Alert May 06, 2008

OTS Approves Foreign Operating Subsidiary in India

The OTS approved an application by a federal savings bank (the “FSB”) to acquire control of a company in India to be organized by the FSB for the purpose of monitoring the FSB’s relationship with foreign outsourcing providers.  The OTS imposed several conditions on its approval, including requirements: (i) to make available to the OTS information concerning the activities of the foreign company; (ii) to consent to OTS jurisdiction over the foreign subsidiary; (iii) to agree to the disclosure by foreign regulatory authorities of supervisory information to the OTS; and (iv) to establish controls over the foreign company’s operations. 

The OTS has previously required that the operations of a foreign operating subsidiary of an FSB be consistent with the “domestic focus” of the thrift charter and has approved the formation of foreign subsidiaries for the purpose of holding otherwise permissible assets.  However, the agency has recently been somewhat more permissive in this area and, last year, permitted another FSB to establish an operating subsidiary in China to engage in foreign currency corporate lending, small business lending and trade finance, and eventually other banking services.   In that case, the OTS concluded that the operations in China would be “incidental to . . . domestic operations” because they represented less than 5% (or, as the OTS described it, a “small fraction”) of the parent FSB’s assets and revenues.  The OTS has also permitted FSBs to establish foreign agency offices; however, it has not permitted FSBs to establish foreign branch offices.