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Questions and Answers About International Banking Facilities

2-309.41

ACCOUNTING

Q1. Regulation D (§ 204.8(f)) speaks in terms of “segregating” IBF accounts on an establishing entity’s books. Must IBF accounts be placed in asset and liability accounts that are separate from the domestic business asset and liability accounts on the general ledger, or may the IBF accounts be intermingled with accounts on the domestic books?
A. IBF accounts must be kept as a separate set of accounts on a subsidiary ledger. Institutions may establish a separate general ledger for their IBF accounts if they so desire. This will facilitate the IBF’s completion of reporting requirements and assist Federal Reserve examiners.
Q2. Must the total of IBF assets equal the total of IBF liabilities?
A. IBF assets, including claims on the establishing entity, must equal IBF liabilities, including claims by the establishing entity.
2-309.42
Q3. Must the maturity of liabilities that are assumed by an IBF match the maturity of assets that are acquired?
A. Maturities of IBF assets need not match the maturities of IBF liabilities.
Q4. If an office of a bank has amounts due from its IBF in excess of the other net Eurocurrency liabilities, can that bank consider the excess due-from amount as an amount due from domestic banks and therefore a deduction against domestic transaction accounts?
A. No. Net amounts due from its IBF may only be applied against certain Eurocurrency liabilities.
2-309.43
Q5. The total amount of IBF assets and IBF liabilities denominated in foreign currencies must be reported on the weekly report of International Banking Facility Accounts, FR 2072. Does this require the reporting of the U.S. dollar value of assets and liabilities held in foreign currencies?
A. Yes. Further, the dollar value of foreign currency denominated assets need not equal the dollar value of foreign currency denominated liabilities.
Q6. A deposit of a nonbank customer at a New York office matures and the funds are then placed in the IBF; is this a “shift” for the purpose of the FR 2076 and FR 2076S?
A. Yes. Deposits of existing customers which are transferred to the IBF books, prior to, or at maturity, are reported as a shift for the purposes of the FR 2076 and 2076S.
2-309.44
Q7. If an institution maintains separate IBF revenue/expense or profit/loss accounts, how are these items reflected in the Federal Reserve IBF accounts?
A.
a. To the extent that accrued revenue and accrued expense items are clearly attributable to IBF loans and IBF liabilities, they may be designated as IBF assets and liabilities and will be reported respectively on lines 6, “other assets” and 10e, “other liabilities” on the FR 2072.
b. To the extent that accrued revenue and expense items have been posted directly to the IBF asset or IBF liability, they will be reported with the IBF asset or IBF liability on lines 1-5 or 9-10d of the report, as relevant.
c. The Federal Reserve does not require the separate calculation or reporting of IBF revenue received or expenses paid; however, if an institution calculates these items, they are reported for Federal Reserve purposes as part of the “due to/due from” establishing-entity figure.
2-309.45

