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REGULATIONS K AND Y

frrr???December 22, 1980

To the Addressee:

As indicated in Circular No. 8974, dated December 15, 1980,

enclosed are copies of the text of amendments to Regulation K,

"International Banking Operations," and Regulation Y, "Bank Holding

Companies and Change in Bank Control," effective January 3, 1981.

The amendments deal with the nonbanking activities of foreign

bank holding companies and foreign banks that have banking offices in the

United States.

Questions regarding the amendments may be directed to the

Domestic Banking Applications Department of this Bank (Tel. No. 212-791-5865).

Circulars Division

FEDERAL RESERVE BANK OF NEW YORK

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A M E N D M E N T T O R E G U L A T IO N Y

(effective January 3 , 1981 )

Board of Governors of the Federal Reserve System

BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL

Section 225 .4( g) is amended to read asfollows:

SECTION 225.4— NO NBA NKIN G

A C T IV IT IE S

* * *

(g) Foreign banking organizations. Inaddition to the exemptions afforded by this

Part, a foreign banking organization (as de

fined in 12 CFR 211.23) may engage in ac

tivities and make investments under Part 211

(Regulation K ).

For this Regulation to be complete, retain:

1) Regulation Y pamphlet, as amended effective April 5, 1978.

2) Amendments effective January 1, 1979,March 10, 1979, April 2, 1979, October 24, 1979,December 5, 1979, and December 31, 1980.

3) This slip sheet.

[Ref. Cir. No. 8974]PRINTED IN NEW YORK

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AMEND MENTS TO REGULATIO N K

(Effective January 3, 1981)

Board of Governors of the Federal Reserve System

INTERNATIONAL BANKING OPERATIONS

12 CFR Part 211

[Reg. K; Docket No. R-0291]

Nonbanking Activities o f Foreign

Banking Organizations

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: Foreign banks that have

branches, agencies, or commercial lending company subsidiaries in the

U.S., companies controlling such foreign

banks, and foreign companies that have

bank subsidiaries in the U.S. are subject

to the nonbanking prohibitions of the Bank Holding Company Act (12 U.S.C.

1841 et seq.). That Act also affords

exemptions from the nonbanking

prohibitions for qualifying foreign

organizations. The Board has adopted

amendments to Regulation K

(International Banking Operations) to

implement and interpret these

exemptions.

DATE: J a nua r y 3 , 1 98 1 . In v i ew o f the

m o d i f i c a t io n s m a d e t o t h e p r o p o s a l ,

c o m m e n t s w i ll b e a c c e p t e d o n t h e

a m e n d m e n t s u n t il J a n u a r y 3 8 ,1 9 8 1 .

ADDRESS: C o m m e n t s , w h i c h s h o u l d re f e r

t o D o c k e t N o . R -0 2 9 1 , m a y b e m a i le d t o

T h e o d o r e E . A l l i s o n , S e c r e ta r y , B o a r d o f

G o v e r n o r s o f th e F e d e r a l R e s e r v e

S y s t e m , 2 0 th S t r e e t a n d C o n s t i t u t i o n

A v e n u e , N W „ W a s h in g t o n , D C . 20 55 1,

o r d e l iv e r e d t o R o o m B - 2 22 3 b e t w e e n

8 :4 5 a .m . a n d 5 : 15 p .m . C o m m e n t s

r e c e i v e d m a y b e i n s p e ct e d a t R o o m B -

1 1 22 b e t w e e n 8 : 45 a . m . a n d 5 : 15 p . m . ,

e x c e p t a s p r o v i d e d i n § 2 6 1 .6 ( a ) o f t h e

B o a r d ' s R u l e s R e g a r d in g A v a i l a b i li t y o f

I n f o r m a t i o n ( 12 C F R 2 6 1 . 6 (a ) ).

FOR FURTHER INFORMATION CONTACT:

C . K e e f e H u r l e y , Jr., S e n i o r C o u n s e l

( 2 0 2 /4 5 2 - 3 2 6 9 ) , K a t h l e e n M . O ’ D a y ,

A t t o r n e y (2 0 2 /4 5 2 -3 7 8 6 ), L e g a l D iv is io n ;

o r M i c h a e l G . M a r t i n s o n , S e n i o r

F i n a n c i a l A n a l y s t , D i v i s io n o f B a n k i n gS u p e r v i s io n a n d R e g u l a t io n ( 2 0 2 / 4 5 2 -

3 6 21 ), B o a r d o f G o v e r n o r s o f t h e F e d e r a l

R e s e r v e S y s te m .

SUPPLEMENTARY INFORMATION: S e c t i o n

8 ( a ) o f t h e I n t e r n a t i o n a l B a n k i n g A c t o f

1 9 7 8 (1 2 U .S .C . 3 10 1 e t s eq . ) ( “ IB A ” )

p r o v i d e s t h a t a f o r e i g n b a n k t h a t d o e s

b u s i n e s s i n t h e U n i t e d S t a t e s t h r o u g h a

b r a n c h , a g e n c y o r c o m m e r c i a l le n d i n g

c o m p a n y s h a l l b e s u b j e c t t o th e

p r o v i s i o n s o f t h e B aT ik H o l d i n g

C o m p a n y A c t ( “ B H C A ” ) in th e s a m e

m a n n e r a n d t o t h e s a m e e x t e n t a s a

b a n k h o l d i n g c o m p a n y . C o m p a n i e s t ha t

o w n s u c h f o r e i g n b a n k s a r e a l s o s u b j e c t

t o t h e p r o v i s i o n s o f t he B H C A . F o r e ig n

b a n k s a n d c o m p a n i e s t h at c o n t r o l U .S .

b a n k s a r e “ b a n k h o l d i n g c o m p a n i e s "

a n d . t h e r e f o r e , s u b j e c t t o t h e

n o n b a n k i n g p r o h i b i t io n s o f t h e B H C A .

In or de r to l imi t i ts ex tr a te r r i tor ia l

e f f e c t o n f o r e i g n o r g a n i z a t i o n s , t h e

B H C A a f f o r d s t h e s e o rg a n i z a t i o n s t w o

e x e m p t i o n s f ro m t h e n o n b a n k i n g

p r o h i b i t i o n s . S e c t i o n 4 ( c ) ( 9 ) g r a n t s t he

B o a r d d i s c r e t i o n t o p e r m i t a f o r e ig n

c o m p a n y t o e n g a g e i n a n y a c t i v it y o r

m a k e a n y i n v e s t m e n t t h a t t h e B o a r d

d e t e r m i n e s i s in t h e p u b l i c i n t e r e s t a n d

n o t s u b s t a n t i a l ly a t v a r i a n c e w i t h t h e

p u r p o s e s o f t h e B H C A . T h i s e x e m p t i on

i s c u r r e n t l y im p l e m e n t e d b y § 2 2 5 .4 ( g ) o f

t h e B o a r d ' s R e g u l a t i o n Y ( 12 C F R

2 2 5 . 4 (g ) ). S e c t i o n 2 ( h ) p e r m i t s a f o r e i g n

i n s t it u t i o n p r i n c i p a l l y e n g a g e d i n th e

b a n k i n g b u s i n e s s o u t s id e t h e U n i te dS t a t e s t o h o l d s h a r e s o f f o r e i g n

n o n b a n k i n g c o m p a n i e s t ha t e n g a g e i n

b u s i n e s s i n t h e U n i t e d S t a t e s .

O n M a y 1 , 1 9 8 0 , th e B o a r d r e q u e s t e d

p u b l ic c om m e n t o n p r o p o s e d

a m e n d m e n t s t o R e g u l a t io n K t o

i m p l e m e n t a n d i n t e r p r e t t h e s e

p r o v i s i o n s o f t he B H C A ( 45 F R 3 00 8 2 ).

