B-194191 L/M, MAY 19, 1980

B-194191 L/M, MAY 19, 1980

SUBJECT: LEGAL OPINION ON MATTERS RELATED TO SUPERVISION OF THE INTERNATIONAL ACTIVITIES OF BANKS (FILE B-194191)

TEAM LEADER, GGD - MARK E. GEBICKE:

THIS IS IN RESPONSE TO YOUR REQUEST THAT WE EXAMINE THE LAWS GOVERNING THE ESTABLISHMENT AND ACQUISITION OF U. S. BANKS BY FOREIGN INDIVIDUALS, GROUPS, AND CORPORATIONS. YOU ASKED OUR OPINION AS TO WHETHER THE FEDERAL REGULATORY AGENCIES HAVE THE AUTHORITY TO COMPEL FOREIGN PURCHASERS TO COMPLY WITH THE ACQUISITION RULES AND REGULATIONS APPLICABLE TO DOMESTIC PURCHASERS, AND TO ASSESS FROM A LEGAL STANDPOINT THE COMPETITIVE IMPACT OF THE LEGISLATION GOVERNING BANK ACQUISITIONS.

WITH RESPECT TO WHETHER FOREIGN PURCHASERS MAY BE COMPELLED TO COMPLY WITH U. S. ACQUISITION RULES AND REGULATIONS, THE FEDERAL REGULATORS MAY REQUIRE COMPLIANCE WITH THE APPROPRIATE STATUTORY PROCEDURES FOR ACQUISITIONS, AND DENY APPROVAL OF SUCH ACQUISITIONS WHERE A PROSPECTIVE FOREIGN PURCHASER FAILS TO COMPLY. ONCE AN ACQUISITION HAS BEEN APPROVED, THE FEDERAL REGULATORS MAY, THROUGH APPROPRIATE ADMINISTRATIVE ORDERS ENFORCEABLE BY U. S. COURTS, REQUIRE A FOREIGN PURCHASER TO COMPLY WITH APPLICABLE RULES AND REGULATIONS GOVERNING SUCH MATTERS AS REPORTING AND DISCLOSURE REQUIREMENTS. SINCE U. S. COURTS LACK JURISDICTION OVER OFFICIALS AND ASSETS OF FOREIGN BANKS LOCATED OUTSIDE THE UNITED STATES, THE ABILITY OF FEDERAL REGULATORS TO COMPEL COMPLIANCE WITH REPORTING AND DISCLOSURE REQUIREMENTS THROUGH THE COURTS MAY BE LIMITED. HOWEVER, THE REGULATORY AGENCIES GENERALLY RETAIN, ULTIMATELY, AUTHORITY TO ORDER DIVESTITURES, TERMINATE INSURANCE COVERAGE OR TAKE SIMILAR ACTIONS IF FOREIGN BANKS FAIL TO COOPERATE.

WITH REGARD TO THE COMPETITIVE IMPACT OF LEGISLATION GOVERNING BANK ACQUISITIONS, THE MCFADDEN ACT, 12 U.S.C. SEC. 36, AND THE DOUGLAS AMENDMENT TO THE BANK HOLDING COMPANY ACT, 12 U.S.C. SEC. 1842(D), ARE THE FEDERAL LAWS HAVING THE MOST SIGNIFICANT IMPACT IN THIS AREA. WE AGREE WITH THE GENERALLY ACCEPTED VIEW THAT BOTH THESE LAWS OPERATE TO IMPOSE RESTRAINTS ON THE GEOGRAPHICAL EXPANSION OF DOMESTIC BANKS THROUGH BRANCHING AND HOLDING COMPANY ACQUISITION ACTIVITIES, THEREBY GIVING A COMPETITIVE ADVANTAGE TO FOREIGN BANKS AND PURCHASERS WHOSE ACTIVITIES GENERALLY ARE AFFECTED IN ONLY A LIMITED MANNER BY SUCH LEGAL RESTRAINTS.

WE HAVE SUMMARIZED AT THE BEGINNING OF THE MEMORANDUM THE MAJOR FEDERAL LAWS GOVERNING THE ESTABLISHMENT OR ACQUISITION OF BANKS AND BANKING OPERATIONS IN THE UNITED STATES.

ATTACHMENT

REVIEW OF THE SUPERVISION OF THE INTERNATIONAL ACTIVITIES OF BANKS

DIGESTS

1. REVIEW AND ANALYSIS MADE OF FEDERAL BANKING LAWS GOVERNING THE ESTABLISHMENT OR ACQUISITION OF BANKS, BANK HOLDING COMPANIES, AND OTHER BANKING OPERATIONS IN THE U. S.

2. FEDERAL BANK REGULATORS HAVE AUTHORITY TO REQUIRE FOREIGN PURCHASERS OF U. S. BANKS TO COMPLY WITH U. S. ACQUISITION RULES AND REGULATIONS. WHILE ABILITY OF REGULATORS TO ENFORCE THEIR AUTHORITY THROUGH JUDICIAL ACTION MAY BE LIMITED BY LACK OF JURISDICTION OVER OFFICIALS AND ASSETS OF FOREIGN BANKS LOCATED OUTSIDE THE U. S., OTHER SANCTIONS ARE AVAILABLE TO THE REGULATORS.

3. MCFADDEN ACT, 12 U.S.C. SEC. 36, AND DOUGLAS AMENDMENT TO BANK HOLDING COMPANY ACT, 12 U.S.C. SEC. 1842(D), IMPOSE LEGAL RESTRAINTS ON GEOGRAPHICAL EXPANSION BY DOMESTIC BANKS WHICH PLACE SUCH BANKS AT COMPETITIVE DISADVANTAGE WITH FOREIGN BANKS NOT SUBJECT TO SUCH RESTRAINTS.

LAWS GOVERNING THE ESTABLISHMENT OR ACQUISITION OF BANKS, BANK HOLDING COMPANIES AND OTHER BANKING OPERATIONS IN THE U. S.

INTERNATIONAL BANKING ACT OF 1978

THE OBJECTIVES OF THE INTERNATIONAL BANKING ACT OF 1978, PUB. L. NO. 95-369 (SEPTEMBER 17, 1978), 92 STAT. 607, 12 U.S.C. SEC. 3101, ARE TO PROVIDE A SYSTEM OF FEDERAL REGULATION OF FOREIGN BANKING ACTIVITIES IN THE UNITED STATES AND TO INSURE, TO THE EXTENT POSSIBLE, EQUAL TREATMENT FOR FOREIGN AND DOMESTIC BANKS OPERATING IN THE UNITED STATES. SEE S. RPT. NO. 95-1073, 2 (1978); H. RPT. NO. 95-910, 5 (1978).

THE FEDERAL FRAMEWORK ESTABLISHED UNDER THE ACT IS SUPPOSED TO PERMIT FOREIGN BANKS TO CONTINUE TO PARTICIPATE IN U. S. DOMESTIC FINANCIAL MARKETS WITH THE FOLLOWING FEATURES:

(1) AVAILABILITY OF FEDERAL DEPOSIT INSURANCE FOR DEPOSITS IN BRANCHES OF FOREIGN BANKS TO SAFEGUARD DEPOSITORS' FUNDS;

(2) MONETARY POLICY CONTROLS OVER THE FUNDS OF BRANCHES AND AGENCIES OF FOREIGN BANKS BY THE FEDERAL RESERVE AFTER CONSULTATION AND COOPERATION WITH STATE SUPERVISORY AUTHORITIES IN THE CASE OF STATE BRANCHES AND AGENCIES;

(3) RESIDUAL AUTHORITY TO EXAMINE FOREIGN BANK OPERATIONS IN THE UNITED STATES BY FEDERAL REGULATORY AUTHORITIES TO INSURE THE SAFETY AND SOUNDNESS OF THE BANKING SYSTEM; AND

(4) AUTHORITY FOR FOREIGN BANKS TO CONTINUE TO OPERATE ACROSS STATE LINES BUT IN A MANNER THAT INSURES COMPETITIVE EQUALITY BETWEEN FOREIGN AND DOMESTIC BANKS WHILE ENCOURAGING FOREIGN BANK ENTRY IN THOSE STATES THAT DESIRE A FOREIGN BANK PRESENCE. SEE CONG. REC. S. 13389, AUGUST 15, 1978 (DAILY ED.).

SECTION 4 OF THE ACT, 12 U.S.C. SEC. 3102, PROVIDES THAT, SUBJECT TO THE APPROVAL OF THE COMPTROLLER OF THE CURRENCY, A FOREIGN BANK MAY ESTABLISH FEDERAL BRANCHES OR AGENCIES IN ANY STATE IN WHICH IT IS NOT OPERATING A STATE BRANCH OR AGENCY AND WHERE THE ESTABLISHMENT OF A BRANCH OR AGENCY BY FOREIGN BANKS IS NOT PROHIBITED BY STATE LAW. UNDER THIS SECTION, FOREIGN BANKS MAY CONVERT THEIR STATE BRANCHES, AGENCIES, OR COMMERCIAL LENDING COMPANIES INTO FEDERAL BRANCHES OR AGENCIES. THE ACTIVITIES OF SUCH BRANCHES OR AGENCIES, WITH CERTAIN EXCEPTIONS, MUST BE CONDUCTED IN THE SAME MANNER AS NATIONAL BANKS.

