12 CFR Part 211 — International Banking Operations (Regulation K)

PART 211—INTERNATIONAL BANKING OPERATIONS (REGULATION K) Authority: 12 U.S.C. 221 et seq., et seq., et seq., et seq., et seq.; Subpart A—International Operations of U.S. Banking Organizations Source: Reg. K, 66 FR 54374, Oct. 26, 2001, unless otherwise noted. § 211.1 Authority, purpose, and scope. (a) Authority. et seq. et seq. et seq. (b) Purpose. (c) Scope. (1) Member banks with respect to their foreign branches and investments in foreign banks under section 25 of the FRA (12 U.S.C. 601-604a); 1 1 (2) Corporations organized under section 25A of the FRA (12 U.S.C. 611-631) (Edge corporations); (3) Corporations having an agreement or undertaking with the Board under section 25 of the FRA (12 U.S.C. 601-604a) (agreement corporations); and (4) Bank holding companies with respect to the exemption from the nonbanking prohibitions of the BHC Act afforded by section 4(c)(13) of that act (12 U.S.C. 1843(c)(13)). § 211.2 Definitions. Unless otherwise specified, for purposes of this subpart: (a) An affiliate (1) Any entity of which the organization is a direct or indirect subsidiary; or (2) Any direct or indirect subsidiary of the organization or such entity. (b) Capital and surplus (1) For organizations subject to the capital rule: (i) Tier 1 and tier 2 capital included in an organization's risk-based capital (under the capital rule); and (ii) The balance of allowance for loan and lease losses or adjusted allowance for credit losses, as applicable, not included in an organization's tier 2 capital for calculation of risk-based capital, based on the organization's most recent consolidated Report of Condition and Income. (iii) For qualifying community banking organizations (as defined in § 217.12 of this chapter) that are subject to the community bank leverage ratio framework (as defined in § 217.12 of this chapter), tier 1 capital (as defined in § 217.2 of this chapter and calculated in accordance with § 217.12(b) of this chapter) plus allowances for loan and lease losses or adjusted allowance for credit losses, as applicable. (2) For all other organizations, paid-in and unimpaired capital and surplus, and includes undivided profits but does not include the proceeds of capital notes or debentures. (c) Capital rule (d) Directly indirectly, (e) Eligible country (1) For which an allocated transfer risk reserve is required pursuant to § 211.43 of this part and that has restructured its sovereign debt held by foreign creditors; and (2) Any other country that the Board deems to be eligible. (f) An Edge corporation is engaged in banking (g) Engaged in business engaged in activities (h) Equity (1) Voting or nonvoting shares; (2) General or limited partnership interests; (3) Any other form of interest conferring ownership rights, including warrants, debt, or any other interests that are convertible into shares or other ownership rights in the organization; or (4) Loans that provide rights to participate in the profits of an organization, unless the investor receives a determination that such loans should not be considered equity in the circumstances of the particular investment. (i) Foreign foreign country (j) Foreign bank (1) Is organized under the laws of a foreign country; (2) Engages in the business of banking; (3) Is recognized as a bank by the bank supervisory or monetary authority of the country of its organization or principal banking operations; (4) Receives deposits to a substantial extent in the regular course of its business; and (5) Has the power to accept demand deposits. (k) Foreign branch (l) Foreign person (m) Investment (1) The ownership or control of equity; (2) Binding commitments to acquire equity; (3) Contributions to the capital and surplus of an organization; or (4) The holding of an organization's subordinated debt when the investor and the investor's affiliates hold more than 5 percent of the equity of the organization. (n) Investment grade (1) Two or more NRSROs; or (2) One NRSRO if the security has been rated by only one NRSRO. (o) Investor (p) Joint venture (q) Loans and extensions of credit (r) NRSRO (s) Organization (t) Person (u) Portfolio investment (v) Representative office (1) Engages solely in representational and administrative functions (such as soliciting new business or acting as liaison between the organization's head office and customers in the United States); and (2) Does not have authority to make any business decision (other than decisions relating to its premises or personnel) for the account of the organization it represents, including contracting for any deposit or deposit-like liability on behalf of the organization. (w) Subsidiary (1) The investor or an affiliate is a general partner of the organization; or (2) The investor and its affiliates directly or indirectly own or control more than 50 percent of the equity of the organization. (x) Tier 1 capital (y) Well capitalized (1) In relation to a parent member or insured bank, that the standards set out in § 208.43(b)(1) of Regulation H (12 CFR 208.43(b)(1)) are satisfied; (2) In relation to a bank holding company, that the standards set out in § 225.2(r)(1) of Regulation Y (12 CFR 225.2(r)(1)) are satisfied; and (3) In relation to an Edge or agreement corporation, that it has tier 1 and total risk-based capital ratios of 6.0 and 10.0 percent, respectively, or greater. (z) Well managed [Reg. K, 66 FR 54374, Oct. 26, 2001, as amended at 83 FR 58734, Nov. 21, 2018; 84 FR 4241, Feb. 14, 2019; 84 FR 61797, Nov. 13, 2019] § 211.3 Foreign branches of U.S. banking organizations. (a) General Definition of banking organization. banking organization (2) A banking organization is considered to be operating a branch in a foreign country if it has an affiliate that is a member bank, Edge or agreement corporation, or foreign bank that operates an office (other than a representative office) in that country. (3) For purposes of this subpart, a foreign office of an operating subsidiary of a member bank shall be treated as a foreign branch of the member bank and may engage only in activities permissible for a branch of a member bank. (4) At any time upon notice, the Board may modify or suspend branching authority conferred by this section with respect to any banking organization. (b)(1) Establishment of foreign branches. (ii) The Board grants its general consent under section 25 of the FRA (12 U.S.C. 601-604a) for a member bank to establish a branch in the Commonwealth of Puerto Rico and the overseas territories, dependencies, and insular possessions of the United States. (2) Prior notice. (3) Branching into additional foreign countries. (4) Additional branches within a foreign country. (5) Branching by nonbanking affiliates. i.e., (6) Expiration of branching authority. (c) Reporting. (d) Reserves of foreign branches of member banks. (e) Conditional approval; access to information. § 211.4 Permissible activities and investments of foreign branches of member banks. (a) Permissible activities and investments. (1) Guarantees. (2) Government obligations. (A) The national government of the country where the branch is located and any political subdivision of that country; (B) An agency or instrumentality of the national government of the country where the branch is located where such obligations are supported by the taxing authority, guarantee, or full faith and credit of that government; (C) The national government or political subdivision of any country, where such obligations are rated investment grade; and (D) An agency or instrumentality of any national government where such obligations are rated investment grade and are supported by the taxing authority, guarantee or full faith and credit of that government. (ii) No member bank, under authority of this paragraph (a)(2), may hold, or be under commitment with respect to, such obligations for its own account in relation to any one country in an amount exceeding the greater of: (A) 10 percent of its tier 1 capital; or (B) 10 percent of the total deposits of the bank's branches in that country on the preceding year-end call report date (or the date of acquisition of the branch, in the case of a branch that has not been so reported); (3) Other investments. (A) The securities of the central bank, clearinghouses, governmental entities other than those authorized under paragraph (a)(2) of this section, and government-sponsored development banks of the country where the foreign branch is located; (B) Other debt securities eligible to meet local reserve or similar requirements; and (C) Shares of automated electronic-payments networks, professional societies, schools, and the like necessary to the business of the branch; (ii) The total investments of a bank's branches in a country under this paragraph (a)(3) (exclusive of securities held as required by the law of that country or as authorized under section 5136 of the Revised Statutes (12 U.S.C. 24, Seventh)) may not exceed 1 percent of the total deposits of the bank's branches in that country on the preceding year-end call report date (or on the date of acquisition of the branch, in the case of a branch that has not been so reported); (4) Real estate loans. (5) Insurance. (6) Employee benefits program. (7) Repurchase agreements. (8) Investment in subsidiaries. (i) In which the member bank is permitted to engage; or (ii) That are incidental to the activities of the foreign branch. (b) Other activities. § 211.5 Edge and agreement corporations. (a) Board Authority. (1) The establishment of Edge corporations; (2) Investments in agreement corporations; and (3) A member bank's proposal to invest more than 10 percent of its capital and surplus in the aggregate amount of stock held in all Edge and agreement corporations. (b) Organization of an Edge corporation Permit. (2) Name. international, foreign, overseas, (3) Federal Register notice. Federal Register (4) Factors considered by Board. (i) The financial condition and history of the applicant; (ii) The general character of its management; (iii) The convenience and needs of the community to be served with respect to international banking and financing services; and (iv) The effects of the proposal on competition. (5) Authority to commence business. (6) Expiration of unexercised authority. (c) Other provisions regarding Edge corporations Amendments to articles of association. (2) Shareholders' meeting. (i) A shareholders' meeting shall be convened at the request of the Board within five business days after the Board gives notice of the request to the Edge corporation; (ii) Any shareholder or group of shareholders that owns or controls 25 percent or more of the shares of the Edge corporation shall attend such a meeting in person or by proxy; and (iii) Failure by a shareholder or authorized representative to attend such meeting in person or by proxy may result in removal or barring of the shareholder or representative from further participation in the management or affairs of the Edge corporation. (3) Nature and ownership of shares Shares. et seq. (ii) Contents of share certificates. (A) Name and describe each class of shares, indicating its character and any unusual attributes, such as preferred status or lack of voting rights; and (B) Conspicuously set forth the substance of: ( 1 et seq. ( 2 (4) Change in status of shareholder. et seq. (d) Ownership of Edge corporations by foreign institutions Prior Board approval. (2) Conditions and requirements. (i) Provide the Board with information related to its financial condition and activities and such other information as the Board may require; (ii) Ensure that any transaction by an Edge corporation with an affiliate 2 2 affiliate (iii) Ensure that the Edge corporation will not provide funding on a continual or substantial basis to any affiliate or office of the foreign institution through transactions that would be inconsistent with the international and foreign business purposes for which Edge corporations are organized; and (iv) Comply with the limitation on aggregate investments in all Edge and agreement corporations set forth in paragraph (h) of this section. (3) Foreign institutions not subject to the BHC Act. (i) Comply with any conditions that the Board may impose that are necessary to prevent undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices in the