TNAG-1269-FCO40-1619-Banking-situation-in-Hong-Kong-1983 — Page 55

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The regulatory regime described in Annex II, which in CBC's view is sufficient to constitute effective prudential supervision for purposes of this application, was augmented by the Board in connection with its approval of December 2, 1982 (the "U.S. Approval") of an application for the establishment of a Hong Kong branch by CBC. In such connection, commitments were made (i) that the liabilities of CBC to any person, other than an affiliate, would not exceed 10 percent of the capital and surplus of CBC (historically, this provision has been a cornerstone of bank regulation in the United States) and (ii) that CBC's branches would not engage in activities impermissible for foreign bank subsidiaries under the Board's Regulation K or otherwise prohibited by U.S. law. The U.S. Approval concluded that "the Board is of the view that these prudential conditions are adequate to meet any supervisory concerns to which the proposal may give rise" (emphasis supplied). A copy of the U.S. Approval and the related correspondence from the Secretary of the Board is enclosed herewith as Annex III hereto.

In addition to the commitments referred to above, CBC is not permitted to accept U.S. related deposits or to extend credit to a U.S. resident other than an affiliate and CBC's branches must limit the aggregate of loans, lease financing receivables and customer liability on acceptances outstanding to not more than 15 percent of their total aggregate assets unless waived by the Board. The Board also requested in connection with the U.S. Approval that each of CBC's branches, including one established in Hong Kong, submit periodic data collection reports to the Board on the Board's standard forms for overseas branches of U.S. banks the Monthly Report on Foreign Branch Assets and Liabilities and the Quarterly Report on Foreign Branch Assets and Liabilities.

CBC believes that the foregoing clearly demonstrates that CBC is subject to effective prudential supervision by the Board, the monetary authority in CBC's country of

incorporation. The U.S. Approval shows not only that such authority does not object to the establishment by CBC of a Hong Kong branch but that said authority has expressly approved such establishment.

III. TOTAL ASSETS

Enclosed herewith as Annex IV hereto is a copy of the Consolidated Financial Statements of CBC and its subsidiaries for the period ending December 31, 1982 and the corresponding period of 1981, certified by CBC's independent auditors, Peat, Marwick, Mitchell & Co. CBC's total assets as set forth therein as at December 31, 1982 were US$12,632 million.