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The original documents are located in Box K41, folder "Wriston, Walter B. (1)" of the
Arthur F. Burns Papers at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Arthur Burns donated to the
United States of America his copyrights in all of his unpublished writings in National Archives
collections. Works prepared by U.S. Government employees as part of their official duties are in
the public domain. The copyrights to materials written by other individuals or organizations are
presumed to remain with them. If you think any of the information displayed in the PDF is subject
to a valid copyright claim, please contact the Gerald R. Ford Presidential Library.
January 12, 1978
Walter B. Wriston
Chairman
Citibank, N.A.
399 Park Avenue
New York, New York 10022
Dear Walter:
Thank you for your letter supplementing Citicorp's original
comments with regard to the Board's proposal to authorize the automatic
transfer of funds from savings to checking accounts.
As you may know, the Board is currently reexamining this proposal
and I can assure you that your additional comments will be of significant
value to the Board in its review of this matter.
Sincerely yours,
Arthur F. Burns
ALR:iks
C0#1951
FORD is GERALD LIBRARY
CITIBANK
nk, N.A.
Walter B. Wriston
ark Avenue
Chairman
FEDERAL
ork, N.Y.
to Jed
1977DEC 30 MI 9: 9:28
OFFICE OF CHAIRMAN
allean Raiken
December 27, 1977
Honorable Arthur F. Burns
Chairman
Board of Governors of the
# 1951 1/12 by
3pm
Federal Reserve System
Constitution Avenue, Northwest
Washington, D.C. 20551
Dear Dr. Burns:
On June 14, 1976, John S. Reed, Executive Vice President
of Citibank, forwarded to the Board Citicorp's comments
on a proposed amendment to Section 217.5 (c) (2) of
Regulation Q regarding automatic transfers from savings
to checking accounts. The purpose of this letter is to
supplement the original Citicorp response and to reaffirm
our support for the amendment.
Citicorp supports the amendment which we feel will
benefit consumers, merchants, and banks by greatly
reducing the amount of checks drawn on insufficient
funds. However, there are three areas of the proposal
on which we would like to take this opportunity to express
our opinions to the Board.
First, the provision requiring transfers in $100 increments
makes no economic sense. We see no reason to penalize
a customer who makes an accidental One Dollar overdraft
as if he made a $100 overdraft. Many banks, including
Citibank, currently offer an analogous service whereby
they lend the customer the exact amount of the overdraft.
Requiring $100 units for automatic transfers but not for
overdraft loans would be unnecessarily inconsistent and
confusing.
FORD i GERALD LIBRARY
Second, the provision mandating an interest penalty of for-
feiture of thirty days interest amounts to price fixing by the
Board. Currently some banks charge explicitly for each
service and some banks package their services as they see
fit. This freedom offers consumers a broad range of choices
Page Two
Dr. Arthur F. Burns
Washington, D. C.
December 27, 1977
thereby increasing competition and driving down costs.
Under the current proposal, the price of this service, as
set by the Board, would likely become the competitive floor.
Additionally, corporations have been receiving overdraft
services from banks on a competitive basis for years and
it is only fair that consumers now be offered the same option.
The third area of the proposal with which we would like to
express our opinion is that of competitive equality. Savings
banks in New York and other states currently have checking
account powers. Once the FDIC joins the Board in approving
the amendment, the commercial banks in these states will
be put at a severe competitive disadvantage because of the
Regulation Q interest differential. This potential competitive
inequality has already been noted twice: First, Congress has
mandated a uniform NOW interest rate for all institutions in
New England; and second, the Federal Reserve has allowed
commercial banks to pay interest on IRA/Keogh accounts at
the higher thrift rates. We feel the same consideration
should apply here and the savings transfer account should
have a uniform rate ceiling for all institutions.
In conclusion, we strongly support the Board's attempt to offer
consumers this new service although we hope the proposal will
be modified so it does not impose undue restrictions on
consumers and penalize customers of commercial banks. We
trust our comments have been helpful.
Walter B. Wriston
Chairman
LIBRARY GERALD ? FORD
November 7, 1977
Mr. Walter B. Wriston
Chairman
Citicorp
399 Park Avenue
New York, New York 10022
Dear Mr. Wriston:
Thank you for your letter to Chairman Burns of
October 31 commenting on the application by Citicorp for
retention of Advance Mortgage Corporation.
I have given your letter to members of our staff
who will be preparing an analysis of the application, and
it will be brought to the attention of the Board when the
application comes before it.
Sincerely yours,
(signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board
TEAllison:red
#1537
FORD is LIBRARY 07V830
BOARD
OVERNERS
FEDERAL RESERVE syst
1977 NOV -3 nill: 45
October 31, 1977
Citicorp
OFFICE OF
399 Park Avenue
New York, N.Y.
10022
The Honorable Arthur F. Burns
Chairman
Federal Reserve System
#1537
Walter B. Wriston
Chairman
Board of Governors of the
Constitution Avenue, N.W.
Washington, D. C. 20551
Dear Dr. Burns:
I am writing to call your attention to - and urge your approval of our
application to the Board of Governors for retention of the Advance
Mortgage Corporation which has been submitted through the Federal
Reserve Bank of New York last Friday, October 28th.
As you may recall, Citicorp acquired Advance Mortgage Corporation
prior to the enactment of the one-bank holding company legislation.
We applied for permission to retain our ownership but were turned
down by the Board in December 1973. The denial resulted from the
Board's feeling that expected public benefits did not outweigh the
potential negative competitive effects of our ownership. The Board
did indicate that we could re-apply. The years have gone by and in
our view the record is reasonably clear: (1) Citicorp's ownership of
Advance is important to us because it is a key element in our commit-
ment to provide financial services to the American consumer and more
specifically to the housing market; (2) our ownership has permitted
Advance to maintain this commitment even when the industry was
retrenching during periods of tight money; (3) neither our management
nor ownership has had the effect of diminishing competition in the
industry - if anything, the contrary is true; (4) the role of one-bank
holding companies in the financial service business seems much more
clear - and is hardly the threat once imagined - at the same time the
company is now profitable and well managed, hence, is not a drain
on Citicorp; (5) the involvement of a major financial institution such as
Citicorp in the government's FHA-VA programs, while not without its
problems, is a net benefit; and (6) our social commitment to provide
financing for the rehabilitation of inner city housing is growing and
we commit ourselves to further expansion.
