[Federal Register Volume 61, Number 37 (Friday, February 23, 1996)]
[Proposed Rules]
[Pages 6956-6958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3911]
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FEDERAL RESERVE SYSTEM
12 CFR Part 211
[Regulation K; Docket No. R-0916]
International Banking Operations
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule and request for comments.
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[[Page 6957]]
SUMMARY: The Board proposes to amend Regulation K to implement a
provision of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the Interstate Act) that amended the
International Banking Act of 1978 (the IBA) by adding a new subsection
regarding the management of shell branches of foreign banks by such
banks' U.S. offices. The provision prohibits foreign banks from using
their U.S. branches or agencies to manage types of activities through
offshore offices that could not be managed by a U.S. bank at its
foreign branches or subsidiaries. This prohibition applies with respect
to those offshore offices that are ``managed or controlled'' by a
foreign bank's U.S. branches or agencies.
DATES: Comments must be received on or before March 25, 1996.
ADDRESSES: Comments should refer to Docket No. R-0916, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 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 NW.
(between Constitution Avenue and C Street) 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 12 CFR 261.8 of the Board's
rules regarding availability of information.
FOR FURTHER INFORMATION CONTACT: Kathleen O'Day, Associate General
Counsel (202/452-3786), Sandra L. Richardson, Managing Senior Counsel
(202/452-6406), Janet S. Crossen, Senior Attorney (202/452-3281), Legal
Division; Michael G. Martinson, Assistant Director, Division of Banking
Supervision and Regulation (202/452-3640), Board of Governors of the
Federal Reserve System. For users of Telecommunication Device for the
Deaf (TDD) only, please contact Dorthea Thompson, (202/452-3544), Board
of Governors of the Federal Reserve System, 20th and C Streets NW.,
Washington, DC 20551.
SUPPLEMENTARY INFORMATION: In the Interstate Act, Congress amended
section 7 of the IBA (12 U.S.C. 3105) to prevent a foreign bank from
using a U.S. branch or agency to manage types of activities at offshore
offices that are managed or controlled by the foreign bank's U.S.
branch or agency if those types of activities could not be managed by a
U.S. bank at its foreign branches or subsidiaries. The proposed rule
implements section 7(k) of the IBA and defines the term ``managed or
controlled'' for purposes of the restrictions on activities set out in
that section.
The Board notes that section 7(k) does not confer upon foreign
banks any right to manage activities at an offshore office from a U.S.
office. The Board will continue to monitor relationships between the
U.S. and offshore offices of foreign banks in the supervisory process
in order to determine whether such activities are consistent with
considerations relating to the safety and soundness of the U.S.
operations of the foreign bank and its affiliates and compliance with
law. Board staff is reviewing the use made of offshore shell branches
by foreign and U.S. banks in order to gain insight into the purposes
they currently serve and what, if any, supervisory risks they might
pose.
Definition of ``Managed and Controlled''
For purposes of the proposed rule, a non-U.S. office is considered
to be ``managed or controlled'' by a U.S. branch or agency of a foreign
bank 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 U.S. branch or agency. This definition is
consistent with that adopted by the Federal Financial Institutions
Examination Council with respect to the Supplement (FFIEC 002S) to the
quarterly Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks (FFIEC 002) for the purpose of determining
which U.S. branches or agencies of foreign banks ``manage or control''
offshore offices and thus must complete the FFIEC 002S. 57 FR 61907,
Dec. 29, 1992.
In accordance with this definition, the restrictions on activities
imposed by new section 7(k) of the IBA apply to those offshore offices
for which a U.S. branch or agency has substantial responsibility with
regard to assets or liabilities or recordkeeping. The Board considers
that a determination that the restrictions apply should be made with
regard to where substantive decision-making authority or responsibility
for recordkeeping lies. For example, consistent with the approach taken
with regard to the FFIEC 002S, a U.S. branch or agency would be deemed
to ``manage or control'' its offshore office if (1) the manager for the
U.S. branch or agency and the manager for the offshore office are the
same person or there is other significant overlap in personnel; (2)
substantial responsibility for decisions regarding either assets or
liabilities of the offshore office resides with staff in the U.S.
branch or agency; or (3) recordkeeping systems for either assets or
liabilities of the offshore office are maintained in the U.S. branch or
agency. The restrictions, however, generally would not apply with
respect to offshore branches that are full-service facilities managed
or controlled by staff located at the offshore office or at locations
other than in the United States. Furthermore, the fact that an offshore
office manager may report to a U.S. branch or agency manager pursuant
to reporting lines established by the foreign bank will not, by itself,
necessarily mean that the offshore office would be considered to be
``managed or controlled'' by the U.S. branch or agency for the purposes
of restrictions on activities.
Types of Activities
Section 7(k) restricts the activities that U.S. branches or
agencies of foreign banks may manage through an offshore office to
those types of activities that U.S. banks may manage at their foreign
branches and subsidiaries, that is, those authorized under U.S. banks'
state or federal charters and regulations issued by the chartering or
regulatory authorities (the States, the Board, the Federal Deposit
Insurance Corporation and the Office of the Comptroller of the
Currency). In addition, foreign branches and subsidiaries of member
banks may engage in activities and make and hold investments under
sections 25 and 25A of the Federal Reserve Act.
Consistent with section 7(k), the proposed amendment to Regulation
K, 12 CFR Part 211, refers to the types of activities conducted and not
the various procedural or quantitative supervisory requirements that
may apply when a particular activity is conducted by a U.S. bank at its
foreign branches or subsidiaries. Section 7(k) by its terms regulates
conduct of the U.S. branch or agency of the foreign bank. It does not
extend U.S. supervisory requirements to non-U.S. offices of foreign
banks as such offices are not supervised or regulated by the Board.
Supervision of such non-U.S. offices remains the responsibility of the
home country supervisor.
Request for Comments
The Board requests comments on the proposed rule, in particular
with respect to the proposed definition of ``managed or controlled''
and the approach contemplated for determining the types of activities
that may be conducted by
[[Page 6958]]
U.S. branches or agencies through their offshore offices.
Paperwork Reduction Act
The proposed rule does not require any ``collection of
information,'' as that term is defined in the Paperwork Reduction Act
(44 U.S.C. 3501 et seq.).
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601-612), the Board certifies that the proposed amendments will
not have a significant economic impact on a substantial number of small
entities.
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 of Governors
proposes to amend 12 CFR Part 211 as set forth below.
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
1. The authority citation for 12 CFR 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. Section 211.20 is amended by removing ``and'' at the end of
paragraph (b)(8), by removing the period at the end of paragraph (b)(9)
and adding ``; and'' in its place, and by adding a new paragraph
(b)(10) to read as follows:
Sec. 211.20 Authority, purpose, and scope.
* * * * *
(b) * * *
(10) The management of shell branches (12 U.S.C. 3105(k)).
* * * * *
3. Section 211.24 is amended by adding a new paragraph (g) to read
as follows:
Sec. 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.
* * * * *
(g) Management of shell branches. (1) A state-licensed branch or
agency shall not manage, through an office of the foreign bank which is
located outside the United States and is managed or controlled by such
state-licensed branch or agency, any type of activity that a bank
organized under the laws of the United States or any State is not
permitted to manage at any branch or subsidiary of such bank which is
located outside the United States.
(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
manages 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.
By order of the Board of Governors of the Federal Reserve
System, February 15, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-3911 Filed 2-22-96; 8:45 am]
BILLING CODE 6210-01-P