United States; and (ii) Give the Board 30 days' prior written notice before engaging in any nonbanking activity in the United States, or making any initial or additional investments in another organization, that would require prior Board approval or notice by an organization subject to section 4 of the BHC Act (12 U.S.C. 1843); in connection with such notice, the Board may impose conditions necessary to prevent adverse effects that may result from such activity or investment. (e) Change in control of an Edge corporation Prior notice. (ii) The Board may extend the 60-day period for an additional 30 days by notifying the acquiring party. (iii) A notice under this paragraph (e) need not be filed where a change in control is effected through a transaction requiring the Board's approval under section 3 of the BHC Act (12 U.S.C. 1842). (2) Board review. (f) Domestic branching by Edge corporations Prior notice. (ii) The notice to the Reserve Bank shall include a copy of the notice of the proposal published in a newspaper of general circulation in the communities to be served by the branch. (iii) The newspaper notice may appear no earlier than 90 calendar days prior to submission of notice of the proposal to the Reserve Bank. The newspaper notice shall provide an opportunity for the public to give written comment on the proposal to the appropriate Federal Reserve Bank for at least 30 days after the date of publication. (2) Factors considered. (3) Expiration of authority. (g) Agreement corporations General. (2) Factors considered by Board. (h)(1) Limitation on investment in Edge and agreement corporations. (2) Factors considered by Board. (i) The composition of the assets of the bank's Edge and agreement corporations; (ii) The total capital invested by the bank in its Edge and agreement corporations when combined with retained earnings of the Edge and agreement corporations (including amounts invested in and retained earnings of any foreign bank subsidiaries) as a percentage of the bank's capital; (iii) Whether the bank, bank holding company, and Edge and agreement corporations are well-capitalized and well-managed; (iv) Whether the bank is adequately capitalized after deconsolidating and deducting the aggregate investment in and assets of all Edge or agreement corporations and all foreign bank subsidiaries; and (v) Any other factor the Board deems relevant to the safety and soundness of the member bank. (i) Reserve requirements and interest rate limitations. (j) Liquid funds. (1) Cash; (2) Deposits with depository institutions, as described in Regulation D (12 CFR part 204), and other Edge and agreement corporations; (3) Money-market instruments (including repurchase agreements with respect to such instruments), such as bankers' acceptances, federal funds sold, and commercial paper; and (4) Short- or long-term obligations of, or fully guaranteed by, federal, state, and local governments and their instrumentalities. (k) Reports by Edge and agreement corporations of crimes and suspected crimes. (l) Protection of customer information and consumer information. (m) Procedures for monitoring Bank Secrecy Act compliance. (1) Establishment of Compliance Program. (2) Customer identification program. [66 FR 54374, Oct. 26, 2001, as amended at 66 FR 58655, Nov. 23, 2001; 68 FR 25112, May 9, 2003; 69 FR 77618, Dec. 28, 2004; 71 FR 13936, Mar. 20, 2006] § 211.6 Permissible activities of Edge and agreement corporations in the United States. (a) Activities incidental to international or foreign business. (1) Deposit-taking activities Deposits from foreign governments and foreign persons. (ii) Deposits from other persons. (A) Are to be transmitted abroad; (B) Consist of funds to be used for payment of obligations to the Edge or agreement corporation or collateral securing such obligations; (C) Consist of the proceeds of collections abroad that are to be used to pay for exported or imported goods or for other costs of exporting or importing or that are to be periodically transferred to the depositor's account at another financial institution; (D) Consist of the proceeds of extensions of credit by the Edge or agreement corporation; (E) Represent compensation to the Edge or agreement corporation for extensions of credit or services to the customer; (F) Are received from Edge or agreement corporations, foreign banks, and other depository institutions (as described in Regulation D (12 CFR part 204)); or (G) Are received from an organization that by its charter, license, or enabling law is limited to business that is of an international character, including foreign sales corporations, as defined in 26 U.S.C. 922; transportation organizations engaged exclusively in the international transportation of passengers or in the movement of goods, wares, commodities, or merchandise in international or foreign commerce; and export trading companies established under subpart C of this part. (2) Borrowings. (i) Borrow from offices of other Edge and agreement corporations, foreign banks, and depository institutions (as described in Regulation D (12 CFR part 204)); (ii) Issue obligations to the United States or any of its agencies or instrumentalities; (iii) Incur indebtedness from a transfer of direct obligations of, or obligations that are fully guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof that the Edge or agreement corporation is obligated to repurchase; and (iv) Issue long-term subordinated debt that does not qualify as a deposit (3) Credit activities. (i) Finance the following: (A) Contracts, projects, or activities performed substantially abroad; (B) The importation into or exportation from the United States of goods, whether direct or through brokers or other intermediaries; (C) The domestic shipment or temporary storage of goods being imported or exported (or accumulated for export); and (D) The assembly or repackaging of goods imported or to be exported; (ii) Finance the costs of production of goods and services for which export orders have been received or which are identifiable as being directly for export; (iii) Assume or acquire participations in extensions of credit, or acquire obligations arising from transactions the Edge or agreement corporation could have financed, including acquisition of obligations of foreign governments; (iv) Guarantee debts, or otherwise agree to make payments on the occurrence of readily ascertainable events (including, but not limited to, nonpayment of taxes, rentals, customs duties, or cost of transport, and loss or nonconformance of shipping documents), so long as the guarantee or agreement specifies the maximum monetary liability thereunder and is related to a type of transaction described in paragraphs (a)(3)(i) and (ii) of this section; and (v) Provide credit and other banking services for domestic and foreign purposes to foreign governments and their agencies and instrumentalities, foreign persons, and organizations of the type described in paragraph (a)(1)(ii)(G) of this section. (4) Payments and collections. (5) Foreign exchange. (6) Fiduciary and investment advisory activities. (i) Hold securities in safekeeping for, or buy and sell securities upon the order and for the account and risk of, a person, provided such services for U.S. persons are with respect to foreign securities only; (ii) Act as paying agent for securities issued by foreign governments or other entities organized under foreign law; (iii) Act as trustee, registrar, conversion agent, or paying agent with respect to any class of securities issued to finance foreign activities and distributed solely outside the United States; (iv) Make private placements of participations in its investments and extensions of credit; however, except to the extent permissible for member banks under section 5136 of the Revised Statutes (12 U.S.C. 24(Seventh)), no Edge or agreement corporation otherwise may engage in the business of underwriting, distributing, or buying or selling securities in the United States; (v) Act as investment or financial adviser by providing portfolio investment advice and portfolio management with respect to securities, other financial instruments, real-property interests, and other investment assets, 3 3 (vi) Provide general economic information and advice, general economic statistical forecasting services, and industry studies, provided such services for U.S. persons shall be with respect to foreign economies and industries only. (7) Banking services for employees. (b) Other activities. § 211.7 Voluntary liquidation of Edge and agreement corporations. (a) Prior notice. (b) Waiver of notice period. § 211.8 Investments and activities abroad. (a) General policy. 4 4 (b) Direct investments by member banks. et seq. (1) Foreign banks; (2) Domestic or foreign organizations formed for the sole purpose of holding shares of a foreign bank; (3) Foreign organizations formed for the sole purpose of performing nominee, fiduciary, or other banking services incidental to the activities of a foreign branch or foreign bank affiliate of the member bank; and (4) Subsidiaries established pursuant to § 211.4(a)(8) of this part. (c) Eligible investments. (1) Investment in subsidiary. (2) Investment in joint venture. (3) Portfolio investments. (i) Individual investment limits. (A) 40 percent of the total equity of the organization; or (B) 19.9 percent of the organization's voting shares. (ii) Aggregate Investment Limit. (iii) Loans and extensions of credit. (iv) Protecting shareholder rights. (d) Investment limit. (e) Divestiture. (1) The organization invested in: (i) Engages in impermissible activities to an extent not permitted under paragraph (c) of this section; or (ii) Engages directly or indirectly in other business in the United States that is not permitted to an Edge corporation in the United States; provided that an investor may: (A) Retain portfolio investments in companies that derive no more than 10 percent of their total revenue from activities in the United States; and (B) Hold up to 5 percent of the shares of a foreign company that engages directly or indirectly in business in the United States that is not permitted to an Edge corporation; or (2) After notice and opportunity for hearing, the investor is advised by the Board that such investment is inappropriate under the FRA, the BHC Act, or this subpart. (f) Debts previously contracted. (g) Investments made through debt-for-equity conversions Permissible investments. (i) Public-sector companies. (ii) Private-sector companies. (A) A bank holding company may acquire more than 25 percent of the voting shares of the foreign company only if another shareholder or group of shareholders unaffiliated with the bank holding company holds a larger block of voting shares of the company; (B) The bank holding company and its affiliates may not lend or otherwise extend credit to the foreign company in amounts greater than 50 percent of the total loans and extensions of credit to the foreign company; and (C) The bank holding company's representation on the board of directors or on management committees of the foreign company may be no more than proportional to its shareholding in the foreign company. (2) Investments by bank subsidiary of bank holding company. (3) Divestiture Time limits for divestiture. (A) Ten years from the date of acquisition of the investment, except that the Board may extend such period if, in the Board's judgment, such an extension would not be detrimental to the public interest; or (B) Two years from the date on which the bank holding company is permitted to repatriate in full the investment in the foreign company. (ii) Maximum retention period. (A) Divestiture shall occur within 15 years of the date of acquisition of the shares of, or other ownership interests in, any company acquired pursuant to this paragraph (g); and (B) A bank holding company may retain such shares or ownership interests if such retention is otherwise permissible at the time required for divestiture. (iii) Report to Board. (iv) Other conditions requiring divestiture. (4) Investment procedures General consent. (ii) All other investments shall be made in accordance with the procedures of § 211.9(f) and (g) of this part, requiring prior notice or specific consent. (5) Conditions Name. (ii) Confidentiality. [66 FR 54374, Oct. 26, 2001, as amended at 66 FR 58655, Nov. 23, 2001] § 211.9 Investment procedures. (a) General provisions. 