As China flexes its muscles in the Pacific Rim and behaves more aggressively toward Taiwan, the financial impact is being felt in Southern California.
Bankers estimate that more than $10 billion has fled from Taiwan to the United States since the start of this year, much of it flowing through U.S. branches of Taiwanese banks. The large-scale capital inflow has put nine Taiwanese banks with operations in the United States into a bind as they try to deal with a deposit surge and increased demand for financial services from Taiwanese investors and immigrants.
Bankers interviewed recently said the sudden flood of funds has been something of a mixed blessing because it puts pressure on margins and may lead to an accumulation of riskier assets.
"What do you do when you get a large amount of deposits and can't make good use of them?" asked Harry J. Tang, senior vice president at the Los Angeles branch of the International Commercial Bank of China.
"A lot of banks have been turning down deposits unless they find some place to reinvest them."
Bankers worry that the deluge of deposits could lead to a slip in credit standards and, eventually, an increase in bad loans.
The dilemma underscores the growing role of Taiwanese banks in the capital flow from the Pacific Rim to the U.S.
Taiwanese banks have been gradually building their U.S. operations since the mid-1980s, when their government first allowed these institutions to set up offices overseas.
Most have branches in both New York and Los Angeles, although the better part of their operations are on the West Coast.
"New York is mainly the center for money-market operations, while California is very trade-oriented," said Mr. Tang.
As the oldest and biggest Taiwanese bank in the United States, $17 billion-asset International Commercial has long had its fingers on the pulse of economic developments in Asia and on the rapidly growing Asian community in the United States.
Formerly known as the Bank of China, the bank first set up a New York branch in 1930, but, as a result of Taiwanese restrictions, it did not get around to opening a Los Angeles branch until 1989. Since then, the bank has focused heavily on trade-related operations.
As of midyear 1995, International Commercial ranked as the most active foreign bank in the United States in trade finance, with more than $1.3 billion in commercial letters of credit outstanding.
The large figure testifies to the rapid growth in commerce between the United States and Taiwan. Exports from Taiwan jumped to $112 billion in 1995, from $67 billion in 1990, while imports have grown to $104 billion from $55 billion.
But as more Taiwanese banks have entered the United States and more privately held Chinese community banks have sprung up, "competition has sharpened," Mr. Tang said.
As a result, International Commercial is now looking to expand in real estate, commercial, and syndicated lending. The bank is also considering converting its representative office in Houston to an agency.
"We have to diversify," Mr. Tang said. "No matter how big trade business is, if it's shared with 10 to 12 other banks, each bank can only get so much."
Competition has, indeed, intensified. Taiwanese banks have been rapidly extending their international networks as their trade and investments overseas have increased. During the 12 months ended June 30, assets of the nine Taiwanese banks with U.S. branches and agencies were up by nearly 16%, to $9.36 billion.
Since the mid-1980s, eight Taiwanese banks have followed International Commercial and opened U.S. offices. Two banks, Farmers Bank of China and Taiwan Business Bank, last year obtained U.S. regulatory approval to open branches in Los Angeles, while a third, Land Bank of Taiwan, is awaiting authorization to open a branch of its own in the same city.
"Taiwanese banks have been expanding in the United States and particularly on the West Coast," observed Gary Kleiman, president of Kleiman International Consultants Inc. in Washington D.C.
Although initially driven by trade flows, Mr. Kleiman said, Taiwanese banks have lately been "seeking to establish a beachhead for other businesses, such as large loan syndications and investment advisory services for Taiwanese securities."
Mr. Kleiman declined to attach too much importance to the recent surge in funds from Taiwan.
"Obviously, China's (recent military exercises) have accelerated that movement, but a lot of that money is being kept here for safekeeping and will be repatriated if economic and political prospects are more positive."
Not all the Taiwanese money coming to the U.S. is flight capital.
"Taiwanese multinationals have been expanding aggressively," Mr. Kleiman observed. "They're among the most outward-oriented investors in Asia and have a very long entrepreneurial reach."
Others agreed: "I would not be surprised to see U.S. branches of Taiwanese banks expanding rapidly because of the problems in Taiwan, " said Howard C. Lee, a banking analyst at the CBM Group in New York.
Much of the growth, however, "remains linked to trade finance, deregulation, and efforts by Taiwanese banks to internationalize their operations," he added.
Of course, Taiwanese banks are not the only competition around for International Commercial. Some 30 smaller Chinese community banks compete for business in California. Half of these, bankers estimated, are owned by Taiwanese investors.
Some large Taiwanese banks are also moving into the market by setting up local banks. First Commercial Bank, Taiwan's second-largest financial institution, with $35 billion in assets, is planning to open a retail banking subsidiary in Alhambra. Last year, China Trust Bank acquired Transnational Bank of Monterey Park as part of a bid to expand operations among the more than one million ethnic Chinese estimated to be living in California.
Still, branches of Taiwanese banks focus largely on wholesale activities. First Commercial, for example, has several main areas of activity: interbank money market, foreign exchange, and securities trading; fee-based advisory operations, such as letters of credit; and corporate lending to Taiwanese, California-based, U.S., and overseas Chinese corporations.
Although in the past Taiwanese customers relied heavily on U.S. and Japanese banks, they are now increasingly gravitating toward Taiwanese institutions for economic as well as cultural reasons.
"It's much easier to communicate in your own language," said Gerry Y.G. Lee, senior vice president and general manager for First Commercial Bank in Los Angeles.
"It's easier for Taiwanese customers to get financing and get it at a better rate (at a Taiwanese bank), and they can also use real estate in Taiwan as collateral," he added.
Increasingly, U.S. offices of Taiwanese banks and local Chinese community banks find themselves sharing, rather than competing for business.
In some instances, Taiwanese branches funnel to community banks smaller accounts they cannot retain. Increasingly, community banks are also striking deals with Taiwanese banks to do large loan participations that the community banks would not be able to extend to customers on their own.
"We cooperate when we can," said Mr. Tang, mentioning Los Angeles National Bank, Omni Bank, and East-West Federal Bank as some of the local banks with whom International Commercial works.
That way, he added, "we get to syndicate the loan, while they get to keep their customers."
