Beyond Bank Reform: The Broader Agenda
As Congress and the administration debate long-overdue legislation and regulations to align U.S. and international bank practice more closely, other policy issues remain outstanding that equally affect the global position of American financial companies.
These include the fate of the Riegle-Garn Fair Trade in Financial Services Act, the status of overseas-initiated bank takeovers under a reconstituted Committee on Foreign Investment in the United States, and the prospects for a Foreign Sales Corporation type of mechanism to promote the export of U.S. banking and securities capabilities.
The Fair Trade in Financial Services bill, reintroduced this session by Donald W. Riegle (D-Mich.), chairman of the Senate Banking Committee, and Jake Garn (R-Utah), passed the upper chamber earlier this year as part of the Defense Production Act and now awaits consideration in the House.
The legislation would require reports, negotiations, and discretionary sanctions to ensure equality of competitive opportunity abroad between American and local banking and securities concerns. Retaliation could be approved against units here whose countries deny effective national treatment as determined by the Treasury Department and other agencies.
The Treasury's latest national treatment survey issued last December and the submission of its bank reform package to Congress in March generated strong momentum in favor of the Riegle-Garn reciprocity measure.
By tying Riegle-Garn to the Defense Production Act, which renews the authority of the Committee on Foreign Investments, supporters also signaled their intent to subject international bank takeovers to potential review by the Treasury-led panel, which to date has only monitored sensitive industrial acquisitions. In the House, both the chief sponsor of Riegle-Garn, Rep. Fortney (Pete) Stark (D-Calif.) and Banking Committee chairman Henry Gonzalez (D-Tex.) have focused attention on the strategic challenge to U.S. interests posed by growing foreign bank control and penetration.
Investigations a Factor
Ongoing investigations into the Banco Nacional de Lavoro and Bank of Credit and Commerce International affairs have bolstered the national security rationale that triggers scrutiny by the Committee on Foreign Investments.
In response, the Fed has requested power to charter and examine these operations, a mandate accorded state regulators under the International Banking Act of 1978. The board's recommended provisions have been incorporated into the just-introduced Foreign Bank Supervision Enhancement Act, spearheaded by chairmen Riegle and Sen. Garn to supplement their enforcement efforts under the Fair Trade in Financial Services Act.
In hearings on the Lavoro scandal, Chairman Gonzalez has also criticized the practice of government subsidies to foreign banks, many of which are staterun or controlled, and questioned whether "their taxpayer-underwritten banks should be permitted to compete head-on with our privately owned ones." This assistance reinforces their presence in the United States, while their domestic counterparts receive no such support, he and other members argue.
Lawmakers have begun to examine the creation of tax incentives for establishment of financial services abroad modeled after those enacted the past decade for international trade under the Foreign Sales Corporation structure.
An integrated framework for international competitiveness for U.S. banks must embrace these tax, national security, and reciprocity concerns. As Washington moves to redress previous policy inaction, bank managements wili be better able to concentrate on traditional lending and business functions instead of the latest alleged failures of legislators and regulators.
For executives with the necessary global strategy and commitment, this shift will be enthusiastically welcomed, but for others the reorientation will not come easily.