Full text of International Banking Act of 1978 : Hearing Before the Subcommittee on Financial Institutions of the Committee on Banking, Housing, and Urban Affairs, United States Senate, Ninety-Fifth Congress, Second Session, on H.R. 10899, June 21, 1978

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INTERNATIONAL BANKING ACT OF 1978

HEARING
BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
OF THE

COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-FIFTH CONGRESS
SECOND SESSION
ON

H.R. 10899
TO PROVIDE FOR FEDERAL REGULATION OF PARTICIPATION
BY FOREIGN BANKS IN DOl\IESTIC FINANCIAL MARKETS

JUNE 21, 1978

Print.ed for the use of the
Committee on Banking, Housing, and Urban Affairs

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Federal Reserve Bank of St. Louis

INTERNATIONAL BANKING ACT OF 1978

HEARING
BEFORE TBII

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
OJI' THE

COMMl'rrEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-FIFTH CONGRESS
SECOND SESSION

H.R. 10899
TO PROVIDE FOR FEDERAL REGULATION OF PARTICIPATION
BY FOREIGN BANKS IN DOMESTIC FINANCIAL MARKETS

JUNE 21, 1978
Printed for the use of the
Committee on Banking, Housing, and Urban Affairs

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Federal Reserve Bank of St. Louis

U.S. GOVERNMENT PRINTING OFFICE
WkSBINGTON : 1978

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
WILLIAM PROXMIRE, Wisconsin, Chairman
JOHN SPARKMAN, Alabama
EDWARD W. BROOKE, Massachusetts
HARRISON A. WILLIAMS, JR., New Jersey JOHN TOWER, Texas
THOMAS J. McINTYRE, New Hampshire
JAKE GARN, Utah
ALAN CRANSTON, California
H. JOHN HEINZ III, Pennsylvania
ADLAI E. STEVENSON, Illinois
RICHARD G. LUGAR, Indiana
ROBERT MORGAN, North Carolina
HARRISON SCHMITT, New Mexico
DONALD W. RIEGLE, JR., Michigan
PAUL S. SARBANES, Maryland
KlilNNIDTH A. MCLIDAN, 8taf! Director
JEREllUAH

s. BUCKLIDY, Minority 8tatl Director

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

THOMAS J. McINTYRE, New Hampshire, Chairman
WILLIAM PROXMIRE, Wisconsin
JOHN TOWER, Texas
EDWARD W. BROOKE, Massachusetts
JOHN SPARKMAN, Alabama
WILLIAM R. WIDBIDB, Counsel

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(II)

CONTENTS
H.R. 10899_ ____ __ ____ __ __ ____ __ __ ____ __ ____ __ __ __ __ __ __ ____ __ __

Page

302

LIST OF WITNESSES

G. William Miller, Chairman, Federal Reserve Board _________________ _
Robert H. Mundheim, General Counsel, Department of the Treasury ___ _
John Heimann, Comptroller of the Currency _________________________ _
George A. LeMaistre, Chairman, Federal De_posit Insurance Corporation_
Muriel F. Siebert, superintendent of banks, State of New York _________ _
E. D. "Jack" Dunn, commissioner of banking and finance, State of Georgia,
and national president, Conference of State Bank Supervisors ________ _
Robert B. Palmer, president, Bankers' Association for Foreign Trade;
accompanied by:
James B. Sommers, vice president, Bankers' Association for Foreign
Trade;
and Thomas L. Farmer, Esq., Prather, Seeger, Doolittle, &
Farmer ____________________________________________________
_
Serge Bellanger, vice president and chairman, legislative committee,
Institute of Foreign Bankers; Teruhisa Shimizu, trustee, Institute of
Foreign Bankers; and Steuart L. Pittman, counsel, Institute of Foreign
Bankers; and Dr. Wolfgang Jahn, member, board of managers, Commerzbank; Paul Fabre, managing director, French Banking Association;
and Peter E. Leslie, general manager, Barclays Bank International
Ltd., and chairman, executive committee, British Bankers Association;
representing the Banking Federation of the European Community _____ _

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132
142

154

185

ADDITIONAL STATEMENTS AND DATA

Letter from Chairman Miller of the Federal Reserve Board commenting on
questions raised by Senator Stevenson______________________________
Letter from General Counsel Mundheim, Treasury Department commenting on Edge Act corporations and interstate branching_______________
Comments from the Comptroller of the Currency on:
Multistate banking activities by domestic and foreign banks________
Means of easing lending restrictions on Edge Act corporations______
Activities of U.S. foreign banks in several foreign countries compared
with the activities of the same countries' banks in the United States_
Letter from Chairman Le Maistre, Federal Deposit Insurance Corporation
commenting on proposed compromise on the interstate banking provisions of H.R. 10899______________________________________________
Article from the American Banker titled "NYS May Start Foreign Insurance Facility"________________________________________________
Letter to Senator Stevenson from the Conference of State Bank Supervisors commenting on proposal to restrict the deposit-taking powers of
foreign bank branches____________________________________________
Additional statement from Bankers' Association for Foreign Trade regarding recommendations for revisions in regulation K and amendments to
the Edge Act___________________________________________________
Supplemental statement of Robert B. Palmer, president, Bankers' Association for Foreign Trade_______________________________________
Letter from Chairman Burns, Federal Reserve Board dated June 1, 1973__
Letter
from
Steuart L. Pittman on behalf of the
Institute of Foreign
Bankers
__________________________________
-_____________________
List of European bank officials and their counsel, accompanying spokesmen for the Banking Federation of the European Community______
Paper from Oscar Glass, consulting economist, titled "Weight and Structure
of the Foreign Parent Banking Presence in the United States"________

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<m>

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269

(IV)

ADDITIONAL STATEMENTS AND DATA-Continued
Letter from Arnold and Porter on behaH of the French Banking Association____________________________________________________________
Letter from Franz M. Oppenheimer, counsel to the Commerzbank________
Letter from A. A. Milligan, president, American Bankers Association_____
Letter from Arnold H. Weiss, on behaH of the Union Bank of Bavaria____
Statement of the Association of Reserve City Bankers_________________
Letter with detailed comments from Gilbert Bubendorff, president, French
American Banking Corporation____________________________________
Article from Bank Stock Quarterly by M. A. Schapiro & Co., Inc., titled
"Unequal Opportunity: Growth of Domestic Banks Constricted"______
Statement of Stroock & Stroock & Lavan, on behalf of Bank Hapoalim

B.M___________________________________________________________

Letter from Lionel S. Jassy, senior vice president, general counsel, European American Banking Corporation_______________________________
Statement of U.S. Labor Party______________________________________
Letter from Chairman Miller of the Federal Reserve System in response
to request for the Board's views on H.R. 10899______________________

i>age

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298
349
352
356
358
370

375
383
384
390

CHARTS AND TABLES
U.S. banking institutions owned by foreign banks:
All institutions________________________________________________
Number of institutions_________________________________________
Commercial and industrial loans_________________________________
Deposits form nonbanks________________________________________
Standard banking assets by country of parent_____________________
Standard banking assets by State________________________________
Monthly report dates__________________________________________
Standard banking assets by type of institution ____ -··--________________
Ratio of commercial and industrial loans at U.S. offices of foreign banks to
similar loans at weekly reporting banks_____________________________
Ratio of deposits from nonbanks at U.S. offices of foreign banks to
similar deposits at weekly reporting banks__________________________
Standard banking assets of foreign banks in the United States__________
Location of foreign banking institutions in the United States____________
Comparison of the activities of branches and agencies of foreign banks,
and edge corporations and loan production offices of domestic banks__
Comparison of U.S. activities of foreign banks and foreign activities of
American banks, April 1978_______________________________________
Country-by-country comparison of foreign banks' penetration of the domestic credit market and U.S. banks' penetration of foreign credit
markets________________________________________________________
Foreign parent "banking" entities operating in the United States________
Assets of foreign parent banking entities in the United States___________
Liabilities and equity of foreign parent banking entities in the United
States__________________________________________________________

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INTERNATIONAL BANKING ACT OF 1978
WEDNESDAY, JUNE 21, 1978

U.S. SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIBS,
SUBCOMMrr.I'EE ON FINANCIAL INSTITUTIONS,
WaBhington, D.O.
The subcommittee met at 10 a.m. in room 5302, Dirksen Senate
Office Building, Senator Thomas J. McIntyre (chairman of the
subcommittee) presiding.
Present: Senators McIntyre, Proxmire, Sparkman, Stevenson, and
Schmitt.
Senator McINTYRE. The subcommittee will come to order.
Today the subcommittee is conducting its third hearmg on legislative proposals governing the activities of foreign banks in the United
States.
In January of 1976, the subcommittee held hearings on the original
bill submitted by the Federal Reserve Board. On August 31, 1976, the
subcommittee held hearings on the International Banking Act of 1976
which passed the House of Representatives on July 30 of that year.
There was insufficient time in the Senate to consider the measure prior
to the adjournment of the 94th Congress sine die.
Today the subcommittee takes up H.R. 10899, the International
Banking Act of 1978 which passed the House of Representatives on
April 6 of this year.
In light of the extensive legislative history on this legislation, our
purpose today will be to simply highlight the main points of controversy with an overview toward formulating a reasonable and responsible approach to their resolution in this Congress. For my part, I am
of the opinion that the climate is now ripe for enactment of this
legislation. In previous years, I had some reservation about the necessity for the various proposals before us at that time. I now feel, however, that the continuing growth of foreign banking activity in this
country has generated sufficient interest to establish better Federal
monitoring of foreign banking activity in this country. Moreover, I
believe that the political climate is still relatively calm which, hopefully, will enruble us to fashion a rational bill. Further delay may very
well result in a more restrictive piece of legislation which, in my
opinion, would serve nobody's interest.
As I see it, there are four basic issues of controversy :
1. Section 5, dealing with multi-State banking operations;
2. Section 6, dealing with Federal deposit insurance;
3. Section 7, dealing with the role of the Federal Reserve; and
4. Section 8, dealing with nonbankin~ activities.

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(1)

I continue to feel, as I have all along, that section 7, pertaining to
the role of the Federal Reserve is the most important provision in the
bill.
The issues of multistate branching, Federal deposit insurance and
nonbanking activities are, to my mind, secondary to the more fundamental question of the appropriate role of the Federal Reserve both
from the standpoint of monetary policy and regulatory control. In
fact, one of the reasons I am more favorably inclined to this legislation than to past proposals is that the bill is less restrictive than earlier
bills particularly with respect to multistate operations. After all, if a
particular State wishes to encourage foreign banks to do business within its borders and does not particularly care whether those same banks
happen to he doing business in other States as well, why should the
Federal Government care ?
Particularly, I fail to see why the Federal Reserve System, given
the primary nature of section 7, chooses to focus so much attention on
the mul'tistate provisions contained in section 5. Nevertheless, I intend
to explore all of these issues today, albeit as succinctly as possible.
Suffice it to say that while I feel there is merit to proceeding with
this legislation now I do not believe that this bill warrants a fresh
imprimatur on outdated restrictions and limitations. If there is, indeed, a competitive imbalance, which I'm not sure has been demonstrated, then it seems :far more sensible to enable U.S. banks to better
compete, rather than artificially imposing new restraints on foreign
competition.
As a final note, I wish to explain that originally these hearings were
to be held today and tomorrow. However, given the potential need for
additional time for markup :for other bills currently pending before
the. committee, particularly the New York City financing bill and
the Humphrey-Hawkins bill, I was asked by the Chairman, and consented, to compress these hearings into 1 full day. Having rescheduled,
I was reluctant to change back, and I hope this will not inconvenience the witnesses scheduled here today.
Therefore, I wish to call Hon. G. William Miller, Chairman of the
Federal Reserve Board.
Welcome, Mr. Miller. Glad to see you here.
Senator PROXMIRE. Mr. Chairman, I have a statement I will make
after Mr. Miller finishes if it's all right with you.
Senator McINTYRE. Fine. Proceed, Mr. Miller.

STATEMENT OF G. WILLIAM MILLER, CHAIRMAN, FEDERAL
RESERVE BOARD
Mr. MILLER. Thank you, Mr. Chairman.
I have a prepared statement which I would suggest, with your
permission, be placed in the record.
Senator McINTYRE. Without objection, it will appear in the record
in its entirety.
[Complete statement follows:]

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Statement by
G. William Miller
Chairman, Board of Governors of the

Federal Reserve System

I am pleased to appear before this Committee today to
present the views of the Board of Governors on H.R. 10899, the
International Banking Act of 1978.
Before commenting on the specific provisions of the bill
as enacted by the House of Representatives, I should like to review
some of the reasons why the Board has for several years supported
legislation that would provide a Federal presence in the regulation
and supervision of the operations of foreign banks in the United
States.

These reasons lie in the growth in number and size of

foreign bank operations, and their ever-increasing importance to
the structure of the banking system and. to the functioning of money
and credit markets.

The latter has obvious implications for the

conduct of monetary policy.
The Federal Reserve has welcomed the entry and activities
of responsible foreign banks in this country.

Some of them are

long-time residents here; others are relative newcomers to international banking and to the American market. They have contributed
to a m9re competitive environment in our banking markets and to the
more efficient functioning of our money and credit markets.

The

banking and financial services available to the American consumer
and businessman have been enlarged by their presence.

In addition,

they have behaved responsibly and have given little cause for

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supervisory concern.

The Board's support for Federal legislation

to regulate foreign banks has never been intended to curb their
ability to operate in this country.

Rather, it has been motivated

by the desire to provide a secure framework, at the Federal level,
in which foreign banks might operate here and which would be fair
and equitable to all participants in our banking markets.
I said that one of the reasons why the Federal Reserve
has sought legislation in this area has been the growth in the
number, size and importance of foreign bank operations in this
country.

Let me review briefly some of the dimensions of that growth.
When the Board was developing its legislative proposals

at the end of 1973, there were about 60 foreign banks operating
banking offices in the United with combined assets of about
$37 billion.

Growth of these operations had been swift in the

preceding years and, as the Board stated at -the time, that trend
was clearly bound to continue.
than fulfilled.

Those expectations have been more

As of April 1978, 122 foreign banks operated banking

facilities in the United States with total assets of $90 billion.
Appended to this statement are a series of charts illustrating the growth of the U.S. operations of foreign banks.

Since

the figures for total assets exaggerate the dimensions of foreign
bank activity because of inter-company and clearing transactions,

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the charts ai.·.u present dat_a on "standard banking assets," which
omit these items.

By either measure, as the charts indicate, growth

of foreign bank activity is not abating.

Additional foreign banks

continue to enter the United States and foreign banks with existing
facilities here are continuing to expand their activities.
One sector of foreign bank operations underlines their
success in penetrating U.S. banking markets.
commercial lending.

I refer to their

The expansion of foreign banks in this segment

of the credit market is shown in Chart 4.

As of April, U.S. offices

of foreign banks had more than $26 billion in cOIIDllercial and industrial loans.

This amount equals about one-fifth of similar loans

by large banks that report weekly to the Federal Reserve.

In New

York, the proportion of commercial and industrial loans accounted
for by foreign banks was twice as large.

Other aspects of current

operations are contained in the Statistical Appendix that has been
provided with this statement.
In sum, foreign banks in this country can no longer be
characterized as specialized institutions engaged principally in
foreign trade financing on the periphery of our banking system.
Those days are long since past.

On the contrary, what we have today

is a diverse array of institutions operating on a very large scale
in a wide range of markets for banking services in this country.

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At the wholesale level, the foreign banks are competing directly
and successfully for the business of multinational corporations,
Foreign banks are important participants in U.S. money markets and
are also major traders in the U.S. foreign exchange market.

And

at the retail level, foreign banks are becoming increasingly
important, notably in California.

In this connection, it is worth

remembering that of the 122 foreign banks operating here, 45 have
worldwide assets of more than $10 billion, and all but a handful
have worldwide assets of more than $1 billion.

These institutions

are thus to be compared with the largest of our domestic banking
organizations.
It is incongruous that institutions such as these can
operate on such a scale in this country without being subject to
Federal regulation of their entry and aetivities and without being
subject to the rules of the central bank.

These institutions are

really not a part of our dual banking system.

As the dual banking

system has evolved in this country, there is some degree of Federal
supervision over virtually every bank in the United States.

And in

practice, the largest banks are member banks of the Federal Reserve
System.

The Federal Reserve believes that the correction of the

anomalous position of foreign banks is overdue.
The Federal Reserve's legislative recamnendations on
foreign banks have consistently been grounded on the principle of

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national treatment or nondiscrimination.

That principle has a long

and respected history in the affairs of this nation • .It provides
for fair and equitable treatment for all.

Currently, by contrast,

foreign banks have certain advantages over our indigenous institutions~

The Federal Reserve continues to believe that the foreign

banking community should be incorporated into the U.S. banking
system on an equal footing with domestic banks.
Now I would like to tum to the specific·provisions of
H.R. 10899.

The Board welcomes the achievement of the House of

Representatives in passing this Act and believes that it represents
considerable progress toward the goal of appropriate legislation in
this area.

At the same time, the Board believes that the bill is

deficient in several respects when viewed against the standard of
national treatment.

Also, improvements can be made in a number of

provisions as they are now drafted.

We have already furnished the

Committee with detailed suggestions for changes in the bill.
not go over them here.

I shall

Rather, in the remainder of my remarks, I

would like to focus on two key sections of the bill:

Section 5,

dealing with interstate banking, and Section 7, dealing with the
Federal Reserve's authority.
Interstate banking has been and is a controversial topic.
Opinions differ widely about the wisdom of the existing national
policy that bars banks from operating full-scale offices across State

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lines.

It is not surprising, therefore, that Section S of the

International Banking Act has proven the most controversial.
What has been surprising was that, in enacting R.R. 10899, the
Rouse of Representatives chos~ to perpetuate the present situation
where foreign banks, but not domestic banks, can operate banking
offices on a multistate basis.
As of this April, there were 63 foreign banks operating
banking facilities in more than one State.

Thirty-one of theae

institutions were operating in three or more States, through
agencies, branches, and subsidiaries.

There can be no doubt that

these multistate facilities give foreign banks a considerable
advantage over their domestic competitors.

Under the Rouse-passed

bill, these multistate operations are certain to grow further.
Addi"tional States have passed legislation to allow branches or
agencies of foreign banks to begin operations, and the foreign
banks will take advantage of those opportunities sooner or later.
Another oddity of the present structure is tha·t a
domestic banking institution, by changing to foreign ownership,
can become part of a banking organization with multistate facilities.
This possibility is highlighted by the recent announcements by three
foreign banks of proposed acquisitions of large domestic banking
institutions.

The three foreign banks involved already have multi-

state facilities.

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Ih~ national policy of barring interstate banking, as
embodied in the McFadden Act, needs review.

Banking has changed.

The structure of the economy and its financial needs have also
changed since the McFadden Act was passed over 50 years ago.
Pending completion of that review, however, it is inconsistent with
the principle of national treatment and unfair to domestic banks to
allow foreign banks to continue to expand offices across State lines.
The Board therefore believes that Section 5 of R.R. 10899
should be amended in two respects:

first, to provide that the

McFadden Act shall apply to Federal branches and agencies; second,
to impose on State branches the same geographical restrictions that
State laws impose on domestic State banks.

Put in this way, the

provision would allow foreign banks operating State branches to
benefit from any reciprocal arrangements that the States might enter
into with regard to interstate banking.
The Board fully appreciates the States' interests in
promoting their foreign commerce and foreign investment within their
borders.

As part of this effort, a number of States have amended

their banking laws in recent years to allow foreign banks to operate
agencies.

These agencies are generally empowered to provide inter-

national banking services but not to compete in local deposit banking.
The International Banking Act, as the Board envisages it,
would not interfere with the availability of these kinds of facilities

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in the States.

The legislation has always contained a provision

to allow foreign ownership of Edge Corporations.

As members of the

SubcOIIDllittee are aware, Edge Corporations were authorized by the
Congress as a means of enlarging the international banking facilities
available throughout the country without impinging on purely domestic
lending or deposit business.

Besides allowing foreign banks to own

Edge Corporations, the Board would go further and permit them to
operate agencies on a multistate basis so long as their business
was confined to international operations such as those to which Edge
Corporations are limited.

This seems to the Board to be a reasonable

compromise between the interests of the States and the national interest.
The compromise just mentioned is the approach that is
preferred by the Board.

Nonetheless, some States contend that this

is too restrictive: that foreign banks·will not establish limited
agencies in their States and that consequently they will be deprived
of international financial services.

Accordingly, these States do

not wish any restrictions on the activities of agencies other than
those in State laws.

One of their arguments is that even without

restrictions, the activities of agencies will be basically of an
international character.

The Board doe·s not agree with these

arguments and believes that the position they advocate is inconsistent
with the principle of national treatment.

However, the Board would

not oppose the legislation if this position on State agencies were
followed.

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Section 7 of the bill is deficient, in the Board's judgment,
in two respects:

the coverage on reserve requirements and the super-

visory authority of ~he Federal Reserve.
As enacted by the Rouse, the bill gives the Federal Reserve
authority to impose reserve requirements on the deposits and similar
liabilities of branches, agencies, and conmercial lending companies
of foreign banks.

Omitted from that authority is the ability to

impose reserve requirements on the deposits of their subsidiary banks.
This omission evidently stems from the mistaken belief that these
subsidiary banks are comparable to the domestically-owned Statechartered banks that have the option of being members of the Federal
Reserve System.
I stated earlier that one of the features of the dual
banking system, as it in fact operates in this country, is that all
the large banks are directly subject to the rules of.the central
bank.

The foreign banks operating in the United States are very

large banks, whether measured by their global activities or by the
totality of their activities in this country.

The operations of

their subsidiary banks are now an important segment of those activities, collectively and individually.

Total assets of these subsidi-

aries are about $19 billion while individual subsidiaries range up
to $2 billion in size.

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Foreign banks operate their agencies, branches, and subsidiaries in this country as an integrated organization.

There is

little logic, therefore, in subjecting agencies and branches to
reserve requirements but exempting subsidiary banks.

The latter

account for about one-fifth of total foreign bank activity here.
In the case of one of the largest foreign bank operations here,
nearly half of its activities are conducted in subsidiaries.
Foreign bank interest in U.S. subsidiary banks is at a high level.
That interest will be encouraged if reserve requirements can be
avoided simply by shifting business to a subsidiary.
The other aspect of Section 7 that deserves amendment
concerns the Federal Reserve's supervisory authority.

As the sec-

tion now reads, that authority is not commensurate with the re&ponsibilities assigned to the Federal Reserve,

The emphasis is on

purely State supervision of foreign bank operations, although the
Federal Deposit Insurance Corporation would have examining authority
under the provisions of Section 6.

The Federal Reserve would have

no direct examining authority.
The need for a direct Federal presence in the examination
of foreign bank operations is patent.

These institutions are operating

in several States and the banking authorities of individual States
are not and can not be equipped to judge the soundness of their operations on a nationwide basis.

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Furthermore, these are worldwide

13
institutions a~d their supervision entails dealing with the parent
institution overseas and its political and regulatory authorities.
The Board believes that the Federal Reserve should be given
the primary examination authority at the Federal level to meet this
need.

The Federal Reserve possesses the international banking ex-

pertise required to fill this role as a result of its regulatory
responsibilities for the international operations of member banks,
and it already has close working relations with foreign central banks.
Moreover, the Act gives the Federal Reserve authority to lend to
foreign banks maintaining reserves.

In extending credit to domestic

member banks, the Federal Reserve relies on the examination process
for information on the condition of the borrowing institution and
in policing the use of the discount window.

Further, the Act gives

the Federal Reserve authority and responsibility to employ cease
and desist orders dealing with unsafe and unsound banking practices

in U.S. offices of foreign banks.

Detection and analysis of those

practices come out of the examination process.

Finally, under

the Act, the Board is required within two years to submit legislative
recommendations for additional requirements to be made applicable to
foreign banks.

Informed recommendations will require the kind of

firsthand knowledge of the operations of these offices that is
obtained through the examination process.

For these reasons the

Board urges that Section 7 be amended to give the Federal Reserve
adequate supervisory authority over foreign bank operations.

30-563 0 • 78 • 2

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This suggestion, it should be noted, parallels the situation of State member banks,

In that case, the Federal Reserve has

the primary examining authority at the Federal level with the
Federal Deposit Insurance Corporation having residual examining
authority.

The States have their examining authority as well,
Mr. Chairman, today I have emphasized again the Board's

belief in the need for legislation to regulate foreign banks in
this country and that the basis for that legislation should be
national treatment,

Developments since the discussion of the role

o~ foreign banks in this country was initiated have confirmed the
growing importance of foreign bank activity in our economy and our
financial markets.
length,

The issues have been explored and debated at

The main outlines of the legislative provisions have been

determined,

In the Board's judgment, this is the year in which

action should be taken.
The Federal Reserve has suggested a number of amendments
to the legislation.

In this statement I have focused on the two

main areas in which we believe changes should be made.

These changes

would be consistent with the principle of national treatment and
would provide for adequate supervision of foreign bank activities
in the United States.

With the amendments that we have suggested,

the Board believes that the International Banking Act would equitably
resolve the problems that have been raised and would meet the public
need,

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Chart 1

U.S. Banking Institutions Owned by Foreign Banks
All Institutions 1·

Billions of dollars
120

100

80
60
40
20
0

1974
1. Includes agencies, branches, subsidiary ccmmarclal banks, Investment Companies and Agreement Corporations.
2. Standard banking easels Include loans, money-market easels, and securities, and exclude clatms
on related lnatltutions and clesrtng balances.

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Chart 2

Number of U.S. Banking Institutions
Owned by Foreign Banks 1 ·
Number of institutions

300
250
AGENCIES

200
150

BRANCHES

100

50
SUBSIDIARY
COMMERCIAL
BANKS
December

December

April

1972

1974

1976

1978

1. Does not Include Investment Companies and Agreement Corporations. As of April 1978, foreign banks operated
5 Investment Companies and 2 Agreement Corporations.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

17
Chart 3

Standard Banking Assets by Type of Institution
Agencies and Branches

Billions of dollars

40
30
20
AGENCIES

0
Billions of dollars

Subsidiary Commercial Banks

_______,IO_

ALL~~;:;A;:N::;K;;;;,S.,,__..,,,.,¼,,,___
,,,.,,.,_ _,,__r~
-

_,,.F_.R_._M_E_M_BE_R_s,,,,,______

1972

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1974

1976

1978

18
Chart 4

U.S. Banking Institutions Owned by Foreign Banks
Commercial and Industrial Loans

Billions of dollars
30

C&I LOANS TO U.S. BORROWERS

1972

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1974

1976

1978

19
Chart 5

Ratio of Commercial and Industrial Loans at
U.S. Offices of Foreign Ban ks to
Similar Loans at Weekly Reporting Banks 1 ·
Ratio
.24

.20
.16
.12
.08
.04

1972

1974

1976

1978

1. There are 315 large banks that report weekly to the Federal Reserve and account for slightly more than
one-half of total assets of all Insured commercial banks.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

20
Chart 6

U.S. Banking Institutions Owned by Foreign Banks
Deposits From Nonbanks 1 ·

Billions of dollars

25
20
15

1974

1976

1. Includes credit balances and excludes officers' checks and deposits from banks.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1978

21
Chart 7

Ratio of Deposits from Nonbanks at U.S. Offices of
Foreign Banks to Similar Deposits at
Weekly Reporting Banks 1 ·

.20

.16
.12
.08

.04

,,,

1972

1974

1976

1. Includes credit balances and excludes officers' checks and deposits from banks.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1978

·O

22
Chart 8

Standard Banking Assets of Foreign Banks
In the United States
Multi-state Activity

Billions of dollars

90
75

OFFICES OF FOREIGN BANKS
WITH BANKING OPERATIONS
IN MORE THAN ONE STATE

15
OFFICES IN NON-PRINCIPAL STATES

1972

1974

1 . Principal state established using total 88891 criterion.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1976

1978

23
Chart 9

U.S. Banking Institutions Owned by Foreign Banks
Standard Banking Assets by Country of Parent

Billions of dollars

40
30

10
0
Billions of dollars
20

REST OF THE WORLD
CANADA

1972

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1974

1976

1978

24
Chart 10

U.S. Banking Institutions Owned by Foreign Banks
Standard Banking Assets by State

Billions of dollars

60
50

40
30

_____
-

CALIFORNIA ~

.,,.~

1972

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1974

ALL OTHER

1976

1978

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

UIILl l

u. S. BANKING INST ITUflONS OWNED BY fOkElGN SANKS
FOR MONTHI.Y REPORT DATE IN -NOVEMBER 1972
l IN MILL IONS OF OOLLAflS I

All KEPORTERS

c.
o.
11.
111.

BRANC.HES

CONl"IERC UL BANKS

INVESTNENJ COS.

18,073

9.959

3,283

1.11t1

a,i57

S,585

1,zs•

l."17

596'

1,151
1,699

♦ ,579

l,272

1,005

••9
390

159

C,THER LOANS

1,llP

107

l01

123

NONEY-MAA.KET ASSEJS

4,133

2,2t.9

l,1tl2

215

116

OTHER ASSETS

•sUNOARD• BANK.ING ASSEJS

AGENC JES

C.014HERCUL. & lNOUSTR IAL LOANS

1.
2.

u. S. RESIDENTS
ruKEIGN RESIDENTS

l,081t

3,967

1,999

405

1,331

232

CLEA'MlNG itALANCES

1,968

702

S09

l83

115

.DUE fRO/ol MELATEO lNSf I h.lT IONS

lt,277

2,974'

1.211

1,162
2,515

1,362
1,t.12

381

.,.

1
ZB

5
53

u.s.
FORl:IGN

TOUL ASSET SIL Utllll HES

11.
111.

..
..

0£- PDSI TS Al'<tlO CREDIT
8.l.LA1'4CES UF NUN-DANKS

c.
o.

5,302

C1l

1,316

4,1)6<\

3,875

2,729

3,113

121

5,81\3

523

1,985

2,882

211

INTERBANK LIABIUJlES

2,635

1,921\

339

123

241

OTtlfR llABILIT lES

l,BU,

1,158

366

166

126

l,So\o\

786

422

116

160

U,!J09

11,881\

2,10•

299

219

1,971
9,SJ1

11616
1,268

131
11968

212

5
214

•5•

•o

416

101

10•

BOM.RL .. INGS fRUM NON-BANKS

CLEARIMG LJABJLlTIES

OUE TD RELATEO INST ITUTIO~S

u.s.
FOltCIGN

CAPITAL AtCOUNTS A)tD RES EM YES

NUNBE:R Of REPORTING lNSTITUflONS
NOTEI

13,635

10,606

•su,NOAkO• BANKING LUBILtTIES

1.
2.
1v.

Zlt,317

DETAILS NAY NOT AOD TO fDTALS llUE IU ROUNDING.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 2
iJ.S. BANKING JNSTJTUTlONS OWNED BY FCJREh;:\I riANKS
FOO MONTHLY REPUkT DATE IN -NOYEMBEk 1971
t IN Mill IONS OF IJOLLARSJ

.. ..

ALL KEPOkTERS

•STANOARD" BANKING- ASSETS

11.

fl,.

COMMEkC.IAL & INDUSTRIAL LUANS

1.
2.

AGENCIES

ilRANCHES

tlJM"IERC IAL BANKS

INVESTMENT C.05.

25,129

13,685

~.010

4,M-1

1,526

12.63S

7,897

2,253

1. 748

736

9,815

6.330
1.s,1

t,326
928

1.601
147

559
178

U.S. RESIOENTS
HJREIGN RESIDENTS

2,820

OfHEk LOANS

t,443

189

215

981

MONEY-MAttKET ASSETS

5,731

3.193

1,(j66

390

182

OTHER ASSETS

5.320

2,406

037

1,723

555

C.LEAlllt<IG 8AL4NC.ES

z.a1t1

952

1.2,.,

366

219

DUE FROM kELATEO JfrlSTl TUTICNS

6 1 8Sl

5,732

918

lu•

2,9l8
J,923

2,745
2,986

166
812

1,11

1.
2.

u.s.
1-flkFIGN

1.-..:l

0)
TOTAL ASSE.TS/dA81LI 1 IES

11.
111.

...

..
..

20,368

7.292

5,252

1,908

l8,33J

9,349

3,770

3,999

1,214

OE:P,)Sl TS ANO CREDI J
tlAl -HU.ES Of NUtt-8ANK.S

7,672

909

2,S.81

l,530

.,,

BOf..RUWINGS FM.U'I NDt.1-8-lNKS

1,S7l

l,Ofal

213

·~·1fiUAkK LlABILI ties

b,9'16

S,921

572

130

OTIJER LIABILITIES

2,295

l,lt58

,..

173
260

,!33

1,91t5

806

693

22•

~2Z

U,664

10,069

••1

153

3,'i-85
10,119

Z, 761

2,601

,...

583
2,118

298
183

3
350

819

1'5

5'8

12'

•sTANOA.w• BANKING LIABILITIES

CLEAR.I jb LIAtllLITIES

UIJE TO RElATEi> INSJITUTIONS
1.
2.

u. s.
FtJKEIGN

CAPIT,'- AtCOtJNS S AND R.ESERVES

NUMBER OF kf PORTING INSTITUTIONS
NOTEI

34,821

OETA~LS MAW t.lOT ADD TO TOTALS OIJE TO ROUNDING.

...
32

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

T.ABLB 3
U.S. t14tl<.IMG INSTITUTIONS OWNED BY FOMetGN BANKS
FOK JIIONTHLY REPUA.f DATE IH -NOVEMBER l97't
I IN NILL IONS Of DDLLAKSI

ALL REPORTERS
1.

11.
II J,.

..
..

•stANDA"-O• 8~NKlNG ASSETS
C0/11"4EkCUL t. lNOUSTklAL LO•\NS

1.
2.

u. S .. 11.ESIOENTS
F.JIU: IG,N ~ESIDfNTS

COMMERCIAL BANKS

INVESTMENT COS.

AGENCIES

BRANCHES

31.,,506

ll,766

8,218

8,60b

1,916

11,Bts

l1lt651

J, b62

2,.\50

1,052

13, 76.\
.\,J5l

a, soo

2,2!J3
1,459

2,250
200

811
2U

125

2,018

·J, 3J"I

500

293

2,151

OTHElt LOANS

Z, 11'i

115

MUNl:Y-f'tAll.Kf:T ..\SSE TS

1,11tlt

3,6\15

OTHE~ ASSETS

B,168

1,195

3,570

511

,.,661

1,587

1,905

1'0

436

CLEARINl.i RALlNCES

..,

9,2'1

7,096

1,896

1'6

u. s.

it,580

337

FOREIGN

lt,693

lt,201
2,895

1, S60

8
125

DUE FROM RELATEO lriST ITUT lUNS

t-.:>

TUTU ASSETS/LIABIL I J IES

11.
111.

..
..

•SUNOARO" flA/\IKlt.lG LlABILlT JES
Ot:POSJ TS ANO C.REOI T
BALANCES OF ru:N-BANKS
~OJl.lHlW INUS FROM NOH-liANKS

1,nfRdAHlt L IAH ILIT IE5

UTrtl'.:R LIABILITIES

CLEAkll\lG LIABILITIES

DUE

IV.

Ki:LUED HISllTUTION~

1.1 .. s.
t-U1Ul~"6

CAP IT AL ACCUUt.115 ANO A.E5ERVE5

NUMBER OF REPOKTIN\i !NSTlTUTIONS
NOTE:

Zt,,449

50,'tltl

27,002

9,492

12,019

Z,.\86

12,457

5,579

1,lt~

1,511

10,113

730

3,040

6,319

621

1,957

1,300

•92

151

10,635

8,101

1,557

382

595
282

3,698

2,327

.89

600

3,823

2,071

l ,OS7

•5o

2'5

18,11-tt

ll,688

5,265

593

588

4,920
U,214

3,5-\2
8,145

1,033
,.,232

333
260

12
577

l1't88

233

117

995

142

152

!1ETAIL5 MAY NOT AW> TO TOTALS ilUE TU ROW.DING.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 4

J.S. 1:UNKING INSTITUTIONS OW'IIEIJ BY FOk.EIGN l.:IANKS
FOM. MONTHLY REPORT DATE IN -NOVHHl£R 1975
tlN KILLl\lNS UF llULLAkS)
ALL M.E:POkTERS

11.
111.

..
..

42,794

11,946

12,007

10,829

2,012

19,954

10,316

4,843

3, 7d8

1,007

u. s.

U,531
4,424

8,526
1,189

1,021
1,823

3,21-1

110
231

UTHER LOANS

3,422

358

,oo

2,538

121

10,120

3,900

5,540

979

29•

8,698

3,373

l ,218

3,523

583

),595

l,452

2,683

1,0-10

13,019

8,026

4,469

329

106

5,29>;
7,724

4,SB
3,493

6S7
3,812

••

1
ltt9

•STANOAM.U" BANKING ASSETS
C0'4A-lrnCIAL C. lNDUS TR UL LUANS

PES I DENTS
FOREIGN KE SJ DENTS

HONEY-MARKET ASSETS

OTHER ASSETS

UEAI{ lliG dALANCES
OUE ff,1,)M RELATED lNSJ I TUT h.JNS
1.

u. s.
FUR[ 1GN

TUT \L ASSET S/llABl ll TIES

11.
111.

IV.

..
..

61,408

ll,424

19,159

•STANOAk!J" d!\Nl(.J,'hi LIASILlflES

14,185

UE:Pl,SITS ANO CREDIT
8ALA11CES IJf NON-BANKS

15,653
2,226
12,222

a,02

ij(llsloc,Jfli

INGS Ht0"4 NON-BAIIIKS

INHiHHI.NK llAOlllllES

OhffR LIAIHLITIES

CLEAR INh l lAOIL IT I E.S
OUE TO HLATEO INSTITUTIONS

,.,.

u. s.
fORE H,N

CAPI UL 1\((.0.JNTS AND RESEtO'ES

NUMBER OF REPIIRT lliG INSllTUTlOMS
NOTE:

INYESTHENT COS.

ORANCHES

cn'<l"4ERCJAL BANKS

AGENCIES

OETULS MAY NOT AOO TO TOTALS OUE

515

231
12,198

2,026

ilt233

9,915

1,863

920

5,316

8,632

12'

l, 118

1,021

7.,324

628

7"9

13.173

..,

4,084

l,603

,12

3,501

t, 't5d

1, ]lf,

21,890

12,SJS

8,446

566

), 74,
16,145

3,098
9 1 4L')

2,287
6, l59

3;0
216

11
159

1,826

285

1'5

1,.l25

112

182

••

ROUNOIPrtG.

597

112
221

•

1.--:>
00

TABLE S

u.s.

BANKING INSTITUTIONS ONNED BY fOM.EI.GN BANKS
FOR MONTHLY REPORJ DATE IN -NOVEMBER 1976
l IN MILLJUNS OF DOLLAR.SJ

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ALL MEPON.TEI\S.

"ST ANOAIHI" SANK I Nb ASSETS
COMMFRCiAL & lttOUSTKlAL L~H\NS

1.
2.

11.
111.

u. s.

RESllJEN"TS
FOkE IGN kESIOENTS

OTHER LOANS

MONFY-11AKKET .\SSETS

Ont[k ASSElS

,.1.

BKANC.HES

COMfllERCUL BANKS

INVESTMENT COS.

47,085

16,810

16,921,

l'I, 737

9,629

~,850

3,836.

'20

l't,9._.J
4,79 ...

1,119
1,851)

Ji,bl9

3,260

2,231

511

285
136

11,852

l,<191

4,b25

-i05

3,154

125

13,IJ49

3 1 3ll

t1,d25

1,0!18

'55
496

'1,015

3,329

l,4t,6

3,8)3

6,206

1,594

l,OJl

l,438

1'4

l4,3Jti,

9,131

4,520

•••

195

6,179
8,157

5,245
3,886

759
J, 161

12'
365

51
1'5

CLEARING S,U.\NCES
DUE FHO~ KEL.\TED fNSfl TUT IONS

A'-ENCIES*

u.s.
FURE IGN

t-.:i
TOTAL ASSETS/L IAIULIT IES

11.

111.

•ST.\NIJAP:J" BANKING LIABILITIES

DEP0!-.1 TS Al·.O C.REDIT
UALAh(.ES OF NON-BANKS

1NlEtl84NK LlAtjJLJTIES

OTHEP llftdlLJJIES

UORHl1fll lNUS FH0/11 NUN-BANKS

CLEARING L IABJLITI ES
DUE TO RELAT[O lNSllTUllON"i

IV.

u.s.
FORl:IG{,I

CAPIJAL ACCOUNJS AltD RESERVf.S

NUMBER OF REPOM.TINl.io INSJ ITUJIUfltS

NOlf:

67,6lJ

13,119

1,831,

1.l,375

12,511

ll,!56

938

l6,673

866

7,.64

9,860

482

3, lat

1,233

1,750

126

11, U30

7,682

2,660

568

120

31t241

lt,35b

2,593

696

802

265

lt,3)9

1,lt75

1,883

529

21t,077

13.385

9,856

Sll

305

6,386
17,61111

3,lt82
9,903

2,578
7,218

308
222

17
288

2,001

300

lb1

1,363

l71

zoo

DEJAILS MAY NUT AllD TO lOTALS DUE TU ROUNO&NG.

IHCWDES ONE AGREEMD'l' C<llPCltATIOII.

24,411

27,53!,

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 6

U.S. HANKING INSTl1UTIONS OWNE'> i:IY FOA.EJGN dANKS

FOR i'IUNfHLY Rl::POP.T OATE IN -NUVEMSEH 1'1177
U,, MILLWNS UF DULLAW.:il
ALL kEPllRTERS

..
.. ,.

•STAN,)AKLI'" 84NKINv ASSt:TS

Cu·4.'ff KC I 41.
l.

INDUSTRIAL LJAtiS

u.s. kESIOENfS
f-ORf IGN RESIDENTS

111.

55,1t3l

14,,394

2!»,385

14.076

1,001

10,565

.........

16,888
~,648

5,57J
1,4,35

7,0Bt
· J,'t78

3.803
638

5,69!1

690

1,11.>•

3,791

10,
23.

16,780

o\,261

10,931

1,352

10,,20

Z,43o\

2,785

4,416

115

8,316

1,JlZ

4,917

1,621

'51

13,935"

8,860

lt,196

729

150

',,625
9,31l

3,536
5,325

d75

117

3, J21

552

113

CLEARING bAlANCES
OUE FRll"1 l(fLATflJ INST IJUTI UNS

u. s.
FOREIGN

C,,j

..
..

"STANJM..1 11 f.\ANKl~v LIAtHLll lCS

71,6'32

Zlt,566

45,~99

l't,5"1J8

2,183

lC.,"26

12,•U't

Jll,'t05

13,580

1,170

,l2,5o87

175

9, 74q

11,545

519

3,651

1,242

2,'l6l

328

14,468

.,.us

"'·"6,5

692

376

4,ot16

1,992

1,calO

1,0lo\

2'9

S,d&9

1,886

Z,b58

723

623

23,8'>6

9,991

11, l!J0

519

195

5",010

18,656

2,019
1,913

2,799
10, J52

166

35•

178

2,338

2~•

29)

1,,0,

195

,..

110

••

Ot:.1•1JSJ TS A.PlfU CMEDl T

BAL \·•<.ES UF NllN-fiANKS
MllRk

Jili

lhu'i f-il(IM NUN-HANKS

UHFltKA"IK llAhlLUll:'5

"·

Ol!tE'k llAblllTIES

CLE AM I 'Ii. LI Allll IT I l:S
OUE J,J otELATED INST UUTIO~S

u.s.
FORE hiN

C.APlTAL ACCOUNTS ANO RESEMVE S

NJMBER Of llEP<JlH I~<. INS.Y ITUTIONS
NDfEI

523

,2,

OTHER ASSETS

1.
2.

I••

1,516

MUNEY-MARKET ASSETS

TUTAL ASSETS/L IAl)IL I TJES

111.

INYES Jli4EN1 COS.

11.

Ct.J•UEKC UL BANKS

BR4NCHES

22,536

UTHEk LOANS

11.

AGENCIES*

DETAILS MAY NOT Al.H) TO T-Jh.L'S DUE TO MUUNOI NG.

DICLDDIS 2 Aca.lDIIIIT C<a.POU.TIOBS.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAB!.B 7

u.s.

BAl«INY INSTITUTIONS OWNEU av FUREU11N BANKS
FOk MONJI-I..Y REPOkl DATE IN ----APKIL 1978
IIN flllLi..lONS OF t>OLLARSJ

ALL REPORTERS

.. ..

•sur,oA ... J• OA1'4KlN1; lSSETS
tO'l114i:RC I Al &. llfUUS IRIAL LUANS

..
c.
o.
11.
111.

iJ. s. MESI DENTS
FURE 1-..N KESIDENTS

AGENC lES•

BRANCHES

CUMHEA.C IAl BANKS

INVESTMENT COS.

64,ltSl

IS,916

30,480

16,594

25,919

7,862

12, 53&

S,005

516

19,3811
6,531

6,297
1,565

8,126
.ta,209

.,322
· 684

••2
1"

1,461

1,582

4,497

100

M01-.EY-HAl'Kt·1 .\SSl::TS

19,J~j

.,.,433

l3t'tl7

1,638

257

OTHF.R ASSETS

ll,trnl

2,833

2,136

5,454

578

7,58)

1,190

4,&06

1,618

170

18,0lt'i

11,015

6,0J2

119

222

6,237
11,812

Lt,3~1

1,342
.,.,690

199
580

32
191

UTHfl\ LOA~S

tio,915.

CLEARING d4LANCES
IJUE FRIJ"I MELAJEO INST I TUT 1£JNS

u.s.

ff1t<EIGN

,.,,,.

C,lj

TOT4L ASSETS/L IAHI LIT IES

11.
II I.

...

•StAND4kO" b!t.NKlN,O LIABILlll(;,i;

llEl'OSITS ANIJ CREDIT
RALI\NtES UF NUN-BANKS

INTEkHANK LUKILITIES

nnn:H llA6lllTIES

BORROWINGS FROM NON-BANKS

CLUklNUI LIA.ttlUIIES
OiJE TO k.ElATl:J ll'ISTIIUIIQNS

u. s.
fCJM.El:i-N

CA.Pl JAL ACCOUNTS ANL) RESERVES

NUNlfER OF REPON.f ING INSTlfUTIONS
Nu'TE:

DETAILS i"IAY NUT

'JI0,082

lB,992

1,853

14,068

2Z,U52

15,199

1,128

26,ltql

782

12,278

13,006

U•

lt,lS.

l,ltitl

2,176

271

l6,701

9,456

~,4-W,

l,312

•• 6

53,0.\1

5,102

2,348

1,951

1,210

193

5,bllt

l,o\99

3,.J2,S

111

319

2t1ta3il

12,309

15, ,21

567

229

6,511
22,256

2,588
91122

3,835
11,892

15D

225

Z,58•J

2•5

1,855

176

213

123

l<>6

ADO TO TOT AL S IJUE TO kOUNDING.

INCLUDES 2 ACREEMDJ' CORl'OltATIC.S.

ltl, 111

28,121

•

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAIU: 8
U.S. U,NKING INSTITUTIONS UWNED BY FOREIG~ SANKS
FUk MONTHLY MEPOKT DATE

lN -NOVEMBER 1912

CIN 14I LLJONS OF UOlL,hlSI

ALL M.EPt..KlE1tS

•SUNDAkU" HANKING ASSETS

II.

Ll 1.

,.
1.

u. s. Rf.Slt>ENJS
f-OttE: IGN ltfSlUENTS

GTtiER STATES••

J,o19

l,ll71

I ,JOit

15
0

11
D

21•

OTHER LOANS

1,117

508

~31

MONEY-MARKET ASSEJS

't,133

3,833

269

2•

:).

UT-t[R A'S'.il.'.TS

3,967

J,022

901

ClEARlf'4G UALA,'\IC.t:S

lt968

1,1122

121

DOE f-AUi1 kElATED lfrtS JI TUT IIJN S

4,271

1.993

1,710

1'8

1,762
2,515

11•
1,819

l ,l82

0
D

12•

u. s.
f1JREJ .• -.

TIJTAL ,USHS/L IAdlll TIES

..
..
11

SJAt'\IIH.t0 11 tlAI\IKl'II-, LIAHlllll[S

c.
o.

ll:~f!:il JS ANU C.kEDIT
liALA'K.tS Uf NW-I-BANKS

21t,ll1

11,882

INHi{dAPl,J<. L IAll ILIJ 11:S
UTt◄ E:K

LIAtlHlllES

"·
IV.

CAPITAL

OUE TU KFLATEll INSTITUTION~

,.
1.

428

5,Sll

2•
20•

10,taOb

b, 390

3,525

~.843

, J, 546

1,671

llt1·

••

c!,615

1,226

1,381

flu,<-.: 1.- IN'->~ Fkl111 NUN-BANI<~

C.LEAR.lt<Vi LIAUILITIES

50
0

l,Bl&

1,JJO

•08

l,Hlt

l,'t7ff

ll ,!>-J9

9,565

11 l'tO

121

u. s.

1,971

81D

FOKE IG-..

q,531

l,OJ't
101

3
12

125

ti, 755

os•

.. 8

198

104

••

AU.GLINTS ANO RESE~VH

NUJIIBER OF ktPUttflNb I l'iSH JUT IONS
NOTEI

6, '''"
5,278
1,lt26

7,157
1,699

ILLINOJS

111.

i..t.LlFIJRldA

l't,067

8,lt!>7

CUMHEk.C JAL & INOUSTRlAL LUANS

U,013

NEIii YUH.K

DETAILS JIIA'f' NUT All 1J TO TOTALS DUE TO AOUNOINl.i.

•• EXCLUDES PUERTO RICU AND THE VlkUHf ISLAf<!IDS.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAIU: 9
U.S. BANIC.ING INSIITIJTIONS OIIINED BY FC:REIGN SANKS
FUR "°"THI. Y REPOkT DATE 1ft -ftOVENBER l97l
CIN MILLIONS Of DOLlA~St
All MEPOM TERS

•sTANDAkl)" l:IA,.KING ASSEIS

..
11.
111.

CUH14EH.CIAL & INOUSTIU4L lO,\,NS

,.
1.

NEW YORK

CALIFURftlA

ILLINOIS

OTHEI Sf ATES••

25,129

18,858

S,3Z6

589

l,ii!,615

8,862

1,U,9

456

CJ,tHS
2,820

6,743
2,119

2, 70<\

25
l

200
256

•

u. S. RESIDENTS
FOKEIGN Rl::Sll)ENTS

•••

OTHER LOANS

l,it>'t3

492

844

MONEY-11AkKET ASSETS

5, Jll

5,325

UfHER ASSElS

5,320

't, 179

961

111

CLEAM.INli DAlANCf:S

2,841

2,531

280

-IJUE f-RO/'I llELAlEO I NS l1 TUTJ ONS

6,t151

2,51.?

J,N<\

zza

2,'-128

102
l.,'tlO

2,68b
l ,107

3,..:»21

104
IZ4

u. s.

FOREIGN

c,:i

i:.:i
TOTAL ASSETS/LIAtULITIES

11.
111.

23,901

828

18,lJl

91473

8,1107

264

OEPO\I IS ANO CREDIT
BALANCES Of NON-1:tANKS

1,072

4,926

2,115

IOI

BORMOW I I\IGS tRUM NON-RANKS

1,371

964

,oz

INTflU5ANK LlA1ULlT ICS

o,94i16

1,860

5,080

OTHER LlAtstllllES

2,24i1S

1, 72J

411

118

•STANJAIUl• BANKING LIABILll lES

ClEAklNti LIADlll TlES
DUE TO MELUEO INSTllUTIONS

u. s.
fOKElGN

1,915

1,812

13,c.6•

11,99<\

1,0-.1

3,485
\0,179

Z,607
9,381

)89

•59

466
19

879

284

124

CAPITAL ACCOUNTS ANO RE$E~VES

m!M8ER OF KEPORTINY INSTITUTIONS
NOTea

9,399

1.
IV.

3't,8ll

DEl4.ILS NAY hOT ADO 10 TUTALS

aue

TO ROUND ING.

** EXCLUDES PIJt-:<.lU klCO AND THE VIR.G•N JSLANOS.

O·

545

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAltl 10
U.S. RANKING INSTtlUTIUNS 0._NED BY FOREIGN SANKS
FOk 110NTHLJ kEPOkT i>ATE IN -NDVEMUER 1974
1,N HILL IONS UF LlOLLARSJ

.. ..
..

All kEPCKTEkS

•STAN041{J" ".\NKING ASSETS
C014Ni::k.Ll Al & lNi.>USTR.IAL LOANS

11.

111.

?..

u. S. !..ESIIJENTS
FOkE

I~~

R:t:SIDUHS

Jl I,.

26,680

8, 11,

426

79•

11,815

12 ,'tOO

,.,350

255

13,lblt
'-t,O~l

9,216
3,12'-

3,821
S29

227
27

299

2,779

1,12'-

1,500

l70

MONEY-MARKET ASSETS

1,lltlt

o, 75l

..6

OTHF-R 4SSFTS

8,168

b,1t05

1,$79

102

C.l EAR I NG KALAI.. CES
DUE fRU14 k El A

INSTI TUT IUNS

u. s.
HJME IGN

..
..

-'t166CJ

lt,269

365

9,213

3,1t55

s, 157

.-.,sso

4,693

3,112

it,055
1, lJl

.u, .. oJ

~1J,,.lt1

•5 rAN:M.1(LI" t,ANKING LIABILITIES

27,J,Z

01.:i'IJ\I TS A..O C.REDI T
dll.L \t,CES Of- NON-BANKS
ltUk1HlWINGS hUP4 NUN-IIA~KS

l...,TLR.tiAhK LIAUILlflES

01HEK LIAdlll TIES

CLEAM.l.~•i LUIIILITIES
DUE TO Kfl ATED INSTITUTIONS

u. s.
FCJREIC.N

C.t.PIT Al A<,tOJNTS AND RESEMVE:S

ll,836

...

•s•

••

92
364
1,257

U,OltO

lLl,.<J/3

2••

361

10, 71]

1,198

2,969

119

1,957

1,2«.l

&25

10,t.15

l, 162

6,618

•

140

1,6911

2,819

111

1,823

J,590

215

18,llo\

1(1,,lftd

2,265

165

167

lt,920

13,21,.

J,198
11,570

l,lt88

1.006

...

64
101

794

1,4\25

IS2

1•

NUMBER Of REPOilJING lNSflTUTIUNS

NOTE:t

OTHER st ATES••

2.
IV.

ILLINOIS

TOTAL ASSET SIL IA81l IT JES

11.

C.Al IFUkNIA

3&,506

OTHER LOANS

NEW YORK

DETAILS MAY NOJ ADU TO TOTALS OUE TO KOUHOING.

•• EXCLUDES PUERtU RICO AND THE VIRGIN ISLANDS.

140

c,.:i
~

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

till& 11

u.s. BANKING INSTITUTIONS OWNED av FOREIGN BANKS
FOR MONTHLY KEPORT DATE IN -NOVEflBER 191~
11N flllLLIONS OF DOLLAkSI

ALL REPORTERS

11.

..
..

•STANDAKU• BA!ltKI~ ASSHS
CO"IM(!,i!C I o\L

INOUST't UL LllANS

\J. S.. M. ESI DENTS
FOREIGN RESIDENTS

HllNF Y-l'IAH.KE

011--lfR ASSElS

t ASSETS

,...

ILL IND IS

OTHER STATES••

311,558

1°01150

1,075

l9,9''H

13,71t7

1t, 71t5

633

51'

15,~Jl
1t,lt21t

10,310

lt,2:>6
S40

533

l,'t37

Z66
309

3,'t22

1,3""

l ,'Jc-d

10,7211

9,041

1,290

347

655

100

B,t.9cl

6,•\19

2,l'-6

S,J,\,9

••5

5,595

lhllfl

5,825

!;,CJ83

136

l,OSZ

5,295
1, 721t

4t'tlt5

CLEAMJHG BALA/lie.ES

111. ·DUE FfitOM KELAHO INSTITUTIONS

LALIFUMNU

42,794

orHEM LOANS

NEW YORK

u. s•
FORE IG"t

5,J•U

1,238

80
972

~
TU JAL ASSETS/L JABIL ITIES

11.

,11.

"STANl>AKIJ" BANKING LIABILITIES

DEPOSITS ANO CREDIT
BALA,~C.:ES OF NG"4-8At«S

INTH\8ANK LIABILITIES

OTHER LIA81LJT IES

BORJIU.;Jt.~S FRON NOM-8lNKS

ClUM.J"IG Lli:hULITIES
DUE TO KELA.TED INSTJIUTICJNS

u. s.

FUKE JG,.

CAPITAL .. ,coUNTS A"D RESfKVES

61,-\08

1,117

1,Z85

H,185

20,167

l2,'t38

637

419

15,oSJ

10,119

4 1 Sl5

283

279

2,226'

1,'t16

6't5

••

12,222

5,5&0

6,274

Z36

,.,084

l,OU

•as

3,5::J1

3,193

213

21,890

lb-,86"

2.,""'

600

1,265

,. 1'95
16,1'95

2,BJlt
llt,029

1, :126

1,t,11

375
225

t,191
74

1,826

1,201

s•9

182

••

NUMBER OF REPORTING INSTITUTIONS
NOTE;

16,2'1

41.432

DETAILS MAY Nllt Al)O TO TOTALS WE TO ROUttOlNG.

•• EXCLUDES PUev.ro i<ICU 4NlJ THE VIRialN ISLANDS.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 12

u. s.

llAl~KlNG INSJITUTlOt.S OWNEi> BY FOREIGN I\ANKS
FUR MONTHLY MEPOKT DATE IN -~OVfHd,ER 191(.,
( l'11 MILLJlJNS OF tlOLLA~SI

lLL KEPOiHEKS

.. ,.

•s TANDARD•

BANKlNG ASSETS

CUMaitERCUL

11.
111.

INDUS TRIAL LuANS

J. s. RESl::>ENJS
FOKE hiN Rl:S I OEN rs

OTHEk LOANS

MONl::'l-/14A'tKET

O[HER ASSETS

ASSETS

u.s.

f-UR.E IC.N

CALIF UH.NIA

lLLlNLlS

OJHER

STATES••

47,085

33,327

ll,074

1,513

710

19,731

13,094

4,918

848

613

1.\,9"1
4,194

9,'!ill

3, 52)

4,193
725

662
116

269
344

4,625

2,0ltl

2,394

13,olt9

11.815

1,326

463

9,015

6,357

2,4i6

166

•s

Co,206

5,111

622

14,336

5,630

6,422

154

l,631

160
4,870

't,949
1,471

'9
105

1,540

CLEAMII\I~ tULANCt-5

DUE fkUM kEL.UEO INSTITUTIONS

NEW YUltK

6,, ,,

a, 1s1

96
c,.:)

T'lTAL AliSETS/L JABIL IT IES

O')

2,361

2,0'19

37,2.ftl

il, 1!3ilt

ll,993

1.2o1t9

~10

lit,&JJ

11,91!;8

~. 190

268

2,2H

.q.

50~

3,181

191

11,030

o\,497

5,183

•es

1.18

'9,l'>b

3,025

l,Zll

o\1309

4,061J

lll

2'9,01'

16,951

4,213

111

1,913

6, )86
17,6Yl

2,323
llt,627

l,909
2, lb)

312
'-l9

1.746
161

2,001

1,29.\

6~2

liOkHfJWlNbS t-kW4 NON-iti\NKS

lhft- ''iU,t-41( LlAa ILIT IES

OlHtK LIAHILUIES

C.LIARIN:.. LIAdlllTlES
Ouf TO MELUEO INHITUflONS

u. s.
FOM[IGN

CAPITAL AC.C.OUNJ S ANO RESERv'Ec;

NUMBER OF REPUtHING IN'iTITUJIONS

lt01E:

U,lltt

DEPUSI rs .\NU C.MEOI I
OAL\NC.ES UF NON-tSANKS

1.
2,

•••

itlt,06d

"SUNO,\K'l" BAN~IN:i LIABILITIES

11.

61,&27

llu

on Al LS MAY NUT AUD TO TOTALS DUE 10 RUW,,OING.

•• EXCLUDES PIJFRTO RICO AND THF. VIRGIN ISLANDS.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

'l'ABLB 13

U.S. tlANkl~ INSTITUTIOHS ONNEO BY FUkEIGN dANKS
FOR MOt4TltLY t\EPORT DATE lN •NOVf;MllEa
CJN MILLIONS Of DOU.AR.SJ

,~n

Al..l kEPORJERS

11.

NEW YORK

C.AllFORNU

ILLINOIS

OTHER STATES••

55,431

39,130

12,t.11

1,959

COH14t:RCUL c;. INt>uSfRIAI. LUANS

22,536

14,49S

S,HO

l, 166

911

1.
2.

Ut,888
5,648

10,3<\0
4,156

4,156
813

961
199

S,6'95

2,lt48

1,016

••

"STANDAKD• ilAkKlt«.i ASSEJS

U.S. RFSJOl::NTS
HlKEIGN "-ESIDENJS

1,049

480

a.
c.

(jTHER LOANS
o'IONEY-MAkKfT ASSETS

16,78J

14,77/t

1,423

•69

Oll-lE"R ASSETS

10,420

7,'-12

2,b28

2..

••

8,316

1,l6J

113

303

U,935

a,oa•

~.121

255

l96

4,62S

991
711095

3,)78
1,7'3

62
193

66
130

CLURJNG BALANCES

111. ·DUE FRO"I REI.ATE!) INSTITUTIONS

·,.
2.

u. s.

9,311

FOflE IGN

c,.,

TOTAL ASSET S/L IA~lll TIES

11.

'"·
IV.

..
..
11

STANIJAl(') 11 BANKING LIA81LITl£S
DEPOSITS M"U CREDIT
dALAtJC.ES OF NDN-8AtMS
ROIIROWlNGS ffllJl'I hON-BAftKS

INTFkBANK LIAalLITIES

OT~EM. LIARILJTIES

CU:AklNli LUBlllTlES
DUE ro tH:LATED INSJITUTIONS

u. s.

fOkfUfN

CAPITAL \C.COUNIS AltD RESEkYES

~,380

17,&82

--:s

1,25111

45,59'1

,/.7,218

15,"14

1,411

•••

l2,S81

14,901

6,022

521

•••

3,051

2,567

885

118

U,468

b,307

7,244

•••

152

4,886

3,444

1,263

5,IU11i

?.,574

l65

23,856

19,986

2,l~J

1,012

616

5,000

2,907
17,079

1,lil6
1,037

602

18,856

332
285

2,338

l,541

109

2411

121

NUMBEk or REl,»UM.TINb INSllTUTION'i
NOTE:

2,518

U,531

DETAILS MAY tml ADD TO TOTALS DUF TO MOUNDING.

•• EXCLUDES PUFKT!l t<U.U A~O Tt1E VU<.ilN ISLAptOS.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TOLE 14
U.S. BANKING INSTlTUTIONS OW~EiJ 8V FOREIGN BANKS
FOR MONTHLY REPORT OATE IN ---APRIL 197d
I IN rllLLl!JNS UF iH.JLLl\kS)
•LL t1f:PrJRfErtS

•STANO.\M,O• BANIC.ING ASSEIS
CO"IMERCUL l

1.
2.

11.
Ill.

l,~aJUSTIUAl LtJANS

U.S. llESIDENTS
FOREIU-N RESIDENTS

o\5, 185

l't,333

2.413

1.163

25.919

Ut,-405

b,05

1,539

1,008

19,3811
6,531

11,508

1,203

lt,897

5,603
812

531
411

6,975

3,121

3,'tJ41

113

11,ltOlt

1,63S

478

aTHF..it

•ssers

11,801

8,25S

2,11 ♦9

282

7,583

..,300

813

256

l8,0lt9

10,359

6,121

223

524

6,217

1,182
1:1,977

o\,329
1,'1198

51
111

119
o\05

CLEAPING KALANCE:S

DUE HON RELATED 1/'iSTI TIJTIOftS

u. s.

11,Btz

FUkEIGN

90,082

Ot::PvSl rs ANJ CREDIT
tlALANCES UF N0frt-8ANKS

t1llH.tt01111INGS FROM NON-BANKS

IN:TEKBANK LIAHILITIES

OlttER LIABILITIES

"STANDAK;J" dANKlfllG LIABILITIES

CLEARJNu LUtllllflES
UUE- TU kELATEO UtSTITUTIONS

u.s.

FOREIGN

CAPITAL ACCOUN!S AftD RESl:M VES

DETAILS KAV NUT ADO

21.,n

bl,Bltlt

2,893

53,0o\7

)0,921

l 7,6t.,2

26,o\90

16,928

l5 ♦

oi!,863

16,701

1,705
1,!iCJO

98T

b18l2

505

646

1,057

200

1,2l3

8,la,

211

s.102

J,922

1.,as

123

S,61-\

5,191

353

28,832

Zit.DJS

2,122

1.23!5

666
321
345

1t,

6,571

3,911

22,2!16

.20,12•

1,436
1,2116

T81
446

2,~89

,, ..91

1>6

131

MUNIER Of REPOMTlftG INSTITUTIONS

NOTE:

J36

19,755

1.
2.

av.

OTHER STATES. .

61t,lt5l

OTHER LOANS

TOUL ASSETS/L IARILI fl [S

111.

ILLINOlS

NONI:: Y-MAKKET ,lSSEr5

11.

CALIFORNIA

e.
c.

NEW VOR.C.

TOTALS DUt TO ROUNDING.

EXCLUDES PUEllTO RICO 4NO THE VIKI.IN ISLANDS.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

rau: 1,
U.S. BANKING INSTITUTIONS OWNED BY FORUGN BANKS
FOi\ 140NTHLY REPOltT DATE IN -NOVfMBl!R 1912
IIN MILi.iONS OF DOU.AkSI

ALL IIEP01HERS
1.

II.
111.

•sTANDUo• dA~KIHij ASSETS

1,8l4

J,2');)

s.11,

1:1.isr

5,J90

l,098

2,021

340

1.
2.

1,151
l,tt99

4t,J96
994

981
112

1,491
531

278
62

U.S. RESIDENTS
t-OH IGN RESIDENTS

urnFK LOANS

1,llJ

378

240

HONl:-Y-MAHl(.El ASSETS

4,13)

1. .

1,409

1,730

OTHER ASSCTS

452

1,001

226

923

237

229

J,967

2,281

LLEARING BALANCl:5.

t.968

.DUE FROM KEl,.Al E:D USTI TUT 10P4S

4,211

l,715

, ,

1,000

1,762
2,515

1,451
264

280
l, 185

31
969

0
91

u.s.
fOH.E IGN

...

368

C/.:1

•STANDARD• I\ANKlh1, LIABILlT IES

DEPUSITS .\Nn CkEOI T
BU4.NCES UF NfJH-BA.NK.S

INTER~ANK LlAblLIT IES

"·

OTHER LlAtlllltlES

BORMUWJN.i,S f-KWI NON-BANKS

CLEARIN.; LUUILlrJES
OU~ TO kELATED. lNSTITUTlONS

1.
2.

u. s.
fOMEl~N

CAPI fAL AC&UUNTS AMO RESfRVES

NU"BEA OF l'lEPORT ING INSTITUTIONS

MOTE•

113

IV.

kEST OF WORLD

18,t>JJ

TOTAL ASSEIS/LIABILITU:S

111.

"EUROPE

C0"'4CRCIAL & JNUUSTtUAL LUANS

11.

CANAOA

JAPAN

24,311

10,968

10,60b

7,099

5,033

....,.

1,211

1,140

J,•lo\

860

470

5,81t3

l16o\J

931

2,195

313

257

2,635

1,100

108

734

2ll

1,116

1,081

101

1,544

389

392

11,509

:i,6SJ

J.421

J,911
9,~31

1.641
4,006

651
104

llETAILS MAY NOT ADO TO TOfALS IIUE TO MOUNDING.

.,.

105

2,221

ZOl

284

J,llt3

2,192

6
196

301

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAII.B 16

U.S. 84,NKJNG INSTITUTIONS OWNED BY FOREIGN BANKS
FOR' MONTHLY i.oEPORT OAIE lN -NOVEMBER 1973
II~ MILLIONS OF DOLLARS}

ALL '4.EPORTERS
1.

..
.. ,.

11,.

12,511

4, l'l4

l,1.k

1,114

1,516

2,769

576

u. S.

9,815
2,820

6,092
1,682

1,365
150

2,039
131

31'
Z,1

RESliJENTS
fUitE IGN RFSIOENTS

OTHER LOI\NS

1,'t43

555

356

391

t•z

MDNE'V-~ARKET ASSETS

5,711

1,273

1,112

2,314

OTHER USfTS

5,l2J

2,914

s,o

I.680

206

2,841

686

i159

1,581

209

6,851

3,546

.l.,129

1,004

112

2,928
J,Q?.3

2,780
166

105
Z, )24

0
961

0
112

CLEAIU"tt; tl.U..ANCES
IJUI:: FkUH RELUEO

INSTl TIJTIONS

J.S.
rDKE IG~

14,821

TOUL ASSETS/L JAtHLITIF'.i

11.

111.

IV.

11 SH,~1>ai~.)• tHNKlNi.. LIABILITIES

q, ,,.,.

6',591

16,748

1,73ft

U,333

9,689

1, 7o5

5,836

1,043

OE.-OSITS UO Clol.E~IT
RALANCfS Of "tUN-tlANKS

1,t,1?

1,942

1,088

3,948

•••

8flMRlhrt HHiS FRO" NUN-BANK$

1,371

1,014

281

INTr 1 lt1ANK LIARILIT IE$

6,996

S,Z'tl

•10

1,046

01'11:R LUBJLJrlfS

Z,295

1,491

101

561

1,91t5

·418

)63

1.01t2

l1,661t

lt,287

o\,169

2,520

3,•U5
lJ,119

J,046
3,241

301
4,068

12•

2,396

o•

819

355

3"1

CLEAklt,tV LIAOILITIES
DUE TO IU:LATEU INSIITUTIOJ1S

,.z.

lJ.S.
FORE l5N

tAPIT Al AtCUUNTS A!fO RESERYCS

fl.lNBER Of RfPOl\flNG INSf lfUTIUNS
PfOTE;

1,354

REST OF •ORLD

lZ.635

CQ,,ii~ERC I Al & I NOUS TR I Al LU4.NS

11.

EUROPE

25,129

•STANDARD• BANKlNG ASSEJS

CANADA

JAPAN

DETAILS MAY NUT ADO

12\

fOTALS DUE JU MOUNO(HC,.

IOZ

...
lU

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLI 17

J.s.

BANKING lftSTHUTIONS OWNED IIY FOKEIGN BANKS
FOR MONTtfLY REPORT DATE IN -NOVEMBER 19H
CIN flt Ill IONS Of DOLLARS J

ALL REPORTERS

•!:i UNDA~i)• HA·'iKlN~ ASSETS
COMME'R'-1 Al

11.
II I.

t. INOUST.tlAL UJU"S

u.s.

IUSIDENIS
FO"F l(.K MESI DENTS

"·

IITHFR LUANS

NllNEY-M4M,(ff ,\$SET S

111.

l6,ZZ2

lt,82~

13,631

l,&30

l1,dl5

10,"'"

2,14t!lo

4t,lt51

ao•

U,1bt,
4,0!H

a,o•n

1,986

l>i

...

3,,.00
1,051

281
524

1,486

210

1,613

1,526

it,084

52l

3,511

694

3,611

292

2,316

•24

2,719

1, '""

1t,b69

847

~31

Z,861

421

oue

HlUM RELATfO INSHTUTIUNS

9,273

5,'553

le 111

1,584

365

it,580
it,69)

4,063
l,'t90

25ft
1,~11

2S3
1,331

10
'55

FORE lt.N

"SUNOUIJ" OA,-..KINu LIA6ILITIH
i)l::1'11Sl TS

50,447

"·

BUkKUW lNu~ Fl'lli4 NUN-.JANKS

l~Tf-"-tlANi<. LIA.lllJl IES

OTh~+t LU!HllT l'ES

tlUN.Ht 1~ LIA61LIT1£S
DUE TU "-ELATE!l lNSTIIUTIIJl\l:i

u.s.
FOkE l~N

(.Atl'IT&.l I\C.COUNl S A'10 11.ESEKVl:S

l8,078

7, l26

Z2,62l

?1.-lCJ2

12,892

10,71)

2,351

1,957

1,185

...,,

10,615

7,167

3,o9d

2,189

1,621

(N.1:01 T
UALArll.ES OF NO .. -BANKS

8,168

u.s.

NUMBER OF REt'OkTING INSTIT-JT IONS

NOTE:

lb, 506

"·

2.
IV.

REST OF WIIIILD

c.LEAM 1/\IG BAL ANUS

TOTU ~SSET SIL IA81l IT I E-S

11.

EUROPE

OTHFR 4SSETS

1.
2.

CANAilA

JAPAN

2,0 ♦2

2,6.ll

10,631

hlt31

6,691

703

481

228

115

2,3'.18

355

3)•

1,061

144

916

Bib

1,69]

397

18,lllt

8,121

"' 103

'41s9l6

615

lt,920
ll,lllt

<\,ltlO

2,;♦

3,911

J,9J8

212
lt,1~1

23
6'1

1,1taa

492

•••

112

12J

152

UETAIL~ ~4Y NOi ADO TU TUTALS UUE TU RCkJNOING.

....

II>,.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TULE 11

u.s.

H4H1UN~ lNSJ nuttONS OWNEO tlY f0Af1Gt4 e•NK'S
FOK HONJHL Y Rf.POK J U4 TE l:'4 -NOVEIIIRfR J(i,7~
111,1 i"IILLIUNS 0" OUI.LMC"i1

all i~EPUllTERS

11.
111.

1115:l.

,., '.>~5

18,510

2,182

19,9§4

10,117

2,21:1,6

6,51t0

991

U,!tll
••,ltZlt

d1 211
l 1d59

z, Jl9

,,111

267

1,109

503
U9

◄lJ"fEY-MArtKF.

(~f·lllt

111.

'\SSETS

1,01t2

312

1,122

217

2,093

1,lt82

6,514

560

8,lt~S

4,235

'55

3,66ft

343

5,!tQlj,

5'J~

3,516

lJ,iJ19

t,,051

2,1 '>4

it,OU

5,29'>
1, ,2 ..

3,q6J
Z,0¥8

IH
1,~,n

2,871

..
..

d. ;.

Fliltf 1,;N

rs/L 1.;.,_q LI TH'S

,, 343

lit,'9-"1

"1,.\JH

"SUt4.J4,..,1w tU.f1KU11l. LIAtllLIJJr.S

.~,
,.,

1.uz
26,01'9

J,524

16,Dll

1,898

3,910

l,1,H

9,802

934

Z,22•

BJl

1,219

160

U,lll

C.,691

l,Ollt

3,891

625

.\,')IJ,\

,.,11.

1,lSCJ

180

712

1,85'

343

1,z,,

1,151

H,ld')

13, )05

1'),65J

.,,,..1)

0[,' 1,1 rs
l.ltEOIT
b4LA ,LL'i 'If H,1~1-B.UIKS

11,l,u~t)W lr,i~c; tf(l,"I NUh-8A"tKS

lt-4f1.•fhANK lll\nllllll:'i

Lit,trK llAhlLIIIES

tLEAlll.i~ llAdlllTIES

OUE tu ,<Hllr°ro 1r-.srtruT10\lli

J.S.
t Olt.EIG~

CAt-lT AL AC.tOUNJ:i ANt> RESEilY(S

"'UMBER Of k(l"t,.JflNG INSTITUrlONS

NOTE•

3,o\22
10,721>

'5SElS

DUE f-~u'4 •ELAl(u 1"4SflfUllONS

•••

C.LE4h l •.• ,UL ANcrs

11.

J. S. kfSliJEHTS
1-ilKEIUtl ~f:S10£:NTS

UTHl:R LOANS

REST Of WORLD

ltlt 11ft

f,J14L AS St

EUROPE

COM tF ~,1 AL !.. INOUS TRIAL LJANS

""iTAN•J4~ 1• UANi<J,-. .., .\SSEI 5

CANA:IA

JAP•N

6.IEJAII:; HAY !'!l'lf

3,'!JOI

·~·

21,1:190

9,Zt,9

lt.,lJ'f

5, 1.\>
16,14-~

,.u,
•••,o

185
♦ ,u,~

1,12•
6,126

1,14,

1,c12•

669

111

919

126

182

Jt) JO TOIAL!. DUE 10 11.UUNDING.

If:-.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAIi.i 19

u.s.

BANKING INSTITUTJONS OWNEO dV fOH.EIGN BANKS
FOR HOHTHLY REPOR{ OATE IN -NOYEkBEI\ l9lb
& iN NILL JONS OF OOLlARS I

ALL REPORTERS

11.
HI.

..
..

11.

Ill.

4,283

22.na

9,989

2, l~O

t:.110

u.s.

H,94.i
'tt 19.\

1,970
2,iJ19

1,88 ♦

"•652

l56

2,12o\

OTHF.R Ll)ANS

4,62~

1,203

'15

2,Hl

.,.

ll,b49

1, 53l

l,J98

9,82ft

l, 191t

'hOh

4,367

'10

l,Jlt6

••2

6,2Jb

1,l'.)64

713

3,831

'92

~ES IDENTS
FORflGN HSIDENTS

:'IONCY-NA~i<ET ASSHS
OTHER ASSEJS

CLEARINl, BALANCES
·DUE FfJOM RELATED INSTITUTIONS

,.,.

IJ(PUSJ rs ANO CftEOtT
HALA-~CES OF NON-aANKS

"·

t:11.JR~OWIN\iS FROl1 NON-,U,.~KS

l~TfkttA.t.111'. LlAIHLll 1CS

OTHER LIAtHLJT lES

tLl4RlNG LUdlLJTIES
OUE TO KELATE,J · INSJ ITUHU:~s

u.s.
FORE 11.iN

CAPITAL ACCOUNTS ANO ttESE~VES

...

3"5

7, S2B

2,365

3,093

1,350

6,179
8..151

4,880
2,648

2,,190

1,052
2,041

72
l,278

FORE !~"I

"STANUAMll" A.\NKING LIABJLITIF.S

2,99't

l't,316

u.s.

NUMBER OF MEPORTING IJrriSTITUTIUNS.
NOTE:

REST OF WORLD

l 1,090

2.
lV.

EUROPE

19,137

C0"'1"'1€KCIL\L {. INOUSTtl.lU LUANS

CANADA

41,085,

-S-.TANOA.M.0". ~A!ltt(!NC. ASSElS

TOUL ASSETS/LIA.BILI HES

JAPAN

6 J,Q27

ZCI, 648

7,301

25,682

4,916

37,241

13,814

2,100

111,108

2,819

U,671

,.,,.58

1,278

11,595

1,142

3, lbl

930

11,1)31)

5,916

722

It, 1,t.

2,ltltq

300

1,312

275

4,3:)'il

•••

381

2,582

'56

lo\,011

l0,217

4,567

1,782

1,511

6,J8ll
11,691

5,l90

1>7

936

10)

'5,027

4,ltlO

6,846

1,408

2, )Jl

762

113

975

1'9

200

••

DETAILS !'IAV ,_.OT AOO HJ TflTAL!i DUE TO ROUNDING.

2,'137

211

l,343

989

~
~

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 20

u.s.

BANKING lNSTI Tl,11 lONS OWNED ar FOREIGN BANKS
FOR MONTHLY REPORT DATE IN -tl0VEMBER 1917
( IN MILLIONS Of DOLLARS I

ALL REPORTERS

"SlANDAM.U• tiANKING ASSHS

COHKERt I AL & I NOUS TR I 4l LUA.NS

11.
111.

u. s.

