The Institute of International Bankers is supporting legislation to place state-licensed branches of foreign banks on the same regulatory footing as branches licensed by the Office of the Comptroller of the Currency. The bill deserves support from domestic banks.

It is modeled on legislation enacted earlier this year at the behest of the Conference of State Bank Supervisors. That bill was critical to the preservation of the dual banking system in the era of interstate branch banking.

National banks branching across state lines have but one regulator-the Comptroller's Office-to deal with on examinations, applications, and permissible activities. If the supervisors' bill had not been enacted, state banks would have been subject to different laws and regulations in each state in which they operate.

Expansion-minded banks wouldn't have tolerated that for long. They would have converted to national charters, decimating the state banking system in the process.

The issues for foreign banks are similar. A foreign bank can now get its branches licensed by the OCC and deal with a single regulatory regime and supervisor, or it can get its branches licensed by each state in which it operates and deal with a variety of regulations and multiple supervisors. All other things being equal, I know how I'd resolve that one.

Under the proposed legislation, a foreign bank would designate its home state. That state's banking department would be responsible for licensing and supervising branches of the bank in "host" states. The permissible activities of a branch in a host state would be the same as for a branch in the home state-but only if those activities were permissible either to national banks or banks chartered by the host state.

The proposed legislation is meeting resistance from-of all places-some state banking departments. They contend that foreign banks will shop for a home state with liberal laws and lax supervision. This argument flies in the face of both the facts and the position the state banking departments took earlier this year to gain passage of the nearly identical supervisors bill.

The opportunity for "forum shopping" would be nil. No branch in a host state could engage in any activity impermissible to both national banks and the host state's banks.

The argument about supervisory laxity is equally bogus. All state- licensed branches of foreign banks are subject to oversight by the Federal Reserve in addition to the state banking departments. To the contrary, supervision will almost certainly be enhanced under the proposed legislation. It would replace state-by-state supervision of each branch with consolidated supervision of the entire U.S. operation.

The United States and other major nations have a policy of according domestic and foreign banks comparable treatment. Both national and state banks are now able to branch nationwide under the auspices and regulations of a single chartering authority. To deny the same treatment to branches of foreign banks would violate long-standing U.S. policy and risk retaliation against U.S. banks abroad.

The irony is that if the state banking departments are successful in resisting the proposed legislation, they will inflict damage on themselves. When faced with a choice between a confusing and expensive state-by-state regulatory regime and regulation by a single agency-the Comptroller's Office-most foreign banks will opt out of the state system.

The banking industry should not let that happen. The state banking departments will have enough difficulty remaining strong in the era of interstate branch banking without needlessly running off some of their largest and most loyal members. Preservation of the dual banking system, which has served the industry so well, requires a viable state banking system.

Mr. Isaac, former chairman of the Federal Deposit Insurance Corp., is chairman and CEO of Secura Group, Washington.

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