| For immediate release |
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The Federal Reserve Board announced today its approval of the application of Hongkong Bank of Canada, Vancouver, British Columbia, Canada, to establish branches in Portland, Oregon, and Seattle, Washington. Attached is the Board's Order relating to this action. |
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Hongkong Bank of Canada |
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Hongkong Bank of Canada ("Bank"), Vancouver, British Columbia, Canada, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 7(d) of the IBA (12 U.S.C. § 3105(d)) to establish state-licensed branches in Portland, Oregon, and Seattle, Washington, and acquire a portion of the assets and liabilities of the existing Portland and Seattle branches of its affiliate bank, Hongkong Shanghai Banking Corporation, Limited ("HSBC"), Hong Kong. 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 submit comments, has been published in a newspapers of general circulation in Portland, Oregon (Oregonian, August 1, 1996) and Seattle, Washington (Seattle Times, August 1, 1996). The time for filing comments has expired, and all comments have been considered. |
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Bank, with total consolidated assets equivalent to approximately $15 billion,1 is the seventh largest banking organization in Canada. Bank operates 113 branches and has two subsidiaries in Canada. Bank's only operation outside Canada is a representative office in Hong Kong. Bank and HSBC are indirectly owned by HSBC Holdings Plc ("Holdings"), London, England, a holding company that engages through subsidiaries in financial activities through more than 3,000 offices in 65 countries. HSBC, the main subsidiary bank of Holdings, operates branches in New York, New York; Chicago, Illinois; Portland, Oregon; and Seattle, Washington; and representative offices in Dallas and Houston, Texas. Holdings also directly owns all the outstanding shares of Midland Bank plc, London, England, which operates a branch in New York, New York, and, through HSBC Americas, Inc., a U.S. bank holding company, owns Marine Midland Bank, Buffalo, New York.2 Holdings also engages through subsidiaries in other permissible nonbanking activities in the United States and abroad. |
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HSBC's branches in Portland and Seattle (the "Branches") are subject to the grandfather provisions of the IBA. Bank proposes to establish branches in Portland and Seattle by acquiring a portion of the assets and liabilities of the Branches.3 The proposed transfer of HSBC's branches in Portland and Seattle to Bank is part of a continuing effort by Holdings to reorganize its commercial banking operations in North America. Bank proposes to acquire HSBC's branch operations in the Pacific Northwest to complement Bank's existing business conducted from its offices in Canada. Bank's proposed Portland and Seattle branches would engage in traditional commercial banking functions and would market their services to U.S. companies, including U.S. subsidiaries of Canadian companies, and to non-U.S. clients of the HSBC group that require assistance in the Pacific Northwest. In order to approve an application by a foreign bank to establish a branch in the United States, the IBA and Regulation K require the Board to determine that the foreign bank applicant engages directly in the business of banking outside of the United States and has furnished to the Board the information it needs to assess the application adequately. The Board also generally must determine whether the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor (12 U.S.C. § 3105(d)(2) and (6); 12 C.F.R. 211.24(c)(1)). The Board also may take into account the additional standards set forth in the IBA (12 U.S.C. § 3105(d)(3)-(4)) and Regulation K (12 C.F.R. 211.24(c)). Bank engages directly in the business of banking outside the United States through its banking operations in Canada. Bank also has provided the Board with the information necessary to assess the application through submissions that address the relevant issues. |
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Regulation K provides that a foreign bank will be considered to be subject to comprehensive supervision or regulation on a consolidated basis if the Board determines that the bank is supervised and regulated in such a manner that its home country supervisor receives sufficient information on the foreign bank's worldwide operations, including the relationship of the foreign bank to any affiliate, to assess the overall financial condition of the foreign bank and its compliance with law and regulation (12 C.F.R. 211.24(c)(1)).4 The Board previously determined that other Canadian banking organizations are subject to comprehensive, consolidated supervision by their home country supervisor, the Office of the Superintendent of Financial Institutions ("OSFI"), in connection with their applications to establish U.S. offices.5 In this case, the Board has determined that Bank is supervised on the same terms and conditions as these other Canadian banks. In addition, with respect to HSBC and its various banking and nonbanking affiliates, the Board previously determined that HSBC is subject to comprehensive, consolidated supervision, and the Board has noted that there has been no material change in the nature of its supervision since that time.6 Based on all the facts of record, the Board has determined that Bank is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor. |
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The Board has taken into account the additional standards set forth in section 7 of the IBA and Regulation K (see 12 U.S.C. § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). The OSFI, which is Bank's primary supervisor, has consented to the establishment of the proposed branches. Canada is a signatory to the Basle risk-based capital standards, and Canadian risk-based capital standards meet those established by the Basle Capital Accord. Bank's capital is in excess of the minimum levels that would be required by the Basle .Capital Accord and is considered equivalent to capital that would be required of a U.S. banking organization. Managerial and other financial resources of Bank also are considered consistent with approval, and Bank appears to have the experience and capacity to support the proposed branches. Bank has established controls and procedures for the proposed branches to ensure compliance with U.S. law, as well as controls and procedures for its other operations. |