1 1 (1) Minimum capital adequacy standards. (2) Composite rating. (3) Board's authority to modify or suspend procedures. (4) Long-range investment plan. (5) Prior specific consent for initial investment. (6) Expiration of investment authority. (7) Conditional approval; Access to information. (b) General consent. (1) Well capitalized and well managed investor. (2) Individual limit for investment in subsidiary. (i) 10 percent of the investor's tier 1 capital, where the investor is a bank holding company; or (ii) 2 percent of the investor's tier 1 capital, where the investor is a member bank; or (iii) The lesser of 2 percent of the tier 1 capital of any parent insured bank or 10 percent of the investor's tier 1 capital, for any other investor. (3) Individual limit for investment in joint venture. (i) 5 percent of the investor's tier 1 capital, where the investor is a bank holding company; or (ii) 1 percent of the investor's tier 1 capital, where the investor is a member bank; or (iii) The lesser of 1 percent of the tier 1 capital of any parent insured bank or 5 percent of the investor's tier 1 capital, for any other investor. (4) Individual limit for portfolio investment. (i) 5 percent of the investor's tier 1 capital in the case of a bank holding company or its subsidiary, or Edge corporation engaged in banking; or (ii) 25 percent of the investor's tier 1 capital in the case of an Edge corporation not engaged in banking. (5) Investment in a general partnership or unlimited liability company. (6) Aggregate investment limits Investment limits. (A) 20 percent of the investor's tier 1 capital, where the investor is a bank holding company; (B) 10 percent of the investor's tier 1 capital, where the investor is a member bank; or (C) The lesser of 10 percent of the tier 1 capital of any parent insured bank or 50 percent of the tier 1 capital of the investor, for any other investor. (ii) Downstream investments. (7) Application of limits. (c) Limited general consent Individual limit. (i) 5 percent of the investor's tier 1 capital, where the investor is a bank holding company; (ii) 1 percent of the investor's tier 1 capital, where the investor is a member bank; or (iii) The lesser of 1 percent of any parent insured bank's tier 1 capital or 5 percent of the investor's tier 1 capital, for any other investor. (2) Aggregate limit. (i) 10 percent of the investor's tier 1 capital, where the investor is a bank holding company; (ii) 5 percent of the investor's tier 1 capital, where the investor is a member bank; and (iii) The lesser of 5 percent of any parent insured bank's tier 1 capital or 25 percent of the investor's tier 1 capital, for any other investor. (3) Application of limits. (d) Other eligible investments under general consent. (1) Investment in organization equal to cash dividends. (2) Investment acquired from affiliate. (e) Investments ineligible for general consent. (1) After the investment, the foreign bank would be an affiliate of a member bank; and (2) The foreign bank is located in a country in which the member bank and its affiliates have no existing banking presence. (f) Prior notice. (1) The Board may waive the 30-day period if it finds the full period is not required for consideration of the proposed investment, or that immediate action is required by the circumstances presented; and (2) The Board may suspend the 30-day period or act on the investment under the Board's specific consent procedures. (g) Specific consent. [66 FR 54374, Oct. 26, 2001, as amended at 66 FR 58655, Nov. 23, 2001; Reg. K, 83 FR 58734, Nov. 21, 2018; 84 FR 61797, Nov. 13, 2019] § 211.10 Permissible activities abroad. (a) Activities usual in connection with banking. (1) Commercial and other banking activities; (2) Financing, including commercial financing, consumer financing, mortgage banking, and factoring; (3) Leasing real or personal property, or acting as agent, broker, or advisor in leasing real or personal property consistent with the provisions of Regulation Y (12 CFR part 225); (4) Acting as fiduciary; (5) Underwriting credit life insurance and credit accident and health insurance; (6) Performing services for other direct or indirect operations of a U.S. banking organization, including representative functions, sale of long-term debt, name-saving, holding assets acquired to prevent loss on a debt previously contracted in good faith, and other activities that are permissible domestically for a bank holding company under sections 4(a)(2)(A) and 4(c)(1)(C) of the BHC Act (12 U.S.C. 1843(a)(2)(A), (c)(1)(C)); (7) Holding the premises of a branch of an Edge or agreement corporation or member bank or the premises of a direct or indirect subsidiary, or holding or leasing the residence of an officer or employee of a branch or subsidiary; (8) Providing investment, financial, or economic advisory services; (9) General insurance agency and brokerage; (10) Data processing; (11) Organizing, sponsoring, and managing a mutual fund, if the fund's shares are not sold or distributed in the United States or to U.S. residents and the fund does not exercise managerial control over the firms in which it invests; (12) Performing management consulting services, if such services, when rendered with respect to the U.S. market, shall be restricted to the initial entry; (13) Underwriting, distributing, and dealing in debt securities outside the United States; (14) Underwriting and distributing equity securities outside the United States as follows: (i) Limits for well-capitalized and well-managed investor General. ( 1 ( 2 ( 3 (B) Qualifying criteria. (ii) Limits for investor that is not well capitalized and well managed. (iii) Application of limits. (15) Dealing in equity securities outside the United States as follows: (i) Grandfathered authority. (ii) Limit on shares of a single issuer. (A) $40 million; or (B) 10 percent of the investor's tier 1 capital; (iii) Aggregate equity limit. (A) 25 percent of the bank holding company's tier 1 capital, where the investor is a bank holding company; (B) 20 percent of the investor's tier 1 capital, where the investor is a member bank; 6 6 (C) The lesser of 20 percent of any parent insured bank's tier 1 capital or 100 percent of the investor's tier 1 capital, for any other investor; (iv) Determining compliance with limits General. ( 1 ( 2 4 (B) Use of internal hedging models. ( 1 7 7 ( 2 ( 3 ( 4 (C) Underwriting commitments. (v) Authority to deal in shares of U.S. organization. (A) With respect to foreign persons only; and (B) Subject to the limitations on owning or controlling shares of a company in section 4(c)(6) of the BHC Act (12 U.S.C. 1843(c)(6)) and Regulation Y (12 CFR part 225). (vi) Report to senior management. (16) Operating a travel agency, but only in connection with financial services offered abroad by the investor or others; (17) Underwriting life, annuity, pension fund-related, and other types of insurance, where the associated risks have been previously determined by the Board to be actuarially predictable; provided that: (i) Investments in, and loans and extensions of credit (other than loans and extensions of credit fully secured in accordance with the requirements of section 23A of the FRA (12 U.S.C. 371c), or with such other standards as the Board may require) to, the company by the investor or its affiliates are deducted from the capital of the investor (with 50 percent of such capital deduction to be taken from tier 1 capital); and (ii) Activities conducted directly or indirectly by a subsidiary of a U.S. insured bank are excluded from the authority of this paragraph (a)(17), unless authorized by the Board; (18) Providing futures commission merchant services (including clearing without executing and executing without clearing) for nonaffiliated persons with respect to futures and options on futures contracts for financial and nonfinancial commodities; provided that prior notice under § 211.9(f) of this part shall be provided to the Board before any subsidiaries of a member bank operating pursuant to this subpart may join a mutual exchange or clearinghouse, unless the potential liability of the investor to the exchange, clearinghouse, or other members of the exchange, as the case may be, is legally limited by the rules of the exchange or clearinghouse to an amount that does not exceed applicable general consent limits under § 211.9 of this part; (19) Acting as principal or agent in commodity-swap transactions in relation to: (i) Swaps on a cash-settled basis for any commodity, provided that the investor's portfolio of swaps contracts is hedged in a manner consistent with safe and sound banking practices; and (ii) Contracts that require physical delivery of a commodity, provided that: (A) Such contracts are entered into solely for the purpose of hedging the investor's positions in the underlying commodity or derivative contracts based on the commodity; (B) The contract allows for assignment, termination or offset prior to expiration; and (C) Reasonable efforts are made to avoid delivery. (b) Regulation Y activities. (c) Specific approval. § 211.11 Advisory opinions under Regulation K. (a) Request for advisory opinion. (b) Form and content of the request. (1) Submitted in writing to the Board; (2) Contain a clear description of the proposed parameters of the activity, or the service or product, at issue; and (3) Contain a concise explanation of the grounds on which the submitter contends the activity is or should be considered by the Board to be permissible under this part. (c) Response to request. (1) Direct the submitter to provide such additional information as the Board may deem necessary to complete the record for a full consideration of the issue presented; and (2) Provide an advisory opinion within 45 days after the record on the request has been determined to be complete. § 211.12 Lending limits and capital requirements. (a) Acceptances of Edge corporations. (i) All acceptances outstanding in excess of 200 percent of its tier 1 capital; and (ii) All acceptances outstanding for any one person in excess of 10 percent of its tier 1 capital. (2) Exceptions. (i) Fully covered by primary obligations to reimburse it that are guaranteed by banks or bankers; or (ii) Covered by participation agreements from other banks, as described in 12 CFR 250.165. (b) Loans and extensions of credit to one person Loans and extensions of credit defined. Loans and extensions of credit 8 8 (i) Acceptances outstanding that are not of the types described in section 13(7) of the FRA (12 U.S.C. 372); (ii) Any liability of the lender to advance funds to or on behalf of a person pursuant to a guarantee, standby letter of credit, or similar agreements; (iii) Investments in the securities of another organization other than a subsidiary; and (iv) Any underwriting commitments to an issuer of securities, where no binding commitments have been secured from subunderwriters or other purchasers. (2) Limitations. (i) The total loans and extensions of credit outstanding to any person by an Edge corporation engaged in banking, and its direct or indirect subsidiaries, may not exceed 15 percent of the Edge corporation's tier 1 capital; 9 9 subsidiaries (ii) The total loans and extensions of credit to any person by a foreign bank or Edge corporation subsidiary of a member bank, and by majority-owned subsidiaries of a foreign bank or Edge corporation, when combined with the total loans and extensions of credit to the same person by the member bank and its majority-owned subsidiaries, may not exceed the member bank's limitation on loans and extensions of credit to one person. (3) Exceptions. (i) Deposits with banks and federal funds sold; (ii) Bills or drafts drawn in good faith against actual goods and on which two or more unrelated parties are liable; (iii) Any banker's acceptance, of the kind described in section 13(7) of the FRA (12 U.S.C. 372), that is issued and outstanding; (iv) Obligations to the extent secured by cash collateral or by bonds, notes, certificates of indebtedness, or Treasury bills of the United States; (v) Loans and extensions of credit that are covered by bona fide participation agreements; and (vi) Obligations to the extent supported by the full faith and credit of the following: (A) The United