Chasing the U.S. Dollar

Overseas banks thrive in America but face curbs

Looking for a bank that opens early and closes late, lends money on generous terms, gives free checks to small depositors? If you cannot find what you want at an American bank, you might try a branch of a foreign bank. Attracted by the lush profit prospects of the world's biggest banking market--and by a paradoxical freedom from the federal regulations that restrict American-owned banks--British, Japanese, German, Irish, Israeli, Brazilian and other foreign banks are rushing to the U.S.

The invasion was dramatized last week by the Hongkong and Shanghai Banking Corp., which has more than 400 branches in 40 countries. It announced that it is negotiating to buy a "significant equity position" in the parent company that owns Marine Midland, the 14th largest U.S. bank, with assets of $12 billion and more than 300 branches in New York State. Other foreign banks have followed the buy-in route too: European American Bank, which is owned by six European banks, bought out the bankrupt Franklin National in 1974 and now has 97 branches in New York City and Long Island. But takeovers are a small part of the trend. Most foreign banks coming to the U.S. open up quietly on their own and expand slowly into bigger and better things.

The numbers are striking. In 1972, when the Federal Reserve started keeping count, 53 foreign banks owned assets of $23 billion in the U.S. By last year's end, the number of overseas banks with U.S. operations had more than doubled and their assets more than tripled, to $76 billion, a rate of growth far in excess of the U.S. banking industry. In New York and California, the nation's major money centers, commercial and industrial loans by foreign banks are now about a third as great as those by large local banks. Most foreign banks dealing with the public still cluster in and around New York City, Los Angeles and Chicago, where they are allowed to do "retail" business. But for various reasons--desire to follow corporate clients, changes in state laws that once kept foreign banks out--the overseas offices have also appeared in such other cities as Houston, Atlanta, Miami and Boston.

At first they opened primarily to finance trade between their countries and the U.S., or to serve multinational corporations and people who speak the same language as the bank's officers. Some still cater to an ethnic clientele. But, says Ekkehard Bellinger, executive vice president of the Munich-based Bayerische Hypotheken-und Wechsel-Bank, which opened in New York last summer, "once we are here, it is logical for us to generate our own business with clients who have nothing to do with Germany." Moreover, though they will not say so out loud, some foreign bank officers consider American bankers an unenterprising lot who can be outdone in customer service on their home grounds.

Many foreign banks stay open longer hours than their U.S. rivals. For example, the Bank of Ireland branch in New York, which opened in late February, conducts business from 8:30 a.m. to 3 p.m., Saturdays included. Typically, the Beverly Hills branch of the British Barclays Bank offers free checking to customers who keep a minimum deposit of $100, only a third of what most American banks in that rich suburb demand. Barclays also offers free traveler's checks. European American will set up a $25,000 preapproved line of credit for a small businessperson, even if he or she has no money on deposit in any of its branches; Japanese banks in California will lend as much as $500,000 to farmers, though few California banks will risk that much in an agricultural loan.

Most important, foreign banks frequently offer loans at interest rates a quarter point or more below those charged by U.S. rivals. In general, says California Bank Consultant Jerry Findley, foreign banks "seem to work on lower profit margins than most U.S. banks."

So far, no complaint. But foreign banks also have what some American bankers consider an unfair advantage: unless they are incorporated in the U.S., they are usually exempt from the federal regulations that restrict U.S. banks, mostly because the rules were written when there were not enough foreign banks in the U.S. to bother about. Unlike domestic banks, the foreigners can operate in more than one state. Although they are subject to some state laws, they are not regulated by the Federal Reserve, the Comptroller of the Currency or the Federal Deposit Insurance Corp. That means, among other things, they can lend out more of their assets because they do not have to comply with the reserve requirements imposed on U.S. banks. And most deposits in foreign banks are not insured by the FDIC. By law, U.S. banks cannot conduct a stock brokerage business; foreign banks in the U.S. can and do.

Some time in April, the House plans to take up a bill that would place foreign banks under many of the regulations applying to their American rivals. Its fate is uncertain; similar bills died in previous Congresses. Big U.S. banks understandably are not eager to push for a crackdown on foreign banking in the U.S.; they fear that such a law might inspire foreign retaliation against their own enormous operations overseas.

Foreign bankers concede that eventually they will be restricted in some manner. For the moment that prospect ironically makes the U.S. more attractive. Whenever the regulatory bill passes, it will probably contain a "grandfather" clause exempting most, if not all foreign banking operations already established in the U.S. So overseas banks that have not yet opened up here are scurrying to do so, and those already landed are expanding their operations.

This file is automatically generated by a robot program, so viewer discretion is required.