Chapter 6: Regulation
and Supervision of Banks
§ 601.
Regulation and supervision of banks by Banking Board — General policies.
§ 602. Regulations — Issuance and promulgation.
§ 603. Examination of banks — Authority; Testimony; Fees.
§ 604. Reports of banks.
§ 605. Special reports.
§ 606. Penalty for false reporting.
§ 607. Penalty for failure to report.
§ 608. Alternative examination and reports.
§ 609. Legal reserve — Domestic banks.
§ 610. Legal reserve — Foreign banks.
§ 611. Legal reserve — Notification.
§ 612. Limitations on loans — Maximum amounts.
§ 613. Limitations on loans — Related persons.
§ 614. Limitations on loans — Use of bank’s security; Purchase of bank’s stock.
§ 615. Limitations on loans — Liability for violations.
§ 616. Prohibited loans and withdrawals — Penalties.
§ 617. Disclosure of grounds for denial of requests for extension of credit.
§ 618. Prohibited investments by domestic banks.
§ 619. Acceptance of deposits — Minimum capital requirements.
§ 620. Declarations of dividends — Requisites.
§ 621. Bank stock — Ownership limitations.
§ 622. Limitations on sale of assets, merger, etc.
§ 623. Deposit and other insurance.
§ 624. Prohibited interests of Government officials in banks; Removal from office.
§ 625. Permissible interests of Government officials.
§ 626. Filing fees; Disposition of fines.
§ 627. General penalties.
(1) All domestic banks and, to the extent of and with respect to business done at any branches established in the Federated States of Micronesia, all foreign banks doing business in the Federated States of Micronesia shall be regulated and supervised by the Banking Board in such manner as to secure the safe and sound conduct of such business, to prevent unsound practices, and to maintain the public confidence in such business and protect the public interest and the interests of depositors, creditors, and stockholders.
(2) Every foreign bank licensed pursuant to section 501 of this title shall, with the concurrence of the Banking Commissioner, designate the branch in the Federated States of Micronesia which may be used as the channel of communication between the Banking Board and the bank with respect to the application of this title to its business throughout the Federated States of Micronesia. Such branch shall be responsible for the timely provision of reports and information by other branches requested under this title. The head office of a domestic bank shall be the channel of communication between the Banking Board and its branches, and shall be responsible for the timely provision of reports and information by other branches requested under this title.
Source: PL 1-94 § 601(1); PL 9-130 § 24.
Case annotations: Questions regarding the validity of the provisions of promissory notes for personal loans, executed with a national bank operating in each state of the FSM and having in part foreign ownership, are closely connected to the powers of the national legislature to regulate banking, foreign and interstate commerce, and bankruptcy, and to establish usury limits, and they have a distinctly national character. The FSM Supreme Court therefore will formulate and apply rules of national law in assessing such issues. Bank of Hawaii v. Jack, 4 FSM Intrm. 216, 218 (Pon. 1990).
The FSM Supreme Court will consider an unambiguous provision in a promissory note for the payment of reasonable attorney’s fees in debt collection cases as valid in the FSM.Bank of Hawaii v. Jack, 4 FSM Intrm. 216, 219 (Pon. 1990).
Because agreements in promissory notes for the payment of attorney’s fees are essentially indemnity clauses, they will be given effect only to the extent that expenses and losses are actually incurred, as demonstrated by detailed supporting documentation showing the date, the work done, and the amount of time spent on each service for which a claim for compensation is made. Bank of Hawaii v. Jack, 4 FSM Intrm. 216, 219 (Pon. 1990).
Provisions in promissory notes for the payment of attorney’s fees will be enforced only to the extent that the fees demanded are reasonable. Bank of Hawaii v. Jack, 4 FSM Intrm. 216, 219 (Pon. 1990).
Where attorney’s fees claimed pursuant to a contractual provision are excessive or otherwise unreasonable, it is within the equitable and discretionary power of the court to reduce or even deny the award, despite the contractual provision. Bank of Hawaii v. Jack, 4 FSM Intrm. 216, 220 (Pon. 1990).
Except in unusual circumstances, the amount awarded pursuant to a stipulation for the payment of attorney’s fees in debt collection cases in the FSM will be limited to a reasonable amount not in excess of fifteen percent of the outstanding principal and interest. Bank of Hawaii v. Jack, 4 FSM Intrm. 216, 221 (Pon. 1990).
