China, US eye pact to help troubled banks: Sources

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Chinese and US regulators are negotiating a pact aimed at encouraging Chinese financial institutions to buy into small and medium-sized banks in the United States, bankers briefed on the plan said on Tuesday.

Chinese bankers have complained that it's been difficult for them to set up branches or invest in banks in the world's leading economy, due partly to US regulators' tough supervision and strict approval process for financial deals.

But the global financial landscape has been revamped by the credit crisis, and cash-rich Chinese banks are now bigger players on the world scene and are scouting around for investment targets.

To illustrate the global shake-down, Industrial and Commercial Bank of China is now the world's biggest bank by market value, while Citigroup Inc, once the world's No.1 bank, is worth the same as a second-tier commercial bank in China.

Two senior Chinese bankers said they had been invited this year by US officials, investment bankers and financial advisers to look at several potential investments in U.S. banks, mostly in financial trouble.

"The trend is already there," said one Chinese banker. "Now they're going to make this into an agreement to show there's a change in official attitude towards Chinese investments in the U.S. banking system," said the banker, who declined to be identified due to the sensitive nature of the matter.

A Sino-US Memorandum of Understanding (MOU) to encourage Chinese banks to invest in US lenders is in the making, and China's banking regulator has sought feedback from big domestic banks, bankers told Reuters.

Over 100 US banks have already been seized by regulators in the financial crisis, and more bank failures could come as the Obama administration also needs more capital to take over troubled lenders.

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