China Construction Bank (CCB) on Monday became the second Chinese bank this year to receive approval from the US Federal Reserve (Fed) to set up a branch in New York, whose Wall Street is still reeling from global financial turmoil.

The bank is China's second largest, with assets amounting to some 1.1 trillion US dollars. The upcoming New York branch will be its seventh overseas branch but the first in the Americas. It submitted the application to the US authorities in February.

Earlier in August, China's largest bank, Industrial and Commercial Bank of China (ICBC), also received the nod from the Fed to establish a branch in New York. Its application was pending for assessment and review for more than a year.

In a statement dated December 8 issued by the Fed, it said CCB would engage in wholesale deposit-taking, lending, trade finance, and other banking services.

It said CCB had proven its experience and capacity to support the proposed branch; the bank also met the requirement of anti-money laundering procedures and made a commitment to the Fed that it would provide the latter access to information on its operations and affiliates.

Prior to the Fed's approval, CCB had already received a green light from the Federal Reserve Bank of New York (NY Fed) and New York State Bank Department in October.

A Chinese banker in New York told the EO that officials at the NY Fed had recently told him that the state hope to attract more quality foreign banks there.

"With the financial meltdown and an economic slowdown, they hoped that by attracting sound foreign banks, especially the Chinese funded ones, it would help to maintain the status of New York as the global financial capital," said the banker. 

From Suspicion to Acceptance?
To date, four Chinese banks have gained approval to establish branches in New York, including the Bank of China (BOC), Merchants Bank of China (MBC), ICBC and the latest addition CCB.

Except for the Bank of China, the other three banks' application took place after the US government enacted the Foreign Bank Supervision Enhancement Act 1991. MBC was the first Chinese bank to touch down in US in November last year after the act took effect.

All the later three banks were said to have gone through tough negotiations before gaining entry, and the banks' state-owned status was thought to be part of the reasons.

The Chinese government owns about 57% of CCB's shares through Central Huijin Investment Limited, an investment arm administered by the Ministry of Finance.

Huijin, created in 2003 to facilitate the restructuring and recapitalizing of major state-owned banks, was acquired for 67 billion US dollars by China's sovereign wealth fund – China Investment Corporation (CIC) last year.

CCB's affiliation with the sovereign wealth fund had previously created unease among US Congress representatives, who suspected the Chinese government played a role in the sovereign wealth fund and that CIC's investments were not purely out of commercial interests, and by extension, the banks it controlled.

In addition, given that the Bank of China has established branches in the US, the US Fed was afraid that ICBC, CCB, and Bank of China would work together as a result of their shared sovereign wealth fund shareholder.

In June, the EO had reported that according to senior industry sources, the Chinese government had in several rounds of high-level negotiations promised that the CIC would make investments in accordance with commercial rules and wouldn't intervene in the normal operation of the state-owned banks it has invested in.

In turn, the Fed agreed to allow ICBC to set up an outlet in New York and wouldn't put up obstacles to CCB's applications. At that time, some market observers pointed out that the inclination was expressed in the bilateral statement issued after the fourth China-US strategic economic dialog (SED), whereby the US restated its promise to open up its financial markets.

The latest Fed approval for CCB came at the heels of the fifth SED, concluded on December 5.