Chinese Bank to Buy Stake in U.S. Arm of Bank of East Asia

Does this bother you and why has not the mainstream media picked up this?  Okay.  I am not xenophobic but I am a patriot and a diehard capitalist.  Having established that (for those of you who do not know me very well) I must confess I am a bit perplexed about the Federal Reserve’s recent decision to allow The Industrial and Commercial Bank of China to purchase 80% of the Bank of East Asia.  The only press I have seen to date has been from the NY Times and the Wall Street Journal.  I will keep looking.

This is a watershed moment as it is the first time a Chinese institution would have a controlling stake in a United States financial institution (as reported today in the NY Times and the Wall Street Journal).  I mean, I am fan of the Fed on the general principle that someone needs to manage the money supply and supervise the banking system.  But when they are overseeing the domestic banks there are a multitude of regulatory guidelines and laws that actually make the domestic banks pay attention (okay – the 2008 Crisis still happened, but..).  However, how is the Fed going to get the Chinese banks to heel to their will.  After this transaction, the playground gets a little muddled and I am afraid no one is paying attention.

The Chinese government owns 65% of The Industrial and Commercial Bank of China.  Let that number sink in.  Who is going to have the most influence over the bank: the Fed or the People’s Republic of China?  If the question is too difficult for you then you need to brush up on comparative politics (Hint: The Communist government controls the actions of the bank when it comes to a pinch).  This will be a problem.  What is next – sale of one of our major shipyards to the Chinese?

Our banking system still has not recovered from the 2008-09 crises with earnings well below where they need to be for every bank to be healthy and growth anemic at the majority of the banks (JPM and GS notwithstanding).  The additional competition from the Chinese banks will apply more pressure (not at first according to the WSJ) overtime and the action will be fierce as the Chinese government will want a decent return on their investment (don’t we all?).  The FED can be satisfied that concerns about capitalization are non-existent since the Chinese treasury is awash with U.S. Dollars.  It must be appealing to the FED to have additional liquidity strength in our market but what if the Chinese decide, say in 10 or 5 years they do not want to play by the FED’s rules.  What does the FED (We) do?  Control of our own currency may be in the hands of the socialist (there I said it) Chinese government.

Let me know what you think.