ASSET TRANSFERS

Q1. A sale of an asset by a domestic office of a bank to its IBF is not subject to Eurocurrency reserve requirements if the transfer takes place during the four weeks immediately following establishment of an IBF. May such a transferred asset subsequently be transferred to an offshore office of the bank without being subject to Eurocurrency reserve requirements?
A. The intent of the four-week exemption period is to allow banks to place assets with their IBFs that could have been placed there at the inception of the asset. It is not intended to serve as a “sterilization” method whereby assets may be passed through an IBF on their way to an offshore office of the bank in order to avoid the reserve requirement on sales of assets to offshore offices. Institutions will be expected to use this exemption in good faith. The Federal Reserve expects that assets transferred to IBFs in the four-week period will remain there for an indefinite period. Assets that are transferred from the IBF to an offshore office within a few days of the transfer to the IBF will be looked upon with suspicion.
2-309.46
Q2. As to assets transferred to the IBF from a domestic office, is the amount of the asset transferred considered permanently free from the Eurocurrency reserve requirement?
A. No. There is no base amount of reserve-free transfers of assets. Only those particular assets that are transferred during the initial four-week period are exempt from Eurocurrency reserve requirements on sales of assets.
2-309.47
Q3. A bank transfers a $5 million loan to its IBF during the first four reserve computation periods following establishment of the IBF. This loan is a partial advance of a $30 million line of credit. During the four-week period the borrower draws down an additional $10 million; after the four-week period the borrower draws down the final $15 million. What notices must be given to the borrower? How much of the draw-down is a shift of assets which must be reported on the FR 2076, and FR 2076S?
A. Only the amount of the loan made prior to establishing the IBF may be transferred to the IBF without giving the notice and obtaining the acknowledgment, if required, in this example the $5 million. If the bank intends to book in its IBF any drawing of the $30 million line subsequent to the IBF’s establishment, notice needs to be given and any required acknowledgment obtained. In the example, notice must be given and any required acknowledgment if the bank intends to book the additional $10 million in the IBF. However, notice need be given to and the relevant acknowledgment obtained from an IBF customer only one time. Only the amount drawn down prior to being booked as an IBF asset is a shift for report purposes, in the example, the $5 million.
2-309.48
Q4. Is an establishing entity required to create due-to and due-from accounting entries on its books when assets and liabilities are shifted to the IBF?
A. No. For weekly IBF reports and for reserve reporting purpose only, a balance is struck between IBF assets and IBF liabilities by supplying a figure which is reported as a “due to” or “due from” the United States office of the establishing entity; it is not necessary to create “due to/due from” accounting entries or contra accounts when designating and segregating certain assets or liabilities as IBF assets or liabilities on a subsidiary ledger of the institution. If, however, an institution establishes a separate general ledger for its IBF, accounting entities and contra accounts will be created on the IBF books and the establishing entity’s books.
2-309.49
Q5. Can a branch of an Edge corporation in Miami transfer assets free of the Eurocurrency reserve requirement to the IBF of the New York branch of that Edge corporation?
A. No. The branch of an Edge corporation in Miami must first transfer assets to the New York branch of that Edge corporation which may then transfer those assets to its IBF. The transfer to the IBF by the New York branch is free of Eurocurrency reserves only if executed during the first four reserve computation periods after the New York branch establishes its IBF.
2-309.5
Q6. May assets or liabilities be transferred from the domestic or foreign books to the IBF only during the four reserve computation periods after establishment of the IBF? May assets or liabilities be transferred only one time?
A. There is no time limit for the transfer of assets or liabilities to the IBF books. However, assets transferred from the domestic books after the expiration of the four-week period subsequent to the establishment of the IBF are subject to Eurocurrency reserve requirements. No Eurocurrency requirements apply to the transfer of assets or liabilities from the foreign books to the IBF either within or without the four-week period. The notice requirements apply to transfers from foreign offices to the same extent that such requirements apply to transfers of assets and liabilities from the books of the domestic office. Assets or liabilities may be transferred to the IBF books more than once, however, the caveat in the answer to question 1 above should be kept in mind.
2-309.51
Q7. How is the period during which assets may be transferred on a reserve-free basis from the domestic books to the IBF determined, if an IBF is established after December 3, 1981?
A. The period for reserve-free transfers starts on the first day the IBF opens for business and ends on the last day of the fourth reserve computation period that ends after the establishment of the IBF. Thus, any IBF that opens during the period between December 3 and December 9, inclusive, would have its period for reserve-free asset transfers end on December 30, 1981.
2-309.52

