| For immediate release |
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The Federal Reserve Board announced today its approval of the application of Industrial and Commercial Bank of China, Beijing, People's Republic of China, to establish a representative office in New York, New York. Attached is the Board's Order relating to this action. |
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Industrial and Commercial Bank of China |
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Industrial and Commercial Bank of China ("Bank"), Beijing, People's Republic of China, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 10(a) of the IBA (12 U.S.C. § 3107(a)) to establish a representative office in New York, New York. 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 representative office 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 New York (The New York Times, October 9, 1996). The time for filing comments has expired, and the Board has considered the application and all comments received. As of June 30, 1996, Bank had total assets of approximately $400 billion. Bank is the largest of four specialized banks in the People's Republic of China and is wholly owned by the Chinese government. Bank operates more than 32,000 offices and a number of subsidiaries in China. Outside China, Bank operates bank subsidiaries in Kazakhstan and Hong Kong, branches in Singapore and Hong Kong, and representative offices in Seoul, Korea; Tokyo, Japan; and London, England. Until recently, one of Bank's primary activities was receiving funds from China's federal, regional, and local authorities and lending such funds on a medium- and long-term basis to state-owned enterprises to support urban industrial development. In connection with ongoing efforts to modernize China's financial system, however, Bank now engages in more traditional commercial banking activities. |
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The activities of Bank's representative office would include general marketing or promotional activities, research and consulting, and acting as liaison between Bank's customers and correspondent and investment banks. In addition, the representative office would engage in certain loan solicitation and servicing activities. All decisions regarding such loans would be made by Bank's head office and the representative office would not act as payment or collection agent in connection with its loan servicing activities. In acting on an application to establish a representative office, the IBA and Regulation K provide that the Board shall take into account whether the foreign bank engages directly in the business of banking outside of the United States, has furnished to the Board the information it needs to assess the application adequately, is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor, and has provided adequate assurances of access to information on the operations of the bank and its affiliates to determine compliance with U.S. laws. (12 U.S.C. § 3107(a); 12 C.F.R. 211.24(d)). The Board also may take into account additional standards as set forth in the IBA (12 U.S.C. § 3105(d)(3)-(4)) and Regulation K (12 C.F.R. 211.24(c)). The Board previously has stated that the standards that apply to the establishment of a branch or agency need not in every case apply to the establishment of a representative office, because representative offices do not engage in a banking business and cannot take deposits or make loans.1 In evaluating an application to establish a representative office under the IBA and Regulation K, the Board will take into account the standards that apply to the establishment of branches and agencies, subject generally to the following considerations. With respect to supervision by home country authorities, a foreign bank that proposes to establish a representative office should be subject to a significant degree of supervision by its home country supervisor. 2 A foreign bank's financial and managerial resources will be reviewed to determine whether its financial condition and performance demonstrate that it is capable of complying with applicable laws and has an operating record that would be consistent with the establishment of a representative office in the United States. Finally, all foreign banks, whether operating through branches, agencies or representative offices, will be required to provide adequate assurances of access to information on the operations of the bank and its affiliates necessary to determine compliance with U.S. laws. |
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The Board has considered the following information with respect to home country supervision of Bank. The People's Bank of China (the "PBOC") is the licensing, regulatory, and supervisory authority for banks and all other financial institutions in China and, as such, is the home country supervisor of Bank. Although regulation of the specialized banks by the PBOC historically has focused on the banks' compliance with state economic and financial goals, in the last several years the Chinese authorities have taken steps to develop a more market-oriented bank supervisory program placing greater emphasis on prudential standards. Under the new supervisory regime currently being implemented, the PBOC establishes capital, liquidity and asset quality requirements, regulates the investments of banks in other companies, establishes internal auditing standards for Chinese banks, and monitors Chinese banks for adherence to Chinese laws and regulations. The PBOC, which has authorized Bank to establish the proposed representative office, supervises the foreign and domestic activities of Bank and its subsidiaries. The PBOC monitors the operations of Bank through on-site examinations and the review of periodic reports from Bank. The PBOC conducts both regular and limited