Foreign banks in the United States remain strategically disadvantaged relative to U.S. moneycenter and superregional banks, even though they hold 29% of total U.S. banking assets, according to a New York-based bank consulting firm.
The franchises of foreign banks, typically defined by the number and depth of their relationships with U.S. corporate and institutional clients, "is significantly weaker than that of U.S. banks," according to a study from CBM Group Inc.
The study says that most foreign banks tend to have smaller customer bases and "low tier" rather than "lead" relationships with U.S. corporations.
"The weak customer franchise implies in particular that foreign banks are less productive and less effective in their marketing efforts, since they are marketing against entrenched competitors and marketing to many prospects where they do not yet have a relationship," the study noted.
CBM says that the range of products offered by foreign banks is often much narrower than that of U.S. banks.
These business lines are usually limited to "plain vanilla credit, loan participations, and foreign exchange" with few of the more "valued added services" that local banks offer, such as payments services, cash management, risk management, capital market services, trust, and investment management.
The role of foreign banks in the U.S. economy grew rapidly in the 1980s, but their presence in the United States has become a source of debate.
Overdependence on foreign capital and the appearance of rogue banking operations, such as the Luxembourg-based Bank of Credit and Commerce International, have caused controversy.
As of June 30, 288 foreign banks from 60 countries operated 580 agencies and branches, 91 banking subsidiaries, 12 Edge Act corporations, and six New York State investment companies, according to U.S. Treasury Department statistics. Estimates compiled by the American Banker have put total foreign banks' assets to U.S. borrowers at close to $1.2 trillion.
However, CBM noted that "foreign banks' dependence on the credit product is a serious drawback" since lending already suffers from overcapacity in the United States and offers only "razor-thin pricing."
The report suggested foreign banks should look to niche businesses, such as specialty lending, and encouraged overseas-based institutions to acquire specialized U.S. units in derivatives, commercial finance, and regional banking.
