While Wall Street big banks suffer continuing losses, write-downs and a credit crunch, China’s big banks are stepping up the pace to establish branches on Wall Street.
Liu Mingkang, Chairman of China Banking Regulatory Commission (CBRC), met with Chairman Ben Bernanke of the US Federal Reserve Board during the fourth Sino-US Strategic Economic Dialogue (SED), and urged the Federal Reserve to accelerate approval of applications from two Chinese banks to open branch offices in the US. Bernanke responded that the applications were being reviewed, and the US had no doubt of the qualifications of the banks.
According to a report in the Financial Times, the US may be stalling on granting licenses to China’s two biggest banks, the Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB), as the China Investment Corporation (CIC), Beijing’s sovereign wealth fund, is the biggest shareholder in both.
The problem now seems to have been solved. The Economic Observer reports that in negotiations, China pledged that all the investment activities of CIC are based on commercial purposes and not the directives of Beijing, while the US promised to grant Chinese banks national treatment. Insiders said the announcement of an ICBC New York branch being officially approved might be released soon.
Overseas banks seeking to set up branches in New York need first to be approved by the Federal Reserve Bank of New York and the New York State Banking Department and then by the Federal Reserve Board. An ICBC spokesperson told the media on June 15 that the application had been approved by the first two, but the Federal Reserve was holding back.
According to the joint concluding announcement of the fourth SED, China agreed that CIC would make its investment decisions strictly on a commercial basis and the US reaffirmed its promise for financial openness, and promised to grant national treatment to Chinese banks, accept their branch office applications and examine and approve them according to standard supervisory procedures without delays.
It has been rumored that if the US were to refuse such approval, then the door to China’s own financial markets might not stay ajar for US firms. After the SED, the China Securities Regulatory Commission approved the application of Credit Suisse for the establishment of a joint venture securities company in China. Morgan Stanley and Citibank have submitted similar applications, but approval has thus far been withheld.
According to the minutes of the talk between the two banking regulators, Bernanke told Liu Mingkang that the Federal Reserve was very happy to approve the application of China Merchants Bank’s to set up a branch office in New York, and that he hoped the review process for the other two banks would be wrapped up as soon as possible. He said he was in favor of the supervisory system that CBRC had established and highly respected its supervisory opinions. The Federal Reserve, he said, would further promote consultation between Chinese and US supervisors.
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