(1) For the purpose of effectuating the policy declared in section 601 of this chapter, the Banking Board, with the approval of the President of the Federated States of Micronesia, may adopt regulations consistent with law and sound banking practice.
(2) Such regulations shall be brought to the attention of those affected thereby in the manner that the Banking Board may prescribe.
Source: PL 1-94 § 601(2).
(1) The Banking Commissioner may examine, or cause to be examined, every domestic or foreign bank for the purpose of ascertaining whether it has complied with this title and other applicable laws and for such other purposes and such other matters as the Banking Board may prescribe.
(2) The Banking Commissioner and every examiner appointed by him may administer an oath to any person whose testimony may be required on the examination of any bank and summon and compel the appearance and attendance of any person for the purpose of the examination.
(3) As an examination fee, each bank so examined shall pay the total cost of such examination, and the sum so paid shall be deposited into the General Fund of the Federated States of Micronesia.
Source: PL 1-94 § 602; PL 2-20 § 8; PL 9-130 § 25.
Editor’s note: Subsections (1) and (2) were originally a single subsection.
(1) Every domestic or foreign bank shall make at least one report of its condition each year to the Banking Commissioner within 90 days after the close of the bank’s fiscal year, and according to forms to be prescribed by him, verified by the oath of the chief executive officer or chief financial officer and attesting officer, certifying and subscribing under oath that each of them has personal knowledge of the facts stated therein and that the same are true.
(2) Such reports shall exhibit in detail and under appropriate heads the total resources and liabilities of the bank, and, in the case of a foreign bank, shall show separately the resources, liabilities, and operations in the Federated States of Micronesia.
(3) The Banking Commissioner shall have the right to require that any such reports be audited at the bank’s expense by independent accountants approved by the Banking Commissioner.
(4) Every domestic and foreign bank holding a license under this title shall forward to the Banking Commissioner no later than the 31st day of December each year a report outlining the bank’s policy regarding employment of citizens of the Federated States of Micronesia in executive positions in the bank, and the steps being taken to maximize such employment.
Source: PL 1-94 § 603(1); PL 2-20 § 9(part); PL 9-130 § 26.
(1) The Banking Commissioner may also call for special reports from any domestic or foreign bank whenever in his judgment the same are necessary in order to obtain full knowledge of its condition.
(2) During the first five years of operations in the Federated States of Micronesia by any domestic bank, the Banking Commissioner shall call for special reports of its condition not less frequently than each calendar quarter.
Source: PL 1-94 § 603(2); PL 2-20 § 9(part); PL 9-130 § 27.
Whoever willfully makes any false entry in any book, report, or statement of a bank or certifies and subscribes to any report required by sections 604 or 605 of this chapter which is false in any material respect shall be fined not more than $1,000, or imprisoned for not more than one year, or both.
Source: PL 1-94 § 603(3); PL 2-20 § 9 (part).
Any bank which fails to make, transmit, and publish any report required under sections 604 or 605 of this chapter shall be subject to a fine of $100 per day for each day’s delay after the period specified in this section.
Source: PL 1-94 § 603(4); PL 2-20 § 9(part).
(1) The Banking Commissioner may accept, in lieu of the examination required or authorized by section 603 of this chapter, the most current examination made by the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, or a Federal Reserve Bank, or in case of a foreign bank not examined by such agencies, an examination acceptable by the appropriate government agency in the home jurisdiction of that bank.
(2) The Banking Commissioner may accept, in lieu of any report of condition which may be required by sections 604 or 605 of this chapter, a report of condition obtained by said Corporation, Board of Governors, Federal Reserve Bank, or government agency.
Source: PL 1-94 § 604; PL 2-20 § 10; PL 9-130 § 28.
(1) Subject to such additional requirements as the Banking Board may impose, every domestic bank shall maintain a legal reserve which shall not be less than 20 percent of its demand deposits and not less than five percent of its other deposits. Said reserve shall consist of United States currency or demand deposits in the name of such bank deposited in another bank approved for such purpose by the Banking Board.
(2) The Banking Board may increase or decrease the minimum legal reserve for demand deposits established in this section up to not more than 30 percent or down to not less than 15 percent of the total demand deposits of a domestic bank, when in its judgment the circumstances so require it; but the order increasing or decreasing the minimum legal reserve shall not be effective until 30 days after it is entered. This time might be extended by the Banking Board.