ad hoc on-site examinations. On-site examinations generally focus on compliance with financial regulations, as well as Bank's internal controls, asset quality, capital, liquidity, profitability, and execution of economic and financial policies. Bank is required to submit various periodic financial and regulatory reports to the PBOC, including balance sheets, income statements, analyses of classified loans and external debt, reports on foreign exchange risk, and reports on deposits, borrowings, guarantees, and securities and investments. Bank also is required to publish its financial statements and audit report annually. The PBOC's examinations and general supervisory oversight of Bank are carried out by the head office and various of the more than 2,500 local offices of the PBOC. Bank's internal audit department conducts biannual and annual internal audits of Bank, and ad hoc audits of particular areas of Bank's operations at least four times each year. Each major department or activity of Bank is subject to one or more internal audits annually. Internal audits generally review Bank's internal guidelines, operating and financial plans, budgets, and financial statements, as well as compliance with governmental and Bank's own policies. Bank's foreign branches and subsidiaries are required to submit periodic reports to Bank's head office and are audited on-site annually. The results of Bank's internal audits are provided to the PBOC. Bank proposes to monitor and control the activities of the representative office through a similar combination of periodic reports and annual internal audits, as well as through meetings between staff of the representative office and Bank's head office. |
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Based on all the facts of record, the Board concludes that factors relating to the supervision of Bank by its home country supervisor are consistent with approval of the proposed representative office. The Board also has determined that, for purposes of the IBA and Regulation K, Bank engages directly in the business of banking outside of the United States through its operations in China. Bank has provided the Board with the information necessary to assess the application through submissions that address relevant issues. The Board also 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)). As noted above, the PBOC has authorized Bank to establish the proposed representative office. Taking into consideration Bank's record of operations in its home country, its overall financial resources, and its standing with its home country supervisors, the Board also has determined that financial and managerial factors are consistent with approval of the proposed representative office. Bank appears to have the experience and capacity to support the proposed representative office and also has established controls and procedures for the proposed representative office to ensure compliance with U.S. law. Finally, with respect to access to information on Bank's operations, the Board has reviewed the relevant provisions of law in China and has communicated with appropriate government authorities regarding access to information. Bank has committed to make available to the Board such information on the operations of Bank and any of its 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 to the Board may be prohibited or impeded by law, Bank has 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 such information. In addition, subject to certain conditions, the PBOC may share information on Bank's operations with other supervisors, including the Board. In light of the commitments provided by Bank and other facts of record, and subject to the condition described below, the Board concludes that Bank has provided adequate assurances of access to any necessary information the Board may request. On the basis of all the facts of record, and subject to the commitments made by Bank, as well as the terms and conditions set forth in this order, the Board has determined that Bank's application to establish a representative office should be, and hereby is, approved. Should any restrictions on access to information on the operations or activities of Bank or any of its affiliates subsequently interfere with the Board's ability to determine the compliance by Bank or its affiliates with applicable federal statutes, the Board may require termination of any of Bank's direct or indirect activities in the United States. Approval of the application is also specifically conditioned on compliance by Bank with the commitments made in connection with the application and with the conditions in this order.3 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 against Bank and its affiliates. |
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By order of the Board of Governors,4 effective January 27, 1997.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
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Footnotes 1 See 58 Federal Register 6348, 6351 (1993). 2 See Citizens National Bank, 79 Federal Reserve Bulletin 805 (1993). See also Promstroybank of Russia, 82 Federal Reserve Bulletin 599 (1996) (addressing standards applicable to representative offices with limited activities). 3 The Board's authority to approve the establishment of the proposed representative office parallels the continuing authority of the State of New York to license offices of a foreign bank. The Board's approval of this application does not supplant the authority of the State of New York and its agent, the New York State Banking Department (Department), to license the proposed representative office of Bank in accordance with any terms or conditions that the Department may impose. 4 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Lindsey, Phillips, Yellen, and Meyer. |
1997 Orders on banking applications
