N.Y. Looks Harder at Foreign Banks

The New York State Banking Department is moving to tighten supervision of foreign banks in the wake of allegations of illegal activities by Luxembourg-based Bank of Credit and Commerce International.

New York Banking Superintendent Derrick D. Cephas told foreign bankers on Wednesday that the department is planning to require licenses and examinations for representative offices of foreign banks, clarify the status of transactions booked in the Cayman Islands, and undertake a broad review of laws and regulations governing foreign banks.

"The increasing use of complex transactions and home-country secrecy laws by foreign banking institutions doing business in New York and many other jurisdictions at once make the task of effective regulation more difficult," Mr. Cephas said in a statement released earlier.

First Regulator to Act

The action by the New York banking department marks the first move by the regulators to examine existing international banking laws and regulations since BCCI units were seized worldwide on July 5 for alleged fraud and other illegal activities.

"Our responsibility is to minimize the attendant regulatory risks as much as possible while still encouraging foreign banking institutions to flourish in New York," he said.

Mr. Cephas added that the there is no "predetermined agenda" and that no decision on changing current laws and regulations will be made until after an inquiry is completed.

Stricter Exams Planned

However, banking sources said the department aims in the interim to tighten exams of foreign banks, establish tougher disclosure requirements for foreign banks seeking to set up offices in New York, and restrict the entry of banks based in countries with strong bank secrecy laws and lax regulation.

They added that the department also aims to crack down on representative offices of foreign banks that book deposits and loans of offshore units to mislead creditors into believing that they can claim funds are under New York jurisdiction.

New York Gov. Mario Cuomo announced on Tuesday that the department has set up an Advisory Committee on Transnational Banking Institutions to review state laws and regulation of foreign banks.

The governor named John G. Heimann, former U.S. Comptroller of the Currency and state superintendent of banks, to head the committee. Mr. Heimann is chairman of Merrill Lynch's Global Financial Institutions Group.

"It may well be that our present regulatory structure is adequate to protect the integrity of the system," Mr. Heimann said. "But it is only prudent to review our supervisory system in light of the BCCI affair."

Stealthy Dealings

Bank of Credit and Commerce International secretly acquired a 60% stake in First American Bankshares Inc. and a majority stake in Independence Bank of Encino, Calif.

The New York State Banking Department supervises more foreign banks than any other state regulator.

As of March 31, the state had licensed 213 foreign agencies and branches, 46 state-chartered foreign commercial banks and trust companies, and 16 foreign-owned Article 12 corporations.

State and federally licensed banks in New York hold nearly $600 billion in assets, or about 75% of all foreign bank assets in the nation.

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