International Banking, 17550-17572 [05-6295]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 70, Number 65 (Wednesday, April 6, 2005)]
[Rules and Regulations]
[Pages 17550-17572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6295]



[[Page 17549]]

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Part III





Federal Deposit Insurance Corporation





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12 CFR Parts 303, 325, 327, and 347



International Banking; Final Rule

Federal Register / Vol. 70, No. 65 / Wednesday, April 6, 2005 / Rules 
and Regulations

[[Page 17550]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 325, 327, and 347

RIN 3064-AC85


International Banking

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is amending its international banking regulations in 
subpart J of part 303 and revising subparts A and B of part 347. The 
amendments reorganize, clarify, and revise subparts A and B of part 
347, and address various issues raised as part of the FDIC's ongoing 
effort under the Economic Growth and Regulatory Paperwork Reduction Act 
of 1996 (12 U.S.C. 3311). Included in the revisions are amendments that 
address relocation of insured U.S. branches of foreign banks within and 
outside the state where such branches are presently located, adoption 
of a risk-based asset pledge requirement for insured U.S. branches of 
foreign banks, and information and examination requirements for foreign 
banks that own branches or depository institution subsidiaries seeking 
FDIC deposit insurance. The FDIC has also decided to maintain its 
existing position concerning the availability of FDIC deposit insurance 
for wholesale U.S. branches of foreign banks.

DATES: These revisions are effective July 1, 2005.

FOR FURTHER INFORMATION CONTACT: John Di Clemente, Chief, International 
Section, Division of Supervision and Consumer Protection, (202) 898-
3540 or jdiclemente@fdic.gov or Rodney D. Ray, Counsel, Legal Division, 
(202) 898-3556 or rray@fdic.gov, Federal Deposit Insurance Corporation, 
550 17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 19, 2004, the FDIC issued a notice of proposed rulemaking 
(``NPR'') in the Federal Register, with a 60 day comment period, 
regarding proposed amendments to its international banking regulations 
contained in subpart J of part 303, subpart B of part 325, subpart A of 
part 327, and subparts A and B of part 347 of title 12 of the Code of 
Federal Regulations. (69 FR 43060).
    The proposed amendments were intended to accomplish various goals. 
These included implementation of the ``plain language'' requirement 
contained in section 722 of the Gramm-Leach-Bliley Act of 1999 (12 
U.S.C. 4809); addressing certain regulatory burden issues raised in 
public comments as part of the FDIC's ongoing burden reduction effort 
under the Economic Growth and Regulatory Paperwork Reduction Act of 
1996 (EGRPRA)(12 U.S.C. 3311); maintaining parity with Regulation K, 
which was amended by the Board of Governors of the Federal Reserve 
System (``FRB'') in October, 2001; and updating and enhancing the 
FDIC's supervisory processes by revising existing rules and proposing 
certain new rules. In addition, although no amendments were proposed 
regarding the topics, the FDIC requested comments on whether deposits 
in wholesale U.S. branches of foreign banks should be insured by the 
FDIC and whether the accounting regulations contained in subpart C of 
part 347 should be revised.
    The comment period closed on September 17, 2004. Comments were 
received from the American Bankers Association (``ABA''), the Institute 
for International Bankers (``IIB''), and the Conference of State Bank 
Supervisors (``CSBS'') regarding issues addressed in the NPR. In 
addition, at the IIB's request, FDIC staff met with representatives of 
the IIB and representatives of its constituent foreign banks regarding 
the IIB's EGRPRA suggestions and issues addressed in its comment 
letter.\1\ No comments were received regarding subpart C of part 347 
and, therefore, none of the rules in that subpart are being amended in 
the final rule.
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    \1\ A meeting summary and list of participants is available on 
the FDIC's Web page at https://www.fdic.gov/regulations/laws/federal/
04cMEETING.html.
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    A discussion of the comments and changes to the proposal that are 
being adopted in this final rule are presented below.

II. International Banking Procedural, Capital Maintenance, Assessment 
Rules

    Subpart J of part 303 contains the FDIC application procedures that 
implement the international banking regulations in part 347, subparts A 
and B. Although the NPR contained several amendments to the subpart J 
regulations, most of them consisted of technical amendments because of 
the substantial restructuring being proposed for the regulations in 
part 347. There were no comments on those amendments and the FDIC is 
adopting them as proposed.
    In addition to the technical amendments, the FDIC proposed to amend 
section 303.184, which addresses moving an insured branch of a foreign 
bank (``grandfathered branch''),\2\ by specifying that expedited 
processing could be provided for applications involving intrastate 
relocations of eligible grandfathered branches. This amendment was 
added to address concerns expressed by the IIB that grandfathered 
branches would be precluded from moving or relocating from their 
existing locations if their proposed relocations were made subject to 
the ``immediate neighborhood'' geographic relocation requirement 
applied to proposed branch relocations of state nonmember banks in 
section 303.41(b). In their comments, the ABA and IIB expressed support 
for the proposed amendment but the IIB indicated that it assumed that 
the FDIC would subject a proposed interstate relocation to standard 
processing and requested that the FDIC clarify this point in the final 
rule. The FDIC has considered the IIB request and has added a new 
paragraph (e) to section 303.184 to address standard processing of 
applications to relocate a grandfathered state branch to another state. 
In doing so, the FDIC believes it is appropriate to address a state 
licensing issue raised by the IIB comment letter and to ensure that the 
rule will only be utilized for legitimate relocations of existing 
grandfathered state branches and not simply to recharacterize the 
establishment of a new foreign branch in another state as a ``move'' or 
``relocation'' of a grandfathered state branch to avoid compliance with 
the subsidiary requirement contained in section 6(d) of the IBA. 
Therefore, under section 303.184, as revised by this final rule, in 
addition to satisfying the criteria contained in paragraph (d), a 
foreign bank proposing to relocate a grandfathered state branch to 
another state without affecting its grandfathered status will be 
required, under paragraph (e), to comply with any applicable state laws 
and regulations of the states affected by the proposed relocation. In 
addition, because the foreign bank will be relocating its whole 
grandfathered branch operation from one state to another (not creating 
an additional out-of-state branch of the grandfathered branch, which 
would not be allowed), the existing license of the branch in the state 
from which it is moving may need to be surrendered or cancelled and a

