Orders issued under International Banking Act

Federal Reserve Bulletin, Summer, 2004 by Robert De V. Frierson

Hypothekenbank in Essen AG Essen, Germany

Order Approving Establishment of a Representative Office

Hypothekenbank in Essen AG ("Bank"), Essen, Germany, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 10(a) of the IBA (12 U.S.C. [section] 3107(a)) to establish a representative office in New York, New York. The Foreign Bank Supervision Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the approval of the Board to establish a representative office in the United States.

Notice of the application, affording interested persons an opportunity to submit comments, has been published in a newspaper of general circulation in New York, New York (The New York Times, January 30, 2004). The time for filing comments has expired, and all comments have been considered.

Bank, with total consolidated assets of approximately $92 billion, (1) is the fifth largest mortgage bank in Germany and is primarily engaged in real estate mortgage lending and public sector lending. Bank operates representative offices in Belgium, France, and the United Kingdom.

Bank is owned by Commerzbank, AG, Frankfurt, Germany, and Helvetic Grundbesitz Verwaltung GmbH. Commerzbank, with consolidated total assets of approximately $493 billion, is the fourth largest banking organization in Germany. (2) Commerzbank engages in banking operations in the United States through branches in New York, New York; Chicago, Illinois; and Los Angeles, California; and an agency in Atlanta, Georgia. Commerzbank also engages in nonbanking activities in the United States through a number of subsidiaries.

The proposed representative office would initially act as a liaison with existing and potential customers of Bank. The office would also conduct research and may solicit commercial mortgage loans in the United States.

In acting on an application to establish a representative office, the IBA and Regulation K provide that the Board shall take into account whether the foreign bank engages directly in the business of banking outside of the United States and has furnished to the Board the information it needs to assess the application adequately. The Board also shall take into account whether the foreign bank and any foreign bank parent is subject to comprehensive super-vision or regulation on a consolidated basis by its home country supervisor (12 U.S.C. [section] 3107(a)(2); 12 CFR 211.24(d)(2)). (3) In addition, the Board may take into account additional standards set forth in the IBA and Regulation K (12 U.S.C. [section] 3105(d)(3)-(4); 12 CFR 211.24(c)(2)).

As noted above, Bank and Commerzbank engage directly in the business of banking outside the United States. Bank also has provided the Board with information necessary to assess the application through submissions that address the relevant issues. With respect to supervision by home country authorities, the Board previously has determined, in connection with applications involving other German banks, including Commerzbank, that those banks were subject to home country supervision on a consolidated basis. (4) Bank is supervised by the German Federal Financial Supervisory Agency on substantially the same terms and conditions as the other banks. Based on all the facts of record, it has been determined that Bank is and Commerzbank continues to be subject to comprehensive supervision and regulation on a consolidated basis by their home country supervisor.

The additional standards set forth in section 7 of the IBA and Regulation K (see 12 U.S.C. [section] 3105(d)(3)-(4); 12 CFR 211.24(c)(2)) have also been taken into account. The German Federal Financial Supervisory Agency has no objection to the establishment of the proposed representative office.

With respect to the financial and managerial resources of Bank, taking into consideration Bank's record of operations in its home country, its overall financial resources, and its standing with its home country supervisor, financial and managerial factors are consistent with approval of the proposed representative office. Bank appears to have the experience and capacity to support the proposed representative office and has established controls and procedures for the proposed representative office to ensure compliance with U.S. law.

Germany is a member of the Financial Action Task Force and subscribes to its recommendations regarding measures to combat money laundering. In accordance with these recommendations, Germany has enacted laws and created legislative and regulatory standards to deter money laundering. Money laundering is a criminal offense in Germany and credit institutions are required to establish internal policies and procedures for its detection and prevention.

With respect to access to information on Bank's operations, the restrictions on disclosure in relevant jurisdictions in which Bank operates have been reviewed and relevant government authorities have been communicated with regarding access to information. Bank and its parents have committed to make available to the Board such information on the operations of Bank and any of their affiliates that the Board deems necessary to determine and enforce compliance with the IBA, the Bank Holding Company Act of 1956, as amended, and other applicable federal law. To the extent that the provision of such information to the Board may be prohibited by law or otherwise, Bank and its parents have committed to cooperate with the Board to obtain any necessary consents or waivers that might be required from third parties for disclosure of such information. In addition, subject to certain conditions, the German Federal Financial Supervisory Agency may share information on Bank's operations with other supervisors, including the Board. In light of these commitments and other facts of record, and subject to the condition described below, it has been determined that Bank has provided adequate assurances of access to any necessary information that the Board may request.