Statements to the Congress - statement by J. Virgil Mattingly, Jr. William Taylor, and E. Gerald Corrigan to the House Committee on Banking, Finance and Urban Affairs - Transcript

Federal Reserve Bulletin, Nov, 1991

Based on this report, foreign regulatory authorities in England, Luxembourg, and elsewhere decided to seize BCCI. The Federal Reserve was informed of this decision and, in turn, briefed other U.S. regulatory agencies. The Federal Reserve dispatched senior officials to London to participate in a special unit established at the Bank of England to coordinate global regulatory actions and to provide a central point of supervisory information and advice. A parallel unit, focusing particularly on payment and settlement issues, as well as activities in U.S. banking markets more generally, was established at the Board and at the Federal Reserve Bank of New York. The primary concern of the Federal Reserve was to take all reasonable steps to ensure that the seizure of the BCCI banks did not precipitate serious disruptions in U.S. banking markets or in dollar-based payment and clearing systems here or abroad.

The main seizure of BCCI occurred on July 5, 1991, with the Federal Reserve coordinating information necessary for the closing of BCCI's remaining U.S. agencies by state regulators in California and New York. As of July 6, governments of eighteen countries had closed or restricted the activities of BCCI operations in their jurisdictions. By July 29, 1991, a total of forty-four countries had closed BCCI offices in their respective jurisdictions.

Because of the international cooperative supervisory effort and earlier actions by the Federal Reserve and state authorities to scale back BCCI's limited operations in the United States, the seizure of BCCI caused virtually no adverse effects on U.S. markets or institutions. As a result of earlier regulatory action, BCCI was funding its business in the United States from other non-U.S. BCCI offices and not from U.S. sources at the time BCCI's U.S. agencies were closed by the states of California and New York. As of July 30, about $17 million of the $252 million in liabilities on the books of the U.S. agencies of BCCI was owed to creditors not affiliated with BCCI. Because of the care and precision with which the seizure of BCCI and its affiliates was coordinated among U.S. and foreign authorities, there were, in fact, no problems of any consequence encountered in the operation of the payments system as a result of the seizure.

We will now proceed to discuss how BCCI, apparently frustrated in its efforts to establish a substantial legal presence in this country, acquired illegally the stock of U.S. banking organizations.

THE FIRST AMERICAN BANKS AND OTHER U.S. INSTITUTIONS

Financial General-the predecessor to First American Bankshares-was one of a handful of bank holding companies that were grandfathered under the Bank Holding Company Act to retain ownership of banks acquired in more than one state. In 1966, Financial General owned banks in Virginia, Maryland, Georgia, Tennessee, New York, and the District of Columbia. Initial Stock Purchases in 1977-78

On April 29, 1977, an investor group led by J. William Middendorf II acquired control of Financial General. Within a few months, dissatisfaction with his leadership developed among some of the investors, who then went in search of a buyer for their shares. They discussed a purchase of Financial General's shares with the chief executive officer of BCCI, Agha Hasan Abedi.