DERALD FORD
You may also recall that Advance was criticized by HUD for some orig-
ination and foreclosure practices at specific offices with the result that
we joined in a consent agreement. I feel that the record indicates that
while there was legitimacy to this criticism and a sense of frustration
on our part in reaction to the complexities of acting as an agent for the
Federal Government's changing housing programs, there was also a clear
The Honorable Arthur F. Burns
Chairman
Board of Governors of the
Federal Reserve System
Page 2
October 31, 1977
and prompt response to the problem. We wasted little time and spent a
significant sum of our stockholders money to correct the deficiencies.
Today, we feel that we are one of the top performers within the federal
housing program. This responsiveness and sensitivity is a direct
benefit of permitting a major bank holding company to participate in the
mortgage banking business.
Finally you should understand that two years ago after specific study
Citicorp made a business decision to significantly increase our commit-
ment to the consumer section of the financial service business. These
activities now fall within the responsibility of a newly created organiza -
tional unit - the Consumer Services Group. Advance Mortgage is viewed
as being core to our commitment to provide housing finance and as part
of the Consumer Services Group will be developed within the framework
of a more general commitment to provide a full set of financial services
in response to the needs of the average household.
I trust that an examination of this application will persuade you as it
has us that our retention of Advance Mortgage is indeed of benefit to
the public.
Sincerely,
Walter B. Wriston
Chairman
FORD & LIBRARY
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Winston Date November 4, 1977
Office Correspondence
To
Chairman Burns
Subject: Conversation with
From
Normand Bernard N.B.
Mr. Angermueller, General Counsel
of Citibank. regarding Letters of
Credit and the Arab Boycott
At the request of Mr. Walter Wriston following today's
meeting of the FAC with the Board, Mr. Angermueller called
to provide information on the impact that certain recent actions
of the Treasury may have on banks such as Citibank that issue
letters of credit to the Middle East. Mr. Angermueller explained
thatin November 1976, the Treasury issued certain guidelines
pursuant to the Ribicoff Amendments to the Tax Reform Act of
1976. The Amendments provided that any U.S. person who refuses
to deal with another U.S. person in observance of a foreign boycott
agreement would be subject to certain tax penalties, including
loss of foreign tax credits, rights to defer certain income, and
benefits under DISC legislation. According to the guidelines,
letters of credit issued or confirmed by U.S. banks would not be
a kind of agreement that would violate the strictures of the Ribicoff
Amendment. In August of this year, the Treasury proposed new
guidelines which would reverse the above position with regard to
letters of credit.
Citibank dispatched a team to present the
affected banks' point of view before the new guidelines became
effective. The Treasury agreed to hold public hearings on
October 25 and to defer the effective date to November 16, 1977.
At the hearing a Treasury spokesman indicated that letters of credit
issued before November 16, 1977, would not be considered a
violation of the final guidelines which the Treasury proposed to
issue on or before January 19, 1978.
The problem, Mr. Angermueller said, was that for the
period from November 16, 1977, until the final guidelines were
issued, banks would not know where they stood. Those involved had
met with Treasury representatives and asked them to extend the
grandfather provision so that it would run until the new guidelines
were issued--an extension of up to about two months. The Treasury
1/ Mr. Angermueller represented the New York Clearinghouse
Association at those hearings and Mr. John Hofman (Houseman?) of
Sterling Hayden (who also participated in today's telephone conversation)
represented the Business Roundtable.
FORD is LIBRARY GERALD
-2-
replied that such an extension was technically feasible but that
it would raise political problems. The bankers replied that
in the absence of the extension, they might have to suspend their
affected letter of credit business until the final guidelines were
issued and they argued that in the circumstances an extension was
desirable despite the political problem.
GERALD LISRARY ? FORD
nm
BOARD OF GOVERNORS
CITIBANK
Citibank, N.A.
Walter B. Wriston
OF THE
399 Park Avenue
Chairman
REDERAL RESERVE SYSTEM
New York, N.Y.
10022
1977NOV -3 AM11:46
RECEIVED
OFFICE OF THE CHAIRMAN
October 31, 1977
The Honorable Arthur F. Burns
Chairman
Board of Governors of the Federal Reserve System
Washington, D. C. 20551
Dear Arthur:
Upon my return from Paris this morning I was pleased to find
a copy of your speech on "The Need for Better Profits. " It is
certainly something that needs to be said and, as usual, you
said it extremely well. I sincerely hope that the Administration
will take to heart the importance of the need to promote, rather
than impede, the formation of capital.
It looks as if some progress is being made with the withdrawal
by the President of an early consideration of his tax bill.
Sincerely yours,
Bit
FORD is LIBRARY
October 25, 1977
Dear Walter and Kathy:
Helen and I very much enjoyed the dinner that
you hosted at the Kennedy Center. She joins me in
expressing our thanks.
With kindest regards,
Sincerely yours,
Arthus F. Burns
Mr. Walter B. Wriston
Chairman
Citibank, N.A.
399 Park Avenue
New York, New York 10022
NB:slc
FORD in LIBRARY 038870
Cuhnine
BOARD OF GOVERNORS
CITIBANK
Citibank. N.A.
Walter B. Wriston
OF THE
399 Park Avenue
Chairman
PEDERAL RESERVE SYSTEM
New York, N.Y.
10022
1977 JUN -3 PM 12: 57
May 31, 1977
OFFICE OF RECEIVED THE CHAIRMAN
Mr. Arthur F. Burns
Chairman
Board of Governors
f
The Federal Reserve System
Washington, D. C. 20551
Dear Arthur:
Whenever the World Bank and International Monetary
Fund Annual Meetings are held in Washington, Citibank
likes to gather together informally some of its friends
and colleagues in international finance and banking.