MESIDENTS
FORF.1GN RES.iOENTS

19,682

5,250

lb,ltlo\

o\,076

10, 7/5

2,357

8,088

1,317

16,888
5,61t8

8,493
2,282

2,0B't

5, .. 87
2,600

••2

273

az,

5,6q5

1,651

589

2,882

573

2,683

1,786

10,761

1,552

llfHEol ASSETS

10,421)

4,573

519

lt,693

8,316

l,209

Sll

lt,668

1,907

ll.93!>

4,91t8

J,503

3,111t

l, 70'1

4,02'>
Cil,Jll

3,181
1,768

l22
3,281

1,091
2,683

1,578

CLU,Rl~ KALA.NtES

out

FROM RELATED INSTIT.JTJONS

u. s.
FOKE 11.iN

..
..

DEPOSITS Athl l.REOIJ
l:IAL.\f\lCES Uf NU~-tU,NKS

INTEMBAUK LIA>1ILIT IFS

OlltEk lUBILITIE$

•s TANJA1t0•

tlANKI NG LIAUIUllES

itlJRR.OW INGS FRCJH NUN-d'\:-l~S

CLEAkJNG LIAtULITlES

DUE: Tl. RfLATEO INST nu11u .• s

u.s •
FOREIGN

CAPIT~L ACCOUNTS ANO kf'lifllVES

NUMBER Of llr~PORTING INST ITUT IUlll'i

NOTEt

55,ltll
22,536

lb,T8ll

2.
IV.

REST OF ~ORLD

MONEY-MARKET ASSEr5

JOTAL ASS.HS/LUBlLITIP:S

111.

EURD•E

OlHER LOAf\lS

11.

CANADA

a.
c.

J4PAN

7/,682

9,i?9b

25,tll9

14,866

...
131

7,092

45,~'19

lc.,776

2,'il63

22,226

3,635

22,S8J

~,886

1,681

13,392

1,628

3,6!>1

l,'tOo\

l.'i12'1

211

l~,lt<>IJ

<>,689

815

S, ♦ 69

l, ♦ 35

~.u.:st.

2,196

1,-\16

301

5,8B'i

1,390

151

2,880

•••

21,856

6,837

~,451

8,582

2,986

5,~ou
18,8~<>

3,'t73
3,363

214
!i,111

1,100
1,-\82

153
2,IJ-\

2,311:1

831

121

1,178

202

,..

••

DEU ILS IIAY NUT AO'l llJ TUlAU IIUf JC ~OUN.JIN(;.

~
~

TOLi 21

u.s_.

IIAr«IHC. INSTITUTIONS OIIINEO H'I FQIC,E,GN tlANKS
FO• NIINTHLY RtPOIIT DATE IN ---APRIL i97a
I IN NILL IONS OF OOLLA.t.SJ

ALL I\EPORfeMS

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

11.
II 1.

CANADA

EUROPE

REST DF WDAU

6 .. , .. 51

22,M"

5,676

31,523

4,609

CUMERCIAL t. INOUSTKlll L1IANS

2S,9t9

l2, 115

2,692

9,672

l,it40

1.
2.

19,188
6,531

9,353
2,762

2,441
2'1

6,694

901
HD

•st.t,N1lARi>• RANKING ASSErS

J4PAN

U.S. HESIO[rtTS
FUllEH,N RESIDENTS

2,979

6,975

l,021

670

3,605

613

MONfY-tU.KKE1' ASSETS

19,7!15

3,1!12

1,610

U,173

1,181

UTHEO ASSETS

11,101

5,350

5,013

7,581

1,306

3,961

1,888

i ■ ,049

5,511

5,251

5,518

1,101

6,237
11.~U

3,765
1,141

538

t.llt9
J,829

1,523

OTHER LOANS

CLEAklNG BALANCES
pUE Fi10H REL Al l;'.O INSTITUTIONS

u. s.

FORE trtN

4,713

185
~

e,,
9J,U82

roTAL ASSfT~/U-.81LI TIES

•STANOARll" BANi<.ING LIABILITIES

..
A.

11.
111.

IV.

Df POSITS AND C.KEOl T
BALANCES UF NQN-8ANKS
8Ufl:ROW IN~S FRUN frll ..-BANKS

INTEMHANK LIABILITIES

OT~£• LIA8ILITIES

CLHMJNG LJAttlUTUS

DUE JO RELA1ED .INSTltUTIONS

u.s.

FORfl<;II

CAPITAi. AC.c;.out.tTS ANP RESERVES

NUMBER UF REPORTl"G lMSTITUTIONS

NOJE:

DET Al LS "AY Nill AD:D J iJ

1(11

ll, 356

2•,ut

8,20.\

'tl,061

S3,0't1

19,678

3,309

2S,81t1

't,214

26,490

6,868

2,128

15,111

1,124

4,15'\

1,6141

16,7')1

8,034

S,102
5,614

2,120

714

6,281

1,666

l,lOJ

460

1,669

471

853

809

J,172

710

.28,tUZ

8,031

1,091

10,702

3,00Z

6,511
22,256

4,005
't,OJZ

470
6,620

1,966
8,736

2,861

2,589

893

147

1,l-\0

209

273

101

~LS ilUE TU IIOUNDING.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TilLB 22
LOC.lTIOI ()p POIIIGN IAIIICING IIISTITUTIORS ?I TRI U.S. AS
COUNTRY OP PAIIKT IARIC
STATE OP IIPORTIR
JAPAN
NIW YORK
CALIPORNU.
ILLINOIS
ALL OTHERS
TOTAL

CATEGORY
AGENCIES
1

5
3
0
0

TOTAL

T01'AL
11ST OP THI WORLD
NIV Y0IK
CALIP0INIA
ILLINOIS
ALL 0TRIII
TOTAL
ALL REP0ITUI
NEV YORK
CALIP0IKIA
lLLUIOts
ALL 0THIIS
TOTAL

0
0
0
I

0
0

II
9

0
8

0
0
0

9
6
4

0
0
I
0

.
.
21

••

12
0

43.
16
14

3
2

0
0

7
3

0
0

42
28

21
17

2
3

0
I
I

106

121

26
22
5
8

TOTAL

URITID OlfGD0H
HtV 'I0kk
CALIFORNIA
ILLINOIS
ALL 0THII.S

C0NTIIIHT.lL I0I0PI
HEW 'I0IK
CALIP0INIA
ILLINOIS
ALL OTHERS

APRIL 1978

SOI. CONK. IWVISTtfllT 4GR!ENIRT
BARKS
co,.
CORPS.
4
6
I
0

IISTITVTiON

CANADA
NIV YORK
CALIFORNIA
lLLIIOIS
ALL OTHERS
TOTAL

BRANCHES

UI
II
30
31
273

0:,

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 23
PACE l OF 4

u. s.

LOCATION OF FOREIGN BANKlNG INSTITUTIONS IN THE
BY COUNTRY AND "PAHlLt" AS OF APRIL 1978

FR DISTRICT/STATE

COUNTRY
FAMILY

I 01 I
I MA I

02
NY

---------------------1----1----( EUROPE)
BELGIUM
KR EDI ET BANK
FRANCE
BANQUE NATLE DE PARIS f
BNQ FRAN DE COM EXT
I
BQS ARAB ES & FRANCAIS I
COMP FIN DE SUEZ
I
CREDIT COMM DE FRANCE I
CREDIT LYONNAIS
I
C ERHANY
BAYERISCHE HYPO BANK I
BERLUI' HANDLS & FRKFTI
BK GEHEINWIRTSCHAFT
I
COMMERZBANK
I
DEUT GENOSSENSCHAFTBKJ
ORESDNER BANK
I
UNION BANK OF BAVARIA!
WESTDEUTSCHE LANDESBK I
GREECE
NATL BANK OF GREECE
IRELAND
ALLIED IRISH BANKS
BANK OF IRELAND
ITALY
BANCA COMM ITAL IANA
I
BANCA NAZL DEL LAVORA I
BANCO DI NAPOLI
I
BANCO DI ROMA
I
BANCO DI SICILIA
I
CREDITO ITALIANO
I
NETHERLANDS
ALGEMENE BK NEDERLAND!
SPAIN
BANCA CATA TANA
I
BANCO ATLANTICO
I
BANCO CENTRAL
I
BANCO COMM SAO PAULO I
BANCO DE 'BILBAO
I
BANCO OE SANTANDER
I
BANCO DF. VIZCAYA
I
BANCO EXTE DE ESPANA I
BANCO URQUIJO
I
BCO HlSPANO-AMERICA.NO I
SWEDEN
SVENSKA HAND ELS BANK EN I

I
I

06
I

I 07 I 11 I
I IL I TX I

---• I•-·· I•··· 1----1---· 1·--·-

12
OR

I
WA

GU !TOTAL

----1-··--

IB
IB
IB
I
IB
I•
IB

1B
I
I
I•
I
I•

IA
I
I
I
I

IB
I•
IB
IB
IB
IB
I•
I•

I
I
I
II
I
IB
IB
I

I
I
I
I
I

IA
IA

IB
IB
IB

IB
IB
I•
IB
IB

I
I
IB s I
I
I
I
I

IA
IA
IA

I
IA

I
I
sI
I
I
sI
I
I
I
I

I•

IA
I
I

IA
I

IA
IAA

1·
I
I
I
I
I

I
I
I

3
I
I
4
I
2

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TABLE 23

PAGE 2 OF 4
LOCATION 01' FOREIGN BA.Y.IRG IISTITUTIONS Ill THE
BY CODNTIY AND "FAMILY" AS OF APRIL 1978

PR DISTRICT/STATE
I 01 I II I
GA I IL I TX I CA

COUNTRY
FAMILY

I 01 I
I MA I

02
YI

---------------------1----1-----

(BUROPI, CONTINUED)
SWITZERLAND
BAER AKER BI.G CORP
SWISS BANI CORF
SWISS CREDIT BANK
TB.ADE DEVELOPMENT BK
UNION BANI OP SWITZ

06
I
I FL I

---- 1----1----1----1----1-----

I
1B

IB
I

I
IA
I
I
I

I
I•
I
I
I•

I
IA
IA
I
IA

IA
I
I
I
I
I
I

I•
I
I•

IA
I
I
IA
I
IA
I

UNITED ICINGDOK
BARCLAYS GROUP

GRINDLAYS ...BK
LLOYDS CROUP

IA
IH

I
NATL WESTMINSTER BANK I
scnRODEl GROUP
I
STAND-CHAITERED GROUP I
THOMAS COOi AND SON
I

IB
I
IB

u.s.

I
I
I
I
I
IA
I

I
I•
I

12
OR

cu I TOTAL

----1-----

8
I

3
3

•

2
6
I

OTHER WESTERN EUROPE

EUROPEAN-AMER GROUP

IAA
~

.00

CANADA

BANK OF BRIT COLUMBIA
BANK 011 MONTREAL

I
I

BANK OF NOVA St.:OTIA

BANQUE CANAD NATLE

CANAD IMPL BK OF COHH)
ROYAL BANlt OF CANADA I
TORONTO DOMINION BANK I

(LATIN AMERICA)
ARGENTINA
!A.NCO DE LA NACION
BRAZIL
BANCO DO IRASI L
BANCO NACIONAL
BANCO IEAL
ESTA.DO DI SAO PAULO
I
HBRCANTL DI SAO PAULO I
COi.UH BIA
BANCO DE BOGOTA
MEXICO
BANCO D! COKERCIO
BANCO NACL DE MEXICO
VENE1.UELA
BANCO DE VENEZUILA
I
BANCO IND DE VENEZUEL I
BANCO UNION

I
IA
IA
IA
IA
IA
IA

s
s
s

•
•

•

I
I
sI
I
I
I
I

I
I
IA
I
I
I
I

IA
IA
IA
I
IA
IA
IA

IB
IB
IA
I•
IA
IA

IA
I
IA

IA
IA
IA

IAA
I
IA
IA
I
s

IA
IA

I
4

I
6

•

5
4

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Federal Reserve Bank of St. Louis

PAGE ]

TAIILB 23
4

LOCATIOII or PORIICW IAlll'.INC lNSTITUTIOKS IN THI
IY COUNTRY AND "PAH11.T 11 AS or APRIL 1978

COURTR'!

01 I
I MA I NY
---------------------1----1----FAMILY

02
VI

u.s.

n DISTlllCT/ STATE
06
I 01 I II I
I
I PL I CA I IL I TX I CA
----1----1----1----1----1-----

I
cu !TOTAL
----1-----

(ASIA)
HONGKONG

IB
I
I

IA
IA
IA

STATE BANK OF INDIA

I
IB

I
11

IA
IA

BANI. HELLI IRAN
BANK SADERAT IRAN
BANK SA.RAYE IRAN
BANK SEPAH

IA
IA
IA
IA

HONGKONG AllD SHANGHAI
LIU CHONG HING BANK
SHANGHAI COMM BARK

INDIA
BANK

I
I
I

INDIA

IRAN

IA
IA
I
I

ISRAEL

BANK HAPOALIM•
BANK LIUHI LE-ISRAEL
ISRAEL DISCOUNT BANK

II
I
I

11
IA
IB

JAPAI
BAt:K OF TOKYO
CHUO TRUST & BAN KI NG

DAI-ICRI KANGYO IAKk
DAIWA BANK
FUJI BAlfk
HOKKAIDO TAJ:USHOI.U
INDUST BANK
ICYOWA BAMK

JA·PAN

LONG TERM CREDIT
KlTSUBISRI BANK

HITSUBISRI TR & 8KG
MITSUI BAHi.
MITSUI TR & 8KG
NIPPON CREDIT BANK

SAITAMA BARK
SANWA BANI.

SUMITOMO BANK
SUMITOMO TJl • BKC CO
TAIYO KOIB BARK
TOKAI BANX
TOYO TR 6 BltG CO LTD
YASUDA TR • BltG CO

IA
IA
IB
IA
IA
1B
IA
IB
I•
IB
11
11
IB
IB
I•
IB
I•
11
11
IB
I•
Ia

s
s

s
s
s

I
IA
I

11
11
I

I
I
I
I
1B
I
I
I
I
11
I
I
I
I
I
11
11
I
I
I
I
I

IA
IA
I
I
I

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

Cit.AS

I
IA
IA
IA
IA
IA
IA
IA
IA
I
IA
I
I
IA
IA
IA
I
IA
IA
I
I

8
I

3
3
4

3
3
2
2

I
4

I
I
2

I
s

s
I
3
3
I
I

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

TAIL! 23
PAGE 4 OF 4
LOCATION OF FOREIGN BANKING llfSTITUTIONS IN THI
BY COUNTRY AND "P~MILY 11 AS OP APRIL 1978
COUNTRY

I 01 I
I MA I NY

FAMILY

---------------------1----1----(ASIA. CONTINUED)

02
YI

u. s.

PR DISTRICT/STATE
06
I 07 I II I
I
I FL I GA I IL I TX I CA

----1----1----1----1----1-----

I
GU !TOTAL

----1----'

KOREA, SOUTH
BK OF SEOUL KOREA TR
CHO-HEUNG BANK
COMM BANK OF KOREA
HANIL BANK

KOREA EXCHANGE BANK
KORF.A FIRST BANK
PAKISTAN
HABIB BANK
I
NATL BANK OF PAKISTAN I
UNITED BANI

PHILIPPINES
METROPOLITAN BK & TR
PHILIPPINE NATL BANI

IA
IA
IA
IA
IB
IA

I
I
I
I
I•
I

I•
I•
IB

IA
IA
IA
IA
IA
IA

I
IA
IA

I
I•

SfNGAPORE
OVERSEAS UNION BANK.
UNITED OVERSP.:AS BANlt I
CHnA (REPUBLIC OF TAIWAN)
INTL COMH Bl OF CHI!fAI
FIRST COMM Bk TAIWAN I

I•
I•
II
I

I•
I

•

THAil.ANO
flANGKOK

IANI

AUSTRALIA
AUSTRALIA-NEW ZEALAND I
BK OF NEW SOUTH WALES I

COKM BK OF AUSTRALIA
NA?L BK AUSTRALASIA

TOTALS

(AG!NCtES)
• (IRANCHIS)
B

(SUB• COMM. HS.)

C (AGREEMENT CORPS.)
l

(NT INVESTMENT COS.)

ALJ. REPORTERS

TOTAL FAMILIES •

I
I

I•
IA
IA
I•

IA
I
I
IA

- II -- II 66
I 0 I 15
0 I
0
0
0
I I I
5
I - I
I
I - I - -I
1----1----- ---- ----1----1----1----1----1----I

122

0
3

48
59

2
3
0

5 I

2 I

I 131

2
0
0

I
I 27
2
0 I I
I

•

I 30 I

01
0

I
0
0
0

0
2
0
0

Q
8

0
0
8

0 I 121
2 I 106
0 I 39
Q I
2
5
I

----1----2 I 273

51
Mr. MILLER. Then I will just hit a couple o:f highlights and turn to
your questions; perhaps that would be more responsive.
We, at the Federal Reserve, do welcome this legislation. We think
it is timely to have appropriate congressional action in the field o:f :foreign banking. So we are hopeful that this hearing and your deliberations will come to a conclusion at an early date. We think the legislation
passed by the House is constructive. However, we do :feel that there are
a :few areas where some improvements could be made which, in the
light o:f rapid developments in international banking, would give us
the best program :for solving Federal regulatory problems.
I would point out that there's been some misunderstanding about the
banking structure as it relates to international and :foreign controlled
banks. I want to stress, at the outset that I :favor and the Federal Reserve Board :favors-a continued, strong dual banking system in the
United States. Our concern, however, is that we are headed presently
toward a trilevel banking system, with certain State chartered institutions, and with nationally chartered institutions that are members o:f
the Federal Reserve, and with a potential third level o:f :foreign banks
operating in the United States under rules entirely different :from
domestic banks. We do not think this is a sound structure.
We think that the appropriate approach is :for :foreign-owned banks
to operate on a principle o:f national treatment-to be treated in the
United States the same way that domestically owned and operated
banks are treated.
The details o:f our position and some suggested improvements in the
legislation have been submitted to you, Mr. Chairman. I would touch
on a couple of points. One--and this re:fers to the problem-is that we
do have a concern that the bill as presently drafted would permit
:foreign-controlled banks to operate on an interstate basis in ways that
domestic banks are not able to do. We think that it would be unwise to
proceed in this way and thus allow :foreign banks to operate to the
disadvantage o:f American banks which are restricted by the McFadden Act to operations conducted in one State.
I know that this is a controversial issue. Many State regulators have
argued that :foreign banks bring something different to their areas and
that :for their own local economic developmentthey need access to :foreign banking resources and to international financial services. While
we believe that this issue should be addressed through examination o:f
the McFadden Act rather than through this Act, we are sympathetic
to that need. And, as we have said, i:f :foreign banks' operations in the
various States were limited to agencies or something equivalent to
agencies, we would not object to such an approach to solving the problem, although it is not our preferred position.
The other area that I would mention is that o:f Federal supervision.
We have seen, in recent times, proposals :for major U.S. banks to be
acquired by :foreign interests. I think we should have an open system
in which, under appropriate circumstances, foreign companies could
acquire U.S. banks. But these proposals reemphasize the importance
o:f having a strong Federal presence in the supervision o:f :foreign
bank activities. -·
We can certainly expect to see many more foreign banks in the future with truly national operations through subsidiaries, agency offices, and various grandfathered affiliates. That will continue. And

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Federal Reserve Bank of St. Louis

52
while the States certainly have the capacity and the right to be involved and certainly want to be and should be involved in the supervision of foreign banks from the point of view of a single State's
interest, there nevertheless needs to be a broader supervisory outlook.
Particularly when you have parent organizations that represent
worldwide banking interests of very substantial size, an individual
State may not be able to bring together the whole package of
activities and give it the proper focus.
Under the present version of the act, if there were any Federal
branches of foreign banks, they would be examined by the Comptrol-ler of the Currency. In the case of State branches and subsidiaries,
there would be supervision and examination by the FDIC of insured
banks. However, under the act, there are quite a few responsibilities
cast on the shoulders of the Federal Reserve, including: Responsibilities in connection with cease and desist orders; a requirement that the
Federal Reserve discount window be available to foreign banking organizations; and other responsibilities. It would seem to us that there
should be concurrent supervisory jurisdiction by the Federal Reserve
for examinations of foreign banks, and ·that at the Federal level the
Federal Reserve should have a primary responsibility in connection
with the State branches, agencies, and subsidiaries.
Mr. Chairman, my testimony contains more details. I do think however, that the best use of your time would be for me to just end my remarks on these two points and turn to your questions.
Senator McINTYRE. Thank you, Mr. Miller.
Mr. Miller, at the outset, I think it's appropriate to emphasize the
point you make in your statement, that the foreign banks have behaved as good citizens and that their behavior in that respect is not
in question in this bill.
In that vein, to what extent do recent and prospective acquisitions
by foreign banks of U.S. banking interests affect the Federal Reserve
Board's thinking on this legislation i
Mr. MILLER. We certainly want to reemphasize that point about the
responsible behavior of foreign banks. And we would hope that our
policy in this Nation would be to keep an open door for foreign investment and banking provided that supervision is appropriate and that
foreign banking practices are safe and sound.
The only concern that these new trends call to our mind is the need
to reinforce the importance of an oversight from the Federal level
that is adquate to the responsibility given the Federal Reserve and that
is appropriate to the development and the inevitable growth of these
foreign-bank operations.
Senator McINTYRE. Can you please tell us what the Fed's current
thinkin~ is regarding the creation of an international banking zone
in New York and conceivably in other locations as well, and whether
or not it has any bearing on this lem.slation i
Mr. MILLER. The trends in international banking, Mr. Chairman,
involve a number of innovations. The innovation you mention-a fore!gn window or a domestic-international banking facility in a place
hke New York-is certainly worthy of consideration. As you know:
New York State has already passed leirislation to permit such activities
and the matter will soon be before the Board.

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Federal Reserve Bank of St. Louis

53
I do not believe that any legislation related to this proposal is required at this point. I believe the Board of Governors will look at this
proposal on its merits. I hope that innovative ideas will always be given
a good hearing and will be approved whenever it appears that they are
consistent with our overall banking objectives.
Senator McINTYRE. Mr. Miller, have you and the Board considered
the soundness of some of the more recent foreign banks which have
come to do business in the United States i For example, the earlier
foreign banks such as the British come from a country with fairly
sound bank regulation. Is there any concern about newer banks coming
from countries where bank regulation may not be as strong i
Mr. MILLER. Yes, indeed. I think that your point reemphasizes the
importance of having an examination authority in a Federal agency
that would have the experience and the capacity to look back to the
overseas origin of banking resources, that would be able to ~o to the
parent organization and interpret and deal with the multmational
activities of the institution, and that would be able to insure that there
is no potential for impairing the soundness of banking operations in
U.S. offices of foreign banks.
Senator McINTYRE. Senator Proxmire.
Senator PROXMIRE. Mr. Miller, I welcome your appearance here and
I want to congratulate the chairman on these hearings. I think they
are very significant. I think it's useful for us to get a picture immediately of the size and significance of foreign banking in this country. It's
very big. Your statistics seem to conflict with those of Mr. Heimann
and with those of Mr. LeMaistre and the others, but I get the general
picture that by and large between 8 and 18½ percent of our total bankmg assets now are foreign controlled, that the momentum is enormous,
it's growing very rapidly, that since 1972 it's increased about 250 percent, that in the big loans made in this country 15 percent of them are
made by foreign banks, and in New York and California about 30 percent by foreign banks. So it's a big operation.
I'd like to look at this from the standpoint of the effect on American
business rather than the effect on the American banks, and there I think
it's very salutary. The encouragement for American firms to export, for
example, seems to me is very real. A firm who wants to export to Japan
or England or to Germany or some other country could get some very
useful advice and guidance and help and assistance and contacts from
association with foreign banks located in their community or near their
community. So I think that's certainly advantageous.
Furthermore, I think you're known as a big inflation fighter. There
was a fine article about you in the Wall Street Journal this morning
on combating inflation and encouraging imports. It's good and this is
a way of doing that, too. Having foreign bankers in this country can
certainly help importers and instruct importers on how they can get
the imports on the best credit basis and they can get very helpful mformation in that regard, too. So I think that the overall effect here is
very helpful; in addition, of course, to the competition which the banks
represent.
·
Frankly, I have an open mind on the branching, required reserves,
the across-the-board requirement for deposit insurance, the grandfathering of security affiliates, the nature of reciprocity and so forth,
hut it's interesting that you and Mr, Heimann and Mr. LeMaistre dis
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Federal Reserve Bank of St. Louis

agree on who should be the principal regulating force here. It's another
fine a!~ment, you see, in favor of having a comprehensive banking
comnnss10n.
Mr. MILLER. I thought you were going to come to that. You know my
position is very clear: I have no obJection to a consolidation of regulatory authority as long as it's placed in the Federal Reserve.
Senator PROXMIRE. Well, that might be a very good alternative. At
least it's one. I just have a couple of other remarks I'd like to make
and then a question or two.
I think that the problem of regulating foreign banks is going to be
with us for a long time and it's gomg to oe more and more complicated
and difficult as time goes on and it's going to have a profound effect
on how our own banking is conducted.
Let me just read very quickly an excerpt from an observation in
Business Week that you may have read. "Sophisticated and aggressive
foreign bankers, especially Europeans, are forcing domestic banks
to" [reading] this is Roger Anderson, chairman of tJhe Chicago
International, the Nation's seventh largest bank-"Foreign banks are
keener competitors for industrial and commercial loans and this pattern shows every sign of continuing," to which I say hooray. I think
it's great. That's going to be good for our banks as well as foreign
banks.
Then the final point I want to make is that this legislation could be
even more significant than establishing the rules under which foreign
banks compete. It could be the basis for letting the big banks in this
cou.ntry branch across State lines and where would that lead~ Possibly
to a lot of healthy competition and more credit available and lower
interest rates and possibly to a few big banks, if not owning everything, dominating our banking system as they don't now and most of
us would not like to see them do it.
Let me ask you this, Mr. Miller. How do you answer the argument
that by prohibiting foreign branching you deny all except New York
and California from having foreign banks locate there~ If a foreign
bank is going to locate in this country, they want to be in the act and
they are going to have to go to New York, possibly California, maybe
Chicago, but certainly not in Milwaukee, Cleveland, Manchester, New
Hfj,'mpshire.
Mr. MILLER. Senator, I have two answers to that. One is that I believe
American banks are more and more developing their own international
capabilities. Banks chartered throughout this country are increasing
international financial services to local business and industry through
their own branching, agencies, representative offices, and correspondents abroad. So, the first thing is that American banks are themselves
fulfilling part of this need.
"The other answer is that I do believe there is merit in examining the
whole proposition of interstate branching. I have no objection to examining that question on its merits, but it does seem to me to be going
in. ,the wrong direction to continue to allow foreign banks to branch
across States lines and not allow domestic banks to do that.
S_enator raoxMIRE. I understand the theory' but you see, Mr. LeMa1stre pomts out to us that he can't see, as I understand it, anv area
where this competition has been damaging to our banking system, a.t
least not yet.
·

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Federal Reserve Bank of St. Louis

55
Mr. MILLER. Another answer that I would give is that foreign banks
can bring to New Hampshire and Milwaukee and other cities and
States access to foreign financin~ and foreign activities through agency
offices, which we have proposed have the same powers as Edge corporations. I think there is a dual answer: American banks are performing all or part of the function, and foreign banks would-through
Edge corµoration type agencies-be able to provide any international
services that domestic banks are not able to provide.
Senator PRoxMIRE. Have you had an opportunity to see the remarks
of Mr. Dunn on behalf of the Conference of State Bank Supervisors?
Mr. MILLER.No, I haven't.
Senator PRoxMIRE. You might want to look at that because he has
a very powerful argument which disagreed with the conclusion you
just ga,ve us. You may be correct, but you may want to look at his
observations.
Mr. MILLER. Senator, quite a few States have laws that allow foreign
banking operations. Several States have limited those operations to
agencies. They felt-this is true in Georgia as I recall-that 'the foreign
bank agency was adequate to bring in a foreign banking presence and
foreign activity. Other States have disagreed.
Senator PROXMIBE. Now in your brief oral remarks you emphasized
the desirability of giving t'he Federa:I Reserve regulatory authority
to a considerable extent here. You say they should ha,ve concurrent
jurisdiction and in some areas principal jurisdiction with respect to
regulation. I'm not sure Mr. Heimann and the extent to which Mr.
Heimann disagrees, but he seems in his statement, however, to indicate
that his agency has had a great deal of experience too in regulating
a.broad and in regulating foreign banks and that to the extent these
banks become national banks it would seem that the ComptroiJ.ler of t'he
Currency should have the right 'to regulate them. Mr. LeMaistre seems
to support that position in what he says. He says if they are not national banks and if they are not member banks he thinks they should
be under his regulation. But I got the impression 'that Mr. Heimann
was making a very well documented case and that you made an assertion that they ought to be under the Federal Reserve but didn't give
much justification as to why they s'hou'ld be under the Federal Reserve
and not under the Comptroller of the Currency.
Mr. MIILER. I certainly don't want this to result in a jurisdictional
squabble among the regulatory agencies.
Senator PRoxMIRE. I'm not asking for a fig,ht. I'm just asking you
what the facts are for giving you principal jurisdiction.
Mr. MILLER. Since there s'hould not be ·a squabble, I think this committee shou:J.d examine the issue of which of the agencies is best
equipped for tih.is particular responsibility.
The reason that the Federal Reserve seemed to us to be the logical
authority was because, first, we have certain responsibilities under the
act, such as the authoritv to issue cease and desist orders. Quite often
enforcement of safe and sound banking practices arises out of the
examination process. If we are to be the enforcers, it seems lo~cal
that we should be doing the examinations to find the problems. We are
also required, under the act. to come back within a period of time to the
Congress with a report on the significance of what has happenPd under
this act and whether any other legislative actions are required. It

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Federal Reserve Bank of St. Louis

56
would be extremely helpful to the Federal Reserve to have, during
this period of study for the Congress, access through examination to
what is really going on inside the foreign banks.
There is also the fact that under the legislation foreign banks would
have access to the discount window of the Federal Reserve. Just as
with domestic banks, any such loans need to be made in the context
of our being well acquainted with the condition and the operations of
the bank. So it is for those kinds of operating reasons that the Federal
Reserve would best be fulfilling its responsibilities if it could have
examination rights. In the case of State member banks, as you know,
we have those powers in concurrence with State supervisors, and we
work very effectively with State supervisors so that there is no duplication of examination.
Senator PRoxMIRE. Mr. Miller, I do have one more question. My
time is iust about up. Let me ask you. Mr. LeMaistre has indicated,
althou,rh his a~ency is responsible for deposit insurance as we all
know, he's indicated that he feels that we might have an optional
insurance svstem. You seem to feel it ought to be across the board
and compulsory.
I think the only thing that wonld concern me is that every depositor
should be protected and Mr. LeMaistre seems to be offerinP," a method
by which that could be done without brinm.ng the inhibition that
comprehensive and compulsory deposit insurance would require.
Mr. MrLLER. Sena.tor, I believe the only State that both allows
foreign branches and does not require insurance for State banks is
Il1inois. One point I would make on the issue of deposit insurance is
that we are talkin~ about operations of very JarP,"e banking- institutions. We have to be concerned about the possibility in the future of
U.S. citizens or any other dewsitors jn these banks or branches incurring losses, because that would be a tremenrlous setback to the whole
development of an open bankinP." svstem. We iust don't need any
bilures or ·any losses, and it would be best to attack that issue at the
b0$nninl! rather than to try to cnr-e it later when some bank gets
into trouble. So our preference would be to have a mandatory requirement.
8enator PROXMIRE. Thank you, Mr. Chairman.
Senator McINTYRE.Thank you.
Senator Sparkman.
Senator 8PARKMAN. J have no auestions at this time.
Senator McINTYRE. Senator Stevenson, we are glad to welcome you
here to the subcommittee. You couldn't resist the temntation I take it
as chairman of the Subcommittee on International Finance.
Senator STEVENSON. Yon're auite right. I regret tha.t I did resist it
earlier and missed Mr. Miller's statement. I hope von will stop me if
I'm covering ground that's already been covered. I still haven't had a
chance to read all your statement, Mr. Miller, but I share what I
detect to be your concern about giving foreign banks privileg-es not
enjoyed bv American bank and at some expense also to the Federal
Reserve System.
What would you think of trying to compromise this issue of interstate branchini in a way that enlarged ~redit :facilities throughout
the lTnited States, especiallv those available for export transactions,
which I believe is in the national interest, but limited the deposit-ac
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cepting powers of the foreign bank branches by permitting foreign
branch banks to accept the same deposits permissible for Edge Corporations in all States who are willing to accept them? That is to say,
foreign banks may make loans in any State where the State authorities
are prepared to permit them to do so, but limit their deposit-accepting
powers, outside of their designated home State, to only those permitted
Edge Act corporations. In other words, deposits from foreign sources
and in conjunction with export-import transactions.
It would seem to me that would have the effect of enlarging credit
facilities, which is probably a good thing, but without subjecting domestic institutions to the competition for domestic deposits. I think
you come fairly close to what I'm suggesting, but I go a little bit
further. You would permit agencies to operate on a multistate basis
as I understand it. Why not branches?
Mr. MILLER. Senator, we are very sympathetic to your point that
many areas of the country do need more access to foreign finance and
to information about foreign markets. We need investment flowing
into this country and we need exports flowing out. If there is a way to
design a branch so that it behaves like an Edge corporation, I think
that would be a constructive way to serve the needs of local communities while limiting the deposit privileges and activities of those
branches or quasi-branches to the international sphere. That's a constructive suggestion.
Senator STEVENSON. I want to make sure you understand what I'm
saying. Let me say it clearly. I was suggesting Edge Act powers with
respect to deposits but with respect to loans permit domestic loans,
permit all of the activities that the State authorities are willing to
accept.
Mr. MILLER. I think that would be consistent with the way banks
operate now, with their loan production offices all over the country.
So I don't see that to be a particular disadvantage. Domestic banks
from New York can open their loan production offices in Chicago. So
I don't see anything wrong with the direction you suggest.
Senator STEVENSON. Then with respect to Edge Act corporations,
isn't it about time that the Federal Reserve liberalized their powers?
According to testimony before the Subcommittee on International Finance of this committee,, which has been looking into U.S. exports, one
of the disabilities to increase exports, self-inflicted, is accessibility to
credit and all of the services necessary to facilitate the export transactions. Edge Act corporations can be very helpful, but they are subject
to limitations such as the 10-to-1 loan to capital ratio which severely
inhibits them. Some of these restrictions are in the law and perhaps
we should address those restrictions, including the mandatory 10-percent reserve requirement.Would you comment on the opportunities for
liberalizing the powers of Edge Act corporations so as to facilitate
exports?
Mr. MILLER. Senator Stevenson, this is not a subject that has been
reviewed completely by the Board of Governors so I will speak in a
personal capacity. I would think that would be extremely desirable,
and I would favor the kind of proposal you are suggesting. The time
has come for us in this country to make a major drive to expand our
exports generally. It is in our national interest to do so, and it would
be in our interest to facilitate that objective in any way possibfa, including strengthening Edge corporations.

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Senator STEVENSON. Will you assure us that the Fed will undertake
reviewing these powers?
Mr. MILLER. I certainly will do so.
Senator STEVENSON. lf you have suggestions as to what should be
done in Congress to complement your efforts, I'm sure the ohairman
would be glad to have them.
Mr. MILLER. With your permission, I will try to submit to you before
your markup any suggestions along these lines.
[The following letter was received for the record:]
OF THE

BOARD OF GOVERNORS,
RESERVE SYSTEM,

FEDERAL

Washington, D.O., June 30, 1978.

Hon. THOMAS J. McINTYRE,
Oha,irman, Subcommittee on FinanciaZ Inatitutions, Oom,mi,ttee on Banking,
Houaing anti Urban Affair,, Waahington, D.O.

DEAR Mr. CH.A.IBM.A.N : When I appeared before your Subcommittee on June 21st
to testify on the International Banking Act of 1978, two questions were raised
by Senator Stevenson on which I promised the Subcommittee a response before
the hearing record was closed.
The first question concerned the possibility of allowing foreign banks to operate State branches on a multistate basis in the future provided they do not
accept local deposits other than the type of deposits permissible to Edge Corporations. Section 25(a) of the Federal Reserve Act permits Edge Corporations to
"receive only such deposits within the United States as may be incidental to or
for the purpose of carrying out transactions in foreign countries or dependencies
or insular possessions of the United ·states." Pursuant to that provision the Board
has by regulation permitted Edge Corporations to receive deposits in the United
States from any person resident outside the United States but has permitted
deposits from U.S. residents only for an international purpose or in connection
with an international transaction. Imposition of a similar limitation on State
branches would make such offices a very close equivalent to State agencies which
under the IBA may not accept deposits from U.S. residents but may maintain
credit balance for them that are incidental to or arising from banking services.
I stated in my testimony that while it prefers a difl'erent solution, the Board
would not object were the IBA to permit agencies to be established on a multistate
basis. Because of the similarity that would exist between out-of-'State branches
and agencies under Senator Stevenson's proposal, the Board would not object
to an amendment to Section 5 that would impose interstate banking restrictions
<,m :(oreign banks but would provide an exemption from such restrictions for new
State branches that do not accept deposits from U.S. residents other than to the
extent permissible to a Corporation organized under section 25 (a) of the Federal
Reserve Act. It is presumed that such internationally related deposits, like deposits at Edge Corporations would not be federally insured.
The second question, also raised by Senator Stevenson, had to do with the
adequacy of the powers of Edge Corporations in connection with financing
exports. The Board is desirous that there be no unwarranted statutory or regulatory impediments to the efl'ective functioning of Edge Corporations in providing international financial services throughout the country. Two of the amendments we have submitted would increa!'e the flexibility of Edge Corporations
in their international financial operations. One amendment would remove the
statutory 10 per cent minimum reserve requirement that Edge Corporations are
required to maintain on their U.S. deposits. That minimum is higher than the
average reserve prescribed for member banks and, hence, results in the Corporations being placed at a disadvantage. Another amendment would liberalize the
current limits on Edge Corporations' liabilities on debentures, bonds, and promissory notes. The Board believes that these amendments would assist Edge
Corporations in being more effective institutions and urges their acceptance by
the Congress. The IBA already contains a provision that would permit the
ownership of Edge Corporations by foreign banks. The B'oard believes that this
provision, together with the Board's proposed amendments, will help make Edge
Corporations a more effective force in international financing within the United
States.
.

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The Edge Act is a very broadly drawn statute in which Congress has given
broad discretionary authority to the Board to prescribe rules governing the
operations of Edge Corporations. The Board is mindful of its responsibilities to
assure that the rules it prescribes carry out the purpose and spirit of the statute
and that those rules are appropriate to changing practices and needs in_ the
field of international finance. Accordingly, it was decided earlier this year to
implement a plan for the review of Regulation K governing Edge Corporations
and of all Board regulations affecting the international operations of member
banks and bank holding companies. The objective of that review is to produce
recommendations for appropriate revisions in the Board's regulations by year
end. One of the topics of that review will be the permissible activities of Edge
Corporations within the United States, particularly as they affect the ability of
the Corporations to finance U.S. trade.
Finally, I was also asked at the hearings for comments on the nonbanking
provisions of the IBA. As I indicated, certain issues of a somewhat technical
nature have been raised by the Board's staff. The Board will consider these
issues in the near future.
Sincerely,
BILL.

Senator STEVENSON. Very good. Thank you.
Senator McINTYRE. Thank you, Senator Stevenson.
Mr. Miller, you know my general feeling that there is little justification for imposing post-depression statutes of the thirties on banking
developments taking place today. Indeed, if there is a competitive
imbalance with regard to multistate banking operations I think the
stronger case is we should liberalize laws pertaining to U.S. banks
rather than impose outdated position on the foreign-owned banks.
Nevertheless, taken from your testimony, do I assume correctly that
you are now prepared to argue that the restrictions that you propose
in section 5 should pertain to branches only and not to agencies and
should be prospective in nature?
Mr. M'ILLER. Senator, that is correct.
Senator McINTYRE. Do I further assume you would grandfather all
existing branches as suggested by the Bankers Association for Foreign
Trade?
Mr. MILLER. Yes.
Senator McINTYRE. Mr. Miller, it seems to me there are two fundamental thrusts to this legislation. One goes to the need for Federal
control over foreign banking activities and the other goes to those
issues which are fundamentally competitive in nature, with regard
to the possible need for an increased presence in foreign banking
activities, particularly by the Federal .Reserve, this involves both
· consideration of monetary policy and regulatory control.
To the extent that the Fed is given reserve setting authority some
foreign banks express concern that the Fed would have the discretionary authority to impose different and perhaps more burdensome requirements on foreign banks than on domestic banks.
What assurances can you give that this in fact would not be the
case?
Mr. MILLER. Senator, I am absolutely convinced that the Federal
Reserve would impose these reserve requirements consistent with requirements on domestic banks. Our purpose is to create competitive
equity. The reason for reserves is for monetary control in part, but
also to provide these large foreign banks will be competing on an even
basis with large domestic organizations that are compara.ble in their
international scope. It seems to me, again, that while we all want com-

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petition and welcome competition, we should also have everybody
carrying the same weight. We should handicap everybody the same
way. So our approach would be to keep equity and balance in the
whole process of ·applying reserve requirements. That is one reason we
believe there should he reserve requirements even for State-chartered
subsidiaries. We are talking about large organizations with multibillion-dollar resources, and I think these organizations, however they
operate in the United States, ought to be competing on an even basis
with comparable U.S. banks.
Senator McINTYRE. Similarly, Muriel Siebert, the New York superintendent of banks who will testify later in the day, says that the Fed
should have no authority to impose reserves on agencies and commercial lending companies since these entities are barred from accepting
deposits and therefore do not function -as banks. How would you respond to this~
Mr. MILLER. I think our primary interest is to have reserves on transaction balances.
Senator McINTYRE. Several witnesses, including the foreign banks,
suggest any grandfather date in the bill should be the date of enactment rather than the artificial date of May of 1977. Do you agree with
thati
Mr. MILLER. Certainly it's essential to have grandfathering. The reason for a fixed date is so that we do not have a rush of activities to beat
the deadline. In most legislation, it's wise to lay down the grandfathering date in advance so that everybody is on notice and there is no
special treatment. Otherwise, you could have a flood of activities to beat
the deadline. I think we want to avoid that.
Senator McINTYRE. Isn't the difference of opinion over mandatory
or optional FDIC insurance really a matter of the cost of carrying
such insurance rather than protection of depositors i
Mr. MILLER. We have seen cases of loss to depositors, and the damage to the banking system in terms of public confidence has been serious
indeed. One of the greatest things that has happened to banking in
recent times has been to acquire that assurance of protetcion of deposits. I think it has been well worth the cost. In the international field,
too, the value of being sure that no foreign organization will fail to
protect its depositors up to the limits of the insurance is extremely
important.
Senator McINTYRE. Now do you agree with the Treasury Department that the screening provisions of section 9 should be deleted 1
Mr. MILLER. The screening provisions of section 9 ~
Senator McIN"rYRE. Yes.
Mr. MILLER. Yes, I don't think they are really needed. I think that
would just add more bureaucratic activity; it would be preferable to
omit those provisions.
Senator McINTYRE. I note that neither in your testimony nor in
your letter to the committee is there any mention of section 8, the provision pertaining to nonbanking activities of foreign banks. Do I take
it therefore that section 8 in its present form meets with your approvaH
Mr. MILLER. Some technical aspects of section 8 have been called to
my attention recently. and we might have some supplemental comments on it, Senator McIntyre. We do have a different banking structure than in many foreign countries with respect to permissible nonbank activities.

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We certainly do not want to have section 8 read as trying to inhibit
the normal growth of foreign manufacturing industrial corporations
affiliated with foreign banks, whose investments in the United States
are in our interest. So there may be a couple of technical points that we
would like to call to the staff's attention, but in general the intent of
section 8 is certainly proper.
Senator McINTYRE. Senator Stevenson.
Senator STEVENSON. I have nothing further.
Senator McINTYRE. Mr. Miller, thank you very much for your attendance this morning. We appreciate your helpful testimony. There
may be further questions we would want to submit to you for the
record.
We call as our next witness a panel consisting of Mr. Robert R.
Mundheim, General Counsel, Department of the Treasury; the Honorable John Heimann, Comptroller of the Currency; and the Honorable George A. LeMaistre, Chairman, Federal Deposit Insurance
Corporation.
I'm informed that Mr. Mundheim has a meeting to attend and so
therefore we will ask him to testify and ask him a few questions at the
conclusion and then we will proceed to hear from both Mr. LeMaistre
and Mr. Heimann and then we will question both of vou.
STATEMENT OF RO:BERT H. MUNDHEIM, GENERAL COUNSEL,
DEPARTMENT OF THE TREASURY

Mr. MuNDHEIM. Thank you, Mr. Chairman.
As you know, the administration generally endorsed this legislation
in the House of Representatives Jast year and as passed by the House
it includes a number of changes that we suggested.
I think there's already been discussion of the growing importance
of foreign bank operations in the United States. I think I'd just like
to make one additional point in that regard and that is that in determining a national policy we must always keep in mind that our regulation of foreign banks may affect foreign government treatment of U.S.
banks and other financial institutions operating overseas. The total
assets of foreign branches of American banks at the end of February
1978 were almost four times the amount of foreign assets or assets in
the U.S. branches of foreign banks. Now the United State,s has endeavored to offer a hospitable climate for foreign investment by following a policy of "national treatment" under which as few distinctions as possible are made between the treatment of businesses of
forei,!!Il investors and the same business conducted by U.S. nationals.
In line with that general policy we beHeve that foreign banks doing
business here should be supervised unde,r the same rules and administrative stmcture as domestic banks; they should be afforded comparable competitive opportunities and be subject to comparable
restraints.
Thus, the administration supports the International Banking Act
becanse, for the most part, it furthers the national treatment theme by
treating foreign bank operations like operations of banks within the
dual banking system and establishes a framework for applying Federal banking policy to them. In those two sections where the bill departs from equal treatm~nt of foreign and domestic banks, interstate
30-563 0 - 78 - 5
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branching and Treasury guidelinP.s, we recommend changes. Before
discussing those changes, I should like to briefly reiterate our support
for several of the bill's other provisfons.
[ Complete statement follows :]

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FOR RELEASE ON DELIVERY
EXPECTED AT ll:00 A.M.
JUNE 21, 1978

STATEMENT OF THE HONORABLE ROBERT H. MUNDHEIM
GENERAL COUNSEL
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
The International Banking Act of 1978 (H.R. 10899)
Mr. Chairman and Members of this distinguished Subcommittee.
I appreciate the opportunity to testify on behalf of the
Administration on H.R. 10899, the International Banking Act of
1978. The Administration generally endorsed this legislation
in the House of Representatives last year, and as passed by the
Bouse it incorporates a number of changes that we suggested.
Subject to two modifications that I will shortly discuss, we
continue to favor enactment of the Inte.rnational Banking Act.
The Growth of International Banking
In view of the increasing importance of foreign bank
operations in the United States, we agree that Congress
should act in this area now. In our testimony before the
Bouse Banking Committee on this legislation, we noted that
foreign bank operations, although still small in relation to
to the domestic banking industry, have been growing in recent
years. Total assets of the United States branches, agencies
and commercial lending companies of foreign banks have more
than tripled during the past five years, increasing to $66

B-992

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billion at the end of February 1978, which represents roughly
6 percent of the total assets of all commercial banking operations in the United States.
The growing operations of foreign banks in our economy is
a natural outgrowth of expanding international trade and the
increasing activity of foreign businesses in the United States.
Just as American banks began operating abroad to serve their
domestic customers, foreign banks are opening offices in the
United States to serve their customers here. Foreign banks contribute to competition in our domestic banking industry and
facilitate increased international trade and finance.
In determining a national policy, we must also keep in
mind that our regulation of foreign banks may affect foreign
government treatment of United States banks and other financial
institutions operating overseas. The total assets of foreign
branches of American banks at the end of February 1978 were
$257 billion, almost four times the $66 billion amount just
mentioned.
The Principle of National·Treatment
The United States endeavors to offer an hospitable climate
for foreign investment by following a policy of •national treatment•, under which as few distinctions as possible are made
between the treatment of businesses of foreign investors and the
same business conducted by United States nationals. In line
with this general policy, we beljeve that foreign banks doing
business here should be supervised under the same rules and
administrative structure as domestic banksi they should be
afforded comparable competitive opportunities and be subject to
comparable restraints.
The national treatment concept is superior, in our opinion,
to the alternative concept of "reciprocity• which some foreign
banks would like us to adopt. Under a policy of reciprocity,
we would allow a foreign bank to engage in the United States in
all those activities in which American banks are permitted to
engage in the home country of the foreign bank, even though we
do not permit domestic banks to conduct such activities here.
Since countries differ on which activities banks may engage in,

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the United States under a policy of reciprocity would have to
administer different sets of rules for various foreign banks
operating in this country, dependiflg on their nationality.. This
could be an administrative nightmare. Furthermore, the advantages we would have to afford foreign banks under a policy of
reciprocity - such as the ability to engage in interstate
branching, and a broad range of nonbanking activities - would
result in unfair competitive pressures on domestic banks.
Purpose of the Act
The Administration supports the International Banking Act
because, for the most part, it furthers the national treatment
theme by treating foreign bank operations like operations of
domestic banks. It brings branches and agencies of foreign
banks within the dual banking system and establishes a framework
for applying Federal banking policy to them. In those two sections where the bill departs from equal treatment of foreign and
domestic banks, interstate branching and Treasury Guidelines,
we recommend changes. Before discussing those changes, I should
like to briefly reiterate our support for several of the bill's
other provisions.
Extension of the Dual·Banking System
_Our existing laws and regulations covering foreign banks do
not fully reflect the policy of national treatment. On the one
hand, they deny foreign banks certain banking opportunities. For
example, foreign banks are deterred from establishing national
banks. In addition, our laws permit foreign banks to operate
branches or agencies, but these operations are unable to obtain
Federal deposit insurance.
On the other hand, there is no Federal regulation or supervision of foreign bank branches and agencies, even though almost
all domestic banks come under the regulation of either the
Comptroller of the Currency, the Federal Reserve Board, or the
Federal Deposit Insurance Corporation.

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This legislation will, for the first time, enable the
Comptroller of the Currency to authorize Federal branches and
agencies of foreign banks. It grants those institutions powers
similar to those of national banks and permits them to operate
in states where state law does not prohibit foreign bank
branches and agencies, and where the particular foreign bank does
not already have a state-approved facility.
In so doing, it extends Federal regulatory involvement into
an important segment of banking activity in the United States
presently regulated solely by the states. Foreign banks would
then have the option of choosing between a Federal and a state
regulatory framework. Such a choice would offer foreign institutions the same Federal and state alternatives now afforded their
domestic counterparts.
Federal Deposit Insurance
We believe this legislation satisfactorily addresses the
question of Federal deposit insurance fot foteign bank branches.
Currently, foreign bank branches do not qualify for FDIC insurance. The bill changes this policy in a manner that gives effect
to the principle of national treatment: insurance is required
for Federal branches and for state branches in those states
where domestic state banks are required to obtain deposit insurance. However, we are inclined to support. the suggestions of
Chairman Miller that the coverage available should include
deposits of foreign persons, not just United States citizens
and residents.
Nonbanking Activities
Section 8 of the bill deals with the nonbanking activities
of foreign banks in the United States. It generally subjects
foreign banks maintaining United States branches or agencies
to the restrictions on nonbanking activities of the Bank Bolding
Company Act of 1956, as amended. United States subsidiaries of
foreign banks already come under the Bank Holding Company Act.

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Under the Bank Holding Company Act prior Federal Reserve
Board approval would be required before a foreign bank could
engage in new no~banking activities. Permitted activities
for foreign banks would be the same as those authorized by
the Board for domestic banks. Nonbanking activities of the
foreign parent bank principally outside the United States would
be exempt. In addition, all of a foreign bank's nonbanking activities engaged in on May 23, 1977 would be permanently grandfathered.
The focus of much debate in this area has been the activities of United States securities affiliates of foreign banks.
Several such organizations engage in securities underwriting
activities which are prohibited to American banks or their
affiliates. This bill would prevent foreign banks engaged in
commercial banking in the United States from also engaging in
the securities business here, either directly or through affiliates. However, existing securities operations would be permanently grandfathered. Such a grandfather provision is reasonable and appropriate, because these activities were undertaken
in accordance with the existing legal framework and they have
made a useful contribution to the capital of securities firms
and to the viability of regional stock exchanges.
Proposed Changes in the Bill
Now, Mr. Chairman, let me turn to two portions of the
International Banking Act that we believe warrant further
change.
Interstate Branching
Except under limited circumstances, states do not permit
branch operations by a bank chartered in another state. Similarly, interstate branching is not authorized for national banks
because of the provisions of the McFadden Act. However, several
states permit -- indeed encourage -- foreign bank branches,
even if the same foreign bank has branches in other states.

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The International Banking Act would continue the ability
of foreign banks to have interstate branches and would extend
this ability even to Federal branches so long as expressly
permitted by the state involved. It is in this respect
that we disagree with the provisions of the bill. Consistent
with our espousal of equal treatment for domestic and foreign
banks, we believe that section 5 should be amended to make ·
Federal foreign branches subject to the branching rules applicable to domestic national banks, and to make state foreign
branches subject to the branching rules applicable to domestic
state banks. In order to minimize disruption of existing banking services, we would favor permanent grandfathering of foreign
interstate operations engaged in on May 23, 1977.
Interstate branching raises a fundamental competitive
question with long-term implications for banking structure
in the United States. Technological developments, for example,
in the area of electronic funds transfer have increased the
urgency of answering that question. If because of the absence
of prohibitory legislation, foreign banks develop sizable
interstate networks, it may be difficult in the future
to decide to terminate those operations, or alternatively not
to grant domestic banks the same privilege. We would prefer
that for the future branching by foreign banks be placed
on the same competitive footing as that of domestic banks.
The desirability of interstate branching should be judged
on its own merits, with the decision equally applicable to
foreign and domestic banks.
Guidelines and Review
The Administration favors deletion of section 9 in its
entirety. Section 9 is a carry-over from the concern expressed
in some quarters several years ago that the Federal Government
should review every potential foreign direct investment to be
made in the United States on a case-by-case basis to assure that
it was not injurious to the national interest. Thorough
investment-policy review concluded that the Federal government
should not intervene in private business transactions unless
there is a clear public purpose to be served. The mere fact that
foreign persons are involved is not a sufficient reason for such
intervention.

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Section 9 would require a new and, we believe, inappropriate
Treasury and Federal role in the establishment of foreign bank
operations in the United States: (l) The Secretary of the
Treasury would be required to issue guidelines on foreign bank
operations in the United States to assist bank regulators acting
upon foreign bank applications; (2) state and Federal banking
authorities would be required to solicit the views of the Secretaries of Treasury and State and of the Federal Reserve Board;
and (3) state and Federal banking authorities would be prohibited
from approving a foreign bank's application unless the foreign
bank agreed in advance to conduct all its United States operations
in full compliance with Federal and state anti-discrimination
laws that apply to domestic banks.
We strongly recommend that this remnant of attempts at
Federal screening be eliminated from the bill, for several
re·asons:
(1) it discriminates insofar as it applies to foreign-owned
banks only;
(2) it could set an unfortunate precedent for establishing
similar procedures for foreign investment in other areas of our
economy;
(3) it could induce other countries to introduce or expand
restrictions on American financial activities and investments
abroad; and
(4) it appears to contradict certain national treatment
provisions in our foreign treaties.

We are particularly concerned that Treasury, in preparing
guidelines, is required to take account of the treatment afforded
United States banks abroad. As I previously stated, we vigorously object to a policy of reciprocity. It could result in a
reduction of permissible international banking activities,
including those of united States banks abroad, and also create
an administrative nightmare in enforcing different sets of
rules for different foreign banks operating in this country.

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Furthermore, we believe the provision in section 9 requiring a specific pledge to obey domestic anti-discrimination laws
before a foreign banking application can be approved is unnecessary and unwise, All domestic and foreign banking operations in
the United States already are subject to our anti-discrimination
laws.
Conclusion
Thank you, Mr. Chairman, for allowing us to testify on
this important bill. We look forward to working with the
Subcommittee as further questions arise.

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Senator McINTYRE. Mr. Mundheim, I want to thank you for that
very straightforward statement you have submitted. On page 2, however, you say:
We must also keep in mind that the U.S. regulation of fo~ign banks may affect
foreign government treatment of U.S. banks and other financial institutions
operating overseas.

Are you confident, sir, that this bill, even if modified as you suggest,
poses no threat of retaliation of U.S. banking interests overseas 1
Mr. MuNDHEIM. Sir, we have had no indication that the bill as it
exists with our suggested modifications would give rise to retaliation
and particularly smce the bill for the most part follows the national
treatment principle it seems to me that that is the recognized and
appropriate basis for regulation. Therefore, it ought not to provoke
any threat of retaliation.
Senator McINTYRE. The suggestion has been made that the grandfather date for all nonbanking activities under section 8 of the bill be
made the date of enactment rather than the artificial date of May of
1977. Do you agree with that suggestion i
Mr. MuNDHEIM. What worries me about moving it to the date of
enactment, Mr. Chairman, is that you would then encourage a flow
of activity, which will later be prohibited, to move in under the deadline. If, for example, however one wanted to move up the date----4:o
today's date, for example-that would not give us any trouble.
Senator McINTYRE. Do you support the contention that we find in
the House-passed bill for mandatory FDIC insurance for foreign
bank branches i Yet, as you know, the FDIC expert in this area argues
strongly for a system of optional versus mandatory insurance. Have
you had the time or opportunity to analyze the FDIC's objection to
mandatory insurance and can you comment on them at this time i
Mr. MuNDHEIM. Well, sir, as you know, we think that the branches
of foreign banks ought to be required to take out FDIC insurance in
those cases where their domestic counterpart would be required to take
FDIC insurance. We recognize that it presents technical difficulties
to insurance branches, but we have had conversations with the FDIC
and think that those technical difficulties can be worked out. Therefore, we do support the insurance provisions as they are in the bill.
Senator McINTYRE. Mr. Mundheim, Chairman Miller this morning
has proposed permitting agencies of foreign banks to continue to do
business on a multistate basis unhampered by this legislation. Do you
agree with this suggestion 1
Mr. MuNDHEil\:I. Well, of course, our basic concern has been with
branches and we certainly would not object to the suggestion made in
his June 1 letter that agencies that are limited in their operations to
internationally related activities similar to Edge Act corporations,
that they should be allowed to continue on an interstate basis.
Senator McINTYRE. Senator Sparkman.
Senator SPARKMAN. I believe I'd rather wait until we hear from the
whole panel, Mr. Chairman.
Senator McINTYRE. All right. Senator Stevenson, do you have any
questionsi
Senator STEVENSON. Thank you, Mr. Chairman.
Mr. Mundheim, I didn't understand your last answer; Agencies
aren't now limited to the powers of Edge Act corporations. You indi
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cated that you had no objection to multistate activities by agencies
so long as they were so limited. Are you objecting to the present
activities, multistate activities, of agencies?
Mr. MuNDHEIM. Well, sir, I think that what I was addressing myself to was the very specific recommendation made by Mr. Miller in
his June 1 letter to Senator Proxmire, I believe, in which he said
that a reasonable compromise would be to exempt newly established
agencies from interstate restrictions so long as the agencies limit their
operations to internationally related activities as are permissible for
Edge Act corporations in the United States. I said, as far as that
compromise is concerned, we didn't have any objection to it.
I think that you're asking me whether or not any agency activity
ought to be permitted, and I'm a little more cautious about that,
although I think the argument can be made and I guess is made that
the activities of agencies are not terriby different from the activities
of loan production offices of domestic banks. To the extent that that
is true, then allowing foreign banks to have multistate agency operations wouldn't put them on any competitively better basis than domestic banks. I guess the critical question is whether or not agencies and
loan production offices really are precisely the same.
Senator STEVENSON. Well, you're getting a little ahead of me. I was
going to ask you what the basis was for distinguishing between agencies and branches and, sharing your views about the desirability of
parity between foreign and domestic institutions, ask i:f the Treasury
would have objections to permitting agencies and branches to engage
in such multistate activities as the States are willing to permit, except
that their deposit taking activities, outside of their home State, would
be limited to tliose of Edge Act corporations. That would give you
rough parity, multistate lending activities for the sake of larger credit
facilities in the United States, particularly for facilitation of export
transactions, and on the deposit side an opportunity to bring in deposits from abroad and in connection with such transactions and on a
basis that's available to domestic institutions through their own Edge
Act corporations.
Now how do you feel about that as a means of skinning a couple of
cats and still producing parity?
Mr. MuNDHEIM. I have a feeling you're ahead of me on that.
Senator STEVENSON. That's my job.
Mr. MuNDHEIM. I think that again the critical question is a factual one I'd like you to give me an opportunity to go and answer yon
on a factual basis as to what would be permitted of Edge Act corporations of domestic banks-and that's al1 that would then be permitted
to the agencies or this newly structured form of branch which you will
allow-Senator STEVENSON. On the deposit side.
Mr. MuNDHEIM. On the deposit side.
Senator STEVENSON. Then we'll come to what those powers should be.
Mr. MuNDHEIM. I think the underlying point that we want to stres,;
and we think is important is that the operations of the foreign bank
and the operations of the domestic bank be treated in a similar manner. I take it that that's your point also, so all there is left is a question
of a factual determination of whether or not the kind of structure you

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suggest would produce that equality, -and all I'd like is some time, ancl
we will do that rapidly, to get back to you on that.
Senator STEVENSON. I'm going a little further than that and suggesting there's an additional consideration and that consideration is
the enlargement of the :facilities with which to service exports. The
branches and the agencies would have wide open multistate powers,
assuming the States permitted, and for the purpose of making facilities primarily for export transactions more adequate than they are
now. I don't think they are adequate now on the basis of some rather
lengthy hearings before this committee. On the deposit side we have
parity, the Edge Act restrictions, and then, if I can enlarge the proposition for you and invite your comments on it, too-enlarged Edge
Act powers, as I was trying to suggest to Mr. Miller. Some of the regulations, I think, really aren't in conformity with the intent of Con~ress. They are overly restrictive. They impose stricter restraints on
Edge Act corporations than on banks. Some -are statutory, as in the
case of the discriminatory reserves requirements. So, how should those
Edge Act powers, through regulation and law, be liberalized, if at all,
to achieve that second purpose, the facilitating of trade and particularly export transactions. That would be helpful to us also.
Mr. MuNDHEIM. I'll be glad to do that. I think what you say points
out what's a very real problem that has got to be looked at as it applies
to both domestic and foreign banks. What we worry about is that you
give a special position to the foreign banks and in that way prejudge
the answer to the question on the domestic side. That's what we worry
about and that's what worries us about the present structure of
section 5.
Senator STEVENSON. Well, we've got more worries than that, but
that's a legitimate concern and I certainly share it. But I think there
are also some opportunities here to draw upon the resources of foreign
institutions for our own benefit and without penalizing domestic institutions and that, it seems to me, ought to be the broader objective.
Thank you, Mr. Chairman.
Senator McINTYRE. Thank you, Senator.
Senator Schmitt.
Senator SCHMITT. Mr. Chairman, I'm sorry to come in late and l
would only ask one question and then listen to the rest of the panel,
and you may have answered this. If you have, I will go read the record.
Do you see in the proposals we are discussing today a danger of
inequities from State to State based on the differences between State
regulatory practices on domestic banks versus what we're talking
about here, which is equity on a Federal scale between foreign and
domestic banks~
Mr. MuNDHEIM. Well, obviously, our dual banking system contemplates that there would be differences in the State approaches to regulation and any bank-Senator ScHMITr. But those differences are established knowingly
by the States. Are we doing anything in this legislation that unknowingly in a sense would increase the disparity between States~
For example, Senator Stevenson's State, I believe does not allow
branching in any significant way,- whereas many other States do.
Can anything we do here cause that difference to be accented between
Illinois and other States~

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Mr. MuNDHEIM. Well, I think any bank or foreign branch that ·acts
in Illinois is still going to be basically governed by the particular
approach of that State.
Senator SCHMITT. Are foreign banks allowed to branch within Illinois whereas domestic banks are not at this time?
Senator STEVENSON. Foreign banks can have a branch in Illinois,
yes, if that's the question.
Mr. MuNDHEIM. Yes. It can have one branch which really serves the
same function as one bank which you could have in Illinois, but I
don't think the bill changes any of your underlying ground rules. I
mean, to the extent that one State is more restrictive, those same restrictions are still going to apply. As you know, we don't have one
set of national rules that apply to all banks operating in the United
States.
Senator ScHMI'IT. Well, let me try again. The present situation is
such that foreign banks have a number of different advantages over
domestic banks. That's the reason we're here today presumably. Now
is there anything in the legislation as you have examined it that
would increase those advantages rather than decrease them, taking
into account the differences between State banking regulations?
Mr. MuNDHEIM. I think what the proposed legislation does is it preserves the competitive advantage that foreign banks have to engage in
interstate branching and that is a provision of the act which we would
urge you to change because it provides that kind of competitive advantage. So in that respect, the bill does preserve an advantage
which foreign banks have over domestic banks.
Senator SCHMITT. Thank you.
Senator McINTYRE, Mr. Mundheim, you are excused.
Senator SPARKMAN. Mr. Chairman, I'd like to ask him just one or
two questions before he leaves.
Senator McINTYRE. Certainly.
Senator SPARKMAN. I believe I understood you to say that the grandfather clause if it's to be invoked should be done immediately; is that
right, not any future date set?
Mr. MuNDHEIM. In other words, I wouldn't want you to set a date
some time in the future because that's simply a target for everybody
to rush in. We've got a date of May of 1977. If you would change
tha;t to May of 1978 that wouldn't trouble us.
Senator SPARKMAN. Now, you recommend I believe that section 9
be deleted.
Mr. MuNDHEIM. Yes, sir.
Senator SPARKMAN. Briefly, what is section 9?
Mr. MuNDHEIM. Section 9 would require Treasury guidelines to be
issued on how you would regulate the operations of foreign banks. It
would require foreign banks in connection with their applications to
agree to comply with U.S. laws against discrimination which laws
would be applicable to them anyway, and it would require that before
the appropriate regulator could pass on an application they would
have to give information and wait 30 days for comments from Treasury, State, and one or two other governmental agencies.
Senator SPARKMAN. Thank you.
[The following letter was received for the record:]

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THE GENERAL 0oUNSEL
Hon. THOMAS J. McINTYRE,

THE TREASURY,

Washington, D.C. July 5, 1978.

Chairman, Subcommittee on Financial Institutions, Committee on Banking,
Housing and, Urban Affairs, Washington, D.C.

'DEAB MR. CHAIRMAN: I would like to respond to two questions asked by Senator Stevenson following my testimony on the International Banking Act. He asked
if the Administration would object to foreign bank branches performing such
multi-state activities as the individual states would allow so long as the branches'
deposit-taking functions were restricted to the same deposit-taking functions
permitted Edge Act corporations under Federal law. He also inquired whether
the Administration would favor liberalization of some of the statutory restrictions
on Edge Act corporations to facilitate their furtherance of international trade.

EDGE ACT CORPORATIONS
The Administration's basic concern is that foreign bank operations in the
United States be accorded "national treatment" or competitive equality with the
domestic operations of American banks. The liberalization of Edge Act corporation powers, as embodied in the International Banking Act of 1978 and in the
proposed amendments to the Act submitted by the Federal Reserve Board, is
consistent with our national treatment objective.
IThe Act, as passed by the House, removes any restriction on the nationality
of Edge Act corporation directors. This should facilitate the use of such corporations by foreign banks. Edge Act subsidiaries have been employed
by American banks for some time in their domestic as well as their overseas
operations. Elimination of the nationality restriction could have the practical
effect of making IDdge Act corporations equally attractive to both American and
foreign banks financing international trade to and from the United ·States. Thus,
our national treatment objective and Senator Stevenson's desire to stimulate
foreign trade should both be enhanced by Section 3(a) of the International
Banking Act.
We also support the Federal Reserve Board's amendments to the Act to give
Edge Act corporations greater flexibility in their operations. The amendments
would(1) allow Edge Act corporations to issue, with prior Board approval, notes,
debentures and bonds in excess of the present statutory limit of 10 times the
corporation's capital and surplus. This amendment would permit the Board
to authorize a more leveraged capital structure for corporations in sound
condition. Such leverage would ·be comparable to that available to many
competing domestic ·banks.
•(2) remove the minimum 10 percent reserve requirement on domestic
deposits of Edge Act corporations in order that the Board may establish
uniform reserve requirements for ·branches, agencies and Edge Act subsidiaries of large foreign banks. The amendment conforms with Section 7 of the
•International Banking Act, which would give the Federal Reserve Board
1authority to establish reserve requirements with no minimum for branches
!and agencies of foreign banks with assets over one billion dollars.
We understand that the Federal Reserve Board has initiated a thorough review of the Edge Act. When the review is completed, the Board will propose appropriate changes in its Edge Act regulations and also propose to Congress any
desirable modifications of statutory provisions. We believe this study is timely,
and we plan to keep in close contact with the Federal Reserve on the study's
progress and developments.
1

INTERSTATE BRANCHING
The Senator proposed that foreign ·banks be permitted to operate interstate
branches whose deposit-taking powers would, however, be limited, as are those
of Edge Act corporations, to international related transactions. Such limited
powers would appear to equate the deposit-taking authority of foreign bank
branches and agencies and Edge Act Corporations. That authority would be limited
to accepting credit balances or deposits related to international business. We
support such comparable treatment of the deposit-taking powers of foreign bank
branches, agencies and ·Edge Act subsidiaries.

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1However, the foreign bank branches would not be limited by the International
Banking Act as to their llSset powers. ·state law generally permits foreign bank
branches to perform any type of normal bank lending, including domestic and
international related commercial lending, consumer lending, Federal funds sales
etc. Foreign bank agencies have similar powers under state law, although they do
not normally make consumer loans. These lending powers are substantially greater
than those of Edge Act corporations, which are confined to international lending.
Thus foreign bank branches and agencies might enjoy competitive advantages
over American banks.
American banks doing business outside their home state must operate through
Edge Act corporations restricted to international lending or through loan production offices. By acting interstate through the same vehicles as American banks,
serviced from their home state. Foreign banks acting through interstate branches
or agencies would be able to solicit, make and service domestic commercial loans
locally. It is difficult to assess accurately how much of a competitive advantage
this difference in treatment would in fact confer.
'Equality of treatment would be assured if foreign banks were required in the
future to operate interstate only through Edge Act corporations and loan production offices. By acting interstate through the same vehicles as American banks,
regulation and competitive conditions would be kept on a parity.
'Nevertheless, we agree that this proposal for permitting limited interstate
branching for foreign banks accords more closely with the national treatment
theme than the proposal contained in Section 5 of the House passed International
Banking Act. Although we would prefer the Act to limit foreign banks' interstate
activities to those permitted American banks, we do not object to the compromise
which Senator Stevenson has suggested.
!Sincerely yours,
ROBERT H. MUNDHEIM.

Senator McINTYRE. Thank you.
With our previous suggestion, we will let Mr. Mundheim be excused in order so he can make another commitment in another part
of the country and proceed now to hear from John Heimann, Comptroller of the Currency, and then George LeMaistre, and then question
those two after the close of their testimony.
STATEMENT OF lOHN HEIMANN, COMPTROLLER OF THE CURRENCY

Mr. HEIMANN. Thank you very much, Senator.
In light of our written submission to the committee which I understand will be printed in full-Senator McINTYRE. Your entire statement will be printed in the
record without objection.
Mr. HEIMANN. As to our previous two witnesses, I'd just as soon not
repeat certain continuing themes and just touch on a very few highlights so we can answer the questions of the committee.
[Complete statement follows:]

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()
Comptroller of the Currency
Administrator of National Banks
Washington, D. C. 20219

'"
Date

202-447-1798

RELEASE
June 21, 1978

STATEMENT OF JOHN G, HEIMANN
COMPTROLLER OF THE CURRENCY
BEFORE THE FINANCIAL INSTITUTIONS SUBCOMMITTEE
OF THE COMMITTEE ON BANKING, HOUSING
AND URBAN AFFAIRS
U, S. SENATE
June 21, 1978
I appreciate this opportunity to appear before the Financial
Institutions Subcommittee to present the views of the Office of
the Comptroller of the Currency on legislation dealing with foreign
banking activity in the United States.
The members of this Subcommittee are to be commended for their
leadership in considering a bill which recognizes the growing interdependence of the world's major banking systems and institutions.
Foreign banking in the United States has indeed grown rapidly--total
assets of foreign banks in the U.S. have increased over two and

one-half times since 1972, and total assets of American banks abroad
have increased two and one-quarter times in the same period.

Both

phenomena simply reflect the remarkable internationalization of
business and finance that has occurred since World War II.

30-563 0 - 78 - 6
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The banking sector has long been regarded by most countries
as peculiarly sensitive and important to national interest.
Despite this, international banking has proved to be a major force
helping to tie together the diverse nations of the free world
financially and economically.

No financial or banking market can

any longer be treated in isolation, and the banking authorities
of the developed countries are increasingly working hand-in-hand
to define their various responsibilities for the stability of
the global banking system.
Large U.S. banks have been in the forefront of the spread of
international banking.

They have fostered competition and promoted

productive investments in many parts of the world.

They have,

on the whole, been treated well.
Just as U.S. banks operating abroad have benefited the host
countries in which they operate, so too can this country profit
from an inflow of foreign capital, methods, innovations, personnel
and competition.

It is, moreover, logical to expect major foreign

banks to come here, to participate in the world's greatest financial system and to respond to the internationalization of American
banking.
Foreign banks in the U.S. have, in general, shown themselves
to be good bankers here, mindful of our rules and regulations and
diligent in conforming to our banking norms.

They have added con-

siderable depth to the interbank and foreign exchange markets.
always, there have been a few transgressors, but the price of a
free market system is that all wrongdoers cannot be excluded in
advance.

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The task of the bank supervisory and regulatory authorities is
to nip such miscreants in the bud through effective banking supervision and to cushion their untoward effects on the remainder of
the banking system.
As this Subconmittee is aware, the U.S. has in the past few

years attracted a large number of banks from,abroad.
1978, foreign banking operations in the
increase from the 104 operations in the

u.s.
u.s.

As of March

numbered 268, a 1581
in 1972.

The past

two years have seen particularly rapid growth.
The majority of the increase in operations from 1972 to 1978
came from increased branches and agencies.
grew from 26 to 103, or 2961.
to 122, or 1441.

The number of branches

The number of agencies grew from SO

Additionally, in 1978 there were 38 foreign sub-

sidiaries and S foreign investment companies in the U.S.
In dollar terms, foreign banks increased their affiliates'
assets held in U.S. banking operations by 2651, to $66 billion,
from 1972 to March 1978.

(This excludes -clearing house balances

as these inaccurately inflate the amount of
facility is conducting.)

u.s.

business a foreign

Of these, $48 billion were in New York

and $14 billion in California.
It is worth noting that the assets of European bank facilities in the U.S. have increased by as much as 5171, to $32 billion,
since 1972.

U.S. operations of Japanese and Canadian banks in-

creased their assets 1671
respectively.

(to

$23 billion) and 781 (to $6 billion),

It is logical that the biggest investments should

be made by banks from those countries whose corporations are
presently expanding their operations in the United States, and in
which U.S. multinational firms have been most active.

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The great majority of foreign bank participation in the U.S.
banking system has been through the d e ~ establishment of
branches, agencies and subsidiaries. However, during the past few
years a number of banks have chosen to enter through acquisition of
existing U.S. banks.

The largest such acquisition to date was that

of the former Franklin National Bank of New York, a multi-billion
dollar bank, by the European-American Bank.

This year three proposed

acquisitions of comparable size are under review by the regulatory
authorities:

Marine Midland Banks, Inc. ($12.1 billion) by the

Hong Kong and Shanghai Banking Corporation, Union BanCorp ($4.7
billion) by Standard Chartered Bank, and the National Bank of
North America ($3.8 billion) by National Westminster Bank. This
would increase the participation of foreign interests to about
$87 billion--which is still less than 50% of U.S. banks' assets
abroad.
Of course, foreign acquisitions of U.S. banks do not represent
a new phenomenon; indeed the experience of the New York and
California banking authorities with foreign-owned banks has been a
favorable one.

Nevertheless the recent trend represents an

acceleration of sufficient magnitude to warrant scrutiny.
Some of the present and prospect'ive acquisitions may be
motivated by perceptions of low market prices of bank stocks and
an undervalued U.S. dollar.

However, we believe that a stronger

motivation is the foreign banks' belief in the fundamental stability
of the U.S. economic and banking system and the pivotal role that
dollar-based banking plays in the world economy today.

Large

acquisitions give rise to certain regulatory complexities and increase the need for international cooperation among regulatory

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authorities.

This is one manifestation of the internationalization

of business and finance throughout the free world in the past two
decades.
The past six years' growth of foreign banking in the U.S.
should be viewed in the context of the U.S. banking system here
and abroad.

While foreign banks presently control $66 billion,

or 4.9% of foreign and domestic banking assets in the U.S. (and
$87 billion or 6.5% if the 3 proposed acquisitions are included),
148 U.S. banks have foreign facilities in over a hundred foreign

countries.

One-hundred twenty U.S. member banks operate 730 branches

abroad, while 35 U.S. banks have significant global subsidiary
activities.

The overseas branches of U.S. member banks have total

assets, net of those held in affiliates, of over $200 billion and
are primarily concentrated in the U.K., Continental Europe, Japan
and Latin America.

The majority of U.S. banking offices abroad

are in the same countries whose banks are located in, or are
seeking to enter, the United States.
The growth of cross-national banking has convinced me of two
things.
First, the intelligent regulation of international banking
must be supported by international coordination among the banking
authorities.
Second, U.S. international banking has reached the point
where an internally consistent system of federal oversight is
essential.

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Foreign banking in the U.S. is not only rapidly developing,
but it is changing in size and nature such that it may now be regarded as a third banking system.

Oversight of this phenomenon

should, and indeed in the interests of a sound financial system
must, be considered on a national basis rather than split up into
discrete, geopolitical units.

Such fragmentation does not

correspond to the way the capital and banking markets work.
I would like to offer some suggestions regarding this bill-suggestions based on the principles of promoting a competitive, sound
and equitable system of financial regulation; suggestions based
on what I believe to be a somewhat unique set of experiences.
As Superintendent of Banks for the State of New York, I had
responsibility for the regulation of over 70% of the existing
foreign bank assets in the United States.

As Comptroller, as

a member of the Board of the FDIC, and more recently as a member of the "Cooke Committee" of regulators from 10 industrial
countries, I have a strong concern for this area.

The recommen-

dations of our Office are made in a spirit of objectivity and
realism.
Before discussing the specific provisions of the bill, I
should like to comment on the appropriate authority for regulation
of foreign banks in the U.S.

The point is that we must have

federal oversight over those aspects of foreign banking activities
that affect the national interest.
It is, of course, fundamental to our dual banking system that
states have the right to charter and supervise banks which choose
to fall under their jurisdiction.

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However, foreign banks in the

83
u.s. are not self-contained entities, but almost always part of a
worldwide banking network with the ability to affect the U.S. and
dollar banking systems, here and abroad, in a number of ways.

pretend that these banks' branches could be treated as independent
u.s. banks would be naive; and to permit parochial conflicts to
defeat the logical and reasonable need for a federal oversight
function would be to gamble with the stability of the banking
system.

Without national consistency, no international coordina-

tion would be possible.

