Bryan Sheridan
Group Law Agent

AIB Group
Office of the
Group Law Agent
Dublin 4

(01) 660 0311
(01) 668 9677

By e-mail:

Jonathan G. Katz, Esq.,
US Securities & Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549-0609,
U. S. A.

16th October, 2003

File Number S7-15-03
Foreign Bank Exemption from the Insider Lending Prohibition of Exchange Act, Section 13(k)

Dear Mr. Katz,

I refer to the Commission's proposed Rule 13k-1.

My Bank welcomes the stated intention of the Commission to exempt qualified foreign banks from the insider lending prohibition under Section 13(k) of the Securities Exchange Act of 1934, as added by Section 402 of the Sarbanes-Oxley Act.

We would have a concern however that the proposed Rule will not effectively achieve its stated objective.

  1. Proposed Rule 13k-1(b)(1)(i)

    The proposed Rule 13k-1(b)(1)(i) specifies as the first alternative limb of the first condition for exemption that:-

    "[the] laws or regulations of the foreign bank's home jurisdiction require the bank to insure its deposits".

    The Commission's Commentary on the proposed rule notes that this requirement has been phrased in general terms in recognition that there are differences amongst deposit insurance schemes in the foreign banks' home countries and that, in the interest of comity, the Commission believes that deference to the foreign banking supervisor regarding the details of its deposit insurance scheme is appropriate.

    In Ireland (as, I believe, in the other countries which are member states of the European Union) neither law nor regulation require a bank to insure its deposits. Irish law does, however, require banks to participate in a deposit guarantee scheme. As indicated, the requirement that a bank participate in such a scheme is imposed by Irish law, amongst other things, because it is required by Council Directive 94/19/EC1.

    It would meet this point (and would be consistent with the Commission's stated objective) were proposed Rule 13k-1(b)(1)(i) to be amended by adding after "deposits" the words:-

    "or participate in a deposit guarantee scheme".

  2. Proposed Rule 13k-1(b)(2)

    The proposed Rule 13k-1(b)(2) specifies as the second condition for exemption that the laws or regulations of the foreign bank's home jurisdiction restrict the foreign bank from making loans to its executive officers and directors, or those of its parent company, unless the foreign bank is permitted to, and does, extend the loan in accordance with one of three alternative conditions set out in paragraphs (i) to (iii) of the proposed rule.

    In soliciting comment on this proposal, the Commission raises the question of whether a foreign bank should be permitted to make insider loans that comply with Regulation O requirements even if the foreign bank's home jurisdiction has not yet enacted these requirements as laws of rules.

    We would respectfully suggest that as long as the loan itself actually complies with one of the three conditions specified in the proposed rule, the question of whether the laws or regulations of the bank's home jurisdiction restrict it from making loans to its executive officers and directors should be irrelevant. What should count is whether the loan itself meets the specified criteria for exemption. If it does, effective correspondence with Regulation O is achieved.

  3. Proposed Rule 13k-1(b)(3)

    The proposed Rule 13k-1(b)(3) specifies as the third condition for exemption that, for any loan that, when aggregated with the amount of all other outstanding loans for particular executive officer or director, exceeds $500,000;

      (i) a majority of the foreign bank's board of directors has approved the loan in advance; and

      (ii) the loan's intended recipient has abstained from participating in the vote regarding the loan.

    We would respectfully suggest that this requirement should be deleted. Firstly compliance with proposed Rule 13k-1(b)(2)(i) or (ii) would require that any loan to a director or executive officer would require to be on substantially the same terms as those prevailing for persons who are not executive officers, directors or employees or that they be made pursuant to a benefit or compensation programme widely available and without preference for executive officers or directors over other employees. The requirement for comparability will ensure that all the terms of any loan to a director or executive officer, including the size of the loan, do not give special preference to directors or executive officers over the public at large or over other employees in a benefit or compensation programme that is widely available to them.

    If the Commission is not minded to share our view that this proposed rule is otiose we would strongly urge the Commission to set a higher threshold for the requirement for Board approval. The increase of property values in many countries and cities outside the United States (and the same may well be true within the United States) render a threshold of $500,000 ridiculously low particularly for loans for the purpose of the purchase of residential property. If the Commission is not minded to remove the proposed rule altogether we would suggest a threshold of $1,000,000 for loans for purposes other than the purchase of residential property (individually or in the aggregate) and a threshold of $3,000,000 in respect of loans for the purpose of residential property (again individually or in the aggregate).

We are much obliged for the opportunity afforded by the Commission to make submissions.

Yours truly,

Bryan Sheridan

1 O.J. No. L135, 31.5.1994, p.5.