DEPOSITS

Q1. IBF deposits are defined as deposits under Regulation Q. Does this mean that provisions of Regulation Q, such as the early withdrawal penalty and various grace periods, apply to IBF time deposits?
A. An institution may not permit early withdrawal of an IBF time deposit if that would mean that it is on deposit less than two days; however, early withdrawal may be permitted, with penalty, so long as funds will have been on deposit at least two days. Grace period provisions applicable to domestic time deposits do not apply to IBF time deposits.
Q2. A customer maintains $150,000 in an IBF time deposit and then withdraws $100,000. Can the IBF continue to hold the $50,000 deposit?
A. Yes. In addition, the deposit may be rolled over. However, a partial withdrawal of the remaining $50,000 is not permitted; the entire amount must be withdrawn and the account must be closed.
2-309.53
Q3. The answer to question 2 indicates that funds in the amount of less than $100,000, which can come about only if a withdrawal of $100,000 or more leaves less than $100,000 in the account, may be left on deposit at an IBF and rolled over. Are there any interest rate ceilings on such deposits, inasmuch as they amount to less than $100,000?
A. All IBF deposits, regardless of the amount at any given time, are exempt from interest rate ceilings. Section 217.7(a) of Regulation Q, as changed by the IBF amendments, makes this clear. Thus, amounts of less than $100,000 in IBF deposit accounts may carry any rate of interest agreed to by the bank and the customer.
Q4. May an IBF borrow from its establishing entity to make Eurodollar placements with other foreign banks or branches?
A. Yes. A borrowing from the establishing entity is a permissible IBF liability and a placement with a bank located outside the United States is a permissible IBF asset.
Q5. May an establishing entity transfer a domestic liability to its IBF simply because it funds a qualifying IBF asset which will be transferred to the IBF?
A. No. The domestic liability is not a permissible IBF liability.
2-309.54
Q6. Many customers would like to have a cash management arrangement between the United States books of their bank and the bank’s IBF. Such an arrangement would allow the foreign customer to take funds from its demand account toward the end of the day and place the funds in a two-day time deposit at the IBF. May foreign customers have the bank make such transfers automatically?
A. Yes. There is no prohibition against the transfer of customer funds in either direction between the United States and IBF books of the bank. Funds may be transferred automatically from an IBF time deposit at maturity to a deposit account at a U.S. office of the bank, and funds may be transferred from an account at the U.S. office to the IBF. However, the deposit must qualify for treatment as an IBF deposit.
Q7. Is there any requirement as to the time of day during which an overnight borrowing or two-day borrowing is booked or renewed by an IBF?
A. No. The Federal Reserve does not have any general requirement concerning the time of day during which deposits or borrowings are booked or renewed so long as the procedure is consistent with the bank’s general bookkeeping procedures on banking days.
2-309.55
Q8. Section 204.8(a)(2)(ii)(C) states that no deposit or withdrawal from an IBF time deposit issued to a nonbank customer of less than $100,000 is permitted.
a. Can withdrawals of interest earned on an IBF time deposit be less than $100,000?
b. Can withdrawals of less than $100,000 be made to make loan repayments to the issuing entity?
c. What action is required if the dollar value of foreign currency deposits drops below $100,000?
A. 
a. Yes. Withdrawal of interest earned on an IBF account is not regarded as a withdrawal from the account and accordingly may be less than $100,000. This exception is made because otherwise IBF customers would likely be encouraged to limit deposits to the minimum maturity in order to withdraw interest.
b. No.
c. None. The amount of a deposit or withdrawal of foreign currency funds must have an exchange value of at least $100,000 at the time of the transaction. A depository institution is still in compliance with Regulations D and Q if the value of the deposit drops below $100,000 due to a change in exchange rates because no deposit or withdrawal of less than $100,000 has occurred.
2-309.56
Q9. May interest income from an IBF deposit be transferred to another account such as a brokerage account in the United States?
A. This depends on the circumstances of the particular case. The mere transfer of interest income to another account in the United States does not necessarily mean the deposit is not being used to support non-United States operations and may be permissible depending on the circumstances.
2-309.57