UNDER SECTION 5(A) OF THE ACT, 12 U.S.C. SEC. 3103(A), FOREIGN BANKS MAY ESTABLISH FEDERAL OR STATE BRANCHES OR AGENCIES IN ANY STATE WHERE PERMITTED BY STATE LAW BUT MAY ONLY ACCEPT FOREIGN SOURCE AND INTERNATIONAL BANKING AND FINANCE-RELATED DEPOSITS PERMISSIBLE FOR INTERNATIONAL BANKING CORPORATIIONS ("EDGE ACT" CORPORATIONS). THIS PROVISION IS INTENDED TO PERMIT A STATE TO RETAIN ITS AUTHORITY TO PERMIT FOREIGN-OWNED BANK BRANCHES TO OPERATE WITHIN THAT STATE WHERE SUCH A BRANCH MIGHT ALSO BE OPERATING WITHIN ANOTHER STATE. SECTION 5(A) ALSO PROVIDES THAT NO FOREIGN BANK MAY ACQUIRE ANY INTEREST IN A BANK LOCATED OUTSIDE OF ITS HOME STATE IF SUCH A TRANSACTION WOULD BE PROHIBITED BY SECTION 3(D) OF THE BANK HOLDING COMPANY ACT OF 1956, AS AMENDED, 12 U.S.C. SEC. 1842(D), IF THE FOREIGN BANK WERE A BANK HOLDING COMPANY, THE OPERATION OF WHOSE BANKING SUBSIDIARIES ARE PRINCIPALLY CONDUCTED IN THE FOREIGN BANK'S HOME STATE. THE INTENT OF THIS LIMITATION IS TO INSURE THAT A FOREIGN BANK DOES NOT EVADE THE DEPOSIT RESTRICTIONS IMPOSED ON BRANCHES BY ESTABLISHING A SUBSIDIARY BANK OUTISDE ITS HOME STATE.

SECTION 6 OF THE ACT, 12 U.S.C. SEC. 3104, REQUIRES FDIC INSURANCE FOR FEDERAL BRANCHES OF FOREIGN-OWNED BANKS, AND REQUIRES STATE CHARTERED BRANCHES OF SUCH BANKS TO MAINTAIN FDIC INSURANCE IN ORDER TO OPERATE IN ANY STATE IN WHICH THE DEPOSITS OF A DOMESTIC STATE CHARTERED BANK WOULD BE REQUIRED TO BE INSURED.

CHANGE IN BANK CONTROL ACT OF 1978

TITLE VI OF THE FINANCIAL INSTITUTIONS REGULATORY AND INTEREST RATE CONTROL ACT OF 1978, PUB. L. NO. 95-630 (NOVEMBER 10, 1978), 92 STAT. 3683, 12 U.S.C. SEC. 1817(J), DESIGNATED THE CHANGE IN BANK CONTROL ACT OF 1978, AUTHORIZES THE FEDERAL FINANCIAL REGULATORY AGENCIES TO MONITOR AND REGULATE THE SALE AND ACQUISITION OF FEDERALLY-INSURED BANKS. THE ACT COVERS ACQUISITIONS OF OWNERSHIP OR CONTROL OF DOMESTIC BANKS BY INDIVIDUALS AND OTHER NON-BANKING INVESTORS WHICH ARE NOT GOVERNED BY THE BANK HOLDING COMPANY ACT. (SEE P. 5)

THE ACT PROVIDES THAT NO PERSON MAY ACQUIRE CONTROL (FN1) OF AN INSURED BANK, OR THE HOLDING COMPANY OF AN INSURED BANK, UNLESS THE APPROPRIATE FEDERAL BANKING AGENCY HAS BEEN GIVEN 60 DAYS PRIOR WRITTEN NOTICE OF THE PROPOSED ACQUISITION. (FN2) WHEN THE BANK TO BE ACQUIRED IS A STATE BANK, THE FEDERAL BANKING AGENCY MUST PROVIDE A COPY OF THE NOTICE TO THE APPROPRIATE STATE BANKING AGENCY AND TAKE INTO ACCOUNT THE STATE AGENCY'S VIEWS IN ITS CONSIDERATION OF THE PROPOSED ACQUISITION. 12 U.S.C. SEC. 1817(J)(2).

NOTICE OF A PROPOSED ACQUISITION FILED UNDER THE ACT MUST CONTAIN DETAILED INFORMATION ABOUT EACH PARTY ACQUIRING CONTROL. 12 U.S.C. SEC. 1817(J)(6). SPECIFICALLY, THE NOTICE MUST INCLUDE:INFORMATION ON SUCH PERSONS RELATING TO BACKGROUND, MATERIAL BUSINESS ACTIVITIES, AND ANY PERTINENT PENDING LEGAL PROCEEDINGS OR CRIMINAL INDICTMENT OR CONVICTION AGAINST SUCH PERSON (12 U.S.C. SEC. 1817(J)(6)(A)); AND A STATEMENT OF ASSETS AND LIABILITIES FOR THE PRECEDING 5 YEARS, TOGETHER WITH YEARLY STATEMENTS OF INCOME AND SOURCE AND APPLICATION OF FUNDS (12 U.S.C. SEC. 1817(J)(6)(B)). IN ADDITION, THE NOTICE MUST INCLUDE INFORMATION RELATING TO THE TERMS AND CONDITIONS OF THE PROPOSED ACQUISITION (12 U.S.C. SEC. 1817(J)(6)(C)); DETAILED INFORMATION ABOUT THE FINANCING OF THE ACQUISITION (12 U.S.C. SEC. 1817(J)(6)(D)); DESCRIPTION OF ANY PLANS OR PROPOSALS TO MAKE ANY MAJOR CHANGE IN THE BUSINESS OR CORPORATE STRUCTURE OR MANAGEMENT OF THE BANK BEING ACQUIRED (12 U.S.C. SEC. 1817(J)(6)(E)); THE IDENTITY AND BACKGROUND OF ANYONE EMPLOYED TO SOLICIT STOCKHOLDERS ABOUT THE ACQUISITION (12 U.S.C. SEC. 1817(J)(6)(F)); AND COPIES OF TENDER OFFERS OR ADVERTISEMENTS ABOUT TENDER OFFERS TO STOCKHOLDERS (12 U.S.C. SEC. 1817(J)(6)(H)).

THE APPROPRIATE FEDERAL REGULATORY AGENCY MAY DISAPPROVE ANY PROPOSED ACQUISITION IF: IT WOULD RESULT IN A MONOPOLY OR BE IN FURTHERANCE OF AN ATTEMPT TO MONOPOLIZE THE BANKING BUSINESS IN ANY PART OF THE UNITED STATES (12 U.S.C. SEC. 1817(J)(7)(A)); THE EFFECT OF THE ACQUISITION WOULD BE TO SUBSTANTIALLY LESSEN COMPETITION, TEND TO CREATE A MONOPOLY OR OTHERWISE BE IN RESTRAINT OF TRADE, UNLESS THE ANTICOMPETITIVE EFFECTS ARE CLEARLY OUTWEIGHED BY THE PUBLIC INTEREST (12 U.S.C. SEC. 1817(J)(7)(C)); THE COMPETENCE, EXPERIENCE, OR INTEGRITY OF AN ACQUIRING PARTY OR MANAGEMENT OFFICIAL IS NOT IN THE INTEREST OF DEPOSITORS OR THE PUBLIC (12 U.S.C. SEC. 1817(J)(7)(D)); OR ANY ACQUIRING PARTY FAILS, NEGLECTS, OR OTHERWISE REFUSES TO FURNISH ALL INFORMATION REQUIRED BY THE APPROPRIATE REGULATORY AGENCY (12 U.S.C. SEC. 1817(J)(7)(E)).

ALSO, AN INSURED BANK WHICH MAKES A LOAN SECURED BY 25 PERCENT OR MORE OF THE VOTING STOCK OF ANOTHER INSURED BANK MUST REPORT THAT FACT TO THE FEDERAL REGULATORY AGENCY SUPERVISING THE BANK WHOSE STOCK IS PLEDGED (12 U.S.C. SEC. 1817(J)(9)).

IN THE EVENT AN AGENCY DISAPPROVES ANY PROPOSED ACQUISITION, IT MUST GIVE WRITTEN NOTICE TO THE ACQUIRING PARTIES WITHIN 3 DAYS OF ITS DECISION. U.S.C. SEC. 1817(J)(3). THE PARTY SEEKING TO ACQUIRE CONTROL MAY REQUEST AN AGENCY HEARING ON THE PROPOSED ACQUISITION WITHIN 10 DAYS OF RECEIPT OF THE AGENCY'S NOTICE OF ITS DISAPPROVAL (12 U.S.C. SEC. 1817(J)(4)), AND, IF THE AGENCY STILL DISAPPROVES THE ACQUISITION AFTER THE HEARING, THE PARTY SEEKING ACQUISITION MAY APPEAL TO THE U. S. COURT OF APPEALS. U.S.C. SEC. 1817(J)(5).

WHERE A CHANGE IN CONTROL OCCURS, AS CONTEMPLATED UNDER THE ACT, EACH INSURED BANK IS REQUIRED TO REPORT TO THE APPROPRIATE FEDERAL REGULATORY AGENCY ANY CHANGE OR REPLACEMENT OF ITS CHIEF EXECUTIVE OFFICER OR ANY DIRECTOR OCCURRING WITHIN THE FOLLOWING YEAR, INCLUDING PAST AND CURRENT BUSINESS AFFILIATIONS OF SUCH PERSON (12 U.S.C. SEC. 1817(J)(12)).

CHANGE IN SAVINGS AND LOAN CONTROL ACT OF 1978

TITLE VII OF THE FINANCIAL INSTITUTIONS REGULATORY AND INTEREST RATE CONTROL ACT OF 1978, PUB. L. NO. 95-630, 12 U.S.C. SEC. 1730(Q), IS DESIGNATED THE CHANGE IN SAVINGS AND LOAN CONTROL ACT OF 1978. THIS ACT PROVIDES THE FEDERAL HOME LOAN BANK BOARD WITH THE SAME POWERS TO MONITOR AND REGULATE THE SALE AND ACQUISITION OF FEDERALLY-INSURED SAVINGS AND LOAN ASSOCIATIONS AND THEIR HOLDING COMPANIES AS IS GRANTED IN TITLE VI, THE CHANGE IN BANK CONTROL ACT, IN CONNECTION WITH INSURED BANKS. THE PROVISIONS OF TITLE VII PARALLEL THOSE OF TITLE VI, AND CONTAIN SIMILAR AUTHORITY, STANDARDS, DUTIES AND RESPONSIBILITIES.

