Landesbank Schleswig-Holstein Girozentrale Kiel, Germany - Legal Developments - wants to establish New York, New York, branch

Federal Reserve Bulletin, August, 2002 by Robert DeV. Frierson

Order Approving Establishment of a Branch

Landesbank Schleswig-Holstein Girozentrale ("Bank"), 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 18, 2002). The time for filing comments has expired, and all comments have been considered.

Bank, with total consolidated assets of approximately $124 billion, (1) is the 15th largest bank in Germany. Bank is a public law institution and operates as a central bank for the savings banks of the State of Schleswig-Holstein and as a commercial and investment bank both domestically and internationally with its focus on northern Europe and the Baltic States. Bank operates six offices in Germany, and three branches and four representative offices in other countries in Europe. (2) Upon establishment of the proposed branch, Bank will be a qualifying foreign banking organization within the meaning of Regulation K (12 C.F.R. 211.23(b)).

Bank's largest shareholder is Westdeutsche Landesbank Girozentrale ("West LB"), Dusseldorf, Germany, which owns approximately 40 percent of Bank. West LB operates as a central bank for the savings banks in North Rhine-Westphalia and also conducts commercial and investment banking activities. The State of Schleswig-Holstein and the Savings Bank and Clearing Association of Schleswig-Holstein, Kiel, Germany, each own approximately 25 percent of Bank. The remaining interest in Bank is held by Landesbank Baden-Wurttemberg, Stuttgart, Germany.

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 real estate and transport financing. 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).(3) 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 and West LB 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 West LB, 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. (5) Based on all the facts of record, it has been determined that Bank is subject to comprehensive supervision and regulation 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)) 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. 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.