States or any of its departments, agencies, establishments, or wholly owned corporations (including obligations, to the extent insured against foreign political and credit risks by the Export-Import Bank of the United States or the Foreign Credit Insurance Association), the International Bank for Reconstruction and Development, the International Finance Corporation, the International Development Association, the Inter-American Development Bank, the African Development Bank, the Asian Development Bank, or the European Bank for Reconstruction and Development; (B) Any organization, if at least 25 percent of such an obligation or of the total credit is also supported by the full faith and credit of, or participated in by, any institution designated in paragraph (b)(3)(vi)(A) of this section in such manner that default to the lender would necessarily include default to that entity. The total loans and extensions of credit under this paragraph (b)(3)(vi)(B) to any person shall at no time exceed 100 percent of the tier 1 capital of the Edge corporation. (c) Capitalization. (2) In the case of an Edge corporation engaged in banking, the minimum ratio of qualifying total capital to risk-weighted assets, as determined under the capital rule, shall not be less than 10 percent, of which at least 50 percent shall consist of tier 1 capital. (3) For purposes of this paragraph (c), no limitation shall apply on the inclusion of subordinated debt that qualifies as tier 2 capital under the capital rule. [Reg. K, 66 FR 54374, Oct. 26, 2001, as amended at 84 FR 61797, Nov. 13, 2019] § 211.13 Supervision and reporting. (a) Supervision Foreign branches and subsidiaries. (i) Effective systems of records, controls, and reports shall be maintained to keep management informed of their activities and condition. (ii) Such systems shall provide, in particular, information on risk assets, exposure to market risk, liquidity management, operations, internal controls, legal and operational risk, and conformance to management policies. (iii) Reports on risk assets shall be sufficient to permit an appraisal of credit quality and assessment of exposure to loss, and, for this purpose, provide full information on the condition of material borrowers. (iv) Reports on operations and controls shall include internal and external audits of the branch or subsidiary. (2) Joint ventures. (i) Such information shall include audits and other reports on financial performance, risk exposure, management policies, operations, and controls. (ii) Complete information shall be maintained on all transactions with the joint venture by the investor and its affiliates. (3) Availability of reports and information to examiners. (b) Examinations. (c) Reports Reports of condition. (2) Foreign operations. (3) Acquisition or disposition of shares. (d) Filing and processing procedures Place of filing. (2) Timing. Subpart B—Foreign Banking Organizations Source: Reg. K, 66 FR 54374, Oct. 26, 2001, unless otherwise noted. § 211.20 Authority, purpose, and scope. (a) Authority. et seq. et seq. (b) Purpose and scope. (1) The limitations on interstate banking under section 5 of the IBA (12 U.S.C. 3103); (2) The exemptions from the nonbanking prohibitions of the BHC Act and the IBA afforded by sections 2(h) and 4(c)(9) of the BHC Act (12 U.S.C. 1841(h), 1843(c)(9)); (3) Board approval of the establishment of an office of a foreign bank in the United States under sections 7(d) and 10(a) of the IBA (12 U.S.C. 3105(d), 3107(a)); (4) The termination by the Board of a foreign bank's representative office, state branch, state agency, or commercial lending company subsidiary under sections 7(e) and 10(b) of the IBA (12 U.S.C. 3105(e), 3107(b)), and the transmission of a recommendation to the Comptroller to terminate a federal branch or federal agency under section 7(e)(5) of the IBA (12 U.S.C. 3105(e)(5)); (5) The examination of an office or affiliate of a foreign bank in the United States as provided in sections 7(c) and 10(c) of the IBA (12 U.S.C. 3105(c), 3107(c)); (6) The disclosure of supervisory information to a foreign supervisor under section 15 of the IBA (12 U.S.C. 3109); (7) The limitations on loans to one borrower by state branches and state agencies of a foreign bank under section 7(h)(2) of the IBA (12 U.S.C. 3105(h)(2)); (8) The limitation of a state branch and a state agency to conducting only activities that are permissible for a federal branch under section (7)(h)(1) of the IBA (12 U.S.C. 3105(h)(1)); and (9) The deposit insurance requirement for retail deposit taking by a foreign bank under section 6 of the IBA (12 U.S.C. 3104). (10) The management of shell branches (12 U.S.C. 3105(k)). (c) Additional requirements. § 211.21 Definitions. The definitions contained in §§ 211.1 and 211.2 apply to this subpart, except as a term is otherwise defined in this section: (a) Affiliate (b) Agency (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. (c)(1) Appropriate Federal Reserve Bank (i) For a foreign banking organization, the Reserve Bank assigned to the foreign banking organization in § 225.3(b)(2) of Regulation Y (12 CFR 225.3(b)(2)); (ii) For a foreign bank that is not a foreign banking organization and proposes to establish an office, an Edge corporation, or an agreement corporation, the Reserve Bank of the Federal Reserve District in which the foreign bank proposes to establish such office or corporation; and (iii) In all other cases, the Reserve Bank designated by the Board. (2) The appropriate Federal Reserve Bank need not be the Reserve Bank of the Federal Reserve District in which the foreign bank's home state is located. (d) Banking subsidiary, bank subsidiary (e) Branch (f) Change the status (g) Commercial lending company Commercial lending company (h) Comptroller (i) Control controlled controlling control. (j) Domestic branch (k) A foreign bank engages directly in the business of banking outside the United States (l) To establish (1) To open and conduct business through an office; (2) To acquire directly, through merger, consolidation, or similar transaction with another foreign bank, the operations of an office that is open and conducting business; (3) To acquire an office through the acquisition of a foreign bank subsidiary that will cease to operate in the same corporate form following the acquisition; (4) To change the status of an office; or (5) To relocate an office from one state to another. (m) Federal agency, federal branch, state agency, state branch (n) Foreign bank foreign bank (o) Foreign banking organization (1) A foreign bank, as defined in section 1(b)(7) of the IBA (12 U.S.C. 3101(7)), that: (i) Operates a branch, agency, or commercial lending company subsidiary in the United States; (ii) Controls a bank in the United States; or (iii) Controls an Edge corporation acquired after March 5, 1987; and (2) Any company of which the foreign bank is a subsidiary. (p) Home country, (q) Home country supervisor, (r) Licensing authority (1) The relevant state supervisor, with respect to an application to establish a state branch, state agency, commercial lending company, or representative office of a foreign bank; or (2) The Comptroller, with respect to an application to establish a federal branch or federal agency. (s) Limited branch (t) Office office of a foreign bank (u) A parent immediate parent ultimate parent (v) Regional administrative office (1) Is established by a foreign bank that operates two or more branches, agencies, commercial lending companies, or banks in the United States; (2) Is located in the same city as one or more of the foreign bank's branches, agencies, commercial lending companies, or banks in the United States; (3) Manages, supervises, or coordinates the operations of the foreign bank or its affiliates, if any, in a particular geographic area that includes the United States or a region thereof, including by exercising credit approval authority in that area pursuant to written standards, credit policies, and procedures established by the foreign bank; and (4) Does not solicit business from actual or potential customers of the foreign bank or its affiliates. (w) Relevant state supervisor (x) Representative office (y) State (z) Subsidiary (1) Has 25 percent or more of its voting shares directly or indirectly owned, controlled, or held with the power to vote by a company, including a foreign bank or foreign banking organization; or (2) Is otherwise controlled, or capable of being controlled, by a foreign bank or foreign banking organization. § 211.22 Interstate banking operations of foreign banking organizations. (a) Determination of home state. (2) A foreign bank that has any branches, agencies, commercial lending company subsidiaries, or subsidiary banks in one state, and has no such offices or subsidiaries in any other states, shall have as its home state the state in which such offices or subsidiaries are located. (b) Change of home state Prior notice. (2) Application to change home state. (ii) A foreign bank may apply to the Board for such permission one or more times. (iii) In determining whether to grant the request of a foreign bank to change its home state, the Board shall consider whether the proposed change is consistent with competitive equity between foreign and domestic banks. (3) Effect of change in home state. (4) Conforming branches to new home state. (c) Prohibition against interstate deposit production offices. § 211.23 Nonbanking activities of foreign banking organizations. (a) Qualifying foreign banking organizations. 10 10 (1) Meet at least two of the following requirements: (i) Banking assets held outside the United States exceed total worldwide nonbanking assets; (ii) Revenues derived from the business of banking outside the United States exceed total revenues derived from its worldwide nonbanking business; or (iii) Net income derived from the business of banking outside the United States exceeds total net income derived from its worldwide nonbanking business; and (2) Meet at least two of the following requirements: (i) Banking assets held outside the United States exceed banking assets held in the United States; (ii) Revenues derived from the business of banking outside the United States exceed revenues derived from the business of banking in the United States; or (iii) Net income derived from the business of banking outside the United States exceeds net income derived from the business of banking in the United States. (b) Determining assets, revenues, and net income. (ii) The foreign banking organization shall include assets, revenues, and net income of companies in which it owns 50 percent or more of the voting shares when determining total assets, revenues, and net income. (iii) The foreign banking organization may include assets, revenues, and net income of companies in which it owns 25 percent or more of the voting shares, if all such companies within the organization are included. (2) Assets devoted to, or revenues or net income derived from, activities listed in § 211.10(a) shall be considered banking assets, or revenues or net income derived from the banking business, when conducted within the foreign banking organization by a foreign bank or its subsidiaries. (c) Limited exemptions available to foreign banking organizations in certain circumstances. (1) Such foreign bank shall be entitled to the exemptions available to a qualifying foreign banking organization if its ultimate parent meets the requirements set forth in paragraph (a)(2) of this section and could meet the requirements in paragraph (a)(1) of this section but for the requirement in paragraph (b)(2) of this section that activities must be conducted by the foreign bank or its subsidiaries in order to be considered derived from the banking business; (2) An ultimate parent as described in paragraph (c)(1) of this section shall be eligible for the exemptions available to a qualifying foreign banking organization except for those provided in § 211.23(f)(5)(iii). (d) Loss of eligibility for exemptions Failure to meet qualifying test. (2) Continuing activities and investments. (ii) Termination or divestiture. (3) Request for specific determination of eligibility. (ii) The Board may grant consent for the foreign banking organization or its affiliate to make investments under paragraph (f)(5) of this