Multinational banks based in the United States can expect to have an easier time entering foreign markets under an agreement reached by the World Trade Organization.
Citicorp, Chase Manhattan Corp., BankAmerica Corp., and State Street Corp. are expected to be among the companies that benefit most from the accord, which was concluded over the weekend.
U.S. institutions could have banking, securities, and insurance businesses in more than 70 countries that previously restricted outside ownership.
"This gives U.S. banks options they didn't have before," said Chase executive vice president John R. Price. "The door is open in a way it wasn't before."
"This is good, this is welcome, and this introduces a whole new efficiency into the financial system," said Stan W. Shelton, executive vice president of State Street Bank and Trust Co., Boston. "It opens up a new capability for banking organizations to acquire other ones, which has been very difficult in some countries."
Though the U.S. and major industrialized countries place few restrictions on foreign entry, other governments have been less accommodating.
Under the new pact, another 59 countries agreed to allow foreign companies to own bank branches and subsidiaries within their borders.
The agreement also covers insurance, with 52 more countries guaranteeing broad access to their markets, and 44 permitting 100% foreign ownership of securities subsidiaries.
"This agreement levels the playing field in global financial markets, providing new opportunities for U.S. financial services firms," Treasury Secretary Robert E. Rubin said in a prepared statement Saturday.
The Senate has until Jan. 29, 1999, to ratify the agreement. Congressional sources said it may take the matter up this spring. House Banking Committee Chairman Jim Leach supported the deal; a spokesman for Senate Banking Committee Chairman Alfonse M. D'Amato declined to comment.
Several bankers warned that the pact is only a first step toward a free market.
"The officials that represent these emerging markets have to go back to their countries and pass enabling legislation, and that isn't always a cakewalk," said Darin Narayana, president and chief executive officer of Banc One International Corp., Dallas.
The pact is expected to open markets that U.S. banks found difficult to crack. For instance, U.S. banks have shied away from Malaysia because its government, though allowing 100% foreign ownership of banking units, retained the authority to introduce restrictions.
Under the World Trade Organization deal, the Malaysian government has said it would not impose ownership restrictions on foreign banking companies.
"U.S banks have to be able to control their foreign operations and have the certainty that control will continue," said Thomas L. Farmer, general counsel of the Bankers' Association for Foreign Trade. "Much to everybody's delight and surprise, countries like this have opened up a great deal."
Peter Russell, senior vice president of international government relations at Chase Manhattan Corp., said his company hoped to profit from a decision by the Indian government to allow 12 new foreign bank branches a year instead of eight.
"The breadth and scope of products banks are interested in goes well beyond traditional products and includes insurance, asset management, and securities services," Mr. Russell said.
Discussions by the World Trade Organization, the international body set up to regulate world trade, have been taking place since September in Geneva. An earlier round of talks broke off in 1995 after several developing countries declined to give banks from the United States and other industrialized countries greater access to markets.
Not all countries have opened their doors under the latest pact. For example, South Korea placed some restrictions on foreign purchases of insurance firms.
But enough countries liberalized to gain the United States' endorsement. For example, in 1995 Indonesia only allowed foreign firms to own a minority stake in insurance companies. Now full ownership is available. Also, Brazil agreed to permit 100% foreign ownership of banks and securities firms.
U.S. officials said the agreement is positive for international financial markets.
"At a time of instability and uncertainty in world markets, it will increase confidence by showing that the international community's commitment to integration remains intact," said Deputy Treasury Secretary Lawrence H. Summers.