BANK HOLDING COMPANY ACT OF 1956, AS AMENDED

THE ACQUISITION OF CONTROL (FN3) OF A BANK BY EITHER A BANKING COMPANY (FN4) OR A NONBANKING COMPANY IS SUBJECT TO THE BANK HOLDING COMPANY ACT OF 1956, AS AMENDED, 12 U.S.C. SEC. 1841 ET SEQ. SUCH ACQUISITIONS ARE SUPERVISED AND REGULATED BY THE FEDERAL RESERVE BOARD; UNDER SECTION 3 OF THE ACT, A COMPANY MUST OBTAIN PRIOR APPROVAL OF THE BOARD FOR SUCH ACQUISITIONS. 12 U.S.C. SEC. 1842(A). IN ADDITION, A BANK HOLDING COMPANY NEEDS BOARD APPROVAL TO ACQUIRE MORE THAN FIVE PERCENT OF THE STOCK OF ANY ADDITIONAL BANK (12 U.S.C. SEC. 1842(A)(3)); TO ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS OF ITS SUBSIDIARY BANK (12 U.S.C. SEC. 1842(A)(4)); OR TO MERGE WITH ANOTHER BANK HOLDING COMPANY (12 U.S.C. SEC. 1842(A)(5)). A COMPANY MUST REGISTER WITH THE BOARD AND DISCLOSE ITS CONTROLLING SHAREHOLDERS AND AFFILIATIONS (12 U.S.C. SEC. 1842(A)), AND MUST MAKE ANNUAL REPORTS TO THE BOARD CONCERNING ITS CONDITION AND ACTIVITIES (12 U.S.C. SEC. 1844(C)).

IN REVIEWING APPLICATIONS FOR PROPOSED ACQUISITIONS, THE BOARD MUST EVALUATE THE PROPOSALS ACCORDING TO STANDARDS SET FORTH IN THE ACT. PROPOSED ACQUISITIONS OF NATIONAL BANKS, THE BOARD IS REQUIRED TO SEEK THE VIEWS AND RECOMMENDATIONS OF THE COMPTROLLER OF THE CURRENCY. THE VIEWS AND RECOMMENDATIONS OF THE APPROPRIATE STATE SUPERVISORY AUTHORITY MUST BE CONSIDERED WITH RESPECT TO STATE BANKS. 12 U.S.C. SEC. 1842(B). MAKING ITS DETERMINATION, THE BOARD MUST TAKE INTO CONSIDERATION THE FINANCIAL AND MANAGERIAL RESOURCES AND FUTURE PROSPECTS OF THE COMPANY AND BANK CONCERNED, AND THE CONVENIENCE AND NEEDS OF THE COMMUNITY TO BE SERVED. 12 U.S.C. SEC. 1842(C). IN ADDITION, SUCH ACQUISITIONS ARE SUBJECT TO ANTITRUST CONSIDERATIONS, AND THE BOARD MAY NOT APPROVE AN ACQUISITION THAT WOULD RESULT IN A MONOPOLY OR BE IN FURTHERANCE OF ANY COMBINATION OR CONSPIRACY TO MONOPOLIZE BANKING IN ANY PART OF THE UNITED STATES. 12 U.S.C. SEC. 1842(C)(1) AND (2).

SECTION 2(H) OF THE ACT, 12 U.S.C. SEC. 1841(H), MAKES THE REQUIREMENTS OF THE ACT APPLICABLE TO FOREIGN COMAPNIES SEEKING TO ACQUIRE CONTROL OF U. S. BANKS. THEREFORE, WHERE FOREIGN BANKS OPERATE IN THE UNITED STATES THROUGH DOMESTICALLY INCORPORATED BANKING SUBSIDIARIES, THEIR OPERATIONS IN THIS COUNTRY ARE GENERALLY SUBJECT TO THE SAME RULES UNDER THE ACT THAT GOVERN THE ACTIVITIES OF DOMESTIC BANK HOLDING COMPANIES, WITH LIMITED EXCEPTIONS INVOLVING NONBANKING ACTIVITIES COVERED UNDER SUCH PROVISIONS AS SECTION 4(C)(9) OF THE ACT. SEE 12 U.S.C. SEC. 1843(C)(9).

MCFADDEN ACT

THE MCFADDEN ACT, 12 U.S.C. SEC. 36, PROVIDES IN PART:

"(C) A NATIONAL BANKING ASSOCIATION MAY, WITH THE APPROVAL OF THE COMPTROLLER OF THE CURRENCY, ESTABLISH AND OPERATE NEW BRANCHES: (1) WITHIN THE LIMITS OF THE CITY, TOWN OR VILLAGE IN WHICH SAID ASSOCIATION IS SITUATED, IF SUCH ESTABLISHMENT AND OPERATION ARE AT THE TIME EXPRESSLY AUTHORIZED TO STATE BANKS BY THE LAW OF THE STATE IN QUESTION; AND (2) AT ANY POINT WITHIN THE STATE IN WHICH SAID ASSOCIATION IS SITUATED, IF SUCH ESTABLISHMENT AND OPERATION ARE AT THE TIME AUTHORIZED TO STATE BANKS BY THE STATUTE LAW OF THE STATE IN QUESTION BY LANGUAGE SPECIFICALLY GRANTING SUCH AUTHORITY AFFIRMATIVELY AND NOT MERELY BY IMPLICATION OR RECOGNITION, AND SUBJECT TO THE RESTRICTIONS AS TO LOCATION IMPOSED BY THE LAW OF THE STATE ON STATE BANKS. ***"

UNDER THE MCFADDEN ACT, THE COMPTROLLER OF THE CURRENCY IS AUTHORIZED TO ESTABLISH A BRANCH OFFICE FOR A NATIONAL BANK IN A STATE ONLY WHEN, WHERE, AND HOW THAT STATE'S LAW WOULD EXPRESSLY AUTHORIZE STATE BANKS TO ESTABLISH AND OPERATE BRANCHES. THE PURPOSE OF THE ACT IS TO PLACE NATIONAL AND STATE BANKS ON A BASIS OF COMPETITIVE EQUALITY INSOFAR AS BRANCHING IS CONCERNED.

BANK MERGER ACT

THE BANK MERGER ACT, 12 U.S.C. SEC. 1828, REQUIRES PRIOR APPROVAL OF THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) FOR THE MERGER OF AN INSURED BANK WITH A NONINSURED INSTITUTION. 12 U.S.C. SEC. 1828(C)(1). THE ACT ALSO REQUIRES EVERY INSURED BANK WHICH IS TO BE THE ACQUIRING OR RESULTING BANK IN A MERGER WITH ANOTHER INSURED BANK TO OBTAIN THE PRIOR APPROVAL OF ITS PRIMARY FEDERAL BANK REGULATORY AGENCY FOR SUCH MERGER. 12 U.S.C. SEC. 1828(C)(2).

FOR PURPOSES OF MERGER OF INSURED INSTITUTIONS, THE APPROVING REGULATORY AUTHORITY IS THE COMPTROLLER OF THE CURRENCY IF THE ACQUIRING OR RESULTING BANK IS TO BE A NATIONAL BANK OR A DISTRICT OF COLUMBIA BANK; THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM IF THE ACQUIRING OR RESULTING BANK IS TO BE A STATE MEMBER BANK (EXCEPT DISTRICT OF COLUMBIA BANK); OR THE FDIC IF THE ACQUIRING OR RESULTING BANK IS TO BE A NONMEMBER INSURED BANK (EXCEPT A DISTRICT OF COLUMBIA BANK). 12 U.S.C. SEC. 1828(C)(2)(A)-(C).

GLASS-SEGAL ACT

THE GLASS-SEGAL ACT, 12 U.S.C. SECS. 78, 377, MAKES IT ILLEGAL FOR DOMESTIC COMPANIES TO ENGAGE IN BOTH COMMERCIAL AND INVESTMENT BANKING ACTIVITIES IN THE UNITED STATES. SPECIFICALLY, SECTION 20 OF THE ACT, 12 U.S.C. SEC. 377, PROHIBITS AFFILIATIONS BETWEEN BANKS THAT ARE MEMBERS OF THE FEDERAL RESERVE SYSTEM AND ORGANIZATIONS "ENGAGED PRINCIPALLY IN THE ISSUE, FLOTATION, UNDERWRITING, PUBLIC SALE, OR DISTRIBUTION AT WHOLESALE OR RETAIL OR THROUGH SYNDICATE PARTICIPATION OF STOCKS, BONDS, DEBENTURES, NOTES, OR OTHER SECURITIES." SECTION 32 OF THE ACT, 12 U.S.C. SEC. 78, PROHIBITS ANY OFFICER, DIRECTOR, OR EMPLOYEE OF A MEMBER BANK FROM SERVING AT THE SAME TIME IN A SIMILAR CAPACITY WITH SUCH A SECURITIES ORGANIZATION.

ANTITRUST CONSIDERATIONS

THE STANDARDS OF APPROVAL FOR BOTH BANK HOLDING COMPANY ACQUISITIONS AND BANK MERGERS INVOLVE SIMILAR COMPETITIVE FACTORS DERIVED FROM, BUT NOT IDENTICAL TO, THE STANDARDS OF THE ANTITRUST LAWS. SEE 12 U.S.C. SECS. 1842(C) AND 1828(C). THE ANTITRUST PROVISIONS ARE FOUND IN SECTION 1 OF THE SHERMAN ACT, 15 U.S.C. SEC. 1, AND SECTION 7 OF THE CLAYTON ACT, 15 U.S.C. SEC. 18.

