Foreign Banks Fear Burdens; Congress Added U.S. Rules atop State Laws
Kraus, James R., American Banker
Foreign Banks Fear Burdens
The new year will see foreign banks in the United States resigned to the expense of another layer of regulatory oversight stipulated by new federal law.
"For foreign banks the big question is, will the added federal supervision be well coordinated with [state] supervisors, or is it going to be duplicate?" said one foreign banker who asked not to be named.
A Drag on Expansion
Foreign bankers also said that the increased caution about foreign banks in the wake of the Bank of Credit and Commerce International scandal could make it more difficult for foreign banks to enter or expand in the U.S. market.
Non-U.S. banks are especially horrified by a new rule in the Federal Deposit Insurance Corp. Improvement Act mandating federal insurance for all deposits under $100,000. However, it appears that the provision was intended for retail deposits only and is likely to be corrected early next year.
The single biggest change included in the act is the Foreign Bank Supervision Enhancement Act, which requires foreign banks to obtain Federal Reserve Board approval before opening a state-supervised office, and permits the Fed to examine and close such offices.
The main effect of the law is to turn the Fed into the overall supervisor of foreign banks, supplanting state banking departments as the main regulator.
The law also:
* Requires foreign banks to report loans secured by more than 25% of the stock of a U.S. bank
* Imposes a criminal penalty for violations of the International Banking Act.
* Requires U.S. regulators to carry out studies on the capital adequacy and desirability of requiring foreign banks to operate in the U.S. through subsidiaries rather than through branches.
* Subjects foreign banks to increased consumer protection statutes.
* Allows the Fed to share information with home country regulators.
* Increases civil penalties for filing false and misleading reports.
Foreign bankers have few objections to the law, but say they are concerned about added paperwork, possible duplicate examinations by federal and state regulators, and increased fees for legal advice needed to comply with the new legislation.
Few Changes Are Found
A spokeswoman for the New York State Banking Department added that the law will create few changes but adds an extra layer of regulation.
Federal and state regulators are already discussing how to do joint examinations and working on a new joint examination report to minimize the burden on foreign banks, she said.
"Everything stays the same," she said.
"What we're doing is trying not to make it more onerous and difficult."
Regret over Powers
Foreign bankers add they are more concerned by the inability of Congress to pass broader legislation that would have allowed U.S. and foreign banks to engage in a wider range of activities.
"The whole thing keeps us in limbo, so we can't really get excited over it," said Hermann Buerger, executive vice president in New York with Germany's Commerzbank.
"Instead of having a stable legislative environmental, we still have legislative uncertainty hanging over us, and that puts us in a difficult position to make any move. …