[Federal Register Volume 60, Number 249 (Thursday, December 28, 1995)]
[Proposed Rules]
[Pages 67100-67102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31364]
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FEDERAL RESERVE SYSTEM
12 CFR Part 211
[Regulation K; Docket No. R-0911]
International Banking Operations
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is proposing to amend its Regulation K regarding interstate banking
operations of foreign banking organizations. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (Interstate Act) removed
geographic restrictions on interstate banking by foreign banks
effective September 29, 1995, and requires certain foreign banks
without U.S. deposit-taking offices to select a home state for the
first time. The proposed amendments to Regulation K would require these
foreign banks to select a home state by March 31, 1996, and would
immediately remove outdated restrictions on certain mergers by U.S.
bank subsidiaries of foreign banks outside the home state of the
foreign bank. Obsolete and superseded provisions of Regulation K
concerning home state selection would be deleted. The Board is also
requesting comment on other aspects of the Interstate Act as it applies
to foreign banks.
DATES: Comments must be received by February 5, 1996.
ADDRESSES: Comments should refer to Docket No. R-0911 and may be mailed
to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington
D.C. 20551. Comments also may be delivered to Room B-2222 of the Eccles
Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard
station in the Eccles building courtyard on 20th Street, N.W. (between
Constitution Avenue and C Street, N.W.) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. weekdays, except as provided in Sec. 261.8 of the Board's
rules regarding availability of information, 12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT: Kathleen M. O'Day, Associate General
Counsel (202/452-3786), Ann E. Misback, Managing Senior Counsel (202/
452-3788), Douglas M. Ely, Senior Attorney (202/452-5289), Legal
Division; Michael G. Martinson, Assistant Director (202/452-3640),
Division of Banking Supervision and Regulation, Board of Governors of
the Federal Reserve System. For users of Telecommunication Device for
the Deaf [TDD] only, please contact Dorothea Thompson (202/452-3544),
Board of Governors of the Federal Reserve System, 20th and C Streets,
N.W., Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: The Interstate Act amended section 5 of the
International Banking Act of 1978 (IBA), which governs interstate
banking and branching operations of foreign banks. The Interstate Act
also amended the Bank Holding Company Act of 1956 (BHC Act), the
Federal Deposit Insurance Act and several other statutes regarding
interstate banking operations of bank holding companies, national banks
and state banks. In light of these amendments, the Board proposes to
amend the provisions of its Regulation K regarding interstate banking
operations of foreign banking organizations (12 CFR 211.22) as
discussed below.
Determination of Home State
Section 104(d) of the Interstate Act modifies the existing
definition of a foreign bank's home state under section 5(c) of the
IBA. Section 104(d) retains the provision of the IBA stating that the
home state of a foreign bank that has any combination of branches,
agencies, subsidiary commercial lending companies and subsidiary banks
(U.S. banking operations) in more than one state is whichever of these
states is selected by the foreign bank, or by the Board if the foreign
bank fails to choose. Section 104(d) also provides, for the first time,
that if a foreign bank has U.S. banking operations, including agencies
or subsidiary commercial lending companies, in one state only, that
state is the foreign bank's home state for purposes of interstate
branching. The Board proposes the following amendments to 12 CFR
211.22(a) in order to reflect and implement these changes to the
definition of a foreign bank's home state.
Abolition of Distinction Between Deposit-Taking Offices and Nondeposit-
Taking Offices
Prior to the Interstate Act, the Board interpreted the IBA to
require a foreign bank to have a home state only if the foreign bank
had deposit-taking offices, i.e., branches or subsidiary banks. 44 FR
62903 (November 1, 1979). This interpretation is set forth in
Sec. 211.22(a)(2) of Regulation K. Section 104(d) of the Interstate Act
superseded this interpretation by providing for the first time that
foreign banks with only agencies or subsidiary commercial lending
companies have a home state. Accordingly, the Board proposes that
Sec. 211.22(a)(2) be deleted.