This year my wife and I are hosting a dinner on Monday,
September 26, at 7:30 p.m. in the Atrium of the
John F. Kennedy Center.
Since this will be the only dinner Citibank is hosting,
I especially hope you and your wife, if she is accompanying
you, will be able to attend.
I realize that it is a bit early and your plans to attend
the Meetings may not yet be firm. However, it would be
helpful for our planning to know whether you expect to
be able to join us.
A formal invitation will be sent to you later, but I look
forward to hearing from you in the meantime.
Sincerely,
W.A. Wriston
FORD it LIBRARI 07V839
acent
483
m
OF
TO-BOARD
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
OF
THE
SYSTEM
WASHINGTON, D.C. 20551
FEDERAL
RESERVE
STEPHEN S. GARDNER
VICE CHAIRMAN
AUG 30 1977
Mr. Richard D. Hill, President
Federal Advisory Council
c/o First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Dear Mr. Hill:
Mr. Walter B. Wriston, Chairman of Citibank N.A. and a member
of the Federal Advisory Council, has written the Board in favor of the
establishment by domestic commercial banks of international banking
branches in the United States. Such facilities would be used by U.S.
banks to receive foreign deposits and make foreign loans without being
subject to reserve requirements or interest rate ceilings.
Several years ago, the Board asked the Council for its views
on a similar proposal. Following a brief discussion of the issue at
the February 1974 meeting, questions regarding the possible benefits
and problems associated with the operation of this type of facility
were formulated and sent by President Storrs to the members of the
Council with a request for their individual comments. Subsequently,
the Board concluded that the advantages of such a proposal were
outweighed by its negative implications for the control of domestic
money and credit.
Since then there have been significant increases in the volume
of international loans and deposits both at U.S. offices and at overseas
branches of our banks, and our banking system is undergoing important
changes. It therefore seems appropriate to undertake another evaluation
of this proposal.
We believe that it would be useful once again to ascertain
the views of the Council, and as a result, we plan to suggest such a
discussion topic for the Council's November meeting. It would be
especially helpful to the Board if the Council's expression of views
on this matter could include specific consideration of the enclosed
set of questions that has been drafted by the staff.
BERALD FORD LIBRARY
Mr. Richard D. Hill
-2-
In order that the individual Council members may have adequate
time to study the issue prior to the November meeting, you may wish to
let them know that we plan to raise the question at that time. You may
also wish to distribute to the Council members copies of the enclosed
material that was furnished me by Mr. Wriston.
Sincerely yours,
/ s/
Stephen S. Gardner
Enclosures
CC: Mr. Herbert Prochnow, Secretary, Federal Advisory Council
Mr. William Korsvik, Associate Secretary, Federal Advisory Council
bcc: Mr. Gemmill
Mr. Truman
Mr. Axilrod
Mr. Lawrence
Mr. Hogwood
Mr. Allison
Mrs. S. Connor
AWH/TEAllison:red
8/30/77
FORD is LIBRARY GERALD
Questions for Federal Advisory Council
Various suggestions have been made from time to time by
U.S. bankers that their banks be permitted to conduct international
operations out. of U.S. offices under rules similar to those that apply
to foreign branches. For example, it has been proposed that deposits
owned by foreign entities be exempt from reserve requirements, Regulation Q
ceilings, and the prohibition of payment of interest on time deposits with
maturities under 30 days. The amount of foreign deposits that would be
given special treatment would be limited, at the maximum, to the amount
of a bank's foreign loans and investments in foreign securities.
The Board would appreciate the Council's views on the following
questions:
1. Should such "freeport" facilities for international
banking be permitted?
2. What, if any, advantages, corporate and public, would
likely ensue if banks engaged in international lending
and deposit-gathering had such facilities? Would
adoption of the proposal obviate the need for "shell"
branches? Would it tend to reduce the amount of business
conducted through full service branches in foreign
financial centers, perhaps with some substitution of
representative offices for such branches?
3. Would the Council expect the use of such facilities
to increase the total amount of international business
done by U.S. banks? Would deposits in such "freeport"
FORD & GERALD LIBRARY
facilities located in the U.S. be more useful to customers
than deposits in "shell" branches or foreign branches?
4. Would the Council expect the existence of such facilities
to result in a shift of deposits and borrowing of multi-
national concerns away from domestic deposit and loan accounts
and into the freeport facilities? Would such shifts have
potential adverse effects on the conduct of domestic monetary
policy?
8 2 -
5. Would the existence of "freeports" tend to discriminate
against U.S. customers with no foreign subsidiaries?
6. Does the Council believe that the kinds of reports needed
for regulatory policing of such "privileged" operations would
raise serious compliance problems? Would it be desirable
to segregate the privileged activity into a separate
subsidiary of the bank, with separate bookkeeping?
7. Would adoption of such a policy lead to a more equitable
system of competition for international business between
small and large banks? Would it create an undesirable
incentive for inexperienced banks to enter the field of
international banking?
8. If such facilities were permitted, how might the problem
of phasing-in be handled? (Presumably a very substantial
amount of foreign deposits would suddenly become eligible
for favored treatment, creating at least transitional
problems for the conduct of monetary policy.)
FORD :- LIBRARY 070830
how on agendy
July 27, 1977
Mr. Walter B. Wriston
Chairman
Citibank, N.A.
399 Park Avenue
New York, New York 10022
Dear Walter:
Thank you for your letter proposing the
establishment of international banking branches in
the United States. Several years ago, the Board
evaluated a similar proposal. At that time, it
concluded that the advantages of such a proposal
were outweighed by its negative implications for
the control of domestic money and credit. Since
then, there have been significant increases in the
volume of international loans and deposits both at
U.S. offices and at overseas branches of our banks,
and our banking system is undergoing important
changes. It may, therefore, be appropriate to under-
take another evaluation of this proposal.
