Federal Reserve’s Comprehensive Consolidated Supervision Determination for Chinese Banks Has Broader Implications

Q: Did the Federal Reserves grant the approvals on Chinese banks acquiring U.S. banks?

A: Yes. In 2011, Industrial and Commercial Bank of China Limited (“ICBC”) made application with the Federal Reserves for acquiring up to 80 percent of the voting shares of The Bank of East Asia (U.S.A.), National Association (“BEA-USA”), a U.S. bank with approximately $780 million in assets, and the Federal Reserves granted approval. Also, the Federal gave the green light on application by by Bank of China Limited (“BOC”), China’s third-largest bank, to establish a branch in Chicago as well as an application by Agricultural Bank of China Limited (“ABC”), China’s fourth-largest bank, to establish a branch in New York.

Q: What are conditions for a foreign bank acquiring a controlling interest in a U.S. bank?

A: according to the Bank Holding Company Act (“BHC Act”), before a foreign bank is able to acquire a controlling interest in a U.S. bank, it should be subject to Comprehensive Consolidated Supervision (“CCS”) status in its home country. That requires that the foreign bank’s home country supervisor may supervise and regulate these foreign banks by receiving sufficient information on the worldwide operations of the foreign banks, including the relationship of the bank to its affiliates, to assess the foreign bank’s overall financial condition and compliance with laws and regulations. Upon the satisfaction of the aforesaid requirements, the Federal Reserve will determine the foreign bank applicant is subject to CCS status by exercising its discretion.

Q: What are the factors considered by the Federal Reserve in making its CCS determinations?

A:  the Federal Reserve has given their reasons why they determine ICBS, BOC and ABS should be subject to CCS status. The Federal Reserve observed that:

“For a number of years, authorities in China have continued to enhance the standards of consolidated supervision to which banks in China are subject, including through additional or refined statutory authority, regulations, and guidance; adoption of international standards and best practices; enhancements to the supervisory system arising out of supervisory experiences; upgrades to the China Banking Regulatory Commission (“CBRC”), the agency with primary responsibility for the supervision and regulation of Chinese banking organizations, in the areas of organization, technological capacity, staffing, and training; and increased coordination between the CBRC and other financial supervisory authorities in China.”

Q: Will the approvals on ICBS, BOC and ABC’s application have positive impact on subsequent bank applications?

A: Yes. Technically, the Federal Reserve examined and approved the applications on a case-by-case basis, not on a country-by-country basis. However, in practice, once a CCS determination has been made with respect to one bank from a particular country, other banks from the same country would soon attain CCS status as well. As a result, for a different Chinese bank intending to acquiring U.S. banks, the approvals by the Federal Reserve on ICBS, BOC and ABC will certainly have positive impact on its application.

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