[[Page 17551]]

new license obtained in the state to which the branch is relocating. To 
avoid a ``break'' in the existence of the grandfathered branch, which 
may create an issue regarding compliance with the subsidiary 
requirement contained in section 6(d) of the IBA, the rule also 
specifies that the foreign bank must obtain any required regulatory 
approvals from the appropriate state licensing authority of the state 
to which the insured branch proposes to relocate before relocating the 
existing branch operations and surrendering its existing license to the 
appropriate state licensing authority of the state from which the 
branch is relocating.
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    \2\ A grandfathered branch of a foreign bank is a U.S. branch of 
a foreign bank that obtained FDIC deposit insurance prior to 
December 19, 1991 and is authorized to accept or maintain domestic 
retail deposit accounts pursuant to section 6(d)(2) of the 
International Banking Act (``IBA'')(12 U.S.C. 3104(d)(2)).
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    In addition to the amendments proposed in subpart J of part 303, 
the FDIC also proposed revisions to sections 325.103 and 327.4, 
regarding capital maintenance and the annual assessment rate, 
respectively, for insured U.S. branches of foreign banks. The 
amendments were proposed to conform those sections with proposed 
amendments to the FDIC's asset pledge and asset maintenance 
requirements contained in subpart B of part 347. Because the FDIC has 
decided to maintain the existing quarterly calculation methodology for 
asset maintenance in the final rule, for the reasons discussed 
subsequently in connection with section 347.210, the reference to the 
``insured branch's daily third-party liabilities'' has been eliminated 
in the final rule.

III. Foreign Banking and Investment by Insured State Nonmember Banks

    Subpart A of part 347 primarily addresses branching, investments, 
and permissible activities of state nonmember banks in foreign 
countries. The FDIC proposed various amendments in the NPR that 
reorganized the existing sections in the subpart and clarified their 
coverage. For example, the FDIC proposed to divide particularly complex 
sections, such as existing section 347.104 into sections 347.104 
through 347.110, which are less complex sections but accomplish a 
similar result. The FDIC also proposed to move and consolidate existing 
sections based on the subject matter addressed to make the requirements 
easier to locate and understand. For example, existing sections 
347.103, addressing foreign branch powers and FDIC consent 
requirements, and 347.108, addressing FDIC consent requirements for 
foreign investments, were made sections 347.115 (permissible activities 
for foreign branches), and 347.117 (general consent for foreign 
branches and investments), 347.118 (expedited processing for foreign 
branches and investments, and 347.119 (specific consent). The 
discussion that follows is provided to explain a few of the more 
significant amendments to the subpart.
    The FDIC proposed to revise existing sections 347.103 and 347.104 
in the NPR to better address the interplay between the FDIC's part 362 
and part 347. This revision was accomplished in two ways. First we 
separated the substance of existing section 347.104(f), dealing with 
direct and indirect investments in foreign organizations, into section 
347.104 in the proposed rule.\3\ Second, we created ``permissible 
activities'' sections for state nonmember banks and their subsidiaries 
in section 347.105(b) out of existing section 347.104(a)-(b) and for 
foreign branches of state nonmember banks in section 347.115(a)-(g) out 
of existing section 347.103(a). In addition, the order and list of 
activities authorized for state nonmember banks and their subsidiaries 
and foreign branches of state nonmember banks were revised to more 
closely track the order of the activities listed as permissible for 
member banks and their subsidiaries or foreign branches of member banks 
under the corresponding provision in Regulation K. This revision will 
make the comparison easier between activities authorized under subpart 
A of part 347 and those authorized under Regulation K for branches of 
member banks or member banks and their subsidiaries. The FDIC also 
added paragraph (d) to proposed section 347.105 and paragraph (h) to 
proposed section 347.115, for clarification, to generally address when 
activities, other than those authorized by the respective sections, may 
be authorized by specific consent under part 347 or when authorization 
for the activities must be obtained under part 362 as well as subpart A 
of part 347.
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    \3\ Like existing section 347.104(f), section 347.104 recognizes 
that the FDIC's treatment of direct and indirect investments by 
state nonmember banks in foreign organizations differs from the 
treatment such investments are provided in Regulation K for member 
banks. This is because of differences in the underlying statutory 
provisions governing member and state nonmember banks. Unlike member 
banks, whose investments are constrained by the language of section 
25 of the Federal Reserve Act (12 U.S.C. 601), section 18(l) of the 
FDI Act permits state nonmember banks to invest in foreign ``banks 
and other entities,'' to the extent authorized by state law. Thus, 
considering the legislative history of section 18(l), and the 
language of the statute, the FDIC has interpreted section 18(l) as 
not restricting the types of foreign organizations in which a state 
nonmember bank can invest.
    The ability of insured state nonmember banks to invest in other 
types of foreign organizations, however, raises issues under section 
24 of the FDI Act (12 U.S.C. 1831a) and part 362 because national 
banks are unable to invest directly in nonbank foreign 
organizations. Section 24 prohibits an insured state nonmember bank 
from acquiring an equity investment that a national bank is not 
permitted to acquire. Such an investment may be made under section 
24, subject to FDIC approval, however, if the investment is made 
through a majority-owned subsidiary of the bank. It may also be made 
if a company becomes majority-owned by the bank as a result of the 
investment and the ``as principal'' activities of the company are 
ones in which a subsidiary of a national bank could engage. 
Ownership of more than 50 percent of the equity in a nonbank foreign 
organization makes that organization a majority-owned subsidiary 
and, thus, no section 24 analysis is required because such a 
subsidiary is authorized only to engage in the same activities that 
the FRB has authorized for subsidiaries of member banks (and thus 
national banks) under Regulation K. In addition, while it is 
unnecessary for insured state nonmember bank investments of 50 
percent or less of the equity of a nonbank foreign organization to 
be held through an intermediate foreign bank subsidiary or Edge 
subsidiary as required under Regulation K, those investments are 
required to be held through some form of U.S. or foreign majority-
owned subsidiary in order to comply with the requirements of section 
24 and part 362.
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    The ABA commented on the proposed amendment to section 347.115, 
including another FDIC proposal adopting the same definition of 
``investment grade'' that had been adopted by the FRB and the OCC. In 
its comment, the ABA noted that the adoption of the same approach to 
``investment grade'' was a substantive improvement, which it supported. 
It also expressed support for the addition of section 347.115(h), 
discussed above.
    The FDIC also proposed to amend its authorization for ``general 
consent'' in two ways. The first way was to allow insured state 
nonmember banks to branch into a foreign country under general consent 
in circumstances covered by proposed section 347.117(a)(1)(ii) or 
(iii). This change would allow an eligible state nonmember bank to 
establish additional branches in a country in which the bank's holding 
company operates a foreign bank subsidiary, or in which an affiliated 
bank or Edge or Agreement corporation operates one or more foreign 
branches or foreign bank subsidiaries and allow for an after-the-fact 
notification to the FDIC in those circumstances, rather than requiring 
prior approval under expedited processing, as is presently required 
under section 347.103(c)(1). The second way was to grant general 
consent to invest in a foreign organization, under proposed section 
347.117(b)(2), when at least one insured state nonmember bank operates 
a foreign branch in the relevant foreign country where the organization 
will be located because of the FDIC's familiarity with the banking laws 
and practices of that country. The ABA commented on this amendment and 
expressed support for the proposed change in general consent for 
foreign branches.