T h e p e r i o d f o r p u b l ic c o m m e n t e x p i r e d

o n J u ly 3 1 ,1 9 8 0 . A f t e r c o n s i d e r a t i o n o f

t h e 29 c o m m e n t s r e c e i v e d , i n c l u d i n g

s o m e r e p r e s e n t in g a n u m b e r o f b a n k s ,

t h e B o a r d a d o p t e d t h e a m e n d m e n t s w i t h

s o m e m o d i f i c a t i o n s t o th e ru l e s as

p r o p o s e d . T h e s e m o d i f i ca t i o n s r e la t e t o

t h e d e f i n i t i o n o f “ q u a l i f y i n g f o r e ig n

b a n k i n g o r g a n i z a t i o n , ” t h e t e st fo r

d e t e r m i n i n g e l i g i b il i t y f o r q u a l i f i e d

s t a t u s, a n d t h e t y p e s o f a c t i v i t ie s t h a t

m a y b e e n g a g e d i n in t h e U n i t e d S t at e s .

T h e B o a r d w i l l a c ce p t p u b l ic c o m m e n t

o n t h e s e m o d i f i c a t i o n s t o th e r e g u l a t io n

unt i l J a nua r y 3 0 ,1 9 8 1 . In a ddi t i on to the

c h a n g e s r e f e r r e d t o a b o v e , t e c h n i c a l

m o d i f i ca t i o n s w e r e a l s o m a d e t o th e

p r o p o s a l .

Qu a l i f yi n g f o r e i g n o r g a n i z a t i on s . T h e

B o a r d p r o p o s e d t h a t a fo r e i g n

o r g a n i z a t i o n w o u l d q u a l i f y f o r th e

e x e m p t i o n i f m o r e t h a n 5 0 p e r ce n t o f it s

w o r l d w i d e c o n s o l id a t e d b u s in e s s w e r e

b a n k i n g a n d m o r e t h a n 5 0 p e r ce n t o f it s

b a n k i n g b u s i n e s s w e r e o u t s i d e t h e

U n i t e d S t a t es . T h e B o a r d w a s o f t he

o p i n i o n t h a t th i s in t e r p r e t a t i o n o f

“ p r i n c i p a l l y e n g a g e d i n th e b a n k i n g

b u s i n e s s o u t s i d e t h e U.S." s e r v e d t h e

B o a r d ’ s s u p e r v i s o r y p u r p o s e s i n

e n s u r i n g t h a t a n o r g a n i z a t i o n t h a t

q u a l i fi e d f o r th e e x e m p t i o n s w a s

p r i n c i p a l l y f o r e i g n a n d w o u l d s e r v e a s a

s o u r c e o f s t r e n g t h t o i ts U.S. b a n k i n g

o p e r a t i o n s .

S o m e c o m m e n t s s t a t ed t h a t t h e B o a r d

s h o u l d n o t i m p o s e t h e " e n g a g e d i n

b a n k i n g ” t e s t, w h i c h i s d e r i v e d f r o m

s e c t i o n 2 ( h ) , in o r d e r f o r a n o r g a n i z a t i o n

t o q u a l i fy f o r e x e m p t i o n s g r a n t e d u n d e r

s e c t i o n 4 ( c ) (9 ) s i n c e t h e r e is n o s t a t u t o r y

r e q u ir e m e n t f o r s o d o i n g . H o w e v e r ,

s i n c e t he p u r p o s e s o f th e t w o s e c t i o n s

a r e t h e s a m e a n d t h e B o a r d h a s t h e

s a m e s u p e r v i s o r y o b j e c t i v e s i n

i n t e r p r e t i n g t h e e x c e p t i o n s , t h e B o a r d

h a s a d o p t e d t h e p r o p o s a l t o r e q u i r e th e

s a m e t e s t f o r e l i g ib i l i ty f o r b o t h

e x e m p t i v e p r o v i s i o n s .

One comment strongly objected to the

inclusion of U.S. banking operations in

determining whether an organization is

principally engaged in banking. This

comment stated that an otherwise

ineligible institution could “bootstrap"

itself into qualification for the

exemptions by acquisition of a U.S.

subsidiary bank. Although the Board

believes that this particular situation

could be scrutinized in connection with

the approval procedure under the

BHCA, the Board also is of the view that

the comment has merit from a

supervisory standpoint. There may be

circumstances in which an organization

that must rely on its U.S. banking

For this Regulation to be complete retain:1) Printed regulation pamphlet dated June 14, 1979.2) Amendments dated November 28, 1979, October 2, 1980, and November 13, 1980.3) This slip sheet.

P R I N T ED I N N E W Y O R K , F R O M F EDERA L REG I S T ER , VOL. 45, NO. 240

LRef. Cir. No. 8974]

( o v e r )

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business to qualify under the

"principally engaged in banking" test should not be entitled to the use of the

exemptions without closer scrutiny by

the Board. Therefore, the Board has

adopted the proposal that, in order to be

considerd principally engaged in the

banking business outside the United

States, more than half of an

organization’s worldwide business,

exclusive of its U.S. banking business,

must derive from banking outside the

United States. Those organizations that fail to qualify under this standard may

apply for a specific determination of eligibility, described below. The Board

also will accept comment on this

amendment from interested parties.

Definition of “bankin g b usiness".

U n d e r t h e IBA, a f o r e i g n b a n k w i t h a

U . S . b r a n c h o r a g e n c y i s s u b j e c t t o th e

n o n b a n k i n g p r o h i b i t i o n s o f t h e BHCA. " F o r e i g n b a n k ” i s d e f i n e d in s e c t i o n

1 ( b ) ( 7 ) o f t h e IBA a s i n c l u d i n g , i n

a d d i t i o n t o c o m p a n i e s t h a t en g a g e i n th e

b u s i n e s s o f b a n k i n g , "f o r e i g n

c o m m e r c i a l b a n k s , f o r e ig n m e r c h a n t

b a n k s and other foreign institutions that

engage in banking activities usual in

connection with the business o f banking

in the countries where such foreign

institutions are organized. ” ( E m p h a s i s

a d d e d ) . B e c a u s e t h is d e f i n i t io n i n c l u d e s

o r g a n i za t io n s c o n s i d e r e d " b a n k s " b y

v i rt u e o f a c t i v it i e s c o n d u c t e d t h at a r e

u s u a l in c o n n e c t i o n w i t h b a n k i n g

a c t i v i t i e s i n th e i r h o m e c o u n t r i e s , t h e

b o a r d p r o p o s e d t o tr ea t a s " b a n k i n g ”

t h e a c t i v i t i e s in § 2 1 1 . 5 ( d ) o f R e g u l a t i o n

K ( 1 2 C F R 2 1 1 . 5 ( d )) t h a t h a v e b e e n

d e t e r m i n e d t o b e u s u a l in c o n n e c t i o n

w i t h b a n k i n g o r f i n a n c i a l o p e r a t i o n s

a b r o a d . T h i s p r o v i s i o n o c c a s i o n e d l i tt le

c o m m e n t a n d t h e r e f o r e i s a d o p t e d a s

p r o p o s e d .

Measurement o f banking business.