section. (e) Specific determination of eligibility for organizations that do not qualify for the exemptions Application. (ii) A foreign banking organization may apply for a specific determination prior to the time it ceases to be eligible for the exemptions afforded by this section. (2) Factors considered by Board. (i) The history and the financial and managerial resources of the foreign organization or foreign banking organization; (ii) The amount of its business in the United States; (iii) The amount, type, and location of its nonbanking activities, including whether such activities may be conducted by U.S. banks or bank holding companies; (iv) Whether eligibility of the foreign organization or foreign banking organization would result in undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices; and (v) The extent to which the foreign banking organization is subject to comprehensive supervision or regulation on a consolidated basis or the foreign organization is subject to oversight by regulatory authorities in its home country. (3) Conditions and limitations. (4) Eligibility not granted. (f) Permissible activities and investments. (1) Engage in activities of any kind outside the United States; (2) Engage directly in activities in the United States that are incidental to its activities outside the United States; (3) Own or control voting shares of any company that is not engaged, directly or indirectly, in any activities in the United States, other than those that are incidental to the international or foreign business of such company; (4) Own or control voting shares of any company in a fiduciary capacity under circumstances that would entitle such shareholding to an exemption under section 4(c)(4) of the BHC Act (12 U.S.C. 1843(c)(4)) if the shares were held or acquired by a bank; (5) Own or control voting shares of a foreign company that is engaged directly or indirectly in business in the United States other than that which is incidental to its international or foreign business, subject to the following limitations: (i) More than 50 percent of the foreign company's consolidated assets shall be located, and consolidated revenues derived from, outside the United States; provided that, if the foreign company fails to meet the requirements of this paragraph (f)(5)(i) for two consecutive years (as reflected in annual reports (FR Y-7) filed with the Board by the foreign banking organization), the foreign company shall be divested or its activities terminated within one year of the filing of the second consecutive annual report that reflects nonconformance with the requirements of this paragraph (f)(5)(i), unless the Board grants consent to retain the investment under paragraph (g) of this section; (ii) The foreign company shall not directly underwrite, sell, or distribute, nor own or control more than 10 percent of the voting shares of a company that underwrites, sells, or distributes securities in the United States, except to the extent permitted bank holding companies; (iii) If the foreign company is a subsidiary of the foreign banking organization, the foreign company must be, or must control, an operating company, and its direct or indirect activities in the United States shall be subject to the following limitations: (A) The foreign company's activities in the United States shall be the same kind of activities, or related to the activities, engaged in directly or indirectly by the foreign company abroad, as measured by the “establishment” categories of the Standard Industrial Classification (SIC). An activity in the United States shall be considered related to an activity outside the United States if it consists of supply, distribution, or sales in furtherance of the activity; (B) The foreign company may engage in activities in the United States that consist of banking, securities, insurance, or other financial operations, or types of activities permitted by regulation or order under section 4(c)(8) of the BHC Act (12 U.S.C. 1843(c)(8)), only under regulations of the Board or with the prior approval of the Board, subject to the following; ( 1 ( 2 (g) Exemptions under section 4(c)(9) of the BHC Act. (h) Reports. (i) Availability of information. (1) Give such information on the subject as it possesses or can reasonably acquire, together with the sources thereof; and (2) Include a statement showing that unreasonable effort or expense would be involved, or indicating that the company whose shares were acquired is not controlled by the organization, and stating the result of a request for information. § 211.24 Approval of offices of foreign banks; procedures for applications; standards for approval; representative office activities and standards for approval; preservation of existing authority. (a) Board approval of offices of foreign banks Prior Board approval of branches, agencies, commercial lending companies, or representative offices of foreign banks. (A) Establishes a branch, agency, commercial lending company subsidiary, or representative office in the United States; or (B) Acquires ownership or control of a commercial lending company subsidiary. (2) Prior notice for certain offices. (A) An additional office (other than a domestic branch outside the home state of the foreign bank established pursuant to section 5(a)(3) of the IBA (12 U.S.C. 3103(a)(3))), provided that the Board has previously determined the foreign bank to be subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor ( comprehensive consolidated supervision CCS (B) A representative office, if: ( 1 ( 2 ( 3 (ii) The Board may waive the 45-day notice period if it finds that immediate action is required by the circumstances presented. The notice period shall commence at the time the notice is received by the appropriate Federal Reserve Bank. The Board may suspend the period or require Board approval prior to the establishment of such office if the notification raises significant policy or supervisory concerns. (3) General consent for certain representative offices. (A) A representative office, but only if the Board has previously determined that the foreign bank proposing to establish a representative office is subject to consolidated comprehensive supervision; (B) A regional administrative office; or (C) An office that solely engages in limited administrative functions (such as separately maintaining back-office support systems) that: ( 1 ( 2 ( 3 (4) Suspension of general consent or prior notice procedures. (5) Temporary offices. (6) After-the-fact Board approval. (i) The foreign bank or banks resulting from the acquisition, merger, or consolidation, will not directly or indirectly own or control more than 5 percent of any class of the voting securities of, or control, a U.S. bank; (ii) The Board is given reasonable advance notice of the proposed acquisition, merger, or consolidation; and (iii) Prior to consummation of the acquisition, merger, or consolidation, each foreign bank, as appropriate, commits in writing either: (A) To comply with the procedures for an application under this section within a reasonable period of time; to engage in no new lines of business, or otherwise to expand its U.S. activities until the disposition of the application; and to abide by the Board's decision on the application, including, if necessary, a decision to terminate the activities of any such U.S. office, as the Board or the Comptroller may require; or (B) Promptly to wind-down and close any office, the establishment of which would have required an application under this section; and to engage in no new lines of business or otherwise to expand its U.S. activities prior to the closure of such office. (7) Notice of change in ownership or control or conversion of existing office or establishment of representative office under general-consent authority. (i) A change in the foreign bank's ownership or control, where the foreign bank is acquired or controlled by another foreign bank or company and the acquired foreign bank with a U.S. office continues to operate in the same corporate form as prior to the change in ownership or control; (ii) The conversion of a branch to an agency or representative office; an agency to a representative office; or a branch or agency from a federal to a state license, or a state to a federal license; or (iii) The establishment of a representative office under general-consent authority. (8) Transactions subject to approval under Regulation Y. (b) Procedures for application Filing application. (2) Publication requirement Newspaper notice. (ii) Contents of notice. (A) State that an application is being filed as of the date of the newspaper notice; and (B) Provide the name of the applicant, the subject matter of the application, the place where comments should be sent, and the date by which comments are due, pursuant to paragraph (b)(3) of this section. (iii) Copy of notice with application. (iv) Exception. (v) Federal branch or federal agency. (3) Written comments. (ii) The Board may extend the 30-day comment period if the Board determines that additional relevant information is likely to be provided by interested persons, or if other extenuating circumstances exist. (4) Board action on application Time limits. (B) The Board may extend for an additional 180 calendar days the period within which to take final action, after providing notice of and reasons for the extension to the applicant and the licensing authority. (C) The time periods set forth in this paragraph (b)(4)(i) may be waived by the applicant. (ii) Additional information. (5) Coordination with other regulators. (c) Standards for approval of U.S. offices of foreign banks Mandatory standards General. (A) Each of the foreign bank and any parent foreign bank engages directly in the business of banking outside the United States and, except as provided in paragraph (c)(1)(iii) of this section, is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor; and (B) The foreign bank has furnished to the Board the information that the Board requires in order to assess the application adequately. (ii) Basis for determining comprehensive consolidated supervision. (A) Ensures that the foreign bank has adequate procedures for monitoring and controlling its activities worldwide; (B) Obtains information on the condition of the foreign bank and its subsidiaries and offices outside the home country through regular reports of examination, audit reports, or otherwise; (C) Obtains information on the dealings and relationship between the foreign bank and its affiliates, both foreign and domestic; (D) Receives from the foreign bank financial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the foreign bank's financial condition on a worldwide, consolidated basis; (E) Evaluates prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. (iii) Determination of comprehensive consolidated supervision not required in certain circumstances. ( 1 ( 2 (B) In deciding whether to use its discretion under this paragraph (c)(1)(iii), the Board also shall consider whether the foreign bank has adopted and implemented procedures to combat money laundering. The Board also may take into account whether the home country supervisor is developing a legal regime to address money laundering or is participating in multilateral efforts to combat money laundering. In approving an application under this paragraph (c)(1)(iii), the Board, after requesting and taking into consideration the views of the licensing authority, may impose any conditions or restrictions relating to the activities or business operations of the proposed branch, agency, or commercial lending company subsidiary, including restrictions on sources of funding. The Board shall coordinate with the licensing authority in the implementation of such conditions or restrictions. (2) Additional standards. (i) Consent of home country supervisor. (ii) Financial resources. (iii) Managerial resources. (iv) Sharing information with supervisors. (v) Assurances to Board. (B) These assurances shall include a statement from the foreign bank describing the laws that would restrict the foreign bank or any of its parents from providing information to the Board; (vi) Measures for prevention of money laundering. (vii) Compliance with U.S. law. (3) Additional standards for certain interstate applications. (A) Determines that the foreign bank's financial resources, including the capital level of the bank, are equivalent to those required for a domestic bank to be approved for branching under section 5155 of the Revised Statutes (12 U.S.C. 36) and section 44 of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1831u); (B) Consults with the Department of the Treasury regarding capital equivalency; (C) Applies the standards specified in section 7(d) of the IBA (12 U.S.C. 3105(d)) and this paragraph (c); and (D) Applies the same requirements and conditions to which an application by a domestic bank for an interstate merger is subject under section 44(b)(1), (3), and (4) of the FDIA (12 U.S.C. 1831u(b)(1), (3), (4)); and (ii) As specified in section 5(a)(7) of the IBA (12 U.S.C. 3103(a)(7)), the Board may not approve an application to establish a branch through a change in status of an agency or limited branch outside the foreign bank's home state unless: (A) The establishment and operation of such branch is permitted by such state; and (B) Such agency or branch has been in operation in such state for a period of time that meets the state's minimum age requirement permitted under section 44(a)(5) of the Federal Deposit Insurance Act (12 U.S.C. 183u(a)(5)). (4) Board conditions on approval. (d) Representative offices Permissible activities. (i) Representational and administrative functions. 