

agency shall comply with applicable

recordkeeping and reporting

requirements that apply to national

banks and with any additional

requirements that may be prescribed by

the OCC. A Federal branch or agency,

and the parent foreign bank, shall

furnish information relating to the

affairs of the parent foreign bank and its

affiliates that the OCC may from time to

time request.

(b) Regulatory reports filed with other

agencies. A foreign bank operating a

Federal branch or agency in the United

States shall provide the OCC with a

copy of reports filed with other Federal

regulatory agencies that are designated

in guidance issued by the OCC.

(c) Maintenance of accounts, books,

and records. (1) Each Federal branch or

agency shall maintain a set of accounts

and records reflecting its transactions

that are separate from those of the

foreign bank and any other branch or

agency. The Federal branch or agency

shall keep a set of accounts and records

in English sufficient to permit the OCC

to examine the condition of the Federal

branch or agency and its compliance

with applicable laws and regulations.

The Federal branch or agency shall

promptly provide any additional

records requested by the OCC for

examination or supervisory purposes.

(2) A foreign bank with more than one

Federal branch or agency in a state shall

designate one of those offices to

maintain consolidated asset, liability,

and capital equivalency accounts for all

Federal branches or agencies in that

state.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19537

§ 28.19 Enforcement.

As provided by section 13 of the IBA,

12 U.S.C. 3108(b), the OCC may enforce

compliance with the requirements of the

IBA, other applicable banking laws, and

OCC regulations or orders under section

8 of the Federal Deposit Insurance Act,

12 U.S.C. 1818. This enforcement

authority is in addition to any other

remedies otherwise provided by the IBA

or any other law.

§ 28.20 Maintenance of assets.

(a) General rule. (1) For prudential,

supervisory, or enforcement reasons, the

OCC may require a foreign bank to hold

certain assets in the state in which its

Federal branch or agency is located.

Those assets may only consist of

currency, bonds, notes, debentures,

drafts, bills of exchange, or other

evidence of indebtedness including loan

participation agreements or certificates,

or other obligations payable in the

United States or in United States funds

or, with the approval of the OCC, funds

freely convertible into United States

funds.

(2) If the OCC requires asset

maintenance, the amount of assets held

by a foreign bank shall be prescribed by

the OCC, but may not be less than 105

percent of the aggregate amount of

liabilities of the Federal branch or

agency, payable at or through the

Federal branch or agency. To determine

the aggregate amount of liabilities for

purposes of this section, the foreign

bank shall include bankers’ acceptances,

but exclude liabilities to the head office

and any other branches, offices,

agencies, subsidiaries, and affiliates of

the foreign bank.

(b) Valuation. For the purposes of this

section, marketable securities must be

valued at principal amount or market

value, whichever is lower.

(c) Credits. In determining

compliance with the asset maintenance

requirements, the OCC will give the

Federal branch or agency credit for:

(1) Capital equivalency deposits

maintained pursuant to § 28.15;

(2) Reserves required to be maintained

by the Federal branch or agency

pursuant to the FRB’s authority under

12 U.S.C. 3105(a); and

(3) Assets pledged, and surety bonds

payable, to the FDIC to secure the

payment of domestic deposits.

(d) Exclusions. In determining eligible

assets for purposes of this section, the

Federal branch or agency shall exclude:

(1) Any amount due from the head

office or any other branch, office,

agency, subsidiary, or affiliate of the

foreign bank;

(2) Any classified asset;

(3) Any asset that, in the

determination of the OCC, is not

supported by sufficient credit

information;

(4) Any deposit with a bank in the

United States, unless that bank has

executed a valid waiver of offset

agreement;

(5) Any asset not in the Federal

branch’s actual possession unless the

branch holds title to the asset and

maintains records sufficient to enable

independent verification of the branch’s

ownership of the asset, as determined at

the most recent examination; and

(6) Any other particular asset or class

of assets as provided by the OCC, based

on a case-by-case assessment of the risks

associated with the asset.

(e) International banking facility.

Unless specifically exempted by the

OCC, the eligible assets and liabilities of

any international banking facility

operated through the Federal branch or

agency must be included in the

computation of eligible assets and

liabilities for purposes of this section.

§ 28.21 Service of process.

A foreign bank operating at any

Federal branch or agency is subject to

service of process at the location of the

Federal branch or agency.

§ 28.22 Voluntary liquidation.

(a) Procedures. Unless otherwise

provided, a Federal branch or agency

that proposes to close its operations

shall comply with the requirements in

12 CFR 5.48, as applicable, and the

Manual.

(b) Notice to customers and creditors.

A foreign bank shall provide any

customers and known creditors, not

previously notified in writing, with

written notice of the impending closure

of the Federal branch or agency at least

30 days prior to its closure.