A useful first step would be to ascertain
how other banks now would regard such a proposal,
and what they would envision might result from the
statutory and other changes you propose. I therefore
plan to ask the Federal Advisory Council for its views
//
as we did in early 1974.
Sincerely yours,
Arthur F. Burns
RFG/FRD:aw
FORD is LIBRARY OFRALD
#1006
CC: Bob Gemmill 2. Dahl
Drew Hogwood
Ted allison
OF
BOARD OF GOVERNORS
JO-BOARD
OF THE
FEDERAL RESERVE SYSTEM
THE
SYSTEM
WASHINGTON, D.C. 20551
FEDERAL
RESERVE
STEPHEN S. GARDNER
VICE CHAIRMAN
July 27, 1977
NOTE TO THE CHAIRMAN
Walter Wriston has written suggesting that we
reconsider permitting international branches of U.S.
banks to be established in U.S. enclaves. He has submitted
a technical paper advocating the plan with supporting appen-
dices.
These issues, of course, have been raised before
and we submitted such a question to the Federal Advisory
Council in February 1974. The idea has some merit but
many problems. Principal among the problems is the diffi-
culty of preventing shifts of domestic business to such
enclave branches and freeing them from reserve requirements.
I recommend we reconsider the proposal and review
the question again with the Federal Advisory Council and
our staff. A sufficient amount of time has elapsed since
early 1974 to justify a reappraisal.
The attached letter acknowledges Wriston's letter
and indicates we will follow the proposed course. I would
also ask International, Supervision and Regulation and Legal
to prepare the review since they have participated in
developing this draft reply.
Am SVG.
3HJ 10
RECEIVED
1977 JUL 27 PM 4: 57
REBERAL RESERVE SYSTEM
201
30
FORD & LIBRAR ERALD
BOARD BF GOVERNORS
CITIBANK
BOARD
nk. N.A.
Walter B. Wriston
ark Avenue
Chairman
FEDERAL RESERVE
ork, N.Y.
1977 JUL 22 AM 11: 33
RECEIVED
July 15, 1977
OFFICE OF THE CHAIRMAN
#1006
The Honorable Arthur F. Burns
Chairman
Federal Reserve System
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D.C. 20051
Dear Arthur:
We have been considering ways to help the United States--and
specifically New York City-regain position as the financial
center of the world. One way which we believe this could be
done is to attract back to this country those truly international
banking transactions which, because of the adverse impact
of domestic Federal regulations and local laws, are currently
being booked in various off-shore locations outside the United
States.
Attached is a proposal which, through some relatively simple
amendments to current laws and the promulgation of appropriate
regulations, would provide for the establishment within the
United States of International Banking Branches of U.S. banks.
With the establishment of these branches, transactions of the
type now being booked by American banks outside the United
States could instead be booked within the United States.
This is not a wholly novel idea, but one which is, in my judg-
ment, timely. I am enclosing for your consideration and comment
a document generally outlining the proposal for the establishment
of such International Banking Branches as well as a somewhat
more detailed and technical memorandum entitled "A Background
Paper on International Dollar Banking by U.S. Banks". I am
concurrently sending copies of these documents to Paul A. Volcker,
President, Federal Reserve Bank of New York and Governor Hugh L.
Carey of New York for their consideration and review.
FORD & LIBRARY CERVID
The Honorable Arthur F. Burns
Page 2
July 15, 1977
If you and your associates believe this proposal has merit, I would
be most pleased to cooperate in pushing this proposal forward
toward its implementation. Personally, I believe the implementation
of such proposals would result in not only strengthening the role of
the United States but also, specifically, New York City, as the
world's leading financial center.
I look forward to your reaction.
Sincerely,
With
FORD & LIBRARY DERALD
A Proposal To Establish
International Banking Branches
In The United States
In a time when efforts are being made to revitalize New York's declining economic
position, we would like to propose a simple, logical approach to help New York
regain its once preeminent role as an international money center -- a monetary free
trade zone.
Most people are familiar with the free trade zones that countries set up for imports
and exports of goods which are never actually sold in the domestic market. The
basic principle is that imports into a free zone are not subject to customs duties if
the goods flow back into international trade. If, however, the trade goods leave the
free zone and flow into domestic commerce, they would be taxed accordingly.
In our country the zones have a long history and a wide geography. The Foreign
Trade Zones Board was established by Congress in 1934 and oversees 19 free zones
which extend from the Brooklyn Navy Yard to Honolulu. The zones are designed so that
goods which are not intended for sale or use in the United States may be imported,
stored, assembled or manufactured by domestic firms and labor without being
burdened by United States import duties.
The same principle could be applied to banking operations not involving the domestic
markets. If loans and deposits of purely international origin and destination could
be transacted free of the regulatory and legislative constraints and taxes designed to
apply to domestic operations, they would be maintained and serviced in the United
States using domestic bank personnel and expertise. In effect, banks would be allowed
to establish specifically designated branches which would deal only in international
transactions. The concept already exists in many foreign cities and countries which,
as a result, have become international banking centers at the expense of the United
States and, more specifically, New York.
In such designated "International Banking Branches", located within the United States,
banks could accept non-U.S. deposits free of the burden of non-earnings reserves and
interest rate restrictions imposed by Congress and the Federal Reserve and make
loans to foreign borrowers. The location of such branches would be subject to
existing limitations on interstate banking, i.e. New York banks would be limited to
a New York location, Chicago banks to Chicago, etc. There would be no State or
City taxes applied to the earnings of these International Branches. There would be
no loss of local tax revenues because these operations are not presently conducted in
the United States:
Just as in the case of existing free trade zones for goods, in these International
Branches the absence of domestic restrictions would apply only to foreign transactions-
deposits from and loans to non-residents. Any financial transactions between the
FORD
International Branches and other domestic offices or resident customers would be
subject to the same restrict is, regulations, and taxes whi presently exist on
transactions between United States domestic banks and their foreign branches.
Federal and/or State supervisory authorities would authorize and oversee the
operations of such International Branches.