Under the proposed amendments, a

foreign institution would have had to

meet two tests in order to qualify for the

nonbanking exemptions; first, more than

half of its worldwide business must be

banking; and second, more than half of its banking business must be outside the

U.S. The first test involved a

measurement of banking versus

nonbanking business; the second,

foreign banking versus U.S. banking. Under both tests, the foreign banking

organization could choose as its

measurement either total assets or total

revenues.The Board recognized that the use of

solely assets or solely revenues provides an imperfect measure for comparing

banking and nonbanking activities, and

therefore adopted a revised test of

measuring relative sizes of an

organization’s banking and nonbanking

business. On the basis of at least two of

three criteria, i.e., assets, revenues, and

net income, an organization must derive

more than half of its business, excluding

U.S. banking business, from banking

outside the United States. No assets,

r e v e n u e s o r n e t in c o m e o f a U .S . b a n k ,

b r a n c h , a g e n c y , c o m m e r c i a l l e n d in g

c o m p a n y , o r o th e r c o m p a n y e n g a g e d in

t h e b u s i n e s s o f b a n k i n g i n t h e U . S . s h a l l

b e c o n s i d e r e d a s h e l d o r d e r i v e d f r o m

o u t s i d e t h e U n i t e d S t a t e s. T h i s a p p r o a c h

w o u l d a v o i d t he b i a s in f a v o r o f o n e

t y p e o f o r g a n i z a t io n o v e r a n o t h e r t h at

u s i n g a s s e t s or r e v e n u e s w o u l d p r o d u c e .

T h e a m e n d m e n t a l s o r e ta i n s th e

r e q u i r em e n t t h a t m o r e t h a n h a l f o f a n

o r g a n i z a t io n ’ s w o r l d w i d e b a n k i n g

b u s i n e s s m u s t b e d e r i v e d f r om o u t s i d e

t h e U n i t e d S t a t e s . T h e s a m e c r i te r i a

d e s c r i b e d a b o v e w i l l b e u s e d t o m e a s u r e

f o r e ig n a n d U . S . b a n k i n g b u s i n e s s .

C o m m e n t w i ll a l so b e a c c e p t e d o n th e

c r it e r ia u s e d f o r m e a s u r i n g “ b a n k i n g

b u s i n e s s . ”

M e a s u r e m e n t o f b a n k i n g a n d

n o n b a n k i n g b u s i n e s s p o s e s p r o b l e m s

p r i m a r i ly b e c a u s e u n d e r m o s t

a c c o u n t i n g c o n v e n t i o n s t h e f i n a n c i a l

s t a t em e n t s o f t h e t w o t y p e s o f

o r g a n i z a t i o n s a r e n o t o r d i n a r i l y

c o n s o l i d a t e d ; m o r e o v e r , c o n s o l i d a t i o n

o c c u r s a t o w n e r s h i p l e v e ls a b o v e 5 0 p e r

c e n t , w h i l e c o n t r o l i s a s s u m e d a t 2 5 p e r

c e n t l e v e l s o f o w n e r s h i p u n d e r t h e

B H C A . T h e p r o p o s e d r e g u la t io n

p r o v i d e d t h a t a s s e t s a n d r e v e n u e s c o u l d

b e d e t e r m i n e d o n a c o n s o l id a t e d o r

c o m b i n e d b a s i s. T h e p r o p o s a l a s

a d o p t e d l e a v e s i t t o t h e f o r e i g n

o r g a n i z a t i o n t o c h o o s e t h e l e v e l o f

o w n e r s h i p ( 2 5 o r 50 p e r c e n t ) at w h i c h

c o n s o l i d a t i o n o r c o m b i n i n g w i l l ta k e

p l a c e .

Change in status and specific

determinations of eligibility. T h e B o a r d

p r o p o s e d t h at a n o r g a n i z a t io n t h at

f a i l e d t o q u a l i fy u n d e r t h e t e st f o r t w o

c o n s e c u t i v e y e a r s , a s r e f l e c t e d i n i ts

a n n u a l r e p o r t f i le d w i t h th e B o a r d ,

w o u l d l o s e i t s e l i g ib i l i ty f o r t h e

e x e m p t i o n s . S u c h a n o r g a n i z a t i o n

c o u l d a p p l y f o r a s p e c i f i c d e t e rm i n a t io n .

A c t iv i t i e s a n d in v e s t m e n ts u n d e r ta k e n

w h i le a f o r e ig n o r g a n i z a t i o n q u a l if i e d

f o r th e e x e m p t i o n s c o u l d b e r e t a in e d

a f t e r t h e lo s s o f q u a l i fi e d s t a t u s .

H o w e v e r , a c t i v i t ie s o r in v e s t m e n t s

u n d e r t a k e n a f t e r t h e e n d o f t h e fi r st

f i s c a l y e a r i n w h i c h t h e o r g a n i z a t io n d i d

n o t m e e t t h e c r it e r ia w o u l d n o t b e

g r a n d f a t h e r e d . S u c h a n o r g a n i z a t i on

w o u l d , in e f f e c t , b e o n n o t i c e o f t h e

p o s s i b l e l o s s o f q u a l i f i e d s ta t u s .

S e v e r a l c o m m e n t s s t a t e d t h a t th e

u n c e r t a i n t i e s a s t o q u a l i f i c a t i o n u n d e r

t h e te s t f r o m y e a r t o y e a r w o u l d m a k e

b u s i n e s s p l a n n i n g d i f f i c u l t . T h e s e

c o m m e n t s p r o p o s e t h at a n o r g a n i z a t io n

c o n c e r n e d a b o u t t h e p o s s i b l e f u tu r e l os s

o f q u a l i fi c a t io n c o u l d a p p l y f o r a

s p e c i f i c d e t e r m i n a t i o n o f e li g i b i li t y a t

a n y t im e . T h e B o a r d f o u n d t h a t th i s

p r o c e d u r e w o u l d p r o v e u s e f u l in

a d m i n i s t e r in g t h e r e g u l a t i o n a n d , w i t h

t h e a d d i t io n o f t h e p r o c e d u r e f o r

a p p l y i n g f o r a s p e c i f ic d e t e r m i n a t io n

p r i o r t o l o s s o f e l ig i b i li t y , a d o p t e d t h e

r e g u l a ti o n a s p r o p o s e d . A s p r o p o s e d ,

o t h e r f o r e i g n o r g a n i z a t i o n s t h a t d o n o t

q u a l i fy f o r a u t o m a t i c e x e m p t i o n m a y

a l s o a p p l y t o th e B o a r d t o r

d e t e r m i n a t i o n s o n t h e i r el i g ib i l it y .

T h e B o a r d w o u l d e x e r c i s e th i s

a u t h o r it y u n d e r s e c t i o n 4 ( c ) ( 9 ) w h e r e

a p p l i c a t i o n o f t h e q u a l i fy i n g t e s t s w o u l d

p r e v e n t s o u n d a n d r e p u t a b l e f o re i g n

b a n k s f r o m d o i n g b u s i n e s s i n t h e U . S .

T h e B o a r d w i ll e x a m i n e t h e p a r ti c u la r

f a c t s a n d c i rc u m s t a n c e s o f e a c h c a s e t o

d e t e r m i n e i f g r a n t i n g t h e e x e m p t i o n i s

a p p r o p r i a t e u n d e r s e c t i o n 4 ( c ) ( 9 ) , a n d if

t h e B o a r d d e t e r m i n e s t h a t a p o t e n t i a l f o r

a b u s e e x i s t s , th e B o a r d w i l l d e n y t h e

e x e m p t i o n o r a p p r o v e t h e a p p l ic a t i o n

c o n d i t io n e d i n a m a n n e r t o p r e v e n t t h eo c c u r r e n c e o f s u c h a b u s e s .

