Bank Ltd. to shut down its operations in the United States in the wake of revelations in September that the bank had lost $1.1 billion from unauthorized trading operations over 11 years. The order, the most drastic action taken against a large foreign bank in recent years, gave Daiwa 90 days to close or dispose of its U.S. operations. Daiwa agreed to leave the country under a consent decree. The operations affected include branches and other offices operated by Osaka-based Daiwa Bank and Daiwa Bank Trust Co., a wholly owned New York State licensed banking subsidiary. Daiwa had nearly $13 billion in U.S. assets and branches, agencies and representative offices in 15 cities across the United States. State banking departments in New York, California, Illinois, Massachusetts, Florida, and Georgia acted jointly with the Fed. State regulators have shut down foreign bank operations before, notably those of Bank of Credit and Commerce International after BCCI's massive fraud was disclosed. But observers said the Fed's action was unprecedented, given the size and importance of Daiwa. The regulators' dramatic move follows disclosures that Daiwa had deliberately concealed the loss from U.S. regulators for two months after the bank was originally informed of it in July - and that Japanese authorities had also delayed informing U.S. regulators. "Based on the facts that have been acknowledged thus far, there was a breakdown of the trust mechanism that regulators have come to rely on in the supervision of banking organizations," New York's State Banking Department Supervisor Neil Levin said in a statement Thursday. Separately, the U.S. Attorney's Office announced an indictment against Daiwa on 24 counts alleging conspiracy to defraud the Federal Reserve. U.S. Attorney Mary Jo White indicated that penalties could exceed $1 billion if Daiwa is found guilty. Daiwa said in a statement Thursday that it planned to "defend itself vigorously" against the charges. "We're the only victim here. No customers suffered any losses," a Daiwa spokesman said. The bank stated, however, that it would not contest the U.S. regulators' orders to close down its U.S. operations. "Our withdrawal from the United States is a regrettable but necessary step," said Takashi Kaigo, president of Daiwa Bank, adding that the bank wished to avoid "unnecessary conflict between the bank and the authorities" that could be harmful to international banking industry. Banking attorneys said the Fed had little choice but to kick Daiwa out of the country. "If they didn't take drastic action, then that would have meant the Foreign Bank Supervision Enhancement Act didn't work," one lawyer said. "That would have impact for all foreign banks." Another lawyer said he believes Daiwa bailed out rather than risk a public hearing and possible Fed sanctions. "I think they were going to put so many limitations on Daiwa to continue operations in the United States that it would be better for them to leave," the lawyer said. "So they agreed to sign a consent order saying they were leaving to end the proceedings." Now, he said, all eyes will be on the criminal probe. Jaret Seiberg contributed to this story
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