SECTION 1 OF THE SHERMAN ACT PROVIDES:

"EVERY CONTRACT, COMBINATION IN THE FORM OF TRUST OR OTHERWISE, OR CONSPIRACY, IN RESTRAINT OF TRADE OR COMMERCE AMONG THE SEVERAL STATES, *** IS DECLARED TO BE ILLEGAL. ***"

SECTION 7 OF THE CLAYTON ACT PROVIDES, IN PART:

"NO CORPORATION ENGAGED IN COMMERCE SHALL ACQUIRE, DIRECTLY OR INDIRECTLY, THE WHOLE OR ANY PART OF THE STOCK OR OTHER SHARE CAPITAL AND NO CORPORATION SUBJECT TO THE JURISDICTION OF THE FEDERAL TRADE COMMISSION SHALL ACQUIRE THE WHOLE OR ANY PART OF THE ASSETS OF ANOTHER CORPORATION ENGAGED ALSO IN COMMERCE WHERE IN ANY LINE OF COMMERCE IN ANY SECTION OF THE COUNTRY, THE EFFECT OF SUCH ACQUISITION MAY BE SUBSTANTIALLY TO LESSEN COMPETITION, OR TO TEND TO CREATE A MONOPOLY.

"NO CORPORATION SHALL ACQUIRE, DIRECTLY OR INDIRECTLY, THE WHOLE OR ANY PART OF THE STOCK OR OTHER SHARE CAPITAL AND NO CORPORATION SUBJECT TO THE JURISDICTION OF THE FEDERAL TRADE COMMISSION SHALL ACQUIRE THE WHOLE OR ANY PART OF THE ASSETS OF ONE OR MORE CORPORATIONS ENGAGED IN COMMERCE, WHERE IN ANY LINE OF COMMERCE IN ANY SECTION OF THE COUNTRY, THE EFFECT OF SUCH ACQUISITION, OF SUCH STOCKS OR ASSETS, OR OF THE USE OF SUCH STOCK BY THE VOTING OR GRANTING OF PROXIES OR OTHERWISE, MAY BE SUBSTANTIALLY TO LESSEN COMPETITION, OR TO TEND TO CREATE A MONOPOLY." (FN5)

UNDER STANDARDS MODELED ON THE SHERMAN ACT, NO BANK ACQUISITION OR MERGER UNDER EITHER THE BANK HOLDING COMPANY ACT OR BANK MERGER ACT MAY BE APPROVED IF IT WOULD RESULT IN A MONOPOLY OR BE IN FURTHERANCE OF A COMBINATION OR CONSPIRACY TO MONOPOLIZE BANKING IN ANY PART OF THE UNITED STATES. SEE 12 U.S.C. SECS. 1842(C)(1) AND 1828(C)(5)(A). UNDER STANDARDS MODELED ON THE CLAYTON ACT, BANK ACQUISITIONS AND MERGERS GENERALLY MAY NOT BE APPROVED IF THEIR EFFECT MAY BE SUBSTANTIALLY TO LESSEN COMPETITION OR TO TEND TO CREATE A MONOPOLY. HOWEVER, BANK REGULATORS MAY APPROVE ACQUISITION OR MERGER TRANSACTIONS NOT MEETING THIS STANDARD IF, IN THEIR JUDGMENT, THE ANTICOMPETITIVE EFFECTS ARE CLEARLY OUTWEIGHED BY THE PROBABLE EFFECT OF THE TRANSACTION IN MEETING THE CONVENIENCE AND NEEDS OF THE COMMUNITY TO BE SERVED. SEE 12 U.S.C. SECS. 1842(C)(2) AND 1828(C)(5)(B).

IT SHOULD BE NOTED HERE THAT REGULATORY APPROVAL OF A BANK ACQUISITION OR MERGER TRANSACTION DOES NOT IMMUNIZE SUCH TRANSACTION FROM THE ANTITRUST LAWS. 12 U.S.C. SEC. 1849(A); SEE UNITED STATES V. PHILLIPSBURG NATIONAL BANK & TRUST CO., 399 U.S. 350 (1970); UNITED STATES V. PHILADELPHIA NATIONAL BANK, 374 U.S. 321 (1963). ANY PARTY AGGRIEVED BY AN ORDER GRANTING OR DENYING AN APPLICATION FOR AN ACQUISITION OR MERGER TRANSACTION MAY OBTAIN JUDICIAL REVIEW OF THE AGENCY'S DECISION IN THE FEDERAL COURT OF APPEALS UNDER THE ANTITRUST STANDARDS FOUND IN THE BANK HOLDING COMPANY ACT OR THE BANK MERGER ACT. 12 U.S.C. SECS. 1848 AND 1828(C)(7).

IN ADDITION, AN AGENCY MUST NOTIFY THE DEPARTMENT OF JUSTICE OF ANY APPROVAL BY IT OF A PROPOSED ACQUISITION OR MERGER. EXCEPT IN EMERGENCY SITUATIONS, ANY APPROVED TRANSACTION IS STAYED AUTOMATICALLY FOR 30 DAYS DURING WHICH TIME AN ANTITRUST SUIT CHALLENGING THE TRANSACTION MAY BE BROUGHT BY THE JUSTICE DEPARTMENT IN THE DISTRICT COURT. SUCH A SUIT IS ALSO GOVERNED BY THE MODIFIED ANTITRUST STANDARDS SET OUT IN 12 U.S.C. SECS. 1842(C) OR 1828(C). IF AN ANTITRUST SUIT IS NOT BROUGHT BY THE JUSTICE DEPARTMENT WITHIN 30 DAYS, AND THE TRANSACTION IS CONSUMMATED, IT MAY NOT SUBSEQUENTLY BE CHALLENGED, IN AND OF ITSELF, AS VIOLATING THE ANTITRUST LAWS. HOWEVER, SUCH A TRANSACTION MUST NONETHELESS COMPLY WITH THE ANTITRUST LAWS AFTER IT HAS BEEN CONSUMMATED. SEE 12 U.S.C. SECS. 1849(B) AND 1828(C)(6) AND (7).

AUTHORITY OF FEDERAL BANK REGULATORY AGENCIES TO COMPEL FOREIGN PURCHASERS TO COMPLY WITH ACQUISITION RULES AND REGULATIONS APPLICABLE TO DOMESTIC PURCHASERS

UNDER THE INTERNATIONAL BANKING ACT OF 1978, THE CHANGE IN BANK CONTROL ACT OF 1978, THE CHANGE IN SAVINGS AND LOAN CONTROL ACT OF 1978, THE BANK HOLDING COMPANY ACT, AS AMENDED, AND THE BANK MERGER ACT, THE APPROPRIATE FEDERAL REGULATORY AGENCY MAY PREVENT OR DENY A PROPOSED ACQUISITION OR ESTABLISHMENT OF A FINANCIAL INSTITUTION WHERE PROSPECTIVE FOREIGN PURCHASERS FAIL TO SUPPLY REQUIRED INFORMATION WHICH IS NECESSARY TO ASSESS THE PURCHASER'S FINANCIAL AND MANAGERIAL RESOURCES AND FUTURE PROSPECTS.

THE STATUTORY STANDARDS UNDER THE VARIOUS LAWS LISTED ABOVE FOR APPROVING ACQUISITION OR ESTABLISHING DOMESTIC FINANCIAL INSTITUTIONS ARE SIMILAR, AND REQUIRE THE EVALUATION OF SIMILAR KINDS OF INFORMATION. THIS INFORMATION GENERALLY INCLUDES PERSONAL BACKGROUND AND FINANCIAL DATA, INFORMATION REGARDING THE ACQUIRER'S MATERIAL BUSINESS ACTIVITIES AND AFFILIATIONS, DETAILED INFORMATION ABOUT THE FINANCING OF THE PROPOSED ACQUISITION, ANY PLANS OR PROPOSALS FOR MAJOR CHANGES IN THE BUSINESS OR MANAGEMENT OF THE INSTITUTION TO BE ACQUIRED, THE TERMS AND CONDITIONS OF THE PROPOSED ACQUISITION, AND ANY ADDITIONAL INFORMATION DEEMED RELEVANT TO THE REGULATORY AGENCY'S DETERMINATION.

THESE STATUTES GRANT TO THE FEDERAL BANK REGULATORY AUTHORITIES CERTAIN SUPERVISORY, INVESTIGATIVE, AND DIVESTITURE POWERS WHICH APPLY TO FOREIGN, AS WELL AS U. S., CITIZENS AND COMPANIES ONCE REGULATORY APPROVAL HAS BEEN GRANTED TO ACQUIRE OR ESTABLISH A DOMESTIC FINANCIAL INSTITUTION OR OPERATION. THESE POWERS ARE ACCOMPANIED BY VARIOUS ENFORCEMENT PROCEDURES, WHICH, AT LEAST IN THE CASE OF A FOREIGN PURCHASER'S DOMESTIC OPERATIONS, ARE INTENDED TO ENABLE THE REGULATORY AGENCIES TO COMPEL COMPLIANCE WITH ACQUISITION RULES AND REGULATIONS.

FOR EXAMPLE, BRANCHES AND AGENCIES ESTABLISHED UNDER THE INTERNATIONAL BANKING ACT OF 1978 ARE, WITH CERTAIN EXCEPTIONS, SUBJECT TO THE SAME DUTIES, RESTRICTIONS, PENALTIES, CONDITIONS, AND LIMITATIONS THAT APPLY TO NATIONAL BANKS. 12 U.S.C. SEC. 3102(B). IN THIS RESPECT, CERTAIN PROVISIONS OF THE ACT CONCERN THE AUTHORITY OF THE REGULATORY AGENCIES TO COMPEL COMPLIANCE WITH SUPERVISORY AND REGULATORY REQUIREMENTS THROUGH ADMINISTRATIVE OR JUDICIAL ENFORCEMENT PROCEEDINGS.

SECTION 6(C)(7) OF THE ACT AMENDS THE FEDERAL DEPOSIT INSURANCE ACT, 12 U.S.C. SEC. 1815(C)(5), TO PROVIDE THAT THE FDIC MAY, UPON FAILURE OR THREATENED FAILURE OF A FOREIGN BANK TO MAINTAIN THE REQUIRED SURETY DEPOSITS OR PLEDGE OF ASSETS IMPOSED ON ITS DOMESTIC BRANCHES, INSTITUTE PROCEEDINGS IN THE PROPER U. S. DISTRICT COURT FOR AN INJUNCTION TO COMPEL:

"*** SUCH BANK AND ANY OFFICER, EMPLOYEE, OR AGENT THEREOF, OR ANY PERSON HAVING CUSTODY OR CONTROL OF ANY OF ITS ASSETS, TO DELIVER TO THE (FDIC) SUCH ASSETS AS MAY BE NECESSARY TO MEET SUCH REQUIREMENT, AND TO TAKE ANY OTHER ACTION NECESSARY TO VEST THE (FDIC) WITH CONTROL OF ASSETS SO DELIVERED ***."

