May 15, 2012

Federal Reserve Makes First CCS Determination for a Chinese Bank

Here’s news culled from this Sullivan & Cromwell memo:

On May 9, 2012, the Board of Governors of the Federal Reserve System issued an order approving the acquisition of 80% of the shares of common stock of The Bank of East Asia (U.S.A.) National Association, by Industrial and Commercial Bank of China Limited. This Order marks the first occasion on which the FRB approved the acquisition of a U.S. bank by a Chinese bank since the Bank Holding Company Act of 1956 was amended by the Foreign Bank Supervision Enhancement Act of 1991. The FBSEA, which increased federal supervision of foreign banks operating in the United States, requires the FRB to make a finding that a foreign bank seeking to acquire control of a U.S. bank is subject to comprehensive supervision on a consolidated basis (“CCS”) by its home country supervisor. The Order marks the first time that the FRB has made a full and unqualified CCS determination for a Chinese bank to acquire control of a U.S. bank.

The Order should create the opportunity for other leading Chinese banks to acquire U.S. banks of a relatively modest size. Although the CCS determination is nominally bank-specific, in practice a CCS determination for one bank in a country is typically precedential for all similarly-situated banks in that country. In addition, because the FRB takes the position that a CCS determination is required before a foreign banking organization can obtain financial holding company status, the Order should pave the way for Chinese banks and their holding companies that are subject to the BHC Act to become FHCs.