[[Page 17552]]

    Although the FDIC received no comments on the proposed revision for 
foreign investments, an additional clarification to proposed section 
347.117(b)(2) is included in this final rule. As indicated in the 
discussion contained in the NPR, when the FDIC amended its foreign 
banking regulations in 1998, it declined to adopt a suggestion that the 
FDIC grant general consent to invest in a foreign organization when at 
least one insured state nonmember bank operates a foreign branch in the 
relevant foreign country. This was due to concerns that ``nameplate'' 
branches being operated in foreign countries might fall within the 
scope of the authorization. In the discussion of the proposed amendment 
in the NPR, the FDIC indicated that it believed most nameplate branches 
would be operated in jurisdictions where authority to invest in foreign 
organizations by general consent would be inapplicable under section 
347.119(a). Although the FDIC believes the discussion in the NPR was 
correct, it is concerned that the standard may be somewhat imprecise. 
Therefore, the text contained in section 347.117(b)(2) has been revised 
in the final rule to clearly indicate that the existence of a ``shell 
branch'' (a term that the FDIC intends to be synonymous with the term 
``nameplate branch'') in a foreign country will not provide a basis for 
investment by general consent under section 347.117(b).
    Finally, the proposal contained a new section 347.122, which was 
intended to enhance the FDIC's existing supervisory authority. The 
section recognizes that the FDIC may, under section 18(d)(2) and 18(l) 
of the FDI Act, condition the authority granted under subpart A as it 
considers appropriate and provide for termination of activities or 
divestiture of investments permitted under the subpart, after giving 
the bank notice and a reasonable opportunity to be heard, if a bank is 
unable or fails to comply with the requirements of the subpart or any 
conditions imposed by the FDIC regarding transactions under the 
subpart. The only comment on the section was submitted by the ABA, 
which expressed no opposition to the new section.
    After considering the proposed amendments contained in the NPR and 
the comments submitted thereon, except as otherwise stated above, the 
FDIC is adopting all of the amendments to subpart A of part 347 in this 
final rule as they were proposed.

IV. Foreign Banks

    The existing rules in part 347, subpart B primarily implement 
provisions of the FDI Act and International Banking Act concerning 
insured and noninsured U.S. branches of foreign banks. The FDIC 
proposed reorganizing the subpart by grouping the existing sections 
that were applicable to insured State and Federal branches at the 
beginning of the subpart, followed by the sections applicable to only 
State branches. In addition to several minor revisions to the existing 
sections, the FDIC also proposed more substantive amendments. These 
included revising its existing rules to update its foreign examination 
and information rule and applying them to U.S. banking subsidiaries of 
foreign banks, addressing how a grandfathered branch could be 
transferred to a new foreign bank owner and retain the branch's 
grandfathered status, adopting a risk-based approach for its asset 
pledge rule, and revising its asset maintenance rule to compute asset 
maintenance requirements based on a daily calculation of the third-
party assets and liabilities. Finally, the FDIC proposed a new rule to 
facilitate cross-border supervision of insured U.S. branches of foreign 
banks and insured U.S. bank subsidiaries by providing for the sharing 
of supervisory information between the FDIC and foreign bank regulatory 
or supervisory authorities and addressing the confidentiality of such 
information. These more substantive amendments are discussed in greater 
detail below.
    Section 347.208 of the FDIC's existing rules addresses foreign bank 
agreements with the FDIC to be examined and provide information. The 
regulation implements section 10(b) of the FDI Act (12 U.S.C. 1820(b)) 
and was initially issued in 1979. Although the regulation addresses 
foreign banks applying for deposit insurance for U.S. branches, it does 
not address deposit insurance applications of U.S. depository 
institution subsidiaries of foreign banks.\4\
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    \4\ The statute requires a foreign bank, in connection with 
obtaining deposit insurance for a branch or depository institution 
subsidiary, to submit a binding written commitment to the FDIC to 
permit any examination of the affairs of any affiliate of the branch 
or depository institution subsidiary to the extent necessary to 
determine: (1) the relationship between the depository institution 
and the affiliate and (2) the effect of such relationship on such 
depository institution.
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    To update the rule and enhance the FDIC's supervisory authority, 
the FDIC proposed to redesignate the rule as section 347.204 and 
substantially amend it to make it more useful. As envisioned in the 
proposal, the amended rule would have addressed several issues. It 
would have made the rule applicable to U.S. depository institution 
subsidiaries, as well as U.S. branches, of a foreign bank seeking 
deposit insurance from the FDIC. It also would have required the 
foreign bank to provide the FDIC with a written commitment (including 
the foreign bank's consent to U.S. court jurisdiction and designation 
of agent for service of process, acceptable to the FDIC) to:
     Permit examination of the foreign bank and affiliates 
located outside the U.S.;
     Provide information regarding the foreign bank and 
affiliates located outside the U.S.; and
     Permit examination and provide information regarding the 
offices and affiliates of the foreign bank that are located in the U.S.
    In addition, the proposal would have allowed the FDIC to waive the 
foreign examination provision if the FRB had determined that the 
foreign bank was subject to comprehensive consolidated supervision 
(``CCS''). It also would have allowed for the FDIC, in its discretion 
and subject to the requirements specified in the regulation, to waive 
some or all of the commitment requirements imposed by the section in 
lieu of requiring its own separate commitment from the foreign bank.
    There were two comments on proposed section 347.204. The ABA 
expressed support for the proposed amendments to the section. The IIB 
expressed concerns, however, about what it viewed as exertion of 
``extraterritorial'' examination authority over non-U.S. offices and 
affiliates of foreign banks. The IIB also asserted that the proposal 
would reverse the FDIC's longstanding position, dating back to 1979, 
when the original rule was adopted, when the FDIC recognized that 
despite its broad statutory authority to conduct such examinations, 
home country laws typically would prohibit the FDIC from doing so. 
Therefore, the IIB observed, the FDIC adopted a compromise under which 
it asserted examination authority only over U.S. branches and 
affiliates and required an agreement to provide information concerning 
operations of non-U.S. offices and affiliates. The IIB also felt that 
the proposed foreign examination provision was largely unnecessary 
because the proposed rule contained waiver authority for foreign banks 
that had been determined to be subject to CCS. It noted that section 3 
of the Bank Holding Company Act (12 U.S.C. 1842) required a finding of 
comprehensive consolidated supervision by the FRB before a foreign bank 
could acquire or establish a U.S. commercial bank subsidiary and that 
the acquisition by a foreign bank of control of a savings

