|March 1, 2002|
Mark T. Gillett, Esq.
Dear Mr. Gillett:
This is in response to the request by Grand National Bank, Alhambra, California ("GNB"), for an exemption from section 23A of the Federal Reserve Act in order that GNB may acquire certain assets from the Los Angeles branch of Bank of East Asia, Hong Kong Special Administrative Region, People's Republic of China ("BEA"), a commercial bank that acquired GNB on August 14, 2001. GNB is a subsidiary of BEA, and thus BEA is an affiliate of GNB for purposes of section 23A of the Federal Reserve Act.1 GNB has requested an exemption to acquire up to [amount redacted] in mortgage and trade finance loans from the Los Angeles branch.
Section 23A limits the amount of "covered transactions," which include loans and purchases of assets, between a bank (and its subsidiaries) and any single affiliate to 10 percent of the bank's capital stock and surplus, and limits the aggregate of all covered transactions between a bank (and its subsidiaries) and all its affiliates to 20 percent of the bank's capital stock and surplus. GNB's acquisition of the Los Angeles branch's assets is covered by section 23A.2 GNB's capital stock and surplus totaled approximately $21.7 million as of December 31, 2001.
Section 23A specifically authorizes the Board to exempt purchases of real or personal property and to exempt "at its discretion [other]. . . transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section."3 The Board has approved exemptions in similar cases for one-time transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.4 As in previous cases reviewed by the Board, the proposed transaction in this case is a by-product of a one-time corporate reorganization. BEA is restructuring its U.S. banking business as a result of its acquisition of GNB. According to BEA, the proposed acquisition would allow GNB to use its excess liquidity and enhance earnings.
GNB and BEA also have made the following commitments that the Board has accepted in similar exemption requests:
In light of these considerations and all the facts you have presented, the transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. In addition, the Board has contacted the Comptroller of the Currency and the Federal Deposit Insurance Corporation, and neither agency has objected to the proposal. Accordingly, the transaction appears to be consistent with the purposes of section 23A, and the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel, hereby grants the requested exemption.
This determination is specifically conditioned on compliance by BEA and GNB with all the commitments and representations they made in connection with the exemption request. These commitments and representations are deemed to be conditions imposed in writing in connection with granting this request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific circumstances surrounding this transaction and may be revoked in the event of any material change in those circumstances or any failure by BEA or its subsidiaries to continue to observe any of their commitments. This action does not represent a determination concerning the permissibility of any other transactions that are subject to section 23A or concerning any other affiliates of BEA.
(Signed) Robert deV. Frierson
Deputy Secretary of the Board
|cc:||Federal Reserve Bank of San Francisco|
|Federal Deposit Insurance Corporation|
|Office of the Comptroller of the Currency|
4. See Travelers Group Inc., 84 Federal Reserve Bulletin 985, 1013-14 (1998); Letter dated November 14, 1996, from William W. Wiles to John Byam; Letter dated April 19, 1988, from James McAfee to Timothy C. Roach, Esq.; Letter dated August 6, 1987, from William W. Wiles to Timothy McGinnis. Return to text
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