States Which Require Deposit Insurance as a Prerequisite to Receiving a Charter 1

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming. STATES WHICH REQUIRE DEPOSIT INSURANCE AS A PREREQUISITE TO RECEIVING A CHARTER 1 North Carolina, Texas, Washington. [44 FR 57386, Oct. 5, 1979]

§ 347.1 Authority and scope.

Under sections 3(0), 18(d) and 18(1) of the Federal Deposit Insurance Act, as amended by section 301, Pub. L. No. 95-630, 92 Stat. 3641 (12 U.S.C. 1813(o), 1828(d), 1828(7)), the Federal Deposit Insurance Corporation (the "Corporation") prescribes the following regulation relating to: (a) Foreign branches of insured State nonmember banks, (b) the acquisition and holding of stock in foreign banks and other financial entities, and (c) loans or extensions of credit to or for the account of such foreign banks or other financial entities.

'Under FDIC's rules, the State requirement for deposit insurance could be imposed by State statute or banking department regulation or policy.

For the purposes of this part

(a) "Foreign branch" means any office or place of business of an insured State nonmember bank located outside the United States, its territories, Puerto Rico, Guam, American Samoa, or the Virgin Islands, at which banking operations (excluding representative offices solely concerned with new business development or public relations) are conducted.

(b) "Foreign country" means any foreign nation or colony, dependency, or possession thereof.

(c) "Foreign bank" means a bank organized under the law of a foreign country or any dependency or insular possession of the United States which is principally engaged in a commercial banking business and not engaged, directly or indirectly, in any activity in the United States except as in the judgment of the Federal Deposit Insurance Corporation, shall be incidental to the international or foreign business of such foreign bank.

(d) "Other financial entity" means a foreign institution other than a foreign bank which is: (1) Organized under the law of a foreign country or any dependency or insular possession of the United States, (2) not engaged, directly or indirectly, in any activity in the United States except as is incidental to its foreign business, and (3) engaged solely in the business of holding the shares of foreign banks, performing nominee, fiduciary, or other banking services incidental to the activities of a foreign branch or banking affiliate of an insured State nonmember bank, or performing other financial activities approved by the Corporation as being consistent with this part.

§ 347.3 Foreign branches.

(a) Establishing, moving, or closing foreign branches. A foreign branch may not be established or operated by an insured State nonmember bank without the prior written consent of the Corporation. This consent may be obtained through the branch application procedures set forth under Part 303. If an insured State nonmember bank has established an authorized foreign branch, it may, unless otherwise advised by the Corporation, es

tablish other branches and move authorized existing branches in that country after thirty days' notice to the Corporation concerning each such branch. The notice shall be submitted by letter to the Regional Director of the region in which the main office exists and contain the following information:

(1) Establishing a branch-proposed name and location of the branch, proposed fixed asset investment, lease terms, security arrangements, estimated deposit volume, projected time required to operate profitably, date branch is to be established and status of required governmental approvals.

(2) Moving a branch-location to which the branch is to be moved; reason for the relocation; any substantial change in fixed assets, anticipated deposit volume, or branch earnings; the expected date for relocation; and status of required governmental approvals.

At the time of the closing of a foreign branch, the insured State nonmember bank shall by letter advise the Regional Director of the name, the location, and the date of the closing of the branch.

(b) Existing foreign branches. The Corporation hereby grants its general consent for any insured State nonmember bank with a foreign branch that was established prior to March 10, 1979 to continue operating such branch without application for specific approval, provided the activity does not conflict with the provisions of this part and the following information regarding the branch is submitted (unless already submitted) within 90 days from April 30, 1979: name and location; statement of condition; earnings statement, with year-to-date and last two full years' data; estimated time when branch will be profitable if it is not; description of policies and management procedures designed to ensure safe and sound operation; and description of services offered.

(c) Powers of foreign branches. In addition to its general banking powers and to the extent consistent with its charter, the banking practices in the country where it does business, and the provisions of this part, a Branch

may:

(1) Guarantee customer's debts or otherwise agree for their benefit to make payments on the occurrence of readily ascertainable events if the guarantee or agreement specifies its maximum monetary liability thereunder. The guarantee or agreement shall be combined with all standby letters of credit and loans for purposes of applying any legal limitation on loans of the bank: Provided, That if the guarantee or agreement is subject to separate limitation under State or Federal law, the separate limitation shall apply in lieu of the loan limitation.

(2) Accept drafts or bills of exchange drawn upon it.

