As the House and Senate prepare to reconcile their separate interstate banking bills, foreign banks have reaffirmed their opposition to Senate proposals requiring them to set up a U.S. holding company in order to branch across state lines.

In a letter earlier this month to the chairman of the House Banking Committee, Henry B. Gonzalez, the Institute of International Bankers argued that the Senate bill would discriminate against foreign banks by leaving federal interstate branch banking restrictions on them in force unless they set up a U.S. bank-holding company.

The New York-based association represents foreign banks in the United States.

Federal restrictions on branch banking were imposed under the International Banking Act of 1978, which barred foreign banks from expanding outside the states where they were incorporated.

Opposition and Formal Protest

The House bill, which is set to be reconciled with the Senate bill early next month, would allow foreign banks to branch across state lines into states that agree to accept interstate banking, without having to set up a U.S. holding company.

Foreign banks have expressed strong opposition to the proposed Senate bill, while the European Community Commission delivered a formal protest to Senate Banking-Committee chairman Donald Riegle Jr. in April.

Opponents of the Senate bill note that U.S. banks with operations in Europe and other parts of the world are not subject to similar restrictions and are free to open branches wherever they like.

In an internal memo dated May 24, the Brussels-based Banking Federation of the European Community warned that the Senate bill "is a very real threat and would have highly damaging consequences for European banks."

Gaining Allies

The foreign banks' objections to the Senate bill have gained the support of the Federal Reserve Board and major U.S. banking associations, including the Bankers Roundtable and the Washington-based Bankers Association for Foreign Trade.

Foreign bank opposition to the Senate bill is muted compared with objections raised against past legislation.

European banks several years ago vociferously protested bills that would have required them to set up U.S. holding companies in order to develop a broader range of financial activities, including investment banking.

"Let's face it," said one foreign banking source, "not too many foreign banks are as interested in interstate banking as in investment banking."

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