11 11 See (ii) Credit approvals under certain circumstances. (iii) Other functions. (2) Standards for approval of representative offices. (3) Special-purpose foreign government-owned banks. (4) Additional requirements. (e) Preservation of existing authority. (f) Reports of crimes and suspected crimes. (g) Management of shell branches. (2) For purposes of this paragraph (g), an office of a foreign bank located outside the United States is “managed or controlled” by a state-licensed branch or agency if a majority of the responsibility for business decisions, including but not limited to decisions with regard to lending or asset management or funding or liability management, or the responsibility for recordkeeping in respect of assets or liabilities for that non-U.S. office, resides at the state-licensed branch or agency. (3) The types of activities that a state-licensed branch or agency may manage through an office located outside the United States that it manage or controls include the types of activities authorized to a U.S. bank by state or federal charters, regulations issued by chartering or regulatory authorities, and other U.S. banking laws, including the Federal Reserve Act, and the implementing regulations, but U.S. procedural or quantitative requirements that may be applicable to the conduct of such activities by U.S. banks shall not apply. (h) Government securities sales practices. (i) Protection of customer information and consumer information. (j) Procedures for monitoring Bank Secrecy Act compliance Establishment of Compliance Program. (i) Approved by the foreign bank's board of directors and noted in the minutes, or (ii) Approved by a delegee acting under the express authority of the board of directors to approve the Bank Secrecy Act compliance program. (2) Customer identification program. [66 FR 53474, Oct. 26, 2001, as amended at 68 FR 35112, May 9, 2003; 69 FR 77618, Dec. 28, 2004; 71 FR 13936, Mar. 20, 2006; 75 FR 44692, July 28, 2010; 84 FR 21692, May 15, 2019] § 211.25 Termination of offices of foreign banks. (a) Grounds for termination General. (i) The foreign bank is not subject to comprehensive consolidated supervision in accordance with § 211.24(c)(1), and the home country supervisor is not making demonstrable progress in establishing arrangements for the consolidated supervision of the foreign bank; or (ii) Both of the following criteria are met: (A) There is reasonable cause to believe that the foreign bank, or any of its affiliates, has committed a violation of law or engaged in an unsafe or unsound banking practice in the United States; and (B) As a result of such violation or practice, the continued operation of the foreign bank's representative office, state branch, state agency, or commercial lending company subsidiary would not be consistent with the public interest, or with the purposes of the IBA, the BHC Act, or the FDIA. (2) Additional ground. (b) Factor. (c) Consultation with relevant state supervisor. (d) Termination procedures Notice and hearing. (2) Procedures for hearing. (3) Expedited procedure. (i) Provide the foreign bank that is the subject of the termination order with notice of the intended termination order; (ii) Grant the foreign bank an opportunity to present a written submission opposing issuance of the order; or (iii) Take any other action designed to provide the foreign bank with notice and an opportunity to present its views concerning the order. (e) Termination of federal branch or federal agency. (f) Voluntary termination. § 211.26 Examination of offices and affiliates of foreign banks. (a) Conduct of examinations Examination of branches, agencies, commercial lending companies, and affiliates. (i) Any branch or agency of a foreign bank; (ii) Any commercial lending company or bank controlled by one or more foreign banks, or one or more foreign companies that control a foreign bank; and (iii) Any other office or affiliate of a foreign bank conducting business in any state. (2) Examination of representative offices. (b) Coordination of examinations. (c) Frequency of on-site examination General. (i) The Board; (ii) The FDIC, if the branch of the foreign bank accepts or maintains insured deposits; (iii) The Comptroller, if the branch or agency of the foreign bank is licensed by the Comptroller; or (iv) The state supervisor, if the office of the foreign bank is licensed or chartered by the state. (2) 18-month cycle for certain small institutions Mandatory standards. (A) Has total assets of less than $3 billion; (B) Has received a composite ROCA supervisory rating (which rates risk management, operational controls, compliance, and asset quality) of 1 or 2 at its most recent examination; (C) Satisfies the requirement of either the following paragraph (c)(2)(i)(C)( 1 2 ( 1 ( 2 (D) Is not subject to a formal enforcement action or order by the Board, FDIC, or OCC; and (E) Has not experienced a change in control during the preceding 12-month period in which a full-scope, on-site examination would have been required but for this section. (ii) Discretionary standards. (A) Any of the individual components of the ROCA supervisory rating of a branch or agency of a foreign bank is rated “3” or worse; (B) The results of any off-site surveillance indicate a deterioration in the condition of the office; (C) The size, relative importance, and role of a particular office when reviewed in the context of the foreign bank's entire U.S. operations otherwise necessitate an annual examination; and (D) The condition of the foreign bank gives rise to such a need. (iii)(A) Except as provided in paragraph (c)(2)(iii)(B) of this section, from December 2, 2020 through December 31, 2021, for purposes of determining eligibility for the extended examination cycle described in paragraph (c)(2) of this section, the total assets of a branch or agency shall be determined based on the lesser of: ( 1 ( 2 (B) The relief provided under paragraph (c)(2)(iii)(A) of this section does not apply to a branch or agency if the Board determines that permitting the branch or agency to determine its assets in accordance with that paragraph would not be commensurate with the risk profile of the branch or agency. When making this determination, the Board will consider all relevant factors, including the extent of asset growth of the branch or agency since December 31, 2019; the causes of such growth, including whether growth occurred as a result of mergers or acquisitions; whether such growth is likely to be temporary or permanent; whether the branch or agency has become involved in any additional activities since December 31, 2019; the asset size of any parent companies; and the type of assets held by the branch or agency. In making a determination pursuant to this paragraph (c)(2)(iii)(B), the Board will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in 12 CFR 263.202. (3) Authority to conduct more frequent examinations. [Reg. K, 66 FR 54374, Oct. 26, 2001, as amended at 72 FR 17802, Apr. 10, 2007; 81 FR 10069, Feb. 29, 2016; 83 FR 43965, Aug. 29, 2018; 85 FR 77360, Dec. 2, 2020] § 211.27 Disclosure of supervisory information to foreign supervisors. (a) Disclosure by Board. (b) Confidentiality. § 211.28 Provisions applicable to branches and agencies: limitation on loans to one borrower. (a) Limitation on loans to one borrower. (b) Preexisting loans and extensions of credit. § 211.29 Applications by state branches and state agencies to conduct activities not permissible for federal branches. (a) Scope. (1) Is not permissible for a federal branch, pursuant to statute, regulation, official bulletin or circular, or order or interpretation issued in writing by the Comptroller; or (2) Is rendered impermissible due to a subsequent change in statute, regulation, official bulletin or circular, written order or interpretation, or decision of a court of competent jurisdiction. (b) Exceptions. (1) Has been determined by the FDIC, pursuant to 12 CFR 362.4(c)(3)(i) through (c)(3)(ii)(A), not to present a significant risk to the affected deposit insurance fund; (2) Is permissible for a federal branch, but the Comptroller imposes a quantitative limitation on the conduct of such activity by the federal branch; (3) Is conducted as agent rather than as principal, provided that the activity is one that could be conducted by a state-chartered bank headquartered in the same state in which the branch or agency is licensed; or (4) Any other activity that the Board has determined may be conducted by any state branch or state agency of a foreign bank without further application to the Board. (c) Contents of application. (1) A brief description of the activity, including the manner in which it will be conducted, and an estimate of the expected dollar volume associated with the activity; (2) An analysis of the impact of the proposed activity on the condition of the U.S. operations of the foreign bank in general, and of the branch or agency in particular, including a copy, if available, of any feasibility study, management plan, financial projections, business plan, or similar document concerning the conduct of the activity; (3) A resolution by the applicant's board of directors or, if a resolution is not required pursuant to the applicant's organizational documents, evidence of approval by senior management, authorizing the conduct of such activity and the filing of this application; (4) If the activity is to be conducted by a state branch insured by the FDIC, statements by the applicant: (i) Of whether or not it is in compliance with 12 CFR 346.19 (Pledge of Assets) and 12 CFR 346.20 (Asset Maintenance); (ii) That it has complied with all requirements of the FDIC concerning an application to conduct the activity and the status of the application, including a copy of the FDIC's disposition of such application, if available; and (iii) Explaining why the activity will pose no significant risk to the deposit insurance fund; and (5) Any other information that the Reserve Bank deems appropriate. (d) Factors considered in determination. (i) The types of risks, if any, the activity poses to the U.S. operations of the foreign banking organization in general, and the branch or agency in particular; (ii) If the activity poses any such risks, the magnitude of each risk; and (iii) If a risk is not de minimis, the actual or proposed procedures to control and minimize the risk. (2) Each of the factors set forth in paragraph (d)(1) of this section shall be evaluated in light of the financial condition of the foreign bank in general and the branch or agency in particular and the volume of the activity. (e) Application procedures. (f) Divestiture or cessation. (i) The divestiture or cessation plan shall describe in detail the manner in which the applicant will divest itself of or cease the activity, and shall include a projected timetable describing how long the divestiture or cessation is expected to take. (ii) Divestiture or cessation shall be complete within