(3) Acquire and hold securities (including certificates or other evidences of ownership or participation) of the central bank, clearinghouses, governmental entities, and development

banks of the country in which it is located, but the total investment in such securities (exclusive of securities held as required by the law of that country or as authorized for national banks under 12 U.S.C. 24) shall not exceed 1 percent of its total deposits on the preceding year-end call report date (or on the date of such acquisition in the case of a newly approved branch which has never reported);

(4) Underwrite, distribute, buy, and sell obligations of the national government of the country in which it is located; but no bank may hold, or be under commitment with respect to, obligations of such a government as a result of underwriting, dealing in, or purchasing for its own account, in an aggregate amount exceeding 10 percent of its capital and surplus;

(5) Take liens or other encumbrances on foreign real estate in connection with its extensions of credit, whether or not of first priority and whether or not such real estate is improved or has been appraised;

(6) Pay to any officer or employee of the branch a greater rate of interest

'Including, but not limited to, events such as nonpayment of taxes, rentals, customs duties, or costs of transport and loss or nonconformance of shipping documents.

2 Including obligations issued by an agency or instrumentality, and supported by the full faith and credit, of such government.

on deposits than that paid to other depositors on similar deposits with the branch;

(7) Act as insurance agent or broker. An insured State nonmember bank that is of the opinion that other activities are usual in connection with the transaction of the business of banking in the places where its branches transact business, may apply to the Corporation for permission to engage in such activities.

(d) Limitations. Nothing in paragraph (c) of this section shall authorize a foreign branch to engage in the general business of producing, distributing, buying, or selling goods, wares, or merchandise, or, except as permitted by paragraph (c)(4) of this section, to engage or participate, directly, or indirectly, in the business of underwriting, selling, or distributing securities.

(e) Suspending operations during disturbed conditions. The officer in charge of a foreign branch may suspend its operations during disturbed conditions which make conduct of operations impracticable; but every effort shall be made before and during such suspension to serve its customers. Full information concerning any suspension shall be promptly reported to the branch's main office, which shall immediately send a copy thereof to the Regional Director of the region in which the main office exists.

§ 347.4 Acquisition and holding of stock in foreign banks or other financial entities.

(a) General. No insured State nonmember bank may acquire or hold, directly or indirectly, ownership interest in a foreign bank or other entity except as provided in this section. When authorized by State law, an insured State nonmember bank may, with the prior written consent of the Corporation and subject to the provisions of this part, acquire and hold, directly or indirectly, the stock or other evidences of ownership in one or more foreign banks or other financial entities without regard to the provisions of 12 U.S.C. 1828(j): Provided, That the aggregate amount invested directly or indirectly (other than through a corporation organized under section

25(a) of the Federal Reserve Act) in the stock or other evidences of ownership of all foreign banks and other financial entities, taken together with investments by the bank in the shares of corporations organized under section 25(a) of the Federal Reserve Act, shall not exceed 25 percent of the bank's capital and surplus.

(b) Acquisitions to prevent loss. Nothing contained in this part shall prevent the acquisition and holding of stock or other evidences of ownership in a foreign bank or other financial entity where such acquisition is necessary to prevent a loss upon a debt previously contracted in good faith; but such stock or other evidences of ownership shall be disposed of within 12 months from the date of acquisition unless the time is extended by the Corporation.

(c) Limitations. Stock or other evidences of ownership in a foreign bank or other financial entity shall be disposed of as promptly as practicable if: (1) Such bank or other financial entity should engage in the business of underwriting, selling, or distributing securities in the United States or (2) the insured State nonmember bank is advised by the Corporation that its holding is inappropriate under this part. The terms "stock", "shares", and "evidences of ownership" in this section include any right to acquire stock, shares, or evidences of ownership, except that prior Corporation consent is not required for the acquisition and exercise of stock rights in lieu of dividends which are declared on shares already held by an insured State nonmember bank and which do not result in an increase in percentage ownership of the foreign bank or other financial entity.

(d) Required information. An insured State nonmember bank may apply for the consent of the Corporation to acquire and hold, directly or indirectly, the stock or other evidences of ownership in a foreign bank or other financial entity by filing the information specified in § 303.9. The Corporation hereby grants its general consent for any insured State nonmember bank having stock or other evidence of ownership in a foreign bank or other financial entity that was

acquired prior to March 10, 1979 to continue holding such stock or evidence without application for specific approval provided it does not conflict with the provisions of this part and the following information is submitted (unless already submitted) within 90 days from April 30, 1979: Name and location of bank or other financial entity; number, type and par value of shares held, percentage of total voting shares outstanding, and, if different, percentage of total equity, historical cost, current carrying value and any premium paid that has not been amortized; description of the company activities, principal locations, subsidiaries and affiliates (including company locations, subsidiaries and affiliates in the United States), and any activity that is not of a banking or financial nature; recent balance sheets and income statements; and amount of any credit extended to the subsidiary or affiliate and description of any contracts with company (including management or service contracts).