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The Board has reviewed the restrictions on disclosure in relevant jurisdictions in which Bank operates and has communicated with relevant government authorities about access to information. Bank and Holdings have committed to make available to the Board such information on the operations of Bank, Holdings and any of their affiliates that the Board deems necessary to determine and enforce compliance with the IBA, the Bank Holding Company Act of 1956, as amended, and other applicable federal law. To the extent that the provision of such information is prohibited or impeded by law, Bank and Holdings have committed to cooperate with the Board to obtain any necessary consents or waivers that might be required from third parties in connection with disclosure of certain information. In addition, subject to certain conditions, the OSFI and the Bank of England may share information on Bank's and the HSBC Group's operations, respectively, with other supervisors, including the Board. In light of these commitments and other facts of record, and subject to the condition described below, the Board concludes that Bank .and Holdings have provided adequate assurances of access to any necessary information the Board may request. |
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Bank's home state for purposes of the IBA is New York.7 Bank proposes to establish branches in Portland and Seattle, outside its home state, in reliance on the grandfather rights of its affiliate bank, HSBC, to maintain and operate branches in those locations. Section 5 of the IBA governs the interstate branching operations of foreign banks. Section 5(b) provides that, notwithstanding the other restrictions of the IBA on interstate branching by foreign banks, a "foreign bank" may establish or operate outside its home state any state-licensed branch operating on July 27, 1978. 12 U.S.C. § 3103(b). The Branches each were operating on that date, and HSBC therefore is entitled to operate them on a grandfathered basis. The IBA defines a "foreign bank" to include affiliates of a foreign bank. 12 U.S.C. § 3101(7). For purposes of the IBA's home state requirements, moreover, the Board treats a foreign banking group as a single foreign bank, regardless of how many foreign banks are within the group.8 In this case, allowing Bank to assume the operation of HSBC's grandfathered branches would be consistent with the purposes of section 5 .because it would not allow Holdings and the group of banks and companies it controls (the "HSBC Group") to extend its network of interstate branches beyond those in operation on July 27, 1978.9 As noted, HSBC will no longer operate branches in Portland and Seattle after the completion of the proposed transactions. In this case, the state banking authorities of Oregon and Washington also have approved the proposed acquisition of the Branches and their operation by Bank. Accordingly, the Board has determined that Bank should be allowed to acquire the Branches and to operate them on a grandfathered basis notwithstanding their location outside Bank's home state, provided that HSBC terminates its own branch operations at such locations. |
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On the basis of all the facts of record, and subject to the commitments made by Bank and Holdings, as well as the terms and conditions set forth in this order, the Board has determined that Bank's application to establish the proposed state-licensed branches should be, and hereby is, approved. Should any restrictions on access to information on the operations or activities of Bank, Holdings, or any of their affiliates subsequently interfere with the Board's ability to determine the compliance by Bank, Holdings or their affiliates with applicable federal statutes, the Board may require termination of any of Bank's or its affiliates' direct or indirect activities in the United States. Approval of this application also is specifically conditioned on compliance by Bank and Holdings with all commitments made in connection with this application and with the conditions in this order.10 The commitments and conditions referred to above are conditions imposed in writing by the Board in connection with its decision, and may be enforced in proceedings under 12 U.S.C. § 1818 or 12 U.S.C. § 1847 against Bank, Holdings, their offices, and their affiliates. |
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By order of the Board of Governors,11 effective November 27, 1996.
Deputy Secretary of the Board |
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Footnotes 1 All financial data are as of April 30, 1996. 2 Holdings also owns indirectly 40 percent of the total equity of Wells Fargo HSBC Trade Bank, N.A., San Francisco, California ("Trade Bank"), a bank operated as a joint venture with Wells Fargo & Company, San Francisco, California. See Wells Fargo & Company, HSBC Holdings plc, HSBC Holdings BV, Marine Midland Bank, Inc., 81 Federal Reserve Bulletin 1037 (1995) (the "Trade Bank Order"). 3 Bank would acquire approximately 80 percent of the assets and liabilities of HSBC's Seattle branch, and approximately 20 percent of the assets and liabilities of HSBC's Portland branch. The remaining assets and liabilities of the Branches, consisting of the trade finance business of the Branches, have been transferred to the Trade Bank. Upon completion of these transactions, HSBC would retain a representative office in Seattle, but would no longer have an office in Portland. 4 In assessing this standard, the Board considers, among other factors, the extent to which the home country supervisors: (i) ensure that the bank has adequate procedures for monitoring and controlling its activities worldwide; (ii) obtain information on the condition of the bank and its subsidiaries and offices through regular examination reports, audit reports, or otherwise; (iii) obtain information on the dealings with and relationship between the bank and its affiliates, both foreign and domestic; (iv) receive from the bank financial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis; and (v) evaluate prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. These are indicia of comprehensive, consolidated supervision. No single factor is essential and other elements may inform the Board's determination. 5 See Bank of Montreal, 80 Federal Reserve Bulletin 925 (1994); National Bank of Canada, 82 Federal Reserve Bulletin 769 (1996); and The Toronto-Dominion Bank, 82 Federal Reserve Bulletin 1053 (1996). 6 Trade Bank Order at 1039; The Hongkong and Shanghai Banking Corporation Limited, 81 Federal Reserve Bulletin 902 (1995). |
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7 For purposes of the IBA, the home state of HSBC is New York. Under the Board's Regulation K, foreign banks which are majority-owned by the same company are required to have the same home state. 12 C.F.R. 211.22(c). As a result of their common ownership by Holdings, Bank and HSBC both have New York as their home state. 8 12 C.F.R. 211.22(c). 9 See Board Letter of March 2, 1981. 10 The Board's authority to approve the establishment of the proposed branches parallels the continuing authority of the states of Oregon and Washington to license offices of a foreign bank. The Board's approval of this application does not supplant the authority of the State of Oregon, and its agent, the Oregon Department of Consumer and Business Services, or the State of Washington, and its agent, the Washington Department of Financial Institutions, to license the proposed branches of Bank in accordance with any terms or conditions that either state may impose. 11 Voting for this action: Chairman Greenspan and Governors Kelley, Lindsey, Phillips, Yellen and Meyer. Absent and not voting: Vice Chair Rivlin. |
1996 Orders on banking applications
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