Nonbanking activities in the United States— S e c t i o n 2 ( h ) p e r m i t s a f o r e i g n

o r g a n i z a t i o n t o e n g a g e i n a c t i v i t ie s i n

t h e U . S . t h r o u g h a f o r e i g n n o n b a n k i n g

c o m p a n y w h e r e t h e U . S . a c t i v i t ie s a r e in

t h e s a m e g e n e r a l l in e o f b u s i n e s s o r i n a

b u s i n e s s r e l a t e d t o t h a t o f t h e f or e i g n

n o n b a n k i n g c o m p a n y . T h e f o re ig n

c o m p a n y m u s t b e p r i n c ip a l l y e n g a g e d i n

b u s i n e s s o u t s i d e t h e U . S . a n d t h e

e x e m p t i o n m a y n o t b e u s e d t o e n g a g e i n

t h e s e c u r i t i e s b u s i n e s s i n t h e U . S .

B a n k i n g a n d f i n a n c i a l a c t iv i t ie s a n d

a c t i v i t ie s p e r m i s s i b l e u n d e r s e c t io n

4 ( c) (8 ) o f t h e B H C A m a y o n l y b e

e n g a g e d i n w it h t h e B o a r d ’ s a p p r o v a l .I t i s c l e a r f r o m t h e l e g i s l a t iv e h i s t o r y

o f t h e I B A t h a t C o n g r e s s i n t e n d e d t h e

B o a r d t o u s e t h e S t a n d a r d I n d u s t r i a l

C l a s s i f i c a t io n s y s t e m f o r d e t e rm i n in g

t h e c o m p a r a b i l i ty o f U . S . a n d f o r e ig n

n o n b a n k i n g a c t i v i ti e s . T h e S I C s y s t e m

c a t e g o r i e s a r e n o t p r e c i s e a n d t h e B o a r d

i n v i te d c o m m e n t s o n t h e fe a s i b i li t y o f

u s i n g t h e S IC f o r d e t e r m i n in g w h e t h e r

U . S . a n d f o r e i g n n o n b a n k i n g a c t i v it i es

a r e i n t h e s a m e g e n e r a l l i n e s o f

b u s i n e s s .

T h e c o m m e n t s o n t h e u s e o f th e S IC

f o r d e t e r m i n i n g w h e t h e r U .S . a c t i v i ti e s

o f a n e x e m p t f o r e ig n c o m p a n y a r e in t h e

s a m e l i n e o f b u s i n e s s a l l e g e d t h a t t h e 4-

d i g it e s t a b l i s h m e n t c a t e g o r i e s o f t h e S I C

w e r e n a r r o w a n d o v e r l y r e s t ri c ti v e .

S e v e r a l s u g g e s t e d t h a t th e B o a r d i n s t e a d

e m p l o y t h e E n t e r p ri se S I C w h i c h g r o u p s

b u s i n e s s e s t o g e th e r a c c o r d i n g t o t h ei r

o w n e r s h i p s t r u c t u r e . A n e n t e r p r i s e u n it

c o n s i s t s o f a ll e s t a b li s h m e n t s u n d e r

c o m m o n o w n e r s h i p a n d i t i s th e

p l u r a l i t y c o n t r i b u t i o n i n t e rm s o f v a l u e

a d d e d t o g o o d s a n d s e r v i c e s , o f a n

o r g a n i z a t i o n ’ s c o m p o n e n t

e s t a b l i s h m e n t s t h a t d e t e r m i n e s i t s

E n t e r p ri se S I C d e s i g n a t io n . H o w e v e r ,

b e c a u s e E n t e r p r i s e S I C u n i t s e n g a g e i n a

b r o a d e r r a n g e o f a c t iv i t i e s t h a n S IC

e s t a b l i s h m e n t u n i t s , u s e o f t h i s m e a s u r e

o f " s a m e g e n e r a l li n e o f b u s i n e s s "

w o u l d s i m i l a r ly a l l o w e x e m p t f o r e ig n

c o m p a n i e s to e n g a g e i n a b r o a d e r ra n g e

o f n o n b a n k a c t i v i t i e s i n th e U . S . In v i e w

o f t h e e x p l i c i t d i r e c t i v e i n t h e l e g i s l a t i v e

h i s to r y o f t he I B A a n d b e c a u s e t h e 4-

d i g i t c l a s s i f i c a t i o n a p p e a r s t o

s a t i s f a c t o r i l y l im i t a c o m p a n y ’ s U . S .

n o n b a n k i n g a c t iv i t ie s c o n s i s te n t w i th

t h e p u r p o s e s o f t h e s ta t u t e , th e B o a r d

a d o p t e d t h is p a r t o f t h e r e g u l a t io n a s

p r o p o s e d .

In keeping with the intent of section

2(h) to limit U.S. activities to those types

that an exempt company engages in

abroad, the Board proposed that an

7/17/2019 nycirc_1980_08989a.pdf


o r g a n i z a t i o n g i v e 6 0 d a y s p r i o r

n o t i f i c a t i o n t o t h e B o a r d b e f o r e e n g a g i n g

i n a n a c t i v i ty i n the U.S. w h e r e t h e U.S. a c t i v it y w o u l d e x c e e d t h e f o r ei g n

a c t i v i t y i n t h e s a m e 4 - d i g i t

c l a s s i fi c a t io n . T h e c o m m e n t s n o t e d t ha t

t h is i s n o t r e q u i r e d b y t h e s t a t u t e a n d

w o u l d b e b u r d e n s o m e t o th e fo r e ig n

b a n k i n g o r g a n i z a t i o n s . It w a s s u g g e s t e d

t h a t th e B o a r d i n s t e a d u s e t h e q u a r t e r l y

r e p o r t s o f U.S. a c q u i s i t io n s t o m o n i t o r

a n o r g a n i z a t i o n ' s a c t i v i t ie s . I f i t b e c a m e

a p p a r e n t t h a t a n o r g a n i z a t i o n i s a b u s i n g

t h e e xe m p t i o n , fo r e x a m p l e b y

u n d e r t a k i n g a t o k e n a c t i v i t y a b r o a d

s o l e l y t o e n g a g e i n t h e s a m e a c t i v i t y in

t h e U . S ., t h e B o a r d c o u l d r e q u i r e

c e s s a t i o n o f th e U . S . a c t i v i ty . T h e B o a r d

h a s d e l e t e d t h e r e q u i re m e n t o f p r i o r

n o t i f i c a t i o n a n d i n s t e a d w i l l r e l y o n t h e

q u a r t e rl y r e p o rt s s u b m i tt e d b y d m

f o r e i g n o r g a n i z a t i o n s t o m o n i t o r t h e ir

U.S. a c t i v i t i e s .

S e c t i o n 2 ( h ) r e q u i r e s t h a t a f o r e i g n

b a n k i n g o r g a n i z a t i o n m u s t r e c e i v e t h e

p r i o r a p p r o v a l o f t h e B o a r d b e f o r e

e n g a g i n g i n “ b a n k i n g o r fi n a n c i a l

o p e r a t i o n s o r t y p e s o f a c t iv i t ie s

p e r m i t t e d u n d e r s e c t i o n 4 ( c ) (8 ) . " T h eB o a r d p r o p o s e d t h at b a n k i n g o r