The Board also proposes that Sec. 211.22(a)(5) be deleted. This
provision follows the Board's interpretation of the IBA in
Sec. 211.22(a)(2) by requiring foreign banks to select as their home
state the state where their first U.S. deposit-taking office is
located. Since the Interstate Act has superseded that interpretation,
Sec. 211.22(a)(5) is proposed to be removed.
[[Page 67101]]
Initial Home State Selection Under the Interstate Act
As noted, the Interstate Act for the first time requires foreign
banks with only subsidiary commercial lending companies or agencies in
the United States to have a home state. In order to implement this
requirement, the Board proposes that any foreign bank required for the
first time to have a home state because it has subsidiary commercial
lending companies or agencies in more than one state, and no other U.S.
banking operations, be permitted to select its home state. (Foreign
banks with domestic agencies and subsidiary commercial lending
companies in one state only are assigned that state as their home state
by section 5(c)(2) of the IBA, as amended by section 104(d) of the
Interstate Act.) Each foreign bank covered by the rule would be
required to select its home state from those states in which the
foreign bank established U.S. agencies and subsidiary commercial
lending companies before September 29, 1994 (the date of enactment of
the Interstate Act), and has continuously operated such offices. A
foreign bank covered by the rule shall select its home state by filing
with the Board a declaration of home state by March 31, 1996.
In the event a foreign bank required to select a home state fails
to do so, the Board would exercise its authority, as contemplated by
section 104(d) of the Interstate Act, to determine a foreign bank's
home state. In such cases, the Board proposes to designate as a foreign
bank's home state the state in which the total assets of all its
offices, net of claims on affiliates or other offices of the foreign
bank, is the largest, as reflected in the foreign bank's most recent
report of condition.
The Board also proposes to state in its new rule that, as is
provided in section 5(c)(2) of the IBA as amended by section 104(d) of
the Interstate Act, a foreign bank with branches, agencies, subsidiary
commercial lending companies or subsidiary banks in one state only
shall have that state as its home state. A foreign bank that has
already chosen a home state would not be affected by the proposed rule.
The Board intends to review other issues raised by the Interstate
Act relating to the interstate operations of foreign banks in a future
rule-making proceeding. The Board accordingly invites comment
concerning all aspects of the application of the Interstate Act to
foreign banks.
Deletions of Other Obsolete Sections
The Board proposes that current Secs. 211.22(a)(1),(3) and (4) be
deleted. These sections governed initial selection of home states for
foreign banks under the IBA as enacted in 1978 and the Board's
implementing regulations, which were adopted in 1980. The foreign banks
affected by these provisions selected a home state, or had one selected
for them by the Board or through operation of Regulation K, several
years ago. Accordingly, the Board proposes that these provisions be
deleted.
Bank Mergers Outside Home State
Section 211.22(c) of Regulation K provides that a foreign bank with
one or more domestic banking subsidiaries outside its home state shall
notify the Board if it proposes to acquire through a subsidiary bank
all or substantially all of the assets of a U.S. bank which is larger
than the subsidiary bank and is located outside of the foreign bank's
home state under the IBA. The Board may direct the foreign bank to
redesignate as its home state the state in which its subsidiary bank is
located if the Board finds the proposed acquisition would be
inconsistent with the foreign bank's home state selection under the
IBA.
The Board adopted this rule in 1980 due to a concern that allowing
a foreign bank to expand its deposit-taking capabilities both by
branching in its IBA home state and through major acquisitions by
merger outside its home state might permit evasion of the interstate
restrictions then in place under the IBA and the BHC Act. At that time,
a foreign bank with a subsidiary bank in one state (State X) and a
branch in another state (State Y) which declared State Y as its home
state under the IBA generally could not acquire more than 5 per cent of
the shares of an additional bank in State Y, because such acquisitions
were subject to the geographic restrictions of section 3(d) of the BHC
Act. These restricted purchases of banks outside a foreign bank's home
state for purposes of the BHC Act, in this case State X. In addition,
such a foreign bank generally could not acquire more than 5 per cent of
the shares of an additional bank in State X as a result of section
5(a)(5) of the IBA, which also applied the limits of section 3(d) of
the BHC Act to interstate bank acquisitions by foreign banks outside
their home state as determined under the IBA (in this case, State Y).