Oversight by the appropriate federal

regulatory agencies is essential to reach this goal.
Let me turn, now, to the specific provisions of H.R. 10899.
Federal Charters and Federal Branches for Foreign Banks
The policy of national treatment, or nondiscrimination against
foreign banks, dictates that foreign banks should have the same
right as domestic banks to seek federal licenses as well as state
licenses.

H.R. 10899 would permit the Comptroller of the Currency

to charter federal branches and agencies of foreign banks, which
would be regulated and supervised like national banks. We support
this option for federal chartering as it is consistent with the
basic principles of the dual banking system.

Amendment of the

National Bank Act to permit the Comptroller to waive the citizenship requirements for a minority of directors would also facilitate the process of providing a federal option for a foreign
bank operating in the U.S.
The Comptroller's Office is particularly suited to assume~
major role in the regulation of foreign banks in the United States
because of its experience in the international banking field.

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the present time, 100 national banks have 629 overseas branches
with foreign assets of 162 billion dollars.

The International

Operations Division of the Office is devoted exclusively to examination and supervision of these international operations of national
banks.

Approximately 200 national bank examiners are trained in

international examining.

The Comptroller's Office has sent

examiners with this expertise annually to more than 20 countries
since 1967.

We have an office in London out of which national

bank examiners operate and monitor practices in the Eurocurrency
market.

The Comptroller's Office is, therefore, in an excellent

position to assume this responsibility.

In regard to the chartering provisions of the bill, we
reconunend that foreign banks not be prohibited from chartering a
federal branch in a state where it now has a state chartered branch.
The prohibition in this bill against such dual chartering would restrict the newly-given chartering right.

Domestic bank holding

companies can have both state and federally chartered institutions
in the same state, and foreign banking institutions should have
similar privileges.

Federal Review and Foreign Bank Applications
The proposed legislation contains a section requiring special
federal review of applications by foreign banks to establish facilities within the U.S.

The Secretary of the Treasury would be required

to issue guidelines establishing general criteria for the admission
of foreign banks; federal and state bank supervisory authorities
would be required to solicit the views of the Secretary of State,

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Secretary of the Treasury and the Federal Reserve Board, before
acting on the applications; and foreign banks would be required to
state specifically that they would comply with U.S. antidiscrimination
laws which apply 'to American banks.
These requirements are inconsistent with the principle of
national treatment.

Domestic banks are not subject to such onerous

requirements and they would seem to serve no useful purpose.

addition, such procedures could set a precedent for other types
of foreign investment in the U.S. with unfortunate consequences
for the free flow of trade and capital.

Finally, these require-

ments would not provide any special protection to U.S. depositors
and indeed are inconsistent with the treatment that our banks
expect from their host countries abroad.
I recommend that this provision be deleted from the bill.

Reserves
The bill would extend reserve requirements of the Federal
Reserve System to all branches and agencies of foreign banks with
worldwide bank assets in excess of $1 billion.

As almost all of

the large American banks are subject to these reserve requirements,
this provision would conform to parity of treatment of foreign and
domestic banks.

We agree that these foreign banks should be sub-

ject to reserve requirements of the Federal Reserve System.

Deposit Insurance
H.R. 10899 would require the Federal branches to obtain
federal deposit insurance from the FDIC.

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State branches would

86
be required to obtain FDIC deposit insurance in any state in which

the deposits in a state bank would be required to be insured.
The.deposit insurance provision of the bill as passed by the

House conforms to a suggestion which our Office made last year.
This provision provides equality of treatment between foreign and
domestic banks.

It has the salutary effect of protecting all

citizens when they place their deposits with foreign controlled
banks.
Recently, the New York Superintendent of Banks expressed
~cern about branches of foreign banks which advertise for
retail deposits in New York, yet do not offer the small depositor
the safety of deposit insurance.

She endorsed this provision

of the bill and I urge the Committee to enact this protection
for our own citizens.
I turn now to._ two areas of particular importance.

These are

the interstate bra~ing provisions and the restrictions on American
securities affi~es of foreign banks.

These provisions are

especially sensitive since they involve two issues in domestic
banking which are under review at this time by leaders in Congress
and elsewhere.

In the absence of specific abuses by foreign banks,

some have questioned the need to legislate now in these areas for
foreign banks.

Interstate Branches
H.R. 10899 would permit interstate operations through statechartered foreign branches or agencies whenever the proposed branch
or agency is approved by the bank regulator of a state in which
the new branch or agency is to be opened.

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Interstate operations

87
by state-chartered offices would be permitted whether or not state
law permits interstate branching by domestic banks.
The bill also seems to provide for the same interstate
activities of federally chartered branches and agencies.

We assume

that the intent of the bill as passed by the House is to continue
the historic policy of the Congress of placing national and state
banks on an_equally competitive footing, and thus to permit
competitive equality of treatment to federally chartered foreign
bank branches.

The language of Section S, however, is not

clear in this respect as a literal reading may require, in
addition to federal approval, a separate and express state
approval for federally chartered branches to be established.
We are attaching language which would amend Section 5 in
this respect to permit federally chartered branches and agencies
of foreign banks in those states where such state-chartered
offices are permitted, if the Congress decides to adopt the
approach of H.R. 10899 for the interstate branching issue.
We are disturbed, however, by the illogic of foreign banks
having powers in the U.S. which our own banks do not have.

have previously stated that the relatively modest assets of
foreign banking operations in the U.S. make this issue somewhat
of a red herring.

I do think, however, that the trend to greater

foreign penetration of banking in the u.s_., recently accelerated
by the large proposed acquisitions I have mentioned, makes the
issue more significant--and highlights the structural inequity
of interstate branching by foreign banks.

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The central problem, of course, arises from the McFadden
Act which restricts branching for national banks and which is
the product of another era in the economic and political history
of this country.
reevaluation.

Clearly, domestic branching restrictions require

We feel that an objective analysis could show that

this archaic restriction frustrates the free flow of capital and,
perhaps, even affects the economic growth of our nation.

Pending such a review of our branching structure, however,
there is a strong argument that the increasingly important
foreign banks operating in the u.s. should play by our rules-even if the rules are not thoroughly satisfactory.

Thus, the

Committee should consider changing Section 5 of H.R. 10899 to
permit the establishment of new branches and agencies of foreign
banks only to the extent permitted domestic banks, with all
present offices grandfathered to prevent undue hardship and
avoid possible retaliation by foreign governments against
American banks operating abroad.

Securities Affiliates
As we have urged in previous statements on this bill, securi-

ties affiliates of foreign banks are permanently grandfathered in
H.R. 10899.
This provision should remain as it is in the bill before this
Committee.

Permanent grandfathering of existing securities

affiliates should not present a problem.

As of year-end 1976,

only 19 foreign bank affiliated securities companies operated in

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89
the U.S. on the principal and regional exchanges.
members of the NYSE.

Only four are

The total assets of these companies total

$391 million.
conclusion
I appreciate this opportunity to present the views of my
Office on the fair and effective regulation of foreign banking
in the United States.

The continuing integration of the domestic

and international banking system is a healthy trend.

This

country can profit from the investments of foreign banks just
as host countries around the world, and the U.S. itself, have
benefited from the internationalization of American banks.

The

interests of the U.S. depositing and borrowing public can be
made consistent with the principles of regulatory equality and
reciprocity on~y by a selective allocation of regulatory
responsibility to the appropriate federal authorities.

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ATTACHMENT TO STATEMENT OF
JOHN G. HEIMANN, COMPTROLLER OF THE CURRENCY
ON H.R. 10899
JUNE 21, 1978

Proposed Amendment to Section 4, "Federal Branches and Agencies"

Delete paragraph (1) of section 4(a) and delete "(2)".

New

section 4(a) should read as follows:
Except as provided in section 5, a foreign bank which
engages directly in a banking business outside the
United States may, with the approval of the Comptroller,
establish a Federal branch or agency in any State in
which the establishment of a branch or agency, as the
case may be, by a foreign bank is not prohibited by
State law.

Proposed Amendment., to Section 5, "Interstate Banking Operations•

Delete paragraph (2) of section S(a) and insert the following
new paragraph (2):
(2)

in the case of a Federal branch or agency, (A) the

regulatory authority of the State in which the Federal
branch or agency is to be operated previously has approved
such operations by one or more State branches, agencies or
conanercial lending c0111panies, or (Bl its establishment and
opera~ion are expressly authorized to State branches or
agencies by the law of the State in which it is to be operated.

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Mr. HEIMANN. Very simply, I'd like to start out by noting that
foreign banks operating in the United States have indeed been good
citizens. They have abided by our rules and regulations. As you know,
I was superintendent of banks in the State of New York and had a
major responsibility for foreign banking in the United States. My
very marvelous and thoughtful successor is here today to be a witness
later on.
I think it's fair to say that foreign banks have been good banking
citizens in this country. Second, I think the point should be made that
what we are witnessing is a growing realization that the capital markets of the world are indeed interrelated. As foreign banks have increased their activities in the United States, so have U.S. banks increased their activities in foreign nations; the capital marketplace
of the world does not view geopolitical boundaries. The markets create
their own boundaries and these institutions are indeed functioning
competitively and productively in this total global market.
I have two basic observations with respect to this trend that might
be categorized as follows : First, there should be intelligent regulation
of international banking and this intelligent regulation must be supported by the international coordination and cooperation among the
banking regulators of the world. Second, foreign banking in the
United States has clearly reached the point where an internally consistent system of Federal oversight is essential. That I think is the most
critical and important factor in terms of our support of this legislation on a general basis.
Rather than going into all of the various provisions in the bill
which we have outlined in our testimony and which you may or may
not wish to discuss later, I would like to touch on one or two of the
basic problems.
One has to do with mandatory FDIC membership. As you know,
the Comptroller by statute sits on the Board of the FDIC and we
don't always ag-ree on everythin$?. I would like to very briefly touch
on the reasons for our support of mandatory FDIC coverage.
The American concept of deposit coverage and protection was to
protect those who were innocent, if you will, in terms of the possible
failure of an individual institution and whose savings would be at
stake and possibly at hazard through no fault of their own. That
concept I believe is a valid one and has worked remarkably well in this
country. It only truly works if it's understood to be available to all
of us-the depositors, without requiring depositors to make distinctions between institutions that have insurance and those that don't
have insurance.
It seems to me that in the amounts of insurance designed originally
to protect the smaller saver in this country, it is valid to have mandatory insurance for all depositors in the system. Althou(!h thflre are
technical problems, they cnn be handled I believe by the FDIC_.
The second area that has consumed a great deal of attention, of
course, is the question about interstate branches. It seems we are
caue-ht on two conflicting principles. One is the principle of the
existing law and how it treats our own domestic institutions, the
McFadden Act, and the other is the principle of open and · free
competition throughout our society.

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As you know, sir, I am on the side of open and free com_petition
and basically believe that the time has come for a rethinking and
reevaluation of the principles of the McFadden Act-reevaluation
by the Congress, of course. In the meantime, since what we are seeking
to achieve 1s a relative parity or equity throughout the system, not
only with respect to branching but also with respect to reserve
requirements and FDIC insurance and the like, it would only be
equitable and fair to thus restrict our foreign banking friends to the
same basic ground rules as domestic banks.
I would like to make it perfectly clear that the Comptroller's office
would very much like to see a thoughtful congressional discussion
and debate on this principle since we believe that to some degree this
act is antiquated, and may disrupt the free flow of capital and affect the
economic growth of our Nation. It deserves to be rethought after
40-odd years. Thank you very much.
Senator McINTYRE. Mr. LeMaistre.
STATEMENT OF GEORGE A. LeMAISTRE, CHAIRMAN, FEDERAL
DEPOSIT INSURANCE CORPORATION

Mr. LEMA.ISTRE. Thank you, Mr. Chairman. I, too, would like to
have my statement filed.
Senator McINTYRE. Your complete statement will appear in the
record in its entirety without objection.
[ Complete statement follows:]

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Federal Reserve Bank of St. Louis

NEWS RELEASE
FDll1'-+----------------------'
FOR RELEASE UPON DELIVERY

PR-64-78 (6-21-78)

Statement on
H. R. 10899, 95th Congress, the "International Banking Act of 1978."

Presented to
Subcommittee on Financial Institutions
Committee on Banking, Housing and Urban Affairs
United States Senate

30-563 0 - 78
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Federal Reserve Bank of St. Louis

George A. LeMaistre
Chairman, Federal Deposit Insurance Corporation

June 21, 1978

- 7

94
Mr. Chairman, I welcome the opoortunitv to testifv on
issues raised in H. R. 10899, the International 9ankinq Act
of 1978.
The efforts of the Congress in this area have been timelv
and aoorooriate in light of the raoidlv growing presence of the
operations of foreign banks in the United States.

According to

statistics orovided by the Federal Reserve, from.November 1972
to the end of March 1978

the number of U. S. banking institutions

owned bv foreiqn banks increased from 104 to 268 and their total
U. S. assets auadruoled from $24 billion to $96 billion.

Since

1965, there has been more than a twelvefold increase in their
assets.
Foreiqn banks oresentlv ooerate in the United States
throuqh agencies, direct branches, subsidiaries, securities
affiliates and commercial lending companies.

Currently, these

foreign banking orqani~ations are located in ten States olus
Puerto Rico and the Virgin Islands.

However, 91 oercent of all

foreign banking offices in the U. s. are concentrated in New York,
California and Illinois.
Until quite recentlv agencies have been the dominant form of
foreiqn banking in the u. S.

As of ~arch 31, 1978, 120 agencies

with aoproximatelv $30 billion in assets were ooerating in New York,
California, Georgia, Florida, and Hawaii.

Agencies operate under

State licenses and are not permitted to hold deposits but their
customers mav maintain credit balances which are technically due
to the account of the home office.

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Direct br~nches are the most raoidly growing form of
foreign bankina in the United States.

There were 103 branches

with assets totalling $45 billion in New York, Illinois,
,ashington, Oregon, Massachusetts, Puerto Rico and the Virgin
Islands on March 31, 1978.

Branches are licensed under State

law and are ?ermitted to hold both foreiqn and domestic deoosits.
These degosits are currently not eligible for Federal deposit
insurance.
At the end of March 1978, foreign banks owned 38 Statechartered subsidiaries in New York, California, Illinois and
Puerto Rico, with assets of $19 billion.

Such subsidiaries mav

become members of the Federal Reserve Svstem.
to do so.

Five have chosen

Also, foreign banks may apoly for national charters

for bank subsidiaries; however, the requirement that all national
bank directors be U. s. citizens has made this unattractive.
Bank subsidiaries of foreiqn banks are subject to the Bank Holding
Comoanv Act of 1956, and must maintain FDIC insurance coverage.
Recently, three foreign banking organizations have begun negotiations to acquire all or _a substantial oortion of the control of
three sizeable u.

banking institutions, the combined assets

of which exceed $20 billion.
Five commercial lending companies with $2 billion in assets
were licensed to O?erate in New York.

In addition to having a

wide range of conventional banking ?Owers, these entities may
engaqe in some investment banking.

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Finallv, a total of 27 securities affiliates were
licensed to ooerate in the u.

as of December 31, 1976.

These firms are engaged in underwriting and direct sale of
securities, activities that are orohibited for domestic banks
by the Glass-Steagall Act.

Most of these affiliates are located

in New York State.
If a foreign bank chooses to ooerate in this country
through a domestically incorporated banking subsidiary, its
operations here are generally subject to the same rules under
the Bank Holding Company Act that govern the U. S. activities
of domestic bank holding companies, with limited exceptions
involving nonbanking activities oermitted by Federal Reserve
regulations issued under Section 4(c)(9) of that ~ct.

However,

to the extent that a foreign bank operates domestically through
branches, agencies, or commercial lending comoanies, it is not
subject to certain restrictions and requirements applicable
to domestic bankina organizations -- orincioally those which
forbid ooerating deposit-taking offices in more than one State
and operating affiliated comoanies engaged in a securities
business.
The stated goals of this legislation are twofold:

The

first is to provide a system of Federal regulation of the
domestic activities of foreign banks because of the role these
institutions olay in domestic financial markets, their impact
on the domestic and foreign commerce of the United States

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and because most foreign banks operate in more than one State.
The second goal is national treatment of foreign banks.
In other words, to the extent possible or appropriate, foreign
and domestic banks operating within the United States should
be treated equally.
It seems to me that as a general principle, the goal of
"national treatment" or "nondiscrimination• in the regulation
of foreign enterprises OPerating in the United States is highlv
desirable and should be pursued Provided that its implementation
is feasible and adherence to it would not interfere with some
other important public policy objective.

Thus, I am in agreement

with the notion that, consistent with our framework of bank supervision,

u. s.

operations of foreign banks should be subject to

appropriate Federal regulation and supervision.
~hile we support some provisions of the proposed legislation,
we have reservations about certain aspects of the bill as drafted
and I will set forth our views as to preferable policy choices.
In some resPects, for example, it seems that the bill deviates
from the policy of nondiscrimination without an overriding
reason for doing so.

In the discussion which follows, I shall

outline the FDIC's views with respect to five of the major facets
of this legislation.

Provision of a Federal Chartering Ootion
Section 4 of the bill would authorize the Comptroller to
approve the establishment bv a foreign bank of its first U.S.

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branch or agencv in any State where State law does not orohibit
the establishment of a branch or agency by a foreign bank.
Subseauent Federal branches or agencies of a foreign bank could
be authorized in States where the bank had no State branch or
agency if exoresely Permitted bv State law.

These Federal branches

and agencies would be regulated and supervised like national banks
to the extent appronriate.

In addition, Sections 2 and 3 of the

bill would significantly liberalize the National Bank Act and
Edge Act reauirements that National Bank and Edge Act corooration
directors be U.

citizens and that Edge Corooration stock be

owned only by U. S. nationals.

Consistent with the princiole

of nondiscrimination, these provisions would afford foreign
institutions the benefits of choice i11JPlicit in our dual system.
I heartily endorse these changes.

Interstate Bankina Onerations by Foreign Banks
Section 5(a) of the bill permits interstate branching by
foreign banks where permitted by State law.

This subsection

further provides that establishment of agency or commercial
lending company operations outside the home State selected
'by a foreign bank reguires the anProval ·of the State in which it
desires to onerate.
The thrust of these provisions is, of course, to maintain
the status guo with respect to interstate branching by foreign
banks rather than to imnose branching restrictions of the tvne

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applicable to domestic banks.

It has been argued by some that

foreign banks enjoy a competitive advantage in that they can
conduct multi-State deoosit banking operations.

Frankly, I

am not aware of any evidence that interstate banking activity
of foreign banks has had an adverse competitive impact on
our domestic banks or has impaired their viability.
It should also be noted that foreign banks currently
ooerate banking-type operations in only twelve U.

States

and territories while interstate operations of our large bank
holding comoanies extend into almost every State.

These inter-

state activities include consumer and sales finance, commercial
lending, mortgage banking, selling and reinsuring credit related
insurance, leasing, computer services and providing venture
capital to business.

banks may also establish Edge Act

corporations, loan production offices and reoresentative offices
in States other than their home State.
Absent some overriding public interest, notions of equity
and symmetry would support applying to foreign banks the same
branching rules as aoply to domestic banks.

However, in our

judgment there is an overriding public interest which leads
us to strenuously oppose application of the orinciole of national
treatment in this context.
If interstate banking operations were to be prohibited
for foreign banks, it is unlikely that a foreign bank would
want to locate anyplace outside New York, California or Illinois.

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As a oractical matter, if interstate banking oooortunities were
foreclosed for foreign banks, other States would find it difficult
to attract foreign banks and, hence, would not reap benefits
stemming from the activities of these banks -- benefits that mav
well accrue to the local economy.
One should not minimize the value of foreign banking qrowth
to the banking community as a whole.

In an interview publishe1

in the June 1977 issue of Euromoney, Paul Volcker, President of
the Federal Reserve Bank of New York, stated that -Bankers in general -- those of the New York mentality
anyway -- hold that ad1itional competition qenerates
additional business. To the extent that it sunPorts
the growth of New York as an international banking
centre it's going to be good for evervbody. More of
the world's business will be focused here, and the
more effective and efficient this market is, we'll
all be able to make some money out of it. Setter here
than elsewhere.
I see no reasons why other cities in other States should not enjov
the same Potential benefits of exoanded foreign banking activity.
I feel strongly that a State should be Permitted to invite a branch
of a foreign bank into its banking communities if this is the only
realistic way in which foreign bank entry is likely to take place.
Recent patterns of foreign banking expansion in the u. s.
suPPOrt the contention that regional financial centers would be
hurt by a ban on interstate oPerations by foreign banks.

Of the

268 foreign agencies, branches, subsidiaries, and commercial
lending comPanies operating .in the U. S. as of March 31, 1978,
only 25, or nine percent, were located outside the monev market

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centers of New York, Chicago, Los Angeles and San Francisco.
These 25 offices are located in ~assachusetts, the Virgin Islands,
Puerto Rico, Florida, Georgia, Texas, Hawaii, Oregon and ,ashington.
Seventeen of the 25 offices located outside the four princioal
money market centers are direct branches of foreign banks and six
are agencies.

This suggests that branches and agencies are the

major hooe for increased foreign banking involvement outside
these centers.

Moreover, as indicated in the table, direct

branches have been the fastest growing organizational form of
foreiqn banking in the United States, both in number and total
assets.
TABLE
Growth in Number of Offices and Size of Foreiqn Banking
Operations in the United States
March 1978

November 1972

Total
Assets
~umber
(billions)

Total
Assets
(billions)

Number

$96

268

$24.3

104

Agencies and agreement
coroorations

122

13.6

Branches

103

5.3

Subsidiaries

4.1

1. 3

All foreign institutions

Commercial lending comoanies

The 25 foreion institutions outside the banking centers
are ooerated by foreign banking orqaniiations that are oart of

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102
14 foreign banking "families• that also have foreign banking
offices in the States of New York, California or Illinois.
This implies that the tendency is to geographically diversifv
foreign banking operations once banking operations have alreadv
been established in the principal centers.

~e believe this

multi-State diversification should be permitted to continue.
~e therefore strongly suoport the orovisions of Section 5(a)
as oassed by the House.

Nonbanking Activities of Foreian Banks
Section 8 of H. R. 10899 subjects foreign banks' domestic
agencies, branches, commercial lendina companies and their
affiliates to the orovisions of the Bank Holding Comoany Act
of 1956 as amended in 1970.

However, domestic nonbanking

activities (including securities activities) which were commenced
or acquired orior to Mav 23, 1977 are grandfathered oermanentlv.
Those acauired after that date and which are orohibited for
domestically-owned bank holding comoanies must be divested bv
December 31, 1985.
Under an earlier version of the bill, different rules
would have aoPlied to the ·securities activities of foreign
banks.

Divestiture by December 31, 1985 would have been required

of all securities activities whether commenced after the grandfather date or not, exceot that foreign banks' securities
affiliates could have continued to engage in securities
transactions for individuals and organizations outside U.
jurisdiction.

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During the House consideration of this bill, it was
argued that these earlier restrictions on securities activities
were both discriminatorv and anticompetitive.

It was felt that

they were unfair to foreign banks, since large u. S. banks engage
in substantial securities activities abroad.

Moreover, it was

feared that such restrictions would oromot retaliation against
those u. S. banks which do engage in extensive foreign securities
ooerations.

Also, it was argued that by lessening comoetition in

the u. S., the cost of underwriting might be increased and the
issuing of new securities made more difficult.

Regional stock

exchanges felt that thev would suffer substantial revenue losses.
I believe it is fairer and less disruptive to grandfather
all existing securities operations of foreign banks as the bill
presently does.

This minimizes any likelihood of retaliation

and eliminates the hardshio of winding down operations on those
institutions which have olaved by the rules of the game to date.
Although this aoproach mav be at odds with the concept of national
treatment, the oractical effect would be minimal given the limited
scope of existing foreign bank securities ooerations.
Accordingly, I stronqlv favor the oermanent grandfathering
of all existing securities activities of foreign banks now
contained in Section 8.
Deoosit Insurance Coverage
As the FDIC has indicated in orevious statements, we have
had serious reservations about the necessity and desirability

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104
of making deposit insurance coverage available for domestic branches
of foreign banks.

These reservations arise from a concern that

insufficient legal and regulatory controls could be olaced on
branch oryerations that are not legally seoarate from those of the
oarent bank.
1.

At least five problems are involved:

Directors of the foreign bank are not usually
subject to u. s. jurisdiction, and domestic branch
oersonnel essential to exnlain certain transactions
can be transferred bevond the reach of u. s.
authorities.

Also, essential records may be

difficult to reach if they are kept at the head
office or at branches in other countries.
2.

The domestic branch may be subjected to requirements
under foreign law or to nolitical and economic decisions
of a foreign government which conflict with domestic
bank regulatory nolicies.

Administrative enforcement oroceedings initiated by
domestic regulatorv authorities against domestic branch
personnel mav be frustrated or nullified as a result
of lack of jurisdiction over the fpreiqn bank's head
office and head office Personnel.

Many foreign banks are oermitted under the law
of their headquarter's country to engage in
business activities abroad which would not be
nermitted to banks chartered in this countrv.

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Such foreiqn activities could give ris~ to antitrust,
conflict of interest, and other leqal oroblems under
U. S. law.
5.

In the event of insolvency of a foreign bank, it is
possible that:
~

could be easily and quickly shifted from

the u.

branch and out of U. S, jurisdiction,

while deoosits could be shifted!£ the u. s. branchi
legal obstacles and transactions involving other
offices of the foreign bank might prevent FDIC
from obtaining the usual subrogation of claims
it normally gets from depositors in failed U. S.
banks before making payment.

Even if adequately

subrogated, FDIC's aggregate claim in the failed
bank's receivershio estate might be jeopardized
by foreign laws and proceduresi
creditors with claims against other offices of the
failed bank -- esoecially banks holding deoosits of
the u.

branch

could attempt offsets against

assets in the U. S. or seek preference based on
foreign law.
In addition, deoosit insurance orotection is largely
unnecessary insofar as foreign banks' domestic branches engage
in "wholesale" international banki~g activities.

Moreover, if

foreign banks wish to expand their operations in this countrv

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106
into the "retail" bankinq business with the benefit of Federal
de~osit insurance, they Presentlv have an ootion to do so under
existing law· through a domesticallv incoroorated banking subsidiary
in those States in which State law Permits.

Of course, in that

event most of the oroblems outlined above are less imoortant.
Notwithstanding our concerns, a number of interested parties,
including the Federal Reserve Svstem, have strongly argued that
some form of deoosit insurance coverage should be available to
the u.

branches of foreign banks.

Accordingly, an earlier

version of the bill contained a surety bond or oledge of assets
method of providing orotection similar to, but in lieu of, deoosit
insurance coverage.

In our ooinion this solution was less than

satisfactory for a number of reasons.
1hile some of the risks listed above could be mitigated by
imoosing various conditions and restrictions upon the foreign
bank, the value of such requirements depends ultimatelv uoon the
ability to physically enforce such reauirements by exercising
quasi i n ~ jurisdiction over the foreign bank's domestic assets
and/or obligors.

Short of a dollar-for-dollar oledge of assets

to back uo 100 percent of the branch's domestic deoosits, efforts
to impose such requirements as a substitute for deoosit
insurance could turn out to be of limited value.
In resoonse to the view that some form of deposit insurance
coverage is nece~sary, the FDIC recommended a modified version
of the surety bond and pledge of assets approach which would be
couoled with the granting 0f regular deposit insurance for the

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107
domestic deposits of u.

branches of foreign banks.

recommended that such deposit insurance could be made available on an ootional basis along the following lines:
SEC. 6(a) Any branch mav become an insured bank under
the Federal Deposit Insurance Act (12 u.s.c. 18ll-3lb)
with respect to its domestic deposits, as defined by
regulation by the Soard of Directors of the Federal
Deposit Insurance Corporation, as if such branch were
a State non~ember bank. UPon so becoming an insured
bank, a Federal branch shall thereafter be treated as
if it were a national member bank, and any other branch
shall thereafter be treated as if it were a State
member bank, for Purposes of aoolvina the Federal Deoosit
Insurance Act to such branch's domestic activities
(exceot that anv such branch shall continue-to be treated
as a State nonm~mber bank for ourpose9 of the first
sentence of Section B(a) of that Act orovidina for
voluntary termination of insured bank status): Any
branch which becomes an insured bank shall maintain
with the Federal Deoosit Insurance Corooration, or as
the Corooration mav otherwise direct, a surety bond
or a pledge of assets in such amount and subject to
such conditions and rules as the Corooration mav
orescribe for the ouroose of oroviding some additional
protection to the deposit insurance fund against the
additional risks entailed in insuring the domestic
deposits of a foreign bank whose activities, assets
and oersonnel are in large Part outside the jurisdiction of the United States. In prescribing such
rules, however, the Corooration shall, to the maximum
extent it considers aoorooriate, endeavor to avoid
imoosing requirements on such branches which would
place them at an undue comoetitive disadvantage
vis-a-vis domestically incoroorated banks with
which thev comoete.
(b) Paraaraoh (a) of this section shall
take effect 180 davs after enactment hereof.
Rithin 90 davs aft~r enactment and as may be
aporooriate thereafter, the Corooration shall
submit to the Congress its recommendations for
amendina the Federal Deposit Insurance Act so
as to enable the Corooration to imolement the
Prov1s1ons of this section in a manner fullv
consistent with the ourposes of that Act.

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If foreign banks' domestic branches chose deposit insurance
coverage under such a orovision, thev would become subject to
a much less onerous form of surety bond and pledge of assets
requirement, which would be designed not to be a substitute for
dePosit insurance but rather merely to give the Federal dePosit
insurance fund a measure of Protection to comPensate for the additional risks to which it would be subjected, as described above,
by virtue of providing regular deposit insurance for the domestic
deoosits of an entity ooerating for the most part outside of U.
jurisdiction.

Domestic depositors would be fullv orotected up to

$40,000 just as are depositors in domestic insured banks.

This

approach of Providing regular deposit insurance on an oPtional
basis in conjunction with a modified form of the surety bond and
pledge of assets requirement seems preferable from the Corooration's
standpoint to the mandatorv coverage required in Section 6 of
H. R. 10899.

It would out foreign banks on as nearly an equal

basis as possible with domestic banks while at the same time
affording appropriate supPlemental protection to the deposit
insurance fund roughlv commensurate with the added degree of risk
included in insuring foreign entities.
It will be noted that the provision suggested above
would give the FDIC authority to define "domestic deoosits"
f~r purPoses thereof.

It is contemPlated that that term would

be defined to include dePosits of individuals who are citizens
or residents of the United States and comPanies having an

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appropriate business nexus with this country.

It is likelv

also that such "domestic deposits" would be required to be
oayable only in the United States, and a requirement might be
included that the deposit contract provide that U. S. law qovern
the depositorv relations.hip.

Other criteria might also have to

be considered from time to time in determininq what would be an
appropriate insurable "domestic deposit."

~e would greatlv orefer

the more flexible aooroach of defining this term bv regulation
rather than attemoting to do so by statute.
ie supoort ootional deposit insurance for foreign banks'
U.S. branches because we believe it is oreferable to accord
such branches, insofar as possible, the same options afforded
domestic banks under Federal law.

Comoarable treatment as to

deposit insurance would require permitting foreign banks to
operate State-licensed branches in the U.

without obtaining

deposit insurance if such is oermitted by State law.

Also,

from the standpoint of State governments, we believe each State
should have the ootion of oermittinq foreign banks to ooerate
branches in such State without Federal deposit insurance,
subject to such limitations and requirements as State law mav
orovide.
At present, for example, New York is among those States
which permit foreign banks to establish domestic branches without
obtaining Federal deposit insurance, although such branches are
subject to various requirements under State law designed to

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protect depositors and creditors of such branches.

Indeed, there

has been no case to our knowledge where any loss has been suffered
by depositors or creditors of a U. S. branch of a foreign bank
because of the foreign bank's insolvency.

Even as to the failure

of Intra Bank in October 1966, it is our understanding that all
depositors and creditors of Intra Bank's New York branch were paid
within three years after the branch was closed.

Subsequent to the

Intra Bank failure, New York law was amended to give added
orotection to depositors and creditors of branches of foreign
banks ooerating in New York.
~hile we have no strong objection to requiring Federal
deposit insurance for Federal branches of foreign banks licensed
by the Comptroller of the Currency in conjunction with a surety
bond/pledge of assets requirement of the type contained in
Section 6, we believe that Federal law should not mandate deoosit
insurance for State-licensed branches of foreign banks.

Rather,

we believe anv reouirement that State-licensed branches be
federally insured should be left to State law.

As you know,

California presently imposes such a requirement if such a branch
accepts domestic deposits.
One alternative the Congress might want to consider
is to require uninsured branches to make that fact known to
depositors.

This would, of course, be a deoarture from

national treatment since there is no such requirement for
domestically chartered banks which do not have deposit insurance.

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Such an aooroach would nevertheless be a oossible alternative
to mandatory deposit insurance for foreiqn banks' U.S. branches.
~hile we would prefer to see Section 6(a) and (bl of the
bill modified to make deoosit insurance available to domestic
branches of foreign banks on an ootional rather than a mandatory
basis, we have no objection to the lengthy technical revisions
in Section 6(c).

~e have reviewed these provisions at the staff

level and worked with House Subcommittee staff in trying to
perfect them from the technical standooint.
If your Subcommittee should not be inclined to take the
ootional approach to deposit insurance for domestic branches
of foreign banks, we would strongly recommend that, at a minimum,
language be added to Section 6 which would give the FDIC authority
to waive the requirement for FDIC coverage if it determines that
the domestic depositors of a foreign bank's U.

branch would

be covered by a foreign deposit insurance or guarantee program,
or by an undertaking or agreement of a foreign governmental entity,
which in the FDIC's ooinion gives protection to

u. s.

depositors

of at least similar quality and extent as would FDIC coverage.
If your Subcommittee should so desire, we would be haopy to work
with you in developinq statutory language aoprooriate for this
purpose.
Imoosition of Reserve Requirements and Interest Rate Controls
Section 7(a) of H. R. 10899 subjects all branches, agencies
and commercial lending comoanies controlled by foreign banks whose

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worldwide assets exceed one billion dollars to the reserve requirements and deposit interest rate controls imoosed by the Federal
Reserve on member banks.

Section 7(b) oermits the Federal Reserve

Board to prescribe rules and requlations qoverning the ac~ess of
foreign branches, agencies and commercial lending companies to
the clearing, discount and advance facilities of the Federal
Reserve System.
•hile the bill does not require foreign institutions to
become members of the Federal Reserve System, these two orovisions of Section 7, along with the remaining orovisions in
the Section, impose upon foreign branches, agencies and
commercial lending comPanies the obligations and benefits
of Federal Reserve membership.

For all practical purposes,

this bill, in effect, reauires Federal Reserve membership,
even though it is not stated as such.
In my June 20, 1977 testimony before vour Subcommittee,
I indicated that, although I have an open mind with respect
to the question of universal reserve requirements, I do not
believe that the issue of reserve requirements for nonmember
institutions should be dealt with on a Piecemeal basis;

Rather,

it seems to me that the relationship to the Federal Reserve
System of all banking institutions which choose not to join
the Federal Reserve System should be studied in a systematic
and unified fashion.

Such a study is, it seems to me, the most

effective way to respond to the Federal Reserve's concern with

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membership attrition.

Applying this to the reserve requirement

proposals contained in H. R. 10899 would dictate that the
relationship of foreign banks, which choose to operate
in the United States in one form or another, to the Federal
Reserve System should be dealt with in the context of
a broader solution to the question of membershio.
The approach I suggest is, of course, consistent with the
orinciole of national treatment or "nondiscrimination."

And,

conversely, to require, in effect, Federal Reserve membershio
for only those domestic affiliates of foreign banks haiing total
assets of more than one billion dollars would represent a deviation from that principle.
Yet, I recognize full well that the priniciple of
national treatment cannot be viewed as an absolute.

As I

indicated at the outset, that conceot should certainly give
way before overriding public policy considerations which
arise out of soecial circumstances.

In this regard, the

Federal Reserve has argued rather strenuously that the operations of relatively large foreign banking institutions pose
just such a case and this mandates a departure from the
principle of national treatment.
The Federal Reserve has oointed out that from a monetary
control standpoint, the ooerating characteristics of branches
and agencies of foreign banks are noteworthv because these
institutions generate a substantial portion of their ~unds from

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overseas sources, primarily from the parent or directly related
institutionsJ

These funds are not subject to Federal Reserve

Regulations Dor M.

The Federal Reserve fears that this may

result in a cost advantage for large foreign institutions
vis-a-vis their large U. S. competitors who are members of
the Federal Reserve System.

More importantly, it is feared

that lack of such direct Federal Reserve controls over reserves
could impede the effective implementation of monetary policy
in the face of massive and precipitous transfers ~f funds.
Although both these factors represent real concerns, at
least two factors sugqest that these problems are not sufficientlv
serious at this time to override the Principle of national treatment in this area.

It is true that foreign banking activity in

the U.S. has grown considerably in recent yearsi yet its scale
remains relativelv small.

The assets of all foreign banking

entities, including State-chartered banking subsidiaries, are
less than eight percent of total commercial bank assets as of
December 31, 1977.

Moreover, the Federal Reserve has stated in

previous testimony that foreign banking institutions in the U. S.
generally have complied with a Federal Reserve Board request to
maintain reserves on increases in net liabilities from abroad
which parallel requirements under Requlations D and M.
Although the operations of foreign banks could conceivably
pose uniaue problems for the central banker, we do not believe
that these potential Problems are vet of sufficient magnitude

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to pose a real risk to the stability of our economy,

At the

same time, I recognize fullv that the auestion of whether to
depart from the principle of "nondiscrimination• on the matter
of reserve requirements is a knotty issue on which reasonable
men may differ.
,ith respect to the matter of deposit interest rate
controls, we fully support the notion that foreign branches,
agencies, and commercial lending companies should be subjected
to such controls.

As drafted the legislation would, however,

vest all such authority in the hands of the Federal Reserve
Svstem.

Such an aPProach is appropriate if the Congress

chooses, in effect, to reouire mandatorv membership in the
Federal Reserve System.

However, if the Congress chooses to

maintain the ootion of nonmembership, .then administration of
such controls vis-a-vis nonmember foreign banking institutions
should be vested in the FDIC as it is presentlv with resoect
to nonmember domestic institutions.

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Mr. LEMAISTRE. We are in general support of the bill as it came
out of the House. We have certain reservations about some sections
which I'd like to touch briefly. Specifically, there are five facets of
the bill I would like to review.
The first one is section 4, which would give the foreign banking
institutions the benefits of the dual banking system, allow them to
establish a Federal branch under the authority of the Comp4-roller,
and also would liberalize the requirement that national bank and
Edge Act corporation directors be U.S. citizens; and section 5 (a),
which permits interstate branching by foreign banks where permitted
by State law, is one we would support. We think that the State ought
to have the right to say what the privileges of branches seeking to
come into that area should be, and we strongly support the provis10ns
of section 5 (a) as it passed the House. As you know, it was amended on
the floor of the House and it was not in the :form that it came out of the
committee.
Section 8 of the bill would subject foreign banks' domestic branches,
agencies, commercial lending companies and their affiliates to the
provisions of the Bank Holding Company Act. We support the
theory expressed in the bill that these activities currently engaged
in by these institutions ought to be permanently grandfathered,
particularly the established securities activities of foreign banks.
While the bill doesn't require foreign institutions to become
members of the Federal Reserve System, there are two provisions in
section 7 which apply to banks of $1 billion or more in worldwide
assets-the imposition of reverse requirements and interest rate
controls by the Federal Reserve, and section 7 (b), which permits the
Federal Reserve Board to prescribe rules and regulations governing
the access of branches, agencies, and lending companies of foreign
banks to the clearing, discount, and advance facilities of the Federal
Reserve System. As I say, this doesn't mandate that they be members,
but in effect in does say when they come in if they are over $1 billjon
in assets they are, for all practical purposes, members of the Federal
Reserve System.
We don't require that of domestic banks. If there is a national
policy of treating foreign banks in an evenhanded way, they should
be treated exactly as American banks, and we should give them the
same privilege to belong or not belong to the Federal Reserve as they
see fit. It also seems to me that the Congress really needs to make a
future study of the need for universal Federal Reserve membership.
I. don't think that's been done yet. I think it's been mentioned in a
number of bills, and each time we have testified we have pointed
out that it ought to be a subject of a comprehensive study to see what
the effects are. For the purposes of this bill, I would say that,
consistent with the principles of nondiscrimination, it seems to me
we ought not to require Federal Reserve membership only for those
domestic affiliates that have more than $1 billion in assets. It seems
to me if it's required for one group of banks it ought to be for all of
them; but my inclination is to say that we ought not to mandate
membership until we have a complete study of it.
Now the other point which I'd like to refer to has to do with the
deposit insurance :factor, and, as you know, we have expressed in the
past some serious reservations about the need for making deposit

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insurance coverage available for domestic branches of foreign banks.
The reservation we have arises from the fact that there is some difficulty in obtaining the necessary authority and controls over the parent
and necessary information as to its worldwide activities that might
be helpful in our operations as an insurer. I have set those difficulties
out rather extensively in the statement that's been filed. I also would
point out that most of the operations of these branches of foreign
banks are wholesale in nature. They are not retail bankers. If they
want to go into the retail business they can presently go into the
business by either incorporating or purchasing a domestic banking
subsidiary. That method of getting into the business of retail banking
brings them under the Federal Deposit Insurance Corporation
protection.
But we did suggest that there would be a way that we thought we
could live with the deposit insurance coverage requirement and that
we felt that perhaps as provided in the bill some surety undertaking
or some pledging in addition to the insurance would be necessary to
protect against the risk involved in dealing with foreign institutions.
To completely protect depositors in an uninsured branch of a foreign
bank you would have to provide for 100-percent coverage by pledging
or surety, and that's obviously too expensive for any bank to undertake. So we have suggested that some limited type of surety or pledge
of assets requirement in addition to regular deposit insurance coverage
would be acceptable, and that is included in the bill as it passed the
House.
Again, I'd like to point out, though, that if you're going to give
comparable treatment to foreign banks as compared to what we do
with domestic banks, we do not require all domestic banks to have
deposit insurance. If State banks want to operate without insurance
and the State permits them to do so, there is no requirement that they
be so insured. I would strongly recommend that they be insured, but
they don't have to be, and I think that any requirement that Statelicensed branches be federally in:iured ought to be left to the State
law, the State which issues the license, in order to say whether they
want that institution to be federally insured.
At the least, though, if the committee does not take the optional
approach which I suggest, I would suggest rather strongly that we
be given at a minimum the authority to waive the requirement :for
FDIC coverage if the FDIC determines that the domestic depositors
of foreign banks would be covered by a foreign insurance program;
nnd there are quite a few countries which are embarking or have embarked _on !his type of program, and if we found ther~ was adequate
protect10n it seems to me we ought to be allowed to waive the requirement so that the added expense could be taken off the back of the
branching bank.
If that is an attractive proposal, then obviously we would be happy
to !ry to work out the language with your staff providing- for such a
waiver. Actually, there are 8 or 10 countries in which insurance is
either in place or being contemplated. I'm not saving that many of
them insure deposits in foreign branches of their banks. I'm not sure
how many of them do cover it, but we could find out.
Thank you.
Senator McINTYRE. Thank you.

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Mr. Heimann, with regard to the option for the establishment of
Federal branches and agencies under this bill, what interest would
there be for a foreign bank to establish a federally chartered office as
opposed to a State-chartered office?
Mr. HEIMANN. Well, again I think, Senator, that goes back to the
principle of the dual banking system. Any institution in this countrycommercial banking institution-may decide which charter it chooses
to operate under, the State charter or the national charter. Clearly, it
would seem to me proper and fair to provide a foreign bank that same
choice in the sense of parity and equity with our own commercial
banking system. Mark you, that would be the choice of the individual
institution and not mandated on them.
May I add something to that, if I may, Senator? If one assumes that
the foreign bank has the choice between a Federal charter and State
charter-Senator McINTYRE. Under this bill he would.
Mr. HEIMANN. Under this bill. Over a period of time there would
be a number of foreian banking institutions that may be regulated by
the Comptroller'i; Office, and there would, of course, continue to be,
I would assume, a substantial number regulated by the State commissioners and superintendents of banks. If I may, going back to my
statement: What I consider to be the most overwhelming sing-le factor
to be considered in this bill is the need for an intelligent, thoughtful
Federal oversight, ·which in our dual system can only be provided for
State-chartered banking operations by either or both the FDIC and
the Federal Reserve.
Senator McINTYRE. The Federal Reserve Board argues for reserve
requirements on subsidiaries as ,vell as branches, agencies, and commercial lending companies. Mr. Heimann, how do you view this request
on. the part of the Federal Reserve?
Mr. HEIMANN. Our basic feeling is that we think it's fair and proper
in terms of the branches, and we are not, I don't believe, as strongly
inclined in terms of subsidiaries and agencies as the Fed. We understand their reasons for it, but again our primary concern has been over
the branches themselves, and that's where we would like to see it.
Senator McINTYRE. Do you ,vant to comment on that, Mr. LeMaistre?
Mr. L:eMAISTRE. In general I would agree with that. I think that at
the moment, even though it's growing rather rapidly, this is not a very
large segment of our banking community. It still remains a rather
small percentage, even though that small percentage is growing every
day, and I'm not at all persuaded that it's necessary to apply the
reserve treatment to every institution or to every office or to every
corporation of whatever kind.
As I said before, I think that deserves a great deal of study and
ought to be a subject of a different inquiry.
Senator McINTYRE. Well, gentlemen, the Federal Reserve argues
strongly it should have direct examination authority over foreign
banks, particularly in light of the fact that this bill provides foreign
banks maintaining reserves with the Federal Reserve access to the
Fed discount window. How would you respond to the Federal Reserve's
position in that regard?
Mr. LEMAISTRE. 1¥ell, I would say that if you're seeking national
treatment on a nondiscriminatory basis of the branches of foreign

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banks doing business in the country as compared with the business
being done by domestic banks, then they ought to have the same rights
and privileges; and one of those is that they are not required to join
the Federal Reserve System. So I think we have two conflicting ideas
here. One of them is that it's of great importance that we treat these
branches of foreign banks in an equitable manner and no differently
from the way we treat our own, and it seems to me if we do that we
have to accept the proposition that it is not necessary £or them to be
subjected to the reserve requirements. I think they have a choice to
make, or should have.
Senator McINTYRE. Do you agree, or do you want to comment, Mr.
Heimann?
Mr. HEIMANN. I think there are two questions, one, whether there
should be mandatory Fed membership. And, I am sorry, I am going
to keep coming back to the basic theme, which is some sort of organized Federal oversight of the whole phenomenon in the growth of
foreign banking in the United States.
Let me take the latter first. I do think that it is in the national
interest to have a consistent review of these activities, be that through
the FDIC, assuming insurance and their responsibility to examine with
the States under their own insurance responsibility, or the Fed. As
you know, the Comptroller acts with the Fed in this respect with
the national banks. I am assuming that many of them will remain
State-chartered, because there has been such a successful experience
for our foreign banks through State charter.
I do believe there must be consistency on a national basis with
respect to the continuing review of foreign banking operations in the
United States.
And that does come back to only two Federal agencies. Unlike what
may have been said before, I am not arguing that it should be the
Comptroller's Office, because that clearly would not be correct under
the dual banking system.
So that I think I would argue £or someone having that responsibility, FDIC or the Federal Reserve; it must be vested somewhere
on a national basis.
Second, with respect to mandatory Fed membership, I am afraid I
don't have the numbers with me, and I would like to look them up,
but it is a reality that we talk about three banking systems in the
United States. I think I have heard the phrase "tri-level". I might
say that we could even divide it in some other fashion. The reality is
there is a multinational banking system in the United States, both
State chartered and nationally chartered, which tends to consist of
very large institutions.
Most of the foreign banks that have entered this Nation have also
been very large institutions. We should be applying the ground rules
between the multinational institutions rather than across the warp
and woof of our banking system, which, as you know, has within it lots
of smaller institutions, that are very productive and helpful.
I believe that there should be reserve requirements £or the sake of
basic parity among the multinational banks, including the foreign
banks, so we agree with the Fed in that respect.
Senator McINTYRE. Mr. LeMaistre, on the issue 0£ mandatory versus
optional FDIC insurance, is there any practical means of distinguish
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ing, as the foreign banks suggest, between retail deposits requiring insurance protection, and commercial deposits which do not?
Mr. LEMAISTRE. You mean is there any way for the public to distinguish between them?
Senator McINTYRE. For the FDIC.
Mr. LEMAISTRE. It might be a difficult task, but I think if we were
permitted inspection, we could tell. If we were allowed to go in and
find out the source of the deposits, we could very easily tell whether it
is a retail or commercial deposit.
I don't think that that would necessarily cause us a problem.
Senator McINTYRE. There doesn't appear to be any easy way of distinguishing between retail deposits requiring insurance protection and
commercial deposits.
Is there anything further we can do in this bill that would enable
the FDIC to be' able to make a distinction, and therefore when insurance was needed and when it was not?
Mr. LEMAISTRE. I am at a little bit of a loss at this time to say what
else could be done to improve that section.
However, we would-be happy to work with your subcommittoo to
develop legislative language which would enable the FDIC to make
this sort of distinction in the course of its job of insuring the domestic
deposits in domestic branches of foreign banks.
Now of course if the purpose is only to protect the innocent, you
could require them to simply display a large statement that they are
not insured, if that is just to keep the public from getting into
difficulty.
But I think there is a reason and one that is probably well supported,
for some kind of insurance arrangement that doesn't present too great
a burden.
I have to say that it might be rather expensive, and one of the provisions of this bill is that we are to provide this coverage in such a way
as to not unduly burden the bank in conducting its business. That does
present a little bit of a problem.
Senator McINTYRE. Senator Schmitt.
Senator SCHMITT. Thank you, Mr. Chairman. First, I would like to
take one phrase on page 2 of Mr. Heimann's testimony and suggest to
the committee that we emblazon it on the wall above our heads. It is
this: "As always, there will be a few transgressors, but the price of a
free market system is that all wrongdoers can not be excluded in
advance."
We have had some interesting discussions in this committee about
tryi~ to exclude all wrongdoers in advance. I think that is just an
excellent statement, and I just wanted to repeat it.
Would both of you comment further on any disadvantages or problems you see with even optional reserve requirements on forei,gn banks?
For example, do you see any problem if interest was allowed on
those deposits? Do you see the foreign banks in any way getting an
even greater advantage because of their foreign relationship? Or
would we in any way be subject to a loss of funds as a result of this?
Mr. LEMAISTRE. I can't believe that the foreign banks would be in
a position to beef up their reserves in order to maximize the return on
them. So I doubt if you would run into any criticism because of payment of interest if that came about.

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I really don't think that would be a very serious problem. The maintenance of reserves plus the cost of deposit insurance, though, might
make it unattractive to a foreign bank to do business in this fashion.
That is assuming they didn't get enough interest to pay for the idle
reserves.
Mr. HEIMANN. Senator, I agree with Chairman LeMaistre. However,
I would like to add just one comment to that. The cost, if you will,
is the cost that is presently being borne by our domestic institutions
that are Fed members. Again I think we have to distinguish when
we talk about the large multinational institutions, not the broad scope
of the total banking system of the United States, but those 140, or 146
to 150 banks tJhat are dealing internationally, as well as domestically.
That is the basic competitive group, if you will, vis-a-vis the foreign
banks in.the United States.
Those institutions at the present time are bearing the cost in the
present system of the sterile reserves and, of course. of FDIC coverage. Therefore, in terms of equity or parity, whatever phrase you want
to use, the foreign banks would be no worse off than our domestic banks
as the competitor.
Senator SCHMITT. Are you both saying that as it now stands, you
would not expect the foreign banks to join the Fed system? It would
be to their disadvantage to join, and that we probably wouldn't see
much of this?
Mr. HEIMANN. It clearly increases their costs, and if it increases
costs, then it becomes less advantageous than the present system.
Senator ScHMITr. Do either of you see, in your projections, the possibility of foreign banking reaching the point where we begin to lose
even more visibility in the monetary system, particularly, say, in the
money supply and other parameters of that kind, which the Fed uses
as its system of measurement?
Mr. HEIMANN. Well, that kind of extrapolation is rather difficult
to be precise about in any way. I think that is the basic point that the
Fed is making in terms of the reserve requirements, that it would be
easier and more prudent for monetary policy reasons to have these
institutions included.
Senator SCHMITT. Mr. LeMaistre?
Mr. LEMAISTRE. As I said before, I think that subject needs a great
deal of study. I think it ought to be the subject of a comprehensive
survey, and separate legislation.
But frankly, I am certainly not saying that it isn't worthwhile to
be a member of the Federal Reserve system. What I am saying is before we say everybody has to be a member, we ought to look very carefully at what we are requiring.
Senator ScHMITT. Mr. Heimann, in your testimony, you referred to
the McFadden Act and maybe in your written testimony you do, also.
Would you both care to comment further on the McFadden Act,
what you would rer,ommend, even separate from this legislation, that
the Banking Committee consider?
Mr. HEIMANN. As I have said in our testimony, I think the time has
come for reevaluation of the McFadden Act. We have not sat down and
tried to rewrite the law, certainly not, but we think that the world has
changed substantially since the iaw was enacted by the Congress.

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It is very healthy indeed to review the structural questions affecting
the activities of banks periodically, in order to determine whether the
reasons for that particular structure are still valid, and should be
continued or adapted or changed in any way.
I brought up the issue, as you know, of the dilemma that we face
with respect to multistate branching. It has to do with restrictions of
McFadden with respect to our domestic institutions.
Mr. LEMAISTRE. I would agree that probably it is time to look again
at McFadden. As you know, it was originally intended to expand
the powers of the national banks when it was adopted. Now it is used
more for the purpose of delineating or restricting their powers as
opposed to State banks, and that is not necessarily bad, I just think
it is time to take another look at it.
I think it has served its purpose well, and probably doesn't need a
great deal of change. But it is certainly worthy of study.
Senator SCHMITT. In either one of your agencies, are you in the
process of doing that, studying it from your particular points of
view~
Mr. HEIMANN. I think it is fair to say we have a constant discussion
about it. I wouldn't say we are studying it in terms of an additional
kind of survey. We more or less know the problems it has caused in
the structural system. The question would really be what would be
the ramifications of change.
If I may give an example the Congress, as you know, is considering
EFT facilities. That is another ·area in which the same question is
raised, albeit with the technological improvements, but nevertheless
coming to the questions of the geopolitical border versus the natural
market area of a given set of financial institutions.
Senator SCHMITT. Well, that legislation was one of the reasons that
prompted me to quote your statement.
Finally, Mr. LeMaistre, have you had a chance to think through,
how, under the proposed legislation, if it became law, you would carry
out your enforcement provisions? That is provisions, with respect to
regulations governing foreign banks, and the mechanism. There would
have to be some. differences in how you would examine records or get
to records.
Mr. LEMAISTRE. It would require further training, I am sure. But
at the moment two of the three largest banks that we supervise are
foreign owned banks, and it is not a field with which we are wholly
unfamiliar.
I don't think it would be a great problem to go ri~ht into the examination of these branches and enforcement of regulations as they apply
to them. But as I say, it would require more people and more training.
But I think it can be done without a great deal of difficulty.
Senator SCHMITT. Are there any diplomatic considerations within
reach that you would have to obtain to understand what is going on i
Mr. LEMAisTRE. Well, I think there are ·always considerations which
relate to the amount not only that you have to have, but you should
be permitted to have.
Obviously there are some countries which are even more zealous in
protection of the records of a bank than we are. It is quite n<mJible
in some of those cases we would not be able to obtain information from
the main office. Or at least not all we wanted. But again I think that

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123
we could continue to operate. I haven't seen any evidence of any wrongdoing or any short cuts being t.aken by branches of foreign banks in
this country that would cause us to £eel we couldn't trust them.
Senator ScHMI'IT. Have you discussed this at all with the State
Department?
Mr. LEMAISTRE. No, I have not.
Senator ScHMI'IT. Thank you, Mr. Chairman.
Senator McINTYRE. Senator Stevenson.
Senator STEVENSON. Thank you. Mr. Heimann, if the multistate lending activities 0£ branches are restricted, as you suggest, then the economy is deprived 0£ those services, and the bankR are deprived of competition which you profess to support.
Why not reconcile these conflicting objectives this way-I am going
to put the same proposition to you as I have to earlier witnesses-permit the multistate lending activities, i£ the State does, limit the
competition where it doesn't do much good anyway and can do a great
deal of harm, namely, on the deposit side, by limiting the deposit
activities of the branches and agencies, outside of the forei~ bank's
home state to those permitted under the Edge Act for everybody.
That way the competition for deposits is limited, we retain or we
get an opportunity to bring in deposits from foreign sources, from
export transactions; and on the lending side, where we need more
credit facilities particularly with respect to trade, we get it.
What would be wrong with such a formula?
Mr. HEIMANN. Senator Stevenson, I think it is a very interesting
idea. You have heard the answers given by Chairman Miller. I must
say that I myself am in basic agreement with the concept, but it should
be looked at very carefullv. rhave not seen or done or studied comparing- the activities of agencies as against loan production office. I
would like to see that done. I think that is something our office could
do immediately. It is a concept well worth reviewing.
Senator STEVENSON. Would you do so, think about it, look at it?
Mr. HEIMANN. Certainly.
[The following information was received for the record :]
MULTISTATE BANKING ACTIVITIES BY DOMESTIC AND FOREIGN BANKS: FOUR FORMS

This information was prepared in response to a request by Senator Stevenson.
It compares two forms of multistate activity by foreign banks (the branch and
agency forms) with two multistate activities of domestic U.S. banks (Edge Act
corporations and so-called loan production offices).
Of the four, the branch form appears to permit banks the broadest range. of
banking activities, with agencies following a close second. The differences between
the two lie primarily in the prohibition on the acceptance of deposits by agencies,
and in the states' differing restrictions on each. Some states, such as Florida,
permit agencies but not branches of foreign banks. In general treatment of foreign
banks' branches and agencies varies a great deal from state to state and indeed
some states do not admit them at all.
The distinctive feature of Edge Act corporations is that their banking activities
are fairly strictly restricted to those tied to international commerce, investment
or finance. Many conduct a wide range of international banking at home and
abroad. They are federally chartered by the Federal Reserve Board and are not
subject to the banking laws of any state, unlike branches and agencies. Restrictions on their deposit-taking activities are similar to those on agencies; as a
result, both Edge Acts and agencies obtain much of their financing in the interbank market. They are administered by the Federal Reserve Board under Regulation K. Foreign banks cannot own Edge corporations.

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The range of activities permitted and undertaken by loan production offices
is far slimmer than that of the other three forms. They do not accept deposits,
make loans or pay checks. They are most directly comparable to the "representative offices" that many foreign banks maintain in the United States. They solicit
loans, generate business, and in general serve as a local contact point on behalf
of the parent bank. They are not specifically regulated by any federal authority;
some states explicitly regulate them.
Notes to the table:
(1) The table was prepared from published sources and discussions with
various state and federal officials. It is intended to be informative rather than
definitive.
(2) Since state laws and regulations governing permissible activities of
branches and agencies differ substantially, the listing under these headings is
only indicative; it is based on the regulations of New York, California and
Illinois.

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COMPARISON OF THE ACTIVITIES OF BRANCHES ANO AGENCIES OF FOREIGN BANKS, AND OF EDGE CORPORATIONS AND LOAN PRODUCTION OFFICES OF DOMESTIC BANKS
Foreign banks (omits representative offices)

feature or permitted activity

Branches

Agencies

U.S. banks
Edge corporations

l. Relevant regulatory authority •••••••••••• State banking authority •••••••••••••• State banking authority •••••••••••••• federal Reserve Board. Note: Agree•
menl corporation's, which are simi•
tar, are State•chartered. few exist.
2. Multi•Stale activities ••••••••••••••••••• Yes, where state permits (effectively Yes, where State permits (not permit• Yes, domestic banks can establish in
precluded in California).
ted in Illinois).
·
more than 1 State; but not permitted
to foreign•owned banks.
3. Subject to reserve requirements ••••••••• Yes •.•••••••••••••••••••••••••••••. No, except on nonresident deposits in Yes •••••••••••••••••••••••••••••••
·
California.
4. Accept deposits:
4.1 Domestic••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• No, butcanaccept"creditbalances"- Only those incidental to international
deposits held at very short•term
business.
pending transactions.
4.2 Foreign •••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• No, but can accept "credit balances." Yes, as long as not used for domestic
In California, nonresident time de•
purposes.
5. Borrow funds in the interbank market••••
6. Issue negotiable short•term securities
such as CD's.
7. Borrow long•term ••••••••••••••••••••••
8. Issue negotiable long.term notes•••••••••
9. Make loans •••••••••••••••••••••••••••
10.
11.
12.
13.
14.
15.
16.
17.
18.

Loan production offices
Same authority as parent bank:
State; FRB or OCC.
Yes.
Not applicable.
No.
No.

Ye~~~'.~.~~~~.e~~~~~~:

Yes ••••••••••••••••••••••••••••••••
•••••••••••••• Yes •••••••.•••••••••••••••••••••••• No.
Yes •••••••••••••••••••••••••••••••• No ••••••••••••••••••••••••••••••••• No••••••••••••••••••••••••••••••••• No.

Yes •••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• No.
In some States •••••••••••••••••••••• In some States•••••••••••••••••••••• Yes with FRB permission •••.•••.•••• No.
Yes, with some restrictions such as lend• Yes •••••••••••••••••••••••••••••••• On1
y those incidental to international No; only "accept loan applica•
ing limits.
business.
lions.'
Generate loan business ••••••••••••••••• Yes •••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• Yes •••••.•••••••••••••••.•••••••••• Yes.
Service loans •••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• Yes .•.••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• May follow up on loans but may
not receive payments,
Make investments in subsidiaries •••••••• No••••••••••••••••••••••••••••••••• No ••••••••••••••••••••••••••••••••• Yes-foreign ones and domestic ones No.
incidental to international business.
Provide letters of credit, bills of exchange, Yes•••••••••••••••••••••••••••••••• Yes•••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• No.
and acceptance financing.
Provide trust services (possess fiduciary In some States•••••••••••••••••••••• No •••••••••••••••••••••••••••••••• No •••••••••••••••••••••••••••••••• No.
powers).
Foreign exchange trading ••••••••••••••• Yes•••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••. No.
Clear and pay checks ••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• No •••••••••••••••••••••••••••••••• No, except "credit balances" inci• No.
dental to international business.
Provide fee•based services, consultina: •••• Yes•••••••••••••••••••••••••••••••• In some States •••••••••••••••••••••• Undetermined; would require FRB No.
approval.
Provide "free" financial counseling••••••• Yes •••••••• •·········-············ Yes •••••••••••••••••••••••••••••••• Yes •••••••••••••••••••••••••••••••• Yes.

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Senator STEVENSON. And the next part of it is to liberalize the Edge
Act regulations and the laws governing the Edge Act corporations,
and with parity for the foreign and domestic institutions, to make
them more useful institutions for the support of trade, especially
exports.
Those regulations go back a long time, too. The Edge Act goes back
a longtime.
It also, I submit, deserves some review at this point. And perhaps,
unlike the McFadden Act, we could do so in conjunction with this
legislation, though I think it also requires a liberalization of regulations.
So the second part of that proposition is giving some thought to that.
Mr. HEIMANN. Certainly. I think it is a very attractive concept,
liberalizing it for exports.
[The following information was received from the Comptroller's
office:]
'These comments are in response to Senator Stevenson's request that the Comptroller's Office consider means of easing the lending restriction on Edge Act
corporations.
The Comptroller's Office has a long standing principle of promoting greater competition in financial markets. We therefore view favorably the objectives of Senator ·Stevenson's proposal: first, to broaden the range of loan facilities available
to business throughout the United States, particularly where this would facilitate
foreign trade; and second, to achieve equity in the treatment of foreign and domestic banks' cross-state activities. Although di.rect jurisdiction over Edge corporations, under Section 2 (a) of the Federal Reserve Act, lies with the Federal
Reserve Board, the Comptroller's Office does have an interest in broadening the
range of permissible lending activities of national banks through the Edge
affiliates as this should bring about greater diversification and stability of
revenues.
While time has not permitted a comprehensive study of Edge Act powers and
restrictions, we support two proposed amendments to Section 25(a) of the Federal Reserve Act proposed by the Federal Reserve Board. These are contained in
itell!-S 1, 2 and 3 of the Board's "Proposed Amendments to H.R. 10899."
The first amendment extends the Board's discretion in allowing Edge corporations to issue debentures, bonds and promissory notes in a total amount exceeding
ten• times their capital. The effect would be to ease the scope for borrowing by
Edge corporations.
The second amendment removes an outdated restriction on the reserves held
by Edge corporations. The effect would be to eliminate a ten per cent minimum
reserve requirement and to give the Board the power to set Edge Act reserve
requirements equal to those imposed on member banks, assuring a greater degree
of competitive equality.
We also note that the Board is engaged in a review of all its regulations, including Regulation K. We support a more liberal interpretation of the Edge Act
by the Board, and we shall, of course, cooperate in a re-evaluation of this
Regulation.

Senator STEVENSON. Do you have any response to this proposition,
Mr. LeMaistre 1
Mr. LEMAISTRE. I think it deserves study, but I really-Senator STEVENSON. Are you going to give it study, too1
Mr. LEMAISTRE. I would be glad to get someone to do that. It seems
to me as long as you preserve the concept of parity, so each of them
operate in the same way, that the liberalization of the provisions of the
Edge Act cannot really do any harm. It seems to me it would be
helpful.
Senator STEVENSON. I don't think it is realistic to expect perfect
symmetry or parity, but I think this overall formula comes pretty
close and it might also help facilitate American exports, which should
be an important objective of American policy.

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Mr. Chairman, I hope that all these studies and all these witnesses
can result in a serious consideration by this committee of this proposition. And I don't know of any study that has been done of it. Thank
you.
· Senator McINTYRE. I might say, Senator Stevenson, for the edification of all, that the record is due to close in 7 days, and the markup
date for the bill is set for July 26 and 27. So, if they are going to do
any studying, they have to burn the midnight oil, I guess, on this issue.
Mr. LEMAISTRE. vVe will do the best we can.
Senator McINTYRE. Senator Proxmire.
Senator PROXMIRE. Mr. Heimann, in response to Senator Stevenson's question-he has proposed an excellent approach to a compromise
here-I would like to have your views on whether or not it is possible
to sever the deposit and loan function this way.
As I understand it, very often the same firm that will get a loan
will also make a deposit, and when the same firm makes the deposit,
it will borrow money. And usually there is such a close link there that
if a firm is able to borrow money, but unable to make deposits, it might
be far less attractive both for the bank and for the firm that is
involved.
Am I wrong about that? Or would it be feasible and practical in
your view to separate those, which Senator Stevenson's proposal might
imply?
Mr. HEIMANN. I think you are absolutely correct in theory, that
there has always been a relationship between deposit and loan activity.
What I think we are talking about is the location of the deposit and
loan facility. To put it another way, to use a domestic example, in this
age of wire transfer, electronic transfer, there is a whole host of methodologies by which one can deposit money in one place and have it
transferred immediately to another place, with great ease and precious
little loss of time. The facility need not be the same physical facility
to accomplish that relationship of deposit to loan on the part of the
borrower.
So theoretically one could arrange for a loan in the State of Illinois
with a bank located on the State of Georgia. The funds could be transferred through the system, through the bank in Illinois to the recipient
bank in Georgia, or loan money can be forwarded in the reverse
transaction.
So that whereas there is a relationship, it need not be situated physically in the same place.
Senator PRoXMiro_ I would like to ask both you and Mr. LeMaistre
to resolve your differences a little bit, to the extent you can, or sharpen
them. On deposit insurance, Mr. LeMaistre, you are our expert on that,
and you say it should be optional; Mr. Heimann indicates he thinks it
should be mandatory and comprehensive, at least that is my understanding.
Mr. HEIMANN. Yes, sir.
Senator PROXMIRE. And you seem to argue in your excellent paper
that the optional would provide full protection for the depositor and
better protection for the Deposit Insurance Corporation, is that
correct?
Mr. LEMAISTRE. Well, I say it should be optional if you are giving
great importance to the national treatment of branches of foreign
banks, if they are to be treated as our institutio?s are!

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Senator PROXMIRE. Why would it discriminate against them, if we
make deposit insurance comprehensive and mandatory, as we do with
all of our banks 1
Mr. LEMAISTRE. We don't with all of our banks. There are a number
of States which permit a bank if it chooses to operate without it.
. The first section of our act says a bank can voluntarily surrender its
insurance.
Senator PROXMIRE. Except for Illinois. We were told by Mr. Miller
only Illinois is that exception. Is he wrong 1
Mr. LEMAISTRE. I think I have them here-Senator PROXMIRE. That is all right. You say there are a number of
States1
Mr. LEMAISTRE. There are several. I would say the great majority of
them do require that an institution have insurance before it is allowed
to open for business. But there are some that do not require it.
And I don't think anybody coming in here from Germany or England or some place like that would likely open a branch and not want
insurance, if he is going to do retail business. But I say it is an option
he ought to have, if the American banks have it.
Senator PROXMIRE. What is your answer to that, Mr. Heimann 1
Mr. HEIMANN. As you see, I am one-third lost on that vote with
FDIC.
I don't agree. And the reason I don't is I think that we are perhaps
really dealing with the wrong problem, that is, if a noninsured foreign
bank failed in the United States, it is my own opinion that the reasonable pressure to cover those deposits of the innocent, the uninsured depositor who utilized that facility, would be such that it could very well
be very serious.
More important, it would cause consternation in the system, I don't
know the number of banks that are uninsured in this country, but I
do think there are precious few and they are relatively small. But in
this case, the public most likely will be dealing with a large financial
institution, albeit a foreign one, and they will be rightfully expecting
the kind of protection that we have afforded all of our depositors in
this country.
I think we might as well just bite that bullet of reality so that we
prevent future problems that just don't need to be created.
Senator PROXMIRE. Mr. Heimann, I have introduced an amendment
that would give the Federal Reserve examination jurisdiction over
foreign banks. I do that in part because they requested it, and in part
because I think it makes sense. They have juris<.l_iction over holding
companies, as you know, so why shouldn't we have uniform jurisdiction for examination of foreign banks, rather than have you have jurisdiction as you would like to have over some foreign banks, and the
Federal Reserve over others, and perhaps FDIC in other areas.
What is wrong with providing the Federal Reserve shall have that
uniform jurisdiction 1
Mr. HEIMANN. Well, sir, we were discussing this briefly before. I
believe that the dual banking system has great merit. If a foreign bank
chooses to be nationally chartered, by the State.
As you know, at the present time all national banks are members
of the Federal Reserve, and of course the Comptroller of the Currency
has the responsibility for examining those institutions.

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What I am most interested in with respect to this bill is the intelligent national oversight 0£ foreign banking. Leaving out all jurisdictional pride or positioning, the reality is that in a dual banking svstem
that national oversight can only be provided by either the FDIC, assuming that all of the insti.tutions are insured, or by the Federal Reserve, i£ they are in the Federal Reserve orbit, depending on the reserve requirements.
And therefore it is important, and I think in the national interest,
to have either or both 0£ them assuming that responsibility. If there is
insurance £or all 0£ these institutions, then clearly the FDIC must
examine, must do so by its charter to protect its insurance reserve. I£
these institutions have a call on the window 0£ the Fed, clearly there
is a responsibility £or the Fed to in some fashion know what is going
on. That is done in this case through the examination process or in conjunction with the FDIC, i£ FDIC is examining them.
But I support wholeheartedly the concept of some Federal Reserve
oversight.
Senator PROXMIRE. In this internationalization 0£ banking, there is
one dimension we ha,ven't touched on, nobody has brought it out. We
have been told we have $200 billion, our banks have $200 billion of their
assets overseas.
Can you give us some £eel as to the proportion that might re.present
0£ the banking assets 0£ a country like Canada or a country like Germany or a country like Japan, so we have some notfon as to whether
or not in each of these countries the United States h11s more banking
assets invested than the foreign country mig1ht have here?
I think fhat is probably true everywhere, but can you tell us if that
is true?
Mr. HEIMANN. We can give you that precisely. I don't have the numbers with me, but we can supply that £or tJhe committee.
[The material referred to follows:]
The following information is provided by the Office of the Gomutrol1er of the
Currency in res:p,onse to a request by Senator Proxmire. It compares the size of
the· activities of U.S. banks in several foreign countries with the activities of the
safue countries' banks in the United States.
The countries or groups o.f countries shown in the two tables that follow were
intended to be representative but by no means comprehensive. The choice was
made such that meaningful comnarisons could be made from available data
sources, and the data could be published without revealing the activities of any
individual bank.
Table 1 presents data on deposits from, and loans, to. nonbank customers at both
types of banking institutions. The elimination of interbank activity from data
for both groups of institutions facilitates comn,arison of traditional banking activities. The data show the extent to which both types of institutions utilize rheir
offices in these countries to attract funds from nonbank depositors and make loans
to nonbank residents. F'or U.S. banks, a further distinction is made between total
and non-dollar-denominated activities. The exclusion of E:urodollar deposits and
loans may present a clearer picture of U.S. banks' activities in the local banking
market. Countri,es whose foreign banking sector is dominated by Eurodollar
banking, such as the United Kingdom and the Bahamas, were not included in
the sample.
Although U.S. banks' overseas activities are concentrated in roughly the same
group of countries as are the parent banks which have ouerations in the United
States, T'able 1 indicates that there are a number of countries where the balance
of loans or deposits is quite uneven. The administrative restrictions in Japan, for
examole, prevent U.S. banks from leading as much there as do Japanese banks in
the U.S.; and under present laws. Canada does not admit foreign banks.

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Table 2 provides a rough indication of the penetration of foreign banks into
the U.S. credit market and vice-versa. Total bank loans are measured by statistics
on bank loans to the private sector. In all cases the penetration appears to be
slight.
TABLE !.-COMPARISON OF U.S. ACTIVITIES OF FOREIGN BANKS AND FOREIGN ACTIVITIES OF AMERICAN BANKS:
APRIL 1978
[Dollar amounts in millions of U.S. dollars]
Activities of branches of U.S. banks inLoans to
non banks

Activities of U.S. offices of banks from-

Country

Number of
institutions 1

Loans to
non banks

60
29
13
13
23

$14, 142
3,362
l, 733
I, 500
3,078

352

Japan _____________ _
Canada ___________ _
France_. ______ ----Germany __________ _
Italy/Switzerland ___ _
Korea/ Philippines/
Taiwan _________ _
t

Deposits
from
nonbanks

Number of
institutions

Total

Deposits from
nonbanks

Nondollar
denominated

Total

Nondollar
denominated

$2, 704
$5, 572 $2, 781
26 $9, 415
$6,868
2, 128 ........ _____ ...... _.... ________ .... _.. ____ .. _.. __ ..
543
I, 853 I, 231
14 2,880
I, 519
463
572
I, 020
17 I, 146
I, 252
496
755
I, 567
14 I, 882
5,072
204

2, 043

384

650

540

Includes agencies, branches, subsidiary banks, agreement corporations, and investment companies.

Source: Federal Reserve Board.
TABLE 2.-COUNTRY-BY-COUNTRY COMPARISON OF FOREIGN BANKS' PENETRATION OF THE DOMESTIC CREDIT
MARKET AND U.S. BANKS' PENETRATION OF FOREIGN CREDIT MARKETS
[Dollar amounts in millions of U.S. dollars)
Foreign banks in the
United States

Country
Japan _________________ • _____________ ._._. __ ._ •• _._.
Canada. ________ • ___ • ___ • ________ . _______ •. _____ • __
France __________________ --- ----- -- -- ... - . --- . - ...• Germany __________________________________________ _
Italy/Switzerland ___________________________________ _
Korea/Philippines/Taiwan ___________________________ _

Loans to nonbanks, percentage of
Loans to
total bank
loans
non banks

U.S. banks abroad

Nondollar
loans to
nonbanks

Nondollar
loans to
non banks,
percentage
of total
bank loans

0. 7
$5,572
2. 2
$14, 142
. 5 ---------------------------3,362
.9
I, 853
.3
!, 733
.3
1,020
.2
1,500
•7
I, 567
.5
3, 078
I. 9
540
352 --------------

Sources: Table 1; Federal Reserve Bulletin; and "International Financial Statistics."

Senator PROXMIRE. In Canada, it is probably overwhelming, isn't it?
Don't we have a very, very big banking investment in Canada? We
have in everything else.
Mr. HEIMANN. No. The Canadian Finance Ministry-Senator PRoxMIRE. Don't they let us in there?
Mr. HEIMANN. Our relationships are not as fluid, shall I say, as with
some other nations. No, we don't have a large banking presence in
Canada.
Senator PROXMIRE. How about the United Kingdom?
Mr. HEIMANN. Yes; relatively large. I think we can provide the
figures. I just don't have them with me.
Senator PROXMIRE. Thank you.
Senator McINTYRE. Gentlemen, I am going to have to let you go
in order to move on. Thank you very much £or your attendance and

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assistance. If you come up with any ideas on that study Senator
Stevenson talked about, be sure to get it to us before we close the record.
[The following letter was ordered inserted in the record:]
FEDERAL DEPOSIT INSURANCE CORPORATION,
Washington, D.O., July 7, 1978.

Hon. ADLAI E. STEVENSON,
Committee on Banking, Housing and Urban Affwirs,
U.S. Senate, Wasnington, D.O.

DEAB SENATOR STEVENSON: Your June 29, 1978 letter requests our comments on
a proposed compromise in the interstate banking provisions of H.R. 10899, the
"International Banking Act of 1978."
(Briefly, instead of continuing to permit each individual State to determine
whether foreign banks should be permitted to branch within its borders as the
House bill would do, your letter recommends prohibiting further expansion of
foreign banks' interstate activities, except that branches would be exempted
from this prohibition if they accepted only those deposits related to international
activities that would be permissible for Edge Corporations. Your proposal is
similar to the Federal Reserve's suggestion that agencies of foreign banks be
exempted from interstate branching restrictions which it recomll).ends including
in the bill.
In our opinion, the distinction between "branches," "agencies," and "commercial
lending companies" is already an exceedingly fine one which loses much of its
meaning in the day-to-day business world. For all practical purposes, an "agency"
is a branch which does not take deposits from U.S. residents (see § l(b) (1) of
the bill), and a "commercial lending company" is essentially a domestically incorporated agency. The compromise proposed in your letter would create yet another type of facility through which foreign banks could operate in this country,
but would not really permit foreign banks to do anything that they could not
achieve by establishing Edge corporations and agencies across State lines.
·we believe that a much simpler and more direct approach to the problem of
interstate expansion by foreign banks would be to prohibit any branch, agency
or commercial lending company outside a foreign bank's "home State" from
accepting initial deposit balances of less than $100,000. This approach would
tend to limit the interstate activities of foreign banks to so-called "wholesale"
banking and would mitigate considerably the possibility that the interstate
deposit-receiving powers of foreign banks might otherwise give them a competitive advantage over domestic banks. By providing deposit insurance for domestic
deposits of U.S. branches of foreign banks as section 6 of the bill presently does,
Congress would at the same time be protecting domestic depositors from any
unexpected loss.
·As we stated in our recent testimony on this bill, we strongly support section
5(a) which maintains the status quo by permitting interstate branching by
foreign banks where permitted by State law.
Foreign ·banks currently operate banking-type operations in only 12 U.'S. States
while interstate operations of our large bank holding companies extend into almost every State. U ..S. banks may also establish Edge Act corporations, loan
production offices and representative offices in States other than their home State.
If interstate banking operations were to be prohibited or drastically curtailed
for foreign ·banks, it is unlikely that a foreign bank would want to locate any
place outside New York, California or Illinois. As a practical matter, if interstate
banking activities were severely limited for foreign banks, other States would find
it difficult to attract foreign banks and, hence, could not reap benefits stemming
from the activities of these banks-benefits that may well accrue to the local
economy.
One should not minimize the value of foreign banking growth to the 'banking
community as a whole. We see no reasons why cities in all States should not be
eligible to enjoy fully the same potential ·benefits of expanded foreign banking
activity as are the money center States. A State should be permitted to invite a
branch of a foreign bank into its banking communities if this is the only realistic
way in which foreign bank entry is likely to take place.
!Recent patterns of foreign banking expansion in the U.:S. support the contention
that regional financial centers would be hurt by a ban on interstate operations
by foreign banks. The tendency is to geographically diversify foreign banking
operations once banking operations have already been established in the principal

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centers. We believe this multi-State diversification should be permitted to
continue.
If the domestic deposit-taking restrictinos of Edge Act corporations are applied
to the expansion of foreign banks' interstate branching activities outside the
"home State," the recent trend toward interstate banking outside of money-market
centers would be substantially curtailed to the detriment of these markets. As
of March, 1978, as much as 63 percent of the deposits of direct branches of foreign
banks were from U.S. residents.
:As to deposit insurance, our previous testimony has described our reservations
about the necessity and desirabiilty of making such coverage available for domestic branches of foreign banks. If foreign banks wish to expand their operations
in this country into the "retail" banking business with the 'benefit of Federal
deposit insurance, they presently have this option under existing law by establishing a domestically incorporated banking subsidiary where State law permits.
In response, however, to the view that some form of deposit insurance coverage
is necessary, we have recommended a surety bond or pledge of assets approach
which would 'be coupled with regular deposit insurance for the domestic deposits
of U.S. -branches of foreign banks.
While we favor granting this type of coverage on an optional ,basis, we have no
strong objection to requiring Federal deposit insurance for branches of foreign
banks in conjunction with a surety bond/pledge of assets requirement of the type
as presently provided in section 6, if Congress should conclude that the public
interest requires such coverage.
We would be happy to work with your staff in drafting legislative language to
implement our suggested approach to this problem.
•Sincerely,
GEORGE A. LEM.A.ISTRE, Chairman.