ELIGIBLE CUSTOMERS

Q1. In addition to the foreign-purpose requirement, section 204.8(a)(2)(ii) of Regulation D states that nonbank IBF time deposits may be issued only to non-United States residents. Is an individual who has a residence outside the United States and a residence in the United States a non-United States resident?
A. An individual who resides principally outside the United States at the time of the transaction is a non-United States resident.
Q2. May a United States parent of a borrower from an IBF guarantee a loan made by an IBF to the borrowing foreign subsidiary?
A. Yes. The guarantee by a United States parent would not destroy the qualification of an IBF asset which otherwise qualifies under section 204.8(a)(2).
2-309.58
Q3. A United States company has a foreign subsidiary with no office overseas. The affairs of the foreign subsidiary are handled by a United States office of the parent. Is the foreign subsidiary an eligible IBF customer?
A. No. All foreigners, including foreign subsidiaries of United States corporations, must have an overseas office or branch (which may be a “nameplate” branch) in order to qualify as IBF customers. This is one of the important mechanisms whereby the Federal Reserve can ensure that as to nonbank customers only foreigners are using IBFs.
Q4. If a foreign company that is not affiliated with a United States company has an agent in the United States solely for the purpose of obtaining financing and processing the paperwork attendant thereto, may an IBF extend credit to the foreign company through such agent?
A. Because all of the operations of the company are overseas and the agent is here only to simplify the financing process, the use of a United States address does not prevent an otherwise eligible customer from using an IBF since the loan is actually made to a foreign resident who has no other connection with the United States.
2-309.59
Q5. If an IBF’s establishing institution is a member of a bank holding company, may the other subsidiaries of the holding company that do not have IBFs be customers of the IBF?
A. Only if they otherwise qualify as IBF customers.
Q6. In order to determine whether a customer must acknowledge in writing the rules governing IBF deposits and extensions of credit under sections 204.8(a)(2)(ii)(B) and (a)(3)(ii), what must IBFs do to determine whether a foreign company is controlled by a domestic corporation?
A. Only those corporations in which the parent owns more than 50 percent of the voting shares of the foreign company are covered.
2-309.6
Q7. When an extension of credit is made, it qualifies as an IBF extension of credit, but a change in circumstances of the debtor that was not reasonably foreseeable at the time of the extension of credit causes the credit not to come within the criteria of an IBF extension of credit. For example, a loan might be made to the foreign office of a U.S. company for an eligible purpose, but during the life of the loan the company closes the foreign office. May the credit still be considered an IBF extension of credit?
A. Yes. In this case, the credit may still be considered an IBF extension of credit.
Q8. Is a loan to a U.S. borrower, fully guaranteed as to principal and interest by a foreign government, an IBF extension of credit?
A. No. The transaction will be regarded as a domestic extension of credit.
Q9. May an IBF accept deposits from a foreign office of an article XII investment company, a private bank, or a U.S. bank not subject to Federal Reserve reserve requirements?
A. Yes. The IBF will have to determine whether the depositor should be treated as a bank or as a nonbank entity.
2-309.61
Q10. If a commercial bank (or a foreign bank) has a subsidiary Edge corporation in the United States with an IBF, may the United States offices of the bank (or U.S. branch or agency of the foreign bank) place deposits or take loans from the IBF of the Edge? Conversely, if the commercial bank (or U.S. branch or agency of a foreign bank) has the IBF, may the United States offices of the Edge corporation place deposits with or take loans from the IBF of the bank?
A. The commercial bank (or U.S. branch or agency of a foreign bank) and the Edge corporation are different legal, establishing, and reporting entities. Accordingly, just as it may not take deposits from or make loans to United States offices of other banks, the IBF of the Edge may not take deposits from or make loans to the United States offices of the bank (or U.S. branches or agencies of a foreign bank) directly, but could transact business with the IBF of the bank. Conversely, the IBF of the bank (or U.S. branches and agencies of the foreign bank) could not take deposits from the United States branches of the Edge corporation directly, but could transact business with the IBF of the Edge corporation.
2-309.62
Q11. A foreign bank has a branch in New York and an agency in California with an IBF. Can the New York branch have IBF time deposits with the California agency’s IBF?
A. No. The branch in New York is a United States resident for the purpose of the IBF regulation and may not place funds with the IBF of the New York agency. However, the IBF of the branch in New York can place funds with the IBF of the California agency.
Q12. May the New York branch of an Edge corporation have a time deposit with the IBF of the Miami branch of that same Edge corporation?
A. No. The Edge corporation in New York is a United States resident for the purpose of the IBF regulation and may not place funds with the IBF of the New York agency. However, the IBF of the New York branch of the Edge corporation can place funds with the IBF of the Miami branch of the same Edge corporation.
2-309.63
Q13. May an IBF of an agency outside of a foreign bank’s home state obtain funds from any other IBF?
A. Yes, if otherwise consistent with the regulations of the agency’s primary supervisor. The characterization of the taking of funds by the agency as an IBF time deposit under Regulations D and Q is not dispositive for the purposes of Regulation K, since “IBF time deposit” is defined broadly to include transactions that would otherwise be regarded as borrowings.
Q14. May trusts be IBF customers?
A. Yes. In the case of a trust, the trust need not be organized under foreign law, but all of the beneficiaries must be foreign residents. The notice statement may be sent to the trustee.
2-309.64