The Board concluded that a foreign bank might circumvent these
restrictions on interstate banking by engaging, through a subsidiary
bank, in a large merger outside its IBA home state (in this case, State
X), and framed its interstate bank merger rule to allow the Board to
redesignate the foreign bank's home state to prevent this
circumvention.
The concerns underlying the rule no longer apply due to the changes
made by the Interstate Act. The geographic limits on interstate bank
purchases by foreign banks outside their IBA home state under section
5(a)(5) of the IBA have been abolished. In addition, section 3(d) of
the BHC Act was amended as of September 29, 1995 to phase out the
principal geographic restrictions on interstate banking acquisitions
applicable to domestic and foreign acquirors under the BHC Act. As of
that date, there is no need to prevent foreign banks from circumventing
geographic limits that no longer apply. Accordingly, the Board proposes
that the bank merger rule of Sec. 211.22(c) be deleted effective
immediately.
Retained Provisions
The Board proposes that Secs. 211.22(b) and (d) of Regulation K be
retained with no change at this time. Section 211.22(b), which allows
foreign banks to change their home states once, will be reviewed in the
Board's future rule-making process discussed above. Until such time,
foreign banks which have not previously changed their home states may
change their home state in accordance with Sec. 211.22(b). Section
211.22(d), which concerns attribution of home states to foreign banking
organizations controlled by other foreign banking organizations, also
is proposed to be retained pending future review.
Request for Comment
The Board requests comment on all aspects of the proposed changes
to Regulation K, and on all other aspects of the application of the
Interstate Act to foreign banks which may be dealt with appropriately
through rulemaking.
Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed
the proposed rule under the authority delegated to the Board by the
Office of Management and Budget. No collections of information pursuant
to the Paperwork Reduction Act are contained in the proposed rule.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub.
L. 96-354, 5 U.S.C. 601 et seq.), the Board certifies that the proposed
revisions to
[[Page 67102]]
Regulation K would not have a significant economic impact on a
substantial number of small entities that are subject to its
regulation.
List of Subjects in 12 CFR Part 211
Exports, Federal Reserve System, Foreign banking, Holding
companies, Investments, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, the Board proposes to
amend 12 CFR Part 211 as set forth below:
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
1. The authority citation for Part 211 continues to read as
follows:
Authority: 12 U.S.C. 221 et seq., 1818, 1841 et seq., 3101 et
seq., 3901 et seq.
2. In Sec. 211.22, paragraph (a) is revised; paragraph (c) is
removed; and paragraph (d) is redesignated as paragraph (c) to read as
follows:
Sec. 211.22 Interstate banking operations of foreign banking
organizations.
(a) Determination of home state. (1) A foreign bank (except a
foreign bank to which paragraph (a)(2) of this section applies) that
has any combination of domestic agencies or subsidiary commercial
lending companies that were established before September 29, 1994, in
more than one state and have been continuously operated shall select
its home state from those states in which such offices or subsidiaries
are located. A foreign bank shall do so by filing with the Board a
declaration of home state by March 31, 1996. In the absence of such
selection, the Board shall designate the home state for such foreign
banks.
(2) A foreign bank that, as of September 29, 1994, had declared a
home state or had a home state determined pursuant to the law and
regulations in effect prior to that date shall have that state as its
home state.
(3) A foreign bank that has any branches, agencies, subsidiary
commercial lending companies, 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.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 21, 1995.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 95-31364 Filed 12-27-95; 8:45 am]
BILLING CODE 6210-01-P