(c) Report of condition. The Federal

branch or agency shall submit a Report

of Assets and Liabilities of United States

Branches and Agencies of Foreign Banks

as of the close of the last business day

prior to the start of liquidation of the

Federal branch or agency. This report

must include a certified maturity

schedule of all remaining liabilities, if

any.

(d) Return of certificate. The Federal

branch or agency shall return the

Federal branch or agency license

certificate within 30 days of closure to

the public.

(e) Reports of examination. The

Federal branch or agency shall send the

OCC certification that all of its Reports

of Examination have been destroyed or

return its Reports of Examination to the

OCC.

§ 28.23 Termination of a Federal branch or

agency.

(a) Grounds for termination. The OCC

may revoke the authority of a foreign

bank to operate a Federal branch or

agency if:

(1) The OCC determines that there is

reasonable cause to believe that the

foreign bank has violated or failed to

comply with any of the provisions of the

IBA, other applicable Federal laws or

regulations, or orders of the OCC;

(2) A conservator is appointed for the

foreign bank, or a similar proceeding is

initiated in the foreign bank’s home

country;

(3) One or more grounds for

receivership, including insolvency, as

specified in 12 U.S.C. 3102(j), exists;

(4) One or more grounds for

termination, including unsafe and

unsound practices, insufficiency or

dissipation of assets, concealment of

books and records, a money laundering

conviction, or other grounds as

specified in 12 U.S.C. 191, exists; or

(5) The OCC receives a

recommendation from the FRB,

pursuant to 12 U.S.C. 3105(e)(5), that

the license of a Federal branch or

agency be terminated.

(b) Procedures—(1) Notice and

hearing. Except as otherwise provided

in this section, the OCC may issue an

order to terminate the license of a

Federal branch or agency after providing

notice to the Federal branch or agency

and after providing an opportunity for a

hearing.

(2) Procedures for hearing. The OCC

shall conduct a hearing under this

section pursuant to the OCC’s Rules of

Practice and Procedure in 12 CFR part

19.

(3) Expedited procedure. The OCC

may act without providing an

opportunity for a hearing if it

determines that expeditious action is

necessary in order to protect the public

interest. When the OCC finds that it is

necessary to act without providing an

opportunity for a hearing, the OCC in its

sole discretion, may:

(i) Provide the Federal branch or

agency with notice of the intended

termination order;

(ii) Grant the Federal branch or

agency an opportunity to present a

written submission opposing issuance

of the order; or

(iii) Take any other action designed to

provide the Federal branch or agency

with notice and an opportunity to

present its views concerning the

termination order.
19538 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

Subpart C—International Lending

Supervision

§ 28.50 Authority, purpose, and scope.

(a) Authority. This subpart is issued

pursuant to 12 U.S.C. 1 et seq., 93a, 161,

and 1818; and the International Lending

Supervision Act of 1983 (Pub. L. 98–

181, title IX, 97 Stat. 1153, 12 U.S.C.

3901 et seq.).

(b) Purpose. This subpart implements

the requirements of the International

Lending Supervision Act of 1983 (12

U.S.C. 3901 et seq.),

(c) Scope. This subpart requires

national banks and District of Columbia

banks to establish reserves against the

risks presented in certain international

assets and sets forth the accounting for

various fees received by the banks when

making international loans.

§ 28.51 Definitions.

For the purposes of this subpart:

(a) Banking institution means a

national bank or a District of Columbia

bank.

(b) Federal banking agencies means

the OCC, the FRB, and the FDIC.

(c) International assets means those

assets required to be included in

banking institutions’ Country Exposure

Report forms (FFIEC 009).

(d) International loan means a loan as

defined in the instructions to the Report

of Condition and Income for the

respective banking institution (FFIEC

031, 032, 033 and 034) and made to a

foreign government, or to an individual,

a corporation, or other entity not a

citizen of, resident in, or organized or

incorporated in the United States.

(e) International syndicated loan

means a loan characterized by the

formation of a group of managing

banking institutions and, in the usual

case, assumption by them of

underwriting commitments, and

participation in the loan by other

banking institutions.

(f) Loan agreement means the

document signed by all of the parties to

a loan, containing the amount, terms,

and conditions of the loan, and the

interest and fees to be paid by the

borrower.

(g) Restructured international loan

means a loan that meets the following

criteria:

(1) The borrower is unable to service

the existing loan according to its terms

and is a resident of a foreign country in

which there is a generalized inability of

public and private sector obligors to

meet their external debt obligations on

a timely basis because of a lack of, or

restraints on the availability of, needed

foreign exchange in the country; and

(2) The terms of the existing loan are

amended to reduce stated interest or

extend the schedule of payments; or

(3) A new loan is made to, or for the

benefit of, the borrower, enabling the

borrower to service or refinance the

existing debt.

