To explore the reasons for foreign bank expansion in the United States, the role that foreign banks play in the U.S. economy, and whether U.S. banks face disadvantages in competing against foreign banks in U.S. markets, we interviewed officials at both U.S. banks and branches, agencies, and subsidiaries of foreign banks operating in the United States. Foreign Branches and Agencies

Foreign branches and agencies operate almost exclusively in selected wholesale banking markets in the United states, serving home-country and U.S.-corporate customers and engaging in transactions with banks and other financial institutions. As a result, at the end of 1992, foreign branches and agencies held 24 percent of the market in C&I loans. In December 1994, foreign branches and agencies held 87 percent of all IBF deposits. Our review of current laws and regulations and our interviews with U.S. and foreign bankers, executives at multinational and other corporations, U.S. bank regulators, and others indicated that differences in the legal and regulatory treatment of U.S. and foreign banks have diminished substantially since passage of the IBA. This section reviews the adaptations of U.S. laws and regulations that are made for foreign banks operating in the United States and examines the arguments that have been made concerning the competitive impact on U.S. banks of these adaptations. Changes in U.S. laws and regulations have sought to diminish the potential advantage caused by differences in capital positions across countries. Unlike most U.S. banks, foreign banks are not generally organized in a holding company structure.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the laws and regulations governing foreign banking operations in the United States.

What GAO Found

GAO found that: (1) most foreign banks operate in U.S. wholesale banking markets, serve their home country and U.S. corporate customers, and engage in transactions with other financial institutions; (2) by the end of 1994, foreign banks held 17 percent of U.S. domestic banking assets; (3) foreign banks attained 24 percent of all U.S. commercial and industrial loans in December 1994, but they held a negligible share of the U.S. retail banking market during that same period; (4) although foreign banks are subject to the same laws and regulations as U.S. banks, they often receive different enforcement of these laws in their home countries; (5) changes in U.S. banking laws and regulations have diminished the competitive advantages previously enjoyed by foreign banks; and (6) national treatment of foreign banks is a concern for both U.S. and foreign bankers, since proposed legislation would expand the powers of bank holding companies and have a differential impact on U.S. and foreign banking operations.