[Congressional Record Volume 140, Number 127 (Tuesday, September 13, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: September 13, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           INTERSTATE BANKING

  Mr. GRAHAM. Mr. President, it is my understanding that shortly after 
the vote on the Defense authorization bill, we may be taking a vote on 
the final passage of the conference report on interstate banking, and 
it is to that issue that I wish to make a few remarks.
  Mr. President, I am a strong supporter of the basic thrust of the 
interstate banking conference report, which is to facilitate the 
interstate branching activities of domestic U.S. banks. In fact, while 
I was Governor of Florida and chairman of the Southern Growth Policies 
Board, the Southern States adopted a plan of regional interstate 
banking which encouraged banks within the Southeast to branch across 
State lines. This was a very similar pattern to that which was being 
adopted at approximately the same time period in the 1980's by the New 
England States. So we now have a pattern of experience among States in 
major regions of the country which has given us confidence that we are 
now ready to move on a nationwide basis to interstate banking.
  I am pleased that we have reached this stage. I am pleased that we 
have done so in a methodical, thoughtful manner, which gives us 
confidence that the results of nationwide interstate banking will be 
positive, positive not only to the institutions but positive to the 
customers of the institutions and to the components of our economy 
which they support.
  However, Mr. President, while I intend to vote for this bill, I wish 
to make a few comments about a section of the bill which I think moves 
in a misguided direction and which I hope we will be able to correct 
over time. That relates to the branching of foreign banks within the 
United States.
  Mr. President, I am talking about banks which are chartered outside 
the United States and which have been sanctioned to do business within 
the United States and are now desirous of doing business at multiple 
locations through branching.
  The basic philosophy of this bill is that foreign banks should be 
treated the same as domestic banks as it relates to their branching 
across State lines.
  That concept--equality, parity of treatment--has a superficial 
appeal. However, I suggest that we are trying to treat two quite 
different sets of institutions by the same rules and, therefore, are 
resulting in, in fact, a different, disparate, and I believe negative 
consequence.
  Foreign banks are different than domestic banks. One, they deal only 
in wholesale activities. The typical foreign bank does not accept a 
deposit of less than $100,000. They do not engage in the kind of retail 
branching that is the bread and butter of domestic banks.
  They also are institutions which do not utilize the various Federal 
deposit insurance programs which are typical of domestic banks.
  They also are institutions which have as their primary customer 
industries involved in the provision of export financing. I will 
discuss that in somewhat greater detail momentarily.
  Under this legislation, however, these specially foreign banks and 
their branches are treated in the same manner as a domestic bank which 
wishes to branch; that is, they can only purchase an ongoing bank; they 
cannot establish a de novo or new institution. If they acquire an 
ongoing bank, they must strip it of its retail activities so that it is 
left as just a wholesale bank, but they are still required to follow 
regulations which are designed to relate to retail banks such as the 
Community Reinvestment Act.
  I believe, Mr. President, that the practical effect of those similar 
treatments of dissimilar institutions will be to make it more difficult 
and less likely that we will have a flourishing set of international 
bank branches represented across the country, and one of the documents 
which I will submit for the Record is the statement of the Florida 
comptroller, who is our State banking commissioner, who states that the 
consequence of this will be to discourage the expansion through 
branching of foreign banks.
  Why is this important other than to a few foreign banks that want to 
do business in the United States? It is important because these foreign 
banks and their branches serve a critical role in expanding the export 
of American businesses.
  I was recently in a conversation with an American business person who 
is involved in the sale of United States agricultural products, 
primarily in the Caribbean and Latin America, and that individual told 
me that the typical transaction, let us say, for the sale of an 
American agricultural product to Argentina is to have an Argentine bank 
in the United States provide the letters of credit and other export 
financing which are the essential ingredients to making the transaction 
viable. Without ready access to these foreign banks and their branches, 
it makes that transaction a more difficult one.
  In my State, we have had an expansion of representatives of foreign 
banks. In the Miami area alone, there are some 70 foreign banks 
represented. Those 70 banks have been a very important component of our 
State's ability to increase its export activities.
  This legislation is going to make it more difficult for that type of 
representation to be available to other communities within our State, 
and for our State's export community to continue to be able to expand 
and provide jobs for Americans while we export American agricultural 
and industrial products.
  Mr. President, I make these comments as a means of noting what I 
consider to be a deficiency in this legislation and in hopes that we 
will take an early opportunity for a relook at this issue from the 
perspective of the users of the system as opposed to the providers of 
the system, and the result of that early relook will be to make the 
specialized financial capabilities of foreign banks and their branches 
available to more communities, not less communities, in the United 
States and, therefore, greater opportunities for jobs for Americans as 
we contribute to an expanding international export economy.
  Mr. President, many countries around the world are currently 
restructuring their economic and political systems, creating new trade 
and investment opportunities. No region is more significantly affected 
by these changes than Latin and South America. The countries in this 
region are moving toward economic reform, privatizing former 
government-run industries and liberalizing rules governing foreign 
trade and investment. According to the Federal Reserve, the resulting, 
inflows of portfolio capital into the region has tripled in the last 3 
years.
  Implementation of H.R. 3841, the Interstate Banking bill, will 
negatively impact cities that want to become international trade 
financing centers and participate in the regional growth by limiting 
the ability of foreign banks to branch into new States. The development 
of American financial centers outside New York into international 
financial centers will not be successful without the direct 
participation of foreign banks.
  Mr. President, I am specifically concerned that the interstate 
banking bill will make it harder for international banks in the United 
States to enter additional States including my State of Florida. 
International banks have played an important role in Florida's economy 
by providing jobs and trade financing, and increasing trade with our 
Latin, South American, and Caribbean neighbors. More than 70 foreign 
banks have offices in Miami.
  The Greater Miami Chamber of Commerce International Banking 
Committee, in conjunction with the Florida Comptroller's Office of 
International Banking Bureau, has looked at the impact of the 
interstate bill and the Foreign Bank Supervision Act of 1991 on 
Florida. I quote from their report which I will submit at the end of 
this statement:

                   Trade Financing and Other Benefits

       Florida will lose the opportunity to take advantage of the 
     recent trade agreements (NAFTA, Mercousur) and the expected 
     overall growth in world trade if limitations are placed on 
     branching by foreign banks in Florida. It is estimated that 
     within three years of full interstate branching Florida could 
     experience the following benefits:
       Trade financing, $2.0 billion.
       Salaries and benefits, $22.5 million.
       Occupancy (lease and rentals), $3.66 million.
       Direct and indirect employment, 860 people.
       Limiting foreign bank branching could have a negative 
     impact on Florida's ability to achieve these benefits. 
     Limiting entry of foreign bank branches would in turn place 
     limits on export and wholesale banking activities (pre- and 
     post-export financing, loan participation, and credit 
     enhancement).

  Additionally under the Export-Import Bank's foreign guaranteed lender 
program, the top 10 foreign banks guaranteed $47.4 million in 1988 and 
have steadily increased their guarantees to $2,186.5 million in 1993. 
The top 10 foreign banks have provided $625.1 million through July 31, 
1994. Foreign banks in Florida provided no guaranteed loan activity in 
1988 but were providing $12.1 million by 1993 and have provided $1.4 
million through July 31, 1994.
  Finally, a rough estimate by the Canadian Bankers Association 
indicate the big six Canadian banks have provided approximately $500 
million in letters of credit and acceptances for trade financing 
activity during last year.
  Florida has aspired to develop into an even more significant 
international financial center, particularly for Latin and South 
America. Yet our ability to reach toward this goal has been severely 
encumbered. This difficulty occurs first due to the International 
Banking Act's limitation on foreign banks' interstate activities 
outside New York. Second the difficulty occurs by the extended delays 
and procedural redtape that have accompanied their applications to 
establish offices in the United States in the wake of the Foreign Bank 
Supervision Enhancement Act of 1991, and now by the procedurally 
burdensome requirements that will be put into effect by this 
legislation.
  I am separately concerned that foreign banks' direct interstate 
branching privileges under this legislation, although viewed as equal 
to those of U.S.-incorporated, FDIC-insured commercial banks, will be 
seen by our trading partners as de facto unequal. I am concerned that 
this legislation will only operate in practice to deny foreign banks 
the equal competitive opportunity to expand geographically in the 
United States, because of the inherent legal, operational, and 
marketplace differences between insured U.S. banks and the U.S. 
wholesale branches of foreign banks. The 1984 U.S. Report to the GATT 
on Trade in Services observed that equal treatment between inherently 
unequal domestic and foreign service providers frequently denies 
national treatment in practice. The superficially equal 
treatment accorded foreign banks under this legislation is an 
illustrative case directly on point.


