{{10-31-00 p.C-4104}}
[¶11,231A] In the Matter of The Daiwa Bank, Limited and Daiwa Bank Trust
Company, New York, New York, Docket No. 95-135c&b (10-2-95).
A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent had engaged in unsafe and
unsound practices.
[.1] Bank ExpansionRestrictions On
[.2] Bank OperationsNew Types of Lending Restricted
[.3] AuditRequired
[.4] Bank OperationsInternal ControlsReviewed
{{10-31-00 p.C-4104.1}}
In the Matter of
THE DAIWA BANK, LIMITED and
DAIWA BANK TRUST COMPANY
New York, New York
(Insured State Nonmember Bank)
ORDER
Issued Pursuant to the New York State Banking Law, Section 39 and Federal Deposit Insurance Act Section 8(b)
FDIC-95-135c&b
WHEREAS, The Daiwa Bank, Limited, Osaka, Japan ("Daiwa") and
its branch located in New York, New York (the "New York Branch")
have acknowledged that the New York Branch has suffered a loss of
approximately $1.1 billion as a result of unauthorized trading of U.S.
Treasury securities;
WHEREAS, such loss purportedly remained undetected by Daiwa and the New
York Branch for a number of years;
WHEREAS, such failure to detect the loss is evidence of unsafe and
unsound practices;
WHEREAS, the Superintendent of Banks of the State of New York
("Superintendent") and the Board of Governors of the Federal
Reserve System ("Board of Governors") have issued an order to
cease and desist, requiring among other things, a reduction in the New
York Branch's trading activities;
WHEREAS, as set forth in the Notice of Charges and of Hearing
("NOTICE") and the Findings of Fact and Conclusions of Law
("FINDINGS") issued by the Federal Deposit Insurance Corporation
("FDIC"), which are attached hereto and made a part hereof, the
Superintendent and the Federal Deposit Insurance Corporation
("FDIC") have reasonable cause to believe that similar unsafe or
unsound conditions may exist at the Daiwa Bank Trust Company
("Bank"), a New York State-chartered trust company, wholly owned
by Daiwa;
WHEREAS, because Daiwa and the New York Branch knowingly may have
submitted to the Superintendent and the Reserve Bank a misleading and
inaccurate report of the branch's condition as of June 30, 1995, and
because of their failure to make timely disclosure of the losses caused
by the trading activities to their regulators or the banking public,
the Superintendent and the FDIC further have reasonable cause to
believe that unless the Bank is restrained by the issuance of an order
to cease and desist, such trading activities if engaged in at the Bank
may result in a significant dissipation of the Bank's assets or
earnings, and/or weaken the condition of the Bank, and/or otherwise
prejudice the interests of the Bank's depositors prior to the
completion of any administrative proceedings;
WHEREAS, the Superintendent possesses the authority under section 39 of
the New York Banking Law to order the discontinuance of unsafe or
unsound practices;
Whereas, the FDIC may, pursuant to sections 8(b) and (c) of the Federal
Deposit Insurance Act ("Act"), 12 U.S.C. §§ 1818(b) and (c),
issue an order to cease and desist against the Bank in response to
unsafe or unsound practices and violations of law that will likely
result in a significant dissipation of the assets or earnings of the
Bank, and/or weaken the condition of the Bank, and/or otherwise
prejudice the interests of the Bank's depositors;
WHEREAS, the Superintendent and the FDIC believe that prompt interim
action is necessary to address their supervisory concerns with regard
to the Bank and duly note that additional formal enforcement actions
may be necessary to address the unsafe or unsound practices and
violations described in the Notice;
NOW, THEREFORE, the Superintendent and the FDIC hereby
jointly issue this Order (the "Order") pursuant to section 39 of
the New York Banking Law and sections 8(b) and (c) of the Act,
respectively, and order that:
[.1] Unless otherwise agreed to in writing by the Superintendent and the
FDIC, as of the date of this Order, the Bank shall not increase, and
Daiwa shall not allow the Bank to increase, the amount and market risk
exposure of its trading activities above the daily average for the two
week period prior to the date of this Order.
2. The Bank shall submit to the Superintendent and the FDIC, on a
daily basis, a written report detailing the New York Branch's trading
activity.