f i n a n c i a l o p e r a t i o n s i n th e U . S . w o u l d b e

p e r m i t te d o n l y w h e r e t h e y a r e t h e t y p e

p e r m i t te d u n d e r s e c t i o n 4 ( c ) (8 ) o r u p o n

r e c e i p t o f s p e c i f i c a p p r o v a l b y t h e B o a r d

u n d e r s e c t i o n 4 ( c ) (9 ) - T h e B o a r d a l s o

p r o p o s e d t h at a ll a c ti v i ti e s e n c o m p a s s e d

b y D i v i s io n H ( F i n a n ce , I n s u r a n c e a n d

R e a l E s t a te ) o f t h e S IC w o u l d b e

c o n s i d e r e d " b a n k i n g o r f i n a n c ia l

o p e r a t i o n s ” f o r p u r p o s e s o f th e

r e g u la t io n . C o m m e n t s w e r e h i g h ly

c r i t ic a l o f th i s a p p r o a c h . M o s t i n d i c a t e d

t h at t h e b e t t e r i n t e r p r e t a t i o n o f s e c t i o n

2 ( h ) is tha t i t r eq u i r es B oa r d a pp r ov a l

o n l y f o r a c t i v i t ie s p e r m i t t e d b y s e c t i o n

4 ( c ) (8 ) . In e f f e c t , th e c o m m e n t s r e a d t h e

p h r a s e " b a n k i n g o r f i n a n c i a l o p e r a t io n s

o r t y p e s o f a c t i v it i e s p e r m i t t e d u n d e r

s e c t i o n 4 ( c ) ( 8 ) ” t o r e f e r o n l y t o s e c t i o n

4 ( c ) (8 ) a c t i v i t ie s , a n d c i te i n s u p p o r t o f

t h is p o s i t i o n t h e t e c h n i c a l la n g u a g e o f

t h e s t a tu t e a n d t h e l a c k o f l e g i s la t i v e

h i s t o r y i n d i c a t i n g t h at “ b a n k i n g o r

f in a n c i a l o p e r a t i o n s " h a s a m e a n i n g

i n d e p e n d e n t o f s e c t i o n 4 ( c ) ( 8 ) a c t i v it i e s

T h e B o a r d , h o w e v e r , c o n t i n u e s t o b e o f

t h e v i e w t h a t t h is p o s i t i o n c o n f l i c t s w i t h

t h e le g i s l a t i v e h i s t o r y o f t h e I B A w h i c h

s h o w s a c l e a r in t e n t to e s t a b l i s h

c o m p e t i t iv e e q u a l i t y b e t w e e n f o re i g n

a n d d o m e s t i c b a n k i n g o r g a n i z a ti o n s ,

a n d w o u l d r e s ul t in r e a d i n g t he w o r d s" b a n k i n g o r f i n a n c i a l o p e r a t i o n s ” o u t o f

t h e s t a tu t e . In t h e a b s e n c e o f c l e a r

l eg i s l a t i v e i n tent t o the c ontr a r y on th i s

p o i n t, t h e B o a r d , e x c e p t a s d i s c u s s e d

b e l o w , h a s a d o p t e d t h e re g u l a ti o n a s

p r o p o s e d .

W i t h r e s p e c t t o t h e t y p e s o f a c t iv i t i e s

t h at th e B o a r d c o n s i d e r s t o b e " b a n k i n g

o r f in a n c i a l o p e r a t i o n s , " t h e c o m m e n t s

w e r e e q u a l l y c r it i c a l o f th e u s e o f

D i v i s i o n H a s a g e n e r a l d e f i n i ti o n . T h e

c o m m e n t s f ou n d t he c o v e r a g e o f

D i v i s i o n H t o b e t o o b r o a d . T h e B o a r d

r e e x a m i n e d t h e a c t iv i t ie s e n c o m p a s s e d

b y D i v i s i o n H a n d c o n c l u d e d t ha t n o t al l

o f t h e a c t i v i t ie s i n c l u d e d t h e r e in a r e

n e c e s s a r i l y b a n k i n g o r f in a n c i n g in

n a t u r e . A t t h e s a m e t im e , c e r t a i n o t h e r

a c t iv i t ie s o u t s i d e t h e s c o p e o f D i v i s i o n

H s h o u l d b e c o n s i d e r e d b a n k i n g o r

f i n a n c i a l o p e r a t i o n s . I n o t h e r in s t a n c e s ,

t h e s e a c t iv i t ie s m a y b e t h e sa m e t y p e o f

a c t i v i t y p e r m i t t e d u n d e r s e c t i o n 4 ( c ) ( 8 )

a n d , i n o r d e r t o p r e s e r v e c o m p e t i t iv e

e q u a l it y , s h o u l d b e c o n d u c t e d b y f o r e ig n

o r g a n i z a t io n s o n l y t o t h e e x te n t a l l o w e d

d o m e s t i c b a n k i n g o r g a n i z a ti o n s . In v i e w

o f t h e s e c o n s i d e r a t i o n s t h e B o a r d

a d o p t e d t h e p r o p o s a l t o u s e D i v i s io n H

a s a g e n e r a l c a t e g o r y o f i m p e r m i s s ib l e

( e x c e p t w i t h B o a r d a p p r o v a l ) b a n k i n g o r

f i n a n c ia l o p e r a t i o n s w i t h t h e e x c e p t i o n

o f c e r t a i n r e a l e s t a t e a c t i v i t i e s . T h e

B o a r d a l s o a m e n d e d t h e p r o p o s a l t o

i n c lu d e w i th i n t h e s c o p e o f

i m p e r m i s s i b l e a c t i v i t ie s c e r t a i n 4 - d i g it

a c t iv i t ie s f o u n d o u t s i d e D i v is i o n H o f

t h e S I C , i n c l u d i n g c e r t a i n d a t a

p r o c e s s i n g , le a s i n g a n d m a n a g e m e n t

c o n s u l t in g a c t iv i t ie s . T h e B o a r d

r e c o g n i z e s t h at s o m e o f t h e a c ti v i ti e s

i n c lu d e d w i t h i n D i v i s i o n H m a y ,

d e p e n d i n g o n t h e c ir c u m s t a n c e s i n

w h i c h t h e a c t i v i ti e s a r e p e r f o r m e d , b e

p r i m a r il y c o m m e r c i a l a s o p p o s e d t ob a n k i n g o r fi n a n c i a l . F o r e x a m p l e , t h e

p h y s i c a l d e v e l o p m e n t o f r ea l e s ta t e

w o u l d n o t a p p e a r t o b e a b a n k i n g o r

f i n a n c i a l a c t i v i t y . A d i f f e r e n t r e s u lt

w o u l d o b t a i n , h o w e v e r , w h e r e t h a t

a c t i v i t y is j o i n e d w i t h r e a l e s t a t e

l e a s i n g , fi n a n c i n g , s y n d i c a t i o n , e t c .

Thus, the Board will consider applications to engage in activities that are contained in Division H, and may approve an application to engage in such activities where the facts and circumstances of the case indicate that the activity would not be banking or financial in nature.

I n t h e p r o p o s a l p u b l i s h e d f o r

c o m m e n t , th e B o a r d re q u e s t e d c o m m e n t

o n a n y i n t e r p r e t iv e i s s u e s c o n c e r n i n g

t h e g r a n d f a t h e r p r o v i s i o n s o f t h e IB A .

S e v e r a l c o m m e n t s w e r e r e c e i v e d a n d

t h e m a t t e r w i l l b e a d d r e s s e d i n th e n e a r

future.

Pur sua nt t o i t s a uthor i ty under the

I n t e r n a t i o n a l B a n k i n g A c t o f 1 9 78 ( 1 2

U.S.C. 3101 e t s e q . ) a n d t h e B a n k

H o l d i n g C o m p a n y A c t ( 12 U .S . C . 1 84 1 et

seq . ) , t h e B o a r d h a s a m e n d e d R e g u l a ti o n

K ( 1 2 C FR P a r t 2 1 1 ) a nd R e g u l a t i on Y ( 1 2

GIT? Pa r t 2 2 5 ) a s f o l l ow s :

* * *

2 . R e g u l a t io n K i s a m e n d e d b y a d d i n g

w i t h i n S u b p a r t B— F o r e i g n B a n k i n g

O r g a n i z a t i o n s , n e w § 2 11 .2 3 ,N o n b a n k i n g A c t i v i t ie s o f F o r e ig n

B a n k i n g O r g a n i z a t i o n s . N e w § 2 11 .2 3 is

a d d e d a s f o ll o w s :

Subpart B—Foreign Banking

Organizations

§ 211.23 Non banking activities of fore ignbanking organizations.

