The European Community is about to unveil still another banking directive that aims to force financial institutions operating as holding companies to consolidate their activities in a "single center."

The directive will stipulate that banks must be fully consolidated either in the country of origin of the holding company, the country in which it conducts most of its business, or in a country designated by prior and formal agreement among the European Community's regulators.

The new directive is intended to complement the European Community's second bank directive of 1989, which created what is now referred to as the "banking passport." It entitles a bank licensed in one member nation to conduct business in another. It does not provide these same privileges to non-European Community banks and thus must be seen as protectionist.

The BCCI Example

This initiative has had numerous critics, foremost in the United States, because the move discriminates against the less-developed countries. This is one of the reasons why the question of reciprocity is included in sections of the new American banking legislation, which is now being considered by Congress.

But most damaging in a global financial structure, which the world is certainly and deliberately moving toward, is that the passport allows banks to seek out the least rigorous regulatory home. This is particularly sensitive in view of the collapse of Bank of Credit and Commerce International, which pointed out the weakness of the present regulatory system.

That the Federal Reserve Board could not bring the various elements of the BCCI operations in the United States under one regulatory roof is sufficient proof. And Congress also wants to close the door so that what happened at Banca Nazionale del Lavoro's Atlanta branch will not be repeated.

Punitive Measure Possible

Unfortunately, other foreign banks operating in the United States might pay the penalty for the violations and misdeeds of the Italian bank.

According to banking experts within the European Community, Article 14 of the Second Bank Directive will ensure that bank regulators share information needed to monitor banks, including information on bank liquidity, solvency, deposit guarantees, large exposures, and internal accounting.

The general feeling is that if a regulator is dealing with a bank within a bank, it is difficult to find fraud and violations. But a prominent European official insists that in a single market, there will be much greater cooperation between regulators after the second banking directive comes into force.

Much more significant seems to be the European decision to come up with a new directive, with the aim of developing a standard parameter for a uniform deposit insurance system.

No Uniformity of Systems

The closing of BCCI, at an estimated cost of more than $5 billion, once again demonstrates the wide regulatory variances in the systems operated by central banks, the banks themselves, and the European Community member states.

In Britain, the Bank of England insures depositors for up to $24,000 of their losses; Italian depositors are entitled to 100% on claims up to the equivalent of $50,000 and 90% of claims to about $875,000. This is repeated at different levels and amounts throughout the 12 nations.

In an obvious effort to demonstrate a united front, European Community officials insist that once the new single market "banking passport" goes into effect in January 1993, it will be harder for institutions such as BCCI to operate. Specifically, it will be more difficult for a financial institution to set up a sprawling web of subsidiaries.

A Call for U.S. Reform

Non-American financial leaders often complain that the U.S. banking system, with its current requirements, is outdated and inflexible. Interstate banking, the abolishment of the Glass-Steagall Act, the extension of universal banking in general, and the extension of investment banking to commercial banks are just some of the needed changes, they say.

The European Community, in anticipation of the single market, is in the midst of changing the Continent's financial picture. This would appear to be the right time for the United States to change its banking facilities and operations in anticipation of the changes in the European banking structure.

The BCCI situation shows clearly the weakness of the anti-fraud laws in the international banking system and the need for coordinated global supervision and regulation. However, Brussels must initiate a dialogue with Washington on the banking system question, which the Europeans have not yet done, preferring to proceed on their own.

Mr. Hoxter runs his own public relations firm, Curtis J. Hoxter Inc., in New York.

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