Federal Reserve "CCS" Determinations Open Door to Chinese Acquisitions of U.S. Banks

May 15, 2012

The Federal Reserve Board last week approved for the first time a controlling investment by a Chinese bank in a U.S. bank, opening the door for future Chinese acquisitions and investments in the U.S. banking sector. In approving an 80% equity investment by the Industrial and Commercial Bank of China Limited in The Bank of East Asia (U.S.A.) N.A., as well as branch openings by the Bank of China Limited and the Agricultural Bank of China Limited, the Federal Reserve determined that each of the three state-owned Chinese banks is subject to comprehensive consolidated supervision or “CCS”—the first time such determinations have been made with respect to a Chinese bank. Although the CCS determinations are institution-specific, once the Federal Reserve has made a CCS determination with respect to one bank in a country, the approval process for other banks from that jurisdiction has historically been significantly streamlined. As a result, we expect that other Chinese banks may begin exploring options to invest in or acquire U.S. banks and that similarly situated Chinese banks are likely to be able to obtain the required CCS determination.

The memo highlights certain legal, policy and business implications of these orders, particularly with respect to future Chinese investments in the U.S. banking sector.