WHERE ANY FOREIGN BANK FAILS TO MAKE A REPORT OF CONDITION OR TO FILE ANY CERTIFIED STATEMENT IN CONNECTION WITH THE DETERMINATION OF THE AMOUNT OF ANY ASSESSMENT, THE FDIC MAY INSTITUTE PROCEEDINGS IN THE PROPER U. S. DISTRICT COURT TO COMPEL THE BANK OR ANY OF ITS OFFICERS, BY MANDATORY INJUNCTION, TO MAKE SUCH REPORT OR FILE SUCH STATEMENT. 12 U.S.C. SEC. 1817(F). THE FDIC MAY FILE SUIT "IN ANY COURT OF COMPETENT JURISDICTION" TO RECOVER THE AMOUNT OF ANY UNPAID ASSESSMENT OWED TO IT BY ANY INSURED BRANCH OF A FOREIGN BANK. 12 U.S.C. SEC. 1817(G).

UNDER SECTION 11 OF THE ACT, THE ENFORCEMENT POWERS UNDER SECTION 8 OF THE FEDERAL DEPOSIT INSURANCE ACT, 12 U.S.C. SEC. 1818, ARE ALSO MADE AVAILABLE TO THE COMPTROLLER OF THE CURRENCY, FEDERAL RESERVE BOARD, AND THE FDIC WITH RESPECT TO BRANCHES AND AGENCIES OF FOREIGN BANKS. SECTION 8 OF THE FEDERAL DEPOSIT INSURANCE ACT ESTABLISHES AN ADMINISTRATIVE STRUCTURE THROUGH WHICH THE APPROPRIATE REGULATORY AGENCY MAY CURTAIL "UNSAFE AND UNSOUND" BANKING PRACTICES OR VIOLATIONS OF BANKING LAWS, RULES, REGULATIONS OR AGREEMENTS BY ISSUING CEASE AND DESIST ORDERS WHICH ARE REVIEWABLE IN THE U. S. CIRCUIT COURTS. 12 U.S.C. SEC. 1818(H). PENDING THE OUTCOME OF AN ACTION ON A CEASE AND DESIST ORDER, THE AGENCY MAY ISSUE A TEMPORARY CEASE AND DESIST ORDER THAT MAY BE CHALLENGED OR ENFORCED THROUGH THE DISTRICT COURTS. 12 U.S.C. SECS. 1818(C)(2), 1818(D). SEE GROOS NATIONAL BANK V. COMPTROLLER OF THE CURRENCY, 573 F.2D 889 (5TH CIR. 1978).

UNDER 12 U.S.C. SECS. 1818(N) AND 1820(C), AN AGENCY IS EMPOWERED TO ADMINISTER OATHS, TAKE DEPOSITIONS, AND SUBPOENA WITNESSES AND DOCUMENTS IN CONNECTION WITH ANY CEASE AND DESIST PROCEEDING OR EXAMINATION, INVESTIGATION, OR CLAIM FOR INSURED DEPOSITS. WITH REGARD TO AN AGENCY'S POWER TO ENFORCE ITS AUTHORITY UNDER THESE PROVISIONS, SECTION 1818(N) PROVIDES THAT:

"*** ANY SUCH AGENCY OR ANY PARTY TO PROCEEDINGS UNDER THIS SECTION MAY APPLY TO THE *** DISTRICT COURT *** FOR ENFORCEMENT OF ANY SUBPOENA OR SUBPOENA DUCES TECUM ISSUED *** AND SUCH COURTS SHALL HAVE JURISDICTION AND POWER TO ORDER AND REQUIRE COMPLIANCE THEREWITH ***."

FINALLY, SECTION 6(C)(15) OF THE INTERNATIONAL BANKING ACT AMENDED SECTION 3 OF THE FEDERAL DEPOSIT INSURANCE ACT, 12 U.S.C. SEC. 1818(R), TO AUTHORIZE THE APPROPRIATE FEDERAL REGULATORY AGENCY TO INITIATE ACTIONS OR PROCEEDINGS DIRECTLY AGAINST A FOREIGN BANK OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS. UNDER THAT PROVISION, SUCH ACTION OR PROCEEDING MUST BE BASED ON AN ACT OR PRACTICE BY A FOREIGN BANK OR ITS PERSONNEL WHICH EITHER (1) IS COMMITTED OUTSIDE THE UNITED STATES BUT IS CONNECTED WITH ANOTHER ACT IN ANY STATE AND ALLEGEDLY CONSTITUTES A VIOLATION OF U. S. BANKING LAWS OR ANY RULES, REGULATIONS, ORDERS OR AGREEMENTS; OR (2) WOULD ADVERSELY AFFECT THE INSURANCE RISK ASSUMED BY THE FDIC. 12 U.S.C. SEC. 1818(R)(2)(A) AND (B). THE FDIC MAY TERMINATE ITS INSURANCE ON ANY BRANCH OF A FOREIGN BANK WHICH FAILS TO REMOVE FROM ANY OFFICE OF THE BANK ANY PERSON WHO FAILS TO APPEAR IN, OR COMPLY WITH, ANY ENFORCEMENT ACTION OR PROCEEDING BROUGHT FOR THAT PERSON'S SUSPENSION OR REMOVAL FROM OFFICE. 12 U.S.C. SEC. 1818(R)(3).

ANY JUDICIAL OR ADMINISTRATIVE PROCEEDING INSTITUTED UNDER THIS PROVISION MUST BE BROUGHT IN THE APPROPRIATE JUDICIAL DISTRICT OR DISTRICTS OF THE UNITED STATES WHERE THE BRANCHES OR AGENCIES OF THE FOREIGN BANK ARE LOCATED; SERVICE OF PROCESS REQUIRED TO BE MADE ON THE BANK MAY BE MADE ON ANY OF ITS BRANCHES OR AGENCIES LOCATED WITHIN ANY STATE. 12 U.S.C. SEC. 1818(R)(4), (5).

THE CHANGE IN BANK CONTROL ACT CONTAINS SIMILAR PROVISIONS CONCERNING SUPERVISORY AND REGULATORY AUTHORITY, AND FOR ADMINISTRATIVE AND JUDICIAL ENFORCEMENT PROCEEDINGS BY THE REGULATORY AGENCIES. AMONG OTHER THINGS, THE ACT - REQUIRES THE CHIEF EXECUTIVE OFFICER OF AN INSURED BANK WHICH TAKES AT LEAST 25 PERCENT OF THE VOTING STOCK OF ANOTHER INSURED BANK TO REPORT THE TRANSACTION TO THE FEDERAL AGENCY SUPERVISING THE LATTER BANK, AND REQUIRES SUCH REPORTS TO CONTAIN THE SAME DETAILED INFORMATION REQUIRED TO BE PROVIDED IN THE NOTICE OF PROPOSED ACQUISITION (12 U.S.C. SEC. 1817(J)(9), (10)) - REQUIRES AN INSURED BANK, PURSUANT TO A CHANGE IN CONTROL, TO REPORT TO THE APPROPRIATE FEDERAL BANKING AGENCY ANY CHANGE OF ITS CHIEF EXECUTIVE OFFICER OR ANY DIRECTOR DURING THE FOLLOWING 12 MONTHS, INCLUDING PAST AND CURRENT BUSINESS AND PROFESSIONAL INFORMATION CONCERNING SUCH PERSON (12 U.S.C. SEC. 1817(J)(12)); AND - AUTHORIZES THE APPROPRIATE FEDERAL BANKING AGENCY TO ISSUE RULES AND REGULATIONS TO ADMINISTER THE ACT (12 U.S.C. SEC. 1817(J)(13)).

THE APPROPRIATE FEDERAL AGENCY IS AUTHORIZED TO ASSESS CIVIL PENALTIES AGAINST ANY PERSON WHO WILLFULLY VIOLATES ANY PROVISION OF THE ACT OR ANY REGULATION OR ORDER ISSUED THEREUNDER, AND MAY ENFORCE SUCH PENALTIES BY AGREEMENT OR THROUGH AN ACTION IN THE APPROPRIATE U. S. DISTRICT COURT. 12 U.S.C. SEC. 1817(J)(15).

THE CHANGE IN SAVINGS AND LOAN ACT, WHICH IS ADMINISTERED BY THE FDIC, CONTAINS PROVISIONS SIMILAR TO THOSE IN THE CHANGE IN BANK CONTROL ACT WITH RESPECT TO: AN INSURED INSTITUTION RECEIVING 25 PERCENT OF THE STOCK OF ANOTHER INSURED INSTITUTION AS SECURITY FOR A LOAN, AND THE REQUIRED REPORTS IN CONNECTION WITH SUCH LOAN AND PLEDGE TRANSACTIONS (12 U.S.C. SEC. 1730(Q)(9), (10)); REQUIRED REPORTS CONCERNING A CHANGE OR REPLACEMENT OF A CHIEF EXECUTIVE OFFICER OR A DIRECTOR OF AN INSURED INSTITUTION PURSUANT TO A CHANGE IN CONTROL (12 U.S.C. SEC. 1730(Q)(11)); AND AUTHORITY OF THE FDIC TO ISSUE RULES AND REGULATIONS FOR ADMINISTRATION OF THE ACT (12 U.S.C. SEC. 1730(Q)(14)). IN ADDITION, THE FDIC IS AUTHORIZED TO REQUIRE ANY INSURED SAVINGS AND LOAN AND INDIVIDUALS OR OTHER PERSONS PREVIOUSLY OR PRESENTLY CONNECTED WITH THE MANAGEMENT OF THE INSTITUTION TO SUBMIT ADDITIONAL PERIODIC REPORTS (12 U.S.C. SEC. 1730(Q)(12)).

