Deal Marks Development for US and Chinese Banking Markets


Posted on March 1, 2011 at 1:03 AM

Industrial and Commercial Bank of China, located in Beijing, entered into an agreement with The Bank of East Asia (BEA), to purchase an 80% common equity stake in BEA’s subsidiary bank based in New York. The Industrial and Commercial Bank of China is the world’s largest bank in terms of market capitalization and profitability (ICBC), and the BEA is a leading bank in Hong Kong. The agreement is known as The Bank of East Asia (USA) National Association (BEA-USA). According to White & Case, the agreement allows ICBC to become the first mainland Chinese bank to obtain a controlling stake in a US bank. This agreement was announced on January 23, 2011, consolidating the global business reach of the big mainland Chinese banks which have adequate market capitalizations to make them leading players in international mergers and acquisitions markets.

According to White & Case, if the deal is accepted by US regulators, it will indicate the opening of US banking markets to acquisitions and other equity investments by mainland Chinese banks. Mainland Chinese banks including ICBC and other foreign banks have instituted banking offices in the United States. Yet, no mainland Chinese bank has established or attained a US bank subsidiary. Several foreign banks maintain branch offices and FDIC–insured subsidiary banks in the United States. Foreign banks normally serve wholesale financial markets through their US branches, and their US subsidiary banks tend to serve the middle market and small businesses.

To allow the closing of the deal, ICBC is required to apply for and receive prior consent of the Board of Governors of the Federal Reserve System (Federal Reserve) under Section 3 of the Bank Holding Company Act of 1956 (amended as the BHC Act). To ensure approval of the transaction, under the BHC Act, the Federal Reserve is required to make several investigations. These findings include as a foreign bank applicant, ICBC is subject to “comprehensive supervision or regulation on a consolidated basis” by the bank authorities in its home country – The People’s Republic of China. The Federal Reserve will consider this standard met if the home country authorities receive sufficient information on the global operations of the bank. Additionally, affiliate relationships to evaluate the bank’s overall financial condition and conformity with law and regulation are to be met.

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