Source: PL 1-94 § 605(1); PL 2-20 § 11(part).
Every foreign bank shall maintain, with respect to its deposits in the Federated States of Micronesia, a legal reserve which shall not be less than, and which shall be subject to the same condition as, the legal reserve requirement imposed in the jurisdiction of its place of incorporation on deposits of the foreign bank in that jurisdiction.
Source: PL 1-94 § 605(2); PL 2-20 § 11(part).
The Banking Commissioner shall notify any domestic or foreign bank whose legal reserve is less than that required by this title of its obligations to make up the full amount. If such bank fails to do so within a period of 30 days, it may be declared in liquidation by the Banking Board. In such event, the Banking Commissioner shall apply to the Trial Division of the Supreme Court of the Federated States of Micronesia for the appointment of a receiver to take charge of and wind up the affairs of such bank and thereafter the matter shall be governed by the provisions of section 802 of this title.
Source: PL 1-94 § 605(3); PL 2-20 § 11(part); PL 9-130 § 29.
(1) No domestic
bank shall permit a person to become indebted or liable to it, either
directly or indirectly, in an amount in excess of 20 percent of the
aggregate paid-in and unimpaired capital, surplus, and undivided profits
of the bank.
(2) In computing the total liabilities, direct or indirect, of any person to a bank, there shall be included all liabilities to the bank of any related person and any loans made for his benefit or for the benefit of any related person.
(3) In computing the total liabilities of any firm, copartnership, or unincorporated association to the bank, there shall be included all liabilities of its individual members and all loans made for the benefit of the copartnership or unincorporated association or any members thereof.
(4) In computing the total liabilities of any corporation to a bank there shall be included all liabilities of and all loans made for the benefit of the corporation and its majority owned subsidiaries.
Source: PL 1-94 § 606(1).
(1) Except as herein provided, no domestic bank shall make any extension of credit to any of its officers, directors, agents, or employees, or to any related person, either directly or indirectly, except upon the written application of such person or related person stating the line of credit applied for, terms and security, if any, offered therefor to the board of directors or to the loan or executive committee of the board, and then only with the written approval of a majority of the board or a majority of the loan committee of the bank (excluding the person seeking the credit) before the loan is made; and the approval of the loan as allowed by the board or the loan committee of the bank shall be made a part of the minutes of the next directors’ meeting of the bank.
(2) Loans may be made to any officer, director, agent, or employee of any domestic bank or any related person, without such application and approval, in amounts not in excess of $5,000 in aggregate principal owing by any such individual and related person at any one time.
Source: PL 1-94 § 606(2).
No domestic bank shall make any loan on the security of its own stock or for the purchase of its own stock.
Source: PL 1-94 § 606(3).
Any officer, director, agent, or employee of any bank who knowingly permits the funds of the bank to be loaned in a dishonest manner or contrary to sections 612, 613, or 614 of this chapter shall be held responsible in his individual capacity for all damages which the bank, its shareholders, depositors, creditors, or any persons shall have sustained in consequence thereof.
Source: PL 1-94 § 606(4).
Any director, officer, or employee of a bank or related person who asks for or receives any commission, money, property, or thing of value for his own personal benefit for procuring or assisting in procuring a loan from such bank or for permitting any person to overdraw any account with such bank shall be fined not more than $1,000, or imprisoned not more than one year, or both.
Source: PL 1-94 § 607(1).
Each bank must provide an applicant with a written explanation of the basis on which a decision is made to deny a loan application, credit card application, or other request for extension of credit.
Source: PL 6-41 § 3.
No domestic bank shall invest in the stock of any other corporation, acquire any real estate, except with the approval of the Banking Board for use as its principal office in the Federated States of Micronesia, or pledge any of its assets as security for or guaranty any obligations of others except for the issuance of its letters of credit in connection with the shipment of goods.
Source: PL 1-94 § 607(2); renumbered by PL 6-41 § 4.
No domestic bank may accept deposits at any time that its paid-in capital, surplus, and undivided profits is less than $500,000 in the aggregate.
Source: PL 1-94 § 607(3); renumbered by PL 6-41 § 4.
No domestic
bank shall declare any dividend or make any other distribution to its
stockholders except:
(1) out of earnings for the current and next preceding year; or
(2) with the approval of the Banking Board.