AND, AS UNDER THE CHANGE IN BANK CONTROL ACT, THE CHANGE IN SAVINGS AND LOAN ASSOCIATION ACT AUTHORIZES THE FDIC TO ASSESS CIVIL PENALTIES AGAINST ANY PERSON WHO WILLFULLY VIOLATES ANY PROVISIONS OF THE ACT OR ANY REGULATIONS OR ORDERS ISSUED THEREUNDER, AND MAY ENFORCE SUCH PENALTIES BY AGREEMENT OR THROUGH AN ACTION IN THE APPROPRIATE U. S. DISTRICT COURT (12 U.S.C. SEC. 1730(Q)(16)).

THE BANK HOLDING COMPANY ACT PROVIDES CERTAIN SUPERVISORY AND REGULATORY POWERS TO THE FEDERAL RESERVE BOARD AS TO BANKS AND COMPANIES UNDER ITS JURISDICTION, TOGETHER WITH PROCEDURES FOR ENFORCING THAT AUTHORITY. SECTION 5 OF THE ACT PROVIDES THE BOARD AUTHORITY TO:

- REQUIRE MANDATORY FILING OF REGISTRATION STATEMENTS BY A BANK HOLDING COMPANY WITH THE FRB AFTER ACQUISITION APPROVAL, INCLUDING SUCH INFORMATION AS FINANCIAL CONDITION AND OPERATIONS, MANAGEMENT, AND INTERCOMPANY RELATIONSHIPS OF A HOLDING COMPANY AND ITS SUBSIDIARY (12 U.S.C. SEC. 1844(A));

- ISSUE REGULATIONS AND ORDERS NECESSARY TO ADMINISTER THE ACT (12 U.S.C. SEC. 1844(B));

- REQUIRE REPORTS OF CONDITION AND MAKE EXAMINATIONS OF EACH HOLDING COMPANY AND ITS SUBSIDIARY (12 U.S.C. SEC. 1844(C));

- REQUIRE A HOLDING COMPANY TO TERMINATE ACTIVITIES OR DIVEST ITSELF OF A BANK SUBSIDIARY WHERE SUCH ACTIVITY OR CONTROL CONSTITUTES A RISK TO THE FINANCIAL SAFETY OR SOUNDNESS OF A BANK, AND APPLY TO THE DISTRICT COURTS FOR ENFORCEMENT OF ANY ORDERS TO THAT EFFECT (12 U.S.C. SEC. 1844(E)).

SECTIONS 5(E) AND (F) OF THE ACT (12 U.S.C. SEC. 1844(E) AND (F)), EMPOWER THE BOARD TO SEEK JUDICIAL ENFORCEMENT OF ITS AUTHORITY BY APPLICATION TO THE U. S. DISTRICT COURTS. (FN6) SECTION (5)(E)(2), 12 U.S.C. SEC. 1844(E)(2), PROVIDES THAT:

"(2) THE BOARD MAY IN ITS DISCRETION APPLY TO THE UNITED STATES DISTRICT COURT WITHIN THE JURISDICTION OF WHICH THE PRINCIPAL OFFICE OF THE HOLDING COMPANY IS LOCATED, FOR THE ENFORCEMENT OF ANY EFFECTIVE AND OUTSTANDING ORDER ISSUED UNDER THIS SECTION, AND SUCH COURT SHALL HAVE JURISDICTION AND POWER TO ORDER AND REQUIRE COMPLIANCE THEREWITH, BUT EXCEPT AS PROVIDED IN SECTION 1848 OF THIS TITLE, NO COURT SHALL HAVE JURISDICTION TO AFFECT BY INJUNCTION OR OTHERWISE THE ISSUANCE OR ENFORCEMENT OF ANY NOTICE OR ORDER UNDER THIS SECTION, OR TO REVIEW, MODIFY, SUSPEND, TERMINATE, OR SET ASIDE ANY SUCH NOTICE OR ORDER."

SECTION 5(F) OF THE ACT, 12 U.S.C. SEC. 1844(F), PROVIDES:

"(F) IN THE COURSE OF OR IN CONNECTION WITH AN APPLICATION, EXAMINATION, INVESTIGATION OR OTHER PROCEEDING UNDER THIS CHAPTER, THE BOARD, OR ANY MEMBER OR DESIGNATED REPRESENTATIVE THEREOF, INCLUDING ANY PERSON DESIGNATED TO CONDUCT ANY HEARING UNDER THIS CHAPTER, SHALL HAVE THE POWER TO ADMINISTER OATHS AND AFFIRMATIONS, TO TAKE OR CAUSE TO BE TAKEN DEPOSITIONS, AND TO ISSUE, REVOKE, QUASH, OR MODIFY SUBPOENAS AND SUBPOENAS DUCES TECUM: AND THE BOARD IS EMPOWERED TO MAKE RULES AND REGULATIONS TO EFFECTUATE THE PURPOSES OF THIS SUBSECTION. THE ATTENDANCE OF WITNESSES AND THE PRODUCTION OF DOCUMENTS PROVIDED FOR IN THIS SUBSECTION MAY BE REQUIRED FROM ANY PLACE IN ANY STATE OR IN ANY TERRITORY OR OTHER PLACE SUBJECT TO THE JURISDICTION OF THE UNITED STATES AT ANY DESIGNATED PLACE WHERE SUCH PROCEEDING IS BEING CONDUCTED. ANY PARTY TO PROCEEDINGS UNDER THIS CHAPTER MAY APPLY TO THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA, OR THE UNITED STATES DISTRICT COURT FOR THE JUDICAL DISTRICT OR THE UNITED STATES COURT IN ANY TERRITORY IN WHICH SUCH PROCEEDING IS BEING CONDUCTED OR WHERE THE WITNESS RESIDES OR CARRIES ON BUSINESS, FOR THE ENFORCEMENT OF ANY SUBPOENA OR SUBPOENA DUCES TECUM ISSUED PURSUANT TO THIS SUBSECTION AND SUCH COURTS SHALL HAVE JURISDICTION AND POWER TO ORDER AND REQUIRE COMPLIANCE THEREWITH. *** ANY PERSON WHO WILLFULLY SHALL FAIL OR REFUSE TO ATTEND AND TESTIFY OR TO ANSWER ANY LAWFUL INQUIRY OR TO PRODUCE BOOKS, PAPERS, CORRESPONDENCE, MEMORANDA, CONTRACTS, AGREEMENTS, OR OTHER RECORDS, IF IN SUCH PERSON'S POWER SO TO DO, IN OBEDIENCE TO THE SUBPOENA OF THE BOARD, SHALL BE GUILTY OF A MISDEMEANOR AND, UPON CONVICTION, SHALL BE SUBJECT TO A FINE OF NOT MORE THAN $1,000 OR, TO IMPRISONMENT FOR A TERM OF NOT MORE THAN ONE YEAR OR BOTH."

UNDER THE VARIOUS STATUTORY PROVISIONS OUTLINED ABOVE, IT IS CLEAR THAT THE VARIOUS FEDERAL REGULATORY AGENCIES HAVE AUTHORITY TO SEEK COMPLIANCE WITH THE LAWS, RULES, REGULATIONS AND ORDERS APPLICABLE TO BANKS, COMPANIES AND INDIVIDUAL PURCHASERS INVOLVED IN THE ACQUISITION AND ESTABLISHMENT OF DOMESTIC BANKS AND BANKING OPERATIONS. THE U. S. DISTRICT COURTS ARE VESTED WITH ULTIMATE AUTHORITY TO ENFORCE ANY ADMINISTRATIVE ACTIONS OR PROCEEDINGS BY THE AGENCIES AFFECTING PERSONS, ASSETS, OR DOCUMENTS WITHIN THE JURISDICTION OF THE COURTS.

THE ABILITY OF THE REGULATORY AGENCIES TO ENFORCE THEIR ADMINISTRATIVE AUTHORITY THROUGH THE JUDICIAL PROCESS IS LIMITED BY THE DISTRICT COURTS' LACK OF JURISDICTION OVER PERSONS, PROPERTY OR DOCUMENTS LOCATED OUTSIDE OF THE UNITED STATES OR ITS TERRITORIES. ALTHOUGH A DISTRICT COURT IS EMPOWERED TO SUBPOENA, UNDER SPECIFIED CONDITIONS, A U. S. CITIZEN OR RESIDENT TO TESTIFY IN PROCEEDINGS IN THE UNITED STATES, THE COURT HAS NO POWER TO COMPEL THE ATTENDANCE OR TESTIMONY OF AN ALIEN WHO, AT THE TIME OF THE REQUEST, IS AN INHABITANT OF A FOREIGN COUNTRY. SEE 28 U.S.C. SEC. 1783; U. S. V. HAIN, 218 F. SUPP. 922 (D.C.N.Y. 1963); U. S. V. BEST, 76 F. SUPP. 138 (D.C.MASS. 1948). THE COURT DOES, HOWEVER, HAVE POWER TO SUBPOENA A NONRESIDENT ALIEN WHO IS PRESENT WITHIN THE UNITED STATES. RE GRAND JURY PROCEEDINGS, 532 F.2D 404 (5TH CIR. 1976), REH. DENIED 535 F.2D 660, CERT. DENIED 97 S. CT. 354, 429 U.S. 940, 50 L. ED. 2D 309.

