Orders issued under International Banking Act - Legal Developments - Artesia Banking Corporation S.A

Federal Reserve Bulletin, May, 2002 by Robert deV. Frierson

Artesia Banking Corporation S.A. Brussels, Belgium

Order Approving Establishment of a Branch

Artesia Banking Corporation S.A. ("Bank"), Brussels, Belgium, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 7(d) of the IBA (12 U.S.C. [section] 3105(d)) to establish a branch 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 branch in the United States. Notice of the application, affording interested persons an opportunity to comment, has been published in a newspaper of general circulation New York, New York (New York Post, January 28, 2002). The time for filing comments has expired, and all comments have been considered.

Bank, with assets of $85 billion, is a wholly owned subsidiary of Dexia S.A. ("Dexia"), Brussels, Belgium. (1) Bank was acquired by Dexia in July 2001. Under a proposed internal merger effective April 1, 2002, Dexia's other Belgian bank subsidiary, Dexia Bank Belgium S.A. ("DBB"), Brussels, Belgium, would contribute its assets and liabilities, including those related to DBB's New York branch, to Bank. Bank would be the surviving entity and would change its name to Dexia Bank Belgium SA ("New DBB"). Bank is engaged in investment banking, retail banking, and insurance activities primarily in Belgium and other European countries (Denmark, France, Austria, Ireland, Luxembourg, and the Netherlands). Bank has four U.S. subsidiaries engaged in funding and mortgage-related activities. Bank currently has no banking operations in the United States.

Dexia and its subsidiaries and affiliates (the "Dexia Group"), with consolidated assets of approximately $329 billion, is the second largest financial services organization in Belgium. The Dexia Group has global operations in a broad range of financial services, including banking, public finance, investment management, and insurance. The two largest shareholders of Dexia are Arcofin CVBA (15.3 percent), a financial cooperative holding company, and Holding Communal (15 percent), a limited liability company owned by 599 Belgian municipalities and provinces. No other shareholder owns more than 10 percent of Dexia's shares. DBB, with assets of $135 billion, is a Belgian bank with an extensive network of European operations. Its principal lines of business include retail banking, commercial lending, public and project financing, investment management services, and capital market activities. Bank is, and New DBB will be on consummation of the merger, a qualifying foreign banking organization within the meaning of Regulation K (12 C.F.R. 211.23(b)).

The proposed branch would continue the operations and activities of the existing DBB New York branch, which engages in corporate lending activities, foreign exchange and money market transactions, and derivative products transactions.

In order to approve an application by a foreign bank to establish a branch in the United States, the IBA and Regulation K require the Board to determine that the foreign bank applicant 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 supervision or regulation on a consolidated basis by their home country supervisor (12 U.S.C. [section] 3105(d)(2); 12 C.F.R. 211.24). (2) The Board may also take into account additional standards as set forth in the IBA and Regulation K (12 U.S.C. [section] 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)-(3)).

As noted above, Bank engages 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 banks in Belgium, including DBB, that those banks were subject to home country supervision on a consolidated basis. (3) Bank is supervised, and New DBB would be supervised, by the Belgian Commission Bancaire et Financiere ("CBF") on substantially the same terms and conditions as those other banks. Based on all the facts of record, it has been determined that Bank is, and New DBB would be, subject to comprehensive supervision on a consolidated basis by its 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 C.F.R. 211.24(c)(2)-(3)) have also been taken into account. The CBF has no objection to the establishment of the proposed branch.

Belgium 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, Belgium has enacted laws and created legislative and regulatory standards to deter money laundering. Money laundering is a criminal offense in Belgium and financial institutions are required to establish internal policies, procedures, and systems for the detection and prevention of money laundering throughout their worldwide operations. The Federal Reserve has previously considered the anti-money laundering regime of DBB; this regime would be continued by New DBB after the merger.