                         provisions of the bill

  The interstate bill allows international banks to branch to the same 
extent as domestic banks on a de novo basis. The bill limits the 
current foreign bank branching system.
  The bill would limit this branching ability to one of two ways:
  The State legislature must vote to allow interstate branching by 
domestic and foreign banks on a de novo basis.
  It is highly unlikely States will vote to do this any time soon since 
they would prefer branching to occur by acquisition first.
  Second, foreign banks could branch into a new State by acquiring an 
already established FDIC-insured domestic bank. The foreign bank could 
buy the retail bank, strip the retail deposits, convert it to a 
wholesale uninsured bank and fall under the Community Reinvestment Act 
[CRA]. Foreign banks will find this to be expensive due to the new 
restrictions now being applicable to foreign banks' U.S. offices. 
Additionally it is a convoluted way to branch in terms of relatively 
limited practical value to foreign banks.
  Additionally, for the first time the CRA would apply to a financial 
institution that does not engage in retail banking activities and does 
not have Federal bank insurance, and in fact is precluded by law from 
carrying Federal deposit insurance under the Foreign Bank Supervision 
Enhancement Act of 1991.
  Mr. President, let me include for the Record a memo from the Florida 
Comptroller's Office, and I will highlight a letter from the Florida 
International Bankers Association to my staff, which discuss the impact 
of this bill on my State. To quote from the Florida International 
Bankers letter,

       We believe that the disparate treatment of foreign banks 
     will substantially impede trade and international financing 
     activities. Moreover, the de novo branching provisions are 
     contrary to the principle of national treatment of foreign 
     banks.

  The Florida Comptroller says,

       The foreign bank branching provisions in the bill make the 
     foreign branch significantly less attractive as an expansion 
     option for those foreign banks wishing to serve Florida. The 
     lack of a viable foreign branch option in Florida limits the 
     ability of United States citizens dealing in trade finance to 
     do business with or take advantage of the trade financing 
     expertise that would be available to them.

  I therefore recommend legislation amending this bill to allow States 
such as Florida to attract foreign banks to establish uninsured 
wholesale branches outside the State of New York. The amendment would 
clarify that the States have the ability to expressly permit de novo 
entry by foreign banks. This would alleviate domestic banking concerns 
about retail competition from foreign branches and it would allow 
foreign banks to branch, on a wholesale basis, into the limited States 
that determine on their own that such branches are in the best 
interests of their States.

  Foreign banks should be given similar flexibility that domestic banks 
were provided in the Community Development Financial Institutions bill. 
This flexibility would particularly be helpful in connection with 
certain provisions of the Foreign Bank Supervision Enhancement Act of 
1991 that have resulted in unreasonable delays in approvals by U.S. 
regulatory authorities of applications to establish offices and related 
operations in the United States. These delays have also occurred more 
than a year for the processing of applications by foreign banks merely 
to establish representative offices.
  Representative offices of foreign banks, like loan production offices 
of U.S. banks, are not even authorized to engage in any business in the 
United States. Yet, under the Foreign Bank Supervision Enhancement Act, 
U.S. bank regulatory agencies are subjecting proposals by foreign banks 
to establish such representative offices to essentially the same 
application procedures and approval requirements as proposals to 
establish full branch banking offices and subsidiaries. At the same 
time, U.S. banks are free to establish loan production offices without 
any such prior approvals at the U.S. Federal level. The United States 
cannot afford this regulatory superfluity, and the U.S. financial 
centers cannot afford this degree of hostility at the U.S. Federal 
regulatory level toward the international banking organizations the 
States are working so hard to attract to their cities because of the 
many benefits they bring with them.
  Mr. President, I hope that over the next several years the United 
States does everything possible to work toward a consistent national 
treatment policy, and a safe and sound banking regulation and 
supervision of the U.S. operations of foreign banks. These efforts will 
enhance the status of our cities as international trading and financial 
centers. The balance between States rights, national treatment, and 
overall equivalence of competitive opportunity between U.S. and foreign 
banks is a goal we should all strive toward.
  Mr. President, I ask unanimous consent to print in the Record two 
supporting documents to which I have made reference.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                           Fax Communication

