As the recently concluded World Trade Organization agreement demonstrates, recognition is growing that open financial markets are to everyone's advantage.
In the United States, we permit international banks from more than 65 countries to set up shop and compete on an equal footing with domestic banks.
Most international banks operating in the United States focus on wholesale rather than retail banking, so their presence here may not be apparent to the average consumer.
In fact, however, these operations have a significant impact on the U.S. economy and financial markets.
The Institute of International Bankers just completed a study based on a survey of 190 international banks operating in the United States, as well as on data from the federal government and other sources. The study shows that international banks not only enhance the depth and liquidity of U.S. wholesale financial markets but also run up billions of dollars a year in personnel and other spending that has a positive ripple effect throughout the economy.
Though you will not find many automated teller machines bearing their names, international banks operating in the United States are an important source of credit to businesses in every state, as well as to federal, state, and local governments.
To put these activities in a broader context, consider this: At yearend 1996, the U.S. banking arms of international banks held total assets exceeding $1.3 trillion, or more than one-fourth of total U.S. banking assets.
Securities broker-dealers and other nonbank operations of international banks held additional assets exceeding $450 billion.
This lending and investment helps promote economic development throughout the country.
One of the big economic stories today is the credit crunch gripping many East Asian countries. But it was not that long ago that the United States had a credit crunch of its own. The importance of international banks as a source of credit to the U.S. economy was underscored in the early 1990s when business lending by U.S. banks declined by about 12% while such lending by international banks' U.S. offices grew about 21%.
As illustrated dramatically by the recently announced merger plans of Union Bank of Switzerland and Swiss Bank Corp., banks in many countries are consolidating, just as in the United States.
Still, international banks are and will continue to be major U.S. employers, and almost all the jobs (including high-paying management posts) go to U.S. citizens or permanent residents.
The institute's survey also found that the U.S. operations of international banks directly employed more than 118,000 people and spent about $17 billion on operating and capital needs in 1996.
Based on "multipliers" developed by the U.S. Department of Commerce, these operations can be credited with the creation of 173,000-plus jobs in related industries (for a total of more than 291,000) and additional employee earnings of $7.2 billion (for total spending exceeding $24 billion).
International banks also generate significant tax revenue. In 1996, for example, they paid more than $138 million of income taxes to New York alone, almost one-third the income taxes paid by all banks to the city that year.
Likewise, carrying out the recent WTO agreement will promote economic growth and stability in other countries as U.S. and other nondomestic companies become more active participants in their financial markets.
As it monitors how other countries carry out the WTO agreement, the United States must also maintain its long-standing commitment to give national treatment to international banks operating within our borders.
The U.S. operations of international banks are rightly subject to the same comprehensive system of regulation, supervision, and examination that applies to both domestic banks and bank holding companies. But sound policy requires that this system be applied in ways that sensibly accommodate the differences between domestic banks and international banks that are headquartered outside the United States.
Achieving the appropriate balance is by no means an easy task but is worth the effort.
