Final Rule—Amendment To Regulation K

Federal Reserve Bulletin, Dec, 1999

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the Agencies) are adopting as a joint final rule their joint interim rule implementing section 2214 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). Section 2214 of EGRPRA authorizes the Agencies to extend the examination cycle for certain United States branches and agencies of foreign banks. This joint final rule makes United States branches and agencies of foreign banks with total assets of $250 million or less eligible for an 18-month examination cycle if they meet certain qualifying criteria.

Effective October 22, 1999, 12 C.F.R. Parts 4, 211, and 347 are amended as follows:

Pan 4--Organization and Functions, Availability and Release of Information, Contracting Outreach Program

1. The authority citation for Part 4 continues to read as follows:

Authority: 12 U.S.C. 93a. Subpart A also issued under 5 U.S.C. 552; 12 U.S.C. 481, 1820(d), and 3105(c)(1). Subpart B also issued under 5 U.S.C. 552; E.O. 12600 (3 C.F.R., 1987 Comp., p. 235). Subpart C also issued under 5 U.S.C. 301, 552; 12 U.S.C. 481, 482, 1821(o), 1821(t); 18 U.S.C. 641, 1905, 1906; 31 U.S.C. 9701. Subpart D also issued under 12 U.S.C. 1833e.

2. In section 4.7, paragraphs (b)(1)(iii)(B) and (b)(2) introductory text are revised to read as follows:

Section 4.7--Frequency of examination of Federal agencies and branches.

(b) * * *
  (1) * * *
    (iii) * * *
      (B) The branch or agency has maintained on a
          daily basis, over the past three quarters,
          eligible assets in an amount not less than
          108 percent of the preceding quarter's average
          third party liabilities (determined consistent
          with applicable federal and state
          law), and sufficient liquidity is currently
          available to meet its obligations to third
          parties;

  (2) Discretionary standards. In determining whether a
      Federal branch or agency that meets the standards of
      paragraph (b)(1) of this section should not be eligible
      for an 18-month examination cycle pursuant to
      this paragraph (b), the OCC may consider additional
      factors, including whether:

Pan 211--International Banking Operations (Regulation K)

Subpart B--Foreign Banking Organizations

1. The authority citation for Part 211 continues to read as follows:

Authority: 12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq., 3101 et seq., and 3901 et seq.

2. In section 211.26, paragraphs (c)(2)(i)(C)(2) and (c)(2)(ii) introductory text are revised to read as follows:

Section 211.26--Examination of offices and affiliates of foreign banks.

(c) * * *
  (2) * * *
    (i) * * *
      (C) * * *

(2) The branch or agency has maintained on a daily basis, over the past three quarters, eligible assets in an amount not less than 108 percent of the preceding quarter's average third party liabilities (determined consistent with applicable federal and state law) and sufficient liquidity is currently available to meet its obligations to third parties;

  (ii) Discretionary standards. In determining
      whether a branch or agency of a foreign bank
      that meets the standards of paragraph (c)(2)(i)
      of this section should not be eligible for an
      18-month examination cycle pursuant to this
      paragraph (c)(2), the Board may consider additional
      factors, including whether:

Part 347--International Banking

1. The authority citation for Part 347 continues to read as follows:

Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 3104, 3105, 3108; Title IX, Pub. L. No. 98-181, 97 Stat. 1153.

2. Section 347.214 is revised to read as follows:

Section 347.214--Examination of branches of foreign banks.

(a) Frequency of on-site examination. Each branch or agency of a foreign bank shall be examined on-site at least once during each 12-month period (beginning on the date the most recent examination of the office ended) by:

(1) The Board of Governors of the Federal Reserve System (Board);

(2) The FDIC, if an insured branch;

(3) The Office of the Comptroller of the Currency (OCC), if the branch or agency of the foreign bank is licensed by the Comptroller; or

(4) The state supervisor, if the office of the foreign bank is licensed or chartered by the state.

(b) 18-month cycle for certain small institutions.

(1) Mandatory standards. The FDIC may conduct a full-scope, on-site examination at least once during each 18-month period, rather than each 12-month period as provided in paragraph (a) of this section, if the insured branch:

(i) Has total assets of $250 million or less;

(ii) Has received a composite ROCA supervisory rating (which rates risk management, operational controls, compliance, and asset quality) of 1 or 2 at its most recent examination; (iii) Satisfies the requirement of either the following paragraph (b)(iii)(A) or (B):

(A) The foreign bank's most recently reported capital adequacy position consists of, or is equivalent to, Tier 1 and total risk-based capital ratios of at least 6 percent and 10 percent, respectively, on a consolidated basis; or