3. Unless otherwise agreed to in writing by the Superintendent and the
FDIC, the Bank shall not, directly or indirectly, assume
{{10-31-00 p.C-4104.2}}any trading or
custody operations of the New York Branch.
[.2] 4. Unless otherwise agreed to in writing by the Superintendent and the
FDIC, the Bank shall not, directly or indirectly, in any manner engage
in or initiate any new line of business.
[.3] 5. (a) Within five days of the date of this Order, the Superintendent
will engage the services of an independent certified public accounting
firm (the "CPA"), acceptable to the Superintendent and the FDIC,
to:
(i) conduct a comprehensive audit of the internal controls,
custody business, risk management, and management information systems
of the Bank, and the accuracy of records relating to the Bank's
trading operations, paying special attention to where any losses may
have occurred; and
(ii) submit to Daiwa, the Bank, the Superintendent, and the FDIC a
written report of its findings pursuant to that audit;
(b) Daiwa and the Bank shall pay for the services of the CPA
within five days of the presentation of an invoice by the
Superintendent, and shall cooperate fully with the CPA in its efforts.
(c) Within 30 days of receipt of the CPA's report pursuant to this
paragraph, Daiwa and the Bank jointly shall submit to the
superintendent and the FDIC an acceptable written plan to address any
deficiencies or criticisms contained in such report.
[.4] 6. (a) Within five days of this Order, Daiwa and the Bank shall
initiate a joint internal review of:
(i) the internal controls, custody business, risk management, and
management information systems of the Bank, and the accuracy of records
relating to the Bank's trading operations, paying special attention to
where any losses may have occurred, and
(ii) the actions, if any, of Daiwa and the Bank from the time when they
learned in July 1995, of the approximately $1.1 billion loss from U.S.
Treasury securities trading at the New York Branch until Daiwa notified
banking authorities in September 1995.
(b) Daiwa and the Bank shall complete the review required by this
paragraph within 30 days of this ORDER and shall submit to the
Superintendent and the FDIC a joint written report of their findings,
along with a written description of any management or operational
changes, including any disciplinary actions, that will be instituted as
a result of the findings of this review.
7. All communications regarding this Order shall be sent to:
(a) Mr. Robert H. McCormick
Deputy Superintendent of Banks
New York State Banking Department
Two Rector Street
New York, New York 10006
(b) Mr. Michael J. Zamorski
Acting Regional Director
Federal Deposit Insurance Corporation
452 Fifth Avenue
21st Floor
New York, New York 10018
(c) Mr. Jerry L. Langley
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
(d) Mr. Akira Fujita
President
The Daiwa Bank, Limited
2-1, Bingomachi 2-chome
Chuo-ku, Osaka 541, Japan
(e) Mr. Fumito Kltora
President
The Daiwa Bank Trust Company
666 Fifth Avenue, 3rd Floor
New York, New York 10103
8. The provisions of this Order shall be binding on Daiwa and the Bank
and each of their institution-affiliated parties, including their
officers, directors, employees and agents, in their capacities as such,
and their successors and assigns.
9. This Order shall become effective immediately upon service on Daiwa
and the Bank, and shall remain in full force and effect pending the
completion or termination of the administrative proceedings initiated
pursuant to the foregoing Notice, except to the extent that, and until
such time as, any provision of this Order shall have been stayed,
modified, suspended, or set aside by the Superintendent and the FDIC,
or, with respect to the FDIC, by a court in proceedings authorized by
section 8(c)(2) of the Act, 12 U.S.C. § 1818(c)(2).
10. Notwithstanding any provision of this Order to the contrary, the
Superintendent and the FDIC may, at their sole discretion, grant
written extensions of time to Daiwa and the
{{10-31-00 p.C-4104.3}} Bank to comply with any
provision of this Order.
11. The provisions of this Order shall not bar, estop or otherwise
prevent the Superintendent or the FDIC, or any federal or state agency
or department, from taking any other action affecting Daiwa, the Bank,
or the New York Branch, or any of their current or former
institution-affiliated parties, or their successors or assigns,
including, but not limited to, the actions and penalties authorized for
violations or noncompliance with this Order under sections 40, 44 and
606 of the New York Banking Law or applicable federal law.
By order of the Superintendent and the Federal Deposit Insurance
Corporation, effective this 2nd day of October, 1995.