Orders Issued Under International Banking Act

Federal Reserve Bulletin, Feb, 2001 by Robert Dev. Frierson

Euroclear Bank Brussels, Belgium

Order Approving Establishment of a Representative Office

Euroclear Bank ("Bank"), Brussels, Belgium, 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. [sections] 3107(a)) to establish a representative office in New York, New York. The Foreign Bank Supervision Enhancement Act of 1991 ("FBSEA"), 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 (The New York Post, August 31, 2000). The time for filing comments has expired, and all comments have been considered.

Bank is a newly formed Belgian bank that was created to operate the Euroclear System (the "System"), a clearance and settlement system for international securities. The System is currently operated by the Brussels office of the Morgan Guaranty Trust Company of New York ("MGT") on behalf of Euroclear Clearance System plc ("ECS plc"), a United Kingdom company owned by a consortium of 119 financial institutions. ECS plc owns, directly or indirectly, 95 percent of the shares of Bank, and more than 1200 other participants in the System own the balance. The parent of MGT, J.P. Morgan & Co. Incorporated, entered into an agreement with ECS plc whereby MGT's role as operator of the

System will cease on or about December 31, 2000. At that time, the assets and liabilities of MGT's Brussels office related to the operation of the System will be transferred to Bank, and Bank will become the System's operator. Most MGT employees who currently have duties related to the operations of the System will become employees of Bank. Bank will not engage in the full range of international banking activities, but only in the clearance and settlement of international securities transactions. Bank also intends to establish representative offices in Tokyo, Sao Paolo, Singapore, Hong Kong, and London.

The proposed representative office will engage in liaison, marketing and support activities, including the solicitation of new clients and the promotion of Bank products and services. These are the same functions currently performed by certain employees of MGT's New York office.

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 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 supervision or regulation on a consolidated basis by its home country supervisor.(1) The Board may take into account additional standards set forth in the IBA and Regulation K.(2) The Board previously has stated that the standards that apply to the establishment of a branch or agency need not in every case apply to the establishment of a representative office, because representative offices do not engage in a banking business and cannot take deposits or make loans.(3)

As noted above, Bank will engage directly in the business of banking outside the United States through its banking operations in Belgium. Bank also has provided the Board with the information necessary to assess the application through submissions that address the relevant issues. With respect to home country supervision of Bank, the Board has considered the following information. The Belgian Banking and Finance Commission ("BBFC") and the National Bank of Belgium ("NBB") are the primary supervisors of Bank.(4) The Board previously has determined, in connection with applications involving other Belgian banks, that those banks were subject to comprehensive consolidated supervision by the BBFC.(5) Although Bank is a de novo institution, and the BBFC has not previously had primary supervisory authority over the operations of the System, the BBFC intends to supervise Bank in substantially the same manner as the banks previously reviewed in the orders cited above. Based on all the facts of record, the Board has determined that factors relating to the supervision of Bank by its home country supervisor are consistent with approval of the proposed representative office.

The Board has taken into account the additional standards set forth in the IBA and in Regulation K.(6) The BBFC has granted Bank approval to establish the proposed office. With respect to the financial and managerial resources of Bank, taking into consideration the record of operations by Bank's predecessor in its home country, Bank's overall financial resources, and its standing with its home country supervisor, the Board has determined that financial and managerial considerations are consistent with approval. In addition, Bank appears to have the experience and capacity to support the proposed office and has established controls and procedures in the representative office to ensure compliance with applicable U.S. law, as well as controls and procedures for its worldwide operations generally.