LOANS

Q1. May an IBF extension of credit be secured by a United States asset, such as the shares of a United States company or a mortgage on United States property; may an IBF purchase United States assets subject to the obligation to resell them at a later date?
A. Yes, if the underlying transaction is a qualifying one. In determining compliance with the definition of permissible IBF assets, the type of collateral is not necessarily a relevant consideration. The identity of the borrower and application of the loan proceeds are the relevant criteria. Likewise, because a repurchase agreement is essentially a secured borrowing in economic terms, the nature of the assets subject to resale by the IBF is also not determinative.
Q2. If an IBF extension of credit is secured by a mortgage on U.S. property or shares of a U.S. corporation, the obligor defaults on the loan, and the credit forecloses on the collateral, may such property or shares be held by the IBF?
A. Yes, consistent with prudent banking practice and other regulatory requirements.
2-309.65
Q3. May an IBF issue a letter of credit with a United States beneficiary?
A. Yes, if the underlying transaction qualifies within the meaning of section 204.8(a)(2)— that is, the account party must be seeking a letter of credit for a transaction that would be a permissible loan transaction for an IBF. The drawing down of the letter of credit by means of a draft does not connect the arrangement to an impermissible transaction account. However, the IBF may not pay the draft by establishing a demand deposit account.
Q4. May an IBF engage in banker’s acceptance financing?
A. Yes. An IBF may accept and discount a draft presented by its customers provided the draft is held to maturity. Such a transaction is booked as a loan for report of condition purposes. An institution’s acceptance held in its own portfolio is treated as a loan, not an acceptance.
2-309.66
Q5. May an IBF hold nonvoting preferred stock as an IBF extension of credit?
A. Yes, so long as the transaction complies with other requirements on IBF extensions of credit.
Q6. May an IBF maintain a clearing account at a non-United States office of a foreign bank?
A. An IBF may maintain a clearing account at non-United States offices of a foreign bank, at non-United States offices of the establishing entity, and at non-United States offices of other United States depository institutions and Edge or agreement corporations.
2-309.67
Q7. May a loan extended without recourse to a foreign borrower but collateralized by a United States asset constitute an IBF-eligible loan?
A. In the normal course, these would not be eligible because they can be regarded as financing United States assets, but it is possible that some might be bona fide. An IBF interested in such a transaction should contact its local Federal Reserve Bank for further discussion if some legal reason compels it to structure a loan transaction in that way.
Q8. May IBFs maintain loan settlement accounts on the domestic books of United States offices of an affiliated bank or Edge corporation?
A. Yes. In a letter dated March 5, 1982 (at 2-335.11), the Board staff rendered an opinion that IBFs could have demand accounts on the domestic books of a bank or Edge corporation affiliated with the IBF’s establishing entity, but only if (1) the account is to be used solely for loan settlement purposes and (2) the account is cleared on a daily basis so that there is a zero balance in the account at the end of each day. This exception to the general rule prohibiting the holding of demand accounts at United States offices of other banks comes about because an IBF would not have an extension of credit outstanding to a United States resident at the close of business each day. This exception is intended to make it operationally easier for IBFs to engage in transactions related to international loan syndications.
2-309.68

