For immediate release

The Federal Reserve Board announced today its approval of the application of Swiss Bank Corporation, Basle, Switzerland, to establish a state-licensed branch in Stamford, Connecticut. Attached is the Board's Order relating to this action.

Swiss Bank Corporation Basle, Switzerland Order Approving Establishment of a Branch

Swiss Bank Corporation ("Bank"), Basle, Switzerland, 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. § 3105(d)) to establish a state-licensed branch in Stamford, Connecticut. The Foreign Bank Supervision Enhancement Act of 1991 ("FBSEA"), 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 Stamford, Connecticut (The Advocate, October 25, 1996). The time for filing comments has expired, and the Board has considered all comments received. Bank, with total consolidated assets of approximately $247.5 billion,1 is the third largest bank in Switzerland, providing commercial and investment banking services worldwide.2 The shares of Bank are publicly traded and widely held.3 In the United States, Bank operates branches in New York, New York; Chicago, Illinois; and San Francisco, California; an agency in Miami, Florida; and representative offices in Los Angeles, California; and Houston, Texas. Bank also engages in a full range of securities activities permissible for bank holding companies through its section 20 subsidiary, SBC Warburg Inc. (formerly SBC Capital Markets Inc.), New York, New York, and several other nonbanking subsidiaries.4 Bank's primary purpose for establishing the proposed branch in Connecticut is to relocate and consolidate certain of the existing operations of its New York branches, as well as certain of the operations of its nonbanking subsidiaries. The Connecticut branch would serve as Bank's North American regional headquarters and would take over the trading operations currently conducted in one of Bank's New York branches. The proposed Connecticut branch would engage in all of the activities currently conducted by the New York branches except private banking. Bank's current home state under the IBA and Regulation K is California. On approval of the proposed branch by the Board and the State of Connecticut Department of Banking, Bank would change its home state to Connecticut.5

Return to top

The Swiss Federal Banking Commission has no objection to the establishment of the proposed branch. 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 must determine that the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor (12 U.S.C. § 3105(d)(2); 12 C.F.R. 211.24). The Board may also take into account additional standards as set forth in the IBA and Regulation K (12 U.S.C. § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)). As noted above, Bank engages directly in the business of banking outside of the United States. Bank also has provided the Board with the information necessary to assess the application through submissions that address the relevant issues. Regulation K provides that a foreign bank will be considered to be subject to comprehensive supervision or regulation on a consolidated basis if the Board determines that the bank is supervised and regulated in such a manner that its home country supervisor receives sufficient information on the foreign bank's worldwide operations, including the relationship of the foreign bank to any affiliate, to assess the overall financial condition of the foreign bank and its compliance with law and regulation (12 C.F.R. 211.24(c)(1)).6 With respect to the issue of supervision by home country authorities, the Board has considered the following information. Bank is supervised and regulated by the Swiss Federal Banking Commission ("SFBC"). The SFBC is responsible for the prudential supervision and regulation of credit institutions. Bank also provided additional information regarding the supervision and regulation of Bank's activities by entities other than the SFBC. The Board previously has determined that Bank is subject to comprehensive supervision and regulation on a consolidated basis by its home country supervisors.7 The Board also has taken into account the additional standards set forth in section 7 of the IBA (see 12 U.S.C. § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). In this regard, the SFBC has approved the establishment of the proposed branch. Switzerland is a signatory to the Basle risk-based capital standards, and Swiss risk-based capital standards meet those established by the Basle Capital Accord ("Accord"). Bank's capital is in excess of the minimum levels required by the 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 consistent with approval of the proposed branch, and Bank appears to have the experience and capacity to support the proposed branch. 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.