[[Page 17553]]

association was subject to a CCS determination by the OTS.
    The FDIC has reviewed and considered the comments on proposed 
section 347.204, as well as the information and an examination 
requirement contained in existing section 347.208, and has decided to 
make several revisions to section 347.204 in the final rule.
    Although the IIB did not specifically reference the 1979 statement 
mentioned in its comment, the FDIC believes that the reference was to a 
comment contained in the preamble to the proposed rule for the FDIC's 
initial foreign banking regulations. In that notice, the FDIC observed:

    The FDIC is aware that most foreign banks would be prohibited, 
or at least restricted, by law or policy of the country of the 
bank's domicile from providing such a commitment. Were the FDIC to 
require a commitment allowing the FDIC to conduct a full examination 
of the bank, it is probable that no foreign bank could operate an 
insured branch. This result clearly is not intended. Thus, the FDIC 
proposes that a foreign bank agree to provide the FDIC with 
information regarding the affairs of the bank and its affiliates 
which are located outside the United States. As to activities within 
the United States, the bank shall agree to allow the FDIC to examine 
the affairs of the bank and its affiliates. 44 FR 23869, 23871 
(April 23, 1979).

    The FDIC believes that this conservative approach may have been 
prudent in the context of foreign banks seeking deposit insurance for 
U.S. branches in the late 1970s but that the approach has become 
somewhat outdated and the rule should be more reflective of the 
supervisory structure that is currently in existence. In this regard, 
it is noted that the underlying statutory provision in the FDI Act and 
the initial regulation preceded the failure of the Bank of Credit and 
Commerce International (``BCCI'') in the early 1990s, which had an 
impact on certain insured depository institutions in the United States 
that had undisclosed relationships with BCCI. The underlying statutory 
provision and initial regulation also preceded the enactment of 
statutory amendments to the IBA, Bank Holding Company Act, and Home 
Owners Loan Act, as part of the Foreign Bank Supervision and 
Enforcement Act of 1991,\5\ that require comprehensive consolidated 
supervision determinations in certain circumstances by the appropriate 
Federal banking agency under those statutes, including the initial 
acquisition of control or establishment of a U.S. bank, savings 
association, branch, agency, or representative office. Because the 
appropriate Federal banking agencies consider, as part of their CCS 
determination, whether the foreign bank's home country supervisor 
receives sufficient information on the worldwide operations of the 
foreign bank to assess its overall financial condition and compliance 
with laws and regulations, as specified in 12 CFR 211.24(c)(ii), the 
FDIC believes acceptable commitments and assurances of cooperation by 
the foreign bank, coupled with appropriate supervisory coordination and 
communication with the home country regulator may be sufficient to 
satisfy the examination commitment for a foreign bank and its 
affiliates outside the U.S. Thus, a CCS determination from the 
appropriate Federal banking agency should reduce the need for foreign 
examination commitments. Therefore, the section has been rewritten to 
eliminate the foreign examination commitment requirement as a 
prerequisite for obtaining consideration of a deposit insurance 
application if the foreign bank has been determined to be subject to 
CCS by the appropriate Federal banking agency.\6\
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    \5\ Pub. L. 102-242, 105 Stat. 2236, 2286 (1991).
    \6\ In the event that the FDIC receives an application for 
deposit insurance for a U.S. banking subsidiary of a foreign bank 
that has not been determined to be subject to CCS by an appropriate 
Federal banking agency, the FDIC expects the foreign bank to provide 
the commitments required by section 347.204 and it may also require 
the foreign bank to provide the FDIC such additional commitments and 
assurances as the FDIC considers necessary under the circumstances.
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    The FDIC has also revised the final rule to eliminate the waiver 
provisions contained in paragraph (b) of the proposal. The first waiver 
provision concerned the foreign examination commitment, which is no 
longer addressed in paragraph (a) of the final rule. In addition, the 
other waiver provision, regarding waivers for commitments provided to 
other Federal banking agencies, has been deleted. Although the latter 
provision was intended to avoid the appearance of duplication, the FDIC 
is concerned that such waivers may create the potential for uncertainty 
regarding the FDIC's authority under the commitments. Thus the FDIC 
believes the potential enforcement difficulties attendant to such 
waivers outweigh the potential benefits of such waiver authority.
    The FDIC also has revised the consent to jurisdiction and 
designation of agent provisions in the final rule to clarify those 
provisions by eliminating the ``court'' and ``process'' references. The 
FDIC presently requires that foreign owners of insured depository 
institutions, including foreign banks, provide consents to personal 
jurisdiction that are acceptable to the FDIC; however, the consents are 
not limited merely to court proceedings.\7\ Thus, the consent to 
jurisdiction and designation of agent provisions have been revised in 
the final rule to avoid giving the erroneous impression that consents 
to jurisdiction and designations of agents that are limited to consent 
to jurisdiction of the U.S. courts and service of process in court 
proceedings will be acceptable to the FDIC.
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    \7\ The consents to jurisdiction and designation of agent that 
the FDIC presently uses also include consent to agency jurisdiction 
and investigations for various supervisory and enforcement purposes.
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    Section 347.204(b)(3) of the proposal has also been made paragraph 
(b) in the final rule and revised. Because the FDIC believes that an 
acceptable consent to U.S. jurisdiction and designation of agent for 
service are essential components needed to obtain binding commitments 
from the foreign bank, the final rule clarifies that the consent to 
jurisdiction and designation of agent for service (and any limitations 
on the FDIC's ability to utilize them) will be considered together with 
the commitments provided by the foreign bank. Additionally, as revised 
by the final rule, the section recognizes that the FDIC also has 
discretion to consider any additional commitments or assurances by the 
foreign bank, including that it will cooperate and assist the FDIC, 
including, without limitation, by seeking to obtain waivers and 
exemptions from applicable confidentiality or secrecy restrictions or 
requirements to enable the foreign bank or its affiliates to make such 
information available to the FDIC.
    Therefore, the FDIC is adopting section 347.204, as revised in this 
final rule, for application to deposit insurance applications of U.S. 
branches and depository institution subsidiaries of foreign banks.
    Another issue addressed in the proposal was an amendment contained 
in proposed section 347.206(d), concerning the transferability of 
grandfathered branches to new foreign banks. As indicated in the 
proposal, section 347.206 of the proposal is largely derived from 
existing section 347.204(a)-(c) and implements section 6(d) of the IBA 
(12 U.S.C. 3104(d)).\8\
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    \8\ Section 6(d) of the IBA allows any insured branches that 
were accepting or maintaining domestic retail deposit accounts on 
December 19, 1991, to continue to operate as ``grandfathered'' 
insured branches conducting domestic retail deposit activities.
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    As part of the EGRPRA process the IIB requested that the FDIC adopt 
an interpretation of section 6(d) that would