Source: PL 1-94 § 607(4); renumbered by PL 6-41 § 4.
No person may acquire 25 percent or more of the stock of a domestic bank without the approval of the Banking Board.
Source: PL 1-94 § 607(5); renumbered by PL 6-41 § 4.
No domestic bank may merge or consolidate with, or sell a substantial portion of its assets to, another bank without the approval of the Banking Board.
Source: PL 1-94 § 607(6); renumbered by PL 6-41 § 4.
(1) If and while it is available under the laws of the United States, all domestic banks and foreign banks, as a condition to operating an office or branch in the Federated States of Micronesia, shall secure their depositors by deposit insurance of the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation of the United States, or their successor entities.
(2) All domestic and foreign banks operating an office or branch in the Federated States of Micronesia shall provide themselves with protection and indemnity against burglary, embezzlement, and other similar insurable loss. If a domestic or foreign bank refuses to comply with this requirement, the Banking Commissioner shall have the right to make arrangements to furnish such protection and indemnity, charging the cost thereof to said bank.
Source: PL 1-94 § 608; PL 2-20 § 12; renumbered by PL 6-41 § 4; PL 9-130 § 30.
(1) No member of the Banking Board nor the Public Auditor nor any representative of the Banking Board or the Public Auditor nor any bank examiner shall, during the discharge of his office:
(a) be an officer, director, or employee in any bank or company affiliated therewith;
(b) own or deal directly or indirectly in the shares or obligations of such bank or affiliated company;
(c) be interested in or receive directly or indirectly from such bank or affiliated company, or from any of its officers, directors, or employees, any salary, gratuity, compensation, or other thing of value by way of gift, credit, compensation for services, or for any other reason; or
(d) be interested in or under obligation to negotiate any loan, obligation, or settlement for another person with such bank or affiliated company.
(2) Any violation of this section by any official or employee referred to herein shall be sufficient cause for his removal from office by the President.
Source: PL 1-94 § 609(1); renumbered by PL 6-41 § 4.
Notwithstanding the provisions of section 624 of this chapter, any official or employee referred to in such section may own or keep one or more bank accounts, either commercial or savings, and may rent safe-deposit boxes in any bank referred to in such section and doing business in the Federated States of Micronesia, and may obtain a loan from any such bank, foreign bank, or affiliated company; provided, that such official or employee makes full disclosure thereof to the Banking Board and, in the case of each of the members of the Banking Board, he shall make the disclosure to the President of the Federated States of Micronesia.
Source: PL 1-94 § 609(2); renumbered by PL 6-41 § 4.
(1) Every domestic bank or foreign bank in the Federated States of Micronesia shall, upon filing its articles of incorporation in the Office of the Registrar of Corporations, pay a filing fee of $50.
(2) Every domestic or foreign bank desiring to file in the Office of the Registrar of Corporations articles amendatory or supplementary or a certificate of increase or decrease of capital stock shall pay a fee of $25.
(3) The fee for furnishing a certified copy of any of the documents referred to in the preceding subsections of this section shall be fifty cents per folio, but not less than five dollars.
(4) All fees required under the provisions of this title shall be paid to the Office of the Registrar of Corporations and shall be accounted for and deposited into the General Fund of the Federated States of Micronesia.
(5) All fines under this title shall be paid to the Banking Commissioner and shall be accounted for and deposited into the General Fund of the Federated States of Micronesia.
Source: PL 1-94 § 610; PL 2-20 § 13; renumbered by PL 6-41 § 4 ; PL 9-130 § 31.
(1) For any violation of this title or the regulations prescribed pursuant to section 602 of this chapter, the delinquent domestic or foreign bank shall be subject to a fine of not more than $1,000 for each day that the violation continues and, in the case of a material violation, to the cancellation of its license.
(2) Such fine or cancellation shall be imposed by the Banking Board only with the approval of the President of the Federated States of Micronesia and after notice to the delinquent bank and a hearing concerning the alleged violation.
(3) In any such case, the Banking Commissioner shall send written notice of his action to the bank affected as quickly as circumstances will allow, and if the cancellation of the bank’s license has been decided upon, shall transmit a written order to that effect to the Registrar of Corporations for appropriate action.
Source: PL 1-94 Ch. 7; PL 2-20 § 14; renumbered by PL 6-41 § 4; PL 9-130 § 32.