Background
While International Banking Branches could be set up anywhere in the United States,
New York would particularly benefit because of the size and international scope of
New York headquartered banks and the large number of foreign banks already located
here. New York has all of the foundations necessary for an international banking
center -- excellent world communications and transportation; a vast pool of experienced
financial analysts, legal counselors and skilled banking personnel; and available office
space. New York was the world's primary banking center until the early 1960s. At
that time, balance of payments considerations led the U.S. Government to impose
regulations -- Interest Equalization Tax (IET), Voluntary Foreign Credit Restraints
(VFCR), Office of Foreign Direct Investment regulations (OFDI) -- which served to
stimulate corporate funding outside the United States, motivated banks to set up or
expand foreign branches, and spurred the growth of the Eurodollar markets.
During the time the IET, VCR, and OFDI restrictions were in effect London's position
as an international banking center had been vastly expanded and several new inter-
national financial centers had developed. New York City's preeminence had been
seriously eroded not only by London, but by Singapore, Hong Kong, the Bahamas,
Cayman Islands, Panama and, more recently, Bahrain. Moreover, in the three
years since the removal of United States balance of payments restrictions, foreign
international money centers have continued to grow dramatically.
The growth of these overseas financial centers is a logical result of the nature of the
Eurodollar business. In global financial transactions, it is not a simple matter to
decide where negotiations really take place and thus on which branch locations books
a loan shall be entered. If a loan is made to the Brazilian subsidiary of a German
company, people may become involved in its negotiation in Brazil, the United States,
Germany, and various other places. Claims on people's time and other expenses may
well be incurred in half a dozen countries. These loans could be booked in any
number of places where a bank has a branch, including New York for New York head-
quartered institutions; but, because of domestic reserve requirements and restrictions
on interest payments, the loans tend to be placed in branches in money centers outside
the United States.
When American banks book Eurodollar loans in the United States, the deposits
necessary to fund the loans are subject to reserve requirements (these reserves
represent a non-earning asset), and Regulation Q which forbids payment of interest
on deposits under 30 days. Since foreign banks have access to Eurodollars, are not
subject to reserve requirements, and can pay interest on short-term deposits, United
States banks have to find ways to remain competitive. This can only be done, under
existing Federal Reserve regulations, by establishing a Eurodollar center outside the
United States.
BERALD FORD LIBRARY
Advantages of United States International Banking Branches
The establishment of International Banking Branches in New York City, and else-
where, free from domestic restrictions, would enable United States banks to
conduct much of their international deposit gathering and international lending in
a domestic location rather than in offshore booking centers. It would benefit
New York City, other major cities in this country, United States banks, the Treasury
and the Federal Reserve.
The advantages for New York City could be significant. It would help New York regain
its lost prestige in the world financial community not only in banking, but in the
investment industry as well. Wall Street, once the foremost securities center, now
has only a fraction of the Eurobond underwriting while London has become the center
for international bond financing. If international banking returns to New York, at
least some portion of the Eurobond underwriting activities should return as well.
The return of the international financial services business should have a significant
positive impact on New York City employment both in terms of direct employment
and in expanded need for support services; it would help the occupation of under-
utilized office space; it would attract to New York commercial and industrial users
of international banking. In sum, it would generally aid the revitalization of New
York City and result in a net increase in tax revenues due to more jobs and more
spending by visitors, etc., even though the international banking activity itself would
not be taxed.
The proposal would be advantageous to United States banks because it would permit
easier, more effective control and audit of operations which are now spread out in
many foreign branches. It would result in a reduction of costs for American banks
which could be particularly important to medium size banks.
It would also promote international banking by many smaller United States banks
which are presently restricted from international banking operations by the high costs
and control risks of separate branch operations. The Federal Reserve has tried to
accommodate these smaller banks by approving some eighty "shadow branches" in
the Bahamas and the Cayman Islands which are not fullfledged branches but have
enabled the smaller banks to enter the international market. A domestic location
would be a more effective solution.
The establishment of International Banking Branches in the United States would also
return more tax revenues to the Treasury. Tax payments which are paid on foreign
branch profits to foreign governments are presently offsetting the Federal taxes paid
on the same income. Profits of the proposed International Branches would be made
in the United States rather than abroad and, therefore, would not be subject to
foreign taxation. More taxes would be paid to the Federal Government because the
offsets, or credits, would be reduced.
Finally, establishment of these Branches would improve the ability of the Federal
supervisory agencies to examine international operations more efficiently and effec-
tively.
FORD LIBRA
Necessary Legislative/Requlatory Changes
The key components for establishing International Banking Branches within the United
States are to create a legal/regulatory environment which will preserve for non-
residents substantially all of the benefits they now enjoy through the use of off-shore
booking centers of American banks and, in addition, extend to such non-residents the
economic, political and social stability which has traditionally been associated with
the United States.
In order to achieve such a legal/regulatory environment, essentially two steps must
be taken:
(1)
State and Municipal laws imposing tax and other local risks within the juris-
diction where such International Banking Branches are to be located must be
amended so as to be inapplicable to income derived from non-residents deal-
ing with such Branches and
(2)
Federal Reserve regulations must be promulgated to remove reserve require-
ments and interest rate restrictions on all, or substantially all, foreign
source deposits made in an International Branch by non-residents dealing with
such Branch.
Specifically, the Federal Reserve would have to amend Regulation D to remove reserve
requirements on foreign deposits in the International Banking Branches. In addition,
the Federal Reserve would have to amend Regulation Q to remove the restriction for-
bidding the payment of interest on foreign deposits of less than 30 days and to allow
market rates of interest to be paid on time deposits held by foreign persons in such
International Branches. Part of this requirement is already accomplished. There are
presently no rate limits on time deposits held by certain foreign depositors such as
foreign governments, foreign monetary authorities, or international financial institutions.
However, it would be better to base the exemption for the International Branches on the
general foreign character of the depositor, both to free the market and build overall
non-resident depositor confidence in this freedom.