[[Page 17554]]

allow the grandfathered branch status of an insured U.S. branch of a 
foreign bank to survive the sale or transfer of the branch from one 
foreign bank to another foreign bank. As indicated in the proposal, the 
IIB's view was that because the availability of the grandfather 
exception appears to be conditioned upon a single exception (that the 
branch was insured as of December 19, 1991), it was inconsistent with 
the plain meaning of the statute to include an additional condition 
(that is, the branch was not transferred after December 19, 1991). The 
IIB also observed that other grandfather provisions enacted by Congress 
in the same statute expressly state that those grandfather rights 
terminate upon a change in control. Therefore, the absence of such a 
provision in the grandfathered branch exception, it was argued, 
indicates that Congress did not intend that an insured branch would 
lose its grandfathered status upon its sale or transfer. Additionally, 
the IIB observed that permitting transfers of grandfathered branches 
would provide an option for other foreign banks that would like to 
establish FDIC-insured branches but are constrained from doing so by 
the subsidiary requirement in section 6(d) of the IBA. Finally, it was 
observed that depositors would not lose the protections of deposit 
insurance solely as a result of the sale or transfer of an insured 
branch.
    Having considered these points in the proposal, the FDIC observed 
that it had narrowly construed the exception in the past and that a 
broad reading of the grandfather exception requested would be at odds 
with the distinct preference Congress stated in section 6(d) of the IBA 
of making foreign banks desiring to engage in new domestic retail 
deposit activities requiring deposit insurance after December 19, 1991 
do so through insured banking subsidiaries. The FDIC also noted that it 
was a well recognized rule of statutory construction that in 
ascertaining the plain meaning of a statute it is appropriate to look 
to the particular statutory language at issue, as well as the language 
and design of the statute as a whole. By reading the statute as a 
whole, rather than merely focusing on the precise language of the 
grandfathered branch exception, the proposed broad reading of the 
exception was contrary to the direction Congress provided in section 
6(a) of the IBA, regarding implementation of the section, because 
purchasers of grandfathered branches could avoid forming and 
capitalizing banking subsidiaries to engage in domestic retail deposit 
activity in the U.S., rather than following the same process required 
for domestic banks of establishing and capitalizing a distinct 
corporate entity and applying for deposit insurance.
    The FDIC recognized, however, that its existing regulations did not 
address this issue and that there may be other situations, such as 
certain merger and acquisition transactions, that are not designed or 
motivated by the desire to obtain access to the domestic retail deposit 
market and avoid compliance with the subsidiary requirement in section 
6(d) of the IBA, where the grandfathered status of an insured branch 
should remain intact. Therefore, the FDIC proposed to address the issue 
by providing in section 347.206(d) of the proposal that in certain 
circumstances, such as certain merger and acquisition transactions, 
which are not designed or motivated by the desire to obtain access to 
the domestic retail deposit market and avoid compliance with the 
subsidiary requirement in section 6(d) of the IBA, the grandfathered 
status of an insured branch should remain intact following the 
transaction.
    The FDIC received comments from the ABA and IIB on the proposed 
amendment. The ABA indicated that it did not oppose the amendment, 
noting that it appeared to state explicitly what has been considered to 
be the law implicitly. The IIB, however, reiterated its previously 
expressed view that there was adequate legal authority for the FDIC to 
permit, rather than prohibit, the transferability of an insured branch 
to another foreign bank without the loss of its grandfathered status. 
It also suggested that permitting the grandfathered status of the 
remaining 12 FDIC-insured branches to survive a transfer of the branch 
would not be fundamentally inconsistent with the 1991 Congressional 
determination that foreign banks seeking to engage in new domestic 
retail activity do so through subsidiaries rather than branches.
    As indicated earlier, the IIB's legal and policy arguments on the 
transferability issue were submitted prior to the issuance of the 
proposal and were considered and discussed in the proposal. Although 
the FDIC recognizes that it might be possible to make legal and policy 
arguments supporting the IIB's proposed broad reading of the 
grandfather exception, the FDIC continues to believe that the exception 
should be construed narrowly, since it is contrary to Congress' general 
direction that foreign banks only engage in retail deposit taking after 
December 19, 1991, through banking subsidiaries with deposit insurance 
and that the statute not be construed to provide foreign banks with a 
competitive advantage over domestic banks.
    The IIB also noted that requiring a specific proper motivation in a 
merger and acquisition might even call into question the survival of 
grandfathered status following a change in control of the foreign 
parent bank. It suggested, regardless of the FDIC's treatment of the 
broader transferability issue, that the FDIC clarify that changes in 
control of the foreign parent bank will not terminate the grandfathered 
status of existing insured branches.
    The FDIC believes that it may be problematic to make a general 
statement such as that requested by the IIB in the context of a 
rulemaking proceeding. The FDIC believes that a change in ownership of 
a foreign bank that owns an insured branch may affect the FDIC's 
interest in the insured institution and that the FDIC should have an 
opportunity to evaluate the transaction before it is finalized. 
Therefore, since the universe of grandfathered insured branches of 
foreign banks is very limited, the FDIC believes that it is more 
appropriate for a foreign bank considering this type of transaction to 
discuss its planned structure with FDIC staff to evaluate whether the 
grandfathered status of the branch will remain intact following the 
proposed change in control of the existing foreign bank owner.
    Therefore, for the reasons previously stated, the FDIC is adopting 
section 347.206, as proposed, in the final rule.
    The FDIC also proposed to add a new section 347.207 to the subpart 
to facilitate cross-border supervision of insured U.S. branches and 
banking subsidiaries of foreign banks by providing for the sharing of 
supervisory information between the FDIC and foreign bank regulatory or 
supervisory authorities. As indicated in the proposal, the section was 
patterned after section 15 of the IBA (12 U.S.C. 3109) and 12 CFR 
211.27. It also addressed the confidentiality of such information, 
based upon the FDIC's interpretation of section 8(v) of the FDI Act (12 
U.S.C. 1818(v)), by providing that the disclosure or transfer of such 
information to a foreign bank regulatory or supervisory authority will 
not waive any privilege applicable to such information. The ABA's 
comment indicated that it supported the addition of the provision and 
it is being adopted in the final rule without further amendment.
    In amendments contained in section 347.209 of the proposal, the 
FDIC proposed to revise the 5 percent asset pledge requirement, 
contained in existing section 347.210, to make it

