Significance of Foreign Banking Institutions
The FBOs (Foreign Banking Organizations) run a number of banking institutions and their various branches in the United States. These also operate finance agencies, the US-chartered corporations (Edge Act and Agreement). The figure of $1 trillion, which the foreign banking institutions held as assets (being the11% of the total commercial banking assets) in the United States in the year 2006, speaks of the most valuable role the FBOs play in the US financial system.
This is exactly why these banking institutions are governed and monitored by the high bank officials and the US banking authorities. The kind of supervision by the US banking authorities greatly depends on whether these institutions are chartered abroad or in the United States. Thus the foreign banks branches operating in the US are in no way freestanding units in the US, but are the genuine extensions of their mother companies in their own countries of origin.
Since they don’t bring capital from their parent company they function under alien regulations and in collaboration with other depository institutions native to the US. Whereas subsidiaries of the foreign banks in the US and the Edge ; Agreement Corporations, on the contrary are the freestanding authentic entities operating independently in the
It was after the enactment of International Banking Act of 1978 that regulations for ‘Foreign Banking’ in the United States were formulated. In 1966 when Intra bank (Lebanese) with a capital of 500 million dollars failed due to liquidity crisis, the New York Superintendent of banks reacted promptly and closed the bank. He secured the bank against removal of assets and quickly took possession of Intra’s New York branch. In the beginning it was believed that the depositors would not be paid back but later developments proved it otherwise.
Despite the assets that exceeded liabilities by over $250,000, the USCCC (United States Commodity Credit Corporation) still with held 53 letters of credit that were issued by the New York Intra branch with face value of more than 21 million dollars. The enough quantity of assets, which were required to offset the claim of the depositors of the Intra branch, fortunately appeared and within a period of next three years almost all depositors and creditors of the New York branch of Intra were paid in full.
This affairs of Intra Bank affair caused uneasiness among the financial policy-makers who felt the ardent need for greater federal regulation relating covering all aspects of the foreign banking institutions, whose subsidiaries incorporated in the US had lacked the type of federal supervision which had been exercised over US-owned domestic banks.
Foreign banking institutions and their branches in the United States office were therefore licensed, authorized and regulated only by each individual state of the USA. Ever since the tightening of credit lines by the US banks to reshape their business in 1988, the foreign banks became more active in the US corporate banking sector. Nonetheless, the domestic banks in the US banking market had returned with fervor, focused and more preparedness.
The foreign banks, on the other hand, took up organized strategies in internal management by upgrading the risk management to higher degree; actively managing the assets as well as loan portfolios as liquid assets. Therefore, it was incumbent upon the foreign banks to restructure their operations in the United States in order to prepare themselves to operate in a more growing global marketplace. (Campbell, John W. 2007, n. p. ).