The Federal Reserve Board's landmark decision to allow China's largest bank to acquire branches in New York and California is likely to trigger further expansion by Chinese banks into the U.S. market, according to Fitch Ratings.

The Fed last month gave Industrial and Commercial Bank of China in Beijing the nod to buy 13 branches here from the U.S. subsidiary of Bank of East Asia in what was its first-ever approval of an acquisition by a Chinese-government-controlled bank. It also approved plans of two other state-owned banks to build branches in New York and Chicago.

Fitch said that these large Chinese banks are likely to pursue acquisitions here once they gain foothold here and it speculated in a news release Thursday that targets could include the two largest banks catering to Chinese-Americans, East West Bancorp (EWBC) and Cathay Bancorp (CATY).

East West, based in Pasadena, Calif., has $21.7 billion of assets and more than 125 branches while Los Angeles-based Cathay has $10.6 billion of assets and roughly 50 branches. Both operate primarily in California but also have branches in other states with significant Chinese populations, including New York, Chicago, Seattle and Boston.

We believe [Cathay and East West] would be natural targets for large Chinese banks given their large presence in the Asian-American communities where Chinese banks would benefit most from deposit and loan growth," Fitch said.

Fitch said that ICBC's deal to acquire the Bank of East Asia branches is too small to stir up much competition with established banks in the U.S. "However, the Fed approval has removed a primary obstacle to M&A that may usher in more significant changes in the competitive profiles of Asian-American-oriented banks," it said.

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