TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Under prior Federal Reserve policy, U.S. banks have been
discouraged from soliciting deposits in their foreign branches from
U.S. residents, unless the deposit was for an international
purpose. The policy was formally communicated to member banks
through letters from previous Federal Reserve chairmen in 1969 and
1975 and through published Federal Reserve Regulation D Rulings and
Opinions. It also was included in letters of approval for
establishing foreign branches pursuant to Regulation K.
In connection with a recent application by a U.S. bank to
establish a foreign branch, the Board reviewed this policy in light
of the regulatory and financial changes that have occurred since
the policy guidance was issued. The Board determined that the
reasons for this policy are no longer valid and decided to delete
the relevant language from foreign branch approval letters and to
rescind those portions of opinion letters pursuant to Regulation D
that refer to these policies.
U.S. banks with foreign branches are expected, however,
to have adequate policies to inform their U.S. customers with
deposit accounts in their foreign branches that such deposits are
not insured by the FDIC; that, in a liquidation, foreign branch
deposits have lesser preference than domestic deposits; and that
such deposits are subject to cross-border risks. The Reserve Banks
should make certain that such policies are reviewed by examiners
during the examination of State member banks. Although there are
no prohibitions against it, because of Regulation D restrictions,
as a functional matter, deposits of U.S. residents in foreign
branches of U.S. banks would be expected to be in a denomination of
$100 thousand or more.
Member banks with foreign operations (i.e. all member
banks that file FFIEC 031) should be informed of this action.
Attached is a suggested draft letter to such member banks. The
Office of the Comptroller of the Currency and the Federal Deposit
Insurance Corporation also have been notified of the change in
Board policy.
If you have any questions, please call Michael Martinson
at (202) 452-3640 or Betsy Cross at (202) 452-2574.
Director
ATTACHMENT TRANSMITTED ELECTRONICALLY BELOW
[SUGGESTED LETTER TO THE CHIEF EXECUTIVE OFFICER OF EACH MEMBER
BANK IN YOUR DISTRICT THAT HAS A FOREIGN BRANCH]
Subject: Deposits Held in Foreign Branches of U.S. Banks
Dear _____________________:
Under prior Federal Reserve policy, U.S. banks have been
discouraged from soliciting deposits in their foreign branches from
U.S. residents, unless the deposit was for an international
purpose. The policy was formally communicated to member banks
through letters from previous Federal Reserve chairmen in 1969 and
1975 and through published Federal Reserve Regulation D Rulings and
Opinions. It also was included in letters of approval for
establishing foreign branches pursuant to Regulation K.
In connection with a related matter, the Board reviewed
this policy in light of the regulatory and financial changes that
have occurred since the policy guidance was issued. The Board
determined that the reasons for this policy are no longer valid and
decided to delete the relevant language from foreign branch
approval letters and to rescind those portions of opinion letters
pursuant to Regulation D that refer to these policies.
A member bank with foreign branches established pursuant
to Regulation K is expected, however, to have adequate policies to
inform its U.S. customers with deposit accounts in the bank's
foreign branches that such deposits are not insured by the FDIC;
that, in a liquidation, foreign branch deposits have lesser
preference than domestic deposits; and that such deposits are
subject to cross-border risks.
Should you or your staff have any questions regarding
this matter, please contact __________________ at this Reserve
Bank.
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