Stephen D. Wayne, Esq.
Marks & Murase
399 Park Avenue
New York, New York 10022

Dear Mr. Wayne:

This is in response to your letter to Ann Misback dated January 30, 1996 regarding the intention of Hanil Bank, Seoul, Korea ("Hanil") to issue commercial paper in the United States using a special purpose company whose sole activity would be the lending of the proceeds of the commercial paper to a domestic agency of Hanil located in a state other than Hanil's home state. The special purpose company would be a so-called "orphan subsidiary." As described in your letter, Hanil would own no stock of the company but the company would be controlled by Hanil as a regulatory matter (i.e., Hanil's control of the company would be disclosed on the bank's F.R. Y-7). Control would be exercised by Hanil pursuant to an agreement between the company and Hanil's domestic agency. The agency would issue a letter of credit in support of the commercial paper.

You have represented that the special purpose company will be organized in Delaware [remainder of paragraph deleted]

Your letter states that Hanil has determined to have the commercial paper issued by the special purpose company instead of by a subsidiary owned by the bank because the establishment of the subsidiary would require prior approval by the Korean Ministry of Finance. Hanil is seeking to avoid any delays that might be associated with such approval process. In response to concerns raised in prior conversations with you, the letter further states that Hanil has disclosed its intention to establish the special purpose company to the Ministry and that the Ministry has raised no objection.

As previously discussed with you, the establishment by a foreign bank of a commercial paper subsidiary under section 4(c)(1)(C) of the Bank Holding Company Act does not require prior notice or Board approval. Nonetheless, the determination by Hanil to establish the special purpose company that is controlled, but not owned, by the bank raises questions because the determination appears to have been made with a view toward avoiding the approval and oversight requirements of the bank's home country supervisor.

The Federal Reserve expects a foreign bank operating in the United States to be in full compliance with applicable law and regulation in its home country. Assuming the bank determines to go forward with the commercial paper program as described in your letter, we would expect Hanil's agency to maintain documentation in its files indicating that the Ministry of Finance has been fully informed of the structure of the commercial paper operation and has raised no objection. Federal Reserve staff may also discuss the operations of such subsidiary with the Ministry as part of its ongoing supervisory consultations with foreign regulators.

If you have any questions concerning this letter, please contact Mike Martinson (202-452-3640) or Ann Misback (202-452-3788).

Sincerely,

(signed) Kathleen M. O'Day

Kathleen M. O'Day