(h) Transfer risk means the possibility

that an asset cannot be serviced in the

currency of payment because of a lack

of, or restraints on the availability of,

needed foreign exchange in the country

of the obligor.

§ 28.52 Allocated transfer risk reserve.

(a) Establishment of allocated transfer

risk reserve. A banking institution shall

establish an allocated transfer risk

reserve (ATRR) for specified

international assets when required by

the OCC in accordance with this

section.

(b) Procedures and standards—(1)

Joint agency determination. At least

annually, the Federal banking agencies

shall determine jointly, based on the

standards set forth in paragraph (b)(2) of

this section, the following:

(i) Which international assets subject

to transfer risk warrant establishment of

an ATRR;

(ii) The amount of the ATRR for the

specified assets; and

(iii) Whether an ATRR established for

specified assets may be reduced.

(2) Standards for requiring ATRR—(i)

Evaluation of assets. The Federal

banking agencies shall apply the

following criteria in determining

whether an ATRR is required for

particular international assets:

(A) Whether the quality of a banking

institution’s assets has been impaired by

a protracted inability of public or

private obligors in a foreign country to

make payments on their external

indebtedness as indicated by such

factors, among others, as whether:

(1) Such obligors have failed to make

full interest payments on external

indebtedness;

(2) Such obligors have failed to

comply with the terms of any

restructured indebtedness; or

(3) A foreign country has failed to

comply with any International Monetary

Fund or other suitable adjustment

program; or

(B) Whether no definite prospects

exist for the orderly restoration of debt

service.

(ii) Determination of amount of

ATRR. (A) In determining the amount of

the ATRR, the Federal banking agencies

shall consider:

(1) The length of time the quality of

the asset has been impaired;

(2) Recent actions taken to restore

debt service capability;

(3) Prospects for restored asset

quality; and

(4) Such other factors as the Federal

banking agencies may consider relevant

to the quality of the asset.

(B) The initial year’s provision for the

ATRR shall be 10 percent of the

principal amount of each specified

international asset, or such greater or

lesser percentage determined by the

Federal banking agencies. Additional

provision, if any, for the ATRR in

subsequent years shall be 15 percent of

the principal amount of each specified

international asset, or such greater or

lesser percentage determined by the

Federal banking agencies.

(3) Notification. Based on the joint

agency determinations under paragraph

(b)(1) of this section, the OCC shall

notify each banking institution holding

assets subject to an ATRR:

(i) Of the amount of the ATRR to be

established by the institution for

specified international assets; and

(ii) That an ATRR to be established for

specified assets may be reduced.

(c) Accounting treatment of ATRR—

(1) Charge to current income. A banking

institution shall establish an ATRR by a

charge to current income and the

amounts so charged shall not be

included in the banking institution’s

capital or surplus.

(2) Separate accounting. A banking

institution shall account for an ATRR

separately from the Allowance for

Possible Loan Losses, and shall deduct

the ATRR from ‘‘gross loans and leases’’

to arrive at ‘‘net loans and leases.’’ The

ATRR must be established for each asset

subject to the ATRR in the percentage

amount specified.

(3) Consolidation. A banking

institution shall establish an ATRR, as

required, on a consolidated basis.

Consolidation should be in accordance

with the procedures and tests of

significance set forth in the instructions

for preparation of Consolidated Reports

of Condition and Income (FFIEC 031,

032, 033 and 034). For bank holding

companies, the consolidation shall be in

accordance with the principles set forth

in the ‘‘Instructions to the Bank Holding

Company Financial Supplement to

Report F.R. Y–6’’ (Form F.R. Y–9). Edge

corporations and Agreement

corporations engaged in banking shall

report in accordance with instructions

for preparation of the Report of

Condition for Edge corporations and

Agreement corporations (Form F.R.

2886b).

(4) Alternative accounting treatment.

A banking institution need not establish

an ATRR if it writes down in the period

in which the ATRR is required, or has

written down in prior periods, the value
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19539

of the specified international assets in

the requisite amount for each such asset.

For purposes of this paragraph,

international assets may be written

down by a charge to the Allowance for

Possible Loan Losses or a reduction in

the principal amount of the asset by

application of interest payments or

other collections on the asset. However,

the Allowance for Possible Loan Losses

must be replenished in such amount

necessary to restore it to a level which

adequately provides for the estimated

losses inherent in the banking

institution’s loan portfolio.

(5) Reduction of ATRR. A banking

institution may reduce an ATRR when

notified by the OCC or, at any time, by

writing down such amount of the

international asset for which the ATRR

was established.

§ 28.53 Accounting for fees on

international loans.

