The Federal Reserve Bank of Chicago's Policy on Foreign Obligor Loans

Effective June 30, 2004

Foreign obligor loans (FOL) are commercial loans or commercial real estate loans to entities that are incorporated outside of the U.S. or whose principal place of business or main office is outside of the U.S. For loans that rely on the strength of guarantors, the domicile of the guarantor determines the classification (e.g., loans to U.S. shell companies that are guaranteed by foreign parents should be considered foreign).

In order to pledge FOL collateral, a depository institution should contact its local Federal Reserve Bank to learn more about how to seek a legal opinion from the relevant foreign jurisdiction. Foreign counsel will need to interact closely with FRB counsel in order to ensure that the opinion addresses all of the Federal Reserve's concerns. The cost of the foreign counsel will be borne by the depository institution.

The Federal Reserve will be restricting the eligibility of pledges of FOL collateral to include only:

• loans pledged by U.S. depository institutions, or
• loans pledged by foreign depository institutions chartered in the same jurisdiction as the obligor

Going forward, depository institutions that participate in the BIC Commercial Loan program will need to report on the amount and jurisdiction of all pledged FOL collateral. This will be accomplished through modifications to the annual BIC Commercial Loan Certification. Any foreign obligor loan collateral discovered during a routine BIC inspection that is either not reported or has not received an acceptable legal opinion will be given zero value and/or removed from the BIC. Repeated violations of this policy could result in an institution being deemed ineligible for the BIC Commercial loan program.