MISCELLANEOUS

Q1. May funds placed by an IBF with another bank’s IBF be passed through by the second bank to a reserve account at a Federal Reserve Bank in order to count toward the first bank’s reserve requirements?
A. No. There is no provision in the regulation for use of such funds as a pass-through account. A bank would have to book funds due to its IBF on its domestic books and pass the funds to its pass-through bank in order to use IBF funds to satisfy reserve requirements on a pass-through basis; the bank would be subject to Eurocurrency reserve requirements on that borrowing.
Q2. May an IBF’s income and expense items be considered permissible asset or liability accounts?
A. For Federal Reserve purposes the accounts are not permissible IBF assets or liabilities. However, contra accounts that are required by accounting convention to accompany an entry for a permissible IBF asset or liability may be established. However, for state tax purposes these income and expense accounts may be permissible, or even required, on an IBF’s books.
2-309.69
Q3. Need a bank’s IBF have a name different from that of the bank?
A. No. An IBF is neither a separate entity nor a branch. The Federal Reserve has no objection to use of a different name, but banks should ensure that use of such a name is unobjectionable to its chartering and licensing authority.
Q4. If a foreign bank (or an Edge corporation) has two branches in a single state and in a single Federal Reserve District, can each branch make IBF-eligible loans and receive IBF-eligible deposits?
A. Yes. Either or both branches of the foreign bank (or the Edge corporation) can conduct an IBF business. However, for Federal Reserve weekly IBF and reserve reporting purposes, the two branches are a consolidated unit and are considered the establishing entity for one IBF. Therefore, the weekly IBF report must be filed on a consolidated basis by the same administrative office filing the FR 2900, and the FR 2951 (or the FR 2950, for an Edge corporation). In contrast, note that for the purposes of the FFIEC 002 and FR 2886B (which are, respectively, the quarterly call report for agencies and branches of foreign banks and Edge corporations), the two branches report separately and each therefore should include the IBF loans and deposits actually made and received at the branch on its quarterly call report.
2-309.7

