Orders Issued under International Banking Act

Federal Reserve Bulletin, October 2011 | Go to article overview

Orders Issued under International Banking Act


Bank of Communications Co., Ltd.

Shanghai, People's Republic of China

Order Approving Establishment of a Branch

Bank of Communications Co., Ltd. ("BOCOM"), Shanghai, People's Republic of China, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 7(d) of the IBA (1) to establish a limited federal branch in San Francisco, California. The Foreign Bank Supervision Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the approval of the Board to establish a branch in the United States.

Notice of the application, affording interested persons an opportunity to comment, has been published in a newspaper of general circulation in San Francisco, California (The Recorder, March 9, 2009). The time for filing comments has expired, and the Board has considered all comments received.

BOCOM, with total assets of approximately $599 billion, is the fifth largest bank in China. (2) The government of China owns approximately 43.8 percent of BOCOM's shares. (3) The Hongkong and Shanghai Banking Corporation Limited, Hong Kong, People's Republic of China, a subsidiary of HSBC Holdings plc, London, England, owns 19 percent of the shares of BOCOM. No other shareholder owns more than 5 percent of the shares of BOCOM.

BOCOM engages primarily in corporate and retail banking and treasury operations throughout China, including Hong Kong and Macau. Outside China, BOCOM operates branches in Japan, Singapore, South Korea, and Germany and a representative office in the United Kingdom. In the United States, BOCOM operates a federal branch in New York. BOCOM would meet the requirements for a qualifying foreign banking organization under Regulation K. (4)

The proposed San Francisco branch would engage in wholesale deposittaking, lending, trade finance, and other banking services. As a limited branch, it would be prohibited from accepting deposits from sources other than those permitted by section 5 of the IBA and section 25A of the Federal Reserve Act. (5)

Under the IBA and Regulation K, in acting on an application by a foreign bank to establish a branch, the Board must consider whether the foreign bank (1) engages directly in the business of banking outside the United States; (2) has furnished the Board with the information it needs to assess the application adequately; and (3) is subject to comprehensive supervision on a consolidated basis by its home-country supervisors. (6) The Board also considers additional standards as set forth in the IBA and Regulation K. (7)

The IBA includes a limited exception to the general standard relating to comprehensive, consolidated supervision. (8) This exception provides that, if the Board is unable to find that a foreign bank seeking to establish a branch, agency, or commercial lending company is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, the Board may nevertheless approve the application provided that (i) the appropriate authorities in the home country of the foreign bank are actively working to establish arrangements for the consolidated supervision of such bank; and (ii) all other factors are consistent with approval. (9) In deciding whether to exercise its discretion to approve an application under authority of this exception, the Board must also consider whether the foreign bank has adopted and implemented procedures to combat money laundering. (10) The Board also may take into account whether the home country of the foreign bank is developing a legal regime to address money laundering or is participating in multilateral efforts to combat money laundering. (11) That is the standard applied by the Board in this case.

As noted above, BOCOM engages directly in the business of banking outside the United States. BOCOM also has provided the Board with information necessary to assess the application through submissions that address the relevant issues. …

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