[[Page 17555]]

more risk-focused and take into consideration characteristics that may 
be unique to each insured branch. As discussed in the proposal, under 
the amended rule, the asset pledge requirement would be determined in a 
manner similar to the approach the FDIC has taken with its risk-based 
deposit insurance assessment system. In addition, any newly insured 
branch would be subject to at least a 5 percent asset pledge 
requirement throughout the first three years of its operations as an 
insured branch.\9\ After the first three years of operations as an 
insured branch, the asset pledge amount would be adjusted by taking 
into consideration the percentage of assets maintained by the insured 
branch, pursuant to section 347.210, and the supervisory information 
relative to the branch at issue. It was also envisioned that the most 
recent ROCA rating \10\ for the insured branch will be a focal point of 
such supervisory information but, as with the risk-based premium 
system, the FDIC could also consider other supervisory information that 
it considered appropriate to fully evaluate the potential risk posed by 
the insured branch in determining the supervisory subgroup assignment 
for the branch. The appropriate percentage of assets required to be 
pledged would then be determined based on the supervisory risk subgroup 
assigned and the asset maintenance level applicable to the branch. The 
amended section would generally permit the asset pledge to be lowered 
to not less than 2 percent of third-party liabilities for insured 
branches that were perceived to pose a lower potential risk and up to 8 
percent of liabilities for insured branches that were perceived to pose 
a higher potential risk to the deposit insurance fund. In addition, the 
FDIC's ability to require a higher percentage of pledged assets in 
appropriate circumstances would remain unchanged.
---------------------------------------------------------------------------

    \9\ The asset pledge requirement of newly insured branches has 
been revised in the final rule to provide that the pledge will be 
based on the branch's projection of its liabilities at the end of 
each year during the first three years of its operations. This 
revision is intended to avoid requiring a newly insured branch to 
pledge assets based on its third year projected liabilities, which 
will likely reflect its largest liability balance, during its first 
and second years of operations, when its projected liabilities will 
presumably be lower.
    \10\ The ROCA system represents the rating of risk management, 
operational controls, compliance, and asset quality of a Foreign 
Banking Organization's U.S. operations.
---------------------------------------------------------------------------

    The FDIC also proposed amendments to the ``eligible collateral'' 
portion of the rule to specify that ``negotiable'' certificates of 
deposit (``CDs'') with waivers of offset from their issuers, but not 
non-negotiable CDs with waivers of offset from their issuers, and U.S. 
Treasury bills would be considered eligible collateral under the rule.
    All of the commenters discussed the proposed amendments to this 
rule. The CSBS observed that the asset pledge and asset maintenance 
requirements were extremely important and valuable supervisory tools. 
It also observed that, while the role of the state asset pledge and 
asset maintenance requirements is paramount for the protection of 
creditors of uninsured branches, in the unique situation where retail 
deposits are insured by the FDIC, the major objective is the protection 
of depositors and that certain states had taken the initiative to avoid 
the imposition of double asset pledge requirements by exempting FDIC 
insured branches from state asset pledge requirements. Therefore, given 
the unique situation posed by insured branches of foreign banks and 
lack of effect on state prerogatives, the CSBS indicated that it did 
not object to the proposed amendments to the FDIC asset pledge and 
maintenance rules.
    The ABA expressed general support for the amendments but suggested 
that additional financial instruments be added to the eligible 
collateral list in the rule. The ABA observed that the list of assets 
that foreign banks may pledge under the existing rule includes certain 
negotiable CDs and bankers acceptances issued by state and national 
banks, but does not include the same types of instruments issued by 
state and federal savings associations. The ABA also observed that 
eligible collateral, under the existing rule, includes notes issued by 
banks and bank holding companies but not savings associations and 
thrift holding companies. The ABA believed that there was no reason to 
distinguish between banks, savings associations, and their respective 
corporate parents in this manner, since financial instruments provided 
by these other issuers also would provide the same protection from the 
FDIC.
    The IIB supported adoption of a risk-based asset pledge requirement 
but believed the proposed two percent minimum pledge amount should be 
eliminated in favor of either (i) a completely risk-based requirement 
or (ii) a smaller minimum. The IIB also disagreed with the FDIC's 
proposal to amend the eligible collateral requirement to require 
negotiable CDs with waivers of offset because of the practical burdens 
associated with requiring grandfathered branches to substitute 
negotiable CDs with waivers of offset for non-negotiable CDs with 
waivers of offset. It also observed that non-negotiable CDs with 
waivers of offset had been considered acceptable collateral for over 20 
years.
    The FDIC has considered the comments and is making certain 
amendments to section 347.209 in the final rule. The FDIC asset pledge 
requirement was established to provide the FDIC deposit insurance funds 
protection against losses on insured deposit claims by depositors of 
U.S. branches of foreign banks. While the FDIC is aware that the level 
of assets required to be pledged to the FDIC by a foreign bank may have 
an economic impact on the foreign bank, the FDIC's paramount interests 
are maintaining and protecting the resources of the deposit insurance 
funds that it administers and honoring its deposit insurance 
obligations to depositors of insured U.S. branches of foreign banks. 
Inherent in the asset pledge requirement, regardless of asset 
maintenance requirements imposed on U.S. branches, is the possibility 
that those U.S. branch assets may not be sufficient to pay the claims 
of domestic creditors, including the FDIC. Therefore, the FDIC believes 
that the proposed risk-based approach, including the two percent 
minimum requirement, represents the best compromise between the 
interest of the FDIC in assuring that the deposit insurance funds that 
it administers are protected and the financial interests of foreign 
banks in the pledged assets.
    For similar reasons, although the FDIC may have allowed non-
negotiable CDs to be treated as eligible collateral in the past, the 
FDIC is concerned that considering non-negotiable certificates of 
deposit as the equivalent of negotiable certificates of deposit, for 
asset pledge purposes, fails to take into consideration the potentially 
decreased value of non-negotiable certificates of deposit in the event 
of a forced sale, which is precisely the time the FDIC would be most 
concerned about their value, because of their non-negotiability. 
Therefore, except as provided in the final rule, the FDIC is adopting 
the proposal to allow only negotiable CDs with waivers of offset to be 
treated as eligible collateral for purposes of section 347.209. A 
limited exception is provided in the final rule, however, to treat non-
negotiable CDs that insured branches have pledged on March 18, 2005 as 
eligible collateral until those certificates of deposit mature 
according to the original terms of their existing deposit 
agreements.\11\ Finally,