We next call a panel, Mr. E. D. Jack Dunn, commissioner of banking
and finance, State of Georgia; national president, Conference of State
Bank Supervisors, and Ms. Muriel F. Siebert, superintendent of banks,
State of New York.
As I understand it, Ms. Siebert is hoping to grab the 1 o'clock
shuttle; is that right?
Ms. SIEBERT. Yes.
Senator McINTYRE. Therefore, with your permission, Jack, we will
allow her to testify first. You go right ahead.
STATEMENT OF :MURIEL F. SIEBERT, SUPERINTENDENT OF
BANKS, STATE OF NEW YORK

Ms SIEBERT. Thank you very much. I will miss the plane if it is
imperative because I think this bill is important.
I have submitted a full text of my remarks.
Senator McINTYRE. It will be in the record in its entirety without
obiection.
Ms. SIEBERT. The following is a brief text. I am Muriel F. Siebert,
superintendent of banks of the State of New York. I am grateful for
the ooportunity to appear before the Senate Subcommittee on Financial Institutions to testify on the subject of H.R. 10899, the International Bankin,Q' Act of 1978.
·
In New York State, foreign banking organizations own and operate
54 agencies, 64 branches, 5 investment companies, and 20 subsidiary
banks.
As of May 1978, the assets of these banking organizations exceeded
$65 billion.
Forei{!Il banks have been under the superviRion of the New York
State Banking Department for 100 years. Foreil!ll bank presence
in New York has made a distinctive and positive contribution toward

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the development of our State into one of the world's great financial
centers.
New York has a vital interest in preserving and enhancing this
presence. Consequently, it has a very strong interest in the proposed
legislation.
Foreign banks in New York have been very good citizens, and have
conducted their business properly and in my opinion have aided foreign trade.
We view H.R. 10899 as a major constructive step forward in the
regulation of the activities of foreign banks in the United States.
While the New York State Banking Department does not agree
with every point in the legislation, on balance this is a positive and
helpful proposal, and we strongly support its enactment into law by
this session of Congress.
My oral comments will be confined to two issues, deposit insurance
and the role of the Federal Reserve. Time constraints prevent me from
discussing other important items which are included in the more
lengthy written statement.
From my perspective, the single feature of the bill which is of the
most vital importance is the requirement that FDIC insurance be
obtained by all federally licensed branches and by all State-licensed
branches in States such as New York, which require State-chartered
banks to be insured.
The banking department has long supported the requirement of
FDIC insurance for foreign bank branches.
We experienced the failure of a foreign bank with a branch in New
York when Intra Bank of Lebanon failed in October 1966. While the
department was able to arrange for full payment to every depositor
and creditor on the books of that branch, our abilitv to do so was
partly the result of good fortune, in that the branch office was located
in a valuable piece of real estate owned by the bank.
New York law requires foreiwi bank branchPs to comply with
various rules designed to assure they have assets in New York adeauate
to cover their local liabilities. However, I do not think that it would be
possible for us to demand that all public deposits be covered by real
estate. Although these laws are fully enforced by the banking department, they do not provide the same absolute assurance that depositors
will be paid as is providPd by deposit insurance.
In the absence of FDIC insurance, we are sufficiently concerned
ahout protection of the depositing public that we have ·sponsored a
bill in the New York State Legislature to require that branches of
foreign banks notify depositors that their deposits are not insured.
The bill, I might add, has not passed our legislature. If the International Banking Act does not pass this year, my department may be
compelled to seek le,g-islation on the State level to establish an insurance
fund to cover these risks.
Further detail on this subject is contained in the attached article
from the American Banker. ·
Senator McINTYRE. Without objection, that article will be included
ii,_ the rPcord ( see p. 138).
·
Ms. SIEBERT. Yes; it is attached to the formal statement. However,
we think the best solution is FDIC insurance. Such insurance will
result in a hroader diversification of risk than would be possible in
any single State and will also result in a single uniform insurance

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system administered by the agency that has the greatest experience
and expertise in establishing and administering deposit insurance.
Our only suggestion regarding the insurance provisions o:f this bill,
in accord with the view o:f the Fed, is that the insurance should cover
all deposits up to $40,000, payable at an insured branch whether or
not the deposits are held by U.S. citizens or residents.
This would be in line with the present FDIC practice for domestic
banks and would more closely correspond to the expectations o:f public
depositors.
In New York we have seen specific :foreign banks offer gi:ft campaigns similar to other banks. Some o:f these banks are also seeking
ethnic deposits. Any :failure which would affect the public depositors
would be a poor reflection on the entire banking system.
There has also been a good deal o:f discussion o:f the provisions o:f
this bill addressed to the authority o:f the Federal Reserve Board. The
banking department offers no objection to the authority which is
contained in the bill for the Fed to impose reserves on branches o:f
foreign banks with worldwide assets in excess o:f $1 billion. We note
that virtually all U.S. banks o:f that size are members o:f the Federal
Reserve System. We do not think, however, that the Fed should have
the authority to impose reserves on agencies and on commercial lending companies, since these entities are barred :from accepting deposits
and there:fore do not :function as banks.
We observe that on the domestic level the Fed does not have the
authority to establish reserve requirements :for the nonbanking subsidiaries of bank holding companies.
Moreover, the so-called commercial lending companies are separate
legal entities, chartered, supervised, and examined by the State o:f
New York.
·H.R. 10899 recognizes, we believe correctly, that it would be discriminatory and contrary to the voluntary nature o:f Federal Reserve
membership to make :federally set reserves mandatory for Statech~rtered banks which happen to be :foreign owned and the same
principle is applicable to commercial lending companies.
To the extent that the Congress chooses to' grant the Fed authority
to· impose reserve requirements and to provide access to the Fed's discount window to foreign bank offices in the United States, it would
not be umeasonable to vest the Federal Reserve Board with examination powers which are coextensive with the substantive authority being
granted.
For similar reasons, H.R. 10899 already provides for examination
by the FDIC o:f insured branches. While the banking department
would offer no objection to a Federal examination presence on the
part of either the Fed or FDIC, perhaps it would be more appropriate
for the Fed to examine only the offices o:f :foreign banks which are
subject to reserves, i.e., those banks whose worldwide assets exceed $1
billion, and :for the FDIC to examine the smaller banks. This division
o:f responsibility would parallel the existing allocation o:f responsibility for examination o:f member and nonmember domestic banks.
"in closing, I would like to repeat my view that the proposfl 1 before
the subcommittee is a significant, constructive step forward in the
regulation of foreign banking in the United States, and I urge its
passage in this session o:f Congress.

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Thank you. I offer any continuing dialog or help that I or my staff
may contribute.
[The complete statement of Ms. Siebert and attachment follows:]
STATEMENT OF MURIEL SIEBERT, SUPERINTENDENT OF BANKS, STATE OF NEW YOBX

I am Muriel Siebert, Superintendent of Banks of the State of New York. I am
grateful for the opportunity to appear before the Senate Subcommittee on Financial Institutions to testify on the subject of H.R. 10899, "The International
Banking Act of 1978."
The State of New York is the leading center of international banking in the
United States. In addition to being the headquarters for a number of American
banks with extensive activities abroad, foreign banking organizations own and
operate in New York State 54 agencies, 64 branches, 5 investment companies,
and 20 subsidiary banks. As of May 1978, the assets of these banking organizations exceeded $65 billion. In addition, 118 foreign banks maintain representative offices in New York. Foreign banks have been transacting business in the
State of New York subject to the supervision of the Banking Department for
more than 100 years, and their presence has made a distinctive and positive
contribution toward the growth of New York as one of the world's great financial centers. The State of New York has a vital interest in preserving and
enhancing this presence, and consequently a strong interest in the proposed
legislation.
H.R. 10899 is a major, constructive step forward in the regulation of the
activities of foreign banks in the United States. While the New York State
Banking Department does not agree with every point in the legislation, on balance this is a positive and helpful proposal, and we strongly support its enactment into law. Further, we urge passage of the legislation during this session
of Congress. The activities of foreign banks in the United States are growing
rapidly and with passage of time it will become more difficult to put into place
a new structure of regulation as is proposed in this bill.
As various proposals for an expanded role for the federal government in the
regulation of foreign banking have appeared before the Congress over the past
few years, the Banking Department has expressed its views publicly on a number of occasions. Rather than again reviewing and commenting upon this bill in
detail, I will confine my comments to the issues of greatest importance to the
State of New York: deposit insurance, multi·state banking and the role of the
Federal Reserve.
From our perspective, the single feature of this bill which is of the most
vital importance is the requirement that FDIC insurance be obtained by all federally-licensed branches, and by all state-licensed branches in states, such as
New York, which require state-chartered banks to •be insured. The Banking Department has long supported the requirement of FDIC insurance for foreign bank
branches. We experienced the failure of a foreign bank with a branch in New
York when Intra Bank of Lebanon failed in October 1966. While the Department
was able to arrange for full payment to every depositor and creditor on the books
of that branch, our ability to do so was partly the result of good fortune, in that
the branch office was located in a valuable piece of real estate owned by the bank.
New York law requires foreign bank branches to comply with various rules
desig-ned to assure they have assets in New York adequate to cover their local
liabilities. Although these laws are fully enforced by the Banking Department,
they do not provide the same absolute assurance that depositors will be paid as
is provided by deposit insurance. In the absence of FDIC insurance, we are sufficiently concerned about protection of the depositing public that we have sponsored a bill in the New York State Legislature to require the branches of foreign
banks to notify depositors that their deposi!S are not insured. The bill-I might
add-has not passed the Legislature. If the International Banking Act does not
pass this year, my Department may be compelled to ireek le!!islation on the state
level to establish an insurance fund to cover these risks. Further detail on this
subiect is contained in the attached article from the "American Banker."
It is clear, however, that the best solution is FDIC insurance. Such insurance
will result in a broader diversification of risks than would be possible in any
single state, and will also result in a single uniform insurance system administered by the agency that has the greatest expertise in establishing and administering deposit insurance. Our only suggestion regarding the insurance provi-

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sions of this bill, in accord with the view of the Fed, is that the insurance
should cover all deposits payable at an insured branch, whether or not the deposits are held by United States citizens or residents. This would be in line
with present FDIC practice for domestic banks and would more closely correspond to the expectations of public depositors.
Let me turn now to an issue which has drawn a great deal of comment: the
extent to which foreign banks should be permitted to operate facilities in more
than one state. There seems now to be rather broad acquiescence in the view that
foreign banks should, at a minimum, be permitted to establish non-deposit banking facilities wherever permitted by state law. There is, however.. still significant disagreement as to whether foreign banks should be permitted to establish
deposit-taking facilities, i.e., branches and commercial bank subsidiaries, outside their state of principal operation.
The discussion of this issue has been in large measure a discussion of what
is meant by competitive equality and national treatment. Those who believe
identical rules are the essence of equal treatment point out that domestic banks
are prohibited by law from establishing full deposit-taking facilities in any
state outside their state of principal operation. It is asserted that giving
greater powers to foreign banks would lead to substantial inequality. Those
who believe that practical equivalence rather than legal symetry is the basic
issue point to the natiom\ide network of financial services offices of various
types maintained by the major domestic banks.
There is a growing realization that the real issue in this connection is not
competitive equality between foreign and domestic banks, but competitive equality between states. As a practical matter, virtually every foreign bank which
establishes operations in the United States sets up first in New York, because
of its position as the center of the financial and investment activities in the
country. If a foreign bank could have deposit-gathering facilities in only one
state, that state would have to be New York, or for some banks possi'bly
California.
This would severely limit the ability of any other state to establish itself as a
regional center for international finance. Although in a narrow sense it might
he to New York's advantage to support legislation which would har other states
from competing with New York foreign bank offices, the New York Banking
Department has consistently taken the position that foreign banks should be
free to establish deposit-taking offices in any state which chooses to admit them.
\Ye do not wish to deprive other states of this country of the capital, financial
expertise and access to hanking facilities which would be made available to them
by the presence of a number of offices of foreign banks. We believe that liberal
rules on foreign hank entry to all states are in the best interests of the country
at large, and that the resulting overall growth of foreign bank activities in the
U.S. will benefit New York.
The Bank Holding Company Act, at present, permits a bank from one jurisdiction to acquire or establish hanking facilities in another state if the second state
expressly permits this. 'l'he logic of allowing :-tates to determine for themselves
wh«:>ther to let in out-of-state hanks is equally applicable to permitting such
,-tates to choose for themseh·es whether they wish to extend such reciprocal
banking privileges only to foreign banks.
The New York State Banking Department therefore supports the bill which
passed the House of Repre~entatives, which would permit foreign banks to establish branch offices wherever permitted hy state law. In recent discussions of this
issu«:>, reference has frequently Ileen made to the announcements of the proposed
acquisition of three large U.S. banks, two in New York and one in California,
by major foreign banks. It is implied that through such acquisitions a foreign
bank could acquire existing domestic banking organizations in more than one
state and thus do a true multi-state retail deposit banking business. One point
should he made very clear: any company, whether it be incorporated in the
United States or in a for«:>ign country, which owns a bank anywh«:>re in the
l:'nited States is covered by the present provisions of the federal Bank Holding
Company Act and, as a result, is barred from acquiring a bank in any other state
of the United States, unless «:>xplicitly anthorized by state law.
ThPre has also heen a good deal of discussion of the provisions of this bill
addre,;sed to the authority of the Federal Reserve Board. The bill would authorize the Fed to set resen-es for federally licensed branches and agencies of
foreign banks with worldwide assets in excess of $1 billion. The Fed would also
be authorized to set r«:>sen·es for state-licensed branches, agencies and commer-

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cial lending companies "after consultation and in cooperation with the state
bank supervisory authorities." The bill would also permit the Fed to open its
discount window to any U.S. office of a foreign bank which maintains reserves
with the Fed.
The Banking Department offers no objection to the authority of the Fed to
impose reserves on branches of foreign banks with worldwide assets in excess of
a billion dollars. We note that virtually all U.S. banks of that size are members
of the l!'ederal Reserve System. We do not think, however, that the Fed should
have the authority to impose reserves on agencies and commercial lending companies since these entities are barred from accepting deposits and, therefore, do
not function as banks. We observe that, on the domestic level, the ~'ed does not
have the authority to establish reserve requirements for the non-banking subsidiaries of bank holding companies.
We would also note that the so-called "commercial lending companies" are
separate legal entities chartered by the State of New York as investment companies pursuant to Article XII of the New York Banking Law. Their particular
mix of powers and restrictions is set by our laws, and they are S'llbject to examination and supervision by the Banking Department. They are thus in the same
position for legal and policy purposes as state-chartered commercial banks whose
stock happens to be owned by foreign entities. H.R. 10899 recognizes, we believe
correctly, that it would be discriminatory and contrary to the voluntary nature
of Federal Reserve membership to require those banks which happen to be
foreign-owned to have Federally set reserves while making Federal Reserve
membership voluntary for domestically owned banks. It would be equally
inconsistent with the present structure of the dual banking system to require
state-chartered entities which fit the commercial lending company definition to
be subject to federal reserve requirements if they happen to be owned by a
foreign bank.
To the extent that the Congress chooses to grant the Fed authority to impose
reserves and to provide access to the Fed discount window to foreign bank
offices in the United States, it would not be unreasonable to vest the Federal
Reserve Board with examination powers which are coextensive with the substantive authority being granted. For similar reasons, H.R. 10899 already provides for examination by the FDIC of insured branches. While the Banking Department would offer no objection to a federal examination presence on the part
of either the Fed or the FDIC, perhaps it would be more appropriate for the
Fed to examine only the offices of those foreign banks which are subject to
reserves, i.e., those banks whose worldwide assets exceed $1 billion, and for the
FDIC to examine the smaller banks. This division of responsibility would
parallel the existing allocation of responsibility for examination of member and
non-member domestic banks.
In addition to the proposals for imposing federally-established reserves and
federal examination requirements on foreign bank offices in the U.S. currently
contained in H.R. 10800, the Fed's suggested amendments include a provision
which would add to the bill a new Section 7 ( d). This section would, in effect,
empower the Fed to impose on state-licensed banks or agencies of foreign banks
whatever requirements as to maintenance of assets are developed by the Comptroller for federally-licensed branches or agencies unless the Fed determines that
the comparable requirements of state law are "adequate." It would be contrary
to the present generally accepted division of responsibility between federal and
state regulators for the federal authority to be given power to effectively decide
whether state laws and regulations on capitalization of state-licensed banking
institutions are acceptable. Nothing else in H.R. 10899 suggests that federal
regulators should have power over state-licensed branches or agencies in these
areas, and the International Banking Act is not an appropriate place to begin
a debate over such a fundamental change in the existing structure of the dual
banking system.
Finally, I would like to record my opposition to the requirement in Section 9
for detailed Federal guidelines for foreign bank entry into the U.S. For many
years, the Banking Department has consulted with the appropriate Federal
authorities to ensure that important national issues are considered when making
judgments on applications by foreign banks. These proposed guidelines are
simply not needed.
In closing, I would like to repeat my view that the proposal before the Subcommittee is a significant, constructive step forward in the regulation of foreign
banking in the United States, and I urge its passage by this session of Congress.
Thank you.

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[From the American Banker, June 13, 1978]

NYS MAY START FOREIGN INSURANCE FACILITY

(By Anthony Mattera)
NEw YoBK.-Muriel F. Siebert, New York State Superintendent of Bankers
said Monday she would move to establish a state facility to insure domestic deposits of foreign bank branches here if Congress does not pass the International
Banking Act.
Among the provisions of the act is one that would make Federal deposit insurance mandatory for foreign bank branches in states where federal insurance
is mandatory for state-chartered United States banks.
"I get worried when I see foreign banks advertising for public deposits and
offering the same gift campaigns ( as domestic banks) and I know they're not
insured," she said.
Speaking before an international banking symposium sponsored •by Poot, Marwick, Mitchell & Co., Ms. Siebert said she was "sufficiently concerned about the
protection of the depositing public that we have sponsored a bill in the New York
legislature to require foreign bank branches to notify depositors that their deposits are not insured."
Ms. Siebert said the state deposit insurance fund, would have to have "the
blessings of the legislature." But, she said such a fund would be a last resort.
"I would prefer to see it (foreign banks' deposit insurance) in the (International Banking) Act," she said. She noted that it was unlikely the act would
pass Congress without the Federal insurance provision.
About a proposal to establish a free trade zone in New York City, Mrs. Siebert
said she was confident that some means would be found to satisfy the Federal
Reserve Board that domestic money would not s<>ap from the monetary system
through the domestic international banking facilities.
The free zone bill has paiised the New York State legislature and Gov. Hugh L.
Carey is expected to sign it. Some Federal ReservP Board mPmbers have opposed
the bill on the ground that it would create a problem of domestic fund seepage
into the international market.
Income earned by banks conducting international business through the freetrade facilities would be exempt from New York City and state taxes, as well
as -from interest limit and reserve requirements if the Fed approves the idea.
The New York State banking regulator also said her office is seeking greater
financial disclosure from foreign banks applying for offi<>es here. She said she
believed some foreign apnlicants did not have a realistic idea of the expense involved. in operating an offic~ in New York. "I have an obligation to make sure
they undnstand the cost of doing business here," she said.
Ms. Siebert said the banking department has returned foreign banks' applications because they included unreal;stic expense estimates.
"When someone tells me their Telex and phone bills are going to run $300 a
month," she said, "I don't believe it."

Senator McINTYRE. MR. Siebert, :vou argue strongly :for mandatory
FDIC insurance, vet FDIC itRel:f, the expert in this field, argues :for
an-approach combining a modified pledge o:f assets requirement and
optional insurance.
· Have you studied the FDIC proposal and can you comment on it at
thistime1
Ms. SIEBERT. I have not studi«:>d the proposal. We believe it would be
more expensive :for the banks i:f they hail to pled!!e some o:f their asRets.
I believe as long as these banks are taking public deposits that they
should be insured. We have :foreign banks in New York that are offering gift campaigns that are the same as those our State or federally
chartered savings or commercial banks offer. I do not believe that
the depositors recognize that these deposits are different :from those
in our other banks.
Senator McINTYRE. Mr. LeMaistre made it very clear that in trving
to mandate this, it would be 1t very difficult proposition :for the FDIC

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to establish whether or not this particular bank, the applicant, was in
a position to receive the FDIC insurance.
Ms. SIEBERT. We have in New York, our branches an asset test of 108
percent to each 100 cents of liabilities. So in effect we have an 8 percent
forced capital ratio. We get monthly reports from the banks, we have
asset tests, we examine them annually.
I realize and recognize the FDIC's position, where they do not want
to insure the arm when they don't insure the entire body.
But we think FDIC insurance is warranted, we think the risks to
the FDIC can be contained. We think that examination privileges
combined with our examination, and we examine the foreign banks
every year the same way we examine our own banks, will permit the
FDIC to determine insurability.
Senator McINTYRE. How do you respond to the argument that
deposits in foreign branches are not really retail deposits and therefore don't need FDIC insurance protection?
Ms. SIEBERT. I believe that while some of the fogeign banks do not
seek retail deposits, some of them in New York are starting to seek
retail deposits aggTessively. I can send you a copy of an article-I
spoke before the Pete Marwick International Partners, and the Wall
Street Journal wrote it up, and the article I have submitted was from
the American Banker, in which they comment on my speech.
Some of our banks in New York are seeking retail deposits. We have
banks that are startinl?: to seek the ethnic deposits. They seem to have
a following among the people in New York. I do not believe New
York would be any different from any other State.
Senator McINTYRE. Ms. Siebert, given the nature of the business of
foreign branches, how significant would FDIC insurance be, given
the current $40,000 limit?
Ms. SIEBERT. Well, I am interested in the depositing public, not
General Motors or I.T. & T. But I do think the depositing public is
entitled to insurance protection. I have had experiences with this, my
department was the only State that paid off on that money order
company that went broke across the country, and we had to go to the
legislature, we had to set up an insurance fund, we had to get contributions from other companies, we had to tax them, we had to put a guard
outside of the door, because the public was coming clamoring for their
money, because they thought the money order company was the equivalent of a bank.
We took over the municipal credit union last year to rehabilitate it.
I went through 3 days of a run, it is a very scary thing. Even though
my examiners were handing out leaflets on my official stationery
saving the deposits were insured for $'10,000, I personally stood in line
talking to people assuring them that their money was safe. The depositing public is not knowledgeable enough to look to see whether deposits
are insured or not.
I am not worried about the large corporate accounts, I am worried
about strictly the depositing public.
Senator McINTYRE. I note in your statement that you said legislation
was introduced, apparently at your behest, in the event that the banks
did not have FDIC insurance protection, the depositors would be
required to be notified of that. But the legislation didn't move?
Ms. SIEBERT. I didn't have the votes, Senator.

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Senator McINTYRE. Well, that is the way it goes around here, too.
Mr. Dunn, would you comment on just this subject matter we have
been talking about?
Mr. DuNN. Senator, as far as the Conference of State Bank supervisors is concerned, we feel, as Mr. LeMaistre does, that it should
be optional.
We readily admit that some States, and Ms. Siebert has just alluded
to this, have a problem with the legislature, where she couldn't get
this bill passed. Other States do not require it, Illinois does not require
it. But they do have the 108-percent rule as Ms. Siebert does.
My home State requires insurance. So as the president of the State
Bank Supervisors, I have an obligation to represent all of them.
Senator McINTYRE. ·well, Mr. Dunn, Ms. Siebert, can you please
tell us what your current thinking is regarding the creation of a free
international banking zone in New York and conceivably in other
locations as well, and whether or not it has any bearing on this
legislation?
Ms. SIEBERT. I think the two are separate. The shuttle I hope to take
is because the Governor is having a ceremony to sign our tax legislation on this. My department did a lot of work on this, we worked with
the department of taxation. I do not believe that it has bearing on this
legislation. I believe that there is a problem, there is no reason that we
should establish arbitrary rules that force our banks to go outside of
the country to do business.
I have an office in London, I just visited it. The New York State
chartered banks-I am talking about the clearing house banks, I
do not have Chase Bank or Citicorp, but"I have Manufacturers Hanover, Morgan, Chemical, Irving, Bank of New York, Bankers Trust,
Marine Midland, and there may be one or two I missed, but we have $25
billion in assets in London alone, excluding what they have invested in
the Merchant banks there. ,ve have an equal amount of assets spread
around the continent as I studied the figures.
Our banks have tens of billions of dollars in the Grand Cayman
Island. Some of this business would be done in New York, which has
established rules, which may be arbitrary, but we have forced some
of our banks to do some of their business abroad, either for tax reasons or because of the Federal Reserve regulations. The business is
being done abroad, it will be done abroad, it would be easier for me to
examine it if it were in New York. I have 6 fulltime examiners in London, I have a team of maybe 15 going over ,July 1, because we start to
examine a couple of our money market banks there. So I will have 19
people, I believe, going into our large banks like Morgan. I would like
to, see as much. of that business as possible brought back into this
country.
That means that if New York City has to give up its taxes, New
York State has to· give up its taxes, because in New York State the
tax ratio, I believe, is 62 percent, where in London it is 52 percent, and
if you do it in Grand Cayman, it is 48 percent.
So that we addressed and took care of it in the bill the Governor
signed yesterday. The rest is up to the Federal Reserve as far as
interest rate limitations on deposits on short-term accounts, accounts
under 30, plus the reserve requirements.
There is no reason that my banks should be operating abroad paying
taxes to some countries abroad, when it could be done in New York.

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I also believe if we have this domestic international free zone, I
would expect the same privileges would be offered in Florida, Illinois,
California, some of these States have been to see us, we are working
with them, and I would expect to see some of the foreign banks bring
employment into New York, because it is cheaper for them to have
employees in New York now than it is in London or Zurich or Hamburg or many of the different places around the world.
Senator McINTYRE. I would be curious on my own part to know
how big is your agency 1
Ms. SIEBERT. I have 350 examiners and about 550 people.
Senator McINTYRE. Would you say that again 1
Ms. SIEBERT. I have 350 examiners and the total agency is about 550.
Senator McINTYRE. 400 plus 2001
Ms. SIEBERT. Yes.
Senator McINTYRE. It is slightly larger than New Hampshir~'s.
Ms. SIEBERT. Our assets under our own regulation exceed $400 billion, encompassing 19 different industries. We run from check cashers
to travelers checks to State-chartered credit unions. State-chartered
S. & L.'s, to the commercial banks, to the foreign banks. We have quite
a collection.
Senator McINTYRE. When are you going to have NOW accounts?
Ms. SIEBERT. When they give them to us.
Senator McINTYRE. Well, they are coming.
As soon as Senator Proxmire is through questioning you, Ms. Siebert, you can be excused anY. time.
Senator PROXMIRE. I will be very fast, I know you have to catch
the shuttle. And I assume your responses will be eq.ually quick.
New York may give us a picture of the kind of banking we may
have throughout the country in a few years. I understand 30 percent of
your big loans are made by foreign banks in New York. The foreign
banks also have kept your banks on their toes in foreign exchange.
They have also created a situation in New York that is more competitive perhaps than any other place in the country.
I think that is to everybody's benefit.
Now you say you represent the depositing public. Do you feel that
foreign bank activity has been wholly constructive and desirable 1 Or
do you think there is any element here we have to be concerned about 1
Ms. SIEBERT. I have not personally, since I have been in office, seen
anything that is undesirable. I find that growth of the foreign banks
has made our banks more competitive.
Senator PROXMIRE. They have served your importers and exporters,
encouraged that kind of activity 1
Ms. SIEBERT. Yes.
Senator PROXMIRE. More than they would if you hadn't had them
active i
Ms. SIEBERT. I believe some of our companies in terms of importing
and exporting, find it easy to do business with a bank that is owned
or operated abroad. I also have a very strong feeling that if we do
not give the foreign banks reciprocity, there will be some retaliation.
And I believe the assets of my New York State chartered banks abroad
exceed $50 or $60 billion, and that is excluding the national banks
in New York.
Senator PROXMIRE. Then my question is one that is in Mr. Dunn's
statement, why not let all of the United States in on the act 1 Why
30-563 0 - 78 - 10
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wouldn't it be good for Atlanta, Milwaukee, Cleveland, to get into
that? You would have to permit branching, and make that free zone
universal.
Ms. SIEBERT. I am in favor of that.
Senator PROXMIRE. You mean the latter-Ms. SIEBERT. I am in favor of both.
Senator PROXMIRE. I am just talking about letting the foreign
banks branch, not talking about our banks.
Ms. SIEBERT. We have been in favor of both of those two.
Senator PROXMIRE. You would be in favor of permitting branching
to continue as it is under the present law for foreign banks~ Ms. SIEBERT. Yes.
Senator PROXMIRE. Absent any action on our part to amend the
McFadden Act as far as branching by domestic American banks?
Ms. SIEBERT. Yes. We have taken that position, sir, as a statesman,
because we realize that 90, 95, or 98 percent of the foreign banks coming in will choose New York as their headquarters. vVe think it is
totally unfair that the other States be denied the benefits of the foreign
trade, the capital, the expertise, the knowledge of countries abroad.
Senator PROXMIRE. And you are not concerned, even though you
occupy a position with respect to jurisdiction over by far the biggest
banking group of any State commissioner in the country. You are not
concerned about the adverse effect it will have on our domestic banks.
Even though foreign banks have been gaining at a tremendous rate,
more rapidly than our banks have in the last 5 or 6 years?
Ms. SIEBERT. Well, of course simultaneously, our banks have been
growing abroad.
·Senator PROXMIRE. Thank you very much.
·Ms. SIEBERT, If I may answer one other question or make a comment, if we open in Germany, we have access, our banks have access to
the entire country of Germany. If we go into England, we have access
to,1nore than just one city.
Senator PROXMIRE. Is there any country where our banks are limited
in. their access to the entire country the way the banks here might be
limited?
Ms. SIEBERT. We will not approve a branch unless there is reciprocity.
Senator PROXMIRE, My question is do you know of any country
any.where that limits our banks' operation, except, of course, Canada,
which we have just been informed doesn't let our banks in at all?
~s. SIEBERT. No. Canada has a new bank coming, but Canada has
limitations. We have a gentleman's agreement with Canada, where
they cannot solicit public deposits, and they can only do a certain kind
of •business.
Senator PROXMIRE. Thank you very much.
·:senator McINTYRE. Thank you for coming here and giving us the
benefit of your experience in New York with these problems.
-Ms. SIEBERT. Thank you very much.
Senator McINTYRE. Now, Mr. Dunn.

STATEMENT OF E. D. "lACK" DUNN, COMMISSIONER OF BANKING
AND FINANCE, STATE OF GEORGIA, AND NATIONAL PRESIDENT,
CONFERENCE OF STATE BANK SUPERVISORS
Senator McINTYRE. I am sorry we had to interupt, but sometimes the
witnesses are under constraint of time.

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Mr. DuNN. Mr. Chairman, I understand, and my plane doesn't leave
until 5 o'clock, so I have no problem.
Senator McINTYRE. Fine, go right ahead.
Mr. DUNN. I have several articles and pamphlets that I would like to
submit for the record. One, that has not been widely publicized and in
which that this committee would probably be interested, was published
by the Conference of State Bank Supervisors in 1974. C8BS commissioned a study on optional affiliation with the Federal Reserve System for reserve purposes. This study showed that optional affiliation is
consistent with effective monetary policy.*
I would like to submit that for the record. And I would also like
to submit for the record an advertisement that was in a Chicago paper
last year o_n "National Banking Redefined."
Mr. Chairman, I will keep my oral presentation to you as brief as
possible inasmuch as you already have my written presentation.
Senator McINTYRE. Your full statement will appear in the record in
its entirety.
[The oral presentation of Mr. Dunn and the text of a full page
advertisement from the Wall Street Journal follow:]
SUMMARY

Mr. Chairman and members of this Subcommittee, I am Jack Dunn, Commissioner of Banking and l<'inance for the State of Georgia and President of the
Conference of State Bank Supervisors, on whose behalf I am testifying today.
In summarizing the statement which the Conference has filed with this Subcommittee, I wou:d like to emphasize a number of points:
(1) CSBS supports this bill. With a few modifications, CSBS believes this bill
represents a straightforward, workable approach to the objectives of providing a
greater federal presence in connection with the regulation of foreign-owned banks
operating in this country, as well as affording equitable treatment to such banks
in relation to our own domestic commercial and mutual banking institutions.
(2) CSBS supports a federal charter option which Section 2 of the bill would
provide for foreign banks operating in this country. However, CSBS would oppose a federal charter or license carrying with it authority to organize and operate within a state irrespective of state law. A state should have authority to
determine the nature of banking organizations within its borders.
(3) We also support Section 5 which would retain the authority of a state to
invite into its borders a foreign-owned branch that might also be operating in
another state. This is in our national interests. A one-state limit on foreign bank
branches would result 1n a virtual monopoly of foreign banking activities by New
York and California, to the detriment of other states which might want to increase their roles in international banking matters.
( 4) We reject the contention made by a few that foreign bank branches enjoy
an unfair competitive advantage over our domestic banks because the former may
have a multi-state presence while our domestic commercial banks cannot branch
interstate. '.1.'he multi-state presence of foreign bank branches is limited principally to two states--New York and Illinois. There are 64 foreign bank branches
in New York and 29 in Chicago. Most of the branches in Chicago are also in New
York simply because nearly all foreign banking institutions operating in this
country have a presence in New York. There are two foreign bank branches in
Massachusetts, two in Oregon and eight in Washington. Thus, it can be seen that
this multi-state activity is very limited in geographic spread and in the numbers
of institutions involved. Furthermore, this activity is in accordance with positive
state action.
(5) The opportunity for full service banking across state lines is presently
available to domestic banks under Sec. 3(d) of the Bank Holding Company Act.
That section permits the acquisition or establishment of full service commercial
banks by bank holding companies if state law contains positive language to that
effect. Maine and Iowa have extended invitations to out-of-state domestic banks,
•Printed in an earlier hearing of the subcommittee, titled "NOW Accounts, Federal
Reserve Membership and Related Issues," June 20-23, 1977.

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and New York State has introduced legislation at various times to permit reciprocal interstate banking for domestic banks. States have not extended interstate
branching privileges to domestic banks largely because states believe that domestic banks located within their own boundaries can and do adequately serve
the banking needs of their residents without help from domestic banks in other
states.
(6) Our domestic banks through their bank holding company bank and
nonbank affiliates conduct far more de facto interstate banking-type activities
than do foreign bank branches. The "American Banker" newspaper in a series
of articles in 1975-1976, dealing with 13 of our large domestic banks and their
banks and bank holding companies, revealed that these 13 banks alone have
some 1,483 offices which conduct a bank-related type of business in some 43 states
outside the state in which they are headquartered. Such activities include Edge
Act corporations which handle international banking matters for domestic
banks, and loan production offices which solicit and initiate the processing of
loans throughout the country. Furthermore, the interstate deposit-generating
function of our domestic correspondent banking system makes insignificant by
any equitable treatment criterion the interstate deposit-taking function of foreign
banking branches operating in this country.
(7) The real question in the interstate branching issue is not competitive
equality between foreign and domestic banks, but competitive equality among
the states themselves. States other than New York and California should have
the freedom to compete for the opportunity of attracting a foreign bank branch,
regardless of whether such branch is also operating in another state, if a state
believes this to be in the interests of its residents.
(8) We believe Section 7 is more reasonable in its treatment of foreign banking
institutions and their relationships with the Fed than earlier versions of the
bill. However, even in its present form it discriminates against state-chartered
foreign banking institutions with worldwide assets of $1 billion or more by
requiring such institutions to have their reserves set by the Fed. There is no
size test for our domestic state-chartered banks. There should be no such test,
for state-chartered foreign banks. Furthermore, agencies and commercial lending companies do not take deposits and should not be included in the reservesetting provisions of this bill.
(9) The Fed has made no clear showing it needs reserve-setting authority
over all state-chartered domestic banks-let alone over state-chartered foreign
banks--in carrying out its monetary policy responsibilities. Furthermore, all
states with foreign branches apply reserve requirements which are nearly equivalent to those of domestic banks. CSBS believes this issue should be separated
from the bill and made the subject of separate hearings. It should not be tied
to a bill to regulate foreign banks.
(10) CSBS supports Section 7(c) (1) of this bill. State banking departments
will be pleased to furnish the Fed with copies of examination and related reports
over state-chartered foreign banking institutions. Further, if FDIC insurance
is provided for stRte-chartered foreign bRnk branches. R" prono<1Pd in this bill,
then the FDIC would examine such institution's connection with its insuring resnonsihilities. Therefore. tbere would he no need for adding the Fed as the second
federal layer of oversight in the examination area as some would propose. In
addition, the Fed. under Sec. 7 ( d) could report to CongreRs within two years
after implementation of this bill, any recommendations to add to the safety and
soundness of foreign banks. In view of the foregoing, there is no reason for the
Fed to exercise direct and duplicative examination oversight over state-chartered
foreign banking institutions.
(11) CSBS believes FDIC insurance should be optional for states in which
foreign bank branches operate.
Thank you Mr. Chairman.
[From the Wall Street Journal, January 11, 1977]
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Mr. DuNN. The last point in my summary I have already answered
in answer to a question about our stance on mandatory FDIC insurance, so I will not repeat that, Mr. Chairman.
I would like to add just one thing, Mr. Chairman. I think there has
been a lot of misunderstanding by some people and by the press as to
whether American banks, domestic banks, are being treated equally
with the foreign banks.
I contend that they are. Senator Stevenson has brou~ht up a very
valid point that I had not heard before ; that is under the Edge Act our
domestic banks have been restricted.
I appreciate the opportunity, Mr. Chairman, to present the views of
CSRS and I will be glad to answer any questions you may have.
[The complete statement of Mr. Dunn follows:]
STATEMENT OF MR.

E. D.

(JACK) DUNN ON BEHALF OF THE CONFERENCE OF STATE
BANK SUPERVISORS

Mr. Chairm·an, it is a pleasure to appea·r before you and the members of this
Subcommittee on H.R. 10899. I am Jack Dunn, Commissi 1ner of Banking and
Finance for the State of Georgi.a and President of the Conference of 'Sllate Bank
Supervisors, on whose behalf I am testifying today.
The interest of the Congress in foreign banking activities in this country is
understandable. Foreign banks have been coming to the United States for approximately a hundred years and their growth in this country over the past few
years has been signific.ant. According to data from the Federal Reserve System,
as of March 1978, there were 268 foreign-owned banking entities operating in this
country with 1assets totaling approximately $96 billion. However, impressive as
these figures are, it should be recognized that at yea•r-end 1977, •according to data
from the Federal Reserve System, there were 730 branches of our domestic banks
operating oversea,s. The as-sets of the overseas branches of member ban~s alone
constituted $227.9 billion, or approximately two and one-half times mm-e than
the assets of aH foreign banking entities in the U.S. Furthermore, the $96 billion
in assets held by all foreign banking instUutions in this country constitutes about

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8.4% of toml assets of $1,136 billion held by our domestic commercial banking
system.
Foreign hanking institutions have provided unique and necessary services as
well as facilitated the presence abroad of our domestic banks. Their record of
cooperation wifh state and federal officials has been excellent, and their adherence to prudent banking practices, under smte supervision, has been impressive.
Their presence here has served well our national interests.
The Conference of State Bank Supervisors, whose supervisory membera constitute the primary chartering and regulatory source for this country's nearly
10,000 state-chartered commercial and mutual savings banks is supportive of this
bill. With only a few modifications, which I shall outline and explain, CSBS believes this bill represents a straightforward and workable ·approach to the objectives of providing a greater federal presence in connection with the regulation
of foreign-owned banks in this country, as well as affording equitable treatment
of such banks in relation to our own domestic commercial and mutual banking
institutions.
FEDERAL CHARTER OPTION

CSBS, for example, supports Section 2 which would provide a federal charter
option for foreign banking institutions operating in our country. This is but an
extension of the concept of duality which characterizes our decentralized domestic banking system. However, CSBS would oppose a federal charter or license for foreign banking institutions carrying with it the authority to organize
and operate within a state irrespective of smte law. It is the position of CSBS
that a state should have the authority to determine the nature of banking organizations within is borders in a manner which it believes best serves the needs
of its residents.
INTERSTATE OPERATIONS

The Conference also supports Section 5 of this House-passed bill which would
permit a state to retain the auhtority it now has to invite into its borders a
foreign-owned bank branch that might also be operating in another state. It is
in our national interests to do this. A one-state limit on foreign bank branches
(which was proposed in earlier versions of this bill) would result in a virtual
monopoly of foreign banking activities in this country by New York and California, to the detriment of other smtes which might want to increase their roles
in international banking matters. The reason is very simple. New York and California, as our country's leading money centers, would be by far the most compelling areas of operation for foreign banking institutions if faced with a onestate limitation for their presence.
There are a few who favor limiting the authority of states in this area of
permitting foreign bank branches to have a multi-state presence. The argument
is made by such proponents that the multi-state presence permits foreign bank
branches to enjoy an unfair competitive advantage over our domestic banks;
that states under the present situation are treating foreign banking institutions
better than our domestic commercial banks are treated. This simply is not so!
First of all, the multi-state presence of foreign bank branches is confined principally to two states-New York and Illinois, where all branches are limited to
the Loop area of Chicago. There are 64 foreign bank branches in New York and
2£> in Chicago. Most of the branches in Chicago are also located in New York.
Nearly all foreign banking institutions operating in this country have a presence
in New York, the world's leading financial center. There are two foreign bank
branches located in Massachusetts, two in Oregon and eight in Washington.
So, when put into its proper perspective, it can be seen that this multi-state
activity is very limited in its geographic spread and in the number of institutions
involved. This activity, furthermore, is accomplished in accordance with positive
action by the states involved. The states have found it advantageous to invite
foreign bank branches into their respective areas to stimulate international financial transactions occasioned by the presence of multi-national corporations, to
serve the customers of such corporations and to perform other useful banking
functions.
It should be recognized that the opportunity for full service banking across
state lines is presently available to domestic banks by way of Section 3 ( d) of
the Bank Holding Company Act. Section 3(d) permits the acquisition or establishment of full service commercial banks by bank holding companies if state
law contains positive language to that effect. While no intersmte branching of
domestic commercial banks has resulted thus far from the foregoing provisions,

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the States of Maine and Iowa have extended invitations to out-of-state domestic
banks, and New York State on several occasions, including 1978, has introduced
legislation which would permit reciprocal interstate banking for domestic banks.
More states have not extended interstate branching privileges to domestic banks
largely because states believe, that domestic banks located ,,ithin their own
boundaries can and do adequately serve the domestic banking needs of their residents without help from domestic banks from other states.
In comparison to the limited geographic scope and the small number of foreign bank branches engaged in interstate activities, let us examine the de facto
interstate banking activities of our domestic commercial banks. The American
Banker, a leading financial newspaper, carried a series of articles during 19751976 dealing with the activities of 13 of our large domestic banks and their bank
holding companies. What these articles show is that these 13 banks alone have
some 1,483 offices which conduct a bank-related type of business in some 43
states outside the state in which they are headquartered. This includes Edge Act
corporations which handle international banking matters for domestic banks,
loan production offices which solicit and initiate the processing of loans throughout the country, and about 8 subsidiary banks which have been grandfathered or
otherwise exempted under the Bank Holding Company Act.
Although most of these domestic interstate banking-type activities may not
be deposit-taking in a technical sense, as a practical matter they generate deposits
for their parent banks, they take deposit business away from local banks and
they service such business in their parent banks' home state. Of the 13 banks
noted in the "American Banker" articles, 13 were listed as engaging in mortgage
banking activities; 12 were listed as engaging in consumer and sales finance; 11
in leasing activities; 9 in selling and reinsuring credit-related insurance; 8 in
factoring; 6 in investment management advisory services, and in real estate advisory services; 5 were listed as providing venture capital to small business; 4 as
handling computer services; 2 as providing trust services and marketing travelers checks. At least 1 of these 13 banks was also listed as providing credit card
services, travel services and underwriting insurance. In fact, our large domestic
banks through their bank holding company operations and their bank and nonbank subsidiaries conduct far more extensive interstate banking-type operations
than do the relatively few multi-state foreign bank branches that are located
primarily in New York and Chicago, Illinois. Further, the intersttae depositgenerating function of our domestic correspondent banking system is massive, although statistically unrecorded in conventionally-published data. This domestic
bank interstate deposit-taking activity makes insignificant by any equitable
treatment criferion the interstate deposit-taking function of foreign banking
facilities operating in this country.
In the final analyses, the real question is not alone the issue of competitive
equality between foreign and domestic banks, but competitive equality among the
states themselves. It is the position of CSBS that states other than New York
and California should have the freedom to compete for the opportunity of attracting a :foreign bank branch, regarding of whether such branch might also
be operating in another state (that state most likely being New York) if the state
believes this to be in its interests and the interests of its residents. Section 5 of
this bill would accomplish that objective and CSBS strongly supports the provisions of this section as now written.
AUTHORITY OF FEDERAL RESERVE SYSTEM

The Conference believes that Section 7 of the bill as now written is more reasonable in its treatment of foreign banking institutions and their relationships with
the Federal Reserve System than earlier versions of the bill. However, the Conference must stress that even in its present form this section discriminates against
state-chartered foreign banking institutions with worldwide assets of $1 billion
or more. This section would require that state-chartered branches, agencies and
commercial lending companies having worldwide assets of $1 billion or more
have their reserve requirements set by the Fed. These reserve requirements would
be imposed as an alleged prerequisite to the Fed's monetary policy obligations.
There is no such size test for our domestic state-chartered banks. Affiliation
with the Federal Reserve System is optional for our domestic state-chartered
hanks regardless of size, and it should be optional for foreign banking institutioUB. Size is not a proper criterion for imposing reserves. To carry this to its
logical conclusion would require that all large domestic banks be affiliated with

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the Federal Reserve System. }'urtlrnrmore, agencies and commercial lending
companies do not take domestic deposits and should not be included in the
reserve-setting provisions of this bill.
In addition to the foregoing, and of more importance, the Fed has made no clear
showing that it needs reserve-setting authority over all state-chartered domestic
banks-let alone over foreign banks---in connection with its monetary policy responsibilities. The Fed carries out its monetary policy responsibilities principally
through its Federal Open Market Committee operations, the influence of which is
felt by nonmember :tmancial institutions as well as by member banks. I think
anyone would be hard-pressed, for example, to prove that the tight money of 1974
did not affect nonmember institutions as severely as member banks.
In 1974 the Conference commissioned a study on the optional affiliationmonetary policy question. A copy of this study, which is being furnished for the
record, states in part: 1
"There is substantial agreement that the reserve measure most useful for control purposes is the monetary base ( base money), which is defined as the net
monetary liabilities of the }'ederal Government ( i.e., the Federal Reserve and the
U.S. Treasury) . . . . Growth of the monetary base is essentially determined by
}'ederal Reserve holdings of U.S. government securities, the major source component of the base. Although views differ on the precision with which the monetary
base can be regulated, the consensus among monetary economists is that the size
can be set within very close tolerance on a monthly basis."
The Federal Reserve Board for ,a number of years has been attempting unsuccessfully to extend its reserve-setting authority over nonmember depository
institutions, largely on the premise that it needs such authority for its monetary
policy role. CSBS believes this issue, which is of considerable importance to the
dual banking system, should be decided on its merits in separate hearings and
not tied to the issue of regulating foreign banking institutions that choose to
operate in this country under a state charter or license. There has been no
showing by the Federal Reserve that optional affiliation with the System by our
domestic state-chartered commercial banks has impeded the Fed in carrying
out its monetary policy objectives-let alone that state-chartered foreign banks
operating here have done so.
All states with branches of foreign banks apply reserve requirements to
them which are nearly equivalent to those of domestic state-chartered banks.
Even in Illinois, where there are no state reserve requirements for domestic
banks, branches of foreign banks are required to maintain reserves equal to those
imposed by the Federal Reserve on member banks. However, these reserves are
not in sterile form as required by the Fed for member banks. In New York
where 64 foreign branches operate, in addition to reserves, these branches must
maintain a special liquidity reserve in the form of five percent of assets segregated
and maintained under a restricted deposit agreement subject to withdrawal only
with the consent of the New York Superintendent of Banks. This reserve is over
and above vault cash and other liquidity reserves. Thus, in actual practice foreign
branch resenes may well be higher than those of domestic banks.
Section 7(c) (1) of this bill would require that the applicable state,banking
authorities, when required by the Federal Reserve, shall submit to the Board
a copy of any examination report made by the applicable state bank supervisory
authority on each branch or agency of a foreign bank, and on each commercial
lending campany controlled by one or more foreign banks. The Fed is also
authorized to require the submission of additional information regarding examination reports submitted by state banking authorities under this subsection.
The Conference is supportive of the stated intent of such provisions. States
where foreign banking institutions are located possess strong, competent state
banking departments. The history of foreign banking operations in this country
attests to the quality of supervisory oversight afforded these state-chartered
institutions, as well as to the disposition of such institutions to abide by our
1 The study by Professors Ross M. Robertson and Almarln Phillips entitled, "Optional
Affiliation with the Federal Reserve System for Reserve Purposes Is Consistent with
Ell'ectlve Monetary Policy," holds that while major monetary policy weaknesses have been·
revealed in the recent past, and should be anticipated In the future, optional affiliation of
some banks with the Fed for reserve purposes cannot be considered high on the list of
factors contributing to these weaknesses, If eligible at all for inclusion. Reserve and the
U.S. Treasury) . . . . Growth of the monetary base Is essentially determined by Federal
Reserve holdings of U.S. government securities, the major source component of the base.
Although views dill'er on the precision with which the monetary base can be regulated,
the consensus among monetary economists Is that the size can be set within very close
tolerance on a monthly basis."

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laws. In this connection, during hearings on S. 958, the Foreign Banking Act of
1975, former Federal Reserve Board Vice Chairman George Mitchell stated in
part:
"There is nothing to indicate that foreign banks are 'abusing' their ,powers
in the sense that they are using the opportunities •available to them under the
present system to engage in any improper or unsound banking practices. On the
contrary, it has been the experience of the Board that foreign banks operating
in the United States have scrupulously complied with existing U.S. laws and
regulations and have been generally cooperative in their dealings with the
Board."
CSBS believes the provisions of Section 7 ( c) ( 1) are adequate; that there is
no need for the Federal Reserve Board to exercise direct examination powers
over these state-chartered foreign banking institutions, as some would propose.
The present provisions of this Section of the bill assure that the Fed will have
ample information in a prompt manner from the respective state banking departments on the safety and soundness of state-chartered foreign banking institutions
operating in this country. Furthermore, if FDIC insurance is provided for all
federally-chartered foreign branches, or for state-chartered foreign branches
in states which require FDIC insurance for domestic banks-as proposed in
this bill-the· FDIC would exercise examination pC>wers consistent with its
insurance responsibilities. As a consequence there would not appear to be a need
for adding the Fed as a second layer of federal oversight in the examination
area.
In addition, Section 7 ( d) of this bill would provide that on or before two years
after enactment, the Fed, after consultation with the appropriate state bank
supervisory authorities, shall report to the Congressional Banking Committees
its recommendations with respect to the implementation of the bill, including
any recommended requirements to assure the safety and soundness of such
banking operations. Certainly these latter provisions, together with the power
given the Fed to require examination and related reports from state banking
departments, should be sufficient for the Fed in carrying out any of its legitimate
responsibilities, without the need for the Fed to exercise direct and duplicative
examination oversight.
FDIC INSURANCE

Section 6 of this bill would provide th'at federal branches of foreign-owned
banks must be insured by the FDIC, and that state-chartered branches must
have such insurance to operate in any state in which the deposits of a domestic
state-chartered bank would be required to be insured."
There are differences of views among the state bank supervisory members on
the necessity of FDIC insurance for state-chartered foreign bank branches. The
New York Banking Department, for example, has expressed the desire to require
FDIC insurance for state-chartered foreign bank branches operating in that
State. California's state laws require FDIC insurance as a prerequisite for deposit-taking operations by foreign banking institutions. Other supervisory members do not be~ieve FDIC insurance to be necessary. Because the FDIC has not
in the past insured deposits of foreign branches, states have resorted to various
statutory or legal substitutes and approaches to assure safety of deposits. The
statutory form is generally patterned after New York Banking liaw (Sec. 202)
which requires :
"1. (a) Upon openii:ig a branch and thereafter, a foreign banking corporation ... shall keep on deposit ... with such banks or trust companies or private
hankers or national banks in the State of New York as such foreign banking
corporation may designate and the Superintendent may approve, interest-bearing
stocks and bonds, notes, debentures, or other obligations of the United States or
any agency or instrumentality thereof, or guaranteed by the United States, or of
this State, or of a city, county, town, village, school district, or instrumentality
of this State or guaranteed by this State, or dollar deposits, or obligations of the
International Bank of Reconstruction and Development or obligations issued by
the Inter-American Development Bank, or obligations of the Asian Development
Bank, to an aggregate amount ... of not less than one hundred thousand dollars;
provided, however, that the Superintendent may from time to time require that
the assets deposited ... may be maintained by the foreign banking corporation
• Foreign-owned banks are currently in California, Florida, Georgia, Hawaii, Illinois,
Massachusetts, New York, Oregon and WasMngton. All of these states require FDIC
Insurance for state-chartered domestic '.'Janks either by statute or bank department policy.

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at such amount as he shall deem necessary or desirable for the maintenance of
a sound financial condition, the protection of depositors and the public interest,
and to maintain public confidence in the business of such branch or branches....
"2. Each foreign banking corporation shall hold in this State currency, bonds,
notes, debentures, drafts, bills of exchange or other evidences of indebtedness
or other obligations payable in the United States or in United States funds or,
with the prior approval of the Superintendent, in funds freely convertible into
United States funds, in an amount which shall be not less than one hundred
eight per centum of the aggregate amount of liabilities of such foreign banking
corporation payable at or through its agency, agencies, branch or branches in this
State ... (The Superintendent) ... may require such foreign banking corporation to deposit the assets required to be held in this State ... with such banks
or trust companies or private bankers or national banks located in this State, as
such foreign banking corporation may designate and the Superintendent may
approve."
The above requirement, generally known as the "108 per cent rule" has found
its way into the statutes or practices of Illinois, Massachusetts and Washington.
The State of Illinois requires foreign branches, in addition to the 108 per cent
rule, to maintain interest-bearing obligations or dollar deposits of not less than
the greater of $100,000 or five per cent of total liabilities, such obligations or
deposits to be maintaned with a state or national bank.
The feeling has also been expressed by some state bank supervisors that foreign branches today are largely engaged in "wholesale" or international type of
banking activities, and that because of this FDIC insurance would be unnecessary, particularly in view of deposit safeguards states have taken. Some supervisors have expressed the belief that foreign banks desirous of taking domestic
retail deposits should organize as subsidiaries rather than engage in deposittaking activities as branches. Others believe that FDIC insurance of branches
would lead such entities to actively compete for retail domestic deposits, a field
which foreign bank branches have largely avoided to date.
In view of the foregoing differences of opinion expressed by state bank supervisors, opinions largely reflective of conditions unique to their respective areas,
CSBS believes FDIC insurance should be optional for states in which foreign
branches operate.
Thank you Mr. Chairman for this opportunity to present the views of CSBS.

Senator McINTYRE. Thank you, Mr. Dunn. How do you respond to
the suggestion o:f the Federal Reserve that multi-State restrictions
pertain primarily to branches, leaving agencies :free to develop on a
multi-State basis unencumbered by this legislation i
Mr. DuNN. Mr. Chairman, agencies are not depository :facilities. We
have seven agencies now in the State o:f Georgia.
Let me correct that. We have five agencies and two representative
offices. I:f they are not deposit taking, then I see no problem with their
multi-State presence.
However, we in the State o:f Georgia would like the privilege left to
us in the :future, to have :foreign bank branches, i:f we ever decide that
it would be advantageous :for the citizens o:f Georgia to have branches
t.hat we be allowed to have 'branches.
Senator McINTYRE. How do you respond to the argument o:f the Federal Reserve that the need :for primary regulatory authority for :foreign banks is heightened by the granting o:f access to the discount window :for banks maintaining reserves with the Federal Reserve i
Mr. DUNN. Mr. Chairman, I have serious problems with that part o:f
the bill. I question the :fact that the Federal Reserve has ever proven
that they need many o:f the authorities that they keep asking :for in
section 7 o:f this bill.
Senator McINTYRE. You have no problem with the Federal Reserve
argument :for reserve requirements on subsidiaries as well as branches,
agencies or commercial lending companies i
Mr. DuNN. Yes, I do, Mr. Chairman. First o:f all I believe affiliation
with the Fed :for reserve-setting purposes should be optional :for all

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State-chartered foreign bank branches, and for foreign-owned banks
that are organized as subsidiaries in this country. Affiliation with the
Fed is optional for our domestic State-chartered banks and it should
be so for State-chartered foreign branches. The $1 -billion size test is
not applied to our domestic State-chartered banks and it should not be
applicable to foreign-owned State branches, or to foreign-owned banks
that organize as State-chartered subsidiaries. These latter organizations are treated the same as any other domestic State-chartered bank
with respect to supervision by States, and with respect to being required to have FDIC insurance. They should also be treated the same
as other domestic State-chartered commercial banks with respect to
affiliation with the Fed for reserve purposes.
With respect to agencies or commercial lending companies, these institutions do not ta'ke domestic deposits; they are not 'banks in the S'trict
sense of the word and they should not have reserve requirements imposed on them by the Federal Reserve System.
Mr. DUNN. Mr. Chairman, domestic banks in effe~t are already doing that. Now Mr. Miller referred to a tri-State level of banking, and
Mr. Heimann was talking about branching from State to State.
Our domestic banks are doing essentially this with loan production
offices. This newpaper article that I have submitted for the record I
think is very significant. This article was done a year ago, it comes out
of a bank in Chicago, and the ad clearly says, and they refer to my
home town of Atlanta : "National banks, own your own home grounds."
Let me read a paragraph from it:
Today on Peachtree Street in Atlanta, on Fifth Avenue in New York, in Baltimore, Boston, Cleveland, Houston, Kansas City, Los Angeles and San Francisco,
nine expertly staffed-

I won't mention the name of the bankregional offices are bringing the national banking services to companies of all
sizes.

Senator McINTYRE. With regard to the question of interstate
branches, do you feel there may be some logic to restricting retail
deposit taking, while leaving unaffected deposit taking which is fundamentally international or trade related 1
Mr. DuNN. In our State, as I have mentioned, we only have agencies.
I have no problem as far as a bank taking a deposit related to the business they are conductnig, which is basically international trade, if the
State where these branches are located permit it and think it is in the
best interests of the citizens of that State for them to be able to take the
deposit, I have no problem with that.
But I think it should be left up to the State to determine what is best
for their citizens.
Senator McINTYRE. Senator Stevenson wanted to stay to ask you
that same question on the Edge Act that he asked the other witnesses.
But he will forward that question to you, so he can get an answer from
your organization for the record before we close it.
Mr. DuNN. I appreciate that, J\fr. Chairman, because he has ~ome
up with a very important question.
[The following information was received for the record:]

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CONFERENCE OF STATE BANK SUPERVISORS,
Washington, D.O., June 30, 1978.

Hon. ADLAI E. STEVENSON,
RusseU Building,
Washlingtoo, D.,O.

DEAR SENATOR STEVENSON: I appreciate rece1vrng your letter of June 27
containing your proposal for restricting the domestic deposit-taking powers of
foreign 'bank branches operating outside of their designated home state.
'Your -suggestions clearly reflect a sincere desire to assure competitive parity
between foreign bank branches and our commercial domestic banks in an operating arr.a that is subject to much misunderstanding, as well as a sensitivity on your
part to the ambitions of a number of states to enlarge their roles in the area of
international banking.
In your letter you point out that you regret you were not present during the
oral presentation of Mr. E. D. "Jack" Dunn in behalf of the Conference of State
Bank Supervisors. I also regret this because I believe Mr. Dunn's oral remarks
as well as the written statement of the Conference refute the contention that
foreign bank branches enjoy a significant and unfair competitive advantage over
domestic banks because of the interstate deposit-taking powers of the former
institutions.
Mr. Dunn, I believe, placed in propser perspective the limited geographic scope
of the multi-state presence of foreign branches. In spite of the belief of some that
foreign bank branches have established a multi-state presence throughout this
country, the only significance secondary state in which foreign bank branches are
operating is Illinois, where there are 29 branches which under Illinois law are
confined to the Loop area of Chicago. Most of the foreign bank branches in Chicago ha:ve a branch also present in New York. Nearly every foreign bank has a
presence in New York, because it is the world's leading financial, center. There
are two foreign bank branches in Massachusetts, two in Oregon and eight in
Washington. ,From the a·bove, it can be seen that the geographical spread of
foreign bank branches is very limited and the number of such institutions with
a multi-state presence are relatively few.
'In contrast to the limited secondary state presence of foreign bank •branches,
which, incidentally, has been accomplished only by positive state action, Mr. Dunn
briefly reviewed the extensive bank-related activities of thirteen banks and bank
holding companies that were featured in a series of American Banker articles
in 1975-1976, copies of which are attached. The articles show ·that the thirteen
banks and 'bank holding companies in question have some 1,463 offices which
conduct a bank-related type of business in some 43 states outside the state in which
they are headquartered. This includes Edge Act corporations and loan production
offices. Of the 18 banking institutions noted in the American Banker articles, 13
were listed as engaging in mortgage banking activities; 12 as engaging in consumer and sales finance; n in leasing activities; 9 in selling and reinsuring
credit-related insurance; 8 in factoring; 6 in investment management advisory
services, and in real estate advisory services; 5 were listed as providing venture
capital to small •business; 4 as handling computer services; 2 as providing trust
services and marketing travelers checks.
While it may be said that the above activities are not direct deposit-taking
activities and cannot be compared with the deposit-gathering activities of foreign
branches, the operations which I have summarized do generate deposits for the
banks involved. Of even greater importance from the deposit-taking standpoint
is the massive amount of out-of-state deposits obtained by our domestic banks
through their correspondent operations, plus financing arrangements with outof-state businesses. These interstate deposit-taking functions make insignificant
the interstate deposit-gathering by foreign branches operating in this country.
'In connection with the foregoing comm!'nts, I believe the ,Federal Reserve
Roard should be requested to survey 2/'i-30 of our major domestic banks in New
York and 'Chicago, or elsewhere, to determine what percentage of their deposits
originate in states other than where the bank is headquartered. I believe such
data would show just how insignificant in comparison is the interstate deposittaking function of a relatively few foreign branches operating in more than one
state.

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Another question which should be borne in mind is the right of states to compete
for the presence of a foreign bank branch which might be operating also in
another state---;that state most likely being New York. Under your proposal a
foreign bank branch in a secondary state would have its domestic deposit-taking
powers significantly curtailed. The net effect would ·be to make any secondary
state less attractive to the foreign bank branch. This is an unfortunate consequence of your proposal; it would not permit all states to compete on an equal
basis with New York in the international banking field. If, for example, Florida
or Georgia at some time in the futrue should decide to permit the entry of a
foreign bank branch, even though such branch might also be operating in another
state; e.g. New York, federal law should not mandate that such branch have
lesser powers than those authorized for the branch in New York under state law.
This would be a patent discrimination against the secondary state in its efforts
to benefit its citizens through an increased role in the international commerce
and banking areas, and it would be contrary to our national interests.
lSincerely,
LA WREN CE

KREIDER,

E/l)ecutive Vice President-Economist.

Senator MtffNTYRE. ·well, Mr. Dunn, that will end our morning session, and we will be returning at 2 o'clock.
[Thereupon, at 12 :40 p.m., the hearing was recessed, to reconvene at
2 p.m. the same day.]
ArrERNOOX SESSIO:!',"
Senator McINTYRE. The subcommittee will come to order. Our
first witness this afternoon is Mr. Robert B. Palmer, president, Bankers' Association for Foreign Trade.
Mr. Palmer.
Will you also introduce for the record your associates at the witness
table with you~
STATEMENT OF ROBERT B. PALMER, PRESIDENT, BANKERS' ASSOCIATION FOR FOREIGN TR.ADE; ACCOMPANIED BY JAMES B.
SOMMERS, VICE PRESIDENT, BANKERS' ASSOCIATION FOR FOREIGN TRADE; AND THOMAS L. FARMER, ESQ., PRATHER, SEEGER,
DOOLITTLE, AND FARMER

Mr. PALMER. Thank you very much, Senator.
I am Robert Palmer, president of the Bankers' Association for
Foreign Trade.
I am joined by James Sommers, executive vice president, North
Carolina National Bank, and vice president of the Bankers' Association for Foreign Trade; and Mr. Thomas Farmer, of the law firm
of Prather, Seeger, Doolittle, and Farmer, who is counsel to our
association.
As I think you well know, the association is a very broad-based one,
encompassing about 150 U.S. banks, essentially all of the American
banks throughout the United States, including 56 cities, which conduct the vast majority of ail the international banking done by the
American banking community.
We are especially pleased that you invited us to testify here today
and submit a statement, because this is an issue that we, and I think
our industry, feels quite strongly about.
And, as you are probably aware, I think you have now received the
prepared statement of the Association of Reserve Citv Bankers, which
is another banking association of approximately 170 of the principal

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banks in the United States throughout the country. Their statement
conforms precisely to our opinions on each of the key issues here.
And, I believe that you will shortly be receiving a statement from
the American Bankers Association, which will also generally parallel
our views on the key issues on the proposed leg1slat10n.
Our association has testified with regularity and with great consistency on this issue over the 4 or so years that it has been considered
by at least one of the Houses of our Congress.
l mentioned that we have testified with great consistency, always
based on two very basic principles that we think are totally appropriate to assure a sound and fully competitive, fair market place in
this country for financial institutions, and therefore to the benefit of
their customers.
Those principles are, first: Equal national treatment or mutual nondiscrimination, as it might be called, which in effect, to put it in laymen\, language--means "when in Rome, do as the Romans do."
For foreign financial institutions which are active in the U.S.
market, they would do so on the basis that the U.S. public has decided
is a healthy one for competition in this market.
Secondly, we have always supporting the principle of grandfathering, which is to say those entities of foreign banks which are already
in operation here, no matter what the function and no matter where
located, should be fully grandfathered, even if this or other legislation
should be enacted in the future which would make the foreign bank
regulations more restrictive than they have been in the past.
As you know, probably the only thing that has really changed over
the 4 years that we have been discussing this issue is that it has become
increasingly important to resolve it and whether you hear about it in
this committee room or discussions in the industry, on the street, in
Business Week magazine, or in this morning's New York Times, the
simple fact is that the presence of foreign banking institutions in this
market has become increasingly large and increasingly important to
the U.S. financial marketplace.
On balance, we are pleased by this, because we have always felt the
United States should be a market which encouraged an active, equal,
competitive opportunity for foreign banking institutions to bring their
services to this market and to make them available to the customers of
our banking industry.
We have in principle supported legislation along the lines that was
not only passed by the House of Representatives in 1976, but draft
legislation which was reported out of the House Banking Committee,
the full committee, in February of this year.
We were, however, quite disappointed and quite concerned about the
final bill passed by the House of Representatives because it simply did
not follow the principle of mutual nondiscrimination or equal national
treatment in one very important, I would say vital, area.
And, that has to do with the capability of foreign-based institutions
to branch or create subsidiaries in a multistate banking environment,
and therefore to take deposits in a multistate banking environment.
As you well know, the principle is quite simple in our business; deposits are the raw material with which we work. Deposits are money.
If you don't take it in, you can't lend it out. You can't make it available to your customers.

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There is no situation today, other than a very few grandfathered
situations, in this country where American banks are taking bank deposits, the raw material of the industry, in a multistate environment.
There are cases where, under the bank holding company laws, American banks are active in a number of locations in factoring, consumer
finance, mortgage banking, et cetera.
Yet I'm surprised that some of the previous testimony and some
later testimony, at least from the statements I have read, do not point
out the key fact that there is no interstate activity of American banks
in one of the two classic functions of banking: the taking of deposits.
Therefore, this locational question is of extreme importance to us. It
is on this basis that we are making the heart of our testimony today
and in our written statement.
The arguments that we hear against this position seem to fa11 into
five categories, and I would like to run through them very quickly,
because I think that they are all eminently answerable.
In fact, I think most of them have little rationale.
No. 1 : We hear that the question of whether or not a bank should
be located in a ¢ven State is an issue of States rights and therefore
should be left totally to that State. That seems to run counter to the
historic practices which have long governed bank regulation in this
country; that is, the dual banking system, allowing either a Federal
or State charter.
Within that framework, the banks having a Federal charter are
limited to a single State; likewise, for State-chartered institutions
since the various States and Federal autJ,orization have worked in
harmony so as not to permit American banks to expand across Rtate
lines in their direct banking functions, for example, deposit-taking
facilities.
That has been judged for various reasons to be the sound principle
under which this banking industry operates, and it would seem therefore that it would be appropriate to work within the same principle
going forward with foreign banks, or at least until there should be any
change in the domestic banking laws.
A second argument would be that which is referred to as the stalking horse; that is it is not appropriate to bring- the foreign banks under
the current laws regulating the American banks operating in this
country, but, in fact, we should revise those laws, principally, the McFadden Act. That may be. It is an issue which essentially has a dome..<itic focus, and our association is not the primary industry group to be
spNtking out.
We would only urge, though, that whenever the Congress turns its
mind to that subiect, it should coniluct a full and open debate under
the appropriate heading; that is, "What is the proper environment for
locational capabilities of American financial institutions~" We should
not a1low ourselves to possibly have no choice but to end up with nationwide banking because one special group of institutions, through
simple neglect or oversight of the banking laws and regulations,
achieved that position and grew to be unduly strong becanse of it..
At that point, we might have no choice but to change the banking
laws for the vast majority of other institutions operating under them.
Thirdly, we hear from some that legislation such as we are pro-

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posing, especially with a strong section 5, would be discriminatory;
that it would be unduly restrictive against foreign banks.
This does not seem to be the case at all. It is simply one of putting
foreign banking institutions on an equal footing with that of American banks.
There is nothing discriminatory about this. There is nothing anticompetitive. There is nothing that we are urging to be taken away
from any of the participants or the customers of those participants
in the banking community.
What we are simply saying is: it is appropriate to have the foreign
banks operating on an equal footing with American banks, and by our
logic that does not seem discriminatory.
A fourth argument is that the international banks, the foreign-based
banks operating here, should be permitted to branch or create subsidiaries in a multitude of geographic locations across State borders
because that would be helpful to a number of regions and cities attempting to develop as international banking, finance, and trade centers.
The position we have espoused all along would certainly allow that
to happen, both through Edge Act corporations, which is a well proven
method for American banks to expand and to develop international
trade in all potential centers, and through the use of agencies, a capability which is now available to :foreign banks on a multistate basis,
and which we support.
As I understand from hearing the discussion this morning, there
was a proposal from Senator Stevenson of the possibility of allowing
some combination, if you will, of Edge Acts and agencies under the
title of branches.
As we think of it in prin.ciple, we would be very much in agreement
with that type of proposal, because it seems to agree to that which we
have recommended all along, the ability to have Edge Act corporations and agencies going :forward.
The final argument that we hear from time to time is th:at if Congress passes an International Banking Act with a strong section 5, it
would possibly incense certain foreign governments, and they might
consider or even implement some form of retaliation against American
banks operating abroad.
The first thing I would say to this is that we have never heard any
responsible :foreign governmental official make such a statement.
But maybe more important is that there is simply no rationale for
any sort of retaliatory activity. What we are doing, as stated earlier,
is simply recommending the placing of the :foreign banks on an equal
footing with domestic-based institutions.
When an Englishman comes to this country and he breaks his arm
and goes to the hospital, he pays the bill. He does not say that "it is
discriminatory against me because I do not pay a direct medical bill
at home where I'm a member of a national health system."
There would be no threat by him of retaliation against Americans
who visit Britain where they play by the rules as they are written in
Britain.
There is really no rationale for retaliation, and I think it is an unfortunate scare tactic that is being tried by some.

30-563 0 - 78 - 11

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So, in summary, then, what we are simply saying is: One, it is time
for a uniform regulatory environment in this country encompassing
a segment of our industry which has grown rapidly and has the potential to do. excellent things for the banking industry. Without proper
regulation it also has the potential to be very unsettling.
I think it should encompass the principles of equal national treatment and grandfathering.
H.R. 10899 is heading in the right direction, but it falls far short in
a very important area; that would be section 5, which seems to legitimatize the current lack of regulation in branching and complete banking activities. We urge that the Senate pass legislation which would
change section 5 and strengthen it. Then we would support the
legislation.
Otherwise, frankly, the vast majority of our membership simply do
not-would not support the passage of legislation at this time, although there are a modest number of our members who would find the
current draft acceptable.
[Complete statement of Mr. Pa.lmer follows:]

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STATEMENT OF
ROBERT B. PALMER
PRESIDENT
BANKERS' ASSOCIATION FOR FOREIGN TRADE
ON H.R. 10899
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
OF THE
SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
JUNE 21, 1978

My name is Robert B. Palmer, and I am the President of the Bankers'
Association for Foreign Trade. I am also Executive Vice President of the
Philadelphia National Bank. I am accompanied by James B. Sommers, Vice President
of the Association, who is also Executive Vice President of the North Carolina
National Bank, and by the Association's counsel, Thomas L. Farmer, of the
Washington law firm of Prather Seeger Doolittle and Farmer.
The Bankers' Association for Foreign Trade (BAFT) was founded in 1921.
Today, BAFT's voting membership of 150 U.S. banks consists of banks in 56 cities
located in 32 states, the District of Columbia and Puerto Rico, and includes
almost every U.S. bank which has a significant international operation. The
Association also provides non-voting membership to 89 foreign banks with operations in the United States.
Following World War II American Industry set the pace in a tremendous
expansion of world trade and investment. During this period the U.S. dollar
established its role as the principal reserve currency and medium of exchange
for international transactions,·and American banks expanded overseas to meet
the needs of their customers and to take advantage of new opportunities to
finance foreign commerce and investment. They opened representative offices
and branches, established specialized subsidiaries, associated themselves with
overseas ventures and participated substantially in the Euro-currency market.
Similarly, non-U.S. banks expanded their international operations, including
the establishment of agencies, branches and subsidiaries in the United States.
The worldwide activities of BAFT member banks, both U.S. and foreign, contributed
greatly to the growth of international trade, the improvement of living standards
throughout the world, and the maintenance of peace through an orderly interdependent world econolf\Y.
As the American banking community has expanded into foreign financial
markets it has not asked for, nor received, preferential treatment. Our aim
in our markets has been mutual non-discrimination among U.S. and foreign banks.
To demand more would be unrealistic and not in the spirit of the free enterprise
system; to accept less would be a disservice to the American business community
and ultimately the American public.

