Helping to clear the way for state-licensed foreign banks to branch across state lines, the Federal Reserve Board proposed a rule establishing who will serve as an institution's primary regulator.
The draft measure, released for public comment Dec. 21, would require foreign banks with multistate operations to pick a home state by March 31.
The banking department in the home state would serve as the foreign bank's primary regulator, even if the institution opens branches in other states.
If the institution fails to choose, the Fed would pick the state where the bank has the most assets.
The draft rule, which implements a provision of the Riegle-Neal Interstate Banking and Branching Act of 1994, also would require banks in a single state to choose that jurisdiction as their home.
The Fed also asked bankers to comment on other foreign bank branching issues that should be addressed in future proposals.
"It really is just a housekeeping rule," said Paul Pilecki, a partner at Shaw, Pittman, Potts & Trowbridge. "The real news will come on the general comments that they have asked for on interstate banking, which will allow bankers to ask questions about how the Fed will apply the law to foreign banks."
The public has 30 days to comment.
Also on Dec. 21, the Fed approved a rule eliminating some restrictions on U.S. banks that invest in foreign companies. The new rule allows holding companies and their affiliates to invest up to 5% of the bank's capital or 50% of the edge corporation's capital in foreign investments without prior approval.
The Fed limited individual investments that qualify to 2% of the bank's capital, or 20% of the edge corporation's capital.
Currently, a bank must receive Fed approval before investing more than $25 million in an overseas venture.
The Fed limited the exemption to investments in companies that are engaged in activities that U.S. banks can perform directly or that regulators expressly permit in the rule.
The central bank also exempted the institution's first investment in a foreign country, but it did say banks don't have to count reinvestments toward the yearly limits.
All banks still must file reports describing the investment.
The new rule also affects the applications process, eliminating the pre- acceptance review period.