(a ) D e f i n i t i o n s . T h e d e f i n it io n s o f

§ 2 11 .2 i n S ub pa r t A a pp l y t o th i s

s e c t i o n s t i b je c t t o t h e f o l lo w i n g :

( 1) " D i r e c t l y o r i n d i r e c t ly ” w h e n u s e d

i n r e f e r e n c e t o a c t i v i ti e s o r i n v e s t m e n t s

o f a f o r e i g n b a n k i n g o r g a n i z a t io n m e a n s

a c t i v i ti e s o r i n v e s t m e n t s o f t h e fo r e i g n

b a n k i n g o r g a n i z a t io n o r o f a n y

s u b s i d i a r y o f t h e f o re i g n b a n k i n g

o r g a n i z a t i o n .

( 2) “ F o r e i g n b a n k i n g o r g a n i z a t i o n ”

m e a n s a f o r e ig n b a n k ( a s d e f i n e d i n

s e c t i o n 1 ( b ) ( 7 ) o f the IBA) t h a t o p e r a t e s

a b r a n c h , a g e n c y , o r c o m m e r c i a l l e n d i n g

c o m p a n y s u b s d i a r y i n t he U n i t e d S t a te s

o r t h a t c o n t r o l s a b a n k i n t h e U n i t e d

S t a te s : a n d a c o m p a n y o f w h i c h s u c h

f o r e i g n b a n k i s a s u b s i d i a r y .

( 3) " S u b s i d i a r y " m e a n s a n

o r g a n i z a t i o n m o r e t h a n 2 5 p e r c e n t o f

t h e v o t in g s t o c k o f w h i c h i s h e l d d i r e c t l y

o r i n d i r e c t l y b y a f o r e i g n b a n k i n g

o r g a n i z a t io n o r w h i c h i s o t h e r w i s e

c o n t r o l l e d o r c a p a b l e o f b e in g c o n t r o l le d

b y a f o r e i g n b a n k i n g o r g a n i z a t i o n .

(b) Q u a l i f y i n g f or e i g n b a n k i n g

o r g a n i z a t i o n s . Unless specifically made eligible for the exemptions by the Board, a foreign banking organization shall qualify for the exemptions afforded by this section only if, disregarding its United States banking, more than half of its worldwide business is banking: and more than half of its banking business is outside the United States. In order to qualify, a foreign banking organization

shall:( 1) M e e t a t l e a s t t w o o f t h e f o l l o w i n g

r e q u i r e m e n t s :

(1) B a n k i n g a s s e t s h e l d o u t s i d e t h e

U n i t e d S ta t e s 1 e x c e e d t o ta l w o r l d w i d e

n o n b a n k i n g a s s e t s:

(ii) Revenues derived from the business of banking outside the United States exceed total revenues derived from its worldwide nonbanking business:

(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 ) M e e t a t l e a s t t w o o f t h e fo l l o w i n g

r e q u i r e m e n t s :( i) B a n k i n g a s s e t s h e l d o u t s i d e t h e

U n i t e d S t at e s e x c e e d b a n k i n g a s s e t s

h e l d i n t h e U n i t e d S t a t e s :

(ii) Revenues derived from the business of banking outside the United States exceed revenues derived from the business of banking in the United States:

(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.

( c ) D e t e r m i n i n g a s s et s , r e v en u e s, a n d

n e t i n c o m e. ( 1) F o r p u r p o s e s o f

p a r a g r a p h ( b ) o f t h i s s e c t i o n , t h e t o t a l

a s s e t s , re v e n u e s , a n d n e t i n c o m e o f a n

o r g a n i z a t io n m a y b e d e t e r m i n e d o n a

c o n s o l i d a t e d o r c o m b i n e d b a s i s . A s s e t s ,

r e v e n u e s a n d n et i n c om e o f co m p a n i e s

i n w h i c h t h e f o r e i g n b a n k i n g

o r g a n i z a t io n o w n s 5 0 p e r c e n t o r m o r e o f

t h e v o ti n g s h a r e s s h a l l b e i n c l u d e d w h e n

d e t e r m i n i n g to t a l a s s e t s , r e v e n u e s , a n d

n e t i n c o m e . T h e f o r e i gn b a n k i n g

o r g a n i z a t io n m a y i n c l u d e a s s e t s ,

r e v e n u e s , a n d n e t in c o m e o f c o m p a n i e s

1None of the direct or indirect assets, revenues,or net income of a United States subsidiary bank, branch, agency, commercial lending company, orother company engaged in the business of bankingin the United States shall be considered held orderived from the business of banking “outside theUnited States.”

7/17/2019 nycirc_1980_08989a.pdf


i n w h i c h i t o w n s 2 5 p e r ce n t o r m o r e o f

t h e v o t in g s h a r e s i f a l l s u c h c o m p a n i e s

w i t h i n t h e o r g a n i z a t i o n a r e i n c l u d e d ;

( 2) A s s e t s d e v o t e d t o , o r r e v e n u e s o r

n e t i n c o m e d e r i v e d f r o m , a c t i v i t ie s l is t e d

i n § 2 1 1 . 5 (d ) s h a l l b e c o n s i d e r e d b a n k i n g

a s s e t s, o r r e v e n u e s o r n e t i n c o m e

d e r i v e d f r om t h e b a n k i n g b u s i n e s s ,

w h e n c o n d u c t e d w i t h i n t he fo r e ig n

b a n k i n g o r g a n i z a t i o n b y a f o r e ig n b a n k

or i t s s ub s id ia r i es .

( d ) L o ss o f e l i g i b i l i t y f o r ex em p t i o n s.

A fo r e ig n b a n k in g o r g a n iz a t io n th atq u a l i fi e d u n d e r p a r a g r a p h ( b ) o f th i s

s e c t i o n o r a n o r g a n i z a t i o n t h a t q u a l i fi e d

a s a “ f o r e i g n b a n k h o ld i n g c o m p a n y "

u n d e r § 2 2 5 . 4 (g ) o f R e g u l a t i o n Y ( 1 2 C F R

2 2 5 .4 ( g ) (1 9 8 0 ) ) 1 s ha l l c e a s e to b e

e l i g i b l e fo r t h e e x e m p t i o n s o f t h is

s e c t i o n i f it f a il s t o m e e t t h e

r e q u i re m e n t s o f p a r a g r a p h ( b ) f o r t w o

c o n s e c u t i v e y e a r s a s r e f l e c t e d i n i ts

A n n u a l R e p o r t s (F .R . Y - 7 ) fi le d w it h th e

B o a r d . A f o r e ig n b a n k i n g o r g a n i z a t io n

t h a t c e a s e s t o b e e l i g i b l e f o r t h e

e x e m p t i o n s m a y c o n t in u e t o e n g a g e i n

a c t i v i t i e s o r re t a i n i n v e s t m e n t s

c o m m e n c e d o r a c q u i r e d p r i o r t o th e e n d

o f t h e f i r st f i s c a l y e a r f o r w h i c h i ts

A n n u a l R e p o r t r e fl e c t s n o n c o n f o r m a n c e

w i t h p a r a g r a p h ( b ) o f th i s s e c t i o n .

A c t iv i t ie s c o m m e n c e d o r in v e s t m e n ts

m a d e a f t e r t h a t d a t e s h a l l b e t e r m i n a t e d

o r d i v e s t e d w i t h in t h r e e m o n t h s o f th e

f il in g o f t h e s e c o n d A n n u a l R e p o r t

u n l e s s t h e B o a r d g r a n t s c o n s e n t t o

c o n t i n u e t h e a c t i v i t y o r r e t a i n t h e

i n v e s t m e n t u n d e r p a r a g r a p h ( e ) o f t h is

s e c t i o n .

