Related Organizations

International Investments and Activities

There are various mechanisms by which national banks can participate in international activities. These forms include foreign branches; foreign bank subsidiaries; Edge Act or Agreement corporations, which may be subsidiaries of banks or bank holding companies; international banking facilities (IBFs); and financial subsidiaries. A bank’s objective in having a presence overseas determines, in part, the type of entity to establish. If the objective is to explore a market, a small, specialized office might suffice. If the bank desires to increase its lending activities in a foreign market, it might want a more sophisticated entity that is able to monitor the project risk and country risk. Depending upon the host country’s entry requirements, foreign banking activities of a U.S. bank may be conducted through a branch or a banking subsidiary. Other influences on the type of presence are bank strategy, tax considerations, and the international expertise of the bank.

Federal banking law permits foreign branches or foreign subsidiaries, including Edge Act or Agreement corporation subsidiaries of U.S. banks, to engage in activities abroad in which a U.S. bank may engage domestically. Subject to local law, a foreign branch or subsidiary may also engage in certain activities abroad that are not generally permitted for banks in the United States. For national banks, these initial and expanded activities abroad must comply with the OCC’s 12 CFR 28, International Banking Activities, and the FRB’s Regulation K, 12 CFR 211, including possible pre-establishment licensing requirements. For a foreign branch, the expanded activities must usually be related to the business of banking in the country in which it transacts business. For a foreign subsidiary, such as an Edge Act or Agreement corporation, the expanded activities must be of a banking or financial nature or necessary to carry on banking or financial activities. For international banking activities conducted through financial subsidiaries, the activities must comply with 12 USC 24a and 12 CFR 5.39.

Previous: Parallel-Owned Banking Groups Next: Foreign Branches