Return to top

Finally, the Board has reviewed the restrictions on disclosure in relevant jurisdictions in which Bank operates and has communicated with relevant government authorities about access to information. Bank has committed to make available to the Board such information on the operations of Bank and any affiliate of Bank that the Board deems necessary to determine and enforce compliance with the IBA, the Bank Holding Company Act of 1956, as amended, and other applicable Federal law. To the extent that the provision of such information is prohibited or impeded by law, Bank has committed to cooperate with the Board to obtain any necessary consents or waivers that might be required from third parties in connection with disclosure of such information. In addition, subject to certain conditions, the SFBC may share information on Bank's operations with other supervisors, including the Board. In light of these commitments and other facts of record, and subject to the condition described below, the Board concludes that Bank has provided adequate assurances of access to any necessary information the Board may request. On the basis of all the facts of record, and subject to the commitments made by Bank, as well as the terms and conditions set forth in this order, the Board has determined that Bank's application to establish a state-licensed branch should be, and hereby is, approved. Should any restrictions on access to information on the operations or activities of Bank or its affiliates subsequently interfere with the Board's ability to obtain information to determine and enforce compliance by Bank or its affiliates with applicable federal statutes, the Board may require termination of any of Bank's direct or indirect activities in the United States. Approval of the application is also specifically conditioned on Bank's compliance with the commitments made in connection with the application, and with the conditions in this order.8 The commitments and conditions referred to above are conditions imposed in writing by the Board in connection with its decision, and may be enforced in proceedings under 12 U.S.C. § 1818 or 12 U.S.C. § 1847 against Bank, its offices, and its affiliates.

By order of the Board of Governors,9 effective January 21, 1997. (signed) William W. Wiles William W. Wiles Secretary of the Board

Footnotes 1 Asset data are as of June 30, 1996. 2 Countries in which Bank provides banking services include Switzerland, the United Kingdom, Japan, Germany, Hong Kong, and Singapore. 3 The largest shareholder of Bank owns 5 percent of Bank's shares. 4 Bank's other U.S. nonbanking subsidiaries include SBC Warburg Futures (formerly SBC Derivatives Inc.), Chicago, Illinois; SBC Brinson (formerly SBC Portfolio Management International Inc.), and SBC Resources Management Inc., each of New York, New York; a commercial paper subsidiary; and subsidiaries incorporated to hold property acquired in satisfaction of debts previously contracted.

Return to top

5 Generally, a foreign bank may not establish a branch outside its home state except in conformity with section 5 of the IBA. Under Regulation K, which implements section 5, a foreign bank may change its home state once, provided domestic branches established and investments in banks acquired in reliance on its original home state selection are conformed to those that would have been permissible had the new home state been selected as its home state originally. See 12 C.F.R. 211.22(b). Under state law, Bank must designate Connecticut as its home state to conduct the business of banking in Connecticut. Conn. Gen. Stat. § 36a-425 (Supp. 1996). As noted, Bank's current home state is California. In order to establish the proposed branch in Connecticut consistent with state and federal law, Bank must change its home state to Connecticut. Bank has not previously changed its home state. Upon the change of Bank's home state to Connecticut, Bank must limit the deposits accepted by its California office to only such deposits as are permissible for a corporation organized under section 25A of the Federal Reserve Act (an "Edge corporation")(12 U.S.C. 611 et seq.). The California branch would thus become a limited branch, which a foreign bank may operate outside its home state consistent with the IBA and Regulation K. Bank may also retain and operate its branches in New York and Chicago, which are grandfathered under section 5(b) of the IBA (12 U.S.C. 3103(b)). 6 In assessing this standard, the Board considers, among other factors, the extent to which the home country supervisors: (i) ensure that the bank has adequate procedures for monitoring and controlling its activities worldwide; (ii) obtain information on the condition of the bank and its subsidiaries and offices through regular examination reports, audit reports, or otherwise; (iii) obtain information on the dealings with and relationship between the bank and its affiliates, both foreign and domestic; (iv) receive from the bank financial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis; and (v) evaluate prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. These are indicia of comprehensive, consolidated supervision. No single factor is essential, and other elements may inform the Board's determination. 7 Swiss Bank Corporation, 82 Federal Reserve Bulletin 690 (1996). See also Coutts & Co., AG, 79 Federal Reserve Bulletin 636 (1993); Union Bank of Switzerland, 82 Federal Reserve Bulletin 370 (1996). 8 The Board's authority to approve the establishment of the proposed branch parallels the continuing authority of the State of Connecticut Department of Banking ("Department") to license offices of a foreign bank. The Board's approval of the application does not supplant the authority of the State of Connecticut, and its agent, the Department, to license the proposed branch of Bank in accordance with any terms or conditions that the Department may impose. 9 Voting for this action: Vice Chair Rivlin and Governors Kelley, Lindsey, Phillips, Yellen, and Meyer. Absent and not voting: Chairman Greenspan.

Return to top

1997 Orders on banking applications