Tuesday, November 20, 2007

Federal Reserve approves China Merchants Bank New York Branch

Source: Financial Times: CMB’s New York branch licence approved; Telegraph: China threatens 'nuclear option' of dollar sales

The US Federal Reserve authorized China Merchants Bank, China’s sixth-largest lender, to establish a branch in New York. The New York branch is authorized to engage in wholesale deposit taking, lending, trade finance and other banking services. Chinese officials believe this approval could lead to US stock market listings by Chinese banks. Chinese regulators support New York Stock Exchange listings. They want to boost the international standing and corporate governance standards of China’s lenders. US listings would greatly improve the reputations of Chinese banks and would enable them to establish their brands worldwide.

China Merchants Bank is the first Chinese bank in 15 years to gain approval for a US branch. Bank of Communications and Bank of China are the other two Chinese banks which have licenses to operate in the US. In addition, the New York State Banking Department approved the Industrial and Commercial Bank of China, China’s largest lender, to open a New York branch but it is waiting for final approval from the Federal Reserve.

The approval of a license for China Merchants Bank may demonstrate goodwill that might influence the Chinese to permit US financial services firms better access to China.

For Discussion:
China is one of the top three trading partners with the US and the US is China's second largest trading partner. It is estimated China holds over 900 billion dollars in US bonds. Is the license approval for the China Merchants Bank merely an indication of the growing US-China economic partnership or is it a sign that the US depends upon China to continue financing US debt?

1 comment:

Anonymous said...

After reading the Federal Reserve Bulletin approving CMB's New York Branch, I'm left scratching my head at the ambiguity of the FRB's opinion. Where exactly does China fail when it comes to "comprehensive consolidated supervision?" The PRC has taken massive steps to ensure that its bank are subject to worldwide supervision, sometimes performing on-site examinations as frequently as once a month. What's the hold-up? Is the Fed still jittery about NPLs and China's uniform application of the prudential standards outlined by the Basel Concordat? Any insight into exactly why China stills fails the "CCS" test would be much appreciated.