The Federal Reserve may already have sufficient regulatory power to remove reserve
requirements and interest rate restrictions with respect to all foreign deposits which
might be held by International Banking Branches other than those deposits which are
literally payable without notice and immediately on "call" or "demand". As a practical
matter, the vast preponderance of prospective non-resident depositors utilizing
International Branches would probably be willing to deposit funds subject to some, albeit
very short, notice period (e. g. one, two or three days) in order to avoid foreign
"country risk".
If, however, the Federal Reserve felt it necessary or advisable. it would, of course,
seek Congressional authorization to remove reserve requirements and interest rate
restrictions with respect to all non-resident deposits which might be held in Inter-
national Banking Branches. Such Congressional authorization could take the form of
a relatively simple amendment to Sec. 19 of the Federal Reserve Act.
FORD & LIBRAR 07V835
In the past, concern has beer expressed over potential for misuse, a weakening of
monetary policy control, ana ne need for new and elaborate gulatory apparatus if
existing regulations and restrictions were removed on international transactions and
International Banking Branches authorized. The adequacy of existing regulatory
controls and available evidence on the limited impact of the already large foreign
dollar market on U.S. monetary control indicate those concerns are overstated.
Simply stated, United States International Banking Branches would not create new
opportunities for misuse; they would allow American banks to conduct the same inter-
national operations in the United States that they presently conduct in off-shore
locations. It makes little sense to define reserve requirements and interest rate
limitations in such a way that international dollar banking cannot be conducted in the
home country of the dollar.
If the Federal Reserve were to open the way for the establishment of designated
International Banking Branches pursuant to Federal Reserve Act amendments and/or
new regulations, then it would be necessary for New York State and City (if this is
where the Branches were to be located) to eliminate an excessive tax burden in order
to make New York an attractive site for these Branches. This represents no revenue
loss to the local taxing authorities as these activities are not now taking place in the
United States. The level of New York taxes, combined with Federal taxes, remains
an obstacle in attracting international banking. Federal, State and City income taxes
on New York banking operations are now 62.3%, a level far above London at 52%. Even
with a 52% rate, in the past few years London has been losing its relative share of
international banking to lower-taxed centers.
In addition, New York State should: a) remove its reserve requirements on State
chartered non-member banks that wish to establish similar International Branches
(in. line with the Federal Reserve's move for its members), and b) change the New
York State escheat law, better known as the Abandoned Property Law, to exclude
non-resident owned deposits or at least to lengthen the period to a more reasonable
15 to 20 years. This law now requires inactive deposits to be turned over to the State
after five years.
Conclusion
The United States is the most attractive country in the world from the point of view
of economic, political and business stability. It is a natural locus of international
finance. However, the impact of reserve requirements and interest rate ceilings
coupled with exposure to local tax and simlar laws tends to deter non-residents from
making deposits in the domestic branches of U.S. banks. Were these deterrents
eliminated, such non-residents could effectively obtain all of the benefits and pro-
tection which they now enjoy by utilizing foreign branches of United States banks and
still, at the same time, avoid the sovereign risks implicit in foreign laws and
regulations.
No overriding policy requires that reserve requirements and interest rate limitations
imposed for domestic reasons be so structured that United States banks are caused
to carry on international banking primarily through foreign branches and that medium
and smaller banks, unable to justify foreign branches, be largely excluded from
receiving deposits from and making loans to non-residents. This largely accidental
07VE
817
effect of the present structure of regulation has penalized United States cities by
excluding them from developing international banking with its advantages in employ-
ment, economic activity, and creation of competitive knowledge resources, and
served to create vigorous dollar banking centers in foreign cities. It has increased
the difficulties of inspection by United States regulatory agencies and raised the costs
and risks for United States banks.
With all the natural competitive advantages that the United States offers, efforts should
be made immediately to remove the legislative/regulatory obstacles so that the
United States can once again become the international financial center of the world.
New York, as the major financial center of the United States, has much to gain in
seeing this proposal implemented. By encouraging Federal Reserve action and being
prepared to implement the required changes in State and City tax regulations, the
City can move to reestablish its reputation as the leading international financial center.
Citibank
July 13, 1977
FORD & LIBRARY GENALD
APPENDIX I
Proposed New York Legislative Amendments for a
Domestic International Banking Zone in New York City
Taxes on Banking Corporations
A. New York State
The statutory provision dealing with allocation of a bank's net income
to branches outside New York, thus removing this income from taxation
by New York, is very brief (New York Tax Law, Article 3 2)
"$1454. Allocation of Entire Net Income
If the taxpayer's entire net income is derived from business
carried on both within and without the state, the portion
thereof which is derived from business carried on within the
state shall be allocated under rules and regulations prescribed
by the tax commission."
If the income attributable to the proposed New York City international
banking facilities is to be excluded from taxation by New York State,
the following sentence should be added to that section:
"For the purposes of this section a segregated international
banking facility maintained within the state for the purpose
of receiving deposits from non-residents of the United States
and making loans to non-residents of the United States shall
be deemed to be business carried on without the state and
the portion of entire net income allocated to such facility under
rules and regulations prescribed by the tax commission shall
not be treated as derived from business carried on within the
state."
B. New York City
The provision in New York City law imposing taxes on banking
institutions (New York City Administrative Code, Title R, Part III,
Subject 4) which deals with the allocation of net income ($R46-37.4)
is identical to §1454 of the New York State tax law. Therefore a similar
amendment would accomplish the same result:
FORD is LIBRARY 071839
-2-
"For purposes of this section a segregated international
banking facility maintained within the city for the purpose
of receiving deposits from non-residents of the United States
and making loans to non-residents of the United States shall
be deemed to be business carried on without the city and the
portion of entire net income allocated to such facility under
rules and regulations prescribed by the finance administrator
shall not be treated as derived from business carried on
within the city."
This amendment must be enacted by the New York City Council. No
change is required in the New York State Enabling Act under which the
City is authorized to tax banks (L. 1966, Ch. 772, §1), so long as the
amendment to Article 32 (§1454, above) is first enacted.
