[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR211.601]

[Page 388-389]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)--Table of Contents
 
              Subpart D--International Lending Supervision
 
Sec. 211.601  Status of certain offices for purposes of the International Banking Act restrictions on interstate banking operations.

    The Board has considered the question of whether a foreign bank's 
California office that may accept deposits from certain foreign sources 
(e.g., a United States citizen residing abroad) is a branch or an agency 
for the purposes of the grandfather provisions of section 5 of the 
International Banking Act of 1978 (12 U.S.C. 3103(b)). The question has 
arisen as a result of the definitions in the International Banking Act 
of branch and agency, and the limited deposit-taking capabilities of 
certain California offices of foreign banks.
    The International Banking Act defines agency as ``any office * * * 
at which deposits may not be accepted from citizens or residents of the 
United States,'' and defines branch as ``any office * * * of a foreign 
bank * * * at which deposits are received'' (12 U.S.C. 3101(1) and (3)). 
Offices of foreign banks in California prior to the International 
Banking Act were generally prohibited from accepting deposits by the 
requirement of State law that such offices obtain Federal deposit 
insurance (Cal. Fin. Code 1756); until the passage of the International 
Banking Act an office of a foreign bank could not obtain such insurance. 
California law, however, permits offices of foreign banks, with the 
approval of the Banking Department, to accept deposits from any person 
that resides, is domiciled, and maintains its principal place of 
business in a foreign country (Cal. Fin. Code 1756.2). Thus, under a 
literal reading of the definitions of branch and agency contained in the 
International Banking Act, a foreign bank's California office that 
accepts deposits from certain foreign sources (e.g., a U.S. citizen 
residing abroad), is a branch rather than an agency.
    Section 5 of the International Banking Act establishes certain 
limitations on the expansion of the domestic deposit-taking capabilities 
of a foreign bank outside its home State. It also grandfathers offices 
established or applied for prior to July 27, 1978, and permits a foreign 
bank to select its home

[[Page 389]]

State from among the States in which it operated branches and agencies 
on the grandfather date. If a foreign bank's office that was established 
or applied for prior to June 27, 1978, is a branch as defined in the 
International Banking Act, then it is grandfathered as a branch. 
Accordingly, a foreign bank could designate a State other than 
California as its home State and subsequently convert its California 
office to a full domestic deposit-taking facility by obtaining Federal 
deposit insurance. If, however, the office is determined to be an 
agency, then it is grandfathered as such and the foreign bank may may 
not expand its deposit-taking capabilities in California without 
declaring California its home State.
    In the Board's view, it would be inconsistent with the purposes and 
the legislative history of the International Banking Act to enable a 
foreign bank to expand its domestic interstate deposit-taking 
capabilities by grandfathering these California offices as branches 
because of their ability to receive certain foreign source deposits. The 
Board also notes that such deposits are of the same general type that 
may be received by an Edge Corporation and, hence in accordance with 
section 5(a) of the International Banking Act, by branches established 
and operated outside a foreign bank's home State. It would be 
inconsistent with the structure of the interstate banking provisions of 
the International Banking Act to grandfather as full deposit-taking 
offices those facilities whose activities have been determined by 
Congress to be appropriate for a foreign bank's out-of-home State 
branches.
    Accordingly, the Board, in administering the interstate banking 
provisions of the IBA, regards as agencies those offices of foreign 
banks that do not accept domestic deposits but that may accept deposits 
from any person that resides, is domiciled, and maintains its principal 
place of business in a foreign country.

[45 FR 67309, Oct. 10, 1980]