[[Page 17556]]

the FDIC agrees with the ABA's recommendation concerning other types of 
eligible collateral and the final rule has been amended to include 
those additional types of financial instruments.
---------------------------------------------------------------------------

    \11\ The FDIC recognizes that obtaining waivers of offset from 
issuers of negotiable certificates of deposit may make the pledge of 
certificates of deposit less attractive to foreign banks but there 
are several other types of financial instruments specified in the 
rule, besides certificates of deposit, that can be pledged by 
foreign banks to meet the collateral requirements.
---------------------------------------------------------------------------

    The FDIC also proposed various amendments relating to the asset 
maintenance calculation for insured branches, in section 347.210 of the 
proposal, including a revision that would have required insured 
branches to maintain eligible assets at a ratio of not less than 106 
percent of the insured branch's daily third-party liabilities, rather 
than based upon the preceding quarter's average book value of the 
insured branch's liabilities. The amendment was proposed to avoid 
potential anomalies that could be caused by using liability information 
from the preceding quarter, such as instances where grandfathered 
branches that were winding down their operations needed to calculate 
their asset maintenance on a daily basis to maintain compliance with 
the rule.
    Two of the commenters addressed this revision. The ABA expressed 
support for the amendment. The IIB, however, suggested that the mere 
change of the longstanding quarterly calculation method would impose 
systems and other burdens on insured branches that it felt could be 
avoided by the FDIC continuing to resolve such situations on a case-by-
case basis. The IIB also suggested that the FDIC might consider a 
specific modification to the existing asset maintenance requirement for 
branches that are winding down their operations.
    The FDIC has considered the comments, as well as the IIB's 
representations to FDIC staff that it is less difficult to calculate 
asset maintenance, based on fixed liability numbers, than based on the 
daily assets and liabilities of a branch, which can fluctuate, and has 
decided to retain the substance of the asset maintenance requirements 
specified in existing section 347.211(a). In doing so, the FDIC notes 
that the daily calculation method specified in the existing rule may be 
used to address situations where the quarterly calculation method is 
considered inappropriate from a supervisory perspective. This authority 
may be utilized, in the FDIC's discretion, in instances where the 
current third-party liabilities of a branch decline or increase 
substantially in relation to the average book value of the branch's 
third-party liabilities for the preceding quarter. In addition, 
appropriate conforming changes are also being made in the final rule to 
section 347.210(d), based on revisions being made to paragraph (a).
    There were no public comments on the proposed amendments to subpart 
B, other than those discussed above, and they are being adopted in the 
final rule, with the revisions previously discussed.

V. Deposit Insurance for Wholesale U.S. Branches of Foreign Banks

    The FDIC included a request for comments in the NPR concerning 
whether the FDIC should revise its existing views regarding the 
availability of FDIC insurance for wholesale U.S. branches of foreign 
banks.
    As explained in the NPR, the IIB expressed the view that some 
foreign banks with U.S. wholesale branches (i.e., branches that are not 
engaged in domestic retail deposit activities that require FDIC 
insurance) may be interested in obtaining deposit insurance but that 
certain statements the FDIC made in the context of a 1998 final rule 
may have had the effect of discouraging international banks from 
applying for ``optional'' deposit insurance and that the FDIC should 
not continue to discourage this effort.
    In that 1998 final rule (63 FR 17056), which accompanied the 
issuance of the FDIC's existing foreign banking rules in 1998, the FDIC 
observed that because section 5(b) of the FDI Act (12 U.S.C. 1815(b)), 
addressing deposit insurance applications for U.S. branches of foreign 
banks, had not been repealed, it arguably may be possible for a U.S. 
branch of a foreign bank that does not engage in domestic retail 
deposit activity to seek deposit insurance from the FDIC. The FDIC also 
observed, however, that as a practical matter, it did not foresee many 
circumstances in which it could be appropriate for the FDIC's Board of 
Directors to approve such an application, but that the elimination of 
the optional insurance rule would not affect a foreign bank's ability 
to argue that it may make such an application under section 5(b) of the 
FDI Act. Finally, the FDIC noted that the FDIC Board of Directors would 
have to determine whether to actually accept and approve such an 
application, based on its review of the facts and circumstances 
involved, in addition to the pertinent legal and policy considerations.
    Among the arguments the IIB advanced to support an expanded view of 
the availability of deposit insurance for wholesale branches were:
     A ``plain meaning'' construction of section 5(b) permits 
``any branch''--including a wholesale branch--to become insured;
     Congress expressly prohibited foreign banks from obtaining 
FDIC insurance for branches ``engaged in domestic retail deposit 
activities'' but did not remove the statutory provisions authorizing 
foreign banks to apply for deposit insurance for wholesale branches;
     The FDIC's approach ignores significant changes in 
regulatory practices and structures that have occurred since 1991 with 
regard to foreign banks; broader acceptance of the principle of 
``investor choice;'' and rejection of a broader policy to force foreign 
banks to operate in the U.S. only through subsidiaries;
     Wholesale depositors often seek the benefits of FDIC 
insurance--even though the full amount of their deposits may not be 
insured. The ability to offer these benefits through a U.S. branch 
would provide a benefit to customers and increase a foreign bank's 
funding options;
     Optional FDIC insurance is likely to be attractive 
primarily to foreign banks already operating FDIC-insured branches and 
subsidiaries in the U.S. and to a relatively small number of other 
foreign banks, especially those seeking to serve particular ethnic 
markets. As a result, a more liberal policy likely would have a minimal 
effect on the deposit insurance fund; and
     Permitting wholesale branches to obtain deposit insurance 
is consistent with the business model that has been followed by some 
major U.S. banks that have retained insurance while focusing on 
wholesale markets.
    Some of the arguments and observations countering the IIB's 
arguments were:
     Difficulty in reconciling the idea that Congress imposed 
the subsidiary requirement with regard to domestic retail deposit 
activity requiring deposit insurance for the protection of the FDIC 
with the implicit assumption that Congress did not believe such 
protection of the FDIC was needed with regard to wholesale branches of 
foreign banks because the first $100,000 of customer deposits in a 
wholesale branch would be insured to the same extent as deposits 
maintained in any other FDIC insured depository institution;
     Unlike bank subsidiaries, branches function as an integral 
part of the foreign bank itself and do not have their own independent 
board of directors. Thus, the directors of a foreign bank are not 
usually subject to the U.S.

