After Barings, Daiwa, and BCCI, foreign bankers never dreamed they would be meeting here this week to celebrate U.S. legislative and regulatory victories.
But the 350 executives gathered today and Tuesday for the Institute of International Bankers' annual conference can revel in several recent gains.
U.S. regulators have expanded foreign bank powers, sped up application processing, and reduced reporting requirements. Even Congress has gone along, making it easier for foreign banks to open offices here and reducing their exam fees.
More is coming.
The Federal Reserve Board is on the brink of liberalizing limits on the income share a foreign bank with a U.S. branch may earn from nonbanking businesses. This change in Regulation K would expand the definition of banking income to include some revenue from insurance activities. It is expected to be proposed by the end of March.
"This would be a welcome step," said Bowman Brown, a partner in the Miami law firm of Shutts & Bowen. "It would provide foreign banks that operate in the insurance and securities areas with more flexibility in their U.S. operations."
New powers were not conceivable 18 months ago. Daiwa Bank then stood accused of covering up nearly $11 billion of trading losses, and the Fed forced it to shut down its U.S. operation. Moreover, a trader in Singapore caused the venerable British merchant bank Barings to fail after he bet the wrong way on movement of the Japanese stock market.
These disasters came just as foreign banks were recovering from the Bank of Credit and Commerce International scandal, which involved massive fraud and illegal attempts to control U.S. banks.
The Daiwa and Barings controversies spurred several lawmakers to jawbone the banking agencies for a crackdown on foreign banks. Regulators responded by requiring internal and external audits of foreign bank branches here.
The tune has changed considerably since then. Today, foreign bankers are confident enough that they have stepped up their push for even greater securities powers.
"The Federal Reserve to its credit is trying to streamline and improve the section 20 process," said Lawrence R. Uhlick, the institute's executive director and general counsel. "Nevertheless, we strongly believe financial modernization legislation is necessary to permit unlimited securities activities by both regional and international banks."
Foreign bankers, like U.S. banking executives, want Congress to repeal the Glass-Steagall Act.
"The flexibility to offer a broader product line is really essential to being profitable," said James M. Stewart, general manager at Denmark's Den Danske Bank. "Many of the traditional products have become commoditized. That means if you hope to generate an adequate return on capital you have to be able to offer a full range of products."
"The U.S. is a paradox in many ways," said Gonzalo Dede Las Heras, executive vice president of Spain's Banco Santander. "On the one hand, it is the biggest market in the world. It is the most vital and produces the newest products. But at the same time, a large number of its participants are governed by an obsolete regulation."
The Fed has taken several major steps in the past six months to relax limits on bank securities activities.
The central bank more than doubled, to 25%, the share of revenue a section 20 unit may earn from securities underwriting. That move was crucial for foreign banks, which had struggled to stay within the old 10% limit. In fact, Swiss Bank Corp. was fined $3.5 million by the Fed last year for exceeding the cap.
The Fed also eliminated many of the firewalls that prevented section 20 units and banks from sharing employees or cross-marketing products. This especially helps foreign banks, which often have fewer employees here than domestic institutions.
The central bank also revamped Regulation Y, eliminating many application requirements for banks-including foreign banks-that want to expand into commercial leasing and other nonbanking businesses. The Fed promised to process bank merger applications within 30 days.
"The environment is clearly better," said Jon K. Hartzell, director of group strategies and economics at Germany's Dresdner, Kleinwort, Benson, the parent of Dresdner Bank. "It seems the regulators are doing their best to let things move forward in a much more efficient way than used to be the case.
"They are recognizing the forces of the market and the forces of technology."