District Circular Letters

November 2, 2001

BANKING SUPERVISION AND REGULATION:
REVISIONS AND REQUEST FOR COMMENT ON REGULATION K

To State Member Banks, Bank
Holding Companies, U.S. Branches
and Agencies of Foreign Banks,
and Others Concerned,
in the Twelfth Federal Reserve District

Revisions to Regulation K (R-0994)

The Federal Reserve Board on Wednesday approved comprehensive revisions to Regulation K (international banking operations) expanding permissible activities abroad for U.S. banking organizations and reducing associated regulatory burdens. The final rule also reduces regulatory burden on foreign banks operating in the United States by streamlining the application and notice processes.

The final rule reflects public comments received, enactment of the Gramm-Leach-Bliley Act, and changes to the bank regulatory environment since the Board issued proposed revisions to Regulation K in December 1997.

The final rule now encompasses the following:

• Streamlines foreign branching procedures for U.S. banking organizations
  
• Authorizes expanded activities in foreign branches of U.S. banks
  
• Implements recent statutory changes authorizing a bank to invest up to 20 percent of capital and surplus in Edge corporations
  
• Expands permissible foreign activities of U.S. banking organizations, including securities activities, and investments by U.S. banking organizations under the general consent procedures
  
• Streamlines the application procedures applicable to foreign banks seeking to expand operations in the United States
  
• Liberalizes provisions regarding the qualification of foreign banking organizations for exemptions from the nonbanking prohibitions of section 4 of the Bank Holding Company Act
  
• Implements provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 that affect foreign banks
• Includes other changes to eliminate unnecessary regulatory burden and to streamline and modernize Regulation K

The final rule will become effective on November 26, 2001.

Comment Requested on Subpart D of Regulation K (R-1114)

The Federal Reserve Board is requesting comment on proposed revisions to Subpart D of Regulation K, governing international banking operations.

The proposal is intended to reduce the regulatory burden on banking institutions engaged in international lending by making the requirements concerning accounting for fees on international loans consistent with generally accepted accounting principles (GAAP).

Comment is requested by December 1, 2001.

Additional Information

All circulars and documents are available on the Internet through the Federal Reserve Bank of San Francisco's Internet site, at http://www.frbsf.org/banking/letters. Paper copies of the Board's notice (Dockets R-0994 and R-1114) are available from our Corporate Services Department. To request copies to be sent by mail, please call (415) 974-2060.

For additional information about the revisions and request for comment on Regulation K, please contact our Banking Supervision and Regulation Department at (415) 974-3007.

FEDERAL RESERVE BANK OF SAN FRANCISCO