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REGULATORS TERMINATE THE U.S. OPERATIONS OF DAIWA BANK, LTD. JAPAN

FOR IMMEDIATE RELEASE
PR-67-95 (11-02-95)
 

Federal and State banking regulators today announced Consent Orders terminating the United States operations of The Daiwa Bank, Limited, Osaka, Japan.

Consent Orders terminating the bank's operations within 90 days were announced by the Federal Reserve Board, the New York State Banking Department and the Federal Deposit Insurance Corporation, as well as state supervisory authorities in California, Illinois, Massachusetts, Florida and Georgia.

The Consent Orders apply to the Daiwa Bank, Limited, and its U.S. subsidiary, The Daiwa Bank Trust Company, New York.

Attached is a Joint Statement of the agencies and the orders relating to this action.

Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation New York State Banking Department

JOINT STATEMENT

The Federal Reserve Board, the New York State Banking Department, and the banking departments of the States of California, Illinois, Massachusetts, Florida, and Georgia have issued a joint order terminating the banking operations in the United States of the Daiwa Bank, Limited, Osaka, Japan. The New York State Banking Department and the Federal Deposit Insurance Corporation have also issued orders against Daiwa's New York state- chartered trust company, The Daiwa Bank Trust Company, requiring the termination of the bank's operations and federal deposit insurance, which may be accomplished through the sale of the institution. The Daiwa Bank, Limited, Osaka, Japan, and The Daiwa Bank Trust Company, New York have consented to the issuance of these orders.

The agencies have taken these actions of the basis of information indicating that Daiwa and The Daiwa Bank Trust Company and their officials engaged in a pattern of unsafe and unsound banking practices and violation of law over an extended period of time that are most serious in nature. This information includes the following:

-- On September 18, 1995, Daiwa reported a loss exceeding $1 billion as a result of trading activities conducted at its branch in New York from 1983 to September 1995. These losses were not reflected in the books and records of the bank or in its financial statements, and their existence was concealed through liquidations of securities held in the bank's custody accounts and falsification of its custody records.

-- Daiwa has indicted that, while its senior management learned about the trading losses at the New York branch on July 24, 1995, the senior management of Daiwa and its New York branch directed that those losses be concealed from U.S. bank regulatory and law enforcement authorities and the public for almost two months and also directed the continuation of transactions designed to avoid the disclosure of Daiwa's losses.

-- In 1992 and 1993, the senior management of the New York branch of Daiwa undertook a series of actions designed to deceive bank examiners regarding Daiwa's trading activities, including providing written notice to the Federal Reserve that actions had been taken to separate the custody and trading functions at the branch, while continuing to operate without such controls in place.

-- In early October 1995, following the commencement of governmental investigations into trading losses incurred by a Daiwa branch in New York, Daiwa reported that The Daiwa Bank Trust Company incurred losses of approximately $97 million as a result of trading activities, at least some of them unauthorized, during the approximate period of 1984 through 1987. These losses should have been, but purposefully were not, reflected in the books and records and financial statements of the trust company, and were otherwise concealed from federal and state examiners and regulatory authorities through a series of transactions by which the losses were absorbed by off-shore affiliates. The senior management of Daiwa and the trust company participated in these actions.

The orders require Daiwa to terminate its banking activities which are conducted in the United States at the Daiwa Bank Trust Company and at Daiwa's branches, agencies, and representative offices in 11 states, by February 2, 1996. This period can be extended by the agencies in order to achieve an orderly resolution of this matter.

Daiwa has also agreed to cooperate with the Federal Reserve Board, Federal Deposit Insurance Corporation, and New York State Banking Department and the other state regulatory authorities in their review of Daiwa's banking activities in the United States. In this regard, the agencies' orders also require that Daiwa maintain its books and records in New York and elsewhere throughout the United States to facilitate the agencies' reviews.

Attachments:

-- United States of America, before the Board of Governors of the Federal Reserve System, Washington, D.C.; New York State Banking Department, New York, New York; California State Banking Department, San Francisco, California; Commissioner of Banks and Trust Companies, Chicago, Illinois; Commonwealth of Massachusetts Division of Banks, Boston, Massachusetts; Florida State Controller, Tallahassee, Florida; Georgia Department of Banking and Finance, Atlanta, Georgia; in the matter of THE DAIWA BANK, LIMITED, Osaka, Japan; Docket No. 95-028-T-FB: Order to Terminate U.S. Banking Activities Issued Upon Consent Pursuant to Section 7 (e) of the International Banking Act, Section 39 of the New York Banking Law and other State Laws;

-- New York State Banking Department, New York, New York, In the Matter of DAIWA BANK TRUST COMPANY, New York, New York and THE DAIWA BANK, LIMITED, Osaka, Japan; Order to Terminate Operations Issued Upon Consent, Pursuant to Banking Law Section 39;

-- Federal Deposit Insurance Corporation, Washington, D.C., In the Matter of DAIWA BANK TRUST COMPANY, New York, New York (Insured State Nonmember Bank), Settlement Agreement FDIC-95-155a;

-- Federal Deposit Insurance Corporation, Washington, D.C., In the Matter of DAIWA BANK TRUST COMPANY, New York, New York (Insured State Nonmember Bank), Order of Termination of Insured Status FDIC- 95-155a.

(To obtain copies of these attachments, contact the FDIC Office of Corporate Communications, (202) 898-6996, or write to: FDIC, Corporate Communications, Rm 7088, 550 17th St. NW, Washington, DC 20429.)

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Last Updated 07/14/1999 communications@fdic.gov