Orders Issued Under International Banking Act - National Bank of Egypt applies for branch in United States

Federal Reserve Bulletin,  May, 2000  by Robert Dev. Frierson

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National Bank of Egypt Cairo, Egypt

Order Approving Establishment of a Branch

National Bank of Egypt ("Bank"), Cairo, Egypt, 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. [sections] 3105(d)) to establish a state-licensed 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 comment, has been published in a newspaper of general circulation in New York, New York (The New York Times, December 4, 1998). The time for filing comments has expired, and the Board has considered the application and all comments received.

Bank, with total consolidated assets of approximately US $19.6 billion, is the largest commercial bank in Egypt.(1) Founded in 1898 as a privately owned commercial bank with central bank responsibilities, Bank is now wholly owned by the Egyptian government and engages in a wide range of commercial banking activities, serving retail and corporate clients in the domestic and international markets. Bank has more than 340 domestic branches, a bank subsidiary in London, and a representative office in South Africa. Through 14 nonbank subsidiaries, Bank engages in trust, investment, housing development, manufacturing, and trade-related activities in Egypt and abroad. Bank does not have any direct operations in the United States, but does own a nonvoting equity interest in Arab American Bank ("AAB"), New York, New York, a state-chartered consortium bank. Bank would purchase virtually all the assets and liabilities of AAB through the proposed New York branch and would offer services to clients based in the Middle East and to U.S. enterprises seeking to do business there. Bank would be a qualifying foreign banking organization within the meaning of Regulation K (12 C.F.R. 211.23(b)).

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. [sections] 3105(d)(2); 12 C.F.R. 211.24).(2) The Board may also take into account additional standards as set forth in the IBA and Regulation K (12 U.S.C. [sections] 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)-(3)).

The IBA includes a limited exception to the general requirement relating to comprehensive, consolidated supervision (12 U.S.C. [sections] 3105(d)(6)). This exception provides that, if the Board is unable to find that a foreign bank seeking to establish a branch, agency, or commercial lending company is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, the Board may nevertheless approve an application by such foreign bank if:

   (i) The appropriate authorities in the home country of the foreign bank are
   actively working to establish arrangements for the consolidated supervision
   of such bank; and

   (ii) All other factors are consistent with approval (12 U.S.C. [sections]
   3105(d)(6)(A)). In deciding whether to exercise its discretion to approve
   an application under authority of this exception, the Board shall also
   consider whether the foreign bank has adopted and implements procedures to
   combat money laundering (12 U.S.C. [sections] 3105(d)(6)(B)).

The Board also may take into account whether the home country of the foreign bank is developing a legal regime to address money laundering or is participating in multilateral efforts to combat money laundering (12 U.S.C. [sections] 3105(d)(6)(B)).

Bank engages directly in the business of banking outside the United States through its banking operations in Egypt and elsewhere. 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 Bank's home country authorities, the Board has considered the following information. The Central Bank of Egypt is the licensing, regulatory, and supervisory authority for all financial institutions in Egypt, including Bank. The Central Bank obtains information on the condition of Bank, Bank's subsidiaries, and Bank's foreign operations through regular examinations, periodic financial reports, and follow-up consultations with Bank's management. The Central Bank performs comprehensive, mandatory on-site examinations of Bank every other year and targeted periodic examinations, as needed. In addition, Bank's consolidated financial statements are audited annually by two government-approved external auditors. These auditors conduct on-site examinations of Bank, as needed, and provide their findings to the Central Bank. The Central Bank examiners and Bank's external auditors review Bank's internal controls, financial condition, asset quality, compliance with law and regulation, and transactions with affiliates.(3) The Central Bank conducts follow-up meetings with Bank's management whenever weaknesses are noted. The Central Bank is also actively reviewing its processes with a view to enhancing the overall effectiveness of its supervisory program.