Date: February 11, 1981
To: Examiner Gregor - Commercial Banks Division
From: First Assistant Counsel Gelman
Re: [ ]
We have held that loan limits do not apply to extensions of credit from a bank to its Edge Act subsidiary (see 5/29/79 memo attached). This is consistent with the FRB's approach to loans to member bank's Edge subsidiaries and to their operating subsidiaries. Under Regulation K the activities of an Edge subsidiary are prescribed as are the Edge corporation's permissible investments in other organizations. As stated in Section 211.5(a) of Regulation K (Investments in other organizations-General Policy):
"Activities of investors abroad, whether conducted directly or. indirectly, shall be confined to those of a banking or financial nature and those that are necessary to-carry on such activities."
While such investments may include equity interests, such interests are subject to limitations as to, type and amount. This can be compared to the provisions of B.L. 96.10 which permit a state--chartered bank to operate foreign branches and to conduct activities thereat which are customary in that country for banks but which might extend beyond the bank's U.S. powers. No limitation on a bank's investment in its overseas branches is prescribed in the banking law.
For the above reasons, as a legal and policy matter, [ ] investment in the wholly-owned Canadian finance subsidiary of its wholly-owned Edge Act subsidiary should be free of the lending limit constraints of B.L. Section 103.