[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR250.164]

[Page 668-670]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 250--MISCELLANEOUS INTERPRETATIONS--Table of Contents
 
Sec. 250.164  Bankers' acceptances.

    (a) Section 207 of the Bank Export Services Act (title II of Pub. L. 
97-290)

[[Page 669]]

(``BESA'') raised the limits on the aggregate amount of eligible 
bankers' acceptances (``BAs'') that may be created by an individual 
member bank from 50 per cent (or 100 per cent with the permission of the 
Board) of its paid up and unimpaired capital stock and surplus 
(``capital'') to 150 per cent (or 200 per cent with the permission of 
the Board) of its capital. Section 207 also prohibits a member bank from 
creating eligible BAs for any one person in the aggregate in excess of 
10 per cent of the institution's capital. This section of the BESA 
applies the same limits applicable to member banks to U.S. branches and 
agencies of foreign banks that are subject to reserve requirements under 
section 7 of the International Banking Act of 1978 (12 U.S.C. 3105). The 
Board is clarifying the proper meaning of the seventh paragraph of 
section 13 of the Federal Reserve Act, as amended by the BESA.
    (b)(1) This section of the BESA provides that any portion of an 
eligible BA created by an institution subject to the BA limitations 
contained therein (``covered bank'') that is conveyed through a 
participation to another covered bank shall not be included in the 
calculation of the creating bank's BA limits. The amount of the 
participation is to be applied to the calculation of the BA limits 
applicable to the covered bank receiving the participation. Although a 
covered bank that has reached its 150 or 200 percent limit can continue 
to create eligible acceptances by conveying participations to other 
covered banks, Congress has in effect imposed an aggregate limit on the 
eligible acceptances that may be created by all covered banks equal to 
the sum of 150 or 200 percent of the capital of all covered banks.
    (2) The Board has clarified that under the statute an eligible BA 
created by a covered bank that is conveyed through a participation to an 
institution that is not subject to the limitations of this section of 
the BESA continues to be included in the calculation of the limits 
applicable to the creating covered bank. This will ensure that the total 
amount of eligible BAs that may be created by covered banks does not 
exceed the limitations established by Congress. In addition, this 
ensures that participations in acceptances are not used as a device for 
the avoidance of reserve requirements. Finally, this promotes the 
Congressional intent, with respect to covered banks, that foreign and 
domestic banks be on an equal footing and under the same legal 
requirements.
    (3) In addition, the amount of a participation received by a covered 
bank from an institution not covered by the limitations of the Act is to 
be included in the calculation of the limits applicable to the covered 
bank receiving the participation. This result is based upon the language 
of the statute which includes within a covered bank's limits on eligible 
BAs outstanding the amount of participations received by the covered 
bank. This provision reflects Congressional intent that a covered bank 
not be obligated on eligible bankers' acceptances, and participations 
therein, for an amount in excess of 150 or 200 percent of the 
institution's capital.
    (c) The statute also provides that eligible acceptances growing out 
of domestic transactions are not to exceed 50 percent of the aggregate 
of all eligible acceptances authorized for covered banks. The Board has 
clarified that this 50 percent limitation is applicable to the maximum 
permissible amount of eligible BAs (150 or 200 percent of capital), 
regardless of the bank's amount of eligible acceptances outstanding. The 
statutory language prior to the BESA amendment made clear that covered 
banks could issue eligible acceptances growing out of domestic 
transactions up to 50 percent of the amount of the total permissible 
eligible acceptances the bank could issue. The legislative history of 
the BESA indicates no intent to change this domestic acceptance 
limitation.
    (d) The statute also provides that for the purpose of the 
limitations applicable to U.S. branches and agencies of foreign banks, a 
branch's or agency's capital is to be calculated as the dollar 
equivalent of the capital stock and surplus of the parent foreign bank 
as determined by the Board. The Board has clarified that for purposes of 
calculating the BA limits applicable to U.S. branches and agencies of 
foreign banks, the identity of the parent foreign bank

[[Page 670]]

is generally the same as for reserve requirement purposes; that is, the 
bank entity that owns the branch or agency most directly. The Board has 
also clarified that the procedures currently used for purposes of 
reporting to the Board on the Annual Report of Foreign Banking 
Organizations, Form FR Y-7, are also to be used in the calculation of 
the acceptance limits applicable to U.S. branches and agencies of 
foreign banks. (The FR Y-7 generally requires financial statements 
prepared in accordance with local accounting practices and an 
explanation of the accounting terminology and the major features of the 
accounting standards used in the preparation of the financial 
statements.) Conversions to the dollar equivalent of the worldwide 
capital of the foreign bank should be made periodically, but in no event 
less frequently than quarterly. In this regard, the Board recognizes the 
need to be flexible in dealing with the effect of foreign exchange rate 
fluctuations on the calculation of the worldwide capital of the parent 
foreign bank. Each foreign bank is to be responsible for coordinating 
the BA activity of its U.S. branches and agencies (including the 
aggregation of such activity) and establishing procedures that ensure 
that examiners will be able readily to determine compliance with the 
BESA limits.

(Sec. 13, Federal Reserve Act (12 U.S.C. 372))

[48 FR 28975, June 24, 1983]