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BAFT members strongly believe that the domestic banking environment
should be one in which foreign banks are encouraged to participate, and to
do so on a healthy and non-discriminating basis. This fosters competition among
all institutions operating in this country and offers benefits to all users of
bank services. As evidence of this, there are approximately 100 foreign banks
performing financial activities here in at least six states, and by May 1977
they had achieved a penetration of more than 30 percent of the commercial
and industrial loan markets in both New York and California. Also, the size
and significance of their U.S. domestic presence has recently been magnified
by the public announcements of the intention of three huge foreign banks to
purchase control of three of our largest commercial banks. While our Association
welcomes and encourages the increased activities of foreign banks in our marketplace, we strongly object to their preferential regulatory treatment which makes
much of it possible. As stated in the June 26, 1978, issue of Business Week
Magazine, "Clearly the foreign banks owe much of their dramatic success to the
competitive edge that U.S. law gives them over domestic institutions."
At present, there is virtually no uniform regulation of foreign banks
operating here. Foreign banks are subject almost exclusively to state laws.
This has led to uneveness of treatment, particularly with respect to multistate
banking, securities and investment banking activity, reserve requirements deposit
insurance, and ease of entry into U.S. markets.
As a result, the vast majority of our members support the passage of legislation this year which would effectively equalize the operating environment for
both foreign and domestic banking activities in the U.S. Such legislation
should be based on the principle of equal national treatment. At the same time,
these banks believe that the principle of grandfathering should be employed
for those operations of foreign banks which have been established here in full
accord with prevailing laws and regulations.
Since 1973 this Association has worked actively, and has testified before
Congressional Committees regularly and consistently for such legislation.
Generally, our position has been similar to that of the Federal Reserve Board,
and our efforts have been closely aligned with theirs over the period. We were
pleased when legislation incorporating these principles was enacted by the House
of~Representatives in 1976 and was again reported out of the House Banking
Committee in February of this year. However, the legislation later passed by
the House and before you today was altered significantly on the House floor by
the ommission of the amendment of Section V, thereby permitting foreign banks
to operate a full banking business, including the taking of deposits, on a
multistate basis in a manner denied to U.S. banks. Accordingly, H.R. 10899
does not enjoy the majority support of the Association's voting members.
I do want to advise the Committee that there is a small group of our
membership, domiciled principally in New York, and accounting for a significant
share of this country's international banking activities, which takes the position

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that the present regulatory environment is satisfactory and therefore requires
no new legislation at this time.
Because our disapproval of H.R. 10899 applies principally to Section V,
I will concentrate 11\Y remarks today on the issues involved therein. The two
most basic functions of banking are the taking of deposits and the granting of
loans. Within the present legal and regulatory environment, generally referred
to as the "dual banking system", an American-based bank may engage in these
activities under either a state or federal charter, but with only a very few
exceptions, they are restricted in their deposit taking to one or more locations
within the single state in which they are headquartered. Such is not the case for
foreign-based banks which can and do operate through branches and or subisdiaries
to take deposits in more than one state. We believe that it is partly due to
this clear and significant discrepancy in our laws that led Federal Reserve
Board Chairman G. William Miller to state in April that "we don't have a'idual
banking system, we have a tri-level banking system, .•.. there is a State banking
system, there is a Federal banking system, and there is an International banking
system."
The strength of our feeling on this issue is based on the simple fact that
deposits are the basic raw material of our business; we trade in money, and if
a bank doesn't take it in, it can't lend it out. When one group of banks has the
ability to locate in several different key commercial, financial and population
centers across this country it has a marked advantage in the competition for
a growing and stable supply of deposits. Today probably the most important area
of service for banks dealing with large U.S. corporations is cash management,
and a bank's ability to provide this service efficiently is greatly enhanced
if it can utilize its own branches or subsidiaries in numerous financial centers.
This advantage would also apply to payroll handling and other financial services
dispensed locally for corporations operating in multistate locations. And while
many foreign banks are not concentrating on retail, or consumer banking in the
·U.S. today, some are already becoming active in major markets like New York and
California, and in time.more foreign banks may choose to do so. Clearly, this
business can only be undertaken if the banks have full-service facilities in
each local market.
Association members have heard several arguments for continuing and
legitimatizing through legislation this current discrepancy in our banking laws
and regulations, but we don't find them convincing, or even rational:
1) That this issue of foreign bank presence in any state is one of
"states rights" and therefore should be left to the discretion of each
individual state. For more than four decades the U.S. commercial banking
industry has functioned within the "dual banking system" which, as stated
earlier, permits operation under either a state or federal charter, but
which, in practice, has limited full-service activities to a single state.
To date neither the federal or state governments have tried to upset this
modus operandi by chartering full-service banks for direct operation in
more than a single state. Given this longstanding principle and the

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smooth functioning of the banking system under it, we don't see the
rationale for making an exception in the case of foreign-based banks,
especially when such an exception results in decidedly preferential
treatment for that group. Moreover, as stated by the Federal Reserve,
there would be an underlying strength and stability to the entire domestic
financial and monetary system if we could achieve essentially uniform
regulatory treatment of all banks operating here.
2) That it would be wiser to lessen the current restrictions on multistate
operations of U.S. banks rather than to place the foreign-based banks
under the present laws governing our locational capabilities. This is in
effect a request to revise or nullify the McFadden Act, which has played
a primary role in shaping our industry for more than 40 years. Since this
is a matter of purely domestic focus, our Association will not speak out
on it except to recommend that we debate such a major proposal openly,
on its merits for all users and suppliers of banking services. If it would
be advantageous for our society to have a national banking system, and that
may be the position of even a majority of our members, we should arrive
at it through full and open debate culminating in positive Congressional
action, and not find ourselves forced into that position because one
group of participating institutions arrived there by lawful means and was
able to obtain a marked advantage. Moreover, should that occur, the
BAFT fears that an extreme reaction could be triggered that would force the
foreign-based banks out of our markets, or into some secondary position, and
this we would strongly oppose as it would be detrimental to all banks,
domestic and foreign, and to their customers.
3) That legislation such as H.R. 10899, especially if it were to have
a strong Section Vas we propose, would be unfairly restrictive or discriminatory to the foreign-based banks operating here. This simply would
not be true, as the legislation would be based on the principle of nondiscrimination, or equal national treatment, which would put the foreign
banks on an equal footing with U.S. banks. Under it the foreign-based
banks would be able to operate under state or federal charters, to form
bank holding companies allowing expansion into numerous banking-related
activities, to operate in states other than their "home state" via Edge
·Act subsidiaries and loan production offices, etc. All of this is precisely
the same as the current treatment of U.S. banks, and in addition, we
support the continued allowance of foreign-based banks to operate agencies
on a multistate basis. Finally, to assure totally fair treatment of
foreign banks operating.here, the BAFT continues its support of total and
permanent grandfathering of all facilities of whatever type and wherever
located, which have been established in this country in full accord with
prevailing laws and regulations. And we urge that the effective date for
such grandfathering be moved forward to the most current, practical date.
4) That allowing full-service banking activities by foreign-based banks
on a multistate basis are essential to permitting numerous regions in
this country to become centers for international trade an.d finance. Since

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our position would allow the foreign-based banks to operate via Edge Act
subsidiaries and agencies in the processing and financing of international
trade, these institutions will be able to function in any city or region
throughout the U.S. that they believe to have the potential for becoming
an international trade and financial center. Over the past decade many
U.S. money centers and regional banks have established active Edge Act
subsidiaries to deal in international transactions in cities like Chicago,
Miami, Houston, New Orleans, Los Angeles, and San Francisco, not to mention
New York, and it is generally agreed that these offices have proven extremely
useful in abetting the international conmerce of these. locations.
5) That certain foreign governments might be incensed if legislation such
as H.R. 10899, and especially if it included a strong Section V, were
passed and had the effect of restricting the U.S. activities of the banks
under their domestic jurisdiction, and that this might lead such governments
to retaliate in some fashion against the operations of American-based banks
in their homelands. First, we should state that we have never heard such
a position expressed by a responsible government official of any nation,
and we wonder if those persons who do make such statements aren't simply
trying to scare U.S. officials and bankers. Whatever, there would be no
rationale for such action by a foreign government because such legislation
would not be protectionist or discriminatory against the U.S. operations
of foreign banks, but would simply put them at parity with American banks.
It is logical and appropriate that the regulatory environment for banking
(just as education, health care, etc.) in any country should be based on
the consensus of the national public and be uniform for all parti~rpants.
The rules in one country should not be altered for a special group based
on how that group operates in its home-base country, or even a third
country. We doubt that any other nation would accept being told how
they should regulate foreign based banks operating within their borders,
and especially if those regulations must be more liberal than are those
governing the activities of their domestic institutions.
In sunmary, our member banks to varying degree have expanded their activities
practically worldwide, but we have not yet found any country where, on balance,
the activities of foreign-based banks are afforded substantially preferential
treatment in their.domestic activities. In this respect ,the United States stands
alone today. Much of this would be corrected with the passage of H.R. 10899,
if it includes a strong Section V, written along the lines that we have always
proposed; however, without such provisions, our Association cannot support
passage of the legislation.
Thank you.

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Senator McINTYRE. Thank you, Mr. Palmer. I appreciate that you
focused in on your principal point on the provision of the bill that
bothers you the most, section 5.
My general feeling is that there is little justification for imposing
post-Depression statutes of the thirties on banking developments today. Indeed, if there is a competitive imbalance with regard to multistate banking operations, I think the stronger case is that we should
liberalize laws pertaining to U.S. banks rather than pose outdated
restrictions on foreign competition.
Nevertheless, the dual banking system is very much alive, so, again
your testimony, how do you view Chairman Miller's proposal to lrmit
section 5 to branches permitting agencies of foreign banks to continue
to do business on a multistate basis unhampered by this legislation?
Mr. PALMER. May I say, first of all, that I agree with you that the
duaLbanking system is alive, but also that the trilevel banking system
is. becoming increasingly alive. Today there is a state banking system;
there is a federal system; and there is a growing international banking
system in this country. We do have three sets of rules by which we
play, strange as it may seem.
As far as supporting Chairman Miller's statement on the branching
for foreign banks~are you saying branches or agencies?
Senator McINTYRE. His section 5 would-proposes to permit agencies of foreign banks to continue to do business on a multistate basis,
not hampered by legislation, but not branching.
Mr. PALMER. We have supported that principle all along in our
testimony. On this occasion, as in the past, we believe it is appropriate
to allow multistate agencies, since agencies are not deposit-taking
institutions.
Mr. FARMER. That provision is the same as the provision that came
out of the House Banking Committee, which is the bill that we do
support, the version as it was reported to the floor by the House Banking Committee.
Senator McINTYRE. Regarding the question of interstate branches,
do you feel that there may be some logic to restricting retail deposit
taking, while leaving unaffected deposit taking whicli is fundamentally
international or trade related i
Mr. PALMER. To the extent that it is international and trade related;
yes. We would find that quite acceptable because that, in fact, is what
is open to the American banks under the Edge Act laws. Many of our
member banks, in fact, are taking advantage of that o_pportunity, going
to a number of regional centers and assisting in their development of
international banking: Miami, New Orleans, et cetera. And we are permitted to take deposits there if they are related to international trade
and finance. We totally support that capability for foreign banking.
Mr.FARMER. I do think that the comparison of not simply retail and
foreign trade, there is a very important market of domestic corporate
deposits which is an area which we would definitely not want to have
to continue on a multistate basis.
Senator McINTYRE. Similarly, Mr. Palmer, as I asked Mr. LeMaistre
this morning, is there any means of distinguishing, as the foreigners
suggest, between retail depositors requiring FDIC insurance and
commercial depositors w·hich do not? How would you respond to the
argument that deposits of foreign branches are not retail and, therefore, do not need FDIC protection?

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Mr. PALMER. For the most part, the deposits of foreign branches
are not of a retail nature. Most of the branches, as opposed to subsidiaries, are operating in a wholesale, if you will, environment.
However, under the principle of equal national treatment, to the
extent that it is a Federal branch or a State branch in a State that
requires deposit insurance, it would seem totally appropriate to require deposit insurance on all deposits.
I would say, however, that some of the debate on this is really one
of the mechanics of bank regulation, and we would certainly defer
to the regulatory authorities to advise you as to what they need to
run a sound banking system.
Senator McINTYRE. While the bill here provides for mandatory insurance of foreign branches, the FDIC, expert in this area, argues for
optional rather than mandatory insurance. Have you studied the FDIC
proposal i Do you have any comment to make on it 1
Mr. PALMER. I have not studied it in depth, but I think we would
agree in terms of mandatory insurance for federal branches and mandatory insurance for State-chartered in those States which require
a deposit insurance. I think we-Senator McINTYRE. I don't understand that answer. Are you referring to state law, where they require deposit-insurance, you would go
along with it~
Mr. PALMER. Yes.
Senator McINTYRE. The question I ask asking is about-you heard
the witnesses this morning, didn't you, some of them 1 Did you hear
the witnesses this morning'?
Mr. PALMER. I read Mr. LeMaistre's prepared statement. My two
colleagues were here this morning.
Senator McINTYRE. The Fed testimony, by Mr. Miller, this morning, indicates that they advocate compulsory FDIC insurance, and,
along with that, Ms. Siebert, of New York, stated that she feels that
it should be mandatory.
On the other hand, FDIC comes in here and says: "Look, this is too
much. We ought-it should be optional".
Mr. FARMER. And we also heard Mr. Heimann, who differed :from
Mr. LeMaistre. This is a very technical question of bank regulation
which is essentially a matter of safe banking. Our feeling is that the
regulators are really the people to advise you on that, rather than the
professional bankers. I think we can comment, or my colleagues can,
~m the impact on the commercial banking system of some of this legislation, but we are not expert in adjudicating between regulators as
to what is required for safe banking.
Sena~or McINTYRE. I didn't see it that way. I thought Mr. LeMaistre
was trymg to say that this was too much of a burden you are putting
on us; if Bangladesh, for example, wanted to set up a bank, we might
have a problem finding out how sound it was. That is what I thought
they were talking about.
Mr. FARMER. Right. But they are the fellows that have the better
experie~ce in know~ng h?w you determine what a Bangladesh bank
can do m safe bankmg climates, rather than the commercial bankers.
Senator McINTYRE. Let's move on.
The Federal Reserve Board argues, Mr. Palmer, for reserve requirements for subsidiaries as well as branches, agencies, and commercial

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lending. On the other hand, Ms. Seibert testified that the Fed should
have no authority .to impose reserves on agencies and commercial lending companies since these entities are barred from accepting deposits
and, therefore, do not function as banks. What are your thoughts on
this issue1
Mr. PALMER. By "subsidiaries," do we assume that you are now talking about investment company-.type subsidiaries, as opposed, say, to a
subsidiary bank in California 1
Senator McINTYRE. Subsidiary bank.
Mr. PALMER. A subsidiary bank would be a State-chartered institution such as we now have in California, and therefore, would be subject to the State laws.
Now, the fact is, in terms of equal national treatment in the United
States today, the large American banks which are of a multinational
nature, and which are similar, therefore, to the types of foreign banks
which are branching here, all are members of the Federal Reserve.
If not, it is probably because they are foreign-owned or strictly regional banks. So, .they aren't, in fact, all maintaining reserves.
But we do not feel strongly about it, and again, as Mr. Farmer said,
we would defer to the regulators.
Senator McINTYRE. The suggestion has been made that the grandfather date for all nonbanking activities under section 8 of the bill be
made the date of enactment, rather than the artificial date of May 1977.
Do you agree with this suggestion i
Mr. PALMER. We would not think it wise to set it at the date of enactment. I think our prepared Atatement does ask for the most recent practical date. What we are thinking of there is that that date should be,
in effect, a yesterday rather than a tomorrow, and possibly yesterday,
literally, or at the time i.t was introduced and voted on in the House
in April or something of that nature.
If you put that date in the future, such as the date on which you
enact the bill, you, one, give great incentive for further delaying of
the passage of the legislation, and, two, you invite a tremendous number of petitions and applications trying to, in effect, beat the date.
This legislation has been debated now for about 4 years. I think
there has been quite ample time for people to assume that there is
going to be a different form of regulation and to act accordingly.
Senator McINTYRE. To what extent do recent and prospective acquisitions by foreign banks of U.S. banking interests affect the thinking of your organization with regard to this legislation, Mr. Palmeri
Mr. PALMER. They don't really affect our thinking, in principle, all
that much, Senator.
As you noti~, possibly, our testimony .today is really quite similar
to what it has been £or the last 4 years. We would simply say that, to
the extent that anv of the current inequities of domestic bank regula.tion made available to a foreign bank the ability to make these proposals or these purchases when that opportunity might not be available to American banks, that seems like discrimination. But the fact
that the foreign banks are becoming more active here says to us only
that there is an increasing need for formal regulation.
·We are not opposed. We are delighted to see foreign banks come
into this market, to be active here.

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Senator McINTYRE. Can you give us your opinion as to the creation
of domestic international banking zones and how this might affect
international banking competition in this country 1
Mr. PALMER. Yes, sir. The association passed a policy statement only
1 month ago, at our convention, in which we supported the ability to
establish these domestic/international zones in any location in the
United States, not restricted to any single city, State, or whatever.
We do not see any close relevance for those units to the issues of the
legislation which we are now discussing. As far as its competitive aspects-the impact should be positive on the competitive environment
for the international banking in this country because it should lessen
costs for some participants.
Yes, we think it would be helpful, but we don't see that it has a very
close relationship to this legislation.
Mr. FARMER. I think it is especially true because that proposal is to
deal with the foreign transaction that is truly interntional bankingthat is an international bill. And we are talking about a domesticthe bill that is before this committee is a domestic banking bill.
Senator McINTYRE. Senator Stevenson has sent a message to me
that he would like to get the views of the witnesses this afternoon on
the compromise interstate branching proposals that he put forward
this morning.
Namely, this is the gist of his suggestion : Continue to permit foreign banks to enter any State where they are welcome, but limit the
deposit-taking activity of branches outside of the home States to
those permissible for an Edge Act bank. Agencies as in Georgia, wouid
be totally unaffected, and branches could make domestic internanational loans and conduct other activities, except they would be
limited to accepting deposits from foreign sources or for international
trade purposes.
Mr. PALMER. As we tried to state earlier, and to the extent we can
understand it; as we hear it for the first time read in brief, we think
that it conforms exactly to our longstanding idea of supporting Edge
Act corporations and supporting agencies, including domestic lending
agencies for foreign banks, and therefore we probably would endorse
it entirely.
We would like to observe the writing of the technical language, but
we think we would endorse it entirely.
Senator McINTYRE. Let me add this, then. This proposal would be
complemented by liberalizing amendments to the Edge Act intended
to further facilitate the development of international banking facilities throughout the country. These amendments would be intended to
encourage more domestic banks to form Edge Act corporations and
engage in international financial activities.
Witnesses, especially of your association, are encouraged to suggest
modifications which they believe would be desirable for this purpose.
We are going to close the record in 'i days, so if you have got any ideas
on it we would like to hear from you right away.
Mr. FARMER. We have supported this for some time, beginning with
the Fed. We support this proposal and we would like to call attention
to a related proposal which was in the original House bill, but didn't
make it out of the banking committee, which liberalized the rules for

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Edge Act operation. It was sponsored by the Fed, and we support it,
especially permitting or authorizing the Fed to vary the leverage
ratios, which are now 10 to 1 by sta.tute. And we think that is a very
important, that is presently a ve-ry limiting provision in the present
re~lar K operations. And we support the Fed in getting such liberalizing legislation.
Senator McINTYRE. Thank you, gentlemen. Thank you, Mr. Palmer
and your associates, for your help. Anything you can add to that suggestion of Mr. Stevenson's, let us have it, please.
Mr. PALMER. Thank you.
[The following information was received for the record:]

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PRATHER SEEGER DooUTTLE

FARMER

1101 SIXTEENTH STREET, N. W.

WASHINGTON, D, C.

20036

ALFRED V, J. PRATHER
EDWIN H, SEEGER

J. WI LUAM DOOLITTLE
THOMAS L, ,-ARMER

CARL 19, NELSON, JR.
RICHARDT, WITT

TE~HONE 202-2ae-oeoo
CAl!ILI!: ADDIO::ae: "PRALAW"

June 28, 1978

The Honorable Thomas J. McIntyre
United States Senate
Washington, D.C. 20510
Dear Senator McIntyre:
In response to the request made at the June
21st hearings on H.R. 10899, the International Banking
Act, for comments on Senator Stevenson's proposal
regarding interstate branching limitations and for
recommendations of revisions to the Edge Act (12 u.s.c.
25(a)) and the Federal Reserve Board's Regulation K
which would facilitate Edge Act participation in
international trade financing, I am hereby submitting
a statement on these matters from the Bankers' Association
for Foreign Trade. We are pleased to have another
opportunity to share our views on these very important
issues with you and hope you will find this exchange
helpful in your deliberations.
Sincerely yours,

T'¼mt;? d

Thomas L. Farmer

TLF:wrw
encl.

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Federal Reserve Bank of St. Louis

("' ';)

170
BANKERS' ASSOCIATION FOR FOREIGN TRADE
1101 SIXTEENTH STREET, N.W.
WASHINGTON, D. C. 20036

uo21

OFFICERS AND DIRECTORS

■ ss.:soeo

FOR 1978•79

OFFICERS

MEMORANDUM

TO:

Subcorrmittee on Financial Institutions of
the Senate Corrmittee on Banking, Housing
and Urban Affairs

FROM:

Bankers' Association for Foreign Trade

RE:

Reconmendations for Revisions in Regulation
K and Amendments to the Edge Act.

OAKLEY W. CHENEY. JR
EXECUTIVE VICE PRESIDENT
FIRST INTERN.-,TIONAL BANI( IN HOUSTON

SAMUEL H. ARMACOST

EKECUTIVE VICE PRESIDENT

BANI( OF AMERICA

ROBERT N. BEE

SENIOR VICE PRESIDENT

WELLS FARGO BANK

We are pleased to respond to Senator McIntyre's

D~~N~Pv~h'i,~~fo~~rN
Cl-illiSE MANHATTAN BANK

J. HALLAM DAWSON

and Senator Stevenson's invitations, extended at the

E)(ECUTIVE VICE PRESIDENT
CROCKER NATIONAL BANK

H GERARD ERATH
VICE PRESIDENT

WHITNEY NATIONAL BANK OF NEW ORLEANS

CLAIRE W. GARGALU

time of the hearings on H.R. 10899, The International
Banking Act, held on June 21, 1978, to provide our

PRESIDENT
FIDELITY INTERNATIONAL 8Ait,1K

FRANK W. GOODHUE

SENIOR VICE PRESIDENT
NATION"'L CITY 8 ...NI\

reconmendations regarding amendments to the Edge Act

WILLIAM B. GRIFFIN, JR.

EXECUTIVE VICE PRESIDENT
CITIZENS 81 SOUTHERN NATIONAL BANK

(12 U.S.C. 25(a)) and revisions to Regulation K

ROBERT C HOWARD

EXECUTIVE VICE PRESIOENT
FIRST CITY NATIONAt. BANK IN HOUSTON

(12 C. F. R. Part 211).

We are greatly encouraged that

G~g:~!efio~~LL
AMER1c.-.N Ft.ETCHER NATJON.-.t. BANK 8, TRUST Co.

JOHN H. LOUGHRAN

VICE PRESIDENT
MORGAN GUARANTY TRUST CO

the Subcorrmittee has expressed its interest in sub-

JAMES D.M. MCCOMAS

jecting both the Edge Act and Regulation K to close

TOM J. MCSPADDEN

scrutiny at this time in connection with its

SENIOR VICE P~ESIOENT
RIGGS NATIONAt. BANK

VICE PRESIOENT
VALLEY NATIONAL BANK OF ARtZONA

pl~i!t

consideration of H.R. 10899.

The continued effective-

1tf~~JDJ::ROIT

GEORGE E PHALEN

ness of the Edge Act in facilitating U.S. exports is

DONALD W. VOLLMER

essential to the continued competitiveness of programs

B KENNETH WEST

designed to increase U.S. exports and maintain the

EXECUTIVE V1CE PRESIOENT
FIRST NATIONAL B-"NK OF BOSTON

SENIOR VICE PRESIDENT
SEATTLE-FIRST NATIONAt. BANK

EXECUTIVE VICE PRESIOENT
HAARIS TRUST a SAVINGS B.-.NK

COUNSEL

THOMAS L FARMER. ESQ

prominent position of the U.S. in world trade.

WASHINGTON. D.C.

M. CONDEELIS

WASHlf>!GTON. 0 C

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Federal Reserve Bank of St. Louis

FOSTERING SOUND INTERNATIONAL BANKING SINCE 1921

171
We believe, however, that Edge Act Corporations have
been subjected to unduly restrictive statutory and regulatory
requirements, which have

limited their development as partici-

pants in international financial transactions.

Although Congress

specifically contemplated that Edge Act Corporations should
"not be hampered in,. their competition with foreign banking
institutions", (Report of the House of Representatives, Report
No. 408, 66th Congress 1st Session 1919-1920, p. 3) the present
situation in the United States is one in which foreign-based
banks do operate at a competitive advantage over American-based
banks.

Although the Federal Reserve stated its understanding

of the Congressional purpose in enacting Section 25(a) of the
~------

Federal Reserve Act as being to give Edge Act corporations
"powers sufficiently broad to enable them to compete effectively
with similar foreign-owned institutions and to afford to the
United States exporter and importer ... at all times a means of
financing international trade"

(§211.l(b) (1)), there remain

significant limitations on Edge Corporations.

We are pleased to have the opportunity to provide
our comments to the Subcommittee on those areas we think require
amendment to facilitate Edge Act operations in financing international trade.

For the purposes of this memorandum, we have

confined our comments to issues affecting Banking Edge Act
Corporations and have presented the issues in the order of their
priority with our members.

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Federal Reserve Bank of St. Louis

172
A.

Limitation on Aggregate Liabilities
Section 25(a) 12 of the Federal Reserve Act reads, in

part, "that no such Corporation shall have liabilities outstanding at any one time upon its debentures, bonds, and
promissory notes in excess of ten times its paid-in capital
and surplus."
However, Section 211.9(c) of Regulation K substantially
broadens the statutory language and imposes further limits:
"Except with prior Board permission, a Corporation's aggregate
outstanding liabilities on account of acceptances, monthly average
deposits, borrowings, guarantees, endorsements, debentures.,
bonds, and other such obligations shall not exceed ten
times its capital and surplus."
The effect of Section 211.9(c) is that the Edge
Corporation engaged in banking operates at a competitive
disadvantage against its commercial bank and foreign agency
or branch counterparts under this restrictive leverage ratio.
The Edge Banking Corporation depends heavily upon deposits and
acceptances outstanding to provide funding of loan portfolios,
which typically consist of trade credits based upon
merchandise movements and are protected·against concentration of risks by the 10% liability limits imposed
under Section 211.9(a) and (b) of Regulation K.

Operating

within the same control framework, and subject to the same

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173
thorough examination procedures, it would appear, therefore,
that Edge Banking Corporations can operate at leverage ratios
consistent with those permitted to their competitors.

The

present limits imposed by Regulation Kon aggregate deposit and
acceptance outstandings in relation to capital funds operate
to severely and unnecessarily restrict the profit potential
of the Edge Banking Corporation.
To provide the flexi~ility in funding of domestic
and international loan activities, we recommend that the limitation on aggregate deposits, borrowings and similar liabilities
and guarantees issued as provided in Section 211.9(c) of
Regul_ation K, be applied only to debenture bonds and promissory
notes as is required under the statute, and that in all other
aspects formulae similar in concept to those applied to commercial banks be utilized by examiners.

In any event, Regulation

K, at a minimum, should be revised to exclude deposits.

However,

to provide maximum support to participation by Edge Corporations
in international trade financing, we would recommend that the
statute and Regulation K Qe amended to remove this restriction
entire·ly from Edge Corporations.
B.

Use of ·Loan Proceeds
This problem concerns loans made by Edge Act Corpor-

ations to domestic corporations, the proceeds of which are used
to finance offshore operations.

Frequently, the borrowers in

such cases are unable or unwilling to provide satisfactory
evidence in the tangible form of photostats, drafts, notes, etc.,

30-563 0 - 78 - 12
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174
to confirm that a transaction is permissible under Section 211.7
(d), but are willing to provide only a written good faith
statement that the loan proceeds are being used in a transaction
that is within the provisions of_ that section.
It is recommended that the Federal Reserve Examiners
accept in such cases the good faith statements of the borrowers
provided that the borrower is clearly one that has offshore uses
for the proceeds, and where the lender confirms that he is in
possession of a written description statement of the borrower
concerning the use of the funds.
It is understood that in such cases the examiners
are required to make a value judgment based on the activities
of the borrowing company.

However, in-practice this should

not present any enforcement er regulatory problems.

We would

also recommend that such jtatements only be required once,
that is when the original line of credit is established, rather
than each time borrowing occurs under the same line of credit.

Employment of Funds in the Money Market
Section 211.7(b) prescribes the following with

respect to the employment of funds.

"Funds of a corporation not

currently employed in its international or foreign business,
if held or invested in the United States, shall be only in the
form of (1) cash,

(2) deposits with banks,

(3) bankers' acce~-

tances, or (4) obligations of, or obligations fully and

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175
unconditionally guaranteed by, the United States, any State
thereof, or any department, agency, or ~stablishment of, or
corporation wholly owned by, the United States."

The above

excludes from investment certain conventional money market
instruments, in particular municipal obligations not guaranteed
by a State.

These exclusions limit the flexibility of Edge

Act Corporations in their investment and the ability to employ
funds on a tax-free basis.
It is recommended that the Federal Reserve Board change
the above regulation and permit investments in other types of
tax-free obligations and commercial paper.

If dPemed necessary,

limits could be establishPd ln relation to a corporation's
total assets.
D. Lending Limits
Section 211.9(b) specifies that unsecured liabilities
to a corporation or any one person of the type described in
211.7(d) (3) may in no event exceed 10% ~fa corporation's
capital and surplus.
In connection with the issues raised in sections C
and G of this Memorandum, we recommend that Sections 211.7(d) (3)
and 211.9(b) be amended so as to include in any limits prescribed
therein only those guarantees or similar agreements which
represent true unsecured financial undertakings under which the
issuing corporation assumes a true and measurable credit risk.
If it is determined to be necessary to retain any limits on
lending, and we do not believe it is, we would recommend that
Edge Corporations be subject only to the same percentage limits

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176
as the parent corporation.

In any event, Federal funds

should not be subject to the 10% limit.
E.

Receipts of Deposits from Domestic Concerns
Section 211.7(c) reads in part, "It will ordinarily

be considered incidental to or for the purpose of carrying out
transactions abroad for a Corporation to receive in the United
States demand and time (but not savings) deposits that are not
to be used to pay expenses in the United States of an office
or representative therein ••• (2) from any other person if the
deposit (i) is to be transmitted abroad,

(ii) is to provide

collateral or payment for extensions of credit by the Corporation,

(iii) represents proceeds of collections abroad which are

to be used to pay for goods exported or imported or for other
direct costs of exports or imports, or periodically transferred
to the depositor's account at another financial institution, or
(iv) represents proceeds of extensions of credit by the Corporation
For the majority of Edge Banking Corporations,
transactions with domestic firms engaged in export-import trade
form an important source of earnings.

The usual method of

establishing an ongoing business relationship with such
entities is to establish credit facilities and then encourage
usage.

The offering of a credit line is usually conditional

upon establishment of a meaningful deposit relationship which
most often requires maintenance of balances against the line
and against usage.

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177
The narrow interpretation generally applied by
Examiners for the Board does not coincide with the customary
business development practice as outlined above.

Edge Banking

Corporations are often subject to criticism based on balances
maintained by domestic concerns in support of line requirements
where usage has not as yet developed, or where the domestic concern is making use of other services such as credit checkings,
exchange quotations, etc., and does not require direct borrowings.
If the Edge Corporation is unable to maintain accounts for
customers so that they are available for use when needed, it
operates at a distinct disadvantage to its competitors in the
same market.
It is recommended that Section 211.7(c) be amended
to eliminate the specific requirements as to the types of
transactions for which domestic source deposits can be drawn
and that a more general instruction based on the character of
business conducted by the depositor and the nature of the
account relationship with the Edge Act Corporation be
substituted.

This would assure that Examiners for the Board

would be required to evaluate such deposits consistently with
current and regular business practices of Edge Corporations.
F.

Reserve Requirements
Section 211.7(c) requires that Edge Corporations

maintain reserves against deposits described in that section
of at least 10 percent.

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Federal Reserve Bank of St. Louis

This 10 percent minimum reserve

178
requirement on aggregate deposits is mandatory even in
situations where such reserve is more than required by Regulation
D.

Edge Corporations are thus economically penalized by being

subjected to reserve requirements higher than other banks.
We do not believe this competitive disadvantage should be
permitted to continue and that if Edge Corporations are to
be required to maintain any reserves at all, they should
only be required to maintain the same reserves as the parent
bank.
G.

Limitations on Certain Guarantees Issued
Section 211.7(d) (3) provides t~at an Edge Corporation

may "Guarantee customers' debts or otherwise agree for their
benefit to make payment on the occurrence of readily ascertainable events, if the guarantee or agreement specifies its maximum
monetary liability thereunder and is related to a type of transaction described in sub-paragraph (1) of this paragraph."

footnote to this Section provides an extremely broad definition
of the type of undertaking referenced by including guarantees
issued covering loss or non-conformance of shipping documents.
Section 211.9(c) further specifies that aggregate
"outstanding unsecured liabilities under guarantees or similar
agreements (described in 211.7(d) (3)) may in no event exceed
50% of its capital and surplus."
The limits described above have been a cause of
some concern to an active segment of the Edge community since

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Federal Reserve Bank of St. Louis

179
included in the 1963 revision of Regulation K.

The broad

coverage as specifically indicated by the footnote to Section
211.7(d)

(3) has evidently raised questions in the minds

of both Edge bankers and Federal Reserve Examiners as to the
types of the "similar agreements" which must be included under
individual and aggregate limits.
It would appear logical and necessary to impose
individual customer limits on guarantees or similar agreements
in situations where the liability incurred is similar in
character to an acceptance liability, e.g., deferred payments
under letters of credit, clean letters of credit, agreements
serving as a payment mechanism, and other such arrangements.
The individual limits appear unduly restrictive when applied
to a stand-by situation where, by reasons of the character of
the transaction or technical arrangement, draw-down is highly
unlikely, as is the case in most performance guara;tees and,
in particular, guarantees issued covering loss or non-conformance
of shipping documents.
Imposition of an aggregate limit of 50% of capital
and surplus on such guarantees or similar agreements is a
serious constraint when coupled with the existing broad
interpretation of liabilities included in such limit.

All

Edge Act Corporations deemed to be engaged in banking offer
letter of credit services.

With the speed of modern transport,

it is not unusual for merchandise to arrive before documents

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180
requiring issuance of a guarantee to secure release and avoid
pier charges.

Such undertakings represent a major segment

of guarantee liabilities in any Edge banking operation.

an Edge Corporation could not issue such agreements by reason
of limit, it would be effectively precluded from conducting
further letter of credit business.

It should be noted that

except in cases of outright fraud, the "shipside bond" issued
in an amount equal to the volume of the shipment covered does
not yield a realistic measure of liability.

If merchandise

delivered does not meet purchase contract specifications,
negotiations ensue between the exporter and importer for an
adjustment in price.

This restriction would be removed should

Section 211.9(c) be deleted as recommended above.

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181
SUPPLEMENTAL STATEMENT ON H.R. 10899
BANKERS' ASSOCIATION FOR FOREIGN TRADE
ROBERT B. PALMER, PRESIDENT
BEFORE THE SUBCOMMITTEE ON FINANCIAL
INSTITUTIONS OF THE SENATE COMMITTEE ON
BANKING, HOUSING AND URBAN AFFAIRS

In our statement before the Subcommittee on June 21, 1978, I expressed
the support of a majority of our members for passage of legislation which
would assure equal national treatment and a sound operating environment for
foreign and domestic banking activities in the United States.

At this

time, I would like to express our support of the proposal made at those
hearings by Senator Stevenson.

Under the Stevenson proposal, foreign banks,

as now and as under the House bill, would be free to establish State-licensed
branches and agencies in any State where this is permissible.

However,

in the case of a State-licensed branch established outside of a foreign
bank's designated home State, such branch would be limited to maintaining
credit balances, as is currently permissible for agencies, and accepting
the types of foreign-source and internationally-related deposits permissible
for Edge Act Corporations under Section 25(a) o·f the Federal Reserve Act.*
The deposit limitations would apply only to branches established after an
appropriate grandfather date.

Agencies, as now, would be unfettered since

*See §211.7 of the Board's Regulation K.

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Federal Reserve Bank of St. Louis

182
they cannot accept deposits.

This proposal would enlarge the credit

facilities but limit the deposit accepting powers of foreign branches to
those permitted to Edge Act Corporations.
The vast majority of BAFT members would support
the Senator's proposal.

It is our opinion that this proposal

would put foreign and domestic banks on a more equal competitive
footing and would foster an actively competitive banking environment in which the general public would benefit from a full range
of banking services.

We have consistently opposed legislation

which would result in foreign-based banks being permitted to
take deposits in more than one state when American-based banks
are restricted in their deposit taking activi~ies to one or
more locations within the single state in which they are headquartered.

The proposal advanced by Senator Stevenson will

assure the continuing development of new regional and local
international banking centers while eliminating the competitive
advantage provided to foreign banks under the statutory language
approved by the House of Representatives.

That language would

have permitted foreign-based banks to locate in several different
key commercial, financial and population centers across the country,
thus giving them a decided advantage in the competition for a
growing source of deposits.

Under the Stevenson proposal, states

which develop commercial bases requiring more sophisticated and
extensive international banking services will be able to attract
those banks which can provide those services.

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183
We support Senator Stevenson's proposal and we urge the Subcommittee
to give it full and serious consideration.

We believe that this proposal

will enhance the competitive environment for banking activities in the
United States relating to international trade and finance and will stimulate
such activities to the benefit of the general public.

It is our opinion

that Senator Stevenson's proposal is consistent with the existing dual
banking system in the United States and substantially reduces the tri-level
system which has existed in this country in favor of foreign-based banks
over American banks.

It is not the experience of the American banks

abroad that any country provides substantially preferential treatment
to the activities of foreign-based banks in domestic transactions.

With

Senator Stevenson's proposal, the International Banking ~ct is
wholly consistent with the international treatment advocated by
American banks active outside the United States and will
substantially enhance the banking opportunities for foreign-based
banks within the United States.
The Senator also suggested, in connection with this
proposal, that the entire regulatory framework affecting Edge
Act activities should be reviewed with an eye toward providing
Edge Act Corporations greater freedom and flexibility in their
activities.

In connection with the Senator's proposal, the

Bankers' Association for Foreign Trade has reviewed the provisions
of the Edge Act and Regulation K.

We have concluded that there

are several amendments which would greatly facilitate banking
activities relating to international trade and finance.

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Federal Reserve Bank of St. Louis

These

184
amendments are described in the attached Memorandum.

We would

welcome the opportunity to provide more specific recommendations
at a later time after we have been able to more thoroughly study
these issues.
We appreciate the opportunity to provide our comments
on this matter.

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185
Senator McINTYRE. Thank you.
We call as our next witness Mr. Serge Bellanger, vice president and
chairman, Institute 0£ Foreign Bankers; Mr. Teruhisa Shimizu, the
legislative committee 0£ the Institute 0£ Foreign Bankers; and Mr.
Steuart L. Pittman, counsel £or the Institute 0£ Foreign Bankers.
STATEMENT OF SERGE BELLANGER, VICE PRESIDENT AND CHAIRMAN, LEGISLATIVE COMMITTEE, INSTITUTE OF FOREIGN BANKERS; TERUHISA SHIMIZU, TRUSTEE, IFB; AND STEUART L.
PITTMAN, COUNSEL, IFB

Senator McINTYRE. First I want to welcome you all here.
Let me ask the Institute first: What is your plan 0£ procedure on
testifying? Mr. Pittman, do you have one statement or three
statements?
Mr. PI'ITMAN. Mr. Bellanger will read the statement for the three
institute witnesses.
Senator McINTYRE. All right. How do you, Mr. Jahn, how do you
plan to proceed?
Mr. JAHN. We will have one statement divided into three short
parts, very brief.
Senator McINTYRE. That's fine, very good.
All right, gentlemen. We will lead off here. The Institute 0£ Foreign Bankers. We recognize Mr. Serge Bellanger.
Mr. BELLANGER. Thank you, Mr. Chairman.
I am Serge Bellanger, vice president and chairman 0£ the Legislative Committee 0£ the Institute 0£ Foreign Bankers and senior vice
president and general manager 0£ Credit Industriel et Commercial.
With me is Teruhisa Shimizu, trustee 0£ the institute and general
manager, the Sumitomo Bank, Ltd., in New York City; and
Steuart L. Pittman, counsel to the Institute and partner 0£ Shaw,
Pittman, Potts & Trowbridge, 0£ Washington, D.C. To save time,
we have consolidated our brief statements into one which I will read.
We are testifying £or the Institute 0£ Foreign Bankers, which is the
only organization able to speak £or foreign banks from all parts 0£ the
world which are operating in the United States. The membership
covers nearly 150 subsidiaries, branches, or agencies from 38 foreign
countries.
We recognize and appreciate that the House bill reflects significant
modification 0£ earlier bills resulting from the testimony 0£ many
witnesses, Federal bank regulators, State bank regulators, domestic
banks, and foreign banks, pointing out the many difficulties. We would
like to believe that five hearings over nearly 3 years might have ended
the uncertainty and provided a basis £or a sensible bill defining necessary new Federal laws regulating foreign banks in the United States.
Unfortunately, we can find very little to justify enactment 0£ this bill
and find ample justification £or setting it aside.
I will take up the four separate and distinct issues 0£ this bill and
identify briefly in each case what we believe to be wrong and how the
section could be improved i£ you should decide that legislation is
necessary.
One, interstate branching restrictions are increased by section 5 at a
time 0£ growing recognition that they are -anticompetitive and ripe £or

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186
change. The States and the State supervisors have made their view
abundantly clear in the House that the right of major cities to equal
treatment with New York City in competition for the benefits of foreign banking is more important than the debate over equal treatment
of commercial banks under Federal law.
_
For our part, we want to emphasize a point which has been overlooked because it is somewhat more complex. Foreign bank interstate
branching is not a nationwide phenomenon. In fact, it has little significance outside of Chic~o and New York City. California does not
allow foreign bank branchmg, nor does any other State with a banking
market capable of attracting significant foreign bank investment.
The success of Illinois in attracting 27 foreign bank branches and
limiting them to wholesale business by denying them multiple convenient bank locations near retail business ,is generally approved, even by
those who say "no more" in Chicago or other cities. Coupled with the
inability to develop retail business without FDIC insurance, the various State laws effectively preclude foreign banks from interstate retail
banking.
We think the record of previous hearings has produced overwhelming evidence that the big city domestic banks with which foreign banks
compete are able to engage in wholesale banking in many States in ·a
variety of forms and under a variety of foreign and State laws. There
appears to be no domestic bank outcry against interstate wholesale
banking or related financial activities.
If it makes sense to leave decisions on interstate branching of foreign banks to the few States involved, surely it makes sense to be no
more restrictive with respect to foreign bank subsidiaries, ·all of which
are subject to multistate banking restrictings under the Bank Holding
Company Act.
Section 5 of the bill, perhaps inadvertently, is more restrictive of
subsidiaries than branches, and unnecessarily overlaps and exceeds
existing law on ,interstate bank holding company expansion, which applies equally to foreign and domestic banks.
On the second issue, mandatory FDIC insurance is resisted by FDIC,
which knows more about the needs and the administrative problem of
deposit insurance than any other regulatory agency. We concur with
FDIC's recommendation that the insurance be optional. If the decision is otherwise, we urge you to recognize that the imposition of FDIC
insurance on foreign bank branches is inevitably discriminatory, because of the need to protect the insurance fund by costly asset pled~es
or surety bonds. As a minimum, this discrimination should be offset
by confining mandatory insurance to the retail deposit business, if any,
of these branches.
Our statement shows that the foreign bank deposits are almost entirely wholesale in nature. To compel premiums to be paid on wholesale
deposits when they account for over 95 percent of all deposits compounds the discrimination of asset pledges or surety bonds. If there
must be special treatment of foreign banks requiring costly pledges or
bonds, it seems only fair to compensate with special treatment which
avoids unnecessary premiums on large deposits and borrowings.
Turning to the third issue, reserve requirements are imposed on
foreign bank branches by the State supervisors which apply FRB
reserve ratios with minor exceptions. Marginal reserves on interna-

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Federal Reserve Bank of St. Louis

187
tional interbank transactions are imposed by "voluntary" compliance
requested by the Federal Reserve Board for all foreign bank operations
in the United States. To a banker, a central bank "request" is tantamount to a regulation. In many foreign countries, it is the main method
of administration. So the question is, What else is needed i
We believe that this question should be answered by demonstrated
requirements for the administration of U.S. monetary policy. The
aggregate amounts of reservable transactions at issue are insignificant
in monetary policy terms.
If a case can be made, which we have not yet heard, for additional
FRB authority for monetary policy purposes, and if the committee is
prepared to treat domestic and foreign nonmembers differently, we
urge that the section 7 authority more carefully define State and FRB
r'cooperation" so as to leave to the State supervisors all administrative
responsibility to the extent not impairing monetary policy.
We have made specific proposals to this end in our statement. Three
results which are particularly important to us are:
First, that reserves be held with correspondent domestic banks under
State administration ;
Second, that voluntary compliance supported by State law be relied
upon until proven inadequate;
And third, that nondepository institutions, which maintain credit
balances in connection with other permissible transactions, would not
be subjected to reserve requirements on these balances.
We think the House was right that the application of FRB reserve
requirements to State-chartered subsidiaries would not only be discriminatory, but an unnecessary encroachment on State banking
administration.
Coming to the fourth and last issue, nonbanking restrictions are
imposed by the Bank Holding Company Act on foreign subsidiaries,
but not on branches or agencies, which would be covered by section 8
of this bill. We have proposed amendments which would preserve the
objective of the Bank Holding Company Act and of this bill that the
U.S. Government restrain itself from regulating the holdings of foreign banks or shares of foreign corporations which do most of their
business outside the United States. The change would merely maintain the exemption for U.S. corporations owned by those foreign nonbanking subsidiaries with most of their business outside the United
States.
We have also pointed out that the nonbanking restrictions of the
Bank Holding Company Act are confined to domestic depository institutions and are not appropriately extended to foreign bank nondepository institutions unless they are also to be extended to domestic
nondepos1tory institutions.
From the foregoing, it is apparent that, if there is to be legislation,
the bill has no necessary application to foreign bank subsidiaries, nondepository agencies or nondepository commercial lending companies.
It should at least be simplified by confining it to branches.
Finally, may I say a word to dispel the myth which has grown up
that foreign banks are expanding in the U.S. banking market because
of regulatory advantages. The expansion is a phenomenon of international banking and is equally shared by foreign and domestic banks.
While foreign banks may have some advantages in long experience and

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expertise in international banking, they operate at a net regulatory
disadvantage in the United States when all State and Federal laws are
taken into account. This bill has a considerable potential for adding to
these disadvantages, and has very little practical significance to reducing alleged competitive advantages. These observations are amply
supported by the evidence of the five hearings on the foreign bank
legislation.
Thank you for the opportunity you have given us to express our
views.
[Complete statement and an additional communication follow:]

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June 21, 1978

INSTITUTE OF FOREIGN BANKERS
COMMENTS
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS

The Institute of Foreign Bankers is represented at these
hearings by Serge Bellanger, Vice President and Chairman of
the Legislative Committee of the Institute and Senior Vice
President and General Manager of the Credit Industriel et
Commercial in New York City; Teruhisa Shimizu, General
Manager, The Sumitomo Bank, Ltd. in New York City; and
Steuart L. Pittman, Counsel to the Institute and partner of
Shaw, Pittman, Potts

Trowbridge of Washington, D.C.

The

membership of the Institute is comprised of over 200 offices
of foreign banks in the U.S., of which 148 are subsidiaries,
branches or agencies.

The home offices of these banks are

located in 38 foreign countries in Europe, the Middle East,
South Asia, East Asia, Latin America and Canada.

The member-

ship accounts for the vast majority of all foreign bank
offices in the United States.
As you will see from our comments, we think that the
most sensible suggestion on possible new federal regulation
of foreign bank activities in the United States was set forth

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in seven points, which Senator McIntyre put forth for comment
in the January 1976 hearings before this Subcommittee.

The

Federal Reserve Board and the House have moved in the direction of those seven points.

The issues on which we are com-

menting are framed by that seven point program, the legislation which has emerged from the House and the current FRB
proposals to modify that legislation.

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I.

BACKGROUND

We find ourselves in a somewhat awkward position representing the many members of the Institute before this Committee
after par~icipating in five hearings on this subject over the
last several years.

Our members genuinely believe that the ne-

cessity for legislation has not been demonstrated in these
hearings or elsewhere.

Yet we have the impression tha~, since

passage of an improved House Bill (we will call H.R. 10899 "the
Bill"), there may be a disposition in this Committee to dispose
of this low priority, long drawn-out matter by passing a bill in
some form, that there may be some impatience with what appears
to be doctrinaire positions on both sides of the issues and that
the time has come for compromise.
In this connection, we hear speculation that the several
large recently proposed foreign bank acquisitions may stimulate
new protectionist concerns about foreign bank participation in
the U.S. market.

Each of these acquisitions would result in

foreign bank control of a subsidiary bank, in a single state,
subject to the Bank Holding Company Act, which would be insured
by FDIC and would be a member of the Federal Reserve System.
Hence, the spirit, as well as the letter, of the Bill is entirely consistent with such foreign bank acquisitions.
In deference to this reported mood that something must be
done at this time, we will include in our comments proposals

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for improvements in the Bill, which we think can be readily
made without frustrating its purposes.

However, we want to

make it abundantly clear that we believe the Bill is unnecessary and in important respects discriminates against foreign
banks.

The mix of existing federal and state regulation of

foreign bank operations in the United States in all of its
forms is no more illogical or unequal than the diverse regulations affecting differently various classes of domestic
banks.

While complex, the present system works.

We have

learned that change in laws creates expensive and burdensome
ripples as the legislative process moves on to regulatory
implementation and interpretations and judicial opinions
which ultimately determine the new rules under which we must
live in the United States.

If there must be change, we ur-

gently ask that the change be justified by clearly perceived
practical requirements arising from demonstrated deficiencies
in state and federal regulatory powers and not by a new legal
structure designed to achieve a theoretical symmetry of equal
treatment.
The progressive moderation of the Bill over several years
suggests that the more this subject is aired and discussed,
the more doubts are created about its provisions and about
earlier convictions that there is something urgent to be
done.

We hope that the Committee will reexamine the views

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of the Institute and many other witnesses at earlier hearings
to the effect that the Bill is misconceived because

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(al

it violates more than it furthers the
principles of equal treatment,

(bl

the principles of equal treatment under
federal laws for the regulation of depository institutions cannot be consistently applied to foreign bank branches
and agencies which are not comparable to
domestic b_anks because they are not engaged in retail banking,

(c)

the FRB has access to any information it
may wish to obtain from U.S. operations of
foreign banks for monetary policy purposes,

(d)

the quantities of transactions which would
be subject to reserve requirements imposed
on foreign banking operations are too
small to have an appreciable impact on
monetary policy,

(el

foreign banks are not engaged in the type
of business requiring deposit insurance
except through subsidiaries which are
already subject to deposit insurance,

194
(fl

foreign banks cannot effectively use interstate branching privileges to compete in
retail banking in more than one state, and

(g)

there is widespread interstate wholesale
banking by large domestic banks with which
foreign bank branches compete.

If we are right about this, and we think we are, this Subcommittee should file a report ending this prolonged review of
the need for new federal foreign bank regulation by finding
that the need has not been demonstrated.
There are four major and unrelated issues of the Bill:
interstate branching; mandatory FRB reserve requirements;
mandatory FDIC insurance with bonding or pledging substitutes;
and non-bank affiliations.

These major issues are quite dis-

tinct and need not be packaged in a single bill; in fact, the
last three issues are amendments of three different federal
bank statutes:

the Federal Deposit Insurance Act, amended by

Section 6; the Federal Reserve Act, amended by Section 7; the
Bank Holding Company Act, amended by Section 8.

Whether or not

these issues should be dealt with at one time in one bill, it
is clear that any analysis of the proposals for foreign bank
regulation must address them separately and avoid confusing
their very different purposes.

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Before discussing improvements in the Bill, certain
background perspectives are necessary.

Proponents of the

Bill have left three impressions in the five hearings during
the last three years which are misleading and could well affect the decision of Congress on what to do about foreign
bank regulation.

The first is that foreign banks are largely

unregulated in the U.S.; the second is that the various
differences in the regulation of foreign and domestic banks
work to the advantage of foreign banks; and the third is that
foreign bank operations in the U.S. are generally comparable
to those of domestic banks.

Any objective study of foreign

bank regulation in the U.S. will show that foreign banks are
as heavily regulated as domestic banks, that most of the differences in regulations are advantageous to domestic banks
and that those foreign bank operations doing a business comparable to that of the domestic banks are subsidiaries which
have none of the alleged foreign bank advantages.
Subsidiaries are subject to regulation by FDIC, and their
foreign bank parent is subject to regulation by the FRB under
the Bank Holding Company Act.
are members of the System.

Some of the larger subsidiaries

While primary regulation of branches

and agencies is by the states, reporting requirements have been
successfully extended over all types of foreign bank operations
in the U.S. by the Federal Reserve Board through the cooperation

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of the foreign banks and the state banking authorities.

The

Federal Reserve Board over the last five years has also successfully imposed selected reserve requirements on foreign
bank operations by the simple expedient of a letter requesting compliance, which has been 100%.

In addition, peripheral

federal regulation is achieved through miscellaneous federal
statutes, the most important of which is the Financial Recordkeeping and Currency and Foreign Transactions Reporting Act of
1970, which applies to international banking transactions which
make up a large part of the U.S. business of foreign banks.
The banking laws of the three states in which foreign
banks are active in effect impose on foreign bank branches and
agencies the full range of regulations applicable to state banks,
with certain exceptions for those not permitted to take deposits.
These regulations are administered by skilled banking departments
in the country's major financial centers.

In addition, these

states impose special restrictions and regulations on foreign
bank operations which take account of their foreign nationality
or ownership.

These include requirements to maintain assets

substantially in excess of liabilities within the state,-

requirernents to deposit cash or high quality assets with

*/ The New York Banking Law, which has established a rrodel followed with
variations in other states, requires maintenance of assets within the
state of 108% of liabilities, and requires deposit of cash or govenimental
securities or their equivalent with the Banking Superintendent in arrounts
equalling 5% of total liabilities.

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the state banking departments in a manner available to depositors and creditors in the event of defaults, lending limits
based on capital and surplus and the maintenance of reserves
at ratios similar to FRB reserves.

Furthermore, there are,

in varyiug circumstances, restrictions on full service banking
powers or restrictions on branch locations for the purpose of
keeping foreign banks from effectively participating in retail
banking markets.
The net result is that taking account of both state
and federal regulation, foreign banks operating in the United
States are on the whole more heavily regulated, more extensively re~orting, more severely restricted and more discriminated against than are domestic banks.

Some of this unequal

treatment is recognized by foreign banks as a necessary
consequence of reciprocity or of the inaccessibility of their
foreign assets to United States creditors.

While foreign banks

have adjusted to, and are willing to live with, such unequal
treatment, they find it difficult to understand why the few
alleged foreign bank advantages are singled out for equalization when there is no way- to avoid regulatory restrictions
applied uniquely to foreign banking operations.

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II.

INTERSTATE BRANCHING -- SECTION 5

The House decision to eliminate interstate branching restrictions on state licensed branches will presumably be reviewed
by this Committee.

The Institute believes that the House and

the state bank supervisors and their governors are right on this
issue for many reasons which we have set forth in past testimony.
If there is here a genui~e issue of equal treatment of foreign
and domestic banks, which we doubt, perhaps the threshold question for the Senate is whether the public interest is best served
by treating the cities equally or by treating privately owned
banks equally.

However, our comments as foreign bankers are

limited to something we know more about, namely, the competitive
conditions in which we operate.
As banks subject to both state and federal regulations, it
seems unrealistic to us to isolate federal regulations from those
of New York or Illinois or California.

Taking account of all

applicable regulations, foreign bank branches, agencies and subsidiaries are all more restricted in their choice of geographic
location and in their banking powers than any domestic bank
being started up or expanded in the U.S.

Of the three states

actively regulating foreign banking, the interstate branching
issue affects only New York and Illinois because California
will not license branches with power to accept domestic
deposits.

The state of Illinois has restricted foreign bank

branches to a single downtown location for the purpose of avoiding retail competition with local banks, and this purpose has

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been effectively achieved.

As a result, only in New York is

there a theoretical ability for a foreign bank to seek retail
business in the usual manner through conveniently located
branches (of course, intrastate branch networks of state
chartered subsidiaries are possible in New York and California
but such branching to reach retail markets is restricted to a
single state by Section 3(d) of the Bank Holding Company Act).
The practical reason why foreign banks are not retailing through
directly owned branches in New York is the unavailability of
FDIC insurance to branches of foreign banks.

Thus it is clear

that federal and state law combine effectively to prohibit
foreign banks from multi-state retail banking.

The only excep-

tions are a few insured subsidiaries grandfathered in two states
under the Bank Holding Company Act in the same manner as the
grandfathered domestic banks.
We conclude that the concerns of BAFT and the FRB about
interstate branching have little to do with practical reality
and are largely responsive to the widespread concern of local
and regional banks over the interstate branching controversy
which is rapidly developing.

That issue is exclusively con-

cerned with retail bank competition across state lines.

Whole-

sale banking and non-depository financial activities are conducted nationwide by many large domestic banks under a variety
of federal and state laws.

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200
Corporations and loan production offices but to subsidiary operations permitted in some states and to grandfathered and
bank related financial operations exempted under the Bank Holding Company Act.

As a result, these banks are a powerful force

in dozens of states in interstate wholesale banking (lending,
money market operations, etc.), which are the activities with
which the foreign bank branches and agencies most actively compete.

It seems abundantly clear to us (a) that domestic bank

concern over the interstate branching issue is confined to
retail banking, and (b) that foreign banks under existing law
have no access to retail banking in more than one state, and
(c) that the secondary state activities of foreign bank branches
are limited primarily to wholesale banking in Chicago, which
contrasts with domestic bank multi-state financial activities
in many states, in some cases over 30 states.
Regardless of which way the Committee decision goes on
interstate branching, there are two non-controversial changes
which should be included in either version of Section 5 and
which are quite important to some of the foreign banks.
1.

Prospective Application of Section 5.
If the interstate restrictions on state licensed branches on

foreign banks had not been removed, there is every indication that

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the House would have avoided any federal prohibition closing
down existing branches or rescinding approvals previously
g~anted by state authorities.

Furthermore, the grandfather

provision was removed from Section 5 as unnecessary because
Section 5 was thought to apply primarily to federally· licensed branches, which do not now exist and could not exist
until after this bill is enacted into law.

Overlooked was

the residual application of Section 5 to subsidiaries, which
had the unintended effect of superseding grandfather rights
acquired under the 1970 Bank Holding Company Act amendments
without substitution of new grandfather protection.

As now

drafted, Section 5 creates a risk of interpretation which could
require divestiture of large state chartered bank subsidiaries,
some with intrastate branching networks •.
Although the grandfathering oversight might be easily cured
in a number of ways, we suggest, in the belief that there is no
present need and that there was no disposition in the House to
close down existing bank branches, that the cure meet the existing Section 5 and also meet the possibility of any amendments to
further restrict Section 5.

The most direct way to resolve

this difficulty is to change the word "operate" in Section S(a)
to "establish or acquire" so that the ,section would follow the
normal practice of legislating prospectively, thereby avoiding
the unnecessary issue of what grandfather date is fair.

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2.

Overlapping Multi-state Subsidiary
Restrictions in Existing Law.
We believe Section 5 inadvertently imposes restrictions on

subsidiaries which overlap and exceed existing law, namely, Section 3(d) of the Bank Holding Company Act, which is also designed
to avoid multi-state banking.

If interstate branching restric-

tions are restored to Section 5, we see no justification for
expanding the entirely adequate existing restrictions on subsidiaries in a secondary state.
domestic banks.

They apply equally to foreign and

If the decision is to eliminate the interstate

branching restrictions, then the Section 5 restriction against
subsidiaries is even more difficult to justify.

In its present

form, Section 5 produces the anomalous result that a foreign bank,
with a branch in New York and no subsidiaries in the U.S., could
not establish its first U.S. subsidiary in Illinois (if Illinois
law is changed to permit it) even though it could establish a
branch in Illinois.

In contrast, if it had a subsidiary in New

York, it would be free to establish a branch in Illinois. The
result is to discourage use of the subsidiary form of banking in
the United States, even though the problems which the Bill
attempts to cure are branch problems and not subsidiary problems.

Interstate Restrictions on
Nondepository Institutions.

It should be obvious that the application of Section 5 to
"commercial lending companies" accomplishes nothing and merely

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adds to the list of the Bill's discriminations against foreign
ownership of banks. The FRB has proposed that the interstate
restrictions be applied to the domestic activities of agencies
and commercial lending companies, neither of which are permitted by state law to take domestic deposits.

To do so would be

clearly discriminatory because comparable restrictions on domestic banks apply only to depository institutions.
As to agencies, we make the further point that it would
seem an unnecessary challenge to the states' commitment to dual
banking to abrogate by federal law the recent new laws of Georgia and Florida designed to attract limited foreign bank presences through agency laws.
As to commercial lending companies, there is even less purpose to be served.

According to the 1976 House Banking Committee

Report, "commercial lending companies" means exclusively the six
foreign-owned investment companies organized under Article 12
of the New York Banking Law.

Thus by definition·, commercial lend-

ing companies exist in only one state with a unique law.

The

type of non-depository business they conduct can be, and is, engaged in by domestic banks across state lines.

There are more New

York Article 12 investment companies owned by domestic shareholders

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and, of course, this bill covers only those that are foreignowned.

Coverage is unnecessary and discriminatory.

Accordingly, we urge that Section 5 be redrafted to apply
prospectively and to apply solely to branches licensed under new
federal law.

If regrettably the decision is to restrict state

licensed branches, it should apply prospectively to federal and
state branches, but not to subsidiaries, investment companies or
agencies.

The result will be a Section 5 which is considerably

shorter, more understandable and more effectively focused on its
purpose.

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III.

DEPOSIT INSURANCE -- SECTION 6

The difficulty with mandatory FDIC insurance for foreign
bank branches has been repeatedly pointed out in letters to
the banking committees of both Houses by the Federal Deposit
Insurance Corporation, the expert agency which would have the
task of administering coverage of these branches. FDIC recommends that these difficulties be resolved by making the insurance optional for foreign bank branches.

Section 6 is an at-

tempt to merge mandatory insurance with solutions to some of
these difficulties.

It consists of 15 pages of complex new

amendments to the Federal Deposit Insurance Act developed by
the staff of the St. Germain Subcommittee after the hearings
last August were closed.

The House Banking Committee gave no

opportunity for comment by the regulators or those regulated,
except for an FDIC recommendation against the Section in a letter
responding to an inquiry from the senior minority member of the
St. Germain Subcommittee. We

are surprised by the inattention

in the House to the recommendations of the administering agency,
which were not even discussed in the Committee's markup session.
We are even more puzzled by the apparent lack of awareness by domestic banks of the impact which Section 6 must
inevitably have in artificially stimulating retail competition
which neither foreign banks nor domestic banks would otherwise

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206
engage in.

It should be recognized that only by developing

local retail deposit business can foreign bank branches cover
the costs of the mandatory insurance.
The problem posed by Section 6 is quite simple.

FDIC

cannot treat foreign banks and their foreign assets as though
they were in the U.S.

The overseas offices and assets cannot

be made fully accessible to the regulatory, enforcement and
collection efforts of the U.S. Government.

The resulting risk

to the insurance fund compels FDIC to require compensatory asset
pledges or surety bonds, in addition to the normal premiums.
Hence, there is no escaping the fact that the costs of insurance to foreign bank branches must substantially exceed the costs
to domestic banks.
This discriminatory result is compounded by imposing premiums on large denomination certificates of deposits and similar
borrowings which do not benefit from FDIC insurance.

Foreign

bank branches with few exceptions are not engaged in retail
deposit business, which would benefit from and be attracted by
FDIC insurance.

The bulk of their deposits are certificates of

deposit over $100,000 sold to the large international industrial
and financial organizations.

Because FDIC insurance is designed

for retail deposits, it has a $40,000 ceiling.
A survey of all New York branch members of the Institute,
conducted in Februry 1978, to which 35 branches (or 75%) responded, showed that deposits held by individuals in the U.S.

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were in eight cases zero, and in two cases between 4% and
5% of total deposits.

For the rest of those reporting de-

posits of individuals, the percentage of total deposits was
less than 1%.

The survey also showed that, for most of those

reporting, assets equalling 5% of their total liabilities deposited as required by law for the account of the State of New
York, as a kind of insurance fund for the protection of depositors, exceeded by far the aggregate of each bank's deposits
which would be covered by FDIC insurance.

In fact, assets de-

posited were, on average, 47 times greater than that aggregate.
In contrast, deposits of domestic banks are with rare exceptions mostly retail, and we know of no domestic bank with
retail deposits under 40% of its total deposits.

Compulsory

premiums calculated on total deposits for foreign bank branches
become discriminatory when, unlike domestic banks, their deposits
are overwhelmingly of a type which derives no significant benefit from FDIC insurance.
Yet it is argued that equal treatment requires coverage of
all deposits, including large denomination certificates of deposit, for foreign bank branches because they are also covered
for domestic banks.

Unless we are concerned only with theory

and willing to ignore practical consequences, there must be a
point at which the minimal volume of small checking deposits

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in relation to large bank borrowings wipes out any attempt to
justify mandatory insurance in terms of equal treatment and
makes discriminatory the application of premium charges to the
more than 95% of the deposits which do not benefit from the insurance.

We cannot believe that a serious argument is being

made that insurance should be required of foreign bank branches
not dealing with a public requiring FDIC protection in order to
burden them with an unnecessary cost merely because their domestic competitors incur that cost and in exchange buy the benefits
of the insurance which increases their access to free funds
from depositors with accounts small enough to be protected
under the FDIC ceilings on insurable amounts.
We believe that the question of whether FDIC insurance is
needed for the protection of depositors of foreign bank branches
is best resolved by the FDIC proposal for optional insurance.
This would permit the foreign bank branches to avoid an unnecessary and discriminatory burden.

It would also permit the very

few foreign bank branches in New York which take some small
deposit business in a specialized ethnic market to become insured banks.

If they are seeking to attract such deposits, the

insurance will generate new business and justify the burdens.
However, we continue to believe that the well-established pattern
to date will be continued into the future, namely, that foreign

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banks seeking retail deposit business will establish or acquire
subsidiaries which will be insured and be better able to attract
retail business than branches.
Whether the Committee decides on optional or mandatory
insurance, we suggest two conditions on the insurance extended
to foreign bank branches:
(1)

Insurance coverage should be limited, and
premium requirements applied, only to the
aggregate deposits of individuals who are U.S.
citizens residing in the United States.

The

purpose would be to limit coverage to
retail deposits and to exclude those depositors which have no need for the insurance
and would not be influenced in their choice
of the bank by FDIC insurance.

It is a

reasonable presumption that deposits by
organizations in foreign bank branches are
not retail business and are not looking for
FDIC protection.
(2)

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FDIC may by regulation exempt those branches
which have predominantly corporate and foreign
deposits, and thus an insignificant volume of
insurable deposits, from all or any provisions

of the Federal Deposit Insurance Act and
regulations thereunder.

210
Although similar treatment is not accorded to domestic banks,
this dif~erence is clearly justified by the offsetting discrimination against foreign banks arising from the requirement for asset deposits or surety bonds necessary to protect
the insurance fund from foreign risks.

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IV.

RESERVE REQUIREMENTS -- SECTION 7

Although we believe that after five hearings the case for
Section 7 has not been made, we will address the contingency that
the Committee decides to do something to add to FRB authority
over reserve requirements on transactions of foreign bank operations in the U.S.

We are suggesting that this be done by FRB

controlling decisions affecting mandatory policy without displacing administration of reserve requirements by the state
supervisors, that is to say, by giving the FRB authority to set
uniform state reserve ratios as applied to foreign banking operations and to assure foreign bank compliance with marginal
reserves imposed on a voluntary basis on international transactions over the last five years.
Before making our proposals, we wish to remind the Committee
why we believe that Section 7 cannot be justified on the ground
either of equal treatment or monetary policy.

Briefly, the

Section is inherently discriminatory in denying foreign banks
with U.S. operations the choice open to a domestic bank to join
or abandon Federal Reserve System membership depending on how
the mix of benefits and burdens affects a domestic bank.

Be-

cause domestic banks are free to leave the System whenever the
burdens outweigh the benefits, there is serious consideration
being given to changing the cost-benefit ratios.
parently means something.

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The choice ap-

212
The $1 billion size distinction does not mitigate the unfairness, even assuming, which we cannot, that the foreign
assets owned by the parent should be included.

The FRB has

identified over a dozen non-members exceeding this arbitrary
size limitation.

Foreign bank branches, agencies and most

subsidiaries are small and specialized operations.

Further-

more, branches and agencies are generally subject to reserve
requirements at home. Equal treatment seems to argue against,
not in favor of, Section 7.
The monetary policy justification for the Section raises
more serious questions.

As of April 1978, using FRB statistics,

total deposits and credit balances for foreign bank branches,
agencies and commercial lending companies constituted

~cf"'

/3, ~

r F i3)

billion, which is approximately 1,5% of the total deposits

*/
of U.S. commercial banks.-

Non-member commercial bank deposits

are nineteen times greater, or about 28.5% of total commercial
bank deposits. Clearly, FRB reserve authority under this Section would not add significantly to its monetary control capability.

Even as to balances outstanding between the U.S.

and foreign offices of foreign banks, which the FRB emphasizes as having a potential monetary policy significance, data

':J

Even if deposits held by foreign bank subsidiaries ($13.0 billion) are
included, the share of the total for the U.S. is about 3%. We are following methods used by the FRB, which exclude fran deposit and credit balance totals intrabank and interbank liabilities and letters of credit, certified and officers' checks and travelers' checks. DecE<llber 1977 figures
are used where April 1978 were unavailable.

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again show insignificant quantities relative to the overall
supply of money and credit in the U.S.

For all foreign bank

subsidiaries, branches, agencies and commercial lending companies in the U.S., according to April 1978 FRB statistics,
these transactions, mostly of branches and agencies, netted
only $10.4 billion, which is under 1.5% of the domestic bank
deposits.
The limitations on the contribution which the proposed new
Section 7 authority of FRB can make to monetary policy must be
recognized.

Foreign banks do not need branches, agencies or sub-

sidiaries in the U.S. in order to respond to the economic forces
which move funds in and out of the U.S.

Any effort to restrict

the international flow of funds by restricting the U.S. banking
operations of foreign banks runs into the hard fact that these
banking windows in the U.S. are convenient but not necessary to
the transactions which determine the flow of funds in and out of
the U.S.

The recent development in New York of a proposed inter-

national banking zone, exempt from taxes and reserve requirements,
which might be repeated in other gateway cities, is further
evidence that trends in international banking are recognizing
that unilateral national controls over international monetary
movements merely drive the t,ransactions out of reach.

If inter-

national monetary controls become a recognized need, the need

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214
can only be met through agreement among governments or central
banks, not through overlapping unilateral national regulations
which would jeopardize the continued development of the highly
successful international banking system emerging in recent years.
1.

Section 7 Authority Should Not Be
Directed at Alleged Foreign Bank Advantages.
It is unclear whether the purpose of Section 7 is solely

to serve U.S. monetary policy objectives or also to attempt some
measure of equalizing treatment as between foreign and domestic
banks.

However, past FRB testimony shows that it intends to ad-

minister reserves to achieve an equal treatment objective, in addition to the monetary policy objective.

Equal treatment is a

concept which makes sense with respect to a particular regulation if other conditions of doing business are roughly similar,
but not if applied to classes of banks, such as foreign banks,
which are subject to different costs of doing business and to
other discriminatory regulations.
The foreign bank branches and agencies are engaged in the
U.S. essentially in wholesale operations with a strong international orientation and, therefore, bear little resemblance to
the operations of the domestic banks with which they compete
in their specialized markets.

As pointed out above, they are

subject to unique limitations on their access to retail deposit
funds which are vital to keeping down the average cost of funds

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215
to domestic banks.

State law imposes a restrictive regulatory sys-

tem to compensate for the inability to regulate overseas home or
parent offices.

Foreign central bank reserve requirements may

overlap those imposed by U.S. regulatory authorities.

In sum,

the costs of funds to branches and agencies are subject to quite
different influences than domestic banks.

Comparison of these

costs are very difficult to make with accuracy, but it seems
clear that domestic bank access to free and low-cost retail deposits offsets cost advantages, if any, which favor foreign
banks.
Whether administration of reserve requirements is by the
FRB or by the state bank supervisors determines how funds are
held in reserve and involves cost differentials for the reserving bank.

Conflicting arguments have been made by respectable

authority both that state administration gives a competitive
advantage to non-member banks, and also that it gives no such
advantage when the benefits and burdens of membership in the
System are weighed.

We contend that any justification for addi-

tional FRB authority over U.S. activities of foreign banks should
not be entangled with this unresolved controversy.

To allow

foreign bank reserves to continue to be held with their correspondent
banks in the several cities in which they operate, which results
from state administration, is beneficial to all concerned and

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216
has negligible monetary policy significance.

The justification

and criterion for the Section 7 authority can only be monetary
policy; the legislation and its history should make this clear.
If the objective of Section 7 is clearly focused on monetary
policy, the problem of defining the additional authority needed
by the FRB becomes more manageable.

It becomes possible to avoid

unnecessary encroachment on state administration and the related
dual banking and states' rights philosophical conflicts, which
dominated discussion in the House of Section 7 as well as Section
5.

The three states most actively regulating foreign bank oper-

ations all administer reserve requirements in a manner which is
effective from the standpoint of monetary policy.
made no contention to the contrary.
in response to FRB changes.

The FRB has

The reserve ratios move

California and Illinois apply the

FRB ratios without change; New York, while making responsive
changes, maintains a slight differential from FRB ratios which
has little monetary policy significance.
For these reasons equalizing the treatment of foreign and
domestic banks through the administration of federal reserve
requirements is unnecessary, unwise and confusing.

There has

been no demand from domestic banks for such protection: they
have not claimed that there is unfair competition arising from
differences in the administration of reserve requirements.

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217
2.

Section 7 Should Not Be Applied to Subsidiaries, Agencies or Commercial Lending Companies.
The FRB authorization to impose reserve requirements should

not be applied to state chartered subsidiaries or to nondepository institutions becRuse it is discriminatory without any offsetting monetary policy justification.
(a)

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Federal Reserve Bank of St. Louis

Foreign bank agencies are offices prohibited
by state law from taking domestic deposits.
They may maintain credit balances in connection with their financial and payment transactions.

New York law requires that these

permissible credit balances be distinguished
from prohibited deposits.

FRB and New York

do not agree on whether the distinction is
important.

We believe that credit balances

by their nature are not a dependable, continuing source of funds against which to extend
credit and, hence, are without significant
impact on the money supply.

The far larger

aggregates of comparable transactions of
domestic finance companies, brokers, etc.
are not reservable. The quantities of agency
credit balances are too small to have any
measurable impact on the U.S. supply of
money and credit.

According to FRB statistics,

218
total agency credit balances as of April 1978
were merely $391 million, or about 0.05% of
total U.S. commercial bank deposits.
(bl

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Federal Reserve Bank of St. Louis

Commercial lending companies are even less
appropriate targets for those administering
monetary policy.

The 1976 House Banking

Committee Report says that "commercial
lending companies" means Article 12 New York
investment companies and nothing else.

There

are fifteen -- six foreign-owned corporations
and nine owned by U .-s. shareholders.

agencies, they cannot take domestic deposits
and their credit balances are related to
other transactions.

As separately incorpor-

ated businesses, they should be excluded in
the same manner as banking subsidiaries of
foreign banks.

They are subject to precisely

the same regulations as the domestic New
York Article 12 investment companies.

The ag-

gregate quantities of the credit balances of
foreign-owned investment companies are insignificant in relation to the total supply of
money and credit at which monetary policy is

219
directed.

FRB statistics show merely $440

million in credit balances as of April 1978.
Also, as of April 1978, balances due from
these companies to directly related offices
abroad netted only $34 million.
(cl

State chartered subsidiaries of foreign banks
are not reached by Section 7 for good reason.
Subsidiaries are more separate from their
parents than branches from their home offices
from both a legal and practical standpoint.
They must be independently capitalized; they
have no legal recourse for parental support.
They do not have the relatively active advances from foreign affiliates as do branches,
which the FRB has identified as the type of
transaction giving rise to its most specific
monetary policy concerns.

These net balances

were only $163 million a~ of April 1978.
3.

Proposed FRB Authority over Reserves.
If Section 7 is found to be necessary, the FRB authority

added by Sec~ion 7 should be confined to a monetary policy
purpose and to branches only.

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Federal Reserve Bank of St. Louis

In addition it should make

220
explicit the division of responsibility suggested in the
reference to state-FRB "cooperation" in Section 7(a) (1) (B) in
a manner conforming to the limitations discussed above:

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Federal Reserve Bank of St. Louis

(a)

Uniform Ratios.

All reserve ratios should

be determined by the FRB uniformly for all
states in which foreign banks are operating.
We understand that this would require no
change in California and Illinois and only
a slight change in New York.
(b)

State Administration.

Except for the deter-

mination of the applicable ratios, the state
bank supervisors would continue to administer
reserve requirements, determining where and
under what conditions the reserves are held
and how to define the transactions to be subject to reserves.

This should result, for ex-

ample, in no change in the treatment of agencies and commercial lending companies (if it
is decided that Section 7 should apply to them)
by the New York Banking Department, which
generally imposes reserve requirements on deposits but not on credit balances.
(c)

Voluntary Compliance.

With respect to reserves

relating to transactions moving money and credit

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221
in and out of the U.S., the FRB made a determination in 1973 that the administration of
U.S. monetary policy required voluntary compliance from foreign banks in subjecting certain transactions to reserve requirements similar in part to those imposed on domestic international banks under Regulation M.

The re-

sult was a 1973 letter from Chairman Burns to
all foreign banks (a copy is appended hereto)
carefully defining the requested compliance.
Foreign branches, agencies, commercial lending companies and non-member subsidiaries are
fully complying with the requested reserve
requirements.

The ratios have moved (generally

down) when the comparable Regulation M ratios
for domestic banks have been changed.

If the

FRB is uneasy, for reasons which we do not understand, about its ability to assure full
compliance in the future with this system of
voluntary reserve requirements, this Committee's
Report could express the expectation that the
states would cooperate, at the request of the
FRB, in the enforcement of this system of voluntary compliance using the states' existing

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222
authority to administer reserve requirequirements.

Foreign banks are frequently

regulated abroad by voluntary compliance
with central banks and make little distinction between such a "request" and a regulation.

If compliance breaks down and state

law is shown to be inadequate, a case may
then have been made for the first time for
adding to the powers of the FRB.
(d)

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Federal Reserve Bank of St. Louis

Additional Authority.

If the FRB contends

that it needs additional authority to supersede state administration of reserve requirements after a period of living with the mandate to cooperate, the Bill provides a
precedent for such a predicament.

The former

Section 7(d), authorizing the FRB to impose
any or all of a wide variety of Federal
Reserve Act regulations other than reserve
requirements was deleted and replaced by a
provision that the FRB would within two years
advise the Congress of any additional authority needed.

The present Section 7(d) invites

recommendations with respect to implementation of the Act in any respect, but makes
specific mention of certain subjects deleted

223
from the former Section 7(d).

Section 7(d)

of the Bill could be broadened to include
explicitly additional reserve setting authority.
(e)

Report of Consultations with State Supervisors.
Finally, if the Committee decides not to
determine the respective roles of FRB and the
state supervisors, Section 7 should be amended
to assure that consultation and genuine cooperation between the regulators takes place by requiring a report to the banking committees of
both Houses within one year of enactment, describing the consultations and cooperative arrangements agreed upon. Regulations implementing Section 7 should be effective within areasonable period after this report is submitted.

The foregoing suggestions are generally consistent with
Section 7 of the House Bill but would cut away unjustified
loose and poorly defined discretionary authority and would
remove the conflicting double standard of monetary policy and
equal treatment.

It responds fairly to the third point in Sen-

ator McIntyre's seven-point program on which we were asked to
comment in the January 1976 hearings. Point 3 said "give the
Fed, perhaps, a more direct handle, if appropriate, over foreign bank reserves".

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V.

NON-BANK AFFILIATIONS -- SECTION 8

Section 8 is receiving special attention from the EEC Banking Federation.

Although the problem with Section 8 is by no

means limited to banks from EEC countries, the many members of
the institute from other countries which are interested in improving Section 8 have participated directly or through others
in the preparation of the Institute's position, which has been
coordinated with the EEC Federation's position on Section 8.
1.

Clarifying the Exemptions.
Section 8 applies the prohibitions against non-banking in

Section 4 of the Bank Holding Company Act to foreign bank branches,
agencies and commercial lending companies, retaining and somewhat
expanding the foreign bank holding company exemptions provided in
the existing Bank Holding Company Act and its regulations.

The

clarification and amplification of these exemptions, authorized
by the 1970 amendments to the Bank Holding Company Act and amplified by the FRB proposals reflected in Section 8(e) of the
Bill, reflect recognition that extraterritorial regulation of
foreign bank holdings of foreign corporations would be difficult
*/
and unnecessary to the purposes of the Act.- The following

Chainnan Burns said the following to this Cannittee in 1970 cacmenting

on the 1970 bank holding~ amendments: " ... [W]e believe that bank
holding ~ e s that are principally engaged in banking abroad should be
allowed to retain interests in foreign-chartered nonbanking ~ e s that
are also principally engaged in business rutside the United States. We do
not believe Congress intended the Act to be applied in such a way as to impose
ideas of banking upon other countries .... "

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225
changes are recommended to carry out more clearly the objectives of the foreign bank exemptions:

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Federal Reserve Bank of St. Louis

(a)

Non-banking subsidiaries of foreign
banks which are incorporated abroad are
exempted by Section 8 if over half of
their business is outside the U.S.

achieve this purpose, it is necessary
that such foreign subsidiaries be permitted to retain and make investments in
U.S. corporations which are related to
the overseas business activities of the
foreign non-banking parent corporation.
The Section B(e) exemption recognizes
this need by covering investments in the
U.S. which are incidental to the business
of the foreign non-banking parent.

it is decided that there is need for
some defined limitation on the activities
of U.S. subsidiaries of foreign subsidiaries of foreign banks, it is recommended that difficulties with the interpretation of the word "incidental",
which is variously used in the banking
statutes, be resolved by expanding
"incidental" to include explicitly "the
same line of business" as the parent.

