Florida Fears Fed Plan on Foreign Banks
A Federal Reserve Board proposal that would effectively bar state-chartered foreign bank agencies from taking deposits would have a devastating effect on Florida's economy, according to state officials.
The officials said the proposal is aimed at curbing the flow of illegal drug funds in the wake of Bank of Credit and Commerce International's conviction for money laundering last year.
But they asserted that the measure would cost the state thousands of jobs and billions of dollars in international trade and revenues, as well as undermine Miami's status as an international banking and trade center.
Concern over BCCI
The proposal is expected to be discussed next week by the Senate Banking Committee as part of the proposed overhaul of bank law. The measure has not been introduced in the House.
State-chartered agencies currently cannot accept deposits from U.S. residents, but they can take foreign deposits. The Fed proposal would effectively prohibit the acceptance of foreign deposits, by bringing the agencies' regulations in line with those for federally chartered agencies.
The change would have a particularly big impact in Florida because the state allows foreign banks to operate only agencies. Most other states, including New York and California, permit foreign banks to have branches, which have no restrictions on deposit-taking.
If the proposal were enacted, the activities of agencies in Florida would be severely restricted. The units would not be able to fund their activities with deposits, unless state law were amended to allow branching by foreign banks.
Florida has 44 state-chartered foreign bank agencies, which provided financing for nearly half of the $9 billion in commodities the state shipped to Latin America last year, according to government figures.
Fed's Knowledge Questioned
"I don't think the Federal Reserve Board has considered the implications of its proposal," said Wilbert Bascom, who heads the international bureau of Florida's state banking department. "Most U.S. banks have retrenched from international lending. These guys have come in and supplied credit and trade finance that would not have been available otherwise."
A Fed spokesman declined to comment on the proposal Wednesday.
The Fed's proposal would reduce Florida's international banking business by about 50%, and lead to significant cutbacks in lending to local real estate, commerce, and industry, according to International Management Assistance Corp., a Miami based consulting firm retained by the Florida International Bankers Association.
Manuel Lasaga, an economist with International Management, said Dade County around Miami would be hit particularly hard.
"We estimate that the new legislation would abolish about 29,000 jobs and cut personal income by $1.1 billion in Dade County businesses alone," Mr. Lasaga said.
Florida government officials and bankers say the Fed's proposals would counter efforts by the Bush Administration to build a broad free-trade zone through talks with Mexico and other Latin American and Caribbean countries.
"The Fed is somewhat blinded by the BCCI case but this is overkill," said Burton A. Landy, incoming chairman of the Beacon Council, a nonprofit organization that promotes investment in Dade County.
Options Under Review
State officials and foreign bankers plan to present their case through Sen. Bob Graham, D-Fla., and Sen. Connie Mack, R-Fla., when hearings begin on the proposals in Congress next week. Both are members of the Senate banking committee.
In the meantime, they are reviewing a range of options that would permit foreign banks to continue operating in Florida, including liberalizing the state's banking laws to permit foreign banks to set up branches.
"We are not going to sit back and allow things to happen," said Mr. Bascom.