Orders issued under International Banking Act - Legal Developments

Federal Reserve Bulletin, July, 2003 by Jennifer J. Johnson

HSH Nordbank Aktiengesellschaft Hamburg/Kiel, Germany

Order Approving Establishment of a Branch

HSH Nordbank Aktiengesellschaft (in Formation) ("Bank"), in both Hamburg and Kiel, Germany, 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 submit comments, has been published in a newspaper of general circulation in New York, New York (The New York Post, March 28, 2003). The time for filing comments has expired, and all comments have been considered.

Bank will be established on the merger of Landesbank Schleswig-Holstein, Kiel, and Hamburgische Landesbank, Hamburg. (1) Bank would be a commercial bank organized as a private company and would succeed to the commercial business of Landesbank Schleswig-Holstein and Hamburgische Landesbank. Bank would have total consolidated assets of approximately $191 billion. (2) It is expected that on its establishment, Bank would be a qualifying foreign banking organization.

Bank's largest shareholder will be the City of Hamburg, with approximately 35 percent of Bank. WestLB AG, in both Munster and Dusseldorf, Germany, will own approximately 27 percent of Bank. (3) The State of Schleswig-Holstein and the Savings Bank and Clearing Association of Schleswig-Holstein, Kiel, will own approximately 19 percent and 18 percent of Bank, respectively.

The proposed branch would assist Bank with its existing business activities in the United States and would be used to develop new business in areas in which the bank specializes such as shipping, real estate, credit investments, and international finance. The proposed branch would also participate in syndicated loans, issue commercial paper and other debt instruments, and provide trade and public financing.

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 its home country supervisor (12 U.S.C. [section] 3105(d)(2); 12 C.F.R. 211.24). (4) 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, West LB AG, and Landesbank Nordrhein-Westfalen 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, that those banks were subject to home country supervision on a consolidated basis. (5) Bank, West LB AG, and Landesbank Nordrhein-Westfalen are 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, West LB AG, and Landesbank Nordrhein-Westfalen are 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 C.F.R. 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 branch.

Germany's risk-based capital standards are consistent with those established by the Basel Capital Accord. Applying these standards, Bank's capital is in excess of the minimum levels that would be required by the Basel Capital Accord and is considered equivalent to capital that would be required of a U.S. banking organization. Managerial and other financial resources of Bank also are considered consistent with approval, and Bank appears to have the experience and capacity to support the proposed branch. In addition, Bank has established controls and procedures for the proposed branch to ensure compliance with U.S. law, as well as controls and procedures for its worldwide operations generally.

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 the detection and prevention of money laundering.