As the Clinton administration grapples with bilateral and multilateral trade issues, financial services have begun to emerge as a major area of concern.
At a recent forum, representatives of foreign banks, mainly from Europe and Japan, expressed dismay over U.S. legislative and regulatory trends. The banks say the new rules are hurting their activities here as well as hurting the growth of the international financial marketplace.
As a result, many of these banks are contemplating withdrawing their American offices. They are also asking their home governments to protest the U.S. actions.
1991 Law at Issue
Unless something is done to address the concerns of foreign banks. commercial backlash and diplomatic conflict will follow.
At the sessions, senior executives singled out for criticism the Foreign Bank Supervision Enhancement Act. They complained that the Federal Reserve examinations mandated under the 1991 statute have been too strict, and that the agency has acted tardily on license and expansion applications.
In their view, the new approaches represent an overreaction to the Fed's failure to uncover the BCCI and Banca Nazionale del Lavoro scandals earlier, although no U.S. depositor directly lost money at either institution.
Treatment of Foreign Branches
The international bankers also raised other worries, including the possibility of a renewed push for branch "roll ups" into separately capitalized subsidiaries, passage of the reciprocity-based Fair Trade in Financial Services Act, and elimination of tax provisions for interest expense and other deductions established by international treaty.
European and Japanese managers voiced reservations about the implications of the North American Free Trade Agreement for U.S. banking policy as the competitive and official emphasis turns inward and hemispheric rather than outward and global.
Mexican and Canadian counterparts welcome the pact but fear that the United States will attempt to impose its own model of strict separation of commercial and investment banking.
Taken separately, these issues invite misunderstanding unless viewed in the context of a broader strategy for addressing globalization in financial services.
Coherent Response Needed
In reports highlighting industry challenges for the new administration and Congress, the General Accounting Office last year stressed the need for a coherent response to today's integrated markets and sophisticated products.
It called for coordinated efforts in Washington and with governments and organizations abroad to ensure competitive balance and system safety and soundness. Among domestic priorities, the GAO recommended reconsideration of expanded bank securities and branching powers common elsewhere.
Control of Derivatives
Internationally, the GAO underscored the importance of regulatory control over the $3 trillion derivatives field.
There should also be greater focus on supervisory and fair-trade issues. These tend to be subject to misinterpretation in the absence of a comprehensive international banking program that engages the cooperation of overseas partners and defends the interests of American institutions.
As concerns are addressed, foreign banks can perhaps overcome their current objections and willingly honor a legislative and regulatory regime that treats their operations here equitably.