Vanderbilt Journal of Transnational Law

First Page



Foreign banking in the United States is no longer a nominal activity. The assets of foreign bank agencies and branches tripled from 1965 to 1972, increasing to approximately 13 billion dollars. During this same time, assets of United States banks abroad rose to 75 billion dollars-an eight-fold increase.

Yet, despite this dramatic growth--which surely will continue--the United States remains the only major country in which foreign banking is not supervised at the national level. No valid constitutional or practical reasons exist to support state control. Although New York and California, which share the major portion of foreign banking at the present time, have enjoyed greater prestige as international financial markets, there is every reason to believe that a national scheme of regulation of foreign banking would enable other states throughout the country to benefit from the increased trading and financing activity that foreign banking could bring. Conversely, smaller American bankers would not be injured economically by foreign banking since foreign banks would locate principally in major cities and would be engaged primarily in facilitating trade between their home country and the United States.

Moreover, variant state regulations may lead to restrictions on United States banking abroad. It appears entirely reasonable that a New York-based bank could be denied expansion in a foreign country because that nation's banking interests have not been allowed to penetrate another American state. Such uneven treatment should be replaced by uniform federal control.

Finally, the lack of federal control has discouraged foreign banking in the United States, which, in turn, may impede the nation's foreign commerce policy and activity as well as its monetary controls and balance of payments efforts.

The present situation seems a result of happenstance: foreign banking remained under state control because the amount of international trade in early years was too insignificant to warrant positive federal intervention. Federal inactivity no doubt has been aided by lobby pressure from small banks unjustifiably fearful of increased competition.

At present, the federal government has only limited jurisdiction over foreign banking in the United States in the form of the Bank Holding Company Act, which requires the Federal Reserve Board's approval for foreign bank acquisition of a banking subsidiary in this country. The gross inadequacy of federal control allows a continuing vertical conflict between state and federal control that could eventually damage national foreign commerce and foreign policy objectives.

The solution is quite clear and available: Congress should enact positive legislation to deal with the growing multinational banking activity. Prior proposals, such as S. 3765, introduced by Senator Javits in 1966 but never enacted, should serve as helpful guidelines. The codification of liberal federal control over foreign banking activity will strengthen world trade generally and benefit United States banks as they negotiate with other sovereigns.