226
workable method of determining a line of
business, developed by the Commerce
Department, has been in use since 1970
for registration by foreign and domestic
bank holding companies and would be used
to implement and give clarity to Section
8(e) as we suggest that it be amended.
(b)

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Federal Reserve Bank of St. Louis

Section 8(e) (3) (A) denies the foreign
bank holding company exemption to foreign
banks with their principal banking
subsidiaries in the U.S., even though
most of their banking business may be
done outside the U.S., either directly
or through branches, or through a number
of smaller subsidiaries, or through any
combination thereof.

This illogical and

purposeless result appears to be unintended.

We understand that the Federal

Reserve Board may support elimination of
Section 8(e) (3) (A), relying on the broad
regulatory powers of Section S(b) of the
Act to enable the Board to prevent domestic banks or holding companies from taking advantage of the foreign bank exemption.

227
(cl

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Federal Reserve Bank of St. Louis

Section B(e} follows existing law and regulations in providing appropriate exemptions
for foreign bank affiliations with foreign
industrial and trading organizations doing
most of their business outside of the United
States, but denies this exemption if the U.S.
activity is in the securities business, presumably on the grounds that securities affiliations are a more firmly entrenched prohibition under U.S. law than other types of nonbanking.

However, Section B(e} departs from

existing law and regulations, with no explanation in the House Report or elsewhere, by
denying the exemption if the U.S. activity is
"bank related" within the meaning of Section
4(c} (8) of the Bank Holding Company Act.

Bank

related affiliations would either be prohibited
or permitted by special order of the Board.
The resulting difference between the Bill
and existing law means that foreign banks
with branches in the U.S. would be treated
differently in this respect than foreign banks
with subsidiaries in the U.S.

The FRB has not

228
said why the exemption policy of the last
eight years which covers bank related activities should not continue. Industrial
affiliations are firmly prohibited by the
Act and bank-related affiliations are permitted if approved by the Board for domestic
bank holding companies. If the foreign bank
exemption for foreign subsidiaries is justified by the remoteness of the foreign connections and distaste for extraterritorial regulation, it is difficult to understand why it
should be available to the firmly prohibited
industrial affiliations but not to the less
objectionable bank related affiliations
which may be permitted by Board order.
2.

Coverage of Non-Depository Institutions.
Because Section 8 is an extension of Bank Holding Company

Act policy, the principal of equal treatment requires that its
non-banking prohibitions apply only where non-banking is affiliated with banking as defined in the Act.

A "bank" is defined by

Section 2(c) as an institution which accepts deposits.

In admin-

istering the Bank Holding Company Act, the Federal Reserve Board
has never contended that agencies or commercial lending companies
(New York Article 12 investment companies) are "banks" within the

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Federal Reserve Bank of St. Louis

229
meaning of the Bank Holding Company Act because each of them is
denied by state law the power to accept domestic deposits.

Edge

Act Corporations, which are similar in many respects to agencies
and commercial lending qompanies, are explicitly exempted from
coverage of the Bank Holding Company Act.

There are many types

of U.S. financial institutions which make loans but do not take
deposits and which overlap the functions of agencies and commercial lending companies; none of them is covered by the Bank
Holding Company Act.
Thus the application of Section B to agencies and commercial
lending companies is a clear discrimination based on foreign
ownership.

The question may remain as to whether the discrimin-

ation is justified by overriding requirements of federal bank
regulation.

From the standpoint of the purposes of the Bank

Holding Company Act, the justification would have to be found
in possible abuses arising from affiliation between non-depository lending companies and borrowers.

There is no law or policy

in the United States which goes so far as to preclude affiliation
between the many types of financial institutions engaged in lending and the many types of businesses to which they lend.
Section 8 application to agencies and commercial lending
companies is an unnecessary complication in the Bill which
serves no significant purpose and should be removed.

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Federal Reserve Bank of St. Louis

230
3.

Grandfather Date.
There is no need for retroactive application of Section 8

and, therefore, the difficult question of whether to grandfather
and when can be avoided.

The non-banking affiliations of foreign

banks are established in the normal course of their investment
banking business and not with an eye to legal opportunities in
the U.S.

If retroactivity is insisted upon, the grandfather date

should be no earlier than the date on which the Senate reports
out a bill.

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231
VI,

CONCLUSION

As you can see from our comments, the view from a foreign
banker's perspective is to leave well enough alone.

Theim-

perfections of the bank regulatory system in the United States
are by no means confined to the treatment of foreign banks and
do not support the charge that foreign banks have a competitive
advantage over domestic banks.

Most of the proposed new fed-

eral regulations of foreign bank operations in the U.S. have
their reflections in, and could usefully be overtaken by, proposals for.changes in federal bank regulation, much of which
is under active consideration: e.g., universal mandatory membership in the System or making membership more attractive; removing anticompetitive geographic restraints on multi-state
banking; centralizing and rationalizing overlapping regulatory
activities; review of Glass-Steagall policy.
The concern over the rapid increase in foreign bank assets
in the United States has been stimulated by a distorting selection of statistics, comparing foreign bank and domestic bank
asset growth in the U.S.

The fact is that a changing world has

created a surge of international economic activity of which the
rapid growth in international banking is an important part.
Not only in the United States, but also in most other industrialized countries, international banking is growing considerably more rapidly than domestic banking. The recent growth

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232
of-foreign banking in the United States is in close step with
the recent growth in foreign activities of U.S. banks.

The

U.S. banks led the world in exporting its banking services
through the growth of its branches abroad, far outstripping
foreign banking in the United States in the 19S0's and 1960's.
Foreign bank growth in the United States has only recently
achieved growth rates approximating those of United States
bank branches abroad.
We hope that this Committee, before deciding that legislation is necessary, will carefully consider the perspective
from which we view the Bill and will closely examine our proposals for moderation Of the Bill if it concludes that legislation is justified ~t this time.

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233
ATTACHMENT

CHAIRMAN OF' THE SOARD OF' GOVERNORS
F'EOERAL RESERVE: SYSTEM
WASHINOTON, 0. C. 20!55r

June 1, 1973

Dear Sir:
I am w--riting to seek your assistance in ensuring that recent actions
taken by the Federal Reserve System in the interest of a healthy
national economy can effectively accomplish this objective. Moderating inflation in the United States will benefit not only this country
but also other nations and the international financial system.
you know, the Board of Governors of the Federal Reserve System
recently imposed a marginal reserve requirement of 3 per cent-over
and above the 5 per cent previously required-on further increases
in the total of funds raised by member banks fran the issuance of
(1) single-maturity time deposits of $100,000 or more, (2) deposits
represented by certain commercial paper obligations such as promissory
notes, acknowledgements of advances, and due bills, and (3) funds
obtained by the bank from obligations issued by affiliates and subsidiaries of the bank. In addition, the Board set the reserve requirement at 8 per cent on increases, above a base that is being phased out,
in certain foreign borrowings-primarily Euro-dollars-by U.S. member
banks.
As

We believe that the effectiveness of .the Board's recent actions in
combating inflation would be substantially enhanced if you would conform to the 8 per cent reserve on any increase in your borrowings frOlll
banks abroad, including your head office. With respect to such
increases, this treatment would parallel the reserve·s maintained by
member banks against similar types of borrowings. For agencies,
branches, investment companies affiliated with foreign banks, and
U.S. subsidiaries of foreign banks, we would propose that the 8 per
cent reserve be maintained against any additional increases in net
fu.~ds obtained from foreign banks over the amounts obtained on average
during the month of May. The amounts to be included would consist of
net balances due to directly related institutions abroad together with
net ti::e deposits of and net borrowings from other foreign banks.

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234
In addition to your cooperation with regard to the 8 per cent reserve
on increased borrowings from foreign banks, we also :f,nvite your cooperation in conforming to the marginal reserve on deposits and liabilities
noted above (first sentence of the second paragraph). This marginal
reserve, as it applies to member banks, means that they must maintain
additional reserves equal to 3 per cent of any growth in the total of
the deposits and liabilities specified above in excess of a base amount.
The base for computiDg the marginal reserve is the amount outstanding
in the week ended May 16, 1973, or $10 million, whichever is greater.
As in the case of domestic nol'.llllember banks--wbom I have already
requested to conform to the marginal reserve proposals-the additional
reserves maintained by an agency, branch, :investment company, or subsidiary should be deposited with a member bank of the Federal Reserve
System of your choosing. The reserves as oaintained would include the
8 per cent reserve on foreign borrowings and the 3 per cent marginal
reserve• on the other specified deposits and liabilities. The member
bank receiving the deposit will be expected to redeposit 100 per ce:at
of all such balances with its Federal Reserve Bank. Operating procedures, and details regarding the appropriate bases, will be provided
by the Federal Reserve Bank.
I look forward to your cooperation in this volmtary program of credit
restraint. Success in combating excessive increases in credit in this
period is a matter of great national importance.

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Federal Reserve Bank of St. Louis

Sincerely yours,

Arthur F. Burns

235
SHAW, PITTMAN, POTTS & TROWBRIDGE
1800 M STREET, N.W.

WASHINGTON, 0.C. 200315

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01!:AN D. AULICK
SHELDON J. Wl:U!ll!:L
JOHN A. MCCUI-LOUGH
JOHN ENGEL
AOl!ll!:l'ff W, AN"'IA"'0
STEPHl!:N l!I. HUTTLl!:N
WtNTI-IAOI" r.1. l!!IROWN
JAM~ B. 1-tAMLIN
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F"AANK II!;. VOGEL

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LAURA K. f"ARRAND
MATIAS F". TFIAYJl!:SO•DJAZ
VICTORIA J, PERKINS

JOHN H. SHARON

j~'l'H:. ~p~~~:~LI., JR.

EDWAl'ID 1!1, CROSUND•

l"RANKLIN D. CHU

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June 28, 1978

•NOTADNITTl!:Cl IOI g.c;.

The Honorable Thomas J. McIntyre
Chairman
Subcommittee on Financial
Institutions
Senate Committee on Banking,
Housing and Urban Affairs
Room 5300 - U.S. Senate
Washington, D.C. 20510
Re:

Hearings on H.R. 10899

Dear Senator McIntyre:
On behalf of the Institute of Foreign Bankers, I would
like to make the following brief supplemental comments on
the June 21 hearings for inclusion in the record.
1.
Interstate Branching. Senator Stevenson and
Chairman Miller have made somewhat similar proposals to
compromise the interstate branching issue in Section-5.
It should be recognized that these proposals are compromises only to the extent that they permit the branches
of foreign banks in states other than the home state to
take domestic deposits. The alleged foreign bank advantage exists only with respect to the right to accept
domestic deposits. The Federal Reserye Board has so far
offered nothing in this regard, and Senator Stevenson

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Federal Reserve Bank of St. Louis

236
offers to exempt from the interstate restrictions only
domestic deposits received in connection with foreign
trade. We believe that this is not an issue which can
be constructively compromised and that the only change
in Section 5 should be to confine it to branches and
make it prospective.
2.
FDIC Insurance. You asked Mr. LeMaistre
whether wholesale and retail deposits could be distinguished and administered, and the response was positive.
If you had in mind authorizing FDIC to limit mandatory
insurance to those few foreign bank branches engaging
in significant amounts of retail deposit business, we
agree that the distinction can be administered and
believe that the idea has merit in the form suggested
in the Institute's statement. It certainly meets the
comments of Ms. Siebert who made clear that her concern
was with deposits by the man in the street and not
corporate deposits. We believe that the most realistic
such distinction and the one most readily administered
and audited would be the classification by FDIC regulation of the owner of the deposit as an individual or
corporation. "Off-the-street" deposits do not come to
foreign bank branches from corporations. We believe
that this distinction should be coupled with the exclusion of foreign owned accounts as in the House Bill
(but more clearly defined as accounts owned by foreign
citizens or residents of foreign countries.) These
accounts are usually business generated because of the
branches' home offices or foreign affiliates and do
not rely upon FDIC insurance. Our statement at page 21
amplifies this suggestion.
3.
Reserve Requirements. The FDIC Chairman, the
Conference of State Bank Supervisors and the foreign
bank witnesses have emphasized the discriminatory
consequences of mandatory Federal Reserve Board reserve
requirements, grafted on to the Federal Reserve Act
which gives domestic banks the option of joining or
leaving the Federal Reserve System. The Institute has
urged that equal treatment in the administration of

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237
reserve requirements is an inappropriate consideration
against the background of discrimination in denying the
option of federal or state reserve requirements.
Since the hearings, the FRB has sent to your Committee
on June 26 a plan to remove some of the inequality in
treatment as between federal and state reserve requirements. Your Committee is reportedly planning to hold
prompt hearings on this proposal. We believe that this
new development reinforces our contention that any
special Section 7 authority to impose reserve requirements on foreign bank operations in the U.S. should be
at least limited to the clear requirements of monetary
policy and not be entangled in the subject of _your
forthcoming hearings.
4.
Limiting the Bill to Branches. The testimony
of many witnesses supports the attractive prospect of
simplifying this Bill by stripping away its discriminatory and unnecessary application to state-chartered subsidiaries and non-depository institutions. Agencies and
commercial lending companies are not banks, as pointed out
by Ms. Siebert, because they cannot take domestic deposits. The inability of agencies and commercial lending companies to take domestic deposits makes inappropriate any attempts to equalize their treatment with
that of domestic banks under the federal laws at issue,
all of which apply to depository and not to non-depository financial institutions. There is no monetary policy
or depositor protection rationale for covering these nondepository institutions. Furthermore, coverage of commercial lending companies, which appears to mean the five
or six New York Article 12 investment corporations, is
a blatant discrimination because it has no application
to the larger number of such corporations owned by U.S.
corporations and citizens.
For different reasons banking subsidiaries should
not be covered by this Bill. Interstate restrictions
are already imposed on subsidiaries under Section 3(d)
of the Bank Holding Company Act. Subsidiaries are subjected by existing federal law to mandatory FDIC insurance. Subsidiaries and their parents are also subjected

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- 78 - 16

238
to the non-banking restrictions of the Bank Holding
Company Act. The FRB contention that subsidiaries be
covered by mandatory FRB reserve requirements rather
than state reserve requirements, would result in one
more unnecessary discrimination and an imposition on
the dual banking system. Most of the witnesses at your
Committee's hearing appear to share this view. Even
the House proponents of the most restrictive version of
Section 7 never went so far as to say that state chartered banks should be treated differently because of
foreign ownership.
Eliminating coverage of bank subsidiaries, which
are already treated equally with domestic banks under
existing federal law, and eliminating coverage of nondepository institutions, which cannot be fairly equated
with domestic banks under federal statutes designed for
depository institutions, makes possible much needed
simplification of this complex Bill by confining it to
branches and to its stated objectives.
5.
Non-Banking Affiliations. The nearest thing
to a consensus among the witnesses on June 21 was that
the Bank Holding Company Act restrictions against nonbanking should be applied to foreign bank branches with
full grandfather protection. The consensus depends upon
perfecting language to carry out the apparent intention
of the House Bill and the FRB to avoid the necessity
for the FRB to require divestitures and reporting as a
result of foreign bank holdings of voting shares of a
foreign corporation with over half its business outside
the U.S. We hope that Mr. Miller's testimony that
"technical changes" to Section S(e), in addition to
those presented at the hearing, would be offered shortly
means that the FRB will concur in the following amendments of Section S(e):
(a) U.S. subsidiaries of exempted foreign
non-banking corporations should be covered by the
exemption; and

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(bl Although it is accepted that the exemption would not extend to securities affiliates in
the U.S., there is no logical or practical reason
why exemptions available to industrial and trading affiliates should not be equally available to
non-banking financial affiliates and other bankrelated affiliates which are either prohibited to
domestic banks under Section 4(c) (8) of the Bank
Holding Company Act or permitted by special order
of the Board.
In addition, Section 8 should be limited to branches for
reasons stated in paragraph 4, above.
6.
Grandfathering. We believe that Sections 5
and 8 should be prospective for the reason that there
is no indication that foreign banks are able or anxious
to make their investment decisions on the basis of uncertain U.S. banking legislation which has been pending
for three and one-half years. With respect to Section 5,
if state supervisors wish to delay or approve new foreign bank applications for branch licenses in the face
of the possibility of federal restrictions, that decision
should be their prerogative and to require them to undo
the approval actions would unnecessarily compound the
impact of this Bill on the dual banking system. With
respect to Section 8, the timing of investments in
shares of non-banking companies by foreign banks which
are competing abroad in the investment banking business
is determined by opportunities, negotiations, many
months of planning and, in some cases, changes in debtor/
creditor relationships. It is impractical to decide
today to make acquisitions before any action which
might be taken by Congress in the next few months. If
no action is taken this year, no reasonable assumptions
can be made about the·future.
If the Committee feels unable to legislate prospectively, thereby avoiding the grandfather issue, the
logical grandfather date, reflecting the first effective
notice that legislation is likely, will be the date on
which this Committee reports out a bill.

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It is our hope that these further comments may be useful
to your Committee if it decides to design a bill for consideration by the Senate. We may also make some technical or drafting suggestions to Mr. Weber, which need not burden this letter.
Thank you for your attention and courtesy at the hearings
and for the constructive efforts of Mr. Weber in connection
with these hearings.
Respectfully submitted,
Shaw, Pittman, Potts & Trowbridge

&c:_

By_fgL?fittm(
for the
Institute of Foreign Bankers
SLP/mdb

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SHAW, PITTMAN, POTTS & T&oWBRIDGE,
Washington, D.O., July 3, 1978.

Re: H.R. 10899, Entitled "International Banking Act of 1978"
Senator ADLAI E .. STEVENSON :,
Committee on Banking, Housing a,nd, Urban Affairs,
Dirksen Senate Office Building,
Washington, D.O.

DEAB •SENATOR STEVENSON: I received your June 30 letter today requesting the
Institute's comments on the proposal for modifying Section 5 of HR 10899 which
you made at the June 21 hearings.
'I submitted on behalf of the Institute on June 28 a supplementary comment
on the June 21 hearings in which we included a brief comment on the Federal
Reserve Board proposal and on your proposal. As you quite rightly point out,
there is a conflict between two objectives: one to restrict the deposit-taking powers
of foreign 'bank branches in secondary states to conform to restrictions on domestic banks and the other to avoid federal restraints on the rights of states to
decide whether and how to give priority to efforts of their cities to achieve international financial center status. The House bills, both before and after the
liberalizing Annunzio amendment, make no attempt to restrict the interstate
activities of agencies which cannot take domestic deposits because domestic banks
can in various forms engage in interstate activities comparable to those of agencies. Also, the Florida and Georgia agency laws both permit credit balances from
domestic sources and deposits from foreign sources and the House apparently
sought to avoid conflict with these existing state agency laws. The objectives of
HR 10899 do not require that Section 5 apply to agencies of foreign banks.
'Your proposal goes a step further in permitting foreign bank offices in secndary
states to take deposits allowed by regulation to Edge Act Corporations owned by
domestic shareholders. As I understand it, deposits would be permitted from
domestic sources in connection with international trade. However, Section 3 of HR
10899 and all previous bills enables foreign banks to own ·Edge Act Corporations,
so tliat a vehicle is provided already for doing substantially what you propose,
particularly if the Edge Act is liberalized, as you are urging, with respect to
capital ratios.
'As a result, it appears that your proposal is substantially covered by the combination of a Section 5 which has never covered agencies and Section 3 making
Edge Corporations available to foreign banks. It does not meet the problem that
laws designed to attract foreign banks effectively must include the power to
take deposits, which is the essence of banking.
We would like to be able to suggest a useful resolution of the conflict which
you are addressing in order that the uncertainty of the pending legislation might
be ended. We believe that any compromise must give the states a fair opportunity
to attract foreign banks on terms which will enable them to participate in the
market for the banking 'business of the large national and international corporations. This is the business for which the foreign banks compete with the U.S.
banks in their own countries and in other financial centers outside the United
States. They are not likely to be interested in substantial investments in U.S. cities
unless they are able to compete for this same type of business, often the same corporta tions. Although they do not need or i,eek access to retail deposit business,
with which the domestic interstate branching controversy is concerned, they do
need to compete for the funds of the interstate and international corporations,
which means offering those corporations a full line of banking services. We suggest that your own state of Illinois has, without the need for federal legislation,
offered the most workable compromise which effectively serves the objectives of
attracting foreign banks and avoiding competition between those foreign banks
and local retail banking. The key is to restrict the foreiim banks to a single location in a downtown metropolitan area which effectively denies them access to
the Illinois retail banking market.
!Regardless of judgments about the right formulation for a compromhm. we
find it difficult to understand why the issue should be resolved at the fedPral
level rather than at the state level where the hank suoervi!:mrs are more Reni;:itive
both to the competitive problems of the particular banking market and to the
aspirations of the cities.
'On behalf of the Institute, may I thank you for your constructive efforts to
resolve this matter. I hope you will see our response as the candid expression

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242
of our view of this difficult problem even though we find ourselves unable to
toncur in your proposal.
Respectfully yours,
STEUART L. PITTMAN,
Counsel for Institute of Foreign Bankers.

Senator McINTYRE. Thank you, Mr. Bellanger.
Mr. "\Volfgang Jahn, Board of Managers, Commerzbank. Mr. Jahn~
STATEMENT OF WOLFGANG JAHN, BOARD OF MANAGERS,
COMMERZBANK

Mr. JAHN. Mr. Chairman, members of the subcommittee, the Bankmg Federation of the European Community is most grateful for the
opportunity to testify again to the Congress about the proposed International Banking Act. ·with your permission, Mr. Chairman, my colleague, Mr. Peter Leslie, chairman of the Executive Committee of the
British Bankers Association and general manager of Barclays Bank
International Limited, will first speak to section 5. '.Mr. Paul Fabre,
managing director of the French Banking Association, will then discuss section 8. I will complete our statement by addressing sections
6 and 7.
I would add, Mr. Chairman, that we are accompanied by several
European bank officials and their counsel. We will supply their names
to yon at the close of this session, so that they may appear in the
formal record.
"\Vhile our comments are not identical with those submitted by the
Institute of Foreign Bankers, we endorse the principles set forth in
the Institute's written statement. We believe that those who are responsible for considering this legislation will find this statement both
comprehensive and interesting, and we respectfully recommend it to
your attention, together with our own.
STATEMENT OF PETER LESLIE, CHAIRMAN, EXECUTIVE COMMITTEE, BRITISH BANKERS ASSOCIATION

Mr. LESLIE. I shall, as Dr. Jahn has indicated, address section 5.
"\Ve endorse in principle section 5 as passed by the House of Representatives. The changes made by the House recognize that, least international financial markets be confined to two or three cities, other
States and cities to fulfill any such desires but will allow the European
opportunity to become strong international trade and financial centers
as well. As presently written, section 5 will not only permit other
States and cities to fulfill any such desires but wil allow the European
banks better to serve the needs of their longstanding clients.
The issue of multistate banking, in our view, has often been misunderstood and misrepresented. It has been said that foreign banks
enjoy rights and privileges to expand willy-nilly throughout the
Nation which are denied their U.S. counterparts, and that these constitute a significant competitive advantage for foreign interests.
Mr. Chairman, we would submit that the facts are otherwise.
First, foreign banks may only conduct banking activities in more
than one State in response to an express invitation and authorization
of a host State.

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Second, to the extent that concern over retail banking competition
is at the heart of the dispute over multistate banking operations, we
would note that Federal and State laws presently combme to inhibit
foreign banks, as a practicai matter, from multistate retail banking.
Third, the opportunities available to domestic banks for conducting
banking business beyond the geographic confines of their own State
include Edge Act corporations, loan production offices, and other
hank-related financial operations. We believe that these options which
are open to domestic banks dispel the notion that foreign banks would
enjoy a competitive advantage in the area of multistate banking.
Mr. Chairman, we are, therefore, happy that these factors have been
recognized in the adoption by the House of section 5. There is one revision, however, which we would like to mention which would further
the principle of State choice recognized by the House. As set forth in
our written statement, we suggest that section 5 (a) be modified to
treat subsidiaries in the same manner as branches. This is proposed in
order to avoid the anomaly arising from the fact that some States now
permit foreign banks to operate only through subsidiaries.
Thank you, Mr. Chairman.
Senator McINTYRE. Thank you Mr. Leslie.

STATEMENT OF PAULFABRE, MANAGING DIRECTOR, FRENCH
BANKING ASSOCIATION
Mr. FABRE. Mr. Chairman, I will address section 8 of the bill.
As foreign bankers, we do not make any judgment on the U.S. policy
of separating banking from nonbanking activities. However, as Chairman Burns said to the House committee in 1970 regarding the Bank
Holding Company Act Amendments:
We believe that bank holding companies that are principally engaged in banking
abroad should be allowed ito retain interests in foreign-chartered nonbanking
companies that are also principally engaged in business outside the United
States. We do not believe Congress intended the Act to be applied in such a way
as to impose our ideas of banking upon other countries.

We were particularly pleased to note the statement of Chairman
Miller today that the United States has different banking structures
than many foreign countries, and that section 8 should not be read to
inhibit the normal growth of investments of foreign manufacturing
and industrial firms in this country which, he pointed out, are in the
interests of the United States.
This is our precise point.
Our problem here arises from the fact that in Europe it is common
for banks to have long-standing equity interests in industrial and
commercial enterprises. We do not believe that Congress desires to
disrupt established economic structures in Europe, or to enact harsh
new rules which would deter job and capital generating foreign investment in the United States.
The neJliherations in the House show that it did not intend simply
to cut off foreign nonhanking activities here; unfortunately, in choosing a middle ground, the House, adopting language proposed by the
Federal Reserve, did not really accomplish its goal. Under section 8 ( e)
of the current bill, the exemption from section 4 of the Bank Holding

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244

Company Act only applies to shares of companies organized under the
laws of a foreign country and to shares of subsidiaries of such companies if they are "principally engaged in activities incidental to the
business of the parent." The key term "incidental" is not defined in tihe
biH, and its meaning remains unclear. However, prior interpretations
of "incidental" under the Bank Holding Company Act and the Edge
Act suggest that this term could be construed to prohibit a European
company partly owned by a European bank from owning shares in a
U.S. company engaged in activities other than those of a direct supplier or sales agency, which would necessarily be deemed "incidental."
Such an interpretation would destroy settled business relations in
Europe, and prevent useful investments here in the United States. And
until the meaning of "incidental" is clarified, the uncertainty will deter
even those investments in companies whose American operations might
ultimately be deemed incidental to those of their foreign parents.
For these reasons, we propose that the vague "incidental" test be
replaced by a standard which exempts the shares of any company
organized under the laws of a foreign country and the "shares held or
activities conducted by such company," so long as the company is principally engaged in business outside the United States.
Second, we urge that the grandfather date for nonbanking investments by foreign banks should be advanced from the present date of
May 23, 1977, to the date of enactment of the bill. Because of the long
history of this legislation, there was no way to predict when or in what
form this legislation would finally be enacted. It would be unfair to
penalize those investors who, in good faith, have invested in the U.S.
economy since that date.
A third problem with the current bill arises from clause 3 of tihe
amendments posed by section 8 ( e). This clause provides that a bankholding company may not be considered to be principally engaged in
business outside the United States if its "principal banking subsidiary"
is located in the United States. We support the Federal Reserve
Board's recommendation to eliminate this provision entirely.
In sum, we believe that section 8 of the proposed International Banking Act has several features which should be altered. If these changes
are made, we believe Congress' basic intent can be achieved without
harming European business or its capacity to contribute to the U.S.
economy.
Senator McINTYRE. Dr. Jahn?
Dr. JAHN. I shall limit, Mr. Chairman, my comments to sections 6
and 7 of the bill.
About section 6, we agree with the repeated recommendations of the
FDIC to give foreign branches the option to be covered by insurance
and not to make insurance mandatory. No reason exists for foreign
banks to bear the additional costs of asset pledges and surety bonds,
costs not applicable to domestic banks. At the very least, the FDIC
should be given the authority to exempt a foreign branch upon a showing that it is covered adequately by insurance in its home country.
Durin~ the hearings before your subcommittee on an earlier version
of the bill, in January 1976, you, Mr. Ch.i,irman, asked the question
with regard to section 7, and I quote:
Why wouldn't the following ad~quately meet public objectives? Give the Fed.
perhaps, a more direct handle, if appropriate, over foreign bank reserves.

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245
Whatever handle may be appropriate, it does not include the imposition of Federal reserve requirements on foreign bank operations. Any
such imposition is not appropriate because no case can be made for
treating foreign banks differently from any other nonmember State
banks; no case has ever been made for discrimination against us.
I know that it is said foreign banks are totally different from State
nonmember banks, because the latter are small and not involved with
the international flow of funds. But neither of those two assertions is
necessarily correct. As of December 31, 1976, there were a dozen
domestic nonmember banks with total assets exceeding $1 billionthere may be more today. And there is nothing that prevents those
banks from bringing in funds from the Eurodollar market or otherwise
engaging in international financial transactions. Indeed, half of those
banks have one or more foreign branches; and many of the others have
correspondent relationships with foreign banks, or have international
departments, or both. And there is nothing to prevent these and other
nonmember State banks from continuing to expand their foreii!?fi operations without becoming subject to mandatory Federal Reserve
reciuirements.
The second argument for discriminating: against foreign bank operations in the United States is their affiliation with large foreigu
banks. We do not understand whv the size of the parent has any
bearing on where the foreign bank should keep its reserves in the
United States: remember, under State law we must keep reserves. By
contrast, and at least equally significant for monetary policy, American member banks have domestic holding company affiliates whose
large demand liabilities such as travelers' checks are subject to neither
Federal nor State reserve requirements.
And, if it were true that, in order to assure the Fed's conduct of
monetary policy, the reserves on some $52 billion of standard banking
liabilities of foreign banks have to be moved out of State control into
Federal Reserve banks, then we cannot understand why it would not
be equally true that the reserves on $285 billion of domestic nonmember
banks must not also be so moved.
And speaking of the size of foreign banks, let me make a final comment. We believe the quantitative importance of foreign banks in the
United States has been exaggerated and sensationalized. Total assets
of all foreign banking entities in the United States this April
amounted to $90 bi11ion, and of those assets, $19 billion are assets of
subsidiaries that are now under Federal regulation by the FDIC and
subject to the constraints of the Bank Holding Company Act. So we
are left with $71 billion under exclusive State control: That is, about
6 percent of total U.S. banking assets. The assets of foreign branches in
the United States are less than one-fourth the size of the assets of U.S.
branches abroad. With your permission, I would like to offer a memo,
randum prepared for us by the distinguished economist Mr. Oscar
Gass that analyzes these orders of magnitude as well as some of the
principal contentions of the ]federal Reserve.
Senator McINTYRE. I would be glad to have this placed in the record.
Without objection it is so ordered.
[Complete statements and material re.ferred to above follow:]

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246
June 21, 1978
STATEMENT OF THE
BA.~KING FEDERATION OF THE EUROPEAN COMMUNITY
ON H.R. 10899, "INTERNATIONAL BANKING ACT OF 1978,"
BEFORE THE SENATE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
BY DR. WOLFGANG JAHN
(BOARD OF MANAGERS, COMMERZBANK);
MR. PETER LESLIE
(CHAIRMAN, EXECUTIVE COMMITTEE, BRITISH BANKERS ASSOCIATION);
AND MR. PAUL FABRE
(MANAGING DIRECTOR, FRENCH BANKERS ASSOCIATION)
Dr. Wolfgang Jahn.
Mr. Chairman, members of the Subcommittee, the Banking Federation of the European Community is most grateful
for the opportunity to testify again to the Congress about
the proposed International Banking Act.

With your permission,

Mr. Chairman, my colleague, Mr. Peter Leslie, Chairman of the
Executive Committee of the British Bankers Association and
General Manager of Barclays International, will first speak
to Section 5.

Mr. Paul Fabre, Managing Director, French

Bankers Association,will then discuss Section 8.

I will com-

plete our statement by addressing Sections 6 and 7.
I would add, Mr. Chairman, that we are accompanied by
several European bank officials and their counsel.

We will

supply their names to you at the close of this session so that
they may appear in the formal record.
While our comments are not identical with those submitted
by the Institute of Foreign Bankers, we endorse the principles
set forth in the Institute's written statement.

We believe

that those who are responsible for considering this legislation
will find this statement both comprehensive and interesting,
and we respectfully recommend it to your attention, together
with our own.

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247
Mr. Peter Leslie.

I shall, as Dr. Jahn has indicated,address Section 5.
We endorse in principle Section 5 as passed by the House
of Representatives.

In its version, the House realized that,

lest international financial markets be confined to two or
three cities, other states and cities throughout the United
States should be afforded the opportunity to become strong
international trade and financial centers as well.

As pres-

ently written, Section 5 will not only permit other states and
cities to fulfill their desires but will allow the European
banks to better serve the needs of their long-standing
clients.
The issue of multi-state banking, in our view, has often
been misunderstood and misrepresented.

It has been said that

foreign banks enjoy rights and privileges to expand willy-nilly
throughout the nation which are denied their U.S. counterparts,
and that these constitute a significant competitive advantage
for foreign interests.
Mr. Chairman, the facts are otherwise.
Firstly, foreign banks may only conduct banking activities in more than one state in response to an express invitation and authorization of a host state.
Secondly, to the extent that concern over retail banking
competition is at the heart of the dispute over multi-state
banking operations, we would note that ,federal and state laws

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248
presently combine to inhibit foreign banks, as a practical
matter, from multi-state retail banking.
Thirdly, the opportunities available to domestic banks
for conducting banking business beyond the geographic confines of their own state include Edge Act Corporations,
loan production offices, and other bank-related financial
operations.

We believe that these options which are open

to domestic banks dispel the notion that foreign banks would
enjoy a competitive advantage in the area of multi-state
banking.
We are, therefore, pleased that the House has recognized these factors in adopting Section 5.

There is one

revision, however, we would like to mention which would
further the principle of state choice recognized by the
House.

As set forth in our written statement, we suggest that

Section S(a) be modified to treat subsidiaries in the same manner
as branches.

This is proposed in order to avoid the anomaly

arising from the fact that some states now permit foreign
banks to operate only through subsidiaries.
Thank you, Mr. Chairman.
Mr. Paul Fabre.
Mr. Chairman, I will address Section 8 of the bill.
As foreign bankers, we do not make any judgment on the
U.S. policy of separating banking from non-banking activities.

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249
However, as Chairman Burns said to the House Committee in
1970 regarding the Bank Holding Company Act Amendments:
" • • • [W)e believe that bank holding companies that are principally engaged in
banking abroad should be allowed to retain
interests in foreign-chartered nonbanking
companies that are also principally engaged
in business outside the United States. We
do not believe Congress intended the Act
to be applied in such a way as to impose
our ideas of banking upon other countries
Our problem here arises from the fact that in Europe
it is common for banks to have long-standing equity interests
in industrial and commercial enterprises.

We do not believe

that Congress desires to disrupt established economic structures in Europe, or to enact harsh new rules which would
deter job and capital-generating foreign investment in the
United States.
The deliberations in the House show that it did not
intend simply to cut off foreign nonbanking activities here;
unfortunately, in choosing a middle ground, the House, adopting language proposed by the Federal Reserve, did not really
accomplish its goal.

Under Section 8(e) of the current bill,

the exemption from Section 4 of the Bank Holding Company
Act only applies to shares of companies organized under the
laws of a foreign country and to shares of subsidiaries of
such companies if they are "principally engaged in activities
incidental to the business of the parent."

The key term

"incidental" is not defined in the bill, and its meaning remains

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250
unclear.

However, prior interpretations of "inci~ental"

under the Bank Holding Company Act and the Edge Act suggest
that this term could be construed to prohibit a European
company partly owned by a European bank from owning shares
in a U.S. company engaged in activities other than those of
a direct supplier or sales agency, which would necessarily
be deemed "incidental."

Such an interpretation would des-

troy settled business relations in Europe, and prevent useful
investments here in the U.S.

And until the meaning of

"incidental" is clarified, the uncertainty will deter even
those investments in companies whose American operations
might ultimately be deemed incidental to those of their foreign parents.
For these reasons, we propose that the vague "incidental"
test be replaced by a standard which exempts the shares of any
company organized under the laws of a foreign country and the
"shares held or activities conducted

ey_

such company" so long

as the company is principally engaged in business outside the
United States.
Secondly, we urge that the grandfather date for nonbanking investments by foreign banks should be advanced from
the present date of May 23, 1977, to the date of enactment
of the bill.

Because of the long history of this legislation,

there was no way to predict when or in what form this legislation would finally be enacted.

It would be unfair to penal-

ize those investors who, in good faith, have invested in the

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Federal Reserve Bank of St. Louis

251
U.S. economy since that date.
A third problem with the current bill arises from Clause
3 of the amendments posed by Section 8(e).

This Clause pro-

vides that a bank holding company may not be considered to be
principally engaged in business outside the United States if
"its principal banking subsidiary" is located in the United
States.

We support the Federal Reserve Board's recommendation

to eliminate this provision entirely.
In sum, we believe that Section 8 of the proposed International Banking Act has several features which should be
altered.

If these changes are made, we believe Congress'

basic intent can be achieved without harming European business
or its capacity to contribute to the U.S. economy.
Dr. Wolfgang Jahn.
Mr. Chairman, I shall limit my comments to Sections 6 and
7 of the bill.

About Section 6, we agree with the repeated

recommendations of the FDIC to give foreign branches the option
to be covered by insurance and ~ot to make insurance mandatory.
No reason.exists for foreign banks to bear the additional costs of
_asset pledges and surety bonds, costs not applicable to domestic
banks.

At the very least, the FDIC should be given the autho-

rity to exempt a foreign branch upon a showing that it is covered adequately by insurance in its home country.

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252
During the hearings before your Subcommittee on an earlier
version of the bill, in January, 1976, you asked the question
with regard to Section 7:
meet public objectives? .••

"why wouldn't the following adequately
Give the Fed, perhaps, a more direct

handle, if appropriate, over foreign bank reserves."

Whatever

handle may be appropriate, it does not include the imposition of
federal reserve requirements on foreign bank operations.

Any

such imposition is not appropriate because no case can be made
for treating foreign banks differently from any other nonmember state banks; no case has ever been made for discrimination against us.
I know that it is said foreign banks are totally different from state non-member banks, because the latter are small
and not involved with the international flow of funds.
neither of those two assertions is necessarily correct.

But
As

of December 31, 1976, there were a dozen domestic non-member
banks with total assets exceeding $1 billion -- there may be
more today.

And there is nothing that prevents those banks

from bringing in funds from the Euro-dollar market or otherwise
engaging in international financial transactions.

Indeed, half

of those banks have one or more foreign branches; and many of
the others have correspondent relationships with foreign banks,
or have international departments, or both.

And there is nothing

to prevent these and other non-member state banks from continuing
to expand their foreign operations without becoming subject to
mandatory federal reserve requirement~.

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Federal Reserve Bank of St. Louis

253
The second argument for discriminating against foreign
bank operations in the United States is their affiliation
with large foreign banks.

We do not understand why the size

of the parent has any bearing on where the foreign bank should
keep its reserves in the United States:
law we must keep reserves.

remember under state

By contrast, and at least equally

significant for monetary policy, American member-banks have
domestic holding company affiliates whose large demand liabilities such as travellers' checks are subject to neither federal
nor state reserve requirements.
And, if it were true that, in order to assure the Fed's
conduct of monetary policy, the reserves on some $52 billion
of standard banking liabilities of foreign banks have to be
moved out of state control into federal reserve banks, then
we cannot understand why it would not be equally true that
the reserves on $285 billion of domestic non-member banks must
not also be so moved.
And speaking of the size of foreign banks, let me make
a final comment.

We believe the quantitative importance of

foreign banks in the United States has been exaggerated and
sensationalized.

Total assets of all foreign banking entities

in the United States this April amounted to $90 billion, and
of those assets, $19 billion are assets of subsidiaries that
are now under federal regulation by the FDIC and subject to the
constraints of the Bank Holding Company Act.

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30-563 0 • 78 - 17
Federal Reserve Bank of St. Louis

So we are left

254
with $71 billion under exclusive state control:
6% of total U.S. banking assets.

i.e., about

The assets of foreign

branches in the U.S. are less than one-fourth of the assets
of

u.s.

branches abroad.

With your permission, I would like

to offer a memorandum prepared for us by the distinguished
economist Mr. Oscar Gass that analyzes these orders of magnitude as well as some of the principal contentions of the
Federal Reserve.
Mr. Chairman, please understand that we do not object
to a law or regulation for which there are valid reasons of
policy.

We have been and shall continue to be proud of being

good and law-abiding residents of your great country.
Thank you very much.

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255
List of European Bank Officials, and Their Counsel,
Accompanying Spokesmen for the Banking Federation
of the Eµropean Community
At Hearings on H.R. 10899, June 21, 1978
Before the Senate Subcommittee on Financial Institutions

Dr. Theodor Heinsius, General Counsel
Dresdner Bank AG, Frankfurt
Michael C. Swift, Secretary-General
British Bankers Association
Philippe Marcilhacy, Deputy General Counsel
Compagnie Financiere de Suez, Paris
Arnold Ingen-Housz, Counsellor
Societe Generale, Paris
Dieter Munich, Counsel
Bayerische Vereinsbank (Union Bank of Bavaria), Munich
Gerhard O. Koenig, Director
Deutsche Bank A_G, Frankfurt
Albert Dormanns, Head of the International Department
Association of German Banks

Counsel:

William D. Rogers, Lawrence C. Maisel, Clifford D.
Stromberg, Arnold St Porter
Franz Oppenheimer, Lowell D. Turnbull, Leva, Hawes,
Symington, Martin & Oppenheimer
Harry R. Hauser, Gadsby & Hannah
Paul G. Kirk, Sulli~an St Worcester
Albert D. Sturtevant, Chapman, Duff and Paul
Paul Gardner, Jr., Kennedy, Webster and Gardner

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256
BA~KING FEDERATION OF THE EUROPEAN COMMU~ITY
Statement on H.R.
1.

10899

The Banking Federation of the European Conµnunity

(the "Federation") greatly appreciates the opportunity
to explain its views on H.R. 10899, entitled the "International Banking Act of 1978".

The Federation is composed

of, and represents, the national banking associations
of the nine countries of the European Community.
2.

The banks of the European Community are vitally

interested in the regulation of foreign banks doing business in the United States, and during the last three
years, the Federation has therefore followed closely
the various bills in Congress that would enact changes
in the current system of regulation.
3.

The European banks have been concerned that

legislation which unduly narrows the scope of activities
of European banks and U.S. industrial or commercial
entities affiliated with such banks would deter European
interests from new investments and business activities
within the United States and distort accepted and
traditional European methods of doing business.
4.

The present bill in the form originally proposed

in the House of Representatives would have had an adverse
impact on the ability of foreign banks to operate in the
United States; the bill as passed by the House contains
significant changes ameliorating some of the problems

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257
that the initial bill would have placed on foreign banks.
The Federation welcomes these constructive revisions.
However, there remain certain changes that, it feels,
should be made to ensure practical legislation.

None of

these changes, which are discussed below, would, in its
view, distort or frustrate the purposes of the legislation.

Section 5

Section 5 as finally adopted by the House -

allowing foreign banks to branch in more than one state
and permitting those banks to respond affirmatively
to the needs and desires of various states and cities
to become greater international financial and trade
centers - looks in the right direction.

It will also

allow the European banks better to serve the needs of
their long-standing foreign clients.
6.

One aspect of Section 5, however, appears to

be inconsistent. Section 5 would allow foreign banks
operating in the United States to open "branches" in
states seeking their presence under subsection 5(a) (1),
but, under subsection 5(a) (3), preclude foreign banks
from opening even a single subsidiary except in their
home state, because some states now permit foreign
banks to operate only through subsidiaries and, for
reasons of state banking policy, may prefer, if possible,

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258
to retain this requirement in the future.

The Federa-

tion urges that Section S(a) be modified to treat
subsidiaries under the International Banking Act in
the same manner as branches (subject to the provisions
of the Bank Holding Company Act), as follows:

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Federal Reserve Bank of St. Louis

"No foreign bank may operate a branch,
agency, commercial lending company
subsidiary, or subsidiary bank outside
its home State unless (1) in the case
of a State branch, agency er commercial
lending company, or subsidiary bank, it
is approved by the regulatory authority
of the State in which such State branch,
agency, commercial lending company or
subsidiary bank is to be operated, and
(2) in the case of a Federal branch or
agency, its operation is expressly permitted by the State in which it is to be
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259
7.

In any case, a change in Section 5 should be

made to correct what appears to be an inadvertent
oversight on the part of the House.

In amending Section

5, the House eliminated the grandfather clause in the
course of eliminating the prohibition against interstate
branching by foreign banks, but made no change in the
opening language that "no foreign bank may operate a .••
subsidiary .•.• "

As a result, were the bill passed in

its present form, Section 5 would make it illegal for
foreign banks to "operate" subsidiaries outside their
home states.

Several foreign banks, like a number of

domestic bank holding companies protected by the grandfather clause in the Bank Holding Company Act, own subsidiaries in more than one state.

Although the Federa-

tion feels that the House did not intend this result,
these banks would be forced to divest themselves of any
subsidiary outside their home states.

By making this

Section prospeqtive, this problem would be corrected.
This could be accomplished merely by changing "operate"
to "establish or acquire" in Section S(a):

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Federal Reserve Bank of St. Louis

"No foreign bank may epe~aee establish
9_!:

acquire a branch, agency,commercial

lending company subsidiary, or subsidiary
bank outside its home State •.•• "

260
Section 6

The branches and agencies of the banks of Europe doing

business in this country are largely concentrated in wholesale
,banking.

Consequently the Federation is not persuaded that

the present intendment of Section 6 is the most appropriate.
The European banks endorse various suggestions which have been
made for change:

either that the insurance be made mandatory

only for those banks which are significant in retail banking;
or that Federal Deposit Insurance be made voluntary, as suggested
by the FDIC itself; or at least that banks could be exempted
at the discretion of the FDIC.

The Federation believes that Section 7 of the

bill takes away from foreign banks the choice given
American domestic banks of all sizes by the American
dual banking system to have the amount and the location
of minimum reserves determined by the state banking
authorities.

The Federation could not and would not

object to federal minimum reserve requirements made
applicable upon any criteria or distinction other than
nationality; but it does not think it right to treat
branches of foreign banks organized and existing under
American state banking laws differently from domestic
state banks.

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261
10.

The provisions of Section 7 would permit

the Federal Reserve Board to impose different, and
thus possibly more burdensome, reserve ratios on
foreign branches and agencies than the ratios imposed
on domestic banks of the same size.

It is-the Feder-

ation's view that this is not consistent with the
principle of national treatment and non-discrimination
on which the proposed legislation is said to be based.
11.

The arguments advanced to justify this

position are based on monetary policy and the flow of
funds in and out of the United States.

According to

the Federal System, as of March 1978 (the latest figures
available) total standard banking assets of foreign
bank branches and agencies in the United States were
$48 billion; or about 4 1/2% of the standard banking
assets of the American domestic commercial banking universe (which incl_udes the subsidiaries of foreign banks
but not their branches and agencies) of $1,134.6 billion.
By contrast the total standard banking assets of American
non-member banks (other than non-member banks of foreign
parentage) are more than five times as much:

about $285

billion--and those $285 billion do not include the large
assets of domestic bank-affiliated financial companies
comparable to agencies of foreign banks such as lending,
mortgage and leasing companies.

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Federal Reserve Bank of St. Louis

The fact that monetary

262
policy evidently functions effectively enough without
direct control over the more than $285 billion of banking
assets suggests something about the importance of direct
control over the very much less significant operations of
foreign bank branches and agencies.

The Federation is not

aware of any evidence that would support the singling out
of the operations of foreign banks.
12.

As regards the arguments based on the necessity

of regulating the international flow of funds, foreign
banks make funds available to their U.S. affiliates, just
as domestic banks raise funds for domestic purposes on
foreign money markets.

Neither foreign nor domestic banks

make such transfers for purposes other than those of their
regulated banking business.

Again, the Federation does

not believe that the imposition of federal reserve requirements on foreign branches and agencies is relevant to federal control over the flow of funds into and out of the
United States.
13.

All foreign banks, on the other hand, are at

present complying fully with the voluntary request of
the Federal Reserve that they furnish reports to the
Federal Reserve System and maintain reserves in federal
reserve banks on certain liabilities to foreigners.

The

Federation believes that this program has demonstrated
the willingness of the foreign banking community to work
cooperatively to achieve the purposes of the Board and

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Federal Reserve Bank of St. Louis

263
it would not object to the incorporation of this program
into a mandatory statutory requirement.
14.

In summary, the Federation urges that sub-

sections 7(a) (1) (B) and 7(a) (3) of the House bill be
deleted, and Section 7(a) (2) be amended to read as follows:
"(2)

A Federal branch or Federal agency shall

be subject to this subsection only if .•.. "
Furthermore, subsection 7(c) (2) should be amended to
delete the reference to paragraph 20 of section 9 of
the Federal Reserve Act, as follows:
"Each branch or agency of a foreign bank, other
than a Federal branch of agency, and each commercial
lending company controlled by one or more foreign banks
or by one or more foreign companies that control a
foreign bank, shall be subject to pa~a~~aph-~0-afta the
provision requiring the reports of condition contained
in paragraph 6 of section 9 of the Federal Reserve Act
(12 u.s.c. 335-afta 321) to the same extent and in the
same manner as if the branch, agency, or commercial
lending company were a State member bank ... "

Section 8

15.

For various historical and economic reasons, many

European banks have equity interests in industrial and commercial companies in their own countries.

It is in this area

that the differences of tradition, organization and practice

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Federal Reserve Bank of St. Louis

264
between the United States and most European Community states
are particularly sharp.
The Federal Reserve Board proposed to this
Subcommittee during the previous consideration of this
legislation that Section 8 be changed to "to remove the
constraints in the Bank Holding Company Act for those
foreign banks that are properly organized at home and
have equity investments abroad in various commercial
or industrial enterprises including businesses that may
conduct activities in the United States, as long as the
principal business of those banks is done worldwide
outside the United States and the principal business of
tµose nonbank enterprises is also done worldwide outside
of the United States."

(Testimony of Governor Gardner,

Hearings before the Senate Subcommittee on Financial
Institutions, International Banking Act of 1976, August 31,
1976, p. 4).

The House of Representatives incorporated

the proposal put forward by Governor Gardner into H.R. 10899
and included a strong ban on less-than-arm's-length dealings
between banks and related"industrial and commercial firms.

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265
But, the Board's language may not in fact achieve its
intended purpose; in its application to the reality of
European business practices and to future European
industrial and commercial investment in the United
States it could cause certain problems which, however,
can be easily solved without distortion of the intent
of the provision.
16.

A particular problem arises from the exempting

language of the proposed amendment of§ 2(h) of the Bank
Holding Company Act as set forth in Section 8(e).

The exemp-

tion to which reference is made is presently limited to shares
of any company organized under the laws of a foreign country
and to shares of such subsidiaries of those companies as are
"principally engaged in activities incidental to the business
of the parent."

The word "incidental" is not defined in the

bill; its meaning is ambiguous and susceptible of later being
construed narrowly.

This is particularly true when viewed

against prior interpretation under the Bank Holding Company
Act and the Edge Act and could prohibit any activities,other
than of a supplier or a sales agency,of a U.S. subsidiary of
a European company partly owned by a European bank or bank
holding company.

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Federal Reserve Bank of St. Louis

266
17.

The language of the Section as it is presently

written might be held to bar new European investments in the
United States, even if highly desirable and appropriate,
merely because the investment is being proposed by a firm which
also has an interest in a bank with a U.S. branch, unless the
investment is in an incidental supplier or sales agent to the
European parent.

It could even bar the investment in a new

manufacturing plant in this country in spite of the fact that
the plant was essentially parallel to, and the functional- equivalent of, the manufacturing activities of a European parent
if, in that parent's list of shareholders, there is a European
bank with a U.S. branch or subsidiary.

Because the

record is clear that it is not the intention of the legislation
to limit so severely the holdings of foreign banks, the Federation suggests that this potential difficulty can be overcome
by modifying the first portion of the proposed amendment of Paragraph (2) of Section 2(h) of the Bank Holding Company Act as it
appears in Section 8(e) to read as follows:
"The prohibitions of Section 4 of this Act shall
not apply to shares of any company organized under
the laws of a foreign country (or to shares er-any
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or activities conducted~ such company) that is principally engaged in business outside the United States if
such shares . . .

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267
Such a change would do no harm to the regulatory framework
proposed by the bill, would not discourage investment in the
U.S., as would the present version, and would take into account
the reality of the European economic structure.
18.

Section 8 grandfathers all non-banking investment

by foreign banks in the United States, including securities
affiliates, a matter which was supported by all of the federal
departments and agencies which testified before the House
of Representatives on the bill.

However, to the regret of the

Federation, the language of the bill closes the American market to new foreign securities affiliates.

The Federation be-

lieves that the bill could at least be made more equitable,
again with no harm to the regulatory interests of the United
States, were the grandfather date advanced to the date of enactment of the bill.

Much controversy has surrounded this bill;

it and its predecessors have been pending before Congress for
many years and no one could predict what form the law would
ultimately take.

It is excessively severe to require banks

which invested in U.S. securities affiliates during the past
year and a half to divest them.

This, however, would be the

consequence of the present grandfathering date.
19.

A third serious concern with Section 8 relates

to the proposed amendment of Section 2(h) and its new subsection (3).

There are many European banks which operate through-

out the world through branches, but in the United States they

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Federal Reserve Bank of St. Louis

268
conduct their banking business through a subsidiary.

As presently

drafted, this provision would cause such banks to lose the exemptions otherwise available. The Federation agrees with the
proposal of the Federal Reserve Board to omit this subsection.

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Federal Reserve Bank of St. Louis

269
OSCAR GASS

@onsu/ting 8conomisf

1701 K STR.EET, N. W., WASHlNCTON, D. C. 20006
(202) 331-1!572

June 19, 1978
MEMORANDUM
WEIGHT AND STRUCTURE" OF THE
FOREIGN PARENT BANKING PRESENCE
IN THE UNITED STATES
Findings
I.

The 268 foreign-owned banking entities in the United

States had (as of March 1978) Standard Banking Assets of some
$66 billion -- equal to about 6% of the American domestic commercial banking universe.
II.

Of this 6%, foreign-owned Subsidiaries account for

about one-fourth.

Branches are approaching one-half.

make up another quarter.

Agencies

New York "Investment Companies" add

a trifle.
III.

To attain its 6% participation, the forei~ banking

Presence in the U.S. expanded considerably more rapidly in 197278 than did the average domestic American commerical bank.

How-

ever this foreign expansion in the U.S. did not remotely approach
the rate of growth of U.S. owned Branch banks abroad in 1964-72,
and it approximately equaled the American foreign Branch rate
of expansion in 1972-78.

In the earlier period, the assets of

U.S. bank Branches abroad multiplied by 11 times.

In the latter

period, both the foreign banking Presence in the U.S. and the

30-563 0 - 78 - 18

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270
U.S. owned Branches abroad each more than tripled its assets.
Today, the foreign Branches of U.S. banks have three times
the Standard Banking Assets of the entire foreign banking
presence in the United States.
IV.

Individually considered, in its local American credit

market, the representative foreign-owned bank in the U.S. is
small.
assets.

Subsidiaries average about $458 million in "Standard"
When stripped of their liabilities to parents and

affiliates, Branches average less than half the size of subsidiaries and Agencies just over one-quarter.

Even the aver-

age foreign-owned Subsidiary is less than one-sixth the size
of the 175 U.S. commercial banks which the Fed. has recently
classified as "large."

However, American critics of the "huge"

foreign banks implicitly chain these individual banks into
"families" and join them with their foreign parent -- making
them large indeed.

This indiscriminate chaining is a dubious

act, since every foreign owned banking entity sited in the
United States is subject to various particular Federal and
State regulations, whether that entity be an incorporated Subsidiary, a Branch, an Agency, or a Commercial Lending Company.
V.

The foreign banking Presence in the U.S. is character-

ized by high liquidity and high participation in large "Commercial and Industrial" loans.

This high liquidity should be

valued for its safety, instead of being wrongly stigmatized as
permitting volatile movements of some unique kind, such as

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Federal Reserve Bank of St. Louis

271
might justify discriminatory public control.

The high partici-

pation in "Commercial and Industrial" loans should be valued
for its contribution to American economic expansion, instead
of being viewed askance and suspected of merely pre-empting
credit opportunities that would-otherwise accrue to domestic
American commercial banks.
VI.

The co11U11ercial banking Subsidiary is the structure

of the foreign banking presence in the United States which
fits most comfortably into the American banking scene.

There

is therefore reason for facilitating the resort to this structure by foreign banking interests, rather than discouraging
it, as is.done -- perhaps inadvertently -- by Section 5 of the
pending legislation on foreign banking (H.R. 10899), in the
form which this text emerged from consideration by the House
of Representatives.
VII.

We do not find anything in the weight or structure

of the foreign banking presence, or anything in the necessities of national monetary control, that would justify these
foreign nationals being subjected to the grave discrimination
involved in denying them the choices afforded to American
nationals by the Dual Banking system of the United States.
Equal treatment requires that such foreign banking interests
be allowed to choose the full status of State banks not members
of the Federal Reserve System.

This equality means that such

foreign interests will continue to be accorded access (for their

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Federal Reserve Bank of St. Louis

272
Subsidiaries, Branches, Agencies, and Commercial Lending Companies) to the regulatory systems and reserve requirements
prevailing in the several States which welcome such a foreign
banking presence.

Equally it means that these foreign bank-

ing interests will remain subject to all National regulations
-- legally mandatory or formally "voluntary" -- with which
all American banking and lending interests must comply.
Number of Foreign Parent Banking Entities
1.

The first -- avowedly crude -- measure of the magni-

tude of the foreign parent banking presence in the United
States is constituted by the number of foreign parent entities
which may be described -- more or less accurately -- as engaged
in banking activities in this country.

The growth of this

number is traced in the following table, which covers the period of five years and four months from November 1972 through
March 1978.

(These are the first and last months for which

systematic information is now available.)
Foreign Parent "Banking" Entities
Operating in the U.S.
Nov.

Dec.

!2E

!2.2!

March
1978

Subsidiaries of
foreign parents

Branches of
foreign parents

103

Agencies of
foreign parents

122

104

165

268

Investment companies of
foreign parents
Total "banking" entities

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273
Sources:

Data for 1972 and 1974 presented by Federal Reserve
in Hearings of July 12, 1977 (page 42ff,) of House
Subcommittee on Financial Institutions. Data for
March 1978 kindly supplied by Federal Reserve staff
on International Banking.

In its own tabulations, the Federal Reserve refers

only to the separately incorporated subsidiaries as "Commercial Banks."

However, in our evaluation, the "branches" of

foreign parents are equally banks in the U.S., for almost
all business purposes, though hitherto excluded from FDIC
insurance.
A rather different evaluation seems appropriate for
the important "Agencies" and the least important New York
"Investment Companies."

The "Agencies" have no right to

accept deposits from American clients and are permitted to
accept clients' deposits from abroad only in California:
though they lend money and hold resulting credit balances,
they can hardly be called "banks" without substantial qualification.
As is clear from the above table, it is the "branch" form
which has grown most rapidly in recent years, adding 77 to
their ntlll1ber in 5 1/3 years, while "agencies" have added 72,
subsidiaries 13, and investment companies 2.

(As we shall see

below, in business volume, the "branch" form has become even
\

more predominant. )

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Federal Reserve Bank of St. Louis

274
3.

If we call only the subsidiaries and branches of

foreign parents "banks," then their number in March 1978
had reached 141.

If we include agencies and investment

companies, their number is 268.
For the same month of March 1978, the Federal Reserve
reports the U.S. to have had 14,683 commercial banks, of
which 5,656 were members of the Federal Reserve System.
Since November 1972, the total number of U.S. commercial
banks (as defined by the Federal Reserve System) had increased
by 759, while the number of members of the Federal Reserve
System has declined by 45.

As a study by the Federal Reserve

Staff has shown (Fed. Res. Bulletin, Jan. 1978, pages 12-13),
since 1960 new American banks have chosen -- like foreignparent banks -- to be non-members of the Federal Reserve
System rather than members.

Moreover, the deposit growth of

non-member banks has been more rapid than that of member banks.
Foreign Parent Banking Assets
4.

By the widest of reasonable definitions (the one used

by the Federal Reserve tabulations), the Standard Banking Assets
of foreign parent entities have grown by some $47.97 billion
in the United States during these 5 1/3 years.

A definition

which recognized only subsidiaries and branches as banks, would
show a narrower growth of $41.87 billion.

The restricted

group of subsidiaries (the only one denominated "Commercial
Banks" in the Federal Reserve reporting) has grown by only
$12.37 billion.

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275
The facts are indicated in the following table.
Assets of Foreign Parent Banking
Entities in the U.S.
(in billions of dollars)
Nov.
1972
A.

"Standard" Banking Assets
Subsidiaries
$ 3.75
3.28
Branches
Agencies
9.96
Investment companies
~
18.07
All entities
Assets arising from transactions involving parent and
affiliates
6.24
Total Assets (sum of A+ B) $24.32

Sources:
5.

As indicated in previous table.
in appendix.

Dec.
1974

March
1978

$ 9.53
8.58
18.15
-1.:..!§.
38.14

$16.12
31. 78
16.62

--1..:..ll
66.04

17.73

30.01

$55.87

$96.05

March 1978 details

Clearly the foreign banking presence in the U.S. is

continuing to grow, though at a lower rate in the most recent
3 1/3 years than in the earlier two.
Branches have become the dominant fol;'JII.
shown strong growth.

Sul:>sidia~ies have

Agencies are relatively declining (being

now really important only in Japanese and Canadian parentage).
Investment companies are stagnant, in insignificant size.
6.

During these five years and four months, the Total

Assets of all U.S. commercial banks have grown from $691.6
billion (Nov. 1972) to $1,134.6 billion (March 1978).
increase is $443.0 billion, or just over 64%.

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The

276
In magnitude, as of March 1978, the Standard Banking
Assets of all the foreign banking entities in the U.S. come
to less than 61 of the magnitude of the-total U.S. commercial
banking universe.

In business expansion, even at the maximal

$47.97 billion total, the growth of "banking" entities of foreign
parentage comes to less than 111 of the U.S. commercial bank
growth in the same 5 1/3 years.
Foreign Parent Banking Liabilities
7.

An analysis of the Liabilities side indicates that

the participation of foreign banking entities in the U.S.
economy has operated to support the U.S. balance of payments.
These entities are vehicles for the inflow of capital into
the United States.

"Standard" Banking Assets have been con-

sistently larger than "Standard" Banking Liabilities plus
Equity -- and by a large margin.

The following summary

table indicates the discrepancy running through the whole
1972-78 period.
(values in billions of dollars)

November December March
1972
1974
1978
"Standard"banking Assets
of all foreign parent
entities
"Standard" banking Liabilities plus Equity of these
entities
Excess of "Standard" Assets

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Federal Reserve Bank of St. Louis

$19.07

$38.14

$66.04

::ll:..ll

-31. 73
$ 6.41

-54 .-90
$11.14

$ 7.80

277
The difference arises consistently from the net illllount due
from these entities, sited in the United States, to their
foreign parent sponsors.
8.

Subject to this qualification, the Liabilities of

foreign parent banking entities show a growth pattern similar
to the Assets trend.

This parallel is indicated in the follow-

ing table.
Liabilities and Equity ·of
Foreign Parent Banking Entities in the U.S.
(iri billions of dollars)
November December March
1972
1974
.J:.2ll
A.

"Standard" Banking Liabilities
Subsidiaries
Branches
Agencies
Investment companies
All entities

Combined capital and reserves

Liabilities arising from transactions involving parent and
affiliates

Total Liabilities and Capital

Sources:

10.61

6.25
13.74
_hll
30.16

$15.57
21.16
14.48
___!:_!Q
52.31

0.66

1.57

2.58

13.05

24.14

41.15

$24.32

$55.87

$96.05

$ 3.17
2.73
3.88
~

As indicated in first table.
in appendix.

$ 8.59

Details for March 1978

As on the Assets side, the values above indicate the emergence
of branches, the steady growth of subsidiaries, the relative
decline of agencies, and the tiny role of the investment companies.

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278
Special Character of Underlying Assets
9.

The foreign parent-banking entities have two outstand-

ing characteristics:

f;rst, their relatively heavy participa-

tion in Commercial and Industrial loansi second, their large
share in liquid money-market assets.

In Federal Reserve circles,

both of these characteristics are emphasized -- dominantly,perhaps negatively.

We find such negatives quite without merj,c.

They reflect only a reaction to the fact that foreign bankers
are now beginning to lend in New York, Chicago and San Francisco,
as American banks have long been lending -- on a larger scale -in London, Paris and Frankfurt.
10.

With respect to Commercial and Industrial loans, the

Federal Reserve shows all

u.s.

insured banks holding $1B6.7

billion worth, in total assets of $1,066.B billion, as of
Sept. 30, 1977 (Fed. Res. Bulletin, April 197B, page AlB, line
54).Y

In a near month (Nov. 1977), foreign parent banking

entities held $25,929 million of commercial and industrial loans
in total "Standard" banking assets of $55.4 billion.

By March

197B, these foreign parent banking entities had increased their
holdings of commercial and industrial loans to $28,866 million.
Clearly the foreign banks~ indeed heavily.concentrated in
this sphere.

And clearly this concentration is greatly construc-

tive for the expansion of the U.S. economy.
11.

Clearly also the foreign parent banking entities in

the U.S. are highly liquid.

In March 1978, of $66.0 billion

*/This total excludes the loans of foreign parent banks
other-than subsidiaries, because these others are not insurable
under present U.S. legislation.

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Federal Reserve Bank of St. Louis

279
of "Standard" banking assets, they held $20.9 billion in interbank loans and deposits and another $6.l billion in readily
negotiable U.S. Government securities and loans to security
dealers.

Sometimes this liquidity is pointed to as a source

of strength.

More ~ften it is stigmatized as a source of vol-

atility, requiring control.
Still, in balanced appraisal of the liquid resources
quickly available to the American banking system, the entire
liquid holdings of the Foreign Banking Presence in the:u.s.
can only be described as picayune.

In March and April 1978,

the net purchases of Federal Funds by those of the largest 46
U.S. money market banks who were net buyers averaged about
$20 billion per week.

(At the maximum Federal requirement of

reserves, this $20 billion would serve to support over $120
billion of additional demand deposits.) At the end of March
1978, U.S. commercial banks also held $137 billion of liabilities to foreigners (excluding the IMF), and these liabilities
were growing at a rate of about $40 billion per year.

Moreover,

the Total Assets/Liabilities of the Branches abroad owned by
U.S. parent banks were approaching $260 billion and also growing at a rate in the range of $40 billion per year.

Finally,

beyond these immediate tangibles, lies the greater pool of
liquidity available to a strong U.S. bank in the resources
of the general Eurodollar and Eurocurrency markets.

In this

broad perspective, the monetary volatility attributable only

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Federal Reserve Bank of St. Louis

280
to the foreign parent banking entities sited in the U.S. -entities whose international transfers are subject to any mandatory or "voluntary" restrictions or reserves established by
U.S. banking authorities -- does indeed shrink into comparative
insignificance.
12.

The Subsidiary banks of foreign parentage in the

United States today, are not individually large banks.

Measured

by "Standard" Banking Liabilities plus capital accounts and
reserves, their total funds, in March 1978, came to $17,393
million, for 38 Subsidiary banks.
$458 million per bank.

This averages out to about

It is less than one-sixth of the aver-

age size of the 175 U.S. banks which the Federal Reserve characterized as "Large" member banks in its own tabulation of September 30,· 1977 (Fed. Res. Bulletin, April 1978, page Al9).

New York City, the Federal Reserve then classified only 12 banks
as "Large," and these had average assets of $12.9 billion.

Chicago, it found only 9 banks to be "Large," and these had
average assets of $4.5 billion.

The Subsidiaries of foreign parentage, while smaller, are
however nearer, in liabilities structure, to ordinary U.S. banks
than any other bank-related institutions of foreign parentage.
Of their (March 1978) total "Standard" banking liabilities of
$15,572 million, some $11,919 million were deposits of U.S.
residents.

The interbank borrowings of these Subsidiaries

were also quite small -- $1,173 million for the entire group

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Federal Reserve Bank of St. Louis

281
of 38 (out of a total of $17,198 million for the whole group
of foreign parent banking entities).

Similarly, their liabil-

ities arising from transactions involving their foreign parents
and affiliates were comparatively small -- only $1,867 million
(out of a total of $41,149 million for the whole group).

These

Subsidiary banks had their own capital and reserves of $1,821
million -- equal to 11.7% of their standard banking liabilities.
They are insured by the FDIC.

More than any other form of the

foreign banking presence in the United States, the Subsidiaries
are quite normally assimilated to,the American banking environment.
It is therefore doubly anomalous that the pending legislation "To provide for Federal Regulation of participation by
foreign banks in domestic financial markets"

(H.R. 10899), as

it emerged from the House.of Representatives, puts special barriers in the way of establishing new Subsidiaries of foreign
banking parents.

While the States are left free to accord wel-

come to branches, agencies, or commercial lending companies
(Section S(a)), they are not made equally free to welcome a
Subsidiary -- even a first one.
tence,
13.

Perhaps this was an inadver-

Certainly it is an inconsistency.
Taken individually, the Branches of foreign parents

and the Agencies of these parents are smaller (in March 1978)
than are the Subsidiaries, on the average.

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Federal Reserve Bank of St. Louis

The 103 Branches

282
have $21,15§ million of "Standard" liabilities plus $323 million
of capital and reserves, for an average size of $209 million.
And the 122 Agencies have "Standard" liabilities of $14,478
million plus $265 million of capital and reserves for an even
smaller average of about $121 million.
However, in the perspective of their opponents, these
relatively small entities -- small in their individual banking markets -- are not what counts.

Each individual bank --

the Subsidiary in New York, the Branch in Chicago, and the
Agencyin California -- is first to be joined in a U.S. resident
"family" and this "family" is then united with the parent abroad.
The resulting total is then, of course, a "large" bank, by any
standard.

However, as we have indicated above, every part of

this "family" -- in so far as it acts in the U.S. -- is subject
to distinctive State and Federal controls.
The Liabilities structure of Branches does somewhat approximate that of the Subsidiaries.

Branches now hold $7,733 million

of deposits of U.S. non-bank residents (alongside $11,919 million
of such deposits held by Subsidiaries).

However all the 122

Agencies and the 5 Investment companies together are not significant holders of

u.s.

resident non-interbank deposits or credits.

The 122 Agencies hold only $819 million of such deposits and
credits and the 5 Investment companies only $61 million.

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Federal Reserve Bank of St. Louis

283
As the detailed appended table shows, the Liabilities
of the Agencies and Investment companies are dominantly to
parents, affiliates, and other banks.

In the case of Agencies,

liabilities to parents and affiliates and to other banks make
up $24.87 million out of $29.62 million of total liabilities
and equity.

For investment companies,~ corresponding ratio

is about two-thirds •.
These differences of structure are explanatory of the
dubious relevance of deposit insurance to Agency operations.
They are also supportive of the present practice of freeing
Agencies from fractional reserve requirements:

if reserves

were imposed against U.S. resident funds held, other than
borrowing from other banks, the reserves required of Agencies
would be trifling.

It is difficult to see on what sound basis

such reserves could be calculated, or how they would serve the
purposes of depositor safeguard or monetary control.
Time Perspective
14.

What is perhaps most lacking in current American

perspective, on the expansion of foreign parent banking in the
U.S., is balanced time judgment.

What Americans fail to see

is that other developed countries (particularly those of Europe
and Japan) are expanding their banking presence in the U.S.,
in the l970's, somewhat in the same manner -- though

slowly -- that the U.S. expanded its banking presence in all

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Federal Reserve Bank of St. Louis

284
the world a decade earlier and just as the U.S. continues to
expand this world presence again in these present years.
15.

In 1964, only eleven U.S. banks had branches abroad

(a total of 181 branches).V

At the end of that year, the

gross assets of those foreign branches were $6.0 billion.
By December 1972, some 108 U.S. banks had 627 for_eign branches,
with gross assets abroad of $80.0 billion.
16.

In the 5 1/3 years from November 1972 to March 1978,

foreign interests have expanded their gross banking presence
in the U.S. from $24.32 billion

to $96.05 billion.

From

November 1972 through January 1978 (the last month available),
the gross assets abroad of U.S. branches alone have risen to
$258.8 billion.
On a net basis (deducting assets arising from transactions
among parents and affiliates), the foreign bank presence-in the
U.S. -- in all its forms -- has expanded by about $48 billion
in these five years.
~

On the same net basis,

u.s.

branches

have expanded abroad (from $62.87 billion to $197.53

billion) by some $135 billion (in a slightly shorter period).

VSee Fine study, issued by House Committee on Banking
••• Book II, June 1976, pages 809ff. for gross figures, inclusive of parent and affiliate assets. For net figures,
see relevant date issues of Bulletin of Federal Reserve, as
issued monthly.

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Federal Reserve Bank of St. Louis

285
17.

Yet it must be acknowledged that, to many Americans,

even quite sophisticated ones, the $135 billion net five-year
expansion of

u;s.

owned bank Branches abroad seems entirely

normal and natural, while the simultaneous $48 billion expansion of the ~ntire foreign banking presence (subsidiaries,
branches, agencies, etc.) in the U.S. seems dangerous and calling for new, protective controls of the U.S. monetary system.
Monetary Control
1.8.

Having regard to the limited weight of foreign parent

banking in the total U.S. banking universe, it does not seem
that the efficacy of American monetary controls necessitates
a discriminatory deprival of foreign banking entities of equal
access to the U.S. system of Dual Banking ·regulation.

At most,

the entire foreign banking presence in the U.S. approaches
something like 6% of the size of the U.S. commercial banking
universe.

Commerical banks, incorporated under American law

but not members of the Federal Reserve System, now account for
between 26% and 27% of the assets of this universe.

Even within

the narrow confines of conunercial banking, the foreign entity
is not alone.

And we have deliberately chosen to abstain from

enlarging the universe by considering also the savings institutions, mortgage companies, leasing companies, and lending companies, who engage in overlapping activities.

What we have

suggested for the weight of the foreign banking presence is
a clear maximum.

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30-563 0 - 78 - 19
Federal Reserve Bank of St. Louis

286
19.

No serious advocate claims immunity, in the United

States, for foreign banking entities, from any national banking regulation that applies to all comparable entities of U.S.
origin.

No such i111111unity is rightly claimed with respect to

bank examination and reporting, or fractional bank reserves,
the importation of funds, or their exportation.
20.

However, where a Dual choice is allowed to American

nationals, as in reserve regulation by the various States or
by the single Federal Reserve system, the same right of choice
is claimed for friendly foreign entities.

And consideration

is asked for the reasonableness of a somewhat different outcome of rational choice by a foreign Subsidiary or Branch than
might be made, under what seem grossly similar circumstances,
by an American bank.

Where the American might look to the

Federal Reserve as his ultimate credit resource, the foreigner
may ·look to his parent bank -- and, so looking, the foreigner
may make the different choice which the American system of
Dual Regulation permits.

Making that choice, he may ask that

his required banking reserves be fixed by the authorities of
the several States, for whatever subsidiary, branch, agency,
or commercial lending company that State welcomes him to
establish.
21.

We underline the fact that with respect to Federal

Reserve regulation of the inflow

or outflow of funds, to or

from the United States, the foreign banking presence has uniformly been voluntarily cooperative.

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Federal Reserve Bank of St. Louis

It has complied with all

287
requests for reporting and for the holding of special reserves.
It is therefore a matter of indifference, to the foreign banking presence, if this particular area of regulation is made
mandatory by National law or left to voluntary compliance as
hitherto •.
22.

With respect to 1110netary control through

altera-

tion of general banking reserve requirements, for banks which
are members of the Federal Reserve System, we would note only
that such alterations have not recently been a significant instrument of Federal Reserve monetary control.

For net demand

deposits, the requirements in effect in June 1978 are the same
as those which have been in effect since December 30, 1976.

For time and savings deposits, the 3% minimum average req,;ired
by law has been the chief regulator for over a decade.

Changes

in the reserve status of large certificates of deposit, and
in the reserves required for international interbank lending,
are of minor weight.

For the most part, control of the supply

of money has been exercised through open market operations.
As such operations affect changes in the quantity of money
and of interest rates, their influence is spread throughout
the economy -- affecting banks not members of the Federal
Reserve System together with member banks.
23.

When monetary policy and monetary control are being

generally discussed, and precisely by authoritative spokesmen

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Federal Reserve Bank of St. Louis

288
for the Federal Reserve System, the issue of any supposed
obstacle constituted by the Foreign Banking Presence in the
United States, is not so much as mentioned.

So, to take one

recent example, the Federal Reserve Bulletin of April 1978
contains a systematic review of "Monetary Policy and Open
Market Operations in 1977."

In fourteen pages of text,

many problems are indicated but any obstacle to policy constituted by the foreign Banking Presence

outside the

Federal Reserve System -- is not so much as hinted.

The Fed-

eral Reserve Bank of New York, in its Quarterly Review for
Spring 1978 reprinted the same analysis, and it added several
charts, but the Reserve Bank found no need to add any mention
of a supposed obstacle to U.S. monetary policy from the presence in the United States of foreign banking entities outside the Federal Reserve System membership or its reserve
requirements ambit.
It should be a subject of some reflection that this imagined
obstacle to U.S. monetary policy arises, even in Federal Reserve
minds, only when the immediate issue is the one of bringing the
foreign bank presence within the further administrative control
of the Federal Reserve System.
Appendix:

"U.S. Banking Institutions Owned
by Foreign Banks -- March 1978"
First Page: Assets
Second Page: Liabilities

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Federal Reserve Bank of St. Louis

JUNE 01, 1978

J.S. ~•NKIN~ INSTITUTIONS OWNED riY ~CREl~N OANKS
FUiil

~0.-.,THLY KEPUl<T DATf

IN ----i4AkCH 197tl

(IN ~ILLIONS OF DOLLARS!
ALL REPCHTf~c;

TUT.\L A5SU5

BRANCHES

•GENC IES
2'h0l5

co~~ERCIAL

44,987

19,260

II, 18~

16,116

BANKS

INVESTMENT

COS.

2,18't

A.SSETS Uf "'iJl\r,.:J\kL.J" 1~.Q.l\l\l'>1u

AUSINESS

t•b, Hl

LJ~~s ~NU CM~n11s

cu~~EkCl4L

~N~

16,o\1

H,04-J

,~1u~Tkl~L

lll.S. I

9,702

( Hlf(f ll.ll"i I

,\,use.

