U.S. Branches and Agencies of Foreign Banks: A New Look
Terrell, Henry S., Federal Reserve Bulletin
Branches and agencies of non-U.S. banks have been active in U.S. banking markets for the past two decades. Initially, these U.S.-based offices of foreign banks served primarily the credit and other banking needs of U.S. affiliates of their homecountry customers. They also tended to be active in the broad domestic U.S. interbank market, using that market as a source of funds, an outlet for investments, and an element in their general liquidity management. In recent years, many foreign banks have expanded their customer base by actively soliciting business from U.S. companies, competing in terms of price and quality of service, and in some cases by purchasing loans to U.S. customers that were originated by U.S. banks. Foreign bank branches and agencies have shown considerable diversity in their approaches to U.S. markets, and their activities cannot be described with simple generalizations.
U.S. ACTIVITY OF FOREIGN BANKS, 1973--92: TWO DECADES OF GROWTH
From year-end 1973, the first year for which the Federal Reserve collected data, through year-end 1992, the reported assets of branches and agencies of foreign banks located in the United States grew from $25 billion to more than $700 billion. Over the same period, assets at domestic offices of U.S. banks increased about threefold, to more than $3 trillion. U.S. branches and agencies of foreign banks currently account for about 18 percent of the assets of all banking offices in the United States, up from 3 percent at year-end 1973.
Asset growth did not proceed at an even rate over the two decades. Between year-end 1973 and year-end 1990, the assets of U.S. branches and agencies of foreign banks grew rapidly, at an average annual rate of nearly 21 percent, and in no year was asset growth less than 8 percent. Between year-end 1990 and year-end 1992, in contrast, annual growth averaged only 6.5 percent. The slowdown in asset growth occurred against a backdrop of a slowing U.S. economy, an economic slowdown in the home countries of some of the banks, and concerns about meeting the enhanced capital standards required of their consolidated banking entity. Nevertheless, the growth of assets of foreign bank branches and agencies in the United States exceeded the sluggish growth of assets of domestic offices of U.S. banks, which increased less than 1 percent over the two years.
The reported slowdown in asset growth at foreign bank branches and agencies between year-end 1990 and year-end 1992 differed widely with respect to the home countries of these institutions. Over the two-year period, the assets of U.S. offices of Japanese banks declined about 8 percent, largely because of problems at their parent banks resulting from increasing levels of problem assets and the impact of the decline in the Japanese stock market on the value of their equity holdings. By contrast, the reported assets of U.S. branches and agencies of banks of other foreign countries increased nearly 45 percent, and their share of total foreign bank branch and agency assets increased from 40 percent at year-end 1990 to 52 percent at year-end 1992. Not all the rapid asset growth at U.S. branches and agencies of non-Japanese banks was due to an expansion of their U.S. business, however; some of the growth reflected the transfer of business from offshore offices to branches and agencies located in the United States. These transfers, or rebookings, were largely a response to a change in the reserve requirements for banking offices located in the United States: In December 1990, the requirement for their large time deposits and Eurocurrency borrowings was reduced to zero.(1)
Throughout the two decades of growth, the Federal Reserve collected detailed balance sheet data for the branches and agencies of foreign banks located in the United States. Data on deposits and loans at these offices were included in data on U.S. monetary and credit aggregates, as U.S. offices of foreign banks offer deposit and credit services to nonbank U. …