Abandoned Property
At present New York State has an extraordinarily short escheat period
for unclaimed property held or owned by banking organizations - five
years - which may inhibit the placing of deposits by non-residents.
The solution lies in either extendingthis period to the former (prior to
1976) ten years for deposits or providing that deposits payable only at
an international banking facility as defined would fall within the
present exemption for deposits payable only at foreign branches. In
view of the fact that a general lengthening of the period would delay
revenue, just as the 1976 amendment, as intended, accelerated state
revenue, the exemption method would be preferable.
Abandoned Property Law
"300(a)
exception (iv) any such amount payable only at
or by a branch office located in a foreign country, or at or by
a segregated international banking facility maintained and
operated in New York for the purpose of receiving foreign
deposits and making foreign loans, or payable in currency other
than United States currency, or"
FORD i LIBRARY 07V830
July 13, 1977
A Background Paper On
International Dollar Banking By U.S. Banks
The Size of Off-Shore Banking
atest data show that, as of December, 1975, 97 national banks operated 674 branches
utside the United States, and 29 State member banks operated 88 such foreign branches.
1)
)ver 34 percent of these branches, or 265 in total, were located in "off-shore" centers
or international dollar banking such 2) as the Bahamas, Cayman Islands, Bahrain, Panama,
ingapore, and the United Kingdom.
As of December, 1976, member bank branches
1 the U.K., Bahamas, and the Cayman Islands, held $125 billion in U.S. dollar assets
ut of a total of $167 billion in U.S. dollar assets of all foreign branches, or just under
5 percent of foreign branch dollar assets. 3) In contrast, U.S. offices of all banks in
le U.S. held at end December, 1976, $78 billion of dollar claims on foreigners, of
hich $32 billion were claims other than loans, mostly claims on foreign branches and
gencies of those U.S. banks. 4)
Why should foreign branches of member banks hold
I.S. dollar assets equal to more than double the total of dollar claims on foreigners of
11 U.S. banks ?
low Did This Come About ?
: is clear that the tremendous growth of foreign branch dollar banking was caused in
arge part by, and coincided with, implementation of the various parts of the U.S.
alance of payments programs from 1963 to 1973. The Interest Equalization Tax, the
ederal Reserve Voluntary Foreign Credit Restraint program, and the Office of Foreign
Direct Investment regulation combined to discourage and partially prohibit persons
rithin the United States from lending to persons outside the United States and from
avesting domestic source funds abroad, while at the same time encouraging the develop-
nent of funds gathering capability abroad, particularly the creation of foreign banking
ranches. On April 30, 1976, former Federal Reserve Board Governor Andrew F.
Brimmer presented to a conference on "New York: World Financial Center" at the
Valdorf Astoria, a comprehensive view of the growth of foreign branches of U.S. banks,
oth during the period of the balance of payments program prior to early 1974, and in
ne two years following the termination of the program. Table I of former Governor
Brimmer's presentation (attached) summarized the history of growth of foreign branches
n relation to credit extended to foreigners by U.S. offices from 1960 to end 1975. Up
0 1966 credits to foreigners by U.S. branches were greater than the assets of foreign
ranches. Starting in 1966 foreign branch assets grew precipitously until the relation-
hips were reached described at the beginning of this paper. And the proportional
mportance of foreign branches has continued to grow even after termination of the
alance of payments programs at end 1973. Governor Brimmer reported:
GERALD FORD
"At the end of last December, U.S. commercial banks had $29.5 billion of loans
to foreigners outstanding on the books of their head offices. At the same time,
their foreign branches had total assets of $165. 0 billion. Of this total of
$194. 5 billion, the head offices held 15 percent, and the remainder was held
by the branches. In a rast, in 1973 (prior to the ter nation of restraints
on bank lending abroad from their head offices), the head offices in the United
States held 13 percent of the combined foreign assets, and the branches held
the remainder. So, partly in response to capital constraints imposed by the
Federal Government, American banks had come to rely primarily on their
foreign branches as vehicles through which to conduct the bulk of their inter-
national lending activities. This is still the case today. "
Vhy Off-Shore Banking Today ?
[o understand this phenomenon it is necessary to realize that while the balance of
ayments programs was the primary impetus for U.S. banks to move international
lollar banking to foreign branches, other factors sustain this movement today.
These factors are 1) freedom from deposit reserve requirements in foreign centers,
.nd 2) freedom in those foreign centers to pay market rates of interest on demand
nd time deposits. While taxes on bank branch profits are also sometimes mentioned
S incentives to carry on dollar banking in foriegn branches, this is true only to a
ery limited extent, as will be discussed below. If these two competitive advantages
ffered by foreign dollar centers were also available in U.S. centers it is fairly
ertain that a large part of foreign branch dollar banking would be returned to domestic
ffices. Are there any sound policy reasons for the U.S. to continue to create
competitive advantages for dollar banking in foreign centers to the detriment of U.S.
ities ?
The response to this question may rest either on inquiry into the need for deposit
eserves and restrictions on deposit interest payment in general, or on inquiry into
he appropriateness and administrative feasibility of removing foreign-source, or
nternational deposits held in domestic offices from the constraints of deposit reserves
.nd limitations on interest payments.
Deposit Reserves and Limitations on Interest Applied to Deposits From Foreigners
n Domestic Banking Offices.
Vhile some economists argue that reserve requirements have relatively little value
S a monetary policy mechanism, it is not the purpose of this paper to deal with that
ssue. We will assume, for purposes of this presentation, that deposit reserves and
imitations on deposit interest will continue as instruments of monetary management
f the domestic economy. Therefore, in order to respond to the basic question, it is
ecessary to examine whether such requirements should be applied to deposits held in
omestic banking offices by foreign persons and entities.