one year from the date of the disapproval, or within such shorter period of time as the Board shall direct. (2) If a foreign bank operating a state branch or state agency chooses not to apply to the Board for permission to continue to conduct an activity that is not permissible for a federal branch, or which is rendered impermissible due to a subsequent change in statute, regulation, official bulletin or circular, written order or interpretation, or decision of a court of competent jurisdiction, the foreign bank shall submit a written plan of divestiture or cessation, in conformance with paragraph (f)(1) of this section within 60 days of the effective date of this part or of such change or decision. § 211.30 Criteria for evaluating U.S. operations of foreign banks not subject to consolidated supervision. (a) Development and publication of criteria. (b) Criteria considered by Board. (1) The proportion of the foreign bank's total assets and total liabilities that are located or booked in its home country, as well as the distribution and location of its assets and liabilities that are located or booked elsewhere; (2) The extent to which the operations and assets of the foreign bank and any affiliates are subject to supervision by its home country supervisor; (3) Whether the home country supervisor of such foreign bank is actively working to establish arrangements for comprehensive consolidated supervision of the bank, and whether demonstrable progress is being made; (4) Whether the foreign bank has effective and reliable systems of internal controls and management information and reporting, which enable its management properly to oversee its worldwide operations; (5) Whether the foreign bank's home country supervisor has any objection to the bank continuing to operate in the United States; (6) Whether the foreign bank's home country supervisor and the home country supervisor of any parent of the foreign bank share material information regarding the operations of the foreign bank with other supervisory authorities; (7) The relationship of the U.S. operations to the other operations of the foreign bank, including whether the foreign bank maintains funds in its U.S. offices that are in excess of amounts due to its U.S. offices from the foreign bank's non-U.S. offices; (8) The soundness of the foreign bank's overall financial condition; (9) The managerial resources of the foreign bank, including the competence, experience, and integrity of the officers and directors, and the integrity of its principal shareholders; (10) The scope and frequency of external audits of the foreign bank; (11) The operating record of the foreign bank generally and its role in the banking system in its home country; (12) The foreign bank's record of compliance with relevant laws, as well as the adequacy of its anti-money-laundering controls and procedures, in respect of its worldwide operations; (13) The operating record of the U.S. offices of the foreign bank; (14) The views and recommendations of the Comptroller or the relevant state supervisors in those states in which the foreign bank has operations, as appropriate; (15) Whether the foreign bank, if requested, has provided the Board with adequate assurances that such information will be made available on the operations or activities of the foreign bank and any of its affiliates as the Board deems necessary to determine and enforce compliance with the IBA, the BHC Act, and other U.S. banking statutes; and (16) Any other information relevant to the safety and soundness of the U.S. operations of the foreign bank. (c) Restrictions on U.S. operations Terms of agreement. (2) Failure to enter into or comply with agreement. (i) Enforcement action, in order to ensure safe and sound banking operations, under 12 U.S.C. 1818; or (ii) Termination or a recommendation for termination of its U.S. operations, under § 211.25(a) and (e) and section (7)(e) of the IBA (12 U.S.C. 3105(e)). Subpart C—Export Trading Companies Source: Reg. K, 66 FR 54374, Oct. 26, 2001, unless otherwise noted. § 211.31 Authority, purpose, and scope. (a) Authority. et seq. (b) Purpose and scope. § 211.32 Definitions. The definitions in §§ 211.1 and 211.2 of subpart A apply to this subpart, subject to the following: (a) Appropriate Federal Reserve Bank (b) Bank (c) Company (d) Eligible investors (1) Bank holding companies, as defined in section 2(a) of the BHC Act (12 U.S.C. 1841(a)); (2) Edge and agreement corporations that are subsidiaries of bank holding companies but are not subsidiaries of banks; (3) Banker's banks, as described in section 4(c)(14)(F)(iii) of the BHC Act (12 U.S.C. 1843(c)(14)(F)(iii)); and (4) Foreign banking organizations, as defined in § 211.21(o). (e) Export trading company (1) At least one-third of its revenues in each consecutive four-year period from the export of, or from facilitating the export of, goods and services produced in the United States by persons other than the export trading company or its subsidiaries; and (2) More revenues in each four-year period from export activities as described in paragraph (e)(1) of this section than it derives from the import, or facilitating the import, into the United States of goods or services produced outside the United States. The four-year period within which to calculate revenues derived from its activities under this section shall be deemed to have commenced with the first fiscal year after the respective export trading company has been in operation for two years. (f) Revenues (g) Subsidiary (h) Well capitalized (i) Well managed § 211.33 Investments and extensions of credit. (a) Amount of investments. (b) Extensions of credit Amount. (2) Terms. (ii) For the purposes of this section, an investor in an export trading company includes any affiliate of the investor. (3) Collateral requirements. (i) The export trading company has a bona fide contract for the subsequent sale of the goods; and (ii) The bank has a security interest in the goods or in the proceeds from their sale at least equal in value to the letter of credit or the advance. § 211.34 Procedures for filing and processing notices. (a) General policy. (b) General consent Eligibility for general consent. (i) If the eligible investor is well capitalized and well managed; (ii) In an amount equal to cash dividends received from that export trading company during the preceding 12 calendar months; or (iii) That is acquired from an affiliate at net asset value or through a contribution of shares. (2) Post-investment notice. (i) The amount of the investment and the source of the funds with which the investment was made; and (ii) In the case of an initial investment, a description of the activities in which the export trading company proposes to engage and projections for the export trading company for the first year following the investment. (c) Filing notice Prior notice. (2) Notice of change of activities. (A) Taking title to goods where the export trading company does not have a firm order for the sale of those goods; (B) Product research and design; (C) Product modification; or (D) Activities not specifically covered by the list of activities contained in section 4(c)(14)(F)(ii) of the BHC Act (12 U.S.C. 1843(c)(14)(F)(ii)). (ii) Such an expansion of activities shall be regarded as a proposed investment under this subpart. (d) Time period for Board action. (2) The Board may extend the 60-day period for an additional 30 days if the Board determines that the investor has not furnished all necessary information or that any material information furnished is substantially inaccurate. The Board may disapprove an investment if the necessary information is provided within a time insufficient to allow the Board reasonably to consider the information received. (3) Within three days of a decision to disapprove an investment, the Board shall notify the investor in writing and state the reasons for the disapproval. (e) Time period for investment. Subpart D—International Lending Supervision Source: 49 FR 5592, Feb. 13, 1984, unless otherwise noted. § 211.41 Authority, purpose, and scope. (a) Authority. et seq. et seq. (b) Purpose and scope. [Reg. K, 68 FR 1159, Jan. 9, 2003] § 211.42 Definitions. For the purposes of this subpart: (a) Administrative cost (b) Banking institution (c) Federal banking agencies (d) International assets Country Exposure Report (e) International loan Report of Condition and Income (f) Restructured international loan (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. (g) Transfer risk [Reg. K, 68 FR 1159, Jan. 9, 2003] § 211.43 Allocated transfer risk reserve. (a) Establishment of Allocated Transfer Risk Reserve. (b) Procedures and standards Joint agency determination. (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 Evaluation of 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 ( 2 ( 3 (B) Whether no definite prospects exist for the orderly restoration of debt service. (ii) Determination of amount of ATRR. ( 1 ( 2 ( 3 ( 4 (B) The initial year's provision for the ATRR shall be ten 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 fifteen percent of the principal amount of each specified international asset, or such greater or lesser percentage determined by the Federal banking agencies. (3) Board notification. (i) Of the amount of the ATRR to be established by the institution for specified international assets; and (ii) That an ATRR established for specified assets may be reduced. (c) Accounting treatment of ATRR Charge to current income. (2) Separate accounting. (3) Consolidation. Consolidated Reports of Condition and Income (4) Alternative accounting treatment. (5) Reduction of ATRR. [Reg. K, 68 FR 1159, Jan. 9, 2003, as amended at 84 FR 4241, Feb. 14, 2019] § 211.44 Reporting and disclosure of international assets. (a) Requirements. (2) Pursuant to section 907(b) of ILSA, a banking institution shall submit to the Board 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 Board on request. (b) Procedures. de minimis (c) Reservation of authority. [Reg. K, 68 FR 1159, Jan. 9, 2003] § 211.45 Accounting for fees on international loans. (a) Restrictions on fees for restructured international loans. (b) Accounting treatment. [Reg. K, 68 FR 1159, Jan. 9, 2003] Interpretations § 211.601 Status of certain offices for purposes of the International Banking Act restrictions on interstate banking operations. The Board has considered the question of whether a foreign bank's California office that may accept deposits from certain foreign sources (e.g., a United States citizen residing abroad) is a branch or an agency for the purposes of the grandfather provisions of section 5 of the International Banking Act of 1978 (12 U.S.C. 3103(b)). The question has arisen as a result of the definitions in the International Banking Act of branch agency, The International Banking Act defines agency branch branch agency Section 5 of the International Banking Act establishes certain limitations on the expansion of the domestic deposit-taking capabilities of a foreign bank outside its home State. It also grandfathers offices established or applied for prior to July 27, 1978, and permits a foreign bank to select its home State from among the States in which it operated branches and agencies on the grandfather date. If a foreign bank's office that was established or applied for prior to June 27, 1978, is a branch agency, In the Board's view, it would be inconsistent with the purposes and the legislative history of the International Banking Act to enable a foreign bank to expand its domestic interstate deposit-taking capabilities by grandfathering these California offices as branches because of their ability to receive certain foreign source deposits. The Board also notes that such deposits are of the same general type that may be received by an Edge Corporation and, hence in accordance with section 5(a) of the International Banking Act, by branches established and operated outside a foreign bank's home State. It would be inconsistent with the structure of the interstate banking provisions of the International Banking Act to grandfather as full deposit-taking offices those facilities whose activities have been determined by Congress to be appropriate for a foreign bank's out-of-home State branches. Accordingly, the Board, in administering the interstate banking