(e) S p e ci f i c d et er m i n a t i o n o f

e l i g i b i l i t y f o r n o n q u a l i f y i n g f o r ei g n

b a n k i n g or g a n i z a t i o n s . A fo r e ig n

b a n k i n g o r g a n i z a t i o n t h a t d o e s n o t

q u a l i fy u n d e r p a r a g r a p h ( b ) o f t h is

s e c t i o n f o r t h e e x e m p t i o n s a f f o r d e d b y

th i s s ec t i on , o r tha t ha s l os t i t s e l i g ib i l i ty

f o r t he e x e m p t i o n s u n d e r p a r a g r a p h ( d )

o f t h is s e c t io n , m a y a p p l y t o t h e B o a r d

f o r a s p e c i f i c d e t e r m i n a t i o n o f e li g i b il i ty

f o r th e e x e m p t i o n s . A f o r e i g n b a n k i n g

o r g a n i z a t i o n m a y a p p l y f o r a s p e c i f i c

d e t e r m i n a t i o n p r i o r t o t he t i m e i t c e a s e s

t o b e e l i g ib l e f o r t h e e x e m p t i o n s

a f f o r d e d b y t h i s s e c t i o n . In d e t e r m i n i n g

w h e t h e r e l i g ib i li t y f o r t h e e x e m p t i o n s

w o u l d b e c o n s i s te n t w i t h t h e p u r p o s e s

o f t h e B H C A a n d i n t h e p u b l ic i n t e re s t,

t h e B o a r d s h a l l c o n s i d e r t h e h i st o r y a n d

t h e fi n a n c i a l a n d m a n a g e r i a l re s o u r c e s

o f t h e o r g a n i z a t i o n ; t h e a m o u n t o f it s

b u s i n e s s i n t h e U n i t e d S t a t e s ; th e

a m o u n t , t y p e a n d l o c a t i o n o f i ts

n o n b a n k i n g a c t i v it i e s; a n d w h e t h e r

e l i g i b il i t y o f t h e f o r e i g n b a n k i n g

o r g a n i z a t io n w o u l d r e s u lt i n u n d u e

c o n c e n t r a t i o n o f r e s o u r c e s , d e c r e a s e d o r

u n f a i r c o m p e t i t i o n , c o n f l i c t s o f i n t e r e s ts ,

o r u n s o u n d b a n k i n g p r a c t i c e s . S u ch

d e t e r m i n a t i o n s h a l l b e s u b j e c t t o a n y

c o n d i t i o n s a n d li m i t a t io n s i m p o s e d b y

t h e B o a r d .

(f) P e r m i s s i b l e a c t i v i t i e s a n d

i n v es t m e n t s . A fo r e ig n b a n k in g

*“ ‘[FJoreign bank holding company' means a ban k holding company organized under the l aws ofa foreign country, more than half of whoseconsolidated ass ets are located or consolidatedrevenues derived, outside the United States." (12

CFR 22S.4(g)(iii) (1980)).

o r g a n i z a t i o n t h a t q u a l i f i e s u n d e r

p a r a g r a p h ( b ) m a y :

( 1 ) E n g a g e i n a c t i v i ti e s o f a n y k i n d

o u t s i d e t h e U n i t e d S t a t e s ;

( 2 ) Eng a g e d i r ec t l y in a c t i v i t i es in the

U n i t e d S t a t e s t h a t a r e i n c i d e n t i a l t o i ts

a c t i v i t i e s o u t s i d e t h e U n i t e d S t a t e s ;

( 3) O w n o r c o n t r o l v o t i n g s h a re s o f

a n y c o m p a n y t h a t i s n o t e n g a g e d ,

d i r e c t l y o r i n d i r e c t l y , in a n y a c t i v i t ie s i n

t h e U n i t e d S t a t e s o t h e r t h a n t h o s e t h a t

a r e i n c i d e n t a l t o t h e in t e r n a t i o n a l o r

f o r e ig n b u s i n e s s o f s u c h c o m p a n y ;

( 4) O w n o r c o n t r o l v o t i n g s h a r e s o f

a n y c o m p a n y i n a fi d u c i a r y c a p a c i t y

u n d e r c i r c u m s t a n c e s t h a t w o u l d e n t i tl e

s u c h s h a r e h o l d i n g t o a n e x e m p t i o n

u n d e r s e c t i o n 4 ( c ) ( 4 ) o f t h e B H C A i f t h e

s h a r e s w e r e h e l d o r a c q u i r e d b y a b a n k ;

( 5) O w n o r c o n t r o l v o t in g s h a r e s o f a

f o r e ig n c o m p a n y t h a t is e n g a g e d d i r e c t ly

o r i n d i r e c t l y i n b u s i n e s s i n th e U n i t e d

S t a t e s o t h e r t h a n t h a t w h i c h i s

i n c i d e n t a l t o i ts i n t e r n a t i o n a l o r f o r e i g n

b u s i n e s s , s u b j e c t to th e fo l l o w i n g

l i m i t a t io n s :

( i) M o r e t h a n 5 0 p e r c e n t o f t h e f o r e i g n

c o m p a n y ’ s c o n s o l i d a t e d a s s e t s sh a l l b e

l o c a t e d , a n d c o n s o l i d a t e d r e v e n u e sd e r i v e d f r o m , o u t s i d e t h e U n i t e d S t a t e s ;

( ii ) T h e f o r e ig n c o m p a n y s h a l l n o t

e n g a g e d i r e c t ly , n o r o w n o r c o n t r o l m o r e

t h a n 5 p e r c e n t o f t h e v o t i n g s h a r e s o f a

c o m p a n y t h a t e n g a g e s , in t h e b u s i n e s s

o f u n d e r w r i t in g , s e l l i n g , o r d i s t r i b u t in g

s e c u r i t i e s i n t h e U n i t e d S t a t e s e x c e p t t o

t h e e x t e n t p e r m i t te d b a n k h o l d i n g

c o m p a n i e s;

( i ii ) I f t h e f o r e i g n c o m p a n y i s a

s u b s i d i a r y o f t h e fo r e i g n b a n k i n g

o r g a n i z a t i o n , i t s d i r e c t o r i n d i r e c t

a c t i v i t i e s i n th e U n i t e d S t a t e s s h a l l b e

s u b j e c t t o th e f o l l o w i n g l i m i t a t io n s :

( A ) T h e f o r e ig n c o m p a n y ’ s a c t i v it i e s

i n th e U n i t e d S t a t e s s h a l l b e t h e s a m e

k i n d o f a c t i v i ti e s o r r e l a t e d t o t h e

a c t i v i t i e s e n g a g e d i n d i r e c t l y o r

i n d i r e ct l y b y t h e fo r e i g n c o m p a n y

a b r o a d a s m e a s u re d b y t he

“ e s t a b l i s h m e n t ” c a t e g o r i e s o f th e

S t a n d a r d I n d u s t r i a l C l a s s i f i c a t i o n ( S I C )

( a n a c t i v i t y in the United S t a t e s s h a l l b e

considered related to an activity o u t s i d e

the United States if it consists of s u p p l y ,

d i s t r ib u t i o n o r s a l e s i n f u r t h e r a n c e o f

the a c t i v i ty ) ;

(B ) T h e f o r e ig n c o m p a n y m a y e n g a g e

in a c t i v i t i es in the Uni ted S ta tes tha t

c o n s i s t o f b a n k i n g o r f i n a n c i a l

o p e r a t i o n s , o r ty p e s o f a c t i v i t i e s

p e r m i t t e d b y r e g u l at io n o r o r d e r u n d e r

s e c t i o n 4 ( c )( 8 ) o f t h e B H C A , o n l y w i t h

t h e p r io r a p p r o v a l o f th e B o a r d .