     Date: August 12, 1994.
     To: Ms. Leslie Woolley, Office of Senator Bob Graham, and Mr. 
         Buz Gorman, Office of Senator Connie Mack.
     From: Doug Johnson, Wilbert Bascom.
       Dear Leslie and Buz: Thank you for sending us a copy of the 
     Conference Report on H.R. 3841, the Riegle-Neal Interstate 
     Banking and Branching Efficiency Act of 1994. As you 
     requested, we have reviewed the bill's international 
     provisions. Wilbert Bascom, as head of our international 
     banking bureau, was in Miami over the last few days, and, 
     during his trip had the opportunity to discuss the bill with 
     members of the international banking community in Florida.
       It is our belief, as regulators, as well as the belief of 
     the industry, that the bill, as drafted unduly restricts the 
     international banking activities of foreign banks in several 
     ways.


                            general comments

       The foreign bank branching provisions in the bill make the 
     foreign branch significantly less attractive as an expansion 
     option for those foreign banks wishing to serve Florida.
       The lack of a viable foreign branch option in Florida 
     limits the ability of the United States citizens dealing in 
     trade finance to do business with or take advantage of the 
     trade financing expertise that would be available to them.
       The public policy desire, as stated in the bill, of 
     ensuring that the domestic branch is not subject to unfair 
     competition from the foreign branch is based on the mistaken 
     impression that domestic and foreign branches serve the same 
     markets, when in fact they do not.
       Domestic deposit taking by foreign branches facilitates 
     trade finance, it does not provide additional, and certainly 
     not unfair competition to domestic branches.


                           de novo branching

       The bill currently does not appear to allow de novo 
     branching for foreign banks, unless a state opts to allow 
     domestic banks to branch de novo.
       If this treatment of foreign banks is designed to protect 
     domestic banks from unfair competition from foreign bank 
     branches, it serves no purpose, because foreign Bank agencies 
     and branches do not compete against domestic banks for retail 
     customers. Their markets are totally different.
       The Florida international banking community views access to 
     the wholesale deposit market, with a minimum of delay, as a 
     valuable tool to provide an additional funding source for 
     their trade financing activities.
       Clarifying that the states have the ability to opt-in for 
     wholesale de novo branching for both domestic and foreign 
     banks would do two things:
       It would alleviate domestic banking concerns about retail 
     competition from foreign branches.
       It would allow foreign banks to branch, on a wholesale 
     basis, into the limited states that independently determine 
     that such branches are in that state's best interests.


                        offshore shell branches

       The bill would provide that a U.S. branch or agency of a 
     foreign bank may not, through an offshore shell branch that 
     it manages or controls, manage types of activities that a 
     U.S. bank is not permitted to manage at a foreign branch or 
     subsidiary.
       This provision limits the ability of foreign banks to book 
     certain types of investments at an offshore shell branch and 
     in turn manage those investments from a U.S. branch or 
     agency.
       The practice of managing off-shore investments (generally 
     booked off-shore for taxation and other reasons) from the 
     United States provides high quality U.S. jobs.
       The prohibition of the practice could compel the relocation 
     of the investment management team to a non-U.S. office of the 
     foreign bank--costing the United States jobs.
       United States banks might also not be subject to similar 
     limitations on their off-shore activities that they conduct 
     in their host countries.


