HSBC 2004 Annual Report Download - page 24

HSBC HOLDINGS PLC
Governance, Regulation and Supervision (continued)
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The Monetary Authority may revoke
authorisation in the event of an institution's
non-compliance with the provisions of the Banking
Ordinance. These provisions require, among other
things, the furnishing of accurate reports.
The Banking Ordinance requires that banks
submit to the Monetary Authority certain returns and
other information and establishes certain minimum
standards and ratios relating to capital adequacy
(see below), liquidity, capitalisation, limitations on
shareholdings, exposure to any one customer,
unsecured advances to persons affiliated with the
bank and holdings of interests in land, with which
banks must comply.
Hong Kong fully implemented the capital
adequacy standards established by the Basel Accord
in 1989. The Banking Ordinance currently provides
that banks incorporated in Hong Kong maintain a
capital adequacy ratio (calculated as the ratio,
expressed as a percentage, of its capital base to its
risk-weighted exposure) of at least 8 per cent. For
banks with subsidiaries, the Monetary Authority is
empowered to require that the ratio be calculated on
a consolidated basis, or on both consolidated and
unconsolidated bases. If circumstances require, the
Monetary Authority is empowered to increase the
minimum capital adequacy ratio (to up to 12 per cent
for fully-licensed banks and 16 per cent for
deposit-taking companies and restricted-licence
banks), after consultation with the bank.
The marketing of, dealing in and provision of
advice and asset management services in relation to
securities in Hong Kong are subject to the provisions
of the Securities and Futures Ordinance of Hong
Kong (Chapter 571) (the ‘Securities and Futures
Ordinance’ ). Entities engaging in activities regulated
by the Securities and Futures Ordinance are required
to be licensed. The Monetary Authority is the
primary regulator for banks involved in the securities
business, while the Securities and Futures
Commission is the regulator for non-banking
entities.
US regulation and supervision
HSBC is subject to extensive federal and state
supervision and regulation in the US. Banking laws
and regulations of the Federal Reserve Board, the
Federal Deposit Insurance Corporation (‘FDIC’ ) and
the Office of the Comptroller of Currency (‘OCC’ )
govern many aspects of HSBC’ s US business.
HSBC and its US operations are subject to
supervision, regulation and examination by the
Federal Reserve Board because HSBC is a bank
holding company under the US Bank Holding
Company Act of 1956 (the ‘BHCA’ ) as a result of its
ownership of HSBC Bank USA. HSBC Bank USA is
a nationally-chartered commercial bank and a
member of the Federal Reserve System. HSBC Bank
USA is the surviving institution of the 1 July 2004
merger of HSBC Bank USA and HSBC Bank &
Trust (Delaware) N.A. HSBC also owns Household
Bank (SB), N.A. (‘Household Bank’ ), a nationally
chartered ‘credit card bank’ which is also a member
of the Federal Reserve System. Both HSBC Bank
USA and Household Bank are subject to regulation,
supervision and examination by the OCC. The
deposits of HSBC Bank USA and Household Bank
are insured by the FDIC and both banks are subject
to relevant FDIC regulation. On 1 January 2004,
HSBC formed a new company to hold all of its
North American operations, including these two
banks. This company, called HSBC North America
Holdings Inc. (‘HNAH’ ) is also a ‘bank holding
company’ under the BHCA, by virtue of its
ownership and control of HSBC Bank USA.
The BHCA and the International Banking Act of
1978 (‘IBA’ ) impose certain limits and requirements
on the US activities and investments of HSBC,
HNAH, and certain companies in which they hold
direct or indirect investments. HSBC is also a
‘qualifying foreign banking organisation’ under
Federal Reserve Board regulations, and as such, may
engage within the United States in certain limited
non-banking activities and hold certain investments
that would otherwise not be permissible under US
law. Prior to 13 March 2000, the BHCA generally
prohibited HSBC from acquiring, directly or
indirectly, ownership or control of more than 5 per
cent of the voting shares of any company engaged in
the US in activities other than banking and certain
activities closely related to banking. On that date
HSBC became a financial holding company (‘FHC’ )
under the Gramm-Leach-Bliley Act (‘GLBA’ )
amendments to the BHCA, enabling it to offer a
more complete line of financial products and
services. Upon its formation, HNSH also registered
as an FHC. HSBC and HNAH’s ability to engage in
expanded financial activities as FHCs depend upon
HSBC and HNAH continuing to meet certain criteria
set forth in the BHCA, including requirements that
its US depository institution subsidiaries, HSBC
Bank USA and Household Bank, be ‘well-
capitalised’ and ‘well-managed’ , and that such
institutions have achieved at least a satisfactory
record in meeting community credit needs during
their most recent examinations pursuant to the
Community Reinvestment Act. These requirements
also apply to Wells Fargo HSBC Trade Bank, N.A.,
in which HSBC and HNAH have a 20 per cent
voting interest in equity capital and a 40 per cent