By Matthew R. Lee, Exclusive
NEW YORK, August 2 -- When the US Federal Reserve Board decided to allow a company owned by the People's Republic of China to buy an American bank without requiring any application by the Chinese government, it had been lobbied at the level of Fed Governor Warsh, by a lawyer who was previously the General Counsel of the Federal Reserve Bank of New York, documents show.
Earlier this year Inner City Press filed a challenge and Freedom of Information Act request with the Fed about the proposed acquisition of US-based Bank of East Asia by the China Investment Corporation, and Central Huijin Investment Limited and Industrial and Commercial Bank of China (ICBC), owned by the Chinese government.
While the US Bank Holding Company Act says that US government entities do not need to seek Fed approval to buy banks, there is no exemption for foreign governments. But the Fed has read in such an exemption.
More than three months after its FOIA request, Inner City Press has received a set of heavily redacted documents from the Fed, some of which are now being put online, here.
The documents reflect multiple inquiries by ICBC's lawyer Ernest Patrikis, previously the General Counsel of the Federal Reserve Bank of New York, now at the law firm of White & Case.
In August 2010, the Fed's Ann Misback wrote to Kathleen O'Day and four others, "Ernie called with two questions, one on China and one on India. What would be the Fed's reaction if one of the largest Chinese banks entered an agreement to purchase a small U.S. bank (likely serving an ethnic Chinese community) [REDACTION] I told him I would get back to him on this question."
While the Fed blacked out "Ernie's" question about India, the e-mail still shows how lawyers for the Chinese government and banks can essentially seek pre-approval from the Federal Reserve, before any public comment period is announced.
Even after protests, the Fed continued "ex parte" communications with "Ernie." But these communications and pre-approvals went to the top level of the Federal Reserve.
On November 12, 2011 Patrikis e-mailed the Fed's Ann Misback about a meeting the chairman of government-owned ICBC had with then Fed Governor Kevin Warsh, on October 20, saying that ICBC's chairman had complained to Governor Warsh "about the inability to buy a bank in the U.S.. The governor said the bank could file an application now."
The applications, when they came in 2011, did not include any application by the Chinese government, ICBC's owner.
That the Fed is not only outside the law but also unwise in inventing an exemption from the Bank Holding Company At for foreign government has been made more clear by issues surrounding the assets of the Gaddafi regime's Libyan government. Exemptions lead to instability, apparenlty the Fed's main concern. (FOIA and the Community Reinvestment Act do not appear to be concerns of the Fed.)
While the Fed gives exemptions to the Chinese government, other branches of the US government are now investigating Dutch-based ING for violating sanctions in Iran, Cuba and Sudan. ING is trying to sell its US bank ING Direct to consumer-challenged Capital One. Can the Fed be expected to fairly review the application?
Likewise, global bank HSBC is trying to ditch 180 upstate New York branches to Buffalo-based First Niagara, which now says it would divest (sell or close) fully 100 of the branches. Perhaps the Fed doesn't really care for stability, either, at least not the stability of moderate income US communities.
The documents reflect an insider's game at the Fed that is not only distasteful but we believe illegal. A Freedom of Information Act appeal has been filed with all the withheld information, and more steps will follow: watch this site.