[[Page 17557]]

jurisdiction, and domestic branch personnel essential to explaining 
certain transactions could be transferred beyond the reach of U.S. 
authorities;
     Essential records could also be difficult to reach if they 
are kept at the head office or at branches in other countries;
     A U.S. branch could be subjected to requirements under 
foreign laws or to political or economic decisions of a foreign 
government which conflict with domestic bank regulatory policies;
     Operating through a branch, as opposed to subsidiary 
structure, allows foreign banks the ability to engage in transactions 
with the home office without significant operational restrictions that 
might otherwise be applied to transactions with affiliates of insured 
U.S. banks; and
     Due to the operating relationship of a branch to its home 
office and dependence on the home office for financial support, the 
insolvency of a foreign bank with a multinational branch structure will 
result in the insolvency of the branches and this may pose complicated 
and time-consuming issues regarding the resolution of the branch that 
could more likely be avoided in situations involving banking 
subsidiaries.
    The FDIC received two comments concerning this section. The CSBS 
expressed support for the view that ``optional insurance'' is not 
specifically authorized by statute. The IIB indicated that it continued 
to believe that the FDIC's concerns, such as those regarding the 
potential impact on the FDIC insurance fund, were misplaced or could be 
adequately addressed by other means. The IIB also requested that no 
action be taken on its request to allow it to continue to explore ways 
to address the FDIC's concerns.
    As the FDIC has indicated above, there are arguments that can be 
made for providing deposit insurance coverage to wholesale U.S. 
branches of foreign banks, as well as compelling arguments that can be 
made against providing such coverage. Therefore, the FDIC has decided 
to maintain its previously stated position that, as a practical matter, 
it does not foresee many circumstances in which it could be appropriate 
for the FDIC's Board of Directors to approve such an application and 
that the FDIC Board of Directors would have to determine whether to 
actually accept and approve such an application, based on its review of 
the facts and circumstances involved, in addition to the pertinent 
legal and policy considerations.

VI. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.), the FDIC may not conduct or sponsor, 
and the respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The FDIC has two OMB-approved 
information collections (3064-0125, Foreign Branching and Investment by 
Insured State Nonmember Banks, and 3064-0114, Foreign Banks) that cover 
the paperwork burden associated with subparts A and B of part 347. The 
information collections in 3064-0125 consist of applications related to 
establishing and closing a foreign branch; applications related to 
acquiring stock of a foreign organization; and records and reports 
which a nonmember bank must maintain once it has established a foreign 
branch or foreign organization. The information collections in 3064-
0114 consist of applications to operate as a noninsured state-licensed 
branch of a foreign bank; applications from an insured state-licensed 
branch of a foreign bank to conduct activities which are not 
permissible for a federally-licensed branch; internal recordkeeping by 
insured branches of foreign banks; and reporting requirements related 
to an insured branch's pledge of assets to the FDIC. This proposal to 
amend part 347, subparts A and B will not result in any change in the 
current estimated paperwork burden associated with the regulation, 
therefore no submission has been made to OMB under the Paperwork 
Reduction Act.

VII. Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (RFA), an agency must either 
prepare a Final Regulatory Flexibility Analysis (FRFA) for a final rule 
or certify that the final rule will not have a significant economic 
impact on a substantial number of small entities. See 5 U.S.C. 604, 
605(b). For purposes of the analysis or certification, financial 
institutions with assets of $150 million or less are considered ``small 
entities.'' The FDIC has reviewed the impact of this final rule on 
small banks and, for the reasons provided below, certifies that the 
final rule will not have a significant economic impact on a substantial 
number of small entities.
    The final rule makes primarily technical revisions to update, 
reorganize, and clarify the existing rules in subpart A of part 347 and 
subpart J of part 303. Subpart J of part 303 contains the procedural 
rules that implement part 347. The rules in subpart A of part 347 
address issues related to the international activities and investments 
of insured state nonmember banks. In general, they implement the FDIC's 
statutory authority under section 18(d)(2) of the Federal Deposit 
Insurance Act (FDI Act) (12 U.S.C. 1828(d)(2)), regarding branches of 
insured state nonmember banks in foreign countries, and section 18(l) 
of the FDI Act, regarding insured state nonmember bank investments in 
foreign entities. As of September 30, 2004, there were approximately 
4,800 state nonmember commercial banks, but fewer than 40 of those 
institutions report having foreign offices. Available information 
indicates that state nonmember banks with foreign investments or 
foreign branches are not small entities.
    The final rule also makes revisions to update, reorganize, and 
clarify the existing rules in subpart B of part 347, as well as 
additional revisions and amendments that address supervisory issues. 
The rules in subpart B of part 347 principally address issues related 
to insured and noninsured U.S. branches of foreign banks under section 
6 of the International Banking Act (IBA) (12 U.S.C. 3104). As of 
December 31, 2004, there were approximately 199 U.S. branches of 
foreign banks, including 12 insured branches. Of this number, there 
were approximately 90 U.S. branches of foreign banks that appear to 
qualify as small entities, including 6 insured branches. The 12 insured 
branches are presently subject to the FDIC's asset pledge requirement, 
which is revised in section 347.209 of the final rule. Although the 
revision of the asset pledge requirement to implement a risk-based 
approach may result in an increase in the amount of assets pledged for 
insured branches with low supervisory ratings, the FDIC does not 
believe this will affect the insured branches that qualify as small 
entities. Other revisions to the rules affecting noninsured branches 
are not substantive and, thus, should have no significant economic 
impact on noninsured branches that qualify as small entities.

VIII. Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

[[Page 17558]]

IX. Plain Language Requirement

    Section 722 of the Gramm-Leach-Bliley Act (GLBA) (12 U.S.C. 4809), 
requires banking agencies to use plain language in all proposed and 
final rules published after January 1, 2000. The proposed rule 
requested comments on how the rule might be changed to reflect the 
requirements of GLBA. No GLBA comments were received.

X. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accountin