Could This End The Battle over Foreign Banks?

Two Congressmen may have a solution to the row brewing over the foreign bank provision included in the administration's proposed banking bill.

Part of the far-reaching banking legislation would require foreign banks to establish separately capitalized U.S. holding companies before they could engage in securities underwriting and other expanded activities. The provision is backed by the Treasury and strongly opposed by the Federal Reserve.

As a compromise, Rep. Stephen Neal, D-N.C., and Rep. Floyd Flake, D-N.Y., are expected to introduce an amendment that would require foreign banks to meet U.S. capital standards without mandating the creation of separate holding companies.

The amendment would allow foreign banks to operate in the United States as long as their parent companies meet U.S. capital standards.

Disruption in Service

Currently, foreign banks in this country are essentially treated as branches of their foreign parents and are not required to meet U.S. capital standards.

Foreign banks argue that the administration's bill would disrupt their funding and lending operations in the United States. The Institute of International Bankers, which represents 240 foreign banks, has warned that countries will retaliate against U.S. banks operating overseas.

However, the trade association supports the compromise amendment. "It's a step in the right direction," said Lawrence R. Uhlick, executive director.

Support from the Treasury

The Treasury strongly supports the administration's bill, which it says will create a level playing field for all banks operating in the United States. But Fed Chairman Alan Greenspan testified last week that the administration's bill would create inefficiencies "without enhancing their safety and soundness."

The bill will be taken up by the House Banking Committee next week, where Mr. Neal and Mr. Flake are expected to introduce their amendment. Both Congressmen are members of the committee.

Still, the amendment's passage remains uncertain. "It's unclear how much support the bill has," said Robert Bostrom, an attorney at Chicago-based Winston and Strawn, which advises foreign clients.

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