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BANKINGQ: What types of commercial banking operations are permitted in the U.S.?A: Domestic banks, branch and agency offices, Edge and Agreement corporations, commercial lending companies, and representative offices. Q: Which types allow foreign banking institutions to engage in the full range of wholesale and retail banking services in the U.S.? A: Only domestic bank subsidiaries. Q: What is the dual banking system and how does it help foreign investors? A: The dual banking system describes the structure of banking laws in the U.S. in the sense that the federal government and the 50 state governments regulate banking. This allows a foreign investor to choose to establish a domestic bank subsidiary with direct branches and agencies under either federal or state law. Charters for national banks are granted by the Office of the Comptroller of Currency, and state banks are chartered by a banking superintendent or similar authority in each state. Q: Which federal statutes most comprehensively govern the U.S. activities of foreign banks? A: The Bank Holding Company Act of 1956 (BHCA) and the International Banking Act of 1978 (IBA) and the federal regulations implementing these acts. Q: What restrictions does the BHCA impose? A: The BHCA governs any entity that is or wants to become a company that directly or indirectly controls a U.S. bank. It also restricts the nonbanking activities of these companies and their affiliates and generally applies to all foreign banks with U.S. banking operations. Q: Can a foreign bank with U.S. banking operations become a financial holding company (FHC)? A: Yes, it can and if certified, the BHCA permits it to engage in the U.S. indirectly through nonbanking affiliates or subsidiaries in any activity that the Federal Reserve Board determines is financial in nature, incidental to any financial activity, or complementary to any financial activity without posing a substantial risk to the safety or soundness of the financial system generally. Q: What does the IBA govern? A: The IBA governs the establishment and regulation of branches and agencies and restrictions on interstate banking by foreign banks, among other things. Q: What are the criteria for determining "control" over a bank or bank holding company? A: One company controls another if it:
A: Because any controlled company is considered a subsidiary of the controlling company under these two sets of regulations, and issues involving subsidiaries play an important role in the application of requirements and restrictions concerning acquisitions of banks and bank holding companies, and in the application of restrictions on nonbanking activities. Q: What is comprehensive consolidated supervision? A: Comprehensive consolidated supervision is a policy that bars the FRB from approving any foreign bank’s application for a U.S. bank subsidiary, branch, agency or commercial lending company subsidiary unless the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country. Q: What is the Foreign Bank Security Enhancement Act (FBSEA) and how is it related to comprehensive consolidated supervision? A: The FBSEA was enacted in 1991 and implemented the regulations the FRB must follow based on the policy of comprehensive consolidated supervision. It also authorizes the FRB to order the closing of any U.S. offices of a foreign bank if the bank does not satisfy the comprehensive supervision standard. Q: What is the policy of "national treatment" in regulating foreign banks? A: National treatment is a policy embodied in the IBA under which the U.S. generally tries to provide foreign banks in the U.S. with the same competitive opportunities that are available to domestic institutions. Q: If a foreign entity wants to engage in banking activities in the U.S., what are some of the most important factors it must consider when deciding whether to organize a U.S. chartered bank or establishing a direct branch of its own bank within the U.S.? A: The foreign entity must first decide which kinds of services it wants to provide because if it wants to engage in a full range of banking activities, including domestic retail deposit-taking, it must establish a domestic bank subsidiary based on the FBSEA. If the foreign entity is not interested in domestic retail deposit-taking, then it may choose either structure and move on to examine charter options. Q: What if a foreign entity applies for and receives a charter as a national bank (under federal law) and then later changes its mind and wants to change to a state bank charter? A: Although conversion may be costly, the foreign entity is free to convert subject to regulatory approval from state to national or vice versa. Q: What kinds of restrictions do foreign banks face on ownership and management? A: State laws vary on foreign bank ownership of banks organized under their laws. But there are no federal restrictions on foreign ownership or control of national banks. However, federal law requires that all directors be U.S. citizens, and at least a majority of the directors must reside in the state where the bank is located or within 100 miles of the bank. | |