THE VARIOUS STATUTORY PROVISIONS NOTED ABOVE RECOGNIZE THESE EXTRATERRITORAL LIMITATIONS ON THE USE OF COMPULSORY JUDICIAL PROCESS OVER NON-U. S. RESIDENTS ASSOCIATED WITH DOMESTIC BANKING OPERATIONS BY LIMITING THE COURT'S JURISDICTION IN SUCH MATTERS TO PERSONS AND THINGS LOCATED WITHIN THE UNITED STATES OR ITS TERRITORIES. THUS, EVEN THOUGH THE INTERNATIONAL BANKING ACT AUTHORIZES ADMINISTRATIVE AND JUDICIAL ENFORCEMENT PROCEEDINGS DIRECTLY AGAINST FOREIGN BANKS AND THEIR NON RESIDENT OFFICIALS THROUGH 12 U.S.C. SEC. 1818(R), THAT PROVISION DOES NOT CONFER UPON THE DISTRICT COURTS JURISDICTION OVER SUCH BANKS AND OFFICIALS OR OVER ANY ASSETS OR DOCUMENTS IN THEIR CUSTODY. THEREFORE, WHILE THE PERSONNEL AND ASSETS OF A FOREIGN BANK'S DOMESTIC BRANCHES OR AGENCIES COULD BE SUBJECT TO PROPER ADMINISTRATIVE OR JUDICIAL SANCTIONS, THE BANK'S PERSONNEL LOCATED OUTSIDE THE UNITED STATES COULD NOT BE COMPELLED BY AN AGENCY OR A COURT TO APPEAR OR OTHERWISE COOPERATE IN SUCH ACTION OR PROCEEDING.

IT WOULD APPEAR THAT THE FDIC'S ONLY RECOURSE AGAINST A NON-COOPERATIVE FOREIGN BANK OR OFFICIAL UNDER 12 U.S.C. SEC. 1818(R) IS TERMINATION OF THE FDIC INSURANCE ON THE BANK'S DOMESTIC BRANCHES. (FN7)

ALSO, FOR EXAMPLE, ALTHOUGH ANY PROPER ADMINISTRATIVE OR JUDICIAL ENFORCEMENT PROCEEDINGS INITIATED BY THE FEDERAL RESERVE BOARD UNDER SECTIONS 5(E) AND (F) OF THE BANK HOLDING COMPANY ACT WOULD BE EFFECTIVE AGAINST A FOREIGN BANK'S DOMESTIC SUBSIDIARIES AND PERSONNEL PHYSICALLY PRESENT WITHIN THE UNITED STATES, SUCH ENFORCEMENT PROCEEDINGS WOULD NOT BE EFFECTIVE AGAINST THE FOREIGN BASED BANK, ITS FOREIGN OFFICERS OR OWNERS, OR ANY OF ITS OTHER FOREIGN-BASED PERSONNEL, ASSETS OR RECORDS. THEREFORE, ACCESS TO ESSENTIAL TESTIMONY AND DOCUMENTS COULD BE LIMITED BY AN INABILITY OF THE BOARD TO COMPEL APPEARANCE OF WITNESSES AND SUBMISSION OF DOCUMENTS.

IN ADDITION TO THE LIMITATIONS ON THE REGULATORY AGENCIES' ABILITY TO GAIN ACCESS TO FINANCIAL INFORMATION FROM FOREIGN PURCHASERS THROUGH COMPULSORY PROCESS, ACCESS TO SUCH INFORMATION MAY ALSO BE LIMITED BY THE SECRECY OR PRIVACY LAWS OF THE FOREIGN COUNTRY CONCERNED. SEE HEARINGS BEFORE THE COMMERCE, CONSUMER AND MONETARY AFFAIRS SUBCOMMITTEE OF THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS, 96TH CONG. 1ST SESS. (PART 4), 68 (1979). TO THE EXTENT THAT SUCH FOREIGN SECRECY OR PRIVACY LAWS APPLY, ANY ANALYSIS OF THOSE RESTRICTIONS TO DETERMINE THEIR SPECIFIC AFFECT ON THE QUESTION OF ACCESS WOULD HAVE TO BE DONE ON A CASE-BY-CASE BASIS, APPLYING THE LAW OF THE PARTICULAR COUNTRY CONCERNED.

FINALLY, HOWEVER, IT SHOULD BE NOTED THAT THE REGULATORY AGENCIES GENERALLY RETAIN, ULTIMATELY, AUTHORITY TO REVOKE CHARTERS, ORDER DIVESTITURES, TERMINATE INSURANCE COVERAGE OR TAKE SIMILAR ACTIONS IF FOREIGN BANKS FAIL TO COOPERATE. SEE 12 U.S.C. SECS. 93, 326, 501A, 1817(H) AND 1818(A).

COMPETITIVE (PRO-FOREIGN PURCHASER/ANTI-FOREIGN PURCHASER) IMPACT OF LEGISLATION GOVERNING BANK ACQUISITIONS

THE COMPETITIVE IMPACT OF LEGISLATION GOVERNING BANK ACQUISITIONS AND THE ESTABLISHMENT OF BRANCH OPERATIONS BY DOMESTIC AND FOREIGN BANKS IS DETERMINED PRIMARILY BY REFERENCE TO THE MCFADDEN ACT, 12 U.S.C. SEC. 36, AND SECTION 3(D) OF THE BANK HOLDING COMPANY ACT, 12 U.S.C. SEC. 1842(D), BETTER KNOWN AS THE DOUGLAS AMENDMENT.

IN CONGRESSIONAL HEARINGS ON THE INTERNATIONAL BANKING ACT OF 1978, IT WAS STATED THAT "*** THE NATIONAL POLICY OF BARRING INTERSTATE BANKING IN THE MCFADDEN ACT *** NEEDS REVIEW." (FN8) HEARINGS ON H.R. 10899 BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS OF THE SENATE COMMITTEE ON BANKING HOUSING, AND URBAN AFFAIRS, 95TH CONG., 2D SESS., 374 (1968). THIS POSITION WAS TAKEN IN LIGHT OF CONSIDERABLE TESTIMONY SUPPORTING THE VIEW THAT RESTRAINTS ON GEOGRAPHICAL EXPANSION IMPOSED ON DOMESTIC BANKS BY BOTH THE MCFADDEN ACT AND THE DOUGLAS AMENDMENT ALLOW FOREIGN BANKS, WHICH ARE NOT SUBJECT TO SUCH LEGAL RESTRAINTS, TO ENJOY A COMPETITIVE ADVANTAGE OVER DOMESTIC BANKS, AND ARE THEREFORE INCONSISTENT WITH THE BASIC PRINCIPLE OF NATIONAL TREATMENT OF DOMESTIC AND FOREIGN BANKS' PARTICIPATION IN U. S. FINANCIAL MARKETS WITHOUT DISCRIMINATION.

WE AGREE, FROM A STRICTLY LEGAL STANDPOINT, THAT THE MCFADDEN ACT AND THE DOUGLAS AMENDMENT PROVIDE A COMPETITIVE ADVANTAGE FAVORING FOREIGN BANK PURCHASERS OVER DOMESTIC PURCHASERS. THE MCFADDEN ACT PROVIDES IN PART, THAT: "(C) A NATIONAL BANKING ASSOCIATION MAY, WITH THE APPROVAL OF THE COMPTROLLER OF THE CURRENCY, ESTABLISH AND OPERATE NEW BRANCHES: (1) WITHIN THE LIMITS OF THE CITY, TOWN OR VILLAGE IN WHICH SAID ASSOCIATION IS SITUATED, IF SUCH ESTABLISHMENT AND OPERATION ARE AT THE TIME EXPRESSLY AUTHORIZED TO STATE BANKS BY THE LAW OF THE STATE IN QUESTION; AND (2) AT ANY POINT WITHIN THE STATE IN WHICH SAID ASSOCIATION IS SITUATED, IF SUCH ESTABLISHMENT AND OPERATION ARE AT THE TIME AUTHORIZED TO STATE BANKS BY THE STATUTE LAW OF THE STATE IN QUESTION BY LANGUAGE SPECIFICALLY GRANTING SUCH AUTHORITY AFFIRMATIVELY AND NOT MERELY BY IMPLICATION OR RECOGNITION, AND SUBJECT TO THE RESTRICTIONS AS TO LOCATION IMPOSED BY THE LAW OF THE STATE ON STATE BANKS. ***" UNDER THE ACT, THE COMPTROLLER OF THE CURRENCY IS AUTHORIZED TO ESTABLISH A BRANCH OFFICE FOR NATIONAL BANKS IN A STATE ONLY WHEN, WHERE, AND HOW THAT STATE'S LAW WOULD EXPRESSLY AUTHORIZE STATE BANKS TO ESTABLISH AND OPERATE BRANCHES. THE PURPOSE OF THE ACT IS TO PLACE NATIONAL AND STATE BANKS ON A BASIS OF COMPETITIVE EQUALITY INSOFAR AS BRANCHING IS CONCERNED.

HOWEVER, THE FACT THAT A NATIONAL BANK'S RIGHT TO ENGAGE IN INTERSTATE BRANCHING IS CONDITIONED ON THE EXPRESS STATUTORY PERMISSION OF THE STATE APPEARS TO SEVERELY LIMIT A DOMESTIC BANK'S ACTUAL ABILITY TO BRANCH INTERSTATE. AS INDICATED IN RECENT CONGRESSIONAL HEARINGS, THE STATES GENERALLY EXCLUDE OUT-OF-STATE BRANCH BANKING BY DOMESTIC BANKS. SEE HEARINGS ON H.R. 10899 (THE INTERNATIONAL BANKING ACT OF 1978) BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS OF THE SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 95TH CONG., 2D SESS., 374 (1968). ON THE OTHER HAND, BOTH FEDERAL LAW AND THE LAWS OF SOME MAJOR STATES PERMIT INTERSTATE BRANCHING BY FOREIGN BANKS. AS NOTED EARLIER, SECTION 5(A) OF THE INTERNATIONAL BANKING ACT OF 1978 PERMITS FOREIGN BANKS TO ESTABLISH FEDERAL OR STATE BRANCHES IN ANY STATE WHERE PERMITTED BY STATE LAW. SEE 12 U.S.C. SEC. 3103(A). IN THIS CONNECTION, IT HAS BEEN INDICATED THAT SEVERAL MAJOR BANKING STATES - INCLUDING CALIFORNIA, ILLINOIS, AND NEW YORK - EXPRESSLY PERMIT SUCH FOREIGN BANK BRANCHING BY STATUTE. SEE STATE -BY-STATE SURVEY OF LIMITATIONS ON FOREIGN INVESTMENT, IN "FOREIGN INVESTMENT IN THE UNITED STATES," 1ST ED., DISTRICT OF COLUMBIA BAR MANUAL, PP. 544-729.