A c t iv it ie s w it h in D iv is io n H (F in a n c e ,

I n s u r a n c e , a n d R e a l E s t a t e ) o f th e S I C

s h a ll b e c o n s i d e r e d b a n k i n g o r f i n a n c i a l

o p e r a t i o n s f o r t h i s p u r p o s e , w i t h t h e

e x c e p t i o n o f a ct in g a s o p e r a t o r s o f

n o n r e s i d e n t i a l b u i l d i n g s ( S I C 6 5 1 2 ),

o p e r a t o r s o f a p a r tm e n t b u i l d in g s ( S IC

6 5 1 3) , o p e r a t o r s o f d w e l l in g s o t h e r t h a n

a p a r t m e n t b u i l d i n g s ( S I C 6 51 4 ), a n d

o p e r a t o r s o f r e s id e n t i a l m o b i l e h o m e

s i tes ( S IC 6 5 1 5 ) ; a nd o per a t ing t i tl e

a b s t r a c t o f f i c e s ( S I C 6 54 1 ). I n a d d i t i o n ,

t h e fo l l o w i n g a c t i v i t i e s s h a l l b e

c o n s i d e r e d b a n k i n g o r f in a n c i a l

o p e r a t i o n s a n d m a y b e e n g a g e d i n o n l y

w i t h t h e a p p r o v a l o f th e B o a r d u n d e r *

s u b s e c t i o n ( g ): c o m p u t e r a n d d a t a

p r o c e s s i n g s e r v i c e s ( S I C 7 3 7 2 , 7 3 7 4 a n d

7 3 79 ); m a n a g e m e n t c o n s u l t i n g ( S I C

7 3 9 2 ) ; c er ta in r enta l a nd l ea s ing

a c t iv i t i es ( S IC 7 3 9 4 , 7 5 1 2 , 75 1 3 a nd 7 5 1 9 );

a c c o u n t i n g , au d i t in g a n d b o o k k e e p i n g

s e r v i c e s ( S I C 8 9 31 ) ; a n d a r r a n g e m e n t o f

p a s s e n g e r t r a n s p o r t a t i o n ( S I C 4 7 2 2) .

(g) E x e m p t i o n s u n d e r se ct i o n 4 ( c) ( 9)

o f t h e B H C A . A fo r e ig n o r g a n iz a t io n

t h a t is o f t h e o p i n i o n t h a t o t h e r a c t i v i t ie s

o r i n v e s t m e n t s m a y , i n p a r t i c u l a r

c i r cu m s t a n c e s , m e e t t h e c o n d i t i o n s f o r

a n e x e m p t i o n u n d e r s e c t i o n 4 ( c )( 9 ) o f

t h e B H C A m a y a p p l y t o th e B o a r d f o r

s u c h a d e t e r m i n a t i o n b y s u b m i t t in g t o

t h e R e s e r v e B a n k o f t h e d i st r i c t i n w h i c h

i ts b a n k i n g o p e r a t i o n s i n th e U n i t e d

S t a t e s a r e p r i n c i p a l l y c o n d u c t i n g a l e tt e r

s e t t in g f o r t h t h e b a s i s f o r t h a t o p i n i o n .

(h) R e p o r t s . ( 1 ) T h e f o r e i g n b a n k i n g

o r g a n i z a t i o n s h a l l i n f o r m t h e B o a r d

t h r o u g h th e o r g a n i z a t i o n ’ s R e s e r v e B a n k

w i t h i n 3 0 d a y s a f t er t h e c l o s e o f e a c h

q u a r t e r o f a l l s h a re s o f c o m p a n i e s

e n g a g e d , d i r e c t l y o r i n d i r e c t l y , i n

a c t i v i t i e s i n th e U n i t e d S t a t e s t h a t w e r e

a c q u i r e d d u r i n g s u c h q u a r t e r u n d e r t h e

a u t h o r i t y o f t h i s s e c t i o n . T h e f o r e i g n

b a n k i n g o r g a n i z a t i o n s h a l l a l s o re p o r t

a n y d i r e c t a c t i v i t ie s i n t h e U n i t e d S t a t e s

c o m m e n c e d d u r in g s u c h q u a rt e r b y a

f o r e i g n s u b s i d i a r y o f t h e fo r e i g n b a n k i n g

o r g a n i z a t i o n . T h i s i n f o r m a t i o n s h a l l

( u n l e s s p r e v i o u s l y f u r n i s h e d ) i n c l u d e a

b r i e f d e s c r ip t i o n o f t he n a t u r e a n d s c o p e

o f e a c h c o m p a n y ’ s b u s i n e s s i n t h e

U n i t e d S t a t e s , i n c l u d i n g t h e 4 - d i g i t S IC

n u m b e r s o f t h e a c t iv i t i e s i n w h i c h t h e

c o m p a n y e n g a g e s . S u c h in f o r m a t i o n

s h a l l a l s o i n c l u d e t h e 4 - d i g i t S I C

n u m b e r s o f t h e d i r e c t p a r e n t o f a n y U . S .

c o m p a n y a c q u i r e d , t o g e t h e r w i t h a

s t a te m e n t o f t o t a l a s se t s a n d r e v e n u e so f t h e d i r e c t p a r e n t .

( 2 ) I f a n y r e q u i r e d i n f o r m a t i o n i s

u n k n o w n a n d n o t r e a s o n a b l y a v a i la b l e

t o t h e fo r e i g n b a n k i n g o r g a n i z a t i o n ,

e i th e r b e c a u s e o b t a i n i n g i t w o u l d

i n v o l v e u n r e a s o n a b l e e f f o rt o r e x p e n s e

o r b e c a u s e it re s t s p e c u l i a r l y w i t h i n t h e

k n o w l e d g e o f a c o m p a n y t h at is n ot

c o n t r o l l e d b y t h e o r g a n i z a t i o n s , t h e

o r g a n i z a t i o n s h a l l ( i) g i v e s u c h

i n f o r m a t i o n o n t h e s u b j e c t a s i t

p o s s e s s e s o r c a n re a s o n a b l y a c q u i r e

t o g e t h e r w i t h t h e s o u r c e s t h e r e o f ; a n d

( ii ) i n c l u d e a s t a t e m e n t e i t h e r s h o w i n g

t h at u n r e a s o n a b l e e f f o rt o r e x p e n s e

w o u l d b e i n v o l v e d o r i n d i c a t in g t h a t th e

c o m p a n y w h o s e s h a r e s w e r e a c q u ir e d i s

n o t c o n t r o l l e d b y t h e o rg a n i z a t i o n a n d

s ta t ing the r es u l t o f a r eq u es t f o r

i n f o rm a t i on .

( 3) A r e q u e s t f o r in f o r m a t i o n r e q u i r e d

b y t h i s p a r a g r a p h n e e d n o t b e m a d e o f

a n y f o r e ig n g o v e r n m e n t , o r a n a g e n c y o r

i n s t r u m e n t a l i ty t h e r e o f , i f , in t h e o p i n i o n

o f t h e o r g a n i z a t io n , s u c h r e q u e s t w o u l d

b e h a r m f u l t o e x i s t i n g r e l a t i o n s h i p s .

B o a r d o f G o v e r n o r s o f t h e F e d e ra l

R e s e r v e S y s t e m , D e c e m b e r 4, 1 98 0 .

Theordore E. Allison,

Sec r e t a r y o f t h e Bo a r d .

(FR Doc. 80-38181 Filed 12-10-80; 8:45 am|

BILLING CODE 6210-01-M

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