9,613
7,2061
2,4HI
89

lli,dhtt
l.l,1t'l4)

7,ft.ti~l

U."i. Ldi\l~S

4,183

l•-..1~LU 1'1f\i H.(T.\1L

NO~EY-HARKE! >S\CTS
JNTERHA.'°"i<. U;f\•~S '\ND JEP•JSITS

l0,8d5

lu.S.I

11, 79•1
q, O'ilQI
1,6~7

(fOIU:IG"-'1

LGANS T~J SFL~~ITY Q~AL~KS
~.s. G~v,. hN~ ~GEhCY SECJ~lTIES

MISCELLAN~Ou; AS>fTS

4,484

1,138

tLEAklN~ d\l~~c~~ ·>Ul fKu~ UT~(KS

LU,910

1,eoq

DUI: fQO"1 d.1\. Ut\~l\lN•; AFFILIAIES
1.hJE: FK.C,'4 hJWl::[_j,N 1),\t.tfNT &. lfflll.UE:S

6, 101
l2,99b

4,2~1
b,938

••O•
fkA•51LTIU-S
A'.~D .\fflLIA1ES

f;UTF:

!JET\[l:i ~1,\V NH

~tJLJ

T:J Ti.ITAL" UtJE

Made available by courtesy of
International Banking Section

Federal Reserve System

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Federal Reserve Bank of St. Louis

Tll ~CUNIH!lb.

4,597

14,63't
1, 7591
6,d751
~54
863

601
l, 3-16
1,1641

326
1611

2321
238

1661
0
275

l,9e,4

2,lOQ

2,432

1,144

6,c,57
I ,602
't,'143

622
5201
1021

4,1;>4]1
8021
3, 7 1♦ 2

J38

13,202

INVOLVING l'A~t:'JT

636
5,145

'i.135)
4, 1511

4,528
2,7111
1,8181
865
183

5,961

ASSETS AklSIN~

13,28~

16,0~2

~. 116

?7,020

1,520

~,087

13,624

282

b64
210
49
404

00
~

JUNE Ol, l978

J.S. OINKING INSTITUTIONS GWNED BY FCREIG~ BANKS
FOK ~UNT~LY RE~OkT DATE IN ----MARCH 1978
IIN ~ILLIONS Uf DOLlARSI
ALL l<F.PURTEPS
TOT~L LIARlL(llf~ ANJ f,JlTY
LIAulLITltS

BUSINESS

4uE~C lf S

ijRANCH[S

CUMMERClAL

RAl'IKS

INVESTMENT

Z-1,bl5

H,~87

19,260

2,l84

14,478

2l, 159

15,512

l,l04

cos.

llANKl~G

"SIA~l~KJ 1'

57,314

LIArilLJflfS TP C.1Jkl'>li~1--1fllJ11i1S ;\\~J

uHtFH.

:-,,,L,1'11-·'

\Nt<. S

2, 2J 1

DE"ANU OFPl;S!IS

AN)

CKc:)11 !ALANCES

b,112

TIME: A~J "J.'11.•h;S )F~•..,SIT'i ANU tlTrlf~
tHh,~LhlN!;S
(ueP(1S(Vi uf J.S. P[~l0bdSI
IDEPt:S.{T~

1,791
8191
1,38dJ

13,072
11, ;311
IJ,•H3J

f-'Ji,( ►.,Jj,!'\IEl<i!iJ

I i,281

13,511

426

l,!ii~1

4,224

140

ll,938
7,THI
5, 7981

q,057
11,9191
l, 1621

286
611
3651

415

~ONEY-MAKKET LlAulLlTl<S
(NTEM.-HANK l~UIH'UWIN~S

t...:,

~Nl DEllUSIT

L lAKILll lES

11, 1qa
16, 11q
l, J7q

U.S. 6A.NKS
r □ KEJ.;I'<

lANKS

MISCELLANF~US LIA•lLlTlES

4l,l4~

CLUa{N(; >14L,\NUS ,JUf Tu jf,if•<S
U~E 10 U.S. d4NKINY AfFILIATlS

10,4~0
b,640

DUE TU FO~El\.tf\l 1">,\1.,E,'H A,"41) AFFlLIATfS

24,014

CAl'ITAL ACLOJNfS A-,J Kf.S(~VES

f\.l,_;TF::

JETo\lLS '>Al N..il

.\,l,l Td T.JTALS

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Federal Reserve Bank of St. Louis

Oij

~,u:

5,601

9,885
116

5,671

LlAKILlTl~S A.KlSl~~ th(l~ TkA~ShCTllJNS
INVULV(NG PINENT ANO AFflLI\T~S

•• INCLJOES CJST)~~~i• Ll-JILITltS

10,llUl

4,900

l,021

23,505
l,643
2,455
q, 114

403
19

1,118

255

906

1,8b7

1,32?
l~2
443

5,dl'I
4, J7J
13,624

265

3l3

I, 811

122

1J3

Td l{l!UNU{Nj •

~~,c~TA~CES UJfSTANOING ANO ON OEffKKEO PAY~E~T LETf~qs Of C~E~{T.

0:0

423

811
301

642

l,l1l

l4,d72

1,173

111
16
173
114

291
ARNOL:0

PORTER

1229 NINETEENTH STREET, N. W.
WASHINGTON, D. C. 20036
TELEPHONE: (202) 872•9700
CABLE:"'ARF"OPO''

TELEX: 88-2733

June 30, 1978

Senator Thomas J. McIntyre
Chairman, Subcommittee on Financial
Institutions, Senate Committee on
Banking, Housing and Urban Affairs
Washington, D.C. 20510
Dear Mr. Chairman:
The members of the Banking Federation of the
European Community and their counsel have asked that
I reply to your request to the panel of witnesses
during the hearing on the International Banking Act
on June 21 for comments on the proposal put forward
by Senator Stevenson.
As we understand it, Senator Stevenson was
suggesting that the issue of interstate branching of
foreign banks, now dealt with in Section 5 of the Bill,
but as to which several witnesses interposed objections, be "compromised". He would liberalize the

This letter is being submitted by the firm of
Arnold & Porter, on behalf of its client, the French
Banking Association, 18 rue LaFayette, 75009 Paris,
France, which is a member of the Banking Federation
of the European Community. Since the French Banking
Association is a foreign organization, Arnold & Porter
is registered with the Department of Justice under the
provisions of 22 u.s.c. Section 611 et seq., as an
agent of such foreign principal. Copies of this letter
are being filed with the Department of Justice, and
copies of Arnold & Porter's registration statement
are available for public inspection at the Department
of Justice. Registration does not indicate approval
of this material by the U.S. government.

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Federal Reserve Bank of St. Louis

292
Edge Act in ways which would expand the ability of
domestic banks to facilitate export transactions.
Foreign banks, though still quite free to function
multistate through agencies on the loan side, would
then be limited on the deposit side to the multistate
activities open to domestic banks through the enlarged Edge Act.
We believe that Senator Stevenson's proposal
should not be supported. It ignores the considerations
which caused the House to adopt the present Section 5.
A number of Representatives stressed the important role
which foreign banks can play in expanding a region's
exports and the need to leave open to the respective
states the option of attracting foreign banks which
can perform such a service. For example, in remarks
specifically concurred in by Chairman Reuss and Reps.
Aucoin and Pepper, Rep. Annunzio said:
"One of the best ways to reduce the
trade deficit is not only to decrease
imports, but to expand the export
of u.s.-produced goods and services.
I know of no better way to facilitate
exporting than to allow foreign
banking to expand in this country.
If a small manufacturer wanted to
export his product where would he
turn to learn about overseas markets,
international financing, and the
other problems that go hand in hand
with exporting? A foreign bank
could easily perform that function
without in any way taking away the
business of an American bank which
normally does not possess such
information."

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Federal Reserve Bank of St. Louis

293

"The prospects of foreign banks in
your State might not be appealing
at this time, but with more and more
States seeking ways to increase
foreign trade it may well be that
at some point in the future your
State would want to encourage foreign
banks to locate there so as to facilitate
foreign trade witho~t bringing undue
competitive advantage to domestic banks.
124 CONG. REC. H2564 (daily ed., April 6,
1978)
We submit that these views are correct. The
element in Senator Stevenson's proposal which deals
with liberalizing the activities of Edge Act corporations would, of course, be a move in the right
direction. However, as the House recognized, agencies
or liberalized Edge Act activities simply would not
be a substitute for interstate foreign bank branching.
To limit foreign banks' deposit activities to those
forms would close off the foreign bank option to
many states.
Foreign bank branches perform unique functions.
It is these unique functions which have caused states
to desire their presence. Only branches, with their
deposit-taking capacity, full staffs and information
capabilities can perform the many functions which locai
businesses require.
Nor does foreign bank branching represent a
competitive imbalance. Domestic banks have considerable
advantages over foreign banks. Unlike large American
banks, the names of which are household words, foreign
banks could rarely establish a foothold and attract

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Federal Reserve Bank of St. Louis

294
small and medium sized businesses unless they can
establish a public image as banks. In addition,
foreign bank branches provideaneeded dimension
of competition in the banking sector. As Dr. Jahn
pointed out at the Hearing (Transcript pp. 144-45),
the simple fact is that the financial strength and
growth prospects of agencies and other entities which
are less than branches have not proven sufficient
to permit them to compete effectively. The agency
or Edge Act deposit privileges would simply not be
enough to attract foreign banks to enter a state
market.
The international financial situation is dynamic.
Coping with it requires the flexibility and full array
of services which branches can perform. Although there
may be several forms appropriate for foreign bank
activity, states -- including Illinois -- have shown
a desire for branches, and we think that this option
should not be denied to them.
In sum, it would be unwise to foreclose useful
options which many states may wish to adopt by limiting
interstate branching by foreign banks in the International Banking Act, as Senator Stevenson has proposed.
Sincerely,

William o. Rogers
cc:

Senator Adlai E. Stevenson

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Federal Reserve Bank of St. Louis

295
Dr. JAHN. Mr. Chairman, please understand that we do not object
to a law or regulation for which there are valid reasons of policy. We
have been and shall continue to be proud of being good and law-abiding
residents of your great country.
Thank you very much.
Senator McINTYRE. Thank you very much, Dr.Jahn.
I will ask the question, and we will have the representative of each
of the two groups answer it. But if anybody feels that there is something they would like to add or something that they want to distinguish from the previous answer, that will be all right.
This is a question directed to you, Mr. Bellanger. This bill provides
for the first time for the establishment of Federal branches and
agencies. What interest would there be for a foreign bank to establish
a federally chartered office, as opposed to a State chartered office?
Mr. BELLANGER. None.
Senator McINTYRE. No interest? [Laughter.]
Dr.Jahn?
Dr. JAHN. As long as the States' authorities are such that where
we are desired and well accepted and invited, we can't see any reason
for having a different system established again.
Senator McINTYRE. Any other comments?
Dr. JAHN. No.
Senator McINTYRE. This morning, the testimony of Chairman
Miller, of the Federal Reserve, emphasized that, as the dual banking
system has evolved in this country, Dr. Jahn, there is some degree of
Federal supervision of virtually every bank in the United States.
Similarly, Mr. Heimann emphasized-and I quote: "An internally
consistent system of oversight is essential."
Obviously the establishment of Federal presence or Federal oversight is one of the principal features of this bill. You gentlemen have
studied this legislation since its inception.
What is your best advice to this committee at this time in terms of
how this Federal interest should be structured?
Dr. Jahn?
Dr. ,JAHN. Mr. Chairman, we have been abiding on a voluntary basis
for years, now, to supply the Fed with all sorts of reports they should
wish, and there is no reason why this should be mandatory. But on a
voluntary basis, it has worked without any discussion, without any
difficulty.
I think the banking supervisor from New York State repeated that
either directly, or through the State banking superintendent, the provision of full information, whatever the Fed might need for conducting
its policy, probably would be all right for foreign banks.
Mr. PITTMAN. May I add, Mr. Chairman, that the key to oversight
is adequate access to information. We believe that under existing Federal law, supplemented by State law, the Federal Reserve Board has all
of the information it has ever requested, and all it has to do is ask if it
needs any more.
Senator McINTYRE. Well, Mr. Bellanger, with regard to multi-State
operations, how do you view Chairman Miller's proposal to limit section 5 to branches, permitting agencies of foreign banks to continue to
do business on a multi-State basis unhampered, unfettered by this
legislation?

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Mr. BELLANGER. Well, Mr. Chairman, my opinion is in opposition to
the Fed's that the branch has a competitive advantage in interstate
branching. In my opinion, those branches are by the nature of their
markets close to what the large American banks are doing interstate,
not merely the Edge Act corporations.
We seem to forget sometimes we go to the money market centers, our
customers are basically internationally oriented. So we are going in
this country only to several States. In other words, the branching system of foreign banks is not a nationwide phenomenon. Right now it has
been limited to gateway cities, by which I mean New York and California. California has been excluded because it is impossible to open a
branch there.
Senator McINTYRE. Mr. Leslie, or Mr. Jahn?
Dr. JAHN. May I add one little comment?
First, of course, we have to abide by what the States suggest, what
the States wish. If they prefer branches, the bank would have a branch.
From our own point of view, an agency of a foreign bank, although
not necessarily useless, is infinitely weaker than an agency of an
American bank because the American name is known. We are much
less known in the American marketplace, and we are followers in operations and can't hope to take in as many deposits. The amount of confidence in the strength of our capital structure at home gives us a
chance, at least an opportunity, through branches to get some local deposit base which helps us in financing our business.
Of course, we will remain infinitely weaker than comparable domestic banks £or the simple reason that we are foreigners. Therefore,
wherever desirable, wherever looked for by that particular State, I
think basically the branch is more desirable than an agency.
Senator McINTYRE. Do you agree, Mr. Leslie.
Mr. LESLIE. Yes, indeed, I do, so.
Senator McINTYRE. With regard to the question of interstate
branches, do you feel there may be some logic to restricting retail
deposit taking, while leaving unaffected deposit taking which is fundamentally international or trade related? Mr. Leslie? Mr. Fabre 1 Mr.
J"ahn?
Mr. LESLIE. I think the comment has been made that the two are not
very easily separated. In fact, one is dealing with an operation that
has a banking relationship that has, in fact, very often both aspects.
For this reason, we think the separation of them, while not impossible, is, in practice, not relating, really, to the realities of the situation.
Senator McINTYRE. Mr. Bellanger, why do you argue that deposits
of foreign branches aren't really retail deposits and, therefore, do not
really need FDIC insurance protection? Is it not true that the general
public can, if it chooses, walk in and place deposits with foreign
branches and, therefore, might we not consider FDIC insurance mandatory for foreign branches which take retail deposits, and not mandatory if it does not?
Mr. BELLANGER. Mr. Chairman, that distinction might usefully be
made. This morning, the question was raised and not answered about
defining retail banking activities. Ms. Seibert testified this morning and
she said that she doesn't care about General Motors but she cares about
the deposits from the little man in the street.
So, what we say, in fact, is that the activities of foreign branches are
not of such a nature. We do not seek consumer-oriented deposits. For

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this reason, we do not feel that we should have mandatory FDIC
membership.
We recently surveyed all branch members of the institute. There was
a 75-percent response. We analyzed the consumer-oriented deposit for
these New York branches, and we found that most of these branches
had consumer-oriented deposits of under 1 percent. For a few branches,
it was higher but no more than 5 percent;
So, I am emphasizing the big difference between foreign bank
branches and someone deliberately going into the street to attract
consumer-oriented deposits. Ms. Seibert, this morning, was right about
one branch in New York, but not about the rest. I think we should
make a difference between that and taking deposits of a Frenchma.n
coming to New York and opening an account with a French branch.
I think the retail-wholesale deposit ratios are very low, and that is
the reason why the FDIC membership should be voluntary.
The second thing, which was not mentioned this morning, under the
State of New York law, foreign banks are required to deposit assets
with the New York State Banking Department of 5 percent of their
liabilities. And when we look at the definition of these regulations,
you can read and understand those pledged assets are effectively used
as an insurance pool to protect depositors and other creditors.
And so, since we already are covered at the State level, we do not
feel that we should be required to have the FDIC membership at the
Federal level.
I think that the compromise might be to try-I might suggest this
idea-might be, first, to try to define what we mean by retail deposit
activities and to establish an acceptable ratio of retail versus the total
deposits of the branch. If there is no systematic, deliberate policy for a
bank to establish a retail deposit business, exempt it. No. 2, suggest
the New York Banking Department issue a special license for full
retail banking operations.
Now, the few branches in New York which Ms. Seibert was referring
to this morning, should not object to have FDIC membership for their
banking business and be in the retail banking area.
Senator McINTYRE. Do you have a comment, Mr. Jahn, or Mr.
Fabre1
Dr. JAHN. Apart from the question of cost raised this morning, also,
by Mr. LeMaistre, apart from that additional load that wouid be
coming a:bout by pledging the assets or by taking out surety bonds
from the insurance company, most of the branches don't look at all for
Mr. Smith's deposit and instead look for a large deposit.
And in addition, some of the countries have very elaborate insurance
systems at home, including their foreign deposits. It doesn't apply to
all, but it does apply to some. So-but I still would suggest that it
should be made optional for those branches in the long range who may
wish to look for small deposits, and there should be a possibility of
becoming a member and taking out insurance from the FDIC.
At this stage', mandatory insuranec for the branch offices is costly
and doesn't make very much sense.
Senator McINTYRE. Going again, now to the Federal Reserve Board,
it argues for reserve requirements on subsidiaries as well as branches,
agencies, and commercial lending companies.
On the other hand, Ms. Seibert, of the New York State Bank Commission, testified this morning that the Fed, the Federal Reserve,

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should have no authority to impose reserves on agencies and com~ercial lending companies, since these entities are barred from acceptmg
deposits and, therefore, do not function as banks.
What are your thoughts on this issue? Anyone.
Mr. BELLANGER. Mr. Chairman, we agree with Ms. Seibert. As far
as the subsidiaries are concerned under section 7, subsidiaries are very
different. They are more separate from their parents th_an are branc_hes
from their home offices, from both a legal and practical standpomt.
They must be independently capitalized, and they have no legal recourse for parental support. And they do not have the relatively active
advances from foreign affiliates as do branches, which the Federal
R6serve board has identified as the type of transaction giving rise to its
most specific monetary policy concerns. These net balances for the
bank subsidiaries are only $163 million as of April 1978.
Senator McINTYRE. Any further comments, gentlemen i
Well, gentleman, as to the May 19, 1977 grandfathering date, how
mu(jn new investment in nonbanking activities by foreign banks has
there been between May 1977 and now?
Dr. JAHN. I wouldn't know.
Senator McINTYRE. Can you submit it for the record? Can you obtain such information and furnish it for the record?
Dr.JAHN. Wecanfindout.
Senator McINTYRE. Do you have any idea?
.
Dr. JAHN. There would be no rush, sir; if the date is put to the enactment of the bill. There would be no rush, as suggested this morning
several times. There would be no rush. It is very few, anyway, and very
few are likely to use that possibility.
[The following letter was received £or the record:]
LEVA, HAWES, SYMINGTON, MARTIN & OPPENHEIMER,
Hon. THOMAS J. McINTYRE,

Washington, D.O., June 30, 1978.

Subcommittee on Financial Institutions, Senate Oommittee on Banking, Housing
and Urban Affairs, Dirksen Senate OfJice Building, Washington, D.O.

DEAR SENATOR MCINTYRE: At the hearing on the proposed ''International Banking Act of 1978" held on June 21, 1978, you asked whether information could be
obtained on how much new investment in nonbanking activities in the United
States has been made by foreign banks since May, 1977, the grandfathering date
included in Section 8 of the bill as passed by the House of Representatives (Transcript, p. 141) .
The Banking Federation of the European Community regrets that it has not
been possible to obtain this information which, as far as we are aware, has not
been previously compiled by any governmental agency or private entity. Such
information can only be obtained by surveying all foreign banks operating in the
United States. Such a survey, however, would be complex and difficult because
foreign banks can be affiliated with foreign corporations making investments in
the United States, yet not be aware of such investments when they are made.
For this reason, it is not possible quickly to noll foreign banks about all of the
l;.S. investments that mil!"ht be affected by Section 8.
There have undoubtedlv been such investments made in the ordinary course
of business since May. 1977, which is the rource of our concern about the grandfathering date. We are not aware, however. of anv evidence that would indicate
there has been a rush to invest in the United States prior to the imposition
of any restrictions.
Respectfully submitted.
FRANZ M. OPPENHEIMER,
Oounsel to the Oommerzbank.

Mr. PITTMAN. Mav I and that those European banks that are
engaged in investment banking routinely put themselves in the posi
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tion of changing ownership in equity securities, and they, of course,
run these businesses without an eye on the United States-on the
potential restrictions in the United States. Investment decisions are
unaffected by this bill. Because these changes take place on a routine
basis, it would be difficult to ascertain by a survey precisely what investments have been made on what date.
Senator McINTYRE. You gentlemen want the grandfathering date
to be the date of enactment. Would you accept a fixed date, such as
July 1, rather than the date of enactment i You are recommending
that the law go into effect, the grandfathering go into effect on the
date of enactment of this bill. I suspect you mean the date that the
President signs it. Would you accept as an alternative a more recent
fixed date, such as July 1 j
Mr. PrrrMAN. Could I respond to thati
The date I presume that you are considering is the date as of which
foreign banks are effectively on notice that section 8 is likely to be
enacted.
As of this moment, we are all up in the air as to whether or not a
bill will be reported out. This uncertainty has not changed over the
3½ years since this process began.
It seems to me that the first time at which we are on notice that the
law may change would be the point at which you report out a bill.
If you do decide to report out a bill, that date is somewhere ahead of
us, not very far, if you decide to report out the bill this year. So, I
would recommend that the report date might be used for section 8
grandfather purposes.
Senator McINTYRE. In this morning's session, Senator Stevenson
suggested a compromise on interstate branching proposals, and he
would appreciate getting any views of the witnesses this afternoon, if
you could gather and produce and put into writing as part of the record
along the line of this proposal.
Now, to remind you. what the proposal was : It, in general terms,
would go about as follows: Continue to permit foreign banks to enter
in a State where they are welcome, but limit the deposit-taking activities of branches outside of the home State to those permissible for an
Edge Act bank; agencies as down in Georgia would be totally unaffected. And branches could make domestic and international loans
and conduct other activities except they would be limited to accepting
deposits from foreign sources and for international trade purposes.
That is the sense of the Senator from Illinois's suggestion.
I would like, if it is possible-we are going to close the record on
this in 7 days-but, if anybody has any comments now, I would be
delighted to have them, and then if any of you can suggest a critique
or approval or amendments thereto, we would like to have it, if possible.
Do I make myself clear?
Dr. JAHN. Orally, at this moment, I would ask this-may we submit
a paper, a bit more carefully considered view on this particular suggestion?
Offhand, I would say agencies, or Edge Act banks, if they are somewhat expanded in their scope and could take deposits from somewhere
outside and tied to international operations, might be of interest to
some banks, obviously.
But it is not tihe same as to have a 'branch, as I said ·before, to at least
build up a small base for local deposits.

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Secondly, an Edge Act bank requires a capitalization of some size,
and the weakness of any foreign Edge Act bank remains a fact. It is
less known and thus it does not have the full weight or the strength or
international standing as a capital structure of the parent bank. That
is very different from a large American bank, which may have an Edge
Act hank under the same name in some State other than its own.
The_ w~akness is very substantial compared with the domestic
organizations.
Senator McINTYRE. I might add-I should have read this-this proposal, according to the way Mr. Stevenson is thinking, would be complemented by liberalizing amendments to the Edge Act intended to
further facilitate the development of international banking facilities
throughout the country.
These amendments would he intended to encourage more domestic
banks to fo_r"f!l Edge Act corporations and engage in international finance activities.
Mr. Pittman~
Mr. PITTMAN. We would have no objection to the last part of the
proposal, but on the first part we heard Mr. Dunn, the bank supervisor
from Georgia, say that it was important to a State like Georgia which
has started with an agency law, to reserve the option to go a step further and admit branches, presumably following the Chicago model of
permitting branches to come in "'.ith a single location which keeps them
out of the retail business.
I think this question ought to be viewed from the standpoint of the
cities that are trying to develop international financial center status.
Do they need to offer foreign banks deposit-taking powers or don't
they? I think the record is clear that Chicago has succeeded in attracting 29 foreign bank branches. Georgia and other agency States have
not succeeded in attracting substantial assets of foreign banks at this
time.
If you are attempting to give the cities the opportunity to attract
foreign hanks, this proposal would defeat the purpose.
Mr. FABRE. You asked this morning what the situation is concerning
branching in Europe. Would you like me to answer this question for
the countries we represent?
The present situation is such that in the nine countries of the Common Market all foreign banks enjoy full deposit-taking powers and,
with some exception for Italy, full freedom for branching all over
the country in which they operate.
Freedom for branching all over the Community, which is already
a fact, has been recognized as a right for European banks by a recent
decision of the Community, and this decision also provided the possibility for foreign banks to be granted the same rights on a reciprocal
basis.
Thank you, Mr. Chairman.
Senator McINTYRE. That is the situation generally throughout Europe. But, what is the eituation in Japan?
Mr. SHIMIZU. All of the branches of the foreign banks can take
deposits without limitation-no geographic limitation.
Senator McINTYRE. Gentlemen, this morning when I came in to
open the subcommittee hearing, I simply put my opening statement
in the record, but I think in concluding our session here I should read

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to you a paragraph that I think will help you to better understand
my thinking.
As we see it, even though our situation in the Senate has never been
worse as far as legislation is concerned, we still have our little housekeeping measures before us, and we are still in a filibuster that has
been almost constant since we came back here in January.
But let me read this to you. In light of the extensive legislative history on this legislation, our purpose today was to simply highlight
the main points of controversy with an overview toward formulating
a reasonable and responsible approach to the resolution in this
Congress.
For my part, I am of the opinion that the climate is now right for
enactment of this legislation. In previous years I have had some
reservations about the necessity for the various proposals before us.
At this time I now feel that the continuing growth of foreign banking
activity in this country has generated sufficient interest to establish
better Federal monitoring of foreign banking activities in this country.
Moreover, I believe the political climate is still relatively calm,
which hopefully will enable us to fashion a rational bill.
Further delay may very well result in more restrictive pieces of legislation, which in my opinion would serve nobody's interest.
If there is anything else to be said i
[No response.]
We will conclude this hearing.
[Whereupon at 3 :20 p.m. the hearing was adjourned.]
[Additional material received for the record follows m the
appendix.]

30-563 0 • 78 • 20

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APPENDIX
0:>TII2nCONGRESS
SESSION

H. R. 10899

IN THE SENATE OF THE UNITED STATES
ArRIL 7 (legislative day, FEBRUARY 6), 1978
Read twice and referred to the Committee on Banking, Housing, and Urban
Affairs

AN ACT
To provide for Federal regulation of participation by foreign
banks in domestic financial markets.
l

Be it enacted by the Senate and House of Representa-

tives of the United States of America in Congress assembled,

SHORT TITLE; DEFINITIONS AND RULES OF CONSTRUCTION

5
6

SECTION

1. (a) This Act may be cited as the "Inter-

national Banking Act of 1978".
(b) For the purposes of this Act-

( 1) "agency" means any office or any place of busi-

ness of a foreign bank located in any State of the United

States at which credit balances are maintained incidental

to or arising out of the exercise of banking powers, checks

are paid, or money is lent but at which deposits may not

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2
1

be accepted from citizens or residents of the United

States;

3
4

( 2) "Board" means the Board of Governors of the
Federal Reserve System;

( 3) "branch" means any office or any place of busi-

ness of a foreign bank located in any State of the United

States at which deposits are received;

8
9

(4) "Comptroller" means the Comptroller of the
Currency;

( 5) "Federal agency" means an agency of a foreign

bank established and operating under section 4 of this

Act;

(6) "Federal branch" means a branch of a foreign

bank established and operating under section 4 of this

Act;
( 7)

"foreign bank" means any company organized

under the laws of a foreign country, a territory of the

United States, Puerto Rico, Guam, American Samoa,

or the Virgin Isfands, that has the power to engage in

the business of banking, or any subsidiary or affiliate,

organized under such laws, of any such company. For

the purposes of this Act, the term "foreign bank" in-

eludes, without limitation, foreign commercial banks,

foreign merchant banks and other foreign institutions

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3
1

that engage in banking activities usual in connection

with the business of banking in the countries where

such foreign institutions are organized or operating;

(8) "foreign country" means any country other

than the United States, and includes any colony, de-

pendency, or possession of any such country;

(9) "commercial lending company" means any in-

stitution, other than a bank or an organization operating

under section 25 of the Federal Reserve Act, organized

under the laws of any State of the United States, or the

District of Columbia which maintains credit balances

incidental to or arising out of the exercise of banking

.13

powers and engages in the business of making commer-

cia.l loans;
(10) "State" means any State of the United Stat.es

or the District of Columbia;

(11) the terms "bank", "bank holding company",

"company", "control", and "subsidiary" as used in this

Act shall have the same meanings assigned to those

terms in the Bank Holding Company Act of 1956,

and the terms "controlled" and "controlling" as used in

this Act shall be construed consistently with the term

"control" as defined in section 2 of the Bank Holding

Company Act of 1956; and

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4

( 12) "consolidated" means consolidated in accord-

ance with generally accepted accounting principles in the

United States consistently applied.

DlREOTORS OF NATIONAL BANKS

SEO. 2. Section 5146 of the Revised Statutes ( 12

U.S.C. 72) is amended by striking out the period at the end

7 of the first sentence and adding the following new provision:
8

", except that in the case of an association which is a sub-

sidiary or affiliate of a foreign bank, the Comptroller of the

Currency may in his discretion waive the requirement of

citizenship in the case of not more than a minority of the

12 total number of directors.".

EDGE

CORPORATIONS

SEC. 3. (a) The second sentence of the fourth para-

graph of section 25 (a) of the Federal Reserve Act ( 12

16 U.S.C. 614) is amended by striking out", all of whom shall
17 be citizens of the United States" after "to elect or appoint
18
19

directors".
( b) The thirteenth paragraph of section 25 (a) of the

20 Federal Reserve Act (12 U.S.C. 619) is deleted and the
21

following paragraph is inserted in lieu thereof:
"Except as otherwise provided in this section, a majority

23 of the shares of the capital stock of any such corporation
24 shall at all times be held and owned by citizens of the United
25 States, by corporations the controlling interest in which is

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30Q"
I

5
1

owned by citizens of the United States, chartered under the

laws of the United States or of a State of the United States,

or by firms or companies, the controlling interest in which is

owned by citizens of the United States. Notwithstanding any

5 other provisions of this section, any foreign bank or any bank
6

organized under the laws of the United States, any State of

the United States, or the District of Columbia, the control-

ling interest in which is owned by a foreign bank, group of

foreign banks, or institution organized under the laws of a

10 foreign country which owns or controls a foreign bank may,

11 with the prior approval of the Board of Governors of the

12 Federal Reserve System and upon such terms and conditions
13 and subject to such rules and regulations as the Board of
14

Governors of the Federal Reserve System may prescribe,

own and hold 50 per centum or more of the shares of the

capital stock of any corporation organized under this section,

17 and any such corporation shall be subject to the same pro-

18 visions of law as any other corporation organized under this

19 section 2 of the Bank Holding Company Act of 1956, and
:!O paragraph the terms 'controls' and 'controlling interest' shall
21 be construed consistently with the definition of 'control' in
'.:!'.! section. For the purposes of the preceding sentence of this
:!:i

the term 'foreign bank' shall have the meaning assigned to it

:ll in the Iutcrnntional Banking Act of lfl78.".

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6
1

FEDER.AL BRANCHES AND AGENCIBS

SEC. 4. (a) Except as provided in section 5, a foreign

bank which engages directly in a banking business outside the

4 United States may, with the approval of the Comptroller,
5 establish a Federal branch ·or agency in any State in which
6

( 1) it is not operating a branch or agency pursuant to State

7 law and (2) the establishment of a branch or agency, as the
8 case may be, by a foreign bank is not prohibited by State
9

law.
(b) In establishing and operating a Federal branch or

11 agency, a foreign bank shall be subject to such rules, regu12 lations, and orders as the Comptroller considers appropriate
13 to carry out this section, which shall include provisions for
14 service of process and maintenance of branch and agency
15

accounts separate from those of the parent bank. Except as

otherwise specifically provided in this Act or in rules, regu-

17 lations, or orders adopted by the Comptroller under this
18 section, operations of a foreign bank at a Federal branch
19

or agency shall be conducted with the same rights and

privileges as a national bank at the same location and

:n shall be subject to all the same duties, restrictions, penalties,
22

liabilities, conditions, and limitations that would apply under

the National Bank Act to a national bank doing business at

24 the same location, except that ( 1) the requirements of sec25

tion 5240 of the Revised Statutes ( 12 U.S.C. 481) shall be

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7

1 met with respect to a Federal branch or agency if it is ex2 amined at least once in each calendar year; ( 2) any limita3 tion or restriction based on the capital stock and surplus of a
4 national bank shall be deemed to refer, as applied to a Fed5 eral branch or agency, to the dollar equivalent of the capital
6

stock and surplus of the parent bank, and if the parent bank

7 has more than one Federal branch or agency the accounts of

all such branches and agencies shall be aggregated in de-

9 termining compliance with the limitation; ( 3) a Federal

10 branch or agency shall not be required to become a mem11 her bank, as that term is defined in section 1 of the Fed12 eral Reserve Act; and (4) a Federal agency shall not be
13 required to become an insured bank as that term is defined
14 in section 3 (h) of the Federal Deposit Insurance Act.

16 eral branch or agency, the Comptroller shall take into ac17 count the effects of the proposal on competition in the

18 domestic and foreign commerce of the United States, the
19 :financial and managerial resources and future prospects of
20 the applicant foreign bank and the branch or agency, and
21 the convenience and needs of the community to be served.
22

(d) Notwithstanding any other provision of this sec-

tion, a foreign bank shall not receive deposits or exercise

24 fiduciary powers at any Federal agency. A foreign bank
25 may, however, maintain at a Federal agency for the ·acooun.t

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8
1

of others credit balances incidental to, or arising out of, the

ixercise of its lawful powers.

(e) No foreign bank may maintain both a Federal

4 branch and a Federal agency in the same State.
5

(f) Any branch or agency operated by a foreign bank

in a State pursuant to State law and any commercial lend-

7 ing company controlled by a foreign bank may be converted

s into a Federal branch or agency with the approval of the
g

Comptroller. In the event of any conversion pursuant to

this subsection, all of the liabilities of such foreign bank

previously payable at the State branch or agency, or all of

the liabilities of the commercial lending company, shall

thereafter be payable by such foreign bank at the branch or

agency established under this subsection.

(g) ( 1) Upon the opening of a Federal branch or

agency in any State and thereafter, a foreign bank, in addi-

tion to any deposit requirements imposed under section

18 6 (a) of this Act, shall keep on deposit, in accordance with

19 such rules and regulations as the Comptroller may prescribe,
20

with a member bank designated by such foreign bank,

dollar deposits or investment securities of the type that may

be held by national banks for their own accounts pursuant

23 to paragraph "Seventh" of section 5136 of the Revised
24

Statutes, as amended, in an amount as hereinafter set forth.

2,->

Such depository bank shall be located in the State where

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1 such branch or agency is located and shall be approved

2 by the Comptroller if it is a national bank and by the Board
3 of Governors of the Federal Reserve System if it is a State
4 bank.
5

(2) The aggregate amount of deposited investment

6 securities ( calculated on the basis of principal amount or

7 market value, whichever is lower) and dollar deposits for
8 each branch or agency established and operating under this
9

section shall be not less than the greater of ( 1) that amount

10 of capital (but not surplus) which would be required of a
11 national bank being organized at this location, or ( 2) 5 per
12 centum of the total liabilities of such branch or agency, in13 eluding acceptances, but excluding (A) accrued expenses,
14

and (B) amounts due and other liabilities to offices, branches,

15 agencies, and subsidiaries of such foreign bank. The Comp-

16 troller may require that the assets deposited pursuant to this
17 subsection shall be maintained in such amounts as he may

18 from time to time deem necessary or desirable, for the main19 tenance of a sound financial condition, the protection of
20 depositors, and the public interest, but such additional
21 amount shall in no event be greater than would be required
22 to conform to generally accepted banking practices as mani23 fested by banks in the area in which the branch or agency i!24 located.

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( 3) The deposit shall be maintained with any such

member bank pursuant to a deposit agreement in such form

and containing such limitations and conditions as the Comp-

4 troller may prescribe. So long as it continues business in the
5

ordinary course such foreign bank shall, however, be per-

6 mitted to collect income on the securities and funds so de7 posited and from time to time examine and exchange such
8 securities.
9

( 4) Subject to such conditions and requirements as may

10 be prescribed by the Comptroller, each foreign bank shall
11 hold in each State in which it has a Federal branch or
12 agency, assets of such types and in such amount as the
13 Comptroller may prescribe by general or specific regulation
14 or ruling as necessary or desirable for the maintenance of

15 a sound financial condition, the protection of depositors,
16

creditors and the public interest. In determining compliance

17 with any such prescribed asset requirements, the Comptroller
18 shall give credit to (A) assets required to be maintained

19 pursuant to paragraphs (1) and (2) of this subsection, (B)
20

reserves required to be maintained pursuant to section 7 (a)

of this Act, and ( C) assets pledged, and surety bonds pay-

22 able, to the Federal Deposit Insurance Corporation to secure
23

the payment of domestic deposits. The Comptroller may

prescribe different asset requirements for branches or agen-

cies in different States, in order to ensure competitive equality

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11

of Federal branches and agencies with State branches and

agencies and domestic banks in those States.

(h) A foreign bank with a Federal branch or agency

operating in any State may ( 1) with the prior approval of

the Comptroller establish and operate additional branches

or agencies in the State in which such branch or agency is

located on the same terms and conditions and subject to the

8 same limitations and restrictions as are applicable to the
9

establishment of branches by a national bank if the principal

office of such national bank were located at the same place

11 as ·the initial branch or agency in such State of such foreign

12 bank and (2) change the designation of its initial branch
13 or agency to any other branch or agency subject to the same
14 limitations and restrictions as are applicable to a change in
15

the designation of the principal office of a national bank if

such principal office were located at the same place as such

initial branch or agency.

(i) Authority to operate a Federal branch or agency

19 shall terminate when the parent foreign bank voluntarily
20 relinquishes it or when such parent foreign bank is dissolved
21 or its authority or existence is otherwise terminated or can22 celed in the country of its organization. If (1) at any time
23

the Comptroller is of the opinion or has reasonable cause

to believe that such foreign bank bas violated or failed to

25 comply with any of the provisions of this section or any of

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1

the rules, regulations, or orders of the Comptroller made

pursuant to this section, or (2) a conservator is appointed

for such foreign bank or a similar proceeding is initiated in

4 the foreign bank's country of organization, the Comptroller
,i

shall have the power, after opportunity for hearing, to re-

voke the foreign bank's authority to operate a Federal branch

7 or agency. The Comptroller may, in his discretion, deny

such opportunity for heaiing if he determines such denial

to be in the public interest. '.Dhe Comptroller may restore

JO any such authority upon due proof of compliance with the
11

provisions of this section and the rules, regulations, or orders

12 of the Comptroller made pursuant to this section.

(j) (1) Whenever the Comptroller revokes a foreign

14 bank's authority to operate a Federal branch or agency or
15 whenever any creditor of any such foreign bank shall have
16

obtained a judgment against it arising out of a transaction

17 with a Federal branch or agency in any court of record of the
18 United States or any State of the United States and made
19

application, accompanied by a certificate from the clerk of

the court stating that such judgment has been rendered and

has remained unpaid for the space of thirty days, or when-

22 ever the Comptroller shall become satisfied that such foreign
23

bank is insolvent, he may, after due consideration of its

affairs, in any such case, appoint a receiver who shall take

possession of all the property and assets of such foreign

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1 bank in the United States and exercise the same rights, privi2

leges, powers, and authority with respect thereto as are now

3 exercised by receivers of national banks appointed by the
4

Comptroller.

( 2) In any receivership proceeding ordered pursuant to

this subsection (j) , whenever there has been paid to each

7 and every depositor and creditor of such foreign bank whose
8 claim or claims shall have been proved or allowed, the full
9 amount of such claims arising out of transactions had by
10 them with any branch or agency of such foreign bank loll cated in any State of the United States·, except ( 1) claims

12 that would not represent an enforceable legal obligation
13 against such branch or agency if such branch or agency
14

were a separate legal entity, and (2) amounts due and

15 other liabilities to other offices or branches or agencies of,
16

and wholly owned (except for a nominal number of direc-

17 tors' shares) subsidiaries of, such foreign bank, and all ex-

18 penses of the receivership, the Comptroller or the Federal
19 Deposit Insurance Corporation, where that Corporation has
20 been appointed receiver of the foreign bank, shall turn over
21 the remainder, if any, of the assets and proceeds of such
22 foreign bank to the head office of such foreign bank, or
23

to the duly appointed domiciliary liquidator or receiver of

24 such foreign bank.

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l
2

INTERSTATE BANKING OPERATIONS

SEC. 5. (a) No foreign bank may operate a µranch,

3 agency, commercial lending company subsidiary, or suh4 sidiary bank outside its home State unless ( 1) in the case
5

of a State branch, agency or commerical lending company,

it is approved by the regulatory authority of the State in

7 which such State branch, agency, or commercial lending
8 company is to be operated, (2) in the case of a Federal
9 branch or agency, its operation is expressly permitted by the
10 State in which it is to be operated, and ( 3) in the case of a

11 bank, its acquisition would be permissible under section 3 of
12 the Bank Holding Company Act of 1956 if the foreign bank
13 were a bank holding company the operations of whose bank14 ing subsidiaries were principally conducted in the foreign
15 bank's home State.
lG

(b) For the purposes of this section, the home State

of a foreign bank-

( 1) which has no branch or subsidiary bank in the

United States, but which has an agency or commercial

lending company in one or more States, is whichever

of such States is determined by election of the bank,

or, in default of such election, by the Board of Gov-

ernors of the Federal Reserve System.

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( 2) which has a branch or subsidiary bank in one
2

State only, is that State.

(3)

which has a branch or subsidiary bank in more

than one State, is whichever of such State is determined

;;

by election of the bank, or, in default of such election,

by the Board of Governors of the Federal Reserve

System.

An initial election under this subsection shall be made by

9 means of a written declaration filed with the Board of Gov10 ernors of the Federal Reserve System not more than one

11 year after the date of enactment of this Act by the !oreign

12 bank concerned. After the home State of a foreign bank has
13 been determined pursuant to this subsection, it may be
1-1

changed only by the Board of Governors of the Federal

15 Reserve System, either upon the application of the bank, or
16 upon its own motion, for cause shown. Any foreign bank

17 that does not maintain a branch, agency, or commercial lend18 ing company subsidiary, or that is not a bank holding com-

19 pany or a subsidiary thereof on. the date of enactment of this
20 Act, shall have its home State deemed to be the State in
21 which it establishes its initial branch, agency, commercial
22 lending company subsidiary, or bank subsidiary (including
23 any commercial lending company subsidiary ·or bank sub-

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I (j
1 sidiary acquired by a company of which it is a subsidiary)
2

in the United States.

3
4

INSURANCE OF DEPOSITS

SEO. 6. (a) No foreign bank may establish or operate

5 a Federal branch unless the branch is an insured branch
6 as defined

in section 3 (s) of the Federal Deposit Insurance

7 Act.

(b) After the date of enactment of this Act no foreign

9 bank may establish· a branch, and after one year following

10 such date no foreign bank may operate a branch, in any
11 State in which the deposits of a bank organized and existing

12 under the laws of that State would be required to be insured,
13 unless the branch is an insured branch as defined in section
1~ 3 (s) of the Federal Deposit Insurance Act.

16 1811-1832) is amended as set forth hereinafter in this sub17 section, in which section numbers not otherwise identified
18 refer to sections of that Act.
19

(2) Section 3 (h) is amended by inserting "(includ-

20 ing a foreign bank having an insured branch)" immediately

21 after "(h) The term 'insured bank' means any bank".
22

(3) Section 3 (j) is amended by inserting "or of a

23 branch of a foreign bank" immediately before the period at
24 the end thereof.
25

(4) Section 3 (m) is amended (A) by changing" (m)

30-563 0 - 78 - 21
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1 The" to read " (m) ( 1) Subject to the provisions of para2

graph (2) of this subsection, the", and (B) by adding at

the end thereof the following new paragraph :

" ( 2) In the case of any deposit in a branch of a foreign

bank, the term 'insured deposit' means an insured deposit as

defined in paragraph ( 1) of this subsection which"(A) is payable in the United States to-

" ( i)

an individual who is a citizen or resident

of the United States,

"(ii) a partnership, corporation, trust, or other

legally cognizable entity created under the laws of

the United States or any State and having its prin-

cipal place of business within the United States or

14:

any State, or

"(iii) an individual, partnership, corporation,

trust, or other legally cognizable entity which is

determined by the Board in accordance with its

regulations to have such business or financial rela-

tionships in the United States as to make the in-

surance of such deposit consistent with the purposes

of this Act;

and

"(B) meets any other criteria prescribed by the

Board of Directors by regulation as necessary_ or appro-

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1

priate in its judgment to carry out the purposes of this

Act or to facilitate the administration thereof.".

( 5) Section 3 ( q) is amended to read as follows:

" ( q) The term 'appropriate Federal banking agency'

5 shall mean6

" ( 1 ) the Comptroller of the Currency in the case

of a national banking association, a District bank, or a

Federal branch of a foreign bank;
" ( 2) the Board of Governors of the Federal Re-

serve System" (A) in the case of a State member insured

bank (except a District bank), and

12
13

"(B) in the case of any provision of the Fed-

eral Reserve Act which is made applicable under

the International Banking Act of 1978 to any

branch or agency of a foreign bank, and

"(3) the Federal Deposit Insurance Corporation

in the case of a State nonmember insured bank (except a

District bank) or a foreign bank having an insured

branch.

21 Under the rule set forth in this subsection, more than one
22 agency may be an appropriate Federal banking agency with

23 respect to any given institution.".
24

(6) Section 3 is amended by adding at the end thereof

25 the following new subsections :

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"(r) The terms 'foreign bank' and 'Federal branch'

2 shall be construed consistently with the usage of such terms
3 in the International Banking Act of 1978.
4

" (s) The term 'insured branch' means a brmch of a

5 foreign bank any deposits in which are insured in accord6 ance with the provisions of this Act.".
7

(7) Section 5 is amended (A) by changing "SEC. 5."

8 to read "SEC. 5. (a)" and (B) by adding at the end thereof
9 the following new subsections :
10

" (b) Subject to the provisions of this Act and to such

11 terms and conditions as the Board of Directors may impose,
12 any branch of a foreign bank, upon application by the bank to
13 the Corporation, and examination by the Corporation of the
14 branch, and approval by the Board of Directors, may be15 come an insured branch. Before approving any such appli16 cation, the Board of Directors shall give consideration to-

" ( 1) the financial history and condition of the bank,

"(2) the adequacy of its capital structure,

" ( 3) it.s future earnings prospects,

" (4) the general character of its management, in-

eluding but not limited to the management of the branch

proposed to be insured,

23
24

" (5) the convenience and needs of the community
to be served by the branch,

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Federal Reserve Bank of St. Louis

" ( 6) whether or not it.s corporate powers, insofar as

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20
1

they will be exercised through the proposed insured

branch, are consistent with the purposes of this Act,

and

" ( 7) the probable adequacy and reliability of in-

formation supplied and to be supplied by the bank to

the Corporation to enable it to carry out its functions

under this Act.

" ( c) ( 1 ) Before any branch of a foreign bank becomes

an insured branch, the bank shall deliver to the Corporation

10 or as the Corporation may direct a surety bond, a pledge of
11 assets, or both, in such amounts and of such types as the
12 Corporation may require or approve, for the purpose set
13 forth in paragraph (4) of this subsection.

"(2) After any branch of a foreign bank becomes an

15 insured branch, the bank shall maintain on deposit with the
16 Corporation, or as the Corporation may direct, surety bonds
17 or assets or both, in such amounts and of such types as shall
18 be determined from time to time in accordance with such
19

regulations as the Board of Directors may prescribe. Such

20 regulations may impose differing requirements on the basis

21 of any factors which in the judgment of the Board of Direc22 tors are reasonably related to the purpose set forth in para-

23 graph (4).
24

" ( 3) The Corporation may require of any given bank

25 larger deposira of bonds and assets than required under

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21
1 paragraph (2) of this subsection if, in the judgment of the
2 Corporation, the situation of that bank or any branch
3 thereof is or becomes such that the deposits of bonds and
4 assets otherwise required under this section would not ade5 quately fulfill the purpose set forth in paragraph (4) . The
6

imposition of any such additional requirements may be

7 without notice or opportunity for hearing, but the Corpora-

tion shall afford an opportunity to any such bank to apply

9 for a reduction or removal of any such additional require10 ments so impoi:ied.

" (4) The purpose of the surety bonds and pledges of

12 assets required under this subsection is to provide protection
13 to the deposit insurance fund against the risks entailed in

14 insuring the domestic deposits of a foreign bank whose activi-

15 ties, assets, 8Jld personnel are in large part outside the juris16 diction of the United States. In the implementation of its
17 authority under this subsection, however, the Corporation
18 shall endeavor to avoid imposing requirements on such banks
19 which would unnecessarily place them at a competitive dis20 advantage in relation to domestically incorporated banks.
21

" (5) In the case of any failure or threatened failure

22 of a foreign bank to comply with any requirement imposed
2~{

under this subsection ( c) , the Corporation, in addition to

24 all other administrative and judicial remedies, may apply

2r,

to any United States district court, or United ~ta.te~ court

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22
1

of any territory, within the jurisdiction of which any branch

of the bank is located, for an injunction to compel such bank

and any officer, employee, or agent thereof, or any other

4 person having custody or control of any of its assets, to
5 deliver to the Corporation such assets as may be necessary
6

to meet such requirement, and to take any other action neces-

sary to vest the Corporation with control of assets so deliv-

ered. If the court shall determine that there has been any

such failure or threatened failure to comply with any such

requirement, it shall be the duty of the court to issue such

11 injunction. The propriety of the requirement may be litigated

12 only as provided in chapter 7 of title 5 of the United States

rn Code, and may not be made an issue in an action for an
14 injunction under this paragraph.".
15

( 8) The first sentence of section 7 (a) ( 1) is amended by

inserting "and each foreign bank having an insured branch

17 which is not a Federal branch" immediately before "shall
18 make to the Corporation".
19

( 9) The first sentence of section 7 (a) ( 3) is amended

(A) by inserting "and each foreign bank having an insured

21 branch (other than a Federal branch) " immediately before
22 "shall make to the Corporation" and (B) by inserting ",

23 each foreign bank having an insured branch which is a Fed24 eral branch," immediately before "and each insured district".

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1
2

( 10) Section 7 (a) is amended by adding at the end
thereof the following new paragraph:

" ( 7) In respect of any report required or authorized to

be supplied or published pursuant to this subsection or any

5 other provision of law, the Board of ·Directors or the Comp6

troller of the Currency, as the case may be, may differentiate

between domestic banks and foreign banks to such extent as,

in their judgment, may be reasonably required to avoid

hardship and can be done without substantial compromise of

insurance risk or supervisory and regulatory effectiveness.".

( 11) Section 7 (b) is amended (A) by changing " (4)

12 A bank's assessment base" to read" (4) (A) Except as pro13 vided in subparagraph (B) of this paragraph, a bank's as14 sessment base" and (B) by adding at the end thereof the

15 following new subparagraph:
16

" (B) in determining the assessment base and assessment

17 base additions and deductions of a foreign bank having an

18 insured branch, such adjustments shall be made as the Board
19

of Directors may by regulation prescribe in order to provide

equitable treatment for domestic and foreign ·banks.".

( 12) Section 7 (j) ( 1 ) is amended (A) by changing

" (j) ( 1 ) Whenever" to read " (j) ( 1 ) (A) Except as pro-

23 vided in subparagraph (B) of this paragraph, whenever",

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1 and (B) by adding at the end thereof the following new sub2

paragraph:

"(B) The Board of Directors may by regulation exempt

from the reporting requirements of subparagraph (A) of this

5 paragraph any transaction in the stock of a foreign bank to
6

the extent that the making of any such report would be pro-

7 hibited by the laws of the country of domicile of the foreign

bank in effect at the time such bank makes its application

under section 5 (b) of this Act, or rendered impracticable by

the customs and usages of such country, but the Board of

Directors shall weigh the existence of any •such prohibition or

12 impracticability in connection with its consideration of the
13

factorsenumeratedinsections5(,b) (4) and5(b) (7).".

(13) Section 7 (j) (2) is amended by changing "(2)

15 Whenever" to read " ( 2) (A) Except as provided in sub16

paragraph (B) of this paragraph, whenever" and by adding

17 at the end thereof the following new subparagraphs:
18

" (B) The requirements of subparagraph (A) of this

paragraph shall not apply in the case of a loan secured by

20 the stook of a foreign bank if the lending bank is a foreign

21 bank under the laws of whose domicile the report otherwise
22 required by subparagraph (A) would be prohibited.
23

"(C) No foreign bank under the laws of whose domicile

24 a report in compliance with subparagraph (A) of this para-

i:, graph would be prohibited in the case of a l9an to acq_uir~

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25
1 the stock of an insured bank which is not a foreign bank may
2

make, acquire, or retain any such loan. Each report of con-

3 dition filed under subsection (a) by any foreign bank to
4

which this subparagraph applies shall contain either a state-

5 ment of the amount of each loan made, retained, or acquired
6

by the foreign bank in violation of this subparagraph during

7 the period from the date it became an insured bank or the
8 date of its last report of condition, whichever is later, to the
9

date of the report of condition, or a statement that no such

10 loans were made and no such loans were outstanding during

11 such period.".

(14) The first sentence of section 8 (a) is amended by

13 inserting ", a foreign bank having an insured branch which
14 is a Federal branch, a foreign bank having an insured
15 branch in any State in which State-chartered banks are re16

quired to be insured," immediately after " (except a national

17 member bank".
18
19

( 15) Section 8 is amended by adding at the end thereof

the following new subsection:
"(r) ( 1) Except as otherwise specifically provided in

21 this section, the provisions of this section shall be applied to
22 foreign banks in accordance with this subsection.
23

"(2) An act or practice outside the United States on

24: the part of a foreign bank or any officer, director, employee,
2fl or agent thereof may not constitute the basis for an-y action

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26
1 by any officer or agency of the United States under this seo2

tion, unle8'9-

(A) such officer or agency alleges a belief that

such act or practice has been, is, or is likely t.o be a

cause of or carried on in connection with or in further-

anoe of an act or practice within any one or more States

which, in and of itself, would constitute an appropriate

basis for action by a ~ederal officer or agency under this

section; or

"(B) the alleged act or practice is one which, if

proven, would, in the judgment of the Board of Direc-

tors, adversely affect the insurance risk assumed by the

Corporation.

" ( 3 ) In any case in whiC'h any action or proceeding is

15 brought pursuant to an allegation under paragraph ( 2) of
16 this subsection for the suspension or removal of any officer,
17 director, or other person associated with a foreign bank, and
18 such person fails to appear promptly as a party t.o such action
19 or proceeding and to ·comply with any effective order or

20 judgment therein, any failure by the foreign bank to secure
21 his removal from any office he holds in such bank and from
22 any further participation in its affairs shall, in and of itseli,

23 constitute grounds for termination of the insurance of the

24 deposits in any branch of the bank.
25

"(4) Where the venue of any judicial or administrative

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27
1 proceeding under this section is to be determined by reference
2

to the location of the home office of a bank, the venue of

such a proceeding with respect to a foreign bank having

one or more branches in not more than one judicial district

or other relevant jurisdiction shall be within such jurisdiction.

Where such a bank has branches in more than one such juris-

7 diction, the venu'e shall be in the jurisdiction within 'Which

the branch or branches involved in the proceeding are lo-

9 cated, and if there are more than one such jurisdictions, the
10 venue shall be proper in any such jurisdiction in which the

11 proceeding is brought or to which it may appropriately be

12 transferred.

" (5) Any service required or authorized to be made

14 on a foreign bank may be made on any branch located within
15 any State, but if such service is in ·connection with an action
16 or proceeding involving one or more branches located in

17 any State, service shall be made on at least one branch so
18 involved.".
19

(16) The first sentence of section 10 (b) is amended

(A) by inserting "any insured branch of a foreign bank,

21 any branch of a foreign bank making application to become
22

an insured bank," immediately after " (except a District

23 bank) ", and (B) by inserting "or branch" before the comma
24 after "any closed insured bank".

.,.

( 17) The third sentence of ~~Qtion 10 (b) .is amended

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1 by inserting ", and in the case of a foreign bank, a binding
2

commitment by such bank to permit such examination to the

3 extent determined by the Board of Directors to be necessary

4 to carry out the purposes of this Act shall be required as a
5

condition to the insurance of any deposits" immediately

6 before the period at the end thereof.

(18) Section 11 (c) is amended by inserting", insured

8 Federal i>ranch of a foreign bank," immediately before "or
9 insured District hank,".

( 19) The first sentence of section 11 ( e) is amended

11 by inserting "or any insured branch ( other than a Federal

12 branch) of a foreign bank" immediately before "shall have
13 been closed".

(20) The second sentence of section 11 (e) is amended

15 by changing "such insured State bank," tQ read "such in16 sured State bank or insured branch of a foreign bank,".
17

(21) Section 11 (f) is amended by inserting "or insured

18 branch of a foreign bank" immediately before "shall

19 have been closed".

(22) The first sentence of section 11 (g) is amended by

21 inserting ", insured branch of a foreign ·bank," immediately
22 before "or District bank,".

(23) The third sentence of section 11 (g) is amended

24 by changing "In the case of any closed insured bank," to

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Federal Reserve Bank of St. Louis

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29

1 read "In the case of any closed insured bank or closed in2

sured branch of a foreign bank,".

(24) Section 12 (a) is amended by inserting ", branch

4 of a foreign bank," immediately after "a closed national
5

bank".
(25) Section 13 is amended by adding at the end

7 thereof the following new subsection :
8

,..

"(g) The powers conferred on the Board of Directors

9 and the Corporation by this section to take action to reopen
10 a closed insured bank or to avert the closing of an insured

11 bank may be used with respect to an insured branch of a
12 foreign bank if, in the judgment of the Board of Directors,
13 the public interest in avoiding the closing of such bra.nch sub14 stantially outweighs any additional risk of loss to the insur15 ance fund which the exercise of such powers would entail.".

(26) Section 18 (c) is amended by adding at the end

17 thereof the following new paragraph:

" ( 11 ) The provisions of this subsection do not apply

19 to any merger transaction involving a foreign bank if no
20 party to the transaction is principally engaged in business
21 in the United States.".
22

(27) Section 18 (d) is amended by inserting the follow-

23 ing new sentence immediately after the first sentence thereof:

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1

"No foreign bank may move any insured branch from one

location to another without such eonsent.".

(28) The first sentence in section 18 (g) is amended by

4 inserting "and in insured branches of foreign banks" im-

5 mediately after "in insured nonmember banks".
6

(29) Section 18 (j) is .amended by adding at the end

thereof the following new sentence: "The provisions of this

subsection shall not apply to any foreign bank having an in-

9 sured branch with respect to dealings between such bank and

10 any affiliate thereof which is principally engaged in business

11 outside the United States, and with respect to any dealings

12 involving such bank to which the provisions of this subsection
13 apply, the Board of Governors of the Federal Reserve System
14 may make such exemptions or exceptions as it determines to

15 be reasonable and appropriate in the light of the different
16 organizational structure or character of business conducted

17 by such bank or any branch, agency, subsidiary, or affiliate
18 thereof.".
19
20

(30) Section 21 is amended by adding at the end thereof
the following new subsection :
"(i) The provisions of this section shall not apply to

22 any foreign bank except with respect to the transactions and
23
24

records of any insured branch of such a bank.".
( 31) The first sentence of section 25 (a) is amended by

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1 inserting "insured branch of a foreign bank," immediately
2

after "No insured bank,".
AUTHORITY OF FEDER.AL RESERVE SYSTEM

3
4

SEC. 7. (a) ( 1) (A) Except as provided in paragraph

(2) of this subsection, subsections (a), (b), (c), (d), (f),

(g), (i), (j), (k), and the second sentence of subsection

(e) of section 19 of the Federal Reserve Act shall apply to

8 every Federal branch and Federal agency of a foreign bank
9 in the same manner and to the same extent as if the Federal
10 branch or Federal agency were a member bank as that term
11 is defined in section 1 of the Federal Reserve Act; but the
12 Board either by general or specific regulation or ruling may
13 waive the minimum and maximum reserve ratios prescribed

14 under section 19 of the Federal Reserve Act and may pre15 scribe any ratio, not more than 22 per centum, for any obli16 gation of any such Federal branch or Federal agency that
17 the Board may deem reasonable and appropriate, taking in18 to consideration the character of business conducted by such

19 institutions and the need to maintain vigorous and fair com20 petition between and among such institutions and member
21 banks. The Board may impose reserve requirements on Fed22 eral branches and Federal agencies in such graduated man23 ner as it deems reasonable and appropriate.
24

(B) After consultation and in cooperation with the

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1 State bank supervisory authorities, the Board may make
2 applicable to any branch or agency, or (except as provided

3 in paragraph ( 3) of this subsection) any commercial lend4 ing company controlled by one or more foreign banks or one
5 or more foreign companies that control a foreign bank, any
6 requirement made applicable to, or which the Board has
7 authority to impose upon, any Federal branch or agency
8

under subparagraph (A) of this paragraph.
(2) A branch or agency shall be subject to this subsec-

10 tion only if (A) its parent foreign bank has total worldwide
11 consolidated bank assets in excess of $1,000,000,000; (B)
12 its parent foreign bank is controlled by a foreign company

13 which owns or controls foreign banks that in the aggregate
14 have total worldwide consolidated bank assets in excess of
15 $1,000,000,000; or ( C) its parent foreign bank is controlled
16 by a group of foreign companies that own or control foreign
17

banks that in the aggregate have total worldwide consoli-

18 dated bank assets in excess of $1,000,000,000.
19

(3) A commercial lending company shall be subject to

20 this subsection only if it is controlled (A) by a foreign
21 bank that has total worldwide consolidated bank assets in
22 excess of $1,000,000,000; (B) by a group of foreign banks
23 that, in the aggregate, have total worldwide consolidated
24 bank assets in excess of $1,000,000,000;~ (C) by a foreign
25 company that owns or controls a foreign bank or banks that

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1 m the aggregate have total worldwide consolidated bank
2 assets in excess of $1,000,000,000; or (D) by a group of
3 foreign companies that own or control a foreign bank or,
4 banks that in the aggregate have total worldwide consolidated

5 bank assets in excess of $1,000,000,000.
6

(b) Section 13 of the Federal neserve Act is amended

7 by adding at the end thereof the following new paragraph:
8

"Subject to such restrictions, limitations, and regulations

as may be imposed by the Board of Governors of the Fed-

eral neserve .System, each Federal Reserve bank may

11 receive deposits from, discount paper endorsed by, and make
12 advances to any branch or agency of a foreign bank, and
13 any commercial lending company in the same manner and
14 to the same extent that it may exercise such powers with
15

respect to a member bank if such branch, agency, or com-

mercial lending company is maintaining reserves with such

17 Reserve bank pursuant to section 7 of the International

18 Banking Act of 1978. In exercising any such powers with
19 respect to any such branch, agency, or commercial lending
20 company, each Federal Reserve bank shall give due regard
21 to account balances being maintained by such branch, agen22 cy, or commercial lending company with such Reserve bank
23 and the proportion of any such branch, agency, or commer24 cial lending company's assets being 4_eld as reserves under
25 section 7 of the International Banking Act of 1978. For the

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1 purposes of this paragraph, the terms 'brunch', 'agency',
2 'foreign bank', and 'commercial lending company' shall haYe
3 the same meanings assigned to them in section 1 of the
4 International Banking Act of 1978."
5

( c) ( 1) The applicable State banking authorities when

6 requested by the Federal Reserve shall submit to the Board a
7 copy of any examination report made by the applicable State
8 bank supervisory authority on each branch or agency of n
9 foreign bank established or operating pursuant to State law
10 and each commercial lending company controlled by one or

11 more foreign banks or by one or more foreign companies that
12 control a foreign bank. The Board is authorized to require
13 submission of additional information regarding the exam14 ination reports submitted under this subsection.

(2) Each branch or agency of a foreign bank, other than

16 a Federal branch or agency, and each connncrcinl lending
17 company controlled by one or more foreign banks or by one
18

or more foreign companies that control a foreign bank, s110.ll

be subject to paragraph 20 and the provision requiring the

20 reports of conditioa contained in paragraph 6 of section H
21 of the Federal Rese1Te Act ( 12 U.S.C. 335 and 32-!) to the
22 same extent and in the same manner as if the branch, agency,
23 or commercial lending company were a State member bank.
24 In addition to any requirements imposed under section 4 of
25 this Aot, each Federal branch and agency shall be subject

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1 to subparagraph (a) of section 11 of the :Federal Reserve
2 Act ( 12 U .S.C. 248 (a) ) and to paragraph 5 of section 21
3 of the :Federal Reserve Act ( 12 U.S.C. 483) to the same

4 extent and in the same manner as if it were a member bank.
5

(d) On or before two years after enactment of this Act,

the Board after consultation with the appropriate State bank

7 supervisory authorities shall report to the Committee on
8 Banking, Finance and Urban Affairs of the United States
9 House of Representath·es and the Committee on Banking,
10 Housing, and Urban Affairs of the United States Sen11 ate its recommendations with respect to the implementa12 tion of this Act, including any recommended requirements
13 such as limitations on loans to affiliates or capital adequacy
14 requirements which should be imposed on banks covered hy
15

this Act to assure the safety and soundness of such bank-

ing operations.

NONBANKING ACTIVITIBS

SEC. 8. (a) Except as otherwise provided in this sec-

19 tion ( 1) any foreign bank that maintains a branch or
20 agency in a State, ( 2) any foreign bank or foreign company
21 controlling a foreign bank that controls a commercial lend22 ing company organized under State law, and (3) any com23 pany of which any foreign bank or company referred to in
24

( 1) and ( 2) is a subsidiary shall be subject to the provisions

25 of the Bank Holding Company Act of 1956, and to sections

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1 105 and 106 of the Bank Holding Company Act Amend2 ments of 1970 in the same manner and to the same extent
3 that bank holding companies are subject thereto, except that
4 any such foreign bank or company shall not by reason of this

5 subsection be deemed a bank holding company for purposes
6 of section 3 of the Bank Holding Company Act of 1956.
7

(b) After December 31, 1985, no foreign bank or other

8 company to which subsection (a) applies on the date of
9 enactment of this Act may retain direct or indirect owner10 ship or control of any voting shares of any nonbanking
11 company in the United States that it owned, controlled, or
12 held with power to vote on the date of enactment of this
13 Act or engage in any nonbanking activities in the United

14 States in which it was engaged on such date unless author15 ized by subsection ( c) of this section or by the Board of
16 Governors of the Federal Reserve System under section 4
17 of the Bank Holding Company Act of 1956.
18

19 hibitions of subsection (b) of this section, a foreign bank or

20 other company to which subsection (a) applies on the date
21 of enactment of this Act may continue to engage in non22 banking activities in the United States in which directly or
23 through an affiliate it was lawfully engaged on May 23,
24

1977 (or on a date subsequent to May 23, 1977, in the case

25 of activities carried on as the result of the direct or indirect

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1 acquisition, pursuant to a binding written contract entered
2

into on or before May 23, 1977, of another company engaged

in such activities at the time of acquisition) and may retain

direct or indirect ownership or control of any voting shares

of any non banking company that it ( 1) owned, controlled,

or held with power to vote on May 23, 1977 (or on a

7 date subsequent to May 23, 1977, if acquired by a written
8 contract entered into on or before such date) and ( 2) that
9

does not engage in any activities other than those in which

10 sueh foreign bank, company, or affiliate may engage by
11 virtue of this subsection or section 4 of the Bank Holding
12 Company Act of 1956; except that the Board by order,
13 after opportunity for hearing, may terminate the authority
J4

conferred by this subsection ( c) on any such foreign bank

15 or company to engage directly or through an affiliate in any
16

activity otherwise permitted by this subsection ( c) if it

17 determines, having due regard to the purposes of this Act

18 and the Bank Holding Company Act of 1956, that such
19 action is necessary to prevent undue concentration of re20 sources, decreased or unfair competition, conflicts of interest,
21 or unsound banking practices in the United States. Nothing
22 in this subsection (c) shall be construed to authorize any
23 foreign bank or company referred to in this subsection ( c) ,
24 or any affiliate thereof, to engage in activities authorized by
25 this subsection ( c) through the acquisition, pursuant to a

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1 contract entered into after May 23, 1977, of any interest
2 in or the assets of a going concern engaged in such activities.
3

Any foreign bank or company that is authorized to engage

4 in any activity pursuant to this subsection (c) but, as a
5

result of action of the Board, is required to terminate such

6 activity may retain the ownership of control of shares in any

7 company carrying on such activity for a period of two years

from the date on which its authority was so terminated by

the Board. As used in this subsection, the term "affiliate"

shall mean any company more than 5 per centum of whose

11 voting shares is directly or indirectly owned or controlled or
12 held with power to vote by the specified foreign bank or
13 company.
14

(d) Nothing in this section shall be construed to define

15 a branch or agency of a foreign bank or a commercial lend16 ing company controlled by a foreign bank or foreign com-

17 pany that controls a foreign bank as a "bank" for the pur18 poses of any provisions of the Bank Holding Company Act
l!J

of 1956, or section 105 of the Bank Holding Company Act

Amendments of 1970, except that any such branch, agency

21 or commercial lending company subsidiary shall be deemed
22 a "bank" or "banking subsidiary", as the case may be, for
23

the purposes of applying the prohibitions of section 106 of

24 the Bank Holding Company Act Amendments of 1970 and
25 the exemptions provided in sections 4 (c) ( 1) , 4 (c) ( 2) ,

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1

4 ( c) ( 3) , and 4 (c) (4) of the Bank Holding Company

Actof1956 (12U.S.C.1843(c) (1), (2), (3),and (4))

to any foreign bank or other company to which subsection

(a) applies.

(e) Section 2 (h) of the Bank Holding Company Act

of 1956 is amended ( 1 ) by striking out " (h) The" and

7 inserting in lieu thereof " (h) ( 1) Except as provided bv

8 paragraph (2), the", (2) by striking out the proviso, and
9

( 3)

by inserting at the end thereof the following:
" ( 2) The prohibitions of section 4 of this Act shall not

11 apply to shares of any company organized under the laws of
12 a foreign country ( or to shares of any subsidiary of such
13 company principally engaged in activities incidental to the
14 business of the parent) that is principally engaged in business
15

outside the United States if such shares are held or acquired

by a bank holding company organized under the laws of a

17 foreign country that is principally engaged in the banking

18 "business outside the United States, except that (1) such a
19 company (A) may engage in the business of underwriting,
20 selling or distributing securities in the United States only to
21 the extent that a bank holding company may do so under this
22 Act and under regulations or orders issued by the Board
23

under this Act, and (B) may engage in the United States in

24 any banking or financial operations or types of activities per25 mi tted under section 4 ( c) ( 8) or in any order or regu!ation

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1

issued by the Board under such section only with the Board's

prior approval under that section, and (2) no domestic office

::{ or subsidiary of a bank holding company or subsidiary thereof
4 holding shares of such company may extend credit to a
5 domestic office or subsidiary of such company on terms more
6 favorable than those afforded similar borrowers in the United
7 States.
8

" ( 3) For purposes of this subsection, (A) a bank hold-

ing company may not in any case be considered to be 'prin-

10 cipally engaged in the hanking business outside the United
11 States' if its principal banking subsidiary is located in the

12 United States; and (B) 'domestic' means located in the
13

United States or organized under the laws of the United

14 States or any State thereof."
15
16

GUIDELINES FOR FOREIGN BANK OPERATIONS

SEC. 9. (a) The Secretary of the Treasury in issuing

17 guidelines under this section, and the Federal regulatory
18 agencies in the administration of this Act, shall seek to

19 achieve a parity of treatment for foreign banks, branches,
20 agencies, and commercial lending companies relative to their
21 domestic counterparts. It is the purpose of this Act to estab22 lish a basic statutory framework which, giving due consid23 eration to the structure of our domestic monetary mechanisms
24 and our national interests, will, to the extent practical, allow
25 foreign banking institutions to have the same rights, duties,

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1 and privileges and be subject to the same limitations, restric2 tions, or conditions as our domestic banking institutions, but
3

the Secretary of the Treasury is authorized and directed to

take into account the treatment by foreign go~ernments of

financial institutions domiciled in the United States which

do business in their respective countries. It is the intenF of

the Congress that this Act shall establish a pattern for

equitable treatment which State regulators may adopt m

their regulation of foreign banking institutions.

(b) The Secretary of the Treasury shall issue guide-

11 lines with respect to the· banking operations of foreign banks,

12 companies, and individuals in the United States, in order to

13 assist Federal and State banking agencies in acting on appli14

cations by such foreign banks, companies, and individuals

to establish bran-ches or agencies of foreign banks in any

16 State or to acquire interests in banks, corporations organized
17 under sections 25 or 25 (a) of the Federal Reserve Act, or
18 commercial lending companies organized under State
19

( c)

law.

Whenever the Comptroller of the Currency re-

20 ceives an application to establish a national bank that

will

21 be controlled by a foreign cotnpany or group of foreign
22 companies, or a Federal branch or agency of a foreign
23

bank, he shall send a copy to the Secretary of State, the

Secretary of the Treasury, the Board of Governors of the

•

25 Federal Reserve System, and the bank supervisory au-

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1 thority of the State where the bank, branch, or agency is
2 to be located. He shall wait thirty days for such officials to

3 submit their views before acting on the application.
4

(d) Whenever a State bank supervisory authority

5 receives an application to establish a branch or agency of a
6 foreign bank or to organize a bank or a commercial lending

:z
s

company that will be controlled by a foreign company or
group of foreign companies, he shall transmit a copy of such

9 application to the Secretary of the Treasury, the Secretary of

10 State, and the Board of Governors of the Federal Reserve
11 System, and shall allow a thirty-day ,_period within which
12 their views and recommendations may be submitted.
13

( e) Whenever the Board of Governors of the Federal

14 Reserve System receives an application from a foreign com15 pany or group of foreign companies for approval under sec16 tion 3 of the Bank Holding Company Act of 1956 ( 12

17 U.S.O. 1842) or receives an application from a foreign bank
18 under section 25 or 25 (a) of the Federal R~erve Act and

19 whenever the responsible Federal banking agency under the
20 Bank Merger Act (12 U.S.O. 1828 (c)) receives an appli21 cation under that Act involving a bank that is controlled by
22 a foreign company or group of foreign companies, it shall
23 transmit a copy of such application to the Secretary of the
24 Treasury and the Secretary of State and allow a thirty-day

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1 period within which their views and recommendations may
2 be submitted.
3

(f) ( 1) Every branch or agency of a foreign bank

4 and every commercial lending company controlled by one or
5 more foreign banks or by one or more foreign companies
6 that control a foreign bank shall conduct its operations in the
7 United States in full compliance with provisions of any law of

the United States or any State thereof which-

(A) prohibit discrimination against any individual

or other person on the basis of the race, color, religion,

sex, marital status, age, or national origin of (i) such

individual or other person or (ii) any officer, director,

employee, or creditor of, or any owner of any interest

in, such individual or other person; and

(B)" apply to national banks or State-chartered

banks doing business in the State in which such branch

or agency or commercial lending company, as the case

may be, is doing business.

(2) Notwithstanding any other provision of law, no ap-

20 plication for a branch or agency under this Act shall be
21

approved by the Comptroller and no application referred to

22 in subsection ( c) , ( d) , or (e) of this section shall be

23 approved by the Comptroller, the Board of Governors of
24

the Federal Reserve System, or a State bank supervisory

authority, as the case may be, unless the entity making the

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1

application has agreed to conduct all of its operations in the

United States in full compliance with provisions of any

law of the United States or any State thereof which-

(A) prohibit discrimination against individuals or

other persons on the basis of the race, color, religion,

sex, marital status, age, or national origin of (i) such

individual or other person or (ii) any officer, director

employee, or creditor of, or any owner of any interest

in, such individual or other person; and

(B) apply to national banks or State-chartered

banks doing business in the St.ate in which the entity

to be established is to do business.

REPRF.SENTATIVE OFFICF,S

SEC. 10. (a) Any foreign bank that maintains an office

15 other than a branch or agency in any State shall register
16 with the Secretary of the Treasury in accordance with
17 rules prescribed by him, within one hundred and eighty days
18 after the date of enactment of this Act or the date on which

19 the office is established, whichever is later.
20

(b) This Act does not authorize the establishment of

21 any such office in any State in contravention of Stat.e law.

22
23

CEASE-AND-DESIST ORDERS

SEO. 11. Subsection (b) of section 8 of the Federal

24 Deposit Insurance Act (12 U.S.C. 1818_(b)) is amended
25 by adding at the end thereof the following new paragraphs:

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1

"(4) This subsection and subsections (c), (d), (h),

(i), (k), (1), (m), and (n) of this section shall apply to

any branch, agency, and any commercial lending company

controlled by one or more foreign banks or by one or

more foreign companies that control a foreign bank, aa

those terms are defined in the International Banking

7 Act of 1978, in the same manner as they apply to an

insured bank, and for that purpose the appropriate Federal

banking agency shall be the Comptroller of the Currency

10 with respect

to a Federal branch or agency of a foreign

bank and the Board of Govemors of the Fedeml Reserve

12 System with respect to a branch, agency, or commercial
13 lending company subsidiary operating pursuant fio St.ate
14 law.

"(5) This subsection and subsections (c), (d), (h),

(i), (k), (l), (m), and (n) of this section shall apply

17 to any foreign bank or company to which subsection. (a)
18 of section 8 of the International Banking Act of 1978
19 applies and to any subsidiary ( other than a bank) of any
20

such foreign bank or company in the same mamier as they

21 apply to a bank holding company and any subsidiary there22 of (other than a bank) under subparagraph (3) of this sub23

section. For the purposes of this subparagraph, the term

24 'subsidiary' shall have the meaning assigned to it in section 2

26 of the Bank Holding Company Act of 1956.".

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1
2

AMENDMENT TO THE BANKING ACT OF 19 3 3

SEC. 12. Section 21 of the Banking Act of 1933 ( 12

3 U.S.C. 378) is amended by striking clause (B) of para4 graph ( 2) of subsection (a) thereof and inserting in lieu
5 thereof the following: "(B) shall be permitted by the United
6 ·States, any State, territory, or district to engage in such
7 business and shall be subjected by the laws of the United

8 States, or such Sta.te, territory, or district to examina.tion

9 and regulations or,".
10
11

REGULATION AND ENFORCEMENT

SEC. 13. (a) The Comptroller and the Board are au-

12 thorized and empowered to issue such rules, :regulations, and
13 orders as each of them may deem necessary in order· to per14 form their respective duties and functions under this Act and
15 to administer and carry out the provisions and purposes of
16 this Act and prevent evasions thereof.
17

(b) In addition to any powers, remedies, or sanctions

18 otherwise provided by law, compliance with the requirements
19 imposed under this Act or any amendment made by this Act

20 may be enforced under section 8 of the Federal Deposit
21 Insurance Act'by any appropriate Federal banking agency
22 as defined in that Act.
23

24 Act to which a foreign bank or branch thereof is subject
25 under this Act, and which is made applicable to nenmember

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1 insured banks by the Federal Deposit Insurance Act,
2 whether by cross-reference to the Federal Reserve Act or by
3 a provision in substantially the same terms in the Federal
4 Deposit Insurance Act, the administration, interpretation,
5

and enforcement of such provision, insofar as it relates to any

foreign bank or branch thereof as to which the Board is an

7 appropriate Federal banking agency, are vested in the Board,

8 but where the making of any report to the Board or a Fed9 eral Reserve bank is required under any such provision the
10 Federal Deposit Insurance Corporation may require that a
11 duplicate of any such report be sent directly to it. This sub12 section shall not be construed to impair any power of the

13 Federal Deposit Insurance Corporation to make regular
14 or special examinations or to require special reports.
Passed the House of Representatives April 6, 1978.
Attest:

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EDMUND L. HENSHAW, JR.,
Olerk.