                       deposit-taking activities

       Foreign bank branches are currently only allowed to accept 
     deposits of less than $100,000 if the total amount of those 
     deposits do not exceed 5% of the branches average deposits.
       These deposits allow the bank to provide a fuller range of 
     bank services to those few trade finance customers who are 
     not foreign nationals. In no way does the accepting of these 
     deposits place the foreign bank in competition with the 
     domestic bank for its normal retail customer base.
       The bill would require the federal regulatory agencies to, 
     by regulation, lower this current 5% de mimimus standard to 
     1%.
       The committee report states that the public policy 
     objective in lowering the standard is to further restrict the 
     ability of foreign branches to engage to some extent in 
     domestic retail deposit-taking in a manner giving it an 
     unfair competitive advantage over insured U.S. banks and 
     branches.
       This perceived competitive advantage does not exist. 
     Foreign branches involved in wholesale banking and trade 
     financing activities serve different markets than U.S. retail 
     banks. There is and will be no unfair competition.
       The report further states that the agency's final 
     regulations must take into account the importance of 
     maintaining and improving the availability of credit to all 
     sectors of the U.S. economy.
       In that the lower 1% threshold could limit the ability of a 
     foreign branch to fund its trade financing activities, it 
     would be difficult if not impossible to take credit 
     availability into account in any meaningful way when writing 
     this regulation.
       Please contact us if you need any further assistance in 
     this matter. We certainly appreciate all of your efforts on 
     our behalf.
                                  ____


       [From the Bureau of International Banking, Sept. 3, 1994]

   Summary of Negative Impact of Limited Foreign Branching in Florida

       As indicated in the attached appendix, Florida could 
     experience negative impacts in trade financing and other 
     benefits if it does not permit full inter-state branching for 
     foreign banks. The effects of deposit switching, as a result 
     of full inter-state branching, would be minimal.


                   trade financing and other benefits

       Florida will lose the opportunity to take advantage of the 
     recent trade agreements (NAFTA, Mercousur) and the expected 
     overall growth in world trade if limitations are placed on 
     branching by foreign banks in Florida. It is estimated that 
     within three years of full interstate branching, Florida 
     could experience the following benefits:

Trade financing (in billions)......................................$2.0
Salaries and benefits (in millions)...............................$22.5
Occupancy (Lease and rentals) (in millions).......................$3.66
Direct and indirect employment......................................860

       Limiting foreign bank branching could have a negative 
     impact on Florida's ability to achieve these benefits.


               Deposit Switching to Foreign Bank Branches

       It is estimated that deposit switching to foreign banks 
     will be minimal and will not exceed one percent of total 
     deposits of Florida state and national banks. Deposits 
     switched will most likely be in excess of $100,000. However, 
     deposit switching may also occur from sources other than 
     Florida, e.g., through branch relocation. It felt that the 
     foreign branches will be able to use these deposits more 
     efficiently since its focus will be on the export sector and 
     wholesale banking.


                                appendix

     The impact disallowing or limiting branching by foreign banks

       Interstate branching by foreign banks through acquisition 
     and/or de novo branching would no doubt encourage foreign 
     banks to locate in Florida.
       Foreign banks would want to locate in Florida because of 
     the following reasons:
       (i) They believe that they would be able to access large 
     deposits (deposits equal or greater than $100,000) that are 
     now held by domestic banks.
       (ii) The deposits they would access would be those owned by 
     foreigners and by businesses interested in trade financing 
     and other wholesale banking services that the foreign bank 
     for various reasons may provide more efficiently than 
     domestic banks not involved in such services.
       (iii) potential of trade financing is substantial in view 
     of recent trade agreements in the Hemisphere (NAFTA, 
     Mercousur, etc.) and the exploitation of this potential would 
     be facilitated by increased deposit funding.
       (iv) While the deposit switching impact will be small, the 
     impact of trade financing, employment and other benefits 
     would be substantial.

            Estimated deposit switching to foreign branches

       (i) No switching of deposits below $100,000.
       (ii) Switching is estimated to be minimal and will be done 
     by large depositors seeking increases in interest rates.
       (iii) Switching may also be from sources other than 
     Florida, e.g. through branch relocation, thus enhancing the 
     resources for trade financing in this state. This impact has 
     not been estimated.

                             Other funding

       (i) The trade financing and other activities of foreign 
     bank branches would generate their own deposit resources.
       (ii) Deposit switching can be minimized by borrowing to 
     finance asset growth.

               Florida exporters and other beneficiaries

       Branches of foreign banks would create additional and new 
     types of export and wholesale banking activities (pre-and 
     post export financing, loan participation, and credit 
     enhancement). Limiting entry of foreign bank branches would 
     in turn place limits on export and wholesale banking 
     opportunities. It is estimated that within three years of 
     foreign bank branching, trade financing would increase by 
     $2.0 billion; salaries and benefits, $22.5 million; and 
     employment could increase by 860.

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