Inder present regulation, dollar funds held by foreigners can be deposited in domestic
anking offices at rates competitive with free Euromarket rates only if the size and
erm of the deposit is such that it is free from limitations on interest payments, and
he market power of the depositor is such that the bank can be persuaded to absorb
he cost of required reserves. Thus, it can be assumed that the great bulk of dollar
unds held by non-residents of the United States will be deposited in foreign branches
&
FORD
f U.S. banks or in foreign banks outside the United States. These foreign held
ollar funds, placed in banks abroad, can exercise an influence on domestic monetary
MYNNIT
markets only through the follo ing banking channels; A) advances in any form by
foreign branches of U.S. banks to their domestic offices; B) extensions of credit
by such foreign branches to domestic borrowers for use in the U.S.; C) advances
by foreign banks to their domestic offices; and D) extensions of credit by foreign
banks to domestic borrowers for use in the United States. The Federal Reserve
Board has controlled channels A) and B), where it has imposed reserves based on
advances or extensions of credit by member banks' foreign branches. However,
claims by foreign branches on U.S. persons, other than their domestic offices,
have been very small, as a percentage of their assets. From 1973 to end 1976 the
total has never exceeded 2.6% of total uses of foreign branch funds, and the amounts
have been more than offset by the liabilities of these branches to U.S. depositors. 5)
In addition, advances by foreign branches to their domestic offices have been
relatively unimportant.
Since 1973 they have never exceeded 3.3% of total foreign branch fund uses, and
since December, 1974, have been offset by advances by the U.S. offices to foreign
branches. 6) Even in 1969, prior to imposition of the Reg. M reserves, the total
advances by foreign branches to domestic offices, in the face of severe restraints
on U.S. money markets, represented only 31% of the assets of foreign branches, or
more significantly only 2.4% of the total assets of all U.S. commercial banks. 7)
It is difficult to assess the total amount of U.S. dollar funds held by foreign banks,
as opposed to foreign branches of U.S. banks, because statistics are either not
compiled in various centers on different bases. For London, however, statistics
published by the Bank of England do permit some estimates. As of December 31,
1975, for example, total U.S. currency liabilities of U.K. banks were about $104
billion, while those of branches of U.S. banks in the U.K. were about $58 billion.
On the other side total U.S. currency assets of U.K. banks at that date were $97
billion, and those of U.S. bank branches there were $57 billion. Thus, non-U.S.
banks in the U.K. held sizeable totals of U.S. dollar liabilities and assets although
the larger part of the totals for all U.K. banks were those of branches of U.S. banks.
These dollar operations of foreign banks outside the United States are not subject,
either actually or potentially, to control by U.S. authorities. At the same time, the
Bank of England data indicate that only a small part of these U.S. currency liabilities
and assets of U.K. banks were to U.S. persons (9.4%) or due from U.S. persons
(6.9%). 8) Thus, given both the substantial U.S. dollar operations of foreign banks
and the small portion of these operations which involve transactions with persons in
the United States, it is at least questionable whether the present program under
Reg. M is necessary or appropriate.
Moreover, available evidence suggests that conditions in the "uncontrolled" foreign
dollar markets are, in fact, dictated by conditions in the U.S. markets. Eurodollar
interest rates move in a quite close relationship with U.S. domestic interest rates,
and even the fluctuations in the growth of the Eurodollar market appear to be pre-
dictably related to the growth in U.S. monetary aggregates, notably the monetary
base. Thus there is much stronger influence running from the U.S. economy to
the foreign dollar centers than in the opposite direction. The imposition of
FORD & 076839 LIBRARY
Regulation M reserve requirements in order to strengthen the Federal Reserve's
control over U.S. monetary conditions, therefore, may be unnecessary.
Domestic International Banking Offices
But if there is a need to apply reserve requirements in order to isolate foreign dollar
markets from domestic markets, there is no convincing reason to do this in a way
which encourages U.S. banks to carry on their dollar operations with non-residents
primarily in foreign locations. U.S. banks could be permitted to create international
banking facilities at domestic locations for the receipt of deposits from non-residents
and the making of loans to non-residents just as they do today in foreign branches.
There is no reason why the regulation of such facilities to control their effect on
domestic markets should be more difficult or burdensome than the regulation of
:oreign branches. In fact, the location of such facilities in domestic cities would
nake the task of supervision easier than is the case with widespread foreign branches.
f such controls were needed, essential to their implementation would be 1) a def-
nition of such domestic international facilities, 2) definitions of those deposits
which such facility would be empowered to accept, free of reserve requirements and
restrictions on interest payments, and 3) provisions for reserve requirements to
apply where such a facility makes funds available to other domestic offices (such
domestic offices could be required to maintain ordinary reserves on such funds
received from the facility) of the bank or to domestic borrowers for use in the United
States. While the Federal Reserve Board has, through former Governor George
Mitchell, taken the 9) position that these regulations would, of necessity, be costly
and burdensome
this does not appear to be the case.
f the domestic international banking facility were required to keep separate books
of account, and be maintained as a separate unit, just as if it were a foreign branch,
imited to certain categories of transactions (receipt of despoits from "non-residents"
and making loans to "non-residents") its regulation should be no more difficult or
costly than is the regulation of Edge Act corporations.
A definition of non-residents is already contained in the pertinent provisions of Reg. M.
These provisions (s213.7 of Reg. M) still reflect the OFDI requirements and, if
continued, are in need of revision.) The term "non-residents" should be so adapted
50 as to include domestic international banking facilities of other banks so that an
nter-bank international market in non-resident source funds could develop.
The Federal Reserve may already have current regulatory power to remove reserve
requirements and interest rate restrictions with respect to all foreign deposits which
night be held by domestic international banking facilities other than those deposits
which are literally payable without notice and immediately on "call" or "demand". As
z practical matter, the vast preponderance of prospective non-resident depositors
utilizing such facilities would probably be willing to deposit funds subject to some,
FORD
albeit very short, notice period (e.g. one, two or three days) in order to avoid
foreign "country risk". Nevertheless, should the Federal Reserve deem it approp-
riate, it could seek specific legislative authorization from Congress to remove
LIBRARY
reserve requirements and interest rate restrictions with respect to such non-resident
deposits as might be held in domestic international banking facilities. Such Congres-
sional authorization could take the form of a relatively