349
AMERICAN
BANKERS
ASSOCIATION

1120 Connecticut Avenue. N.W
Washington, D.C.
20036

PUSmlNT
A.A.Mllllgan
President

Bank of A. Levy
Oxnard, C.Hfornla 93032

June 28, 1978
The Honorable Thomas J. McIntyre
Chairman
Subcommittee on Financial Institutions
Connnittee on Banking, Housing and
Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
The American Bankers Association welcomes the opportunity to present
our views on H.R. 10899, The International Banking Act of 1978.
Foreign banks operating in the United States are, under present law,
primarily governed by the statutes and regulations of the various states.
We believe that a greater degree of federal presence is appropriate
for foreign-controlled banking in the United States.
In the past decade, international trade and investment have grown at
a spectacular rate. Many United States banks 11K>ved abroad to be in a more
advantageous position to serve their multi-national customers. Conversely,
direct foreign investment in the United States economy has increased at a
substantial rate and foreign banks quickly followed their customers' investment to the United States. Based on these developments, it is reasonable
that the federal bank regulatory agencies ~ssume a more active role in the
supervision and regulation of foreign-controlled banking entities operating
in this country.
The banking industry in the United States welcomes the competition
arising from the direct participation of foreign-controlled banking entities
in our economy. At the same time, we believe foreign and domestic banks
should compete on a level playing field and abide by the same rules and
regulations. In assessing the impact of legislation on competing domestic
financial institutions, the Association applies a broad set of criteria
that tests the legislation against the best interests of the American public and the financial connnunity. One of those criteria is embodied in the
question -- does the proposal achieve or maintain equal competitive treatment a11K>ng the various types of competing financial institutions?
We believe H.R. 10899, to a degree, accomplishes this goal. However,
the objective of equal treatment of all financial institutions could be
more nearly achieved if certain recommendations regarding Sections 5 and
7 were accepted.

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Section 5 of H.R. 10899 would permit foreign banks to continue to
operate and expand their interstate banking operations while domestic
banks continue to be deprived of this privilege. To continue to allow
foreign banks to establish branches in several states, albeit under
enabling state legislation, is inconsistent with the goal of equal treatment unless domestic banks are accorded the same right.
We recommend that this Act provide for consistent treatment of foreigncontrolled and domestically-chartered banking entities (either national or
state). To the degree that interstate activity is denied U.S. chartered
banking entities, it should not be available to foreign-controlled banking
entities. Consistent with this principle, we do not believe the interstate
branching restriction should be applicable to agencies of foreign banks, so
long as they limit their activities to internationally-related operations,
such as those currently permissible for Edge Act Corporations operating in
the United States.
Finally, if Section 5 is amended as we have suggested, we believe that
a grandfather clause should be enacted to protect those institutions that
have established interstate operations.
Section 7(a) would subject all branches, agencies and commercial lending
companies controlled by foreign banks with worldwide assets in excess of one
billion to the reserve and deposit rate controls of the Federal Reserve Board.
The American Bankers Association supports this provision.
In the past, the American Bankers Association has opposed granting this
authority to the Federal Reserve Board, on the grounds it was contrary to
the principles of the dual banking system. After careful deliberation, we
have concluded that these foreign-controlled banking entities operating in
the U.S. in the form of branches, agencies, and commercial lending companies
are unique and without comparable domestic counterparts. Under the circumstances, we support the extension of reserve setting authority to these
facilities. We continue to support the exemption of state-chartered subsidiaries of foreign-controlled banking entities, because they are identical
with other state-chartered banking entities which may, if they wish, choose
to become members of the Federal Reserve System.
Section 7(c) provides that the Federal Reserve Board may request from
state banking authorities copies of their examination reports of offices of
foreign banks authorized by the several states. The Board, however, does not
possess independent authority to examine the accounts, books and activities
of foreign-controlled banking entities operating under this authority in the
U.S. We believe that the examination of foreign-controlled banking entities
is a matter of national as well as state concern. We believe the cooperation

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and coordination of the state and federal regulatory agencies is necessary.
Further, we urge that the respective regulators take advantage of the newly
proposed Federal Examination Council for the purpose of coordinating and
sharing in the design and implementation of uniform examination standards
and procedures with respect to foreign-controlled banking entities.
Section 7(d) requires that the Federal Reserve Board report to Congress
within two years and assess the impact of the implementation of this Act on
foreign banking activities in this country.
We believe that this report should be rendered within one year after
final rules and regulations have been promulgated.
We hope these co11111ents will assist the Subcommittee in its consideration
of R.R. 10899.
Sincerely, •

A. A. Milligan
President
American Bankers Association

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Federal Reserve Bank of St. Louis

352
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June 21, 1978

The Honorable
Thomas J. McIntyre
Chairman, Subcommittee on Financial
Institutions of the Senate Committee
on Banking, Housing and Urban Affairs
Dirksen House Office Building
Washington, D.C.
20515
Dear Mr. Chairman:
This letter is written on behalf of our client, the Union
Bank of Bavaria, in connection with the hearings scheduled for
June 21, 1978, before the Subcommittee on Financial Institutions
considering the International Banking Act. We understand that the
number of witnesses at the hearing will be limited and, therefore,
would like to submit, by means of this letter, our client's views
on a portion of the bill whic~ is of vital interest to the Union
Bank of Bavaria,
It would be greatly appreciated if this letter
could be brought to the attention of the Committee members and
included in the record of the hearing,
The Bayerische Vereinsbank, or Union Bank of Bavaria, as it
is known in the United States, is a long established major banking
institution with branches in New York and Chicago and an agency in
Los Angeles.
The Union Bank of Bavaria is active in the commercial banking
sector, domestic and international, as well as in the investment
business.
It is the proscription of the latter activities contemplated in the legislation which causes our client some considerable concern and which we would like to bring to the notice of
the Committee in the hope that appropriate changes can be made in
the legislation,

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Presently, foreign banks may operate simultaneously in
commercial banking and investment banking in the United States
through legally separate and distinct entities. Section 8 of
the proposed International Banking Act would prohibit this
capability by providing in Section (b) that non-conforming
activities may be carried on until the end of 1985. Subsection
(c) grandfathers non-banking activities commenced prior to
May 23, 1977, subject to the power of the Federal Reserve Board
to terminate those activities pursuant to the Bank Holding
Company Act of 1956.
There is an inherent inequity in a situation which permits
a foreign bank which is engaged only in investment banking and
not commercial banking prior to May 23, 1977 to start commercial banking activity and retain their investment banking activity after December 31, 1985. On the other hand, a foreign bank
which is engaged in commercial banking but entered into investment activity after May 23, 1977 may continue the latter activity
only until December 31, 1985. This unequal treatment of the
grandfathering provision leads to discrimination and is harmful
to my client.
We fail to see the reason for this discrimination
and urge the Committee to bring the grandfathering provision in
Section 8(c) in line,dropping the May 23, 1977 date and inserting
instead the date of enactment of the legislation.
The aforesaid should in no way be construed as an endorsement
of the general principle of Section 8, prohibiting the foreign
commercial and investment banking activities.

On the contrary,

we strongly urge that there be no change from the present situation which has practical and beneficial consequences for the
United States. While purporting to legislate competitive equality,
the proposed legislation would have the exact opposite effect.
It
would legislate inequality by prohibiting at least some continental
banks from competing in the United States securities market. We
are certain that the Committee is aware that the banking structure
of many European countries, including Germany, provides for a
universal banking system, that is, the banking institutions provide
all financial services, including those provided in the United
States by investment banks and broker-dealers as well as those
provided by commercial banks.
These universal banking institutions
compete with each other in their respective home markets as well as
with the United States commercial banks and United States investment
banking houses.
In turn, these universal banks compete in the
United States against both commercial and investment banking institu-

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Federal Reserve Bank of St. Louis

354
tions with the significant difference that in the U.S. their
commercial and investment banking activities are completely
separated, with all securities activities conducted through
registered broker-dealers subject to SEC regulation. The
securities operations are always carried out by a legally totally independent company.
A conflict of interest between the two entities is a priori
impossible because of this legal construction. The capital
connection between the two entities through the universal bank
is no different than the parent~ equity participation in other
corporations outside of the United States or the parent bank's
participation in the business sector in the country of origin of
the parent bank.
It would appear to us that it is the responsibility of the legislatures of those countries to deal with the consequences of permitting universal banking practice. The German
Federal Republic banking supervisory authorities do have extensive
and detailed control powers at their disposal.
If the prohibitions contained in Section 8 are enacted, and a
foreign bank would be forced to choose between having commercial
banking or securities operations in the United States, the small
size of the existing investment banking subsidiary and the barrier
to growth would invariably cause the foreign bank to drop investment banking in favor of commercial banking.
The consequence
would be a lessening of competition in the United States securities
markets.
In furtherance of this goal, the amendments specifically
contemplated the continued operations of foreign security firms in
the United States markets.
The increased activity on the part of foreign investors in
the United States securities market with its beneficial effect on
all parties is in part traceable to the ability of foreign investment banking firms to operate in the United States. The House of
Representatives must have concurred at least in part with this
view since it.adopted a "grandfathering"clause for those institutions engaged in them prior to May 23, 1977, then it follows in
logic that it is equally valid for those engaged in them after
that date.
In summary, we would urge that investment bank activity not
be made subject to prohibition.
If, however, it is determined
to move in that direction, reason and fair play would dictate that
the grandfathering date be the date of enactment of the bill.

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355
Thank you, Mr, Chairman, for permitting us to present our
client's views and for including them in the records of these
hearings.

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Federal Reserve Bank of St. Louis

Sincerely yours,

~H-~Yi
Arnold H. Weiss

356
STATEMENT OF
THE ASSOCIATION OF RESERVE CITY BANKERS
ON H.R. 10899
lNTERNATIONAL BANK ACT
TO

'l'H~

UNlTED STATES SEN~T~

SUBCOMMITTEE ON FINANCIAL lNSTITUTIONS

The Association of Reserve City Bankers appreciates the opportunity
to comment on the International Banking_Act (H.R. lu899) now under consideration by the Senate Banking Conunittee.
The Association of Reserve city Bankers was organized in 1913
shortly after the passage of the legislation which established the
Federal Reserve System. Its membership is comprisea of nearly 400
executive officers from over 160 banks located in the principal cities
of the United States (the Reserve cities). International banking and
loans to multinational concerns are major factors both for the present
and future economic well being of these banks. This business, as well
as the domestic loan business, is threatenea by the non-regulated
activities of foreign banks and their branches in this country.
In the last five years, large foreign banks operating in the
United States have dramatically changea their policies and practices,
while increasing their assets and numbers of installations. This
strongly competitive effort is encouragea by our present regulatory
system, which gives foreign banks branching and reserve requirement
advantages over domestic banks. Legislation is needea to correct this
unequal treatment and permit fair competition.
In previous years, the activities of foreign banks in this country
were designed primarily to facilitate trade and the flow of long term
investments between the United States and otner countries. At present
these banks are competing vigorously with aomestic banks for conunercial
and industrial loans, money market operations, and even in some instances
retail banking. From 197~ to mid 191·1, the number of foreign banks
operating in this country increased from 52 to 9b, and the number of
their facilities from lUO to 20U • .According to the Federal Reserve,
their assets increased during this perioa from $18.3 b. to $61.9 b.
Commercial and industrial loans made by U.S. offices for foreign banks
now equal nearly 20% of the loans made by large U.S. banks to domestic
and foreign borrowers. In the state of New York, foreign bank loans
approximate 371 of all loans reported. Recently three foreign banks
have been negoti~ting the purchase of three major united States banks,
a move which indicates even further competitive efforts by these banks.
Assets of the parent foreign banks with U.S. operations exceed one
trillion dollars, or approximately the size of total U.S. aomestic
banking assets. Because of their vast resources and the wide range of
services offered, the competition from these banks is an increasing

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Federal Reserve Bank of St. Louis

357
economic threat to _our domestic banking system.
H.R. 10H99, as passed by the House of Representatives, would permit foreign banks to expand their interstate banking operations wnile
domestic banks would remain subject to the restrictions on interstate
branching set down by the McFadden Act. Foreign Banks are primarily
engaged in wholesale, not retail banking. Their customers are generally
large corporations requiring a full line of services in various states
of the U.S. and in many foreign countries. Many of these corporations
• have switched their business to branches of foreign banks because of
the latter's ability to provide all of the corporations' domestic banking requirements in several states. If the corporation has overseas
business, these large foreign banks usually nave branches in these
countries to serve them. The fact that a corporation can transact its
entire banking business with one bank is an important reason foreign
banks are attracting u.s. corporate customers. Loan production offices
of major domestic banks which are- 1oca~ed in various states cannot
effectively compete with foreign branches since they cannot accept deposits and loans are processed in the banks' neadquarters. Edge Act
corporations are at a disadvantage because of low leverage ratios and
having to adhere to reserve requirements and Reg M restrictions. Limitations to a single borrower of a foreign bank are milder than those
affecting most U.S. banks. Because of the above regulatory inequities
and tne rapid progress of foreign banks, ARCB believes that the time for
remedial legislation regarding foreign banks has arrived.
Section 5 of H.H. 1089~ would allow forPiqn banks to establish
branches, agencies, commercial lending SUbsictiaries, or subsidiary
bank outside of·its home state in states wnicn approve of this development. This provision is undesirable as it is unfair to limit branching
for domestic banks and allow foreign banks to escape the strictures of
the McFadden ·Act. ARCB supports the position of BAFT, ABA, and the Federal Reserve Board which is that, until such time as the McFadden Act is
reviewed by the Congress, foreign banks should be subject to the same
general restrictions on their interstate banking operations as apply to
domestic institutions. ARCB does not believe it is wise or fair to
domestic banks to allow foreign banks this competitive advantage in the
hope that Congress will be forced to change tne McFadden Act sometime
in the future. ARCB agrees with the Fed cnairman in that the McFadden
Act should be changed by direct confrontation and not by a back door
approach. Any future changes in the McFadden Act would then apply
automatically to foreign banks with Federal branches. In the interim,
foreign banks would be able to take advantage of any reciprocal branching
statutes enacted by tne states. ARCB believes this equitable solution
would be in the national interest •.
we would be nappy to answer any questions regarding our position
on H.R. 10899.

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Federal Reserve Bank of St. Louis

358

FRENCH AMERICAN BANKING CORPORATION
ONE TWENTY BROADWAY, NEW YORK, N.Y. 10005

CABLE ADDRESS: FRENAMBANK
TELEPHONE: (212) 964-4127

June 28, 1978

The Honorable Thomas J. McIntyre
Chairman
Subcommittee on Fianncial Institutions
Committee on Banking, Housing and
Urban Affairs
United States Senate
Washington, o.c. 20010

Re:

International Banking Act (H.R.10899) Article XII Investment Companies in
New York

Dear Mr. Chairman:
I am writing to urge the attention of your Committee to the impact of the proposed International Banking
Act (H.R.10899) on the foreign-owned banking organizations
in New York popularly known as Article XII investment companies. These organizations, which include my own company,
would be regulated as "commercial lending companies" under
the bill.
The investment companies operate under Article
XII of the New York Banking Law. They are specialized banking institutions chartered, supervised, and examined by the
New York Banking Department. They have a long history.
French American Banking Corporation ("French American") was
organized in 1919 to finance a renaissance of international
trade between Western Europe and the United States after
World War I. J. Henry Schroder Banking Corporation was
organized in 1923, and European-American Banking Corporation
in 1952. All three are owned by prominent European banks.
French American is primarily engaged in financing international trade and commerce; it is a subsidiary of Banque
Nationale de Paris (BNP), the largest commercial bank in
France.
New York is extremely careful in the granting of
such charter. Only three additional charters for foreignowned investment companies have been granted since 1952.

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Nordic American Banking Corporation, organized in 1975, is
owned by a Swedish bank. Baer American Banking Corporation,
organized in 1976, is owned by a Swiss bank. Recently, a
new charter was granted to a group of Argentinian banks.
Our principal concern about the bill is that it would
regulate the operations of the Article XII investment companies
by rules normally applied only to conunercial banks. Under
Article XII of the New York Banking Law, the investment companies may not accept deposits and therefore operate under
restrictions which differ from those applicable to banks.
Article XII investment companies may maintain "credit
balances" for their customers incidental to the performance of
specialized banking services. However, this does not allow
them to receive idle deposits or to issue certificates of
deposit. The impact of standard banking regulation on these
nondepository institutions could force them to curtail their
operations, since they would have the same costs which domestic
or foreign banks have, but without the full charter powers of
a commercial bank.
I do not see any significant competitive advantages
of participation in the New York banking market through Article
XII investment companies. New York City is an open and competitive banking market for all kinds of international banking
services. Domestic banks not located in the market may participate through federally chartered Edge Act corporations. So
far as I know, there are no counterparts to the Article XII
investment company in other states.
The foreign-owned investment companies are principally engaged in servicing the banking needs of their international customers in New York City. As a bank holding company subject to Federal Reserve Board regulation, BNP owns
French American with Federal Reserve Board approval conditioned
upon the limitation that French American shall remain "principally engaged in financing or facilitating transactions
in international or foreign conunerce." The fact that French
American's state charter privileges do not conform precisely
with the federal charter restrictions of the Edge Act would
seem to me to be far less important than the essentially similar
international thrust of its activities.

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360
I do not see any significant supervisory problems
if the investment companies are not regulated under Section 7
of the bill. These companies have been responsible citizens
of the New York banking community. The types of potential
p~oblems cited in the testimony of the FDIC Chairman for
the effective regulation of foreign banks simply have no
application to the investment companies. As American chartered companies they have locally accountable management and
capital. The directors of French American include prominent
Americans who have served for a number of years on the board.
Moreover, the three principal Article xninvestment
companies are regulated by the Federal Reserve Board under
the Bank Holding Company Act. Under section S(c) of that
Act, the Board already possesses the authority to examine
these companies, if any regulatory problems should occur.
As to the other Article XII's, they are all sirigle
state operations capable of being supervised and examined by
the New York Banking Department, both in their banking activities and in their affiliate relationships. As Superintendent Siebert has pointed out, the Banking Department has
over a century of experience in supervising foreign bank
operations. The foreign banks owning these companies could
develop multistate operations only through branches, agencies,
or subsidiary banks, in which case the examination provisions
of the Bank Holding Company Act would become applicable to
them under the provisions of Section 8 of the bill.
For these reasons, I believe that consideration should
be given to excluding the commercial lending companies from
the bill, as originally recommended by the Federal Reserve
Board in the 94th Congress. The Article XII investment companies have been the subject of other comment in these hearings
and in the House deliberations. European-American Banking
Corporation and J. Henry Schroder Banking Corporation addressed their views at pages 775-781 of the Hearings on H.R.7325
before the House Banking Subcommittee chaired by Rep. St.
Germain. The New York State Superintendent of Banks commented in both her oral and written statements to your Committee on June 21, 1978. I commend these remarks to your
attention. In addition, I am attaching a brief memorandum
dealing with the subject in more detail and suggesting ways
in which the commercial lending companies might be included
in the bill without serious adverse effect on their operations.

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361
I would like to emphasize that French American is
a domestic institution. It is therefore somewhat anomalous
to seek to equate it with domestic counterparts as if it were
a foreign institution. There are a number of Article XII
investment companies owned by domestic companies. They include the nation's largest finance companies, such as CIT
Corporation, Commercial Credit co., General Motors Acceptance
Corporation, and General Electric Credit Corporation. These
companies are major participants in the money and credit
markets. They are important to the credit conditions on which
monetary policy focuses.
Moreover, there is one commercial lending company
which functions under Article V of the New York Banking Law
as an agency comparable to an agency of a foreign bank.
American Express International Banking Corporation is a Connecticut corporation authorized to receive "credit balances"
in New York incidental to its mult'inational banking business.
The other Article XII's which are domestically
controlled and the one commercial lending company under
Article V would be excluded from the bill because they are
not "controlled by one or more foreign banks."
Finally, there seems to be a strong feeling among
domestic banks that Edge Act corporations are being overregulated. This feeling would appear to be earnestly shared
by some members of your Committee. Senator Stevenson expressed the view in the hearings that liberalization of the
Edge Act would serve to promote U.S. exports. I would hope
therefore that State-chartered international banking corporations, such as French American, would not be shackled
with new regulations. That would seem to be counterproductive.
The Bank Holding Company Act requires subsidiary
banks to be fully insured, but leaves membership in the
Federal Reserve System voluntary. It is, therefore, particularly difficult to understand why H.R.10899 should subject
State-chartered organizations which cannot accept deposits
mandatorily to a federal system of reserves on their "credit
balance" liabilities when State banks receiving deposits may
be within or outside of such federal system at the option of
each bank.

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362
Foreign-owned Article XII investment companies
have operated responsibly under State supervision and regulation, some of them for a long period of years. Their
operations have been shaped according to State concepts
of international banking and have been built in reliance
upon the integrity of their State charters. The policy
reasons for dislocating the operations of a handful of
State-chartered organizations in New York City, representing a very small portion of the money supply, by changing their
methods and costs of doing business are not apparent.
I very much appreciate your courtesy in receiving
these views. I would request that this letter and the attached memorandum be included in the record of your hearings.
~e~lyymrs,
/

,'~~~

l.✓,Gilbert Bubendorff,
President

Enclosure

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363
June 28, 1978

Detailed Comments of French
American Banking Corporation
on H.R.10899

Interstate Banking
Section 5 of the bill regulates interstate banking
through "commercial lending co~anies."
have been advanced.

Various solutions

The main purpose should be to facilitate

the continued operation of the existing foreign-owned Article
XII investment companies according to the concept of their
State charter.

Their business has been built in reliance

upon the integrity of that charter and has been shaped in
response to the State pattern of international banking activities.
This means that Section 5 should not federalize
the "commercial lending companies" on the strict Edge Act
model.

It would be better to allow their operations to con-

tinue to be shaped in response to the considerable experience
which lies behind the banking laws of the State of New York.
If federal regulation is necessary, it should be structural
rather than preemptive; that is to say, it should condition
access to interstate operation either upon the approval of the
state bank regulatory authority or, if a stricter rule is
desired, upon a state statute inviting out-of-state banks to

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Federal Reserve Bank of St. Louis

364
acquire commercial lending companies.

New federal policies

should be applied only prospectively in a way that respects
operations established in good faith under existing law.
The House-passed version is preferable in promoting
continued free access to the New York banking market.

How-

ever, even the rejected House Banking Committee version
(H.R.10899, Union Calendar No. 460) is better than the solution now being advanced by the Federal Reserve Board because
the former respects the integrity of the State charter under
which Article XII investment companies operate, whereas the
latter seeks to federalize effective charter privileges.
Fre.nch American Banking Corporation ( "French American")
is the largest banking operation in the United States of Banque
Nationale de Paris ("BNP").

BNP's logical choice of home state

under the bill is therefore New York.

However, Section 5

now omits any statement of grandfather rights and also provides that no foreign bank may "operate" a subsidiary bank
outside its home state.

Literally, this could force BNP

to choose California as its home state in order to continue
operation of its subsidiary bank, French Bank of California.
Since there appears to be no legislative intent to interfere
with established operations of foreign banks, the prospective
application of the section should be clarified by substituting the words "establish or acquire" in place of the word

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365
"operate" on line 2 of page 14.

Alternatively, if this be not

done, the problem could be cured by accepting those parts of
the Federal Reserve reconnnendations calling for liberalization
of the home state election and for Section 5 grandfathering as
of May 23, 1977.
Capital Support of Banking Affiliates
Section 6 would apply the percentage limitations of
Section 23A of the Federal Reserve Act to limit the capital
support which could be provided by any insured foreign bank
to its affiliated Article XII investment company.
not be sound banking policy.

This may

The U.S. banking authorities

should welcome such capital support.

Moreover, U.S. law does

not inhibit U.S. banks from supporting their foreign operations.
This impediment to capital support for U.S. banking
subsidiary is probably not intended.

It would occur because

BNP has branches in New York and Chicago for which it would
need to obtain federal deposit insurance.

Under Section

6(c) (29), BNP would be required, as an insured foreign bank,
to observe the limitations of Section 23A, of the Federal Reserve Act as if it were a member bank.

Under Section 23A,

a member bank may not invest more than 10 percent of its capital
in any one affiliate or more than 20 percent of its capital
in all affiliates.

30-563 0 • 78 •
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Federal Reserve Bank of St. Louis

BNP's existing investment in French

366
American is sufficiently large in proportion to BNP's capital
and surplus as to deny BNP's ability to provide further capital
support of any appreciable magnitude.
The Federal Reserve Board has recognized the flawed
structure of Section 6(c) (29) and has recommended the complete
elimination of restrictions on dealings of insured foreign
banks with their affiliates for the time being.

Under Section

7(d) of the bill, the Board is obligated to report back to
the Congress on the subject within two years.

Legislation

on affiliate transactions has been sponsored by the Federal
Reserve (S.2810) and will probably be considered-by the
Congress during this time span.

The Board's amendment to

Section 6(c) (29) would provide a good interim solution.
However, if there is any chance that the Board's
recommendation might not be adopted, there is an alternate
solution.

The present exemption in Section 6(c) (29) could be

expanded to include the relationship between foreign banks
and their affiliated Article XII investment companies by adding
the phrase "or subject to examination by a federal or State
bank supervisory authority" before the comma on line 11 of
page 30.
Reserve Requirements
Section 7 of the bill would impose federal reserve
requirements on connnercial lending companies controlled by

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367
foreign banks.

This would be a radical change.

Article XII

investment companies are not banks and are therefore not subject to any reserve requirements under State lawi they have
other important limitations, notably their inability to accept
idle funds or to sell certificates of deposit.

The cost

equation of Article XII investment company operations would
be substantially altered by the new reserves.
Functionally, reserve systems are designed for banks,
and yet the bill would not require reserves to be posted by
nonmember U.S. banks.

The exclusion of nonmember banks from

the reserve requirements of the bill appears to be a reflection
of the U.S. "dual banking" system.

State banks may choose

voluntarily to accept or reject participation in the federal
system of reserves.

They do so upon an assessment of relative

costs and benefits.
The New York State Superintendent of Banks has
expressed the view that the nondepository Article XII's should
not be subject to reserve requirements.

If the Article XII's

assess their costs and benefits in such a way as to prefer
not to be subject to the federal system of reserves, it is
simply a reflection of the fact that non-interest bearing
reserves would impose a severe cost disadvantage on an institution which cannot build its deposit base through idle
deposits or certificates of deposit.

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368
Reserve requirements could be excluded in the case
of the conunercial lending companies by making the following
changes in Section 7 of the bill:
On page 32, line 2, delete the conuna and the words
"or (except as providedn, and insert the words
"of a foreign bank".
On page 32, delete lines 3 and 4 and all of _line 5

except the word "any"
On page 32, delete subsection 7(a) (3) in its entirety.

Since the effect of these changes would be to eliminate the federal system of reserves for Article XII's, such
companies should not have discount privileges at the Federal
Reserve Banks.

Accordingly, a corresponding change would need

to be made in Section 7(b) of the bill by deleting all re• ferences therein to "cpmmercial lending companies" and by
making the references therein to branches and agencies read
"branch or agency", with the reference on page 34, lines 1-2,
reading "the terms, 'branch', 'agency', and 'foreign bank'
shall have. • • • 11
Examination
French American Banking Corporation is supervised
as a banking organization by the New York Banking Department
and is periodically examined at least once a year.

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369
French American is conservatively managed.

The

ratio of its loans to its customer "credit balance• accounts
has consistently gravitated around 60 percent.

Cash and bank

balances have averaged about 35 percent of total assets.

of December 31, 1977, the loan/customer account ratio stood
at 56 percent, and cash and bank balances amounted to 41 percent
of total assets.
As a subsidiary of a registered bank holding company
under the Bank Holding Company Act, French American is subject
to possible examination by the Federal Reserve Board under
Section 5(c) of the Bank Holding Company Act.
Nonbanking or Securities Finn Affiliations
BNP's affiliations are consistent with federal
bankirig law.

BNP owns its U.S. affiliates with the approval

of the Federal Reserve Board under the Bank Holding Company
Act.

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Federal Reserve Bank of St. Louis

370

M.A.

SCHAPIRO ~

Co.. INC.

ONE CHASE MANHATTAN PLAZA
NEW YORK, N.Y. l0005
TELt:PHONE· (2121 '425-9600
CABLE: MASCHAPIAO

June 13, 1978

Mr. William R. Weber
Counsel
Senate Banking, Housing and
Urban Affairs Committee
Room 5300
Dirksen Senate Office Building
Washington, D. C. 20510
Dear Mr. Weber:
Since its inception, I have been following the progress
of HR I0899, the International Banking Act, which has now been
passed by the House. It is noted that hearings will soon be held
on this legislation by the Subcommittee on Financial Institutions,
Chaired by Senator Thomas J. McIntyre.
I would like the article entitled "Unequal Opportunity;
Growth of Domestic Banks Constricted" made a part of the record
of these hearings. This article is contained in the May 1978 issue
of Bank Stock Quarterly, copies of which are enclosed.
Your cooperation in this respect will be appreciated. If you
think that I can be helpful to the Committee please let me know, as
I shall be happy to cooperate with the Staff in any way possible.

MAS:emj
Enclosures

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Federal Reserve Bank of St. Louis

~-~
Morris A. Schapiro
President

371

MAY 1978

Bank Stock Quarterly
Published by

M. A. SCHAPIRO & CO., INC.
Underwriters • Brokers & Dealers in Bank Securities
One Chase Manhattan Plaza
New York, New York 10005

Telephone 212 425-6600
Cable MASCHAPIRO

UNEQUAL OPPORTUNITY
Growth of Domestic Banks Constricted

he
Douglas Amendment, Section 3(d) of the
federal Bank Holding Company Act of 1956, has

a British overseas bank with assets of $17.4 billion,
will acquire control of Marine Midland Banks, Inc.,
13th largest U.S. banking company with assets of
· $12.1 billion. The plan, which is understandably attractive to both parties, will provide Marine with
$200 million in additional capital and give the Hongkong and Shanghai bank an impressive presence in
New York. Marine Midland has statewide coverage
through 301 branch offices. If the Hongkong and
Shanghai-Marine Midland transaction is approved,
which appears both desirable and likely, not only
will the resulting combination be one of the major
banking organizations of the world, but also a
foreign-owned bank will acquire control of a
member of the New York Clearing House Association at a price per share below published book
value. What is striking, if not shocking, is the realization that because of the Douglas Amendment no
out-of-state domestic bank or bank holding company could acquire Marine Midland or make any
similar attractive investment.

become an obsolete statute with perverse consequences for U.S. financial markets, consequences
that were certainly never intended when Congress
enacted the legislation twenty-two years ago.
Under the Amendment, major opportunities in
U.S. banking are effectively reserved for foreign
banks only, since they are free to make acquisitions
of banks in the United States that are foreclosed to
domestic banking. This bizarre situation is illus~
!rated by two recently announced plans, both awaiting state and federal approval.
According to one proposal announced in April,
the Hongkong and Shanghai Banking Corporation,

IN THIS ISSUE:

Page
I

Unequal Opportunity
Income Flow Analysis.............

How Banks Are Doing • • • • • • • • • • •

Domestic Credit Growth, 1970-1978.

Earnings, Fed Funds and
the Multiple . • • . • • . • . . . . . • • • • •

Performance Per Share, 1973-1978 .

A month later, in May, the London-based National Westminster Bank, with $36.6 billion in assets, and the C.l.T. Financial Corporation made
public their agreement under terms of which the
world-wide British banking organization will acquire 75.1 per cent of the $3.8 billion-asset National
Bank of North America which is presently wholly
owned by C.I. T. The National Bank of North America, also a member of the New York Clearing
House Association, has equity capital of $244 million and operates 141 branches in the Metropolitan

International Banking:
A New Home in New York • • • • • • 14

(Contin11ed on page 18}

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Federal Reserve Bank of St. Louis

[I)

BANK STOCK QUARTERL.Y. MAY 1878

372
Unequal Opportunity: Growth of Domestic Banks Restricted
(Conlin11rdfrom

p,1gr I)

tional Bank would have to be acquired by another
organization, the Douglas Amendment severely
limited the number of potential buyers. Large West
Coast and Chicago banks that would presumably
have been more than casually interested were
automatically excluded. At the same time, for the
big New York banks, obvious antitrust considerations worked to inhibit interest and weighed in
the thinking of government regulators. The
European-American Bank, an enterprise jointly
owned by six large European banks, was the successful bidder for Franklin's assets and for its
franchise and branch system. Subsequently, with
the Franklin case in mind, the Federal Reserve
Board asked Congress for legislation amending the
Douglas Amendment so as to permit acquisition of
a problem bank by an out-of-state holding company.
So far, the Fed's request has been ignored in Washington. These issues have to be faced. Congress
should not limit itself to exceptions to be made for
banks in distress but; instead, rethink the whole
question and eliminate state border lines as restraints on competition and on expansion of bank
holding companies.

area. The $300 million to be paid for a three-quaner
interest reflects a 61 per cent premium over National Bank of Nonh America's published equity.
Meanwhile, U.S. banking organizations
domiciled in other states, such as California or Illinois, could not have proposed to acquire this kind
of New York presence, however attractive it might
appear to them. Apan from exceptions for multistate operations in existence prior to the enactment
of the 1956 statute, no holding company owning a
bank in one state can chaner or acquire a bank in
another state. In consequence, a bank with headquarters in Hongk_ong can acquire a New York
bank, but a bank with headquaners in San Francisco cannot. London can acquire a bank in New
York while Chicago need not apply. Japanese banks
are free to expand through holding company acquisitions in California, expansion that would not be
countenanced if proposed by a New York banking
enterprise. No underlying economic realities can
justify these anomalies.
The proposed acquisitions of Marine Midland
and National Bank ofNonh American are but two
dramatic illustrations. There are presently 34
foreign bank holding companies operating sl!bsidiary banks in five states. Some of these subsidiaries have extensive branch systems. The assets
of these foreign-owned subsidiary banks were $16.1
billion at the end of 1977, as compared with $5.5
billion at year-end 1972.

Prior to 1956 there were no legal restrictions on
interstate acquisitions by bank holding companies.
Today there are twelve multistate bank holding
companies in operation, of which six are foreignowned. These companies enjoy a special status due
to protection provided by a grandfather.clause when
the 1956 law was enacted. Interstate direct branching by domestic banks had been effectively ruled
out by the McFadden Act of 1927. All the while,
·advances in technology and communication, and
developments both in the banking industry and in
the activities of non-bank competitors, have broken
down state boundaries, but banking law continues
to compress the horizon of bank holding companies
within state borders, as far as· ownership of subsidiary banks is concerned. The language of the
1956 Act does make it possible for the states to
enact laws that wouid permit interstate activity:
"[Acquisitions across state lines are prohibited] unless the acquisition of such shares or assets of a
State bank by an out-of-State bank holding company is specifically authorized by the State laws in
which such a bank is located, by language to that
effect and not merely by implication."'

Comp,titwn Inhibiled

Meanwhile, federal and state statutes repress
domestically-owned banking through geographical
restrictions which are not applicable to foreign
banking organizations. Many of these foreign banks
are entirely comparable to major U.S. bank holding
companies in size and strength and, indeed, compete with domestic banks in world markets and, increasingly, in U.S. markets as well.
This ineligibility to compete and discriminatory
denial of opportunity, irrationally imposed on U.S.
banking, is particularly significant in the case of
problem banks the acquisition of which is supervised by government banking authorities in the
interest of depositors and in the interest of the
smooth functioning of financial markets. For example, when it became clear in 1974 that Franklin NaBANK &TOCK QUAATIIRI-Y, MAY 1178

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Federal Reserve Bank of St. Louis

1 12

(18]

U.S. C. I 1842 (d).

373
The telephone, the computer, the bank credit
card, and electronic funds transfer represent waves
of change, successively carrying the banking business further and further from the old stl'\ICture of
isolated cellular markets toward nationwide and
worldwide operation and competition. In some instances, the emerging conditions have been recognized by legislation facilitating some kinds of interstate activities. For example, the 1970 Amendments to the Bank Holding Company Act fostered
activity in such areas as electronic funds transfer
systems, loan production offices, Edge Act companies, and banking-related businesses such as finance companies and leasing companies. These
p~rmissible activities across state lines in themselves create an environment in which the restrictions of the Douglas Amendment appear unmotivated and capricious. At the same time the
activities of the competitors of commercial banks
make up another pressure, reinforcing the need to
relieve the banking system of artificial and antiquated geographical restraints. Manufacturing, retail, and securities giants like General Motors and
Sears Roebuck and Merrill Lynch are able to offer
consumer credit in competition with banks from
coast to coast. And, of course, such competitors are
not burdened with reserve requirements and government banking regulations. In consequence of
their stature as nationwide corporations, some are
also able to outflank the banking system in financing
their tremendous credit operations directly through
the commercial paper· market.

A Fed Governor Tells th, Bankers•

Whether you agree or not, the general public thinks that the banking industry is generally
anticompetitive. They see the restraints on
geograp~ical activity and the restrictive cfiartering as being primarily _protective of your
interests as bankers, not the public's interests.
The public sees too many banks as owning a
small kingdom that is protected from outside
invasion. And a kingdom of any kind with no
in-migration or threat thereof is highly vulnerable to stagnation. Denied in-migration, such
a kingdom is also denied the industriousness
and the vigorous competitive spirit that immigrants bring with them, particularly when
those immigrants are bankers or businesses....
I think it is time to tear down these artificial
barriers into the banking industry and to open
the borders of banking to any who wish to
come or go. Banks, like all other business organizations in our country, should have the
freedom to open up shop where the needs are
greatest and the opportunities strongest. Not
only should we allow state-wide branching by
any bank organized within a state but we
should also authorize interstate full-service
operations for any bank authorized to do business in our country. It has been the partial
breakdown of these artificial geographic barriers that I believe has thus far been the greatest public benefit of the bank holding company
movement ....
Given the present phobia about unrestricted
branching on the part of some bankers, I find
it hard to understand how the House of Representatives could overwhelmingly pass, as it
did, a bill to give foreign banks the authority to
branch across state lines. It seems to me inconsistent to have these foreign visitors enjoy
privileges that we don't authorize for ourselves. Certainly we should have one rule
apply to all who are striving to perform the
same public function. If this legislation is
adopted, we should then have another new
law that gives all federally chartered banks the
freedom to operate throughout the United
States without restrictions.

In the same vein, competing financial institutions
other than commercial banks, enjoy expanded
privileges. Mutual savings banks and other competitors offer checking features on interest-bearing accounts and are able to create financial assets by
crediting the deposit accounts of borrowing customers. And these competitors of commercial
banks are not subject to the burden of reserve requirements and other regulations. Furthermore,
they are exempt from SEC regulations since they
are not issuers of stock, and relieved of reports and
other obligations to shareholders since they have
none. In light of the new powers of their competitors, the geographical constraints on U.S. commercial banks become the more oppressive.
State boundaries confine growing banks li,ke the
constraining wires that inhibit the growth of bonzai
trees, bending back a natural expansiveness so as to
produce powerful but constricted individuals. Geographical restrictions press the banks into conflict

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Federal Reserve Bank of St. Louis

'Philip C. Jackson. before the Alabama Bankers Association, Mobile, Alabama, l\,foy 11, 1978.

[19]

BANK ■TOCK QUARTERLY, MAY IP78

374
banks and its own banks are not permitted a single
branch in the State of Illinois. Chicago banks themselves operate branch offices in foreign cities, under
laws more hospitable to branch banking than those
of their own home state. Pennsylvania has most recently joined the ranks of states seeking to encourage the development of international banking centers within their borders by admitting branches of
foreign banks, while retaining a structure that
excludes branches of out-of-state domestic banks.

with antitrust laws. Although there are more than
14,000 commercial banks in the U.S., excessive
market share is a problem in a great many locales
just because of the legal restraints on expansion into
other areas, and restraints on ex'panding competition from other areas. Countries with a banking system composed of a much smaller number of organizations succeed in bringing more competition to
bear locally than one finds in parts of the United
States, because the organizations thl!t constitute
such systems compete with one another on a countrywide basis.

In sum, outmoded U.S. banking laws have produced a state of affairs in which the country seems
. determined to give foreign-owned banks advantages
over our own banks in our own banking markets.
One sometimes hears the view that a good solution
would be simply to exclude foreign-owned banks or
suitably penalize their operation to nullify their advantage. It should go without saying that such financial isolationism would be a lot worse than the
present anomalies. In the first place, U.S. banking
operations overseas, potentially subject to retaliatory measures, ate far larger than foreign operations
in the U.S. Therefore, U.S. banking would lose
rather than gain by an exchange of protectionist
measures here and abroad.

At the same time, domestic restrictions have artificially accelerated the development of foreign operations by large U.S. banks. Just as the Douglas
Amendment has the effect of setting aside domestic
opportunities for expansion as a special prerogative
of foreign-owned companies, so too Federal Reserve regulations that are costly to banks, together
with state and municipal tax policies, have the effect of driving the international business of U.S.
banks overseas. (See "International Banking: A
New Home in New York" on page 14.)

Bonr.aiBanks
Finally, the anomalous preferential treatment
foreign bank holding companies receive under the
Douglas Amendment echos a comparable situation
created by the McFadden Act. Under the latter, the
branching horizons of national banks are expressly
tied to state policies set forth in the banking laws of
the fifty states. Since the states exclude branches of
out-of-state banks, there is no interstate branching.
However, seven states: Massachusetts, New York,
Pennsylvania, Illinois, Oregon, Washington and
Hawaii, have enacted laws that admit branches of
foreign banks, even though the foreign owners of
those branches maintain branches in other states as
well. Of the 32 foreign banks that own subsidiary
banks in the U.S., 23 also operate direct branches
or agencies in one or more states other than their
"home" state. And 34 foreign banks that do not own
a U.S. subsidiary bank have branches and agencies
in more than one state. There are 54 foreign banRs
operating in more than one state through branches,
agencies, subsidiary banks, or combinations
thereof.

When the House of Representatives contemplated a provision limiting foreign banking organizations to activities in a single "home-state" to
conform to the state limitations on domestic banks,
both banking authorities and bankers from the
. states that want foreign banking were eloquent in
arguing against the "protection" Congress proposed
to offer them. The states that have no international
banking centers recognize that the home-state rule
would be the end of their chances for developing
such a center, and the states that. do have international centers, notably New York, California and
Illinois, want their international activities to grow.
Spokesmen for the money center banks that will
face the competition of foreign banks in U.S. markets, and that already compete with foreign banks
here and abroad, were in the forefront in opposition
to regulatory inhibition of the growth of foreign
banking in this country. Plainly ·this attitude is the
right one. The only feasible direction for change is
the repeal of the Douglas Amendment, followed by
the repeal of the McFadden Act. The narrowminded defense of meaningless geographical restraints is backward-looking, costly, UJ1imaginative
and, in the long run, futile.

A striking example of disparity in branching_policy is the city of Chicago which now has branches of
27 foreign banks, although out-of-state domestic

The contents of Bank Stock Quarterly ma)' be reproduced either in whole or in part with the
written consent of the co ri ht owner, M.A. Seba iro & Co., Inc.
BANK STOCK QUARTERLY, MAY 1878

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Federal Reserve Bank of St. Louis

(20)

375
Statement of Stroock

Stroock

Lavan

on behalf of Bank Hapoalim B .'H.
We are United States counsel to Bank Hapoalim B.H.,
Tel Aviv, Israel (the "Bank"), a banking corporation organized
under the laws of the State of Israel.

In that capacity, we

appreciate this opportunity to submit the Bank's views on H.R.
10899, the proposed International Banking Act of 1978, to the
Subcommittee on Financial Institutions of the Cot:llllittee on
Banking, Housing and Urban Affairs of the United States Senate.
The bill raises a variety of major issues concerning
foreign bank regulation: in this statement, however, we focus
our specific comments on Section 5.

This section would retain

,presently existing state legislation in the area of foreign
bank branching by ·allow.ing interstate branching by foreign
banks with the approval of the State in which the branch was
located.

We believe that the question of regulation concerning

foreign bank branching is best left to the several states since
their interest is superior to the federal inte=est in this area.
Congress has always been concerned with preventing
the development of a highly concentrated national banking
system.

It has traditionally sought to preserve the dual

(federal-state) banking system which provides domestic banks
with choice of state or federal charter and rights.

The

McFadden Act and other federal statutes were intended to
conform to this dual banking system by accommodating

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Federal Reserve Bank of St. Louis

376
restrictive state banking policy against encroachment by outof-state domestic banks.

Interstate banking is expressly

prohibited under federal law for national banks, 12 U.S.C.
§36, and for state banks which are members of the Federal
Reserve System, 12 U.S.C. §321.

Yet pursuant to this same

regulatory structure, the basic authority for national banks
and state member banks to establish a new branch within a
state depends upon the permissive right declared by the state
law of the state in which a bank is located.
Of equal importance, the McFadden Act leaves to the
states the right to extend multistate banking privileges to
nonmember domestic banks.

12 U.S.C. §36; 12 U.S.C. §321.

substantial portion of damestic banks are not members of the
Fede~al Reserve System, and therefore this right of the
states is a potent one which should not be lightly dismissed.
The McFadden Act restrictions were principally designed to
give each state the right to determine whether it wishes to
permit an out-of-state nonmember bank to enter.

It was not

intended to prohibit multistate operations~ se.

Although

multistate banking operations have not yet developed, if and
when they determine it to be advantageous, states will permit
domestic banks to engage in multistate operations.
Congress has also recognized the predominance of
the state interest in the provisions of the Bank Holding
Company Act.

12 U.S.C. §1841 e t ~ -

Purs~ant to Section 3(d)

thereof, the several states are authorized to formulate th~ir
own policies regarding the acquisition of in-state banks by

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Federal Reserve Bank of St. Louis

377
out-of-state holding companies.

The option is expressly left

open to any state to invite a holding company from another
state to acquire a bank within its borders.

12 U.S.C. §1842(d).

Concern for legitimate state interests supports
existing arrangements.

Several states have chosen by positive

legislation to encourage the multistate possibilities for
foreign banks by allowing foreign ban~s to operate within
their borders.

These states have deliberately chosen to

exercise the option they possess to allow foreign bank
branching and have deliberately chosen not to exercise their
option to allow domestic banks from other states to operate
within their borders.

If a state believes it to be consistent

with its interests (as several clearly do) to invite foreign
banki, to operate branches or agencies within its borders, the
federal government should not preempt state policy when no
signs of abuse or of preeminent federal interest have been
shown.

A state should have the authority, as recognized in

other federal banking legislation, to structure the financial
institutions within its borders in a manner which it believes
best serves the needs and interests of its residents.

In the

absence of some compelling national interest the federal
government, consistent with the principles of the NcFadden
Act, should not preempt state statutes and regulations in
this area.
The passage of .H.R. 10899 would support the
established policy of numerous states (Alaska, California,

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Federal Reserve Bank of St. Louis

378
Florida, Georgia, Hawaii, Illinois, Massachusetts, New York,
Oregon and Washington) in welcot:1ing and admitting foreign banks
although they have operations in other states.

The presence

of foreign banking operations within a state increases both
domestic and international trade, encourages exports of the
products of local industry and promotes international ties of
understanding and friendship.

By admitting foreign banking

in one form or another (e.g. branches, agencies), each of the
above-named states has chosen to promote competition and the
expansion of financial services to encourage its growth as a
money market, as a source of jobs, income,and tax revenues
and to encourage the foreign growth and profitability of local
enterprises.

Most importantly, each has sought by deliberate

planning to attract foreign banks to an aspiring financial
center city, planning which would not have been wasted if
Section 5 of R.R. 10899 passes unamended.
To restrict a foreign bank to operations in one state
would likely result in foreign banks choosing New York as
their single "home state" of operations in the foreseeable
future.

A substantial portion of the current financing of

import and export transactions already takes place in New York
and international customers may often prefer to make and
receive payment in New York.

For these reasons, if multistate

branching of foreign banks were prohibited by federal legislation, most foreign banks would be unable to establish themselves
elsewhere and, therefore, other states which seek to become
financial and trading centers would be impeded in that goal.

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Federal Reserve Bank of St. Louis

379
If Section 5 were amended as urged by the Chairman of the Federal
Reserve Board, the combination of restrictive legislation and
marketplace realities may determine that New York alone would
glean the advantages accruing to a state with a foreign banking
presence and efforts by other states would effectively be
restricted.

Such a result raises the basic question of the

extent to which it is appropriate for legislation to disturb
marketplace determinations of the location of foreign banks
within the United States.
In addition, limiting the possibility of development
of such financial centers may work to the disadvantage of the
international position of U.S. banking and commerce generally.
Federally restricting a state's ability to invite out-of-state
foreign banking operations into its borders may harm both the
legitimate interests of the various states and the opportunities for U.S. banks to operate throughout the geographic
borders bf other countries without serving any compelling
national interest.
The House recognized these potential ills when it
passed R.R. 10899 with Section 5 in form substantially
different from the version voted out of the House Committee
on Banking, Finance and Urban Affairs.

The bill, as passed

by the House and as before the Senate now, allows the dual
bank system to continue, to the benefit of residents of all
states, not just the established financial centers.
If, upon due consideration, this subcommittee should
reject the concept that foreign banking regulation should be

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Federal Reserve Bank of St. Louis

380
left to the states, we strongly urge that Section 5, permanently
"grandfather" branches of foreign banks established as of the date
of enactment of the International Banking Act of 1978.

The use of

an earlier date, if the proposed legislation were amended as urged
by the Federal Reserve Board, would result in considerable hardship
for the Bank.
Bank Hapoalim B.M. is the second largest bank in Israel
in terms of total assets and deposits, with 270 branches in Israel
and offices in a variety of cities throughout the world.

The Bank

is controlled by Hevrat OVdim the economic arm of the Histadrut,
which is the general federation of labor in Israel.

In the last

few years the Bank has sought to service U.S.-Israeli trade by
establishing branches in the United States.

The bank opened its

first branch in the United States in November 1974 when its
Rockefeller Center Branch in New York City commended operations.
In addition, in April 1977, it opened a second branch in the City
of New York located in the Borough of Queens.

An agency of the

Bank was opened in Los Angeles, California, early in 1977, but i t
does not hav~ power to accept deposits from the general public in
conformity with California law.
The Bank has invested considerable effort and expense
to expand its operations into two other major metropolitan areas
during the past year.

These new branches are located in Chicago,

Illinois and Boston, Massachusetts.

The Bank contemplates a

possible branch in Philadelphia, Pennsylvania.

In addition to

the expenditures incurred by the Bank in insuring strict

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Federal Reserve Bank of St. Louis

381
compliance with the application procedures required by the
Illinois Collllllissioner of Banks and Trust Companies and the
Massachusetts Board of Bank Incorporation, the Bank incurred
major expenses in locating appropriate branch offices in
downtown Boston and Chicago.
The Bank's business is generated in large part by
Israeli companies operating in the United States, private
individuals having business contacts-with Israel and American
corporations trading with Israeli firms.

The volume of

Israel's trade with the United States has grown substantially
in recent years and a major portion of Israel's imports are
derived from the United States.

The Bank has played a

significant role in facilitating this trade and the new
United States branches will enhance the Bank's capabilities
to finance U.S.-Israeli trade.

It should also be borne in

mind that in many aspects the Bank's American operations are
unique, and provide little competition to domestic banks and
savings institutions.
In summary, we urge passage of R.R. 10899, with
·Section 5 in its present form.

Passag~ would allow continuation

of the states' very important role in regulation of foreign
banks; contribute to expansion of international banking and
1

trade in states other than the principal financial centers;
inaintain effective protection of banking customers' interests;
and not conflict with any legitimate interest of the federal
government.

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30-563 0 - 78 - 25
Federal Reserve Bank of St. Louis

382
We hope the foregoing views will be helpful to
the subcommittee.

Respectfully submitted,

STROOCK & STROOCK & LAVAN

Of Counsel:
Rita E. Hauser
Walter Pozen
Judah SolllI:ler
June 21, 1978

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Federal Reserve Bank of St. Louis

383

fAB

European American Banking Corporation
LIONEL S JASSY
Senior Vice President, Gen Counsel

June 2 9, 1978

The Honorable Thomas J. McIntyre
Chairman
Subcommittee on Financial Institutions
Senate Committee on Banking,
Housing and Urban Affairs
Room 5300 - U.S. Senate
Washington, D. C. 20510
Re: Hearings on H.R. 10899
Dear Senator McIntyre :
Without burdening the record of your June 21 hearings
on H. R. 10899 with an additional statement, we want your Committee
to know that European American Banking Corporation, a New York
Article XII investm.ent corporation, associates itself with the position
expressed in the letter dated June 28, 1978, of French-American
Banking Corporation, with the statement of the Institute of Foreign
Bankers and with the statement of the New York Bank Superintendent
to the extent that these submissions to your Committee have explained
the reasons why it would be discriminatory and unnecessary to include
New York Article XII investment corporations within the scope of the
International Bank Act of 1978 (H. R. 10899).
00

Coverage of such non-depository institutions was added by
the House in 1976. The House Report at that time explains that ' 1 commer
cial lending companies 1 1 , as they are called in the Bill, is intended to
mean New York Article XII investment corporations and nothing else.
We would appreciate it if this letter could be included in
the record of your hearings.

Respectfully yours,

10 Hanover Square, New York, New York 10015 (212) 437•2343

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Federal Reserve Bank of St. Louis

38-=l
U.S. LABOR PARTY STATEMENT

Congress must immediately enact a one-year moratorium on foreign takeovers
of American financial institutions, pending the passage of legislation securing
the safety of the American credit system. The last few week's spate of British
takeovers of American banks, which shows only the tip of the iceberg of the influx, represent:;; lj.n attempt by British financial circles to grab a decisive share
of American credit and hence political control in the United States. This distress
sale must be halted to gi,•e Congress time to enact broader measures to ensure
the continued flow of cheap credit for American industry, agriculture, and foreign
trade. The proposed moratorium would apply only to foreign purchases of existing banking and other financial institutions, not to foreign banks' opening of
branches, agencies, and representative facilities.
These British financial interests are collaborating with Federal Reserve Ohairman G. William Miller, Controller of the Currency John Heimann, and other
officials, to transform the American credit system into a free-for-all resembling
the speculation-oriented Eurodollar market abroad, to London's advantage and
the severe detriment of the American economy.
The U.S. Labor Party is in possession of evidence that G. William Miller is in
collusion with British banks to select appropriate takeover victims, on the pretext of targetting "weak banks" in need of "injections of capital." Furthermore,
the Labor Party possesses evidenP.e that John Heimann, in malfeasance of the
Controller's duty under law, is suppressing evidence that the British institutions
concerned are wildcatting in the United States in an attempt to hedge against
their own fiduciary weakness. Three significant takeovers have occurred in the
last two months-Hong Kong and Shanghai Bank's purchase of Marine Midland,
National Westminster's purchase of National Bank of North America, and
Standard and Chartered's purchase of Union Bank of California. By themselves,
these takeovers have placed control of almost $20 billion in American bnaking
assets in British hands. Controller John Heimann has stated publically that six
more such transactions are currently in preparation.
Miller's objective is three-fold :
(1) The British equity-buying spree, which includes operations of British
bank holding companies across state lines, will prepare the way for elimination
of all controls against interstate banking.
(2) 'l"he explosion of foreign banking operations in the United States tends to
merge the American credit system with the unregulated offshore dollar, or "Eurodollar" market.
(3) The ultimate regulation of American banks through supranational entities
through the International Monetary Fund. Bank of England Governor Gordon
Richardson publicly demanded, in a speech in Berne, Switzerland, June 13, that
the IMF have powers to review virtually all international bank lending operations. Miller proposed the same, including I~IF powers to impose reserve requirements; limit the-total size of bank operations; impo~e conditionality on borrowers ; and set interest charges, to the IMF's Interim Committee, accordin,g to evidence in possession of the U.S. Labor Party.
Interstate banking would be a disaster. Doubters should inspect the Oanadian
banking system, where the domination of five money-center banks channels most
national savings into Eurodollar-oriented operations, and starves the regions for
credits needed for economic development. Such centralization of credit in a few
money centers would threaten the politi~al balance of the country.
The Labor Party does not oppose the expansion of foreign blinking in the
United States through normal means, as a benefit to American international
trade. But Congress must call a halt to British scavenging. The country requires
time to put into effect measures of the type USLP National Chairman Lyndon H.
LaRouche, Jr. outlined in the "U.S. La·bor Party Nonpartisan Action Program
for 1978"; a two-tier credit system favoring long term industrial investment and
development of new technologies, and a tax structure favoring investment in new
plant and equipment and household incomes rather than speculation.

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APPENDIX I
MILLER FED Is "COMPROMISING" ON BRITISH BANKING INVASION

(The June 19, 1978 Journal of Commerce editorial, "Congress and the Foreign
Banks," pointed out that G. W. Mi'ler has watered down the Nixon Fed's
International Banking Act to get the legislation through before Congress is
alarmed by the British invasion. Here, excerpts.)
It wouldn't be surprising if the latent protectionist tendencies of certain
congressmen and bankers were touched off by the hyperactivity of the British
banks in America. . . .
It certainly looked like a plot. But the British banks have good reasons for
acting now. The dollar may well go up and the equity prices of the various banks
may gain. There may not be as many bargains around in the future. Standard
Chartered is more than anxious to reduce its exposure in Africa and all the
banks would like to establish a solid dollar base if trouble develops again in
the Euromarkets.
And there is, of course, the danger that Congress, which has been rather mellow
about the foreign banks, might clamp down in the future. Ironically, the British
banks in their rush to establish in the U.S. market could touch off what they
sought to avoid-a harsh response from Congress. . . .
Chairman William Miller has already backed away, however, from his predecessor's position on multistate activities for foreign banks. Former Chairman
Arthur Burns would have allowed agencies of foreign banks to establish in
various states if they limited their activities to international banking.
The Federal Reserve last week, conscious that the Senate was unlikely to be
more restrictive on foreign bank branches than the House, offered to compromise
further. . . .
But the Federal Reserve wants some sort of action while the mood is still good.
At the rate things are going, Congress could turn mighty suspicious. The legislation when it emerges might not be much, but it is something.

PROTECT THE AMERICAN BANKING SYSTEM, SAYS ADMINISTRATION OFFICIAL

(These are excerpts from "Foreign Bank Influx: Hearings on Today," by
Judith Miller, on the June 21 Senate Banking hearings, which appeared in the
June 21 New York Times.)
"The protection of American deposits and the safety and soundness of the
nation's banking system is a cornerstone of our economy," said a high Administration official. "Buying a bank is not the equivalent of buying an American
company, and the reaction from Congress, if the trend continues, is bound to be
pronounced. . . ."
Although bankers and financial analysts are hesitant to be quoted by name or
institutional affiliation, they express concern about the implications of recent
purchases and the probability that such acquisitions will continue. Some bankers
expressed worry about increasing competition in commercial and industrial
loans American banks face from foreign institutions here....
Not everyone, of course, shares the worries. Henry C. Wallich, a member of
the Board of Governors of the Federal Reserve, for example, pointed out in an
interview that American bank presence abroad-assets total about $200 billiondwarfed the $66 billion foreign bank presence here. Americans, he said, would
not risk retaliation by foreign nations.
Moreover, he said that such a reaction would not be consistent with the
American philosophy of free trade and economic competition and that the purchase of American banks by foreigners would actually strengthen the dollar
and attract foreign capital here.

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"The welcome mat is out for responsible foreign banks," Mr. Wallich said.
Some of the regulatory questions raised by the increasing foreign presence
include: ...
To what extent should foreign parent banks be able through their American
extensions to use the discount window of the ]'ederal Reserve, taking out low-cost
loans that might possible be used, for example, to rescue a troubled parent that
has encountered difficulties in the Eurodollar market?
The banking industry, Congress and the regulators are deeply split over the
response to those questions....
.APPENDIX

[Reprinted from Executive Intelligence Review, June 27, 1978]
MILLER PLANS BBITISH REOBGANIZATION OF U.S. BANKING SYSTEM
WILL U.S. DOLLAK BE USED FOB OB AGAINST 'GRAND DESIGN'?

Federal Reserve Chairman G. W. Miller, Bank of England Governor Gordon
Richardson, cooperating U.S. regulatory authorities, Congressmen, and the major
City of London banks are rapidly adviancing legislation in Washington to reorganize and deregulate the U.S. banking system along British lines to the extent
of "bringing the Eurodollar market back home," as one bank lobbyist noted
June 20. Beginning with Senator Thomas McIntyre's (D-NH) June 21 Senate
Banking Committee Subcommittee on Financial Institutions hearings on the
International Banking Act of 1978, Miller and his collaborators have opened a
debate on, first, a total "reassessment," in the words of Comptroller of the Currency John Heimann, of all U.S. banking law, and, second "putting out the welcome mat" as Fed Governor Henry Wallich put it, for the ongoing invasion of
British bank takeovers in the United States.
The Miller-Richardson objective is at the core political-however significant
the financial and economic implications of such a program. If U.S. banking soundness can be undermined by the proliferation of unregulated interstate banking,
wiping out thousands of regional banks on which local industry depends, and by
the weakening of Federal Reserve regulation and the ultimate effective removal
of reserve requirements (as in the Euromarkets), American banks' assets and
structure generally will fall into a vicious circle of unsoundness that will dwarf
the notorious Euromarket LDC loan situation, where the banks are locked into
ever inore rollovers of unsound debt. They will thus be vulnerable not merely to
literal financial takeover by the British banks, who have already purchased U.S.
banks worth some $20 billion in assets this year and who plan to purchase dozens
more. U.S. banking community leaders, U.S. financial officials. and the entire
economic muscle of the world's industrial giant would itself in thereby adopting
wholesale British thinking be totally manipulable by the threadbare but clever
gamemasters of the City of London, who would thus achieve a 30-year strategic
objective.
AT STAKE IN FINANCIAL BATTLE

What is at stake in a fight over the world's financial surplus is the following:
Wiil the U.S. join the Grand Design (see accompanying article), based on the
May 6 Bonn-Moscow economic accords, for world industrial development, or will
London, judoing U.S. financial muscle, manaite to torpedo those European-led
initiatives and retain theoretical control of world banking?
If the latter. foolish U.S. bankers will get far more, not less, regulation, for
ultimately Miller and Richardson plan a world IMF receivership. As documented
in last week's EIR, Richardson, Miller, and the London Economist warned publicly and simultaneously during the June 7-13 period that British banks are
soliciting dollar deposits in the U.S. as a cushion in expectation that a new
Herstatt crisis, like that which followed the 1974 collpase of the WE>st German
Herstatt Bank, will triititer a Euromarket ·and U.S. banking panic. (See "Crisis
for Eurodollar Market, IMF Pushed as World Policem,m," Executive Intelligence
Review, Vol. V, no. 24.) Richardson openly concluded that in such a case the
International Monetary Fund (IMF) must be brought in for "surveillance ...
of the general economic and fin11ncial policies ... of the nations of the world."
Miller and his ally Treasury Secretary W. M. Blumenthal laid out the same plan
at the May 24 Mexico City International Monetary Conferenc~mphatically in
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eluding the United States. At a mid-April IMF Interim Committee meeting Fed
head Miller issued a call for tightening Euromarket controls, the first step toward
an international credit crunch and monetary panic. At the same meeting, Blumenthal proposed expansion of IMF "surveillance" to include IMF teams to plan
"general economic and financial policy" of member nations, in short, the London
bankers' plan of action for controlling a provoked global financial crisis to their
own advantage. ( See "Eyewitness Report: Blumenthal, Kissinger Demand IMF
Imperialism at Mexico City Conference," Executive Intelligence Review, Vol. V,
no. 20.)
West German central bank and private banking officials have reacted with
horror to the Miller Euromarket proposal. Commented one German source:
"Miller's plan would mean destroying the recycling of petrodollars as a system,
and also the refinancing operations of the banks. All this would be broken up,
and lending to the Third World blocked as a result."
An emergency policy statement released from U.S. Labor Party headquarters
June 21 called upon Congress for immediate action to block the Miller-London
gameplan. The statement proposed that Congress swiftly adopt powers to impose
a one-year moratorium on British takeovers of American banks.
WAR OVER THE DOLLAR SURPLUS

Once having mastered political control in the U.S., the British would be in a
position to halt the Grand Design formulated by West German C'hancellor
Helmut Schmidt and Soviet President Brezhnev, the success of which hangs
on the willingness and ability of Secretary of State Vance and allied U.S.
industrialists to bring the American technological machine into leadership of a
global export. drive.
Miller and Richardson pretend to offer U.S. bankers such as the gullible
Chairman Walter Wriston of Citicorp or Chairman David Rockefeller of Chase
Manhattan a choice. They can support-as they now do--the quick-profits freefor-all deregulation of U.S. banking, on the grounds of Comptroller Heimann
that it will bring a capital inflow into the U.S., a stock market rise, cheap money,
and a housing and consumer credit boom. Not only does this evade the basic world
financial problem of how to lay a sound basis for the $600 billion world dollar
overhang by channeling those dollars into social surplus-creating industrialization programs that will make the $300 billion in illiquid Third World debt again
payable. It also creates that very same illiquid situation in the U.S. economy,
with a bubble of loans on the same speculative basis that made the Eurodollar
market bad banking in the first place. For none of the Miller capital inflow
will go to technological investment.
But what the British fear is that support will come from U.S. banking and
government for the other choice on the table-the fabulous long-term profits of
the "Financial Grand Design" aspect of the May 1978 Schmidt-Brezhnev accords.
A long list of U.S. corporations, from Occidental Oil to PepsiCo, who find that
Citibank and Chase are up to their John Heimann-imposed lending limits on
such export finance, are already borrowing heavily in continental Europe with
European government guarantees to finance East-West trade-and are in on
the planning of using an estimated $150 billion of world reserves to finance hightechnology development projects.
THE BRITISH BANK TAKEOVERS

Britain's U.S. acquisitions are not intended as part of a plan to buy out each
and every available U.S. commercial and savings bank-an impossibility for the
British. Rather, they have been targeted to obtain operating command positions
from which to rig the rules and credit flows of the U.S. markets.
To gain these command positions, the British have exchanged less than $1
billion in rapidly depreciating pounds sterling for U.S. bank stock representing
$20 billion in U.S. dollar assets. Over the past three months, the London-controlled
Hong Kong Shanghai Bank purchased Marine Midland Bank, with $12.1 billion
in depository assets ; the Standard Chartered Bank purchased Union Bancorp
with $4.7 billion in assets; and the National Westminster Bank purchased the
National Bank of North America with $3.8 billion in assets.
The British are far from finished. Comptroller of the Currency John Heimann
predicts that six additional major U.S. banks are takeover targets within the
next few months. One knowledgeable source placed the figure closer to 20.

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But the Federal Reserve Board, charged with oversight of the takeovers,
remains unperturbed. "What's wrong with the British coming to the U.S.?" a
senior Midwestern Federal Reserve Bank official asked June 20. "This broadens
the base of the U.S. banking system," he boasted, "adding depth and breadth to
U.S. lending power."
THE BEOBGANIZATION PLAN

While London's base-building in the banking system continues, the British
remain aware that the key to their plans resides in their ability to create an
uncontrolled speculative climate in the U.S. The centerpiece is London's drive
to repeal regulative U.S. banking laws. These include legislation that prevents
U.S. banks from doing interstate banking and acquiring other large U.S. banks
(the McFadden Act), holding minimum reserve requirements (Regulation R),
and others. The removal of these regulatory strictures will generate a banking
war wiping out up to 13,000 of the 14,000 U.S. banks, according to a senior officer
of Barclay's Bank.
As the first step to wipe these laws off the books, Federal Reserve Board
Governor Philip Jackson proposed that foreign bank holding companies be
allowed to operate across state lines, clearing the way for the elimination of
domestic interstate banking restrictions. Jackson's proposals are embodied in
the debate on the International Banking Act of 1978, which passed the House
of Representatives in April, and on which the Senate Banking Subcommittee
held hearings June 21, The bill, sponsored by liberal Rep. St Germaine (D-RI)
and Sen. McIntyre (D-NH); is being deceitfully hailed by Miller as providing
"greater regulation of foreign banking," but in fact rubberstamps existing nonregulation of foreign banks and in so doing has provided a debating topic for
the deregulation, rather, of U.S. domestic banking.
Plans are even on the books for what a Wall St~eet bank analyst June 21
referred to as "London in New York". On June 21 New York Governor Hugh
Carey signed into law a bill eliminating reserve requirements for New York
banks making international loans-a step that will create the same conditions
of uncontrolled lending that now exist on the uncontrolled Eurodollar market.
This bill, called the "Free Port" or "Free Banking Zone" bill, has been coupled
to another piece of legislation also signed by Carey, to facilitate moving large
branch offices of Lloyd's of London and other British insurance companies to
New York.
According to one banker, Fed Chairman Miller may hold up Federal Reserve
approval of the New York City "Free Port" until the mechanism exists for
setting up 10 to 15 other "Free Ports" in other parts of the country.
U.S. DEBATE GROWS

The debate in U.S. financial policy circles over the Miller-Richardson program
is growing daily. Chase Manhattan and Citicorp (see interviews in "Economics")
at this writing support the entire deregulation scenario on the ground of the
fast buck, but one suspects they narrowly focus on the interstate banking plan
out of fear to look over their shoulders at the IMF and what it could do to the
U.S. under the "crisis management" piloted in New York City's notorious
Municipal Assistance Corporation. Barclay's Bank International (USA) Chairman Louis Morel, testifying for the Barclay's run Institute of Foreign Bankers
of which he is also chairman, told the McIntyre Committee hearings June 21
that most major U.S. commercial banks would rather see full U.S. deregulation
than the "old-fashioned" imposition of regulations in foreign banks.
At the Federal Reserve itself debate is furious. While Miller, Henry Wallich
(see his New York Times interview in "Economics"), and Philip Jackson are
pushing dereguation hard, they have to contend with Nixon-era U.S. patriots like
Governor Phillip Coldwell, the ex-chief of the Dallas Fed, who recently attacked
the New York "Free Zone" plan as "Eurodollar market-style" bad monetary
policy. That Miller is still giving lipservice to the Fed's traditional responsibility
to ask regulation is a testimony to the strength of such regional voices at the
Fed.
At the June 21 Senate hearings on the International Banking Act (IBA) of
1978 the British came under attack from Senator Stevenson and the Bankers
Association for Foreign Trade (BAFT), representing a national constituency
of U.S. banks and industrialists who are still well briefed on Britain's plans.
Stevenson and BAFT have introduced a Senate amendment to the Act which
would (1) ban (as the Nixon Fed Act did) interstate domestic activities of

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foreign banks; (2) allow foreign banks to bring in Eurodollars only if they are
to be used to finance U.S. exports; and (3) allow some interstate liberalization
for U.S. banks, again, only if they are expanding to finance exports.
"We have no problems with the foreign banks like the Germans coming in for
productive purposes," said a Stevenson staffer, "but that's not what the British
banks want. They are trying to ameliorate their own foreign debt problems by
moving into the U.S." They want to bring the Eurodollar market here and "we
don't want this to happen".
Someone "high in the Administration," according to the New York Times
accounts of the hearings, is in back of this, "and it sure isn't the Treasury-it
must be the White House," commented Washington sources yesterday. "The
protection of American deposits and the safety and soundness of the nation's
banking system is a cornerstone of our economy," said the Administration official
cited in the Times, and the question is, "to what extent should foreign banks be
able, through their American extensions, to use the discount window of the
Federal Reserve, taking out low-cost loans that might possibly be used to rescue
a troubled parent bank (i.e., British headquarters-ed.) that has encountered
difficulties in the Eurodollar market?"

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BOARD OF GOVERNORS
DF'THE

FEDERAL RESERVE SYSTEM
WASHINGTON~ CJ. C. 20551

G. WILLIAM MILLEA

CHAI AMAN

June 1, 1978

The Honorable William Proxmire
Chairman
Committee on Banking, Housing and Urban
Affairs
United States Senate
Washington, D. C. 20510
Dear Mr. Chairman:
It is a pleasure to respond to your request for the Board's
views on H.R. 10899, the International Banking Act of 1978 ("IBA") that
was passed by the House of Representatives on April 6·, 1978.
For several years the Board has supported legislation that
would establish a system of Federal supervision and regulation
over the growing United States banking operations of foreign banks.
The principle that has guided these efforts·has been one of national
treatment, or, nondiscrimination towards foreign banks operating in
this country. The Board is gratified that the House of Representatives
again has seriously addressed this issue and passed legislation that
would subject foreign banks to a degree of Federal supervision and
regulation.
In several important areas, however, the IBA might be further
improved in order to implement a system of national treatment with
respect to foreign bank operations in the United States. For example,
under section 5 of the IBA, foreign banks could continue to operate
and to expand their interstate banking operations while domestic banks
would remain subject to the interstate strictures of the McFadden Act·
and various State statutes. The Board believes that the policy of
restricting interstate banking (and particularly the McFadden Act)
deserves review by the Congress and the Board is prepared to assist
in that endeavor. In the meantime, however, to allow foreign banks
to establish branches and agencies in several States is inconsistent
with the goal of national treatment and affords a distinct competitive
advantage to foreign banks. To eliminate this imbalance, the Board
believes that foreign banks should be subject to interstate banking
restrictions comparable to 'those applicable to our domestic institutions.

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As to superv1s1on, in its present form, the IBA does not
provide for Federal examination of U.S. offices of foreign banks.
However, the assets and condition of a bank with operations in several
States cannot be successfully analyzed by the banking authority of one
particular State. In order to provide for adequate supervision, a
central examining authority is essential. The Federal Reserve's experience as a bank regulator and its particular expertise in the area
of international banking and finance make it uniquely suited to this
task.

Although the treatment of the interstate banking and examination
issues in the IBA are important deficiencies, the Board recognizes that
the IBA contains many worthwhile provisions. For the first time, the
United States operations of major foreign banks would be subject to
Federal monetary controls; non-United States citizens would be permitted
to acquire a majority of the shares of Edge Corporations and to serve
on their boards of directors; foreign banks operating in the United
States would be subject to the provisions of the Bank Holding Company
Act and, in particular, the Act's nonbanking prohibitions. These
objectives have been consistently supported by the Board.
While it supports these provisions, the Board believes that
the IBA should be improved in several respects. The Board urges that
the Committee consider the following issues in its deliberations on
the IBA:
Federal Branches and Agencies

(S 4)

Federal branches and agencies would only be permitted in a
State in which the foreign bank does not operate a State branch or
agency and which does not by law prohibit the establishment of branches
and agencies of foreign banks. In effect, this provision permits States
to veto the establishment of federally-sanctioned banking offices.
This result is a clear departure from the dual banking system. The
Board recommends that States be afforded a consultative role on the
establishment of Federal branches and agencies but that the States not
be placed in a position of vetoing such offices.
Interstate Banking

(S 5)

The IBA would perpetuate the present system which permits
foreign banks to have banking facilities in several States, a privilege
not currently afforded domestic institutions. This incongruous situation
is pointed up by the recently announced proposals by large foreign banks
to acquire controlling interests in two large domestic banks. In each
instance, the foreign bank already has banking operations in States
other than the State in which the domestic bank to be acquired is located.
Furthermore, even after the acquisition, the new parent foreign bank

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would be at liberty to establish additional banking offices in various
States. In effect, by simply changing ownership, a major domestic
banking institution would become part of a banking organization with
multi-State facilities.
As previously mentioned, the Board believes that, until such
time as the McFadden Act is reviewed by the Congress, foreign banks
should be subject to the same general restrictions on their interstate
banking operations as apply to daaestic institutions. The Board, therefore, reccmmiends that section 5 be amended to make Federal branches
and agencies subject to the branching restrictions of the McFadden Act
and to make State branches subject to the same restrictions that State
laws impose on domestic State banks. Any future changes in the McFadden
Act would then apply autanatically to foreign banks with Federal branches
or agencies as well as to domestic banks. In the interim, foreign banks
would be able to take advantage of any reciprocal branching statutes
enacted.by the States.
The Board believes that a reasonable compromise would be to
exempt newly-established agencies from interstate restrictions so long
as the agencies limit their operations to internationally-related activities
as are permissible for Edge Corporations in the United States. Currently,
an Edge Corporation may be established outside of the home State of
its parent bank. Permitting agencies of foreign banks to operate on
an interstate basis while limiting their activities to those permissible
for Edge Corporations would enable foreign banks that do not choose
to establish their own Edge Corporations (see§ 3 of the IBA) to compete
directly on an equal footing with u.s. institutions engaged in international banking and finance.
Federal Deposit Insurance

(§ 6)

Section 6 would require Federal deposit insurance for a branch
of a foreign bank where the law of the State in which the branch is
located requires such insurance for State-chartered banks. While the
great majority of States require deposit insurance for State-chartered
banks, § 6 would leave the question of whether to require insurance
up to the individual States. The Board believes that Federal deposit
insurance should, as a matter of Federal law, be mandatory for branches
of foreign banks in the United States. The Board also believes that
deposits at such branches whether or not held by U.S. citizens and
residents should be covered consistent with current practice and with
the principle of nondiscrimination.

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Federal Reserve Authority

(§ 7)

a. Although the IBA would subject branches, agencies and
commercial lending companies of large foreign banks to monetary controls,
it would not subject their State-chartered subsidiary banks to the same
controls. The appropriate test for imposition of monetary controls
is the capability of the parent institution to compete and participate
in major money and credit markets and not the organizational form of
operation. Since U.S. banks owned by large foreign banks generally
do participate in major money and credit markets, they should be subject
to monetary controls. Furthermore, subjecting branches and agencies,
but not subsidiary banks, to monetary controls creates the situation
whereby a major bank could shift its activities to an existing or newlyestablished subsidiary bank to avoid domestic Federal Reserve reserve
requirements. The Board, therefore, recommends that§ 7 be amended
to permit imposition of Federal Reserve monetary controls on all U.S.
operations of large foreign banks.
b. Section 7 provides that the Board may request from State
banking authorities copies of their examination reports of u.s. offices
of foreign banks. The Board, however, is given no independent authority
to examine the accounts, books and affairs of such offices. It is
important that the Board be given examination authority with respect
to the u.s. offices of foreign banks. Without such authority the Board
would be ill equipped to discover and deal with unsafe or unsound banking
practices as it is charged to do by S ll of the IBA. It would also
be hampered in dealing with foreign bank offices that are granted access
to System credit by§ 7 of the IBA. More importantly, however, vesting
the Board with examination authority would provide the only means of
coordinated supervision of foreign banks' interstate banking operations
currently subject to the jurisdiction of several banking authorities.
Guidelines

(§ 9)

The Board does not believe that detailed guidelines are necessary
to.assist State or Federal supervisory authorities in acting on applications by foreign banks. The provisions of§ 9 calling for consultation
among bank regulatory authorities, the Secretar.ies of State and Treasury
appear to be adequate·to ensure that important foreign policy issues
are considered.

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In conclusion, the Board's view that the regulation of foreign'
bank operations in the United States is an appropriate matter of Federal
concern has been strengthened by developments of recent years. 'l'he
IBA and the Board's proposed amendments would address that concern by
subjecting the United States offices of foreign banks to Federal statutory
and regulatory requirements. Legislative language accomplishing the
above recommendations and some more technical amendments to the IBA
are being prepared by the Board's staff and will be furnished shortly.
The Board earnestly hopes that the Committee wil,l. act favorably and
expeditiously on the Board's recommendations and on the IBA.

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Sincerely,

Full text of International Banking Act of 1978 : Hearing Before the Subcommittee on Financial Institutions of the Committee on Banking, Housing, and Urban Affairs, United States Senate, Ninety-Fifth Congress, Second Session, on H.R. 10899, June 21, 1978

FRASER