provisions of the IBA, regards as agencies those offices of foreign banks that do not accept domestic deposits but that may accept deposits from any person that resides, is domiciled, and maintains its principal place of business in a foreign country. [45 FR 67309, Oct. 10, 1980] § 211.602 Investments by United States Banking Organizations in foreign companies that transact business in the United States. Section 25(a) of the Federal Reserve Act (12 U.S.C. 611, the “Edge Act”) provides for the establishment of corporations to engage in international or foreign banking or other international or foreign financial operations (“Edge Corporations”). Congress has declared that Edge Corporations are to serve the purpose of stimulating the provision of international banking and financing services throughout the United States and are to have powers sufficiently broad to enable them to compete effectively with foreign-owned institutions in the United States and abroad. The Board was directed by the International Banking Act of 1978 (12 U.S.C. 3101) to revise its regulations governing Edge Corporations in order to accomplish these and other objectives and was further directed to modify or eliminate any interpretations that impede the attainment of these purposes. One of the powers of Edge Corporations is that of investing in foreign companies. Under the relevant statutes, however, an Edge Corporation is prohibited from investing in foreign companies that engage in the general business of buying or selling goods, wares, merchandise or commodities in the United States. In addition, an Edge Corporation may not invest in foreign companies that transact any business in the United States that is not, in the Board's judgment, “incidental” to its international or foreign business. The latter limitation also applies to investments by bank holding companies (12 U.S.C. 1843(c)(13)) and member banks (12 U.S.C. 601). The Board has been asked to determine whether an Edge Corporation's minority investment (involving less than 25 percent of the voting shares) in a foreign company would continue to be permissible after the foreign company establishes or acquires a United States subsidiary that engages in domestic activities that are closely related to banking. The Board has also been asked to determine whether an Edge Corporation's minority investment in a foreign bank would continue to be permissible after the foreign bank establishes a branch in the United States that engages in domestic banking activities. In the latter case, the branch would be located outside the State in which the Edge Corporation and its parent bank are located. In the past the Board, in exercising its discretionary authority to determine those activities that are permissible in the United States, has followed the policy that an Edge Corporation could not hold even a minority interest in a foreign company that engaged, directly or indirectly, in any purely domestic business in the United States. The United States activities considered permissible were those internationally related activities that Edge Corporations may engage in directly. If this policy were applied to the subject requests, the Edge Corporations would be required to divest their interests in the foreign companies notwithstanding the fact that, in each case, the Edge Corporation, as a minority investor, did not control the decision to undertake activities in the United States, and that even after the United States activities are undertaken the business of the foreign company will remain predominantly outside the United States. International banking and finance have undergone considerable growth and change in recent years. It is increasingly common, for example, for United States institutions to have direct or indirect offices in foreign countries and to engage in activities at those offices that are domestically as well as internationally oriented. In this climate, United States banking organizations would be placed at a competitive disadvantage if their minority investments in foreign companies were limited to those companies that do no domestic business in the United States. Moreover, continued adherence to the existing policy would be contrary to the declaration in the International Banking Act of 1978 that Edge Corporations' powers are to be sufficiently broad to enable them to compete effectively in the United States and abroad. Furthermore, where the activities to be conducted in the United States by the foreign company are banking or closely related to banking, it does not appear that any regulatory or supervisory purpose would be served by prohibiting a minority investment in the foreign firm by a United States banking organization. In view of these considerations, the Board has reviewed its policy relating to the activities that may be engaged in the United States by foreign companies (including foreign banks) in which Edge Corporations, member banks, and bank holding companies invest. As a result of that review, the Board has determined that it would be appropriate to interpret sections 25 and 25(a)of the Federal Reserve Act (12 U.S.C. 601, 611) and section 4(c)(13) of the Bank Holding Company Act (12 U.S.C. 1843(c)(13)) generally to allow United States banking organizations, with the prior consent of the Board, to acquire and hold investments in foreign companies that do business in the United States subject to the following conditions: (1) The foreign company is engaged predominantly in business outside the United States or in internationally related activities in the United States;* *This condition would ordinarily not be met where a foreign company merely maintains a majority of its business in international activities. Each case will be scrutinized to ensure that the activities in the United States do not alter substantially the international orientation of the foreign company's business. (2) The direct or indirect activities of the foreign company in the United States are either banking or closely related to banking; and (3) The United States banking organization does not own 25 percent or more of the voting stock of, or otherwise control, the foreign company. In considering whether to grant its consent for such investments, the Board would also review the proposals to ensure that they are consistent with the purposes of the Bank Holding Company Act and the Federal Reserve Act. [46 FR 8437, Jan. 27, 1981] § 211.603 Commodity swap transactions. For text of interpretation relating to this subject, see § 208.128 of this chapter. [56 FR 63408, Dec. 4, 1991] § 211.604 Data processing activities. (a) Introduction. (b) Scope of data processing activities. (2) In 1979, when the activity was included in Regulation K for the first time, the data processing authority in Regulation K was somewhat broader than that permissible in the United States under Regulation Y (12 CFR part 225) at that time, as the Regulation K authority permitted limited non-financial data processing. In 1979, Regulation Y authorized only financial data processing activities for third parties, with very limited exceptions. By 1997, however, the scope of data processing activities under Regulation Y was expanded such that bank holding companies are permitted to derive up to 30 percent of their data processing revenues from processing data that is not financial, banking, or economic. Moreover, in other respects, the Regulation Y provision is broader than the data processing provision in Regulation K. (3) In light of the fact that the permissible scope of data processing activities under Regulation Y is now equal to, and in some respects, broader than the activity originally authorized under Regulation K, the Board believes that § 211.5(d)(10) should be read to encompass all of the activities permissible under § 225.28(b)(14) of Regulation Y. In addition, the limitations of that section would also apply to § 211.5(d)(10). (c) Applications. [Reg. K, 64 FR 58781, Nov. 1, 1999] § 211.605 Permissible underwriting activities of foreign banks. (a) Introduction. (b) Underwriting transactions engaged in by foreign banks. (2) The foreign banks have used their U.S. offices or affiliates to act as liaison with the U.S. issuer and the lead underwriter in the United States, to prepare documentation and to provide other services in connection with the underwriting. In some cases, the U.S. offices or affiliates that assisted the foreign bank with the underwriting receive a substantial portion of the revenue generated by the foreign bank's participation in the underwriting. In other cases, the U.S. offices receive “credit” from the head office of the foreign bank for their assistance in generating profits arising from the underwriting. (3) By assuming the underwriting risk and booking the underwriting fees in their foreign offices or affiliates, the foreign banks are able to take advantage of an exemption under U.S. securities laws; a foreign underwriter is not required to register in the United States if the underwriter either does not distribute any of the securities in the United States or distributes them only through a registered broker-dealer. (c) Permissible scope of underwriting activities. (2) The Board believes that the position taken by the foreign banks is not supported by the Board's regulations or policies. Section 225.124 of the Board's Regulation Y (12 CFR 225.124(d)) states that a foreign bank will not be considered to be engaged in the activity of underwriting in the United States if the shares to be underwritten are distributed outside the United States. In the transactions in question, all of the securities to be underwritten by the foreign banks are distributed in the United States. (3) Regulation K (12 CFR part 211) was amended in 1985 to provide clarification that a foreign bank may not own or control voting shares of a foreign company that directly underwrites, sells or distributes securities in the United States (emphasis added). 12 CFR 211.23(f)(5)(ii). In proposing this latter provision, the Board clarified that no part of the prohibited underwriting process may take place in the United States and that the prohibition on the activity does not depend on the activity being conducted through an office or subsidiary in the United States. Moreover, in the transactions in question, there was significant participation by U.S. offices and affiliates of the foreign banks in the underwriting process. In some transactions, the foreign office at which the transactions were booked did not have any documentation on the particular transactions; all documentation was maintained in the United States office. In all cases, the U.S. offices or affiliates provided virtually all technical support for participation in the underwriting process and benefitted from profits generated by the activity. (4) The fact that some technological and regulatory constraints on the delivery of cross-border services into the United States have been eliminated since the Regulation K definition of “engaged in business” was adopted in 1979 creates greater scope for banking organizations to deal with customers outside the U.S. bank regulatory framework. The definition in Regulation K, however, does not authorize foreign banking organizations to evade regulatory restrictions on securities activities in the United States by directly underwriting securities to be distributed in the United States or by using U.S. offices and affiliates to facilitate the prohibited activity. In the GLB Act, Congress established a framework within which both domestic and foreign banking organizations may underwrite and deal in securities in the United States. The GLB Act requires that banking organizations meet certain financial and managerial requirements in order to be able to engage in these activities in the United States. The Board believes the practices described above undermine this legislative framework and constitute an evasion of the requirements of the GLB Act and the Board's Regulation K. Foreign banking organizations that wish to conduct securities underwriting activity in the United States have long had the option of obtaining section 20 authority and now have the option of obtaining financial holding company status. (d) Conclusion. [Reg. K, 68 FR 7899, Feb. 19, 2003]

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