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11th May 2012

First US approval for Chinese bank purchase

The Industrial & Commercial Bank of China has been granted permission to acquire an 80% holding in the US subsidiary of Bank of East Asia. The Federal Reserve had been considering its response for around one year and it was only after political pressure from China a decision was finally announced.


The decision is important because under US law the favourable decision is an acceptance by the Federal Reserve that Chinese banking regulation offers "comprehensive, consolidated supervision". Previously both the International Monetary Fund and the World Bank had reported Chinese regulatory processes to meet a good international standard.


The long delay had put the United States into a position where it was unable to criticise any slowness to open financial markets in China without appearing hypocritical. Technically the decision refers to ICBC only and does not set a precedent for other Chinese banks. However the Fed would have difficulty in practice in turning down any of the other big four Chinese banks.


In 2009 the Federal Reserve prevented China Minsheng from acquiring UCB which was in difficulty. The Federal Reserve cited the same need to investigate the Chinese regulatory regime and said there was not time for this to be done as UCB action was required immediately. UCB was closed by the Federal Deposit Insurance Corp. The indirect cost to the US taxpayer was $1bn.