On the whole, the foreign banks failed to enter the US retail as well as home banking market. The history of the UK banks penetration into the US retail banking market also proved disastrous and the Barclays just decided recently to sell off its most disadvantageous retail business in the New York to US-owned domestic banks of the New York. Although the Japanese banks with Pacific Rim connection and capitalizing on local contacts have had notable success on the western coast only, yet they too now have acute problems at home and are cutting down their international involvement.
But the US market continues to be a source of attraction and interest for those banks who have enough power to exploit it. The two facets of foreign banking in the United States include: 1. The bank that has little international pretence must have its representation in New York, as well as in London and Tokyo for its existence and operation within global banking. 2. The foreign banks, in their effort to reach critical mass, must undertake local operations through the growing US banking opportunities.
Many banks have appeared to have profitable role outside the capital cities in growing regional markets. And now as they continue to make their mark in the US banking, their rolling downturn has turned into the rolling profits. Note: There is, however, a great need for the foreign banks to be careful about the prices they pay as is evident from their banking history For most of their success lies in being a part within the US corporate sector instead of their involvement in the down market retail business (The Banker, 7/92, p. 10).
The argument they offer in support of this is that the foreign banks before 1990, who booked loans in the US were required to meet the US reserve levels on domestic loans. The foreign banks who, with such an incentive had a number of assets (Total) booked by US offices of foreign banks, were led into advantageous position in lending into the US in order to book the offshore loans. This enabled the foreign banks total industrial and commercial lending estimated to be forty-five percent of the market instead of 1/3 previously recorded.
And now since the stumbling block has been removed, most of the foreign banks are looking forward to booking the major lending in the US flourishing markets. But as they expect their economies to grow along with US prosperous markets, they are once again faced with another hurdle on their way. That regulatory obstacle was the change in the state supervisory regulations in the US. The doubtful loans made through Banca Nazionale del Lavoro, the Italy’s Atlanta branch and the bitter experience with BCCI (Bank of Credit ; Commerce International) greatly frightened US authorities and them on their alert.
As a result, the Foreign Bank Supervision Enhancement Act of 1991 was promulgated. The Act mostly covered implications for foreign banks until then supervised at the state level. The tightening of supervision by the US government had salient features including: a) All foreign banks must get approval from the Federal Reserve Board to set up an office b) All foreign banks have to be supervised by their home authority c) The existing offices of foreign banks can be closed under specific circumstances; d) All foreign banks will undergo inspection by the Fed at least once a year;
e) The inspectors can share information with the home supervisors. f) All foreign banks will have to limit their lending to one borrower only. g) New restraints, at any time, could be imposed on retail deposit-taking. h) All foreign banks acquiring more than 5% of a US bank need prior approval. Note: The uncertain regulations coming from the Fed continues to pose threat to the foreign banks operations in the US. Regulations ; Supervisions Relating US-owned Foreign Banks The regulations governing foreign banks were completed different from those governing U.
S. banking institutions before the IBA (International Banking Act of 1978) was promulgated. It was the IBA which brought about new rules pertaining to the formation of new branches and agencies, and dealt with provisions for chartering, and reserve requirements. Some of the foreign banking organizations for short FBOs were exempt from some Federal Reserve regulations. It was mandatory for an FBO to have a greater part of its business as banking outside the United States so as to qualify for the exemptions.
The qualified FBO, thus, was allowed to undertake banking business activity outside the US, and was able to own foreign company’s voting shares if operating in the US. (Federal Reserve System Regulation – K: IBO, n. p. n. d. )) If the supervisors or the Federal Reserve representatives find a banking institution to be in a fix, and having compliance problems or else involved in some unethical banking procedures, they can resort to corrective action like taking letters of commitment from the affected institution in order to address that problem.
However, the nature of the legal measure employed depend upon the severity of default in each individual case. But in most serious cases, the activities of a foreign banking institution within the United States could be altogether terminated, and as an extreme action the banking institution can be expelled from the United States. (Federal Reserve Bank of New York. 2007, n. p. ).