A COMPARABLE SITUATION EXISTS UNDER THE DOUGLAS AMENDMENT, SECTION 3(D) OF THE BANK HOLDING COMPANY ACT, WITH RESPECT TO LEGALLY IMPOSED GEOGRAPHICAL RESTRAINTS ON THE INTERSTATE ACQUISITIONS OF DOMESTIC BANKS AND BANK HOLDING COMPANIES. THE DOUGLAS AMENDMENT PROVIDES:

"NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, NO APPLICATION SHALL BE APPROVED UNDER THIS SECTION WHICH WILL PERMIT ANY BANK HOLDING COMPANY OR ANY SUBSIDIARY THEREOF TO ACQUIRE, DIRECTLY OR INDIRECTLY, ANY VOTING SHARES OF, INTEREST IN, OR ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF ANY ADDITIONAL BANK LOCATED OUTSIDE OF THE STATE IN WHICH THE OPERATIONS OF SUCH BANK HOLDING COMPANY'S BANKING SUBSIDIARIES WERE PRINCIPALLY CONDUCTED ON (JULY 1, 1966), THE EFFECTIVE DATE OF THIS AMENDMENT OR THE DATE ON WHICH SUCH COMPANY BECAME A BANK HOLDING COMPANY, WHICHEVER IS LATER, UNLESS THE ACQUISITION OF SUCH SHARES OR ASSETS OF A STATE BANK BY AN OUT-OF-STATE BANK HOLDING COMPANY IS SPECIFICALLY AUTHORIZED BY THE STATUTE LAWS OF THE STATE IN WHICH SUCH BANK IS LOCATED, BY LANGUAGE TO THAT EFFECT AND NOT MERELY BY IMPLICATION. FOR THE PURPOSES OF THIS SECTION, THE STATE IN WHICH THE OPERATIONS OF A BANK HOLDING COMPANY'S SUBSIDIARIES ARE PRINCIPALLY CONDUCTED IS THAT STATE IN WHICH TOTAL DEPOSITS OF ALL SUCH BANKING SUBSIDIARIES ARE LARGEST."

THIS STATUTE REQUIRES THAT ACQUISITIONS OF SUBSIDIARY BANKS BY DOMESTIC BANKS OR BANK HOLDING COMPANIES BE LIMITED TO THOSE INSTITUTIONS WITHIN THE HOME STATE OF AN ACQUIRING INSTITUTION. ALTHOUGH THE DOUGLAS AMENDMENT ALLOWS STATES TO ENACT LAWS TO SPECIFICALLY PERMIT INTERSTATE ACTIVITY, THE STATES GENERALLY HAVE NOT GIVEN SUCH PERMISSION, BUT IN FACT HAVE ENACTED LAWS WHICH PROHIBIT IN STATE ACQUISITIONS BY OUT-OF-STATE DOMESTIC INSTITUTIONS. SEE HEARINGS BEFORE THE COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS, 96TH CONG., 1ST SESS. (PART 4), 123 (1979). SEE ALSO "FOREIGN INVESTMENT IN THE UNITED STATES," SUPRA, PP. 554-729.

IN ADDITION, A DOMESTIC BANK OR BANK HOLDING COMPANY SEEKING TO ACQUIRE ANOTHER BANK WITHIN ITS HOME STATE WOULD HAVE TO MEET THE ANTITRUST STANDARDS CONTAINED IN SECTION 3(C) OF THE BANK HOLDING COMPANY ACT, 12 U.S.C. SEC. 1842(C), OR THE BANK MERGER ACT, 12 U.S.C. SEC. 1828(C). ACQUISITION OR MERGER COULD BE APPROVED IF IT WOULD RESULT IN A MONOPOLY OR BE IN FURTHERANCE OF A COMBINATION OR CONSPIRACY TO MONOPOLIZE BANKING IN THE PARTICULAR STATE IN QUESTION. SEE 12 U.S.C. SECS. 1842(C)(1) AND 1828(C)(5)(A). OTHERWISE SUCH AN INTRASTATE ACQUISITION COULD ONLY BE APPROVED WHERE THE ACQUIRING BANK OR BANK HOLDING COMPANY COULD SHOW THAT THE ANTICOMPETITIVE EFFECTS OF THE ACQUISITION WOULD BE CLEARLY OUTWEIGHED IN THE PUBLIC INTEREST BY THE PROBABLE EFFECT OF THE ACQUISITION IN MEETING THE CONVENIENCE AND NEEDS OF THE COMMUNITY TO BE SERVED. SEE 12 U.S.C. SECS. 1842(C)(2) AND 1828(C)(5)(B).

THEREFORE, IT APPEARS THAT FEDERAL LAW, IN CONJUNCTION WITH THE LAWS OF THE STATES, IMPOSE LEGAL RESTRICTIONS ON BRANCHING BY DOMESTIC BANKS AND INTERSTATE ACQUISITIONS BY DOMESTIC BANKS AND BANK HOLDING COMPANIES, WHILE SUCH RESTRAINTS ARE MORE LIMITED IN THEIR EFFECT ON THE DOMESTIC ACTIVITIES OF FOREIGN BANKS IN THESE AREAS. FROM A LEGAL STANDPOINT, THIS SITUATION APPEARS TO GIVE A COMPETITIVE ADVANTAGE TO FOREIGN BANK INVESTORS OVER DOMESTIC INVESTORS, AND WOULD APPEAR TO BE INCONSISTENT WITH THE PRINCIPLE OF NATIONAL TREATMENT WHICH UNDERLIES THE PARTICIPATION BY DOMESTIC AND FOREIGN BANKS IN THE U. S. BANKING SYSTEM.

FN1 "CONTROL" UNDER THE ACT IS DEFINED AS THE POWER, DIRECTLY OR INDIRECTLY, TO DIRECT THE MANAGEMENT OR POLICIES OF AN INSURED BANK OR TO VOTE 25 PERCENT OR MORE OF ANY CLASS OF VOTING STOCK OF AN INSURED BANK. 12 U.S.C. SEC. 1817(J)(8)(B).

FN2 SUCH NOTICE MUST BE FILED WITH THE FDIC FOR NONMEMBER BANKS; WITH THE COMPTROLLER OF THE CURRENCY FOR NATIONAL BANKS; AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE FOR STATE MEMBER BANKS AND FOR HOLDING COMPANIES.

FN3 THE EXISTENCE OF A "CONTROL" RELATIONSHIP IS IRREBUTTABLE IF A COMPANY OWNS 25 PERCENT OR MORE OF THE VOTING SHARES OF A BANK OR CONTROLS THE ELECTION OF A MAJORITY OF ITS DIRECTORS. 12 U.S.C. SEC. 1841(A)(2)(A) AND (B).

FN4 AS DEFINED IN THE ACT, A "COMPANY" WOULD INCLUDE ANY CORPORATION, PARTNERSHIP, BUSINESS TRUST, ASSOCIATION, OR SIMILAR ORGANIZATION, OR OTHER TRUST, EXCEPT A NONPERPETUAL FAMILY TRUST OR A TRUST TERMINATING BY ITS TERMS WITHIN 25 YEARS. 12 U.S.C. SEC. 1841(B).

FN5 IN ADDITION, SECTION 8 OF THE CLAYTON ACT, 12 U.S.C. SEC. 19, PROVIDES THAT, SUBJECT TO CERTAIN EXCEPTIONS, NO PERSON WHO IS A DIRECTOR, OFFICER, OR EMPLOYEE OF A MEMBER BANK OF THE FEDERAL RESERVE SYSTEM MAY SERVE AS A DIRECTOR, OFFICER, OR EMPLOYEE OF ANY OTHER BANK. THE PURPOSE OF THIS PROVISION IS TO PREVENT THE CONCENTRATION OR DISTRIBUTION OF MONEY THROUGH A SYSTEM OF INTERLOCKING DIRECTORS. SEE H. RPT. NO. 627, 63RD CONG., 2D SESS., 19; 35 OP. ATTY. GEN. 179, 180 (1927).

FN6 IN ADDITION, SECTION 8 OF THE ACT, 12 U.S.C. SEC. 1848(A), PROVIDES SEPARATE CRIMINAL PENALTIES FOR ANY COMPANY OR PERSON WHO WILLFULLY VIOLATES ANY PROVISION OF THE ACT OR ANY REGULATION OR ORDER OF THE BOARD.

FN7 IN ADDITION, IT HAS ALSO BEEN POINTED OUT THAT OTHER POTENTIAL PROBLEMS CONCERNING ADMINISTRATIVE AND JUDICIAL ENFORCEMENT PROCEEDINGS INITIATED BY FEDERAL BANK REGULATORS AGAINST DOMESTIC OPERATIONS OF FOREIGN PARENT BANKS COULD ARISE WHERE THE BRANCH OPERATIONS ARE NOT LEGALLY SEPARATE FROM THOSE OF THE PARENT. SEE HEARINGS ON H.R. 10899 (THE INTERNATIONAL BANKING ACT OF 1978) BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS OF THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, 95TH CONG., 2D SESS. 104 (1978).

FN8 SECTION 14(A) OF THE INTERNATIONAL BANKING ACT OF 1978, WHICH WAS ENACTED ON SEPTEMBER 17, 1978, REQUIRES THE PRESIDENT, ONE YEAR FROM THE DATE OF ENACTMENT, TO REVIEW THE OPERATION OF THE MCFADDEN ACT AND REPORT TO THE CONGRESS ON ITS EFFECTS ON THE UNITED STATES BANKING SYSTEM AND DOMESTIC FINANCIAL MARKETS. 12 U.S.C. SEC. 36 NOTE.