(e) Reports. An insured State nonmember bank shall immediately inform the Corporation, through the Regional Director of the region in which the bank is located, of any acquisition or disposition of stock in a foreign bank or other financial entity, including the cost and number of shares acquired pursuant to this section.

§ 347.5 Loans or extensions of credit to foreign banks or other financial entities.

An insured State nonmember bank which holds directly or indirectly 3 stock or other evidences of ownership in a foreign bank or other financial entity may make loans or extensions of credit to or for the account of such foreign bank or other financial entity without regard to the provisions of 12 U.S.C. 1828(j).

§ 347.6 Conditions.

(a) Records, controls and reports. An insured State nonmember bank exercising any powers under this part shall

3 Whether through a corporation organized under section 25(a) of the Federal Reserve Act, or otherwise.

maintain a system of records, controls and reports that, at minimum, provide for the following:

(1) Risk assets. To permit assessment of exposure to loss, information furnished or available to the main office should be sufficient to permit periodic and systematic appraisals of the quality of loans and other extensions of credit. Coverage should extend to a substantial proportion of the risk assets in the branch or subsidiary, and include the status of all large credit lines and of credits to customers also borrowing from other offices of the bank. Information on credit extensions should include: (i) A recent financial statement of the borrower and current information on the borrower's financial condition; (ii) credit terms, conditions, and collateral; (iii) data on any guarantors; (iv) payment history; and (v) status of corrective measures employed.

(2) Liquidity. To enable assessment of local management's ability to meet its obligations from available resources, reports should identify the general sources and character of the deposits, borrowing, etc., employed in the branch or subsidiary with special reference to their terms and volatility. Information should be available on sources of liquidity-cash, balances with banks, marketable securities, and repayment flows-such as will reveal their accessibility in time and any risk elements involved.

(3) Contingencies. Data on the volume and nature of contingent items such as loan commitments and guaranties or their equivalents that permit analysis of potential risk exposure and liquidity requirements.

(4) Controls. Reports on the internal and external audits of the branch or subsidiary in sufficient detail to permit determination of conformance to auditing guidelines. Such reports should cover: (i) Verification and identification of entries on financial statements; (ii) income and expense accounts, including descriptions of sig. nificant chargeoffs and recoveries; (iii) operations and dual-control procedures and other internal controls; (iv) conformance to head office guidelines on loans, deposits, foreign exchange activities, proper accounting proce

§ 348.1 Authority, purpose, and scope.

(a) Authority. This part is issued under the provisions of the Depository Institution Management Interlocks Act ("Interlocks Act") (12 U.S.C. 3201 et seq.).

(b) Purpose and scope. The general purpose of the Interlocks Act and this part is to foster competition by prohibiting a management official of a depository institution or depository holding company from also serving as a management official of another depository institution or depository holding company if the two organizations (1) are not affiliated and (2) are very large or are located in the same local area. This part applies to management officials of insured nonmember banks and their affiliates.

miles of each other at their closest points. The property line of an office located in an unincorporated city, town, or village is regarded as the boundary line of that city, town, or village for the purpose of this definition.

(b) "Affiliate" has the meaning given in section 202 of the Interlocks Act. For purposes of section 202, an individual's shares include shares of members of his or her immediate family. For the purpose of section 202(3)(B) of the Interlocks Act, an affiliate relationship based on common ownership does not exist if the appropriate Federal supervisory agency or agencies determine, after giving the affected persons the opportunity to respond, that the asserted affiliation appears to have been established in order to avoid the prohibitions of the Interlocks Act and does not represent a true commonality of interest between the depository organizations. In making this determination, the agencies will consider among other things whether a person, including members of his or her immediate family whose shares are necessary to constitute the group, owns a nominal percentage of the shares of one of the organizations and the percentage is substantially disproportionate with that person's ownership of shares of the other organization. "Immediate family" includes spouse, mother, father, child, grandchild, sister, brother or any of their spouses, whether or not any of their shares are held in trust.

(c) "Community" means city, town, or village or contiguous or adjacent cities, towns, or villages.

(d) "Contiguous cities, towns, or villages" means cities, towns, or villages whose borders actually touch each other.

(e) "Depository holding company” means a bank holding company or a savings and loan holding company (as more fully defined in section 202 of the Interlocks Act) having its principal office located in the United States.

(f) "Depository institution" means a commercial bank (including a private bank), a savings bank, a trust company, a savings and loan association, a building and loan association, a homestead association, a cooperative bank, an industrial bank, or a credit union,