WASHINGTON/TORONTO, Dec 12 (Reuters) - The U.S. Federal

Reserve said on Thursday it had approved an application by

Scotiabank to buy up to 14.99% of the voting shares in

U.S. regional lender KeyCorp ( KEY ), as the Canadian bank looks

to boost its exposure to developed markets.

Scotiabank announced the $2.8 billion deal in August, which

would also allow it to appoint two directors to the Ohio bank's

board.

Spokespeople for the two banks did not immediately respond

to requests for comment.

Scotiabank CEO Scott Thomson's move to acquire a stake in

the regional lender comes as the bank refocuses on the North

American trade corridor as part of its new strategy, while it

looks at possibly exiting some unprofitable markets in South

America.

Thomson, who took charge at the Canadian bank last year, has

said moving capital from developing markets to developed markets

is a huge part of the strategy and the KeyCorp ( KEY ) investment was "a

low risk, low cost optionality in North America" with strong

returns.

Canadian banks have also sought growth opportunities in the

past through acquisitions in the United States that have come

with high price tags.