SUPPORT OF FOREIGN OPERATIONS

Q1. What is the duty of a depository institution if it discovers that an IBF time deposit or IBF loan is not in fact being used to support operations outside the United States?
A. A depository institution must keep reserves against IBF liabilities that do not meet the requirements of Regulations D and Q and, in addition, comply with interest-rate restrictions of Regulation Q. IBF assets which do not meet those requirements must be transferred from the IBF to the domestic books. An institution will be expected to communicate with its customers to determine that the requirements are understood and followed.
Q2. Does the requirement that an IBF time deposit “support operations outside the United States” require that the source of funds arise solely out of operations outside of the United States?
A. Not necessarily. For example, capital supplied by a United States parent to a foreign office or subsidiary may be deposited in an IBF if the purpose of the transaction was to support the non-United States operations of the company. Funds may not be deposited by a United States office to obtain indirectly the favorable regulatory treatment on an IBF deposit.
2-309.71
Q3. Is a loan to a foreign corporation for the purpose of acquiring an existing United States corporation in a takeover bid considered to be for a foreign purpose?
A. No.
Q4. What documentation must a bank maintain to demonstrate that IBF loans and deposits are being used to support operations outside the United States?
A. Any internal memorandum or file documenting that notice has been sent, and in the case of non-United States subsidiaries or affiliates of United States residents, a copy of the acknowledgment should be retained. An IBF should maintain the same type of documentation concerning IBF loans as it routinely maintains with respect to other types of loans.
2-309.72
Q5. With respect to IBF deposits, what restrictions does the “support of foreign operations” test impose on the IBF’s establishing institution, IBF depositors, and payees of funds from a matured IBF deposit?
A. The support test for IBF deposits is intended to ensure that an IBF depositor places in IBFs only those funds that are used in connection with the depositor’s (or its affiliates’) foreign operations.
 The Board is relying to a certain extent on banks’ knowing their customers. As part of its general responsibilities to ensure that an IBF is in compliance with the Board’s regulations, a bank is expected to take action if it comes to its attention in the normal course of business that a customer’s use of its IBF account is inconsistent with the use-of-funds test. If it is unable to assure itself that the depositor is meeting the use-of-funds requirement, then the bank should consider moving the customer’s account from its IBF to its domestic books or offshore.
 A test does not impose restrictions on disbursal of the proceeds of a matured IBF deposit. It should be noted that the identity of the payee of the funds upon maturity is not conclusive on whether the depositor in fact is using those funds to support foreign operations. For example, the payee of a matured IBF deposit might be another United States depository institution or nonbank. That fact alone does not make the deposit ineligible at an IBF, it may be that the payment to the domestic party involved the depositor’s foreign business. Also, the fact that the payee is a foreign entity does not by itself mean that the IBF deposit was permissible; it may be that the funds were used to support domestic operations even though they are paid to a foreign resident.
2-309.73
Q6. If a bank discovers in the normal course of business that an account has not been used in accordance with the foreign operations test or any other provisions of the IBF regulations, must the bank reserve against the funds in the account?
A. Yes. If an account has not been used in accordance with the regulations, then the account must be treated as a domestic account, which means it is subject to domestic reserve requirements and to Regulation Q. Institutions must either bring the account into compliance or move it to the domestic or offshore books.
Q7. May an IBF depositor use an IBF deposit as security for a loan, the proceeds of which will be used for a domestic purpose?
A. No. Use of an IBF deposit in that manner would not constitute use of the funds solely to support foreign operations. However, IBF deposits against which a general right of set-off exists, either by law or contract, are not regarded as collateral or as assets securing a loan.
2-309.74
Q8. Section 204.8(b) of Regulation D requires that nonbank customers of an IBF receive a written statement concerning use of an IBF only for foreign purposes. In the case of a syndicated loan to a nonbank borrower, must all the banks in the syndicate that choose to record the loan on the books of their IBF send such a statement to the borrower, or may only the agent bank in the syndicate do so?
A. Only the agent of a syndicate needs to send the written statement. If the borrower is an affiliate of a United States resident, the return statement need be sent by the borrower to the agent only; however, the members of the syndicate should obtain a copy of the borrower’s letter for their records in order to ensure compliance with Regulation D.
Q9. When is the written notice and acknowledgment provided for in section 204.8(b) required to be given to a nonbank customer in connection with the opening of an IBF time deposit; in connection with establishing a nonbinding line of credit?
