Despite Positive Effects, Further Foreign Acquisitions of U.S. Banks Should Be Limited Until Policy Conflicts Are Fully Addressed

GGD-80-66: Published: Aug 26, 1980. Publicly Released: Aug 28, 1980.

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Foreign banks, individuals, and businesses have dramatically increased their participation in the U.S. banking industry. For the most part, foreign investors have improved weak U.S. banks and maintained strong U.S. banks they acquired by adding new capital, changing management, improving loan portfolios, and stopping self-dealing transactions. Who controls a bank is not always clear. Foreign banks operate throughout the U.S. banking market. Although it is generally agreed that the current level of U.S. banking assets under foreign control is not too high, there is a general concurrence that the situation bears watching. Federal and state banking regulators generally regulate and supervise foreign and foreign-controlled banks the same as their domestic counterparts. Banking regulators are not fully able to assess the qualifications of foreign applicants to purchase U.S. banks because they cannot always verify information submitted to them; they lack the legal jurisdiction. They can also experience difficulty in recovering damages from foreign investors who harm U.S. banks.

Although foreign acquired banks generally showed some improvement after acquisition, they may not have improved as much as similar domestic-controlled banks. The federal agencies' application review processes and procedures do not seem to favor either foreign or domestic buyers. The differences result from a recognition of the unique information problems posed by many foreign buyers. The merger process provides the regulators with an opportunity to strengthen the resulting bank by requiring additional capital. This was not done in the mergers GAO reviewed, resulting in a continuance of many problems in some surviving banks. In many bank purchase circumstances, foreign banks have an advantage over domestic banks, which is unfair. Large foreign banking institutions have been able to establish multistate operations in the United States, which large domestic banks have not been able to do.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should enact a limited moratorium on acquisitions of domestic banks with total assets of $100 million or more by foreign banks or bank holding companies, unless such acquisitions are necessary to prevent bankruptcy or insolvency. This moratorium should not continue indefinitely. It should remain in effect until the basic policy conflicts regarding interstate banking, antitrust considerations, and foreign acquisitions of U.S. banks are fully addressed. Congress should set an expiration date for the moratorium and a specific timetable for the actions it will take to address the policy issues.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System should: (1) contact foreign individual acquirer's home-country banking regulator to determine the acquirer's financial strength and reputation; (2) deny those applicants who are given unfavorable referrals from their home country regulator; and (3) require that foreign banks and other businesses acquiring U.S. banks submit certified consolidated financial statements prepared in accordance to the American Generally Accepted Accounting Principles. In other than emergency situations, they should require action necessary to begin correcting major problems noted in bank examination reports of either bank as a condition for approval of any bank merger.

    Agency Affected:


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