(a) Restrictions on fees for

restructured international loans. No

banking institution shall charge any fee

in connection with a restructured

international loan unless all fees

exceeding the banking institution’s

administrative costs, as described in

paragraph (c)(2) of this section, are

deferred and recognized over the term of

the loan as an interest yield adjustment.

(b) Amortizing fees. Except as

otherwise provided by this section, fees

received on international loans shall be

deferred and amortized over the term of

the loan. The interest method should be

used during the loan period to recognize

the deferred fee revenue in relation to

the outstanding loan balance. If it is not

practicable to apply the interest method

during the loan period, the straight-line

method shall be used.

(c) Accounting treatment of

international loan or syndication

administrative costs and corresponding

fees. (1) Administrative costs of

originating, restructuring, or syndicating

an international loan shall be expensed

as incurred. A portion of the fee income

equal to the banking institution’s

administrative costs may be recognized

as income in the same period such costs

are expensed.

(2) The administrative costs of

originating, restructuring, or syndicating

an international loan include those costs

which are specifically identified with

negotiating, processing and

consummating the loan. These costs

include, but are not necessarily limited

to: Legal fees; costs of preparing and

processing loan documents; and an

allocable portion of salaries and related

benefits of employees engaged in the

international lending function and,

where applicable, the syndication

function. No portion of supervisory and

administrative expenses or other

indirect expenses such as occupancy

and other similar overhead costs shall

be included.

(d) Fees received by managing

banking institutions in an international

syndicated loan. Fees received on

international syndicated loans

representing an adjustment of the yield

on the loan shall be recognized over the

loan period using the interest method. If

the interest yield portion of a fee

received on an international syndicated

loan by a managing banking institution

is unstated or differs materially from the

pro rata portion of fees paid other

participants in the syndication, an

amount necessary for an interest yield

adjustment shall be recognized. This

amount shall at least be equivalent (on

a pro rata basis) to the largest fee

received by a loan participant in the

syndication that is not a managing

banking institution. The remaining

portion of the syndication fee may be

recognized as income at the loan closing

date to the extent that it is identified

and documented as compensation for

services in arranging the loan. Such

documentation shall include the loan

agreement. Otherwise, the fee shall be

deemed an adjustment of yield.

(e) Loan Commitment fees. (1) Fees

which are based upon the unfunded

portion of a credit for the period until

it is drawn and represent compensation

for a binding commitment to provide

funds or for rendering a service in

issuing the commitment shall be

recognized as income over the term of

the commitment period using the

straight-line method of amortization.

Such fees for revolving credit

arrangements, where the fees are

received periodically in arrears and are

based on the amount of the unused loan

commitment, may be recognized as

income when received provided the

income result would not be materially

different.

(2) If it is not practicable to separate

the commitment portion from other

components of the fee, the entire fee

shall be amortized over the term of the

combined commitment and expected

loan period. The straight-line method of

amortization should be used during the

commitment period to recognize the fee

revenue. The interest method should be

used during the loan period to recognize

the remaining fee revenue in relation to

the outstanding loan balance. If the loan

is funded before the end of the

commitment period, any unamortized

commitment fees shall be recognized as

revenue at that time.

(f) Agency fees. Fees paid to an agent

banking institution for administrative

services in an intentional syndicated

loan shall be recognized at the time of

the loan closing or as the service is

performed, if later.

§ 28.54 Reporting and disclosure of

international assets.

(a) Requirements. (1) Pursuant to

section 907(a) of the International

Lending Supervision Act of 1983 (title

IX, Pub. L. 98–181, 97 Stat. 1153, 12

U.S.C. 3906) (ILSA) a banking

institution shall submit to the OCC, at

least quarterly, information regarding

the amounts and composition of its

holdings of international assets.

(2) Pursuant to section 907(b) of ILSA

(12 U.S.C. 3906), a banking institution

shall submit to the OCC information

regarding concentrations in its holdings

of international assets that are material

in relation to total assets and to capital

of the institution, such information to be

made publicly available by the OCC on

request.

(b) Procedures. The format, content,

and reporting and filing dates of the

reports required under paragraph (a) of

this section shall be determined jointly

by the Federal banking agencies. The

requirements to be prescribed by the

agencies may include changes to

existing reporting forms (such as the

Country Exposure Report, FFIEC 009) or

such other requirements as the agencies

deem appropriate. The agencies also

may determine to exempt from the

requirements of paragraph (a) of this

section banking institutions that, in the

agencies’ judgment, have de minimis

holdings of international assets.

(c) Reservation of authority. Nothing

contained in this part shall preclude the

OCC from requiring from a banking

institution such additional or more

frequent information on the institution’s

holdings of international assets as the

OCC may consider necessary.

Dated: April 13, 1996.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 96–10432 Filed 5–1–96; 8:45 am]

BILLING CODE 4810–33–P