A. Section 204.8(b) states that a written notice must be given to an IBF customer at the time a deposit relationship or credit relationship is first established. A deposit relationship is established when a debtor/creditor relationship arises, and that occurs when funds are deposited to an account. Accordingly, the notice must be provided prior to that time. A credit relationship arises, not when the funds are disbursed, but when the commitment is made. Accordingly, the notice must be provided prior to the time that the funds are disbursed.
2-309.75
Q10. The answer to question 9 above states that the written notice must be provided when the commitment to lend is made in connection with the establishing of a nonbinding line of credit. However, the commitment to lend is not made when the nonbinding line is first arranged, but at some later time when it is mutually agreed that the party wants to borrow and the bank is willing to lend. Must the notice be provided and acknowledgment obtained at the initial point when the nonbinding line is arranged, or at the later point when the parties became committed?
A. The notice must be provided and the acknowledgment obtained at the time the bank is committed to lend, not when a nonbinding line of credit is arranged. However, it is permissible to give notice to such customer and obtain the acknowledgment, if required, at the time the nonbinding line is arranged and such notice and acknowledgment will fulfill the notice and acknowledgment requirements for IBF loans to that customer.
Q11. Do the notice and acknowledgment requirements and limitations on the use of funds apply to foreign currency deposits and foreign currency loans?
A. Yes.
2-309.76
Q12. Is the notice to IBF depositors required to be received by the depositor before an institution accepts funds to be placed in an IBF time deposit? For example, if a nonbank customer that has never received a notice of the Board’s policy informs an institution by telephone that it intends to make a wire transfer of funds for placement in an IBF account that day, can the institution accept the funds, and then send the written notice out to the customer that same day? In the case of a foreign subsidiary or affiliate of a domestic corporation, must the institution receive the acknowledgment before it accepts the funds?
A. An institution may accept the wire transfer of funds for deposit to an IBF account prior to the receipt of the notice by the IBF customer and, when required, prior to the receipt of the acknowledgment, provided that the customer is notified orally or by wire of the support test and that the notice is sent with the confirmation of the transaction.
Q13. May a bank incorporate in its loan or deposit agreement the notice regarding the limitations on the use of IBF loan or deposit proceeds and, if required, the acknowledgment of those limitations and thereby satisfy its obligation to provide the notice to and receive the acknowledgment from IBF customers?
A. Yes.
2-309.77
Q14. If the IBF customer is a foreign government, is written notice of the Board’s policy regarding IBF deposits and loans necessary?
A. No. It is required only for non-United States residents, and foreign offices or subsidiaries of a domestic corporation.
Q15. The Board’s letter of January 12, 1982 (at 2-263) states that IBFs may purchase securities in the secondary market so long as those securities are IBF-eligible. Is it permissible for an IBF to rely on a written statement from the obligor obtained by a prior IBF purchaser to the effect that that security was eligible?
A. Yes. An IBF may rely on such a statement from another IBF. However, the purchasing IBF must obtain a written copy of the obligor’s statement at or very near to the time that it makes the purchase. This is necessary to provide assurance that IBFs are making correct eligibility determinations.
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Q16. In the notice announcing the addition of section 204.8 to Regulation D (46 Fed. Reg. 32426 (June 23, 1981)), footnote 2 of the supplemental information states that written notice need not be given to IBF customers associated with assets transferred to the IBF within the four-week exemption period. Does this also apply to deposits that are so transferred?
A. No. Only assets are covered by the exemption. If a deposit is transferred, the bank is necessarily required to contact the customer in order to determine whether the funds in the account will be used for foreign purposes. With respect to deposits transferred, only the written notice of the Board’s policy must be given and the acknowledgment obtained, if required. No subsequent contact to determine the use of funds is required.
It may be necessary for a bank to contact loan customers in order to determine the purpose of the loan, but this is not required if the bank can determine the purpose from existing loan documentation. Although the “use of proceeds” test applies to loans transferred to the IBF from United States or non-United States offices of the establishing entity, notice to customers regarding the test is not required, provided that the loan was originally made prior to establishing the IBF. If the purpose of a loan is not clear from existing documentation, and the knowledgeable loan officer cannot provide sufficient clarification, then contact with the customer may be necessary to determine that loan proceeds are being used only to support operations outside the United States.
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Q17. Can an institution transfer an existing deposit on its books to its IBF without giving the IBF notice requirements?
A. No, it is necessary to give the notice to, and obtain the acknowledgment, if required, from a customer at the time the deposit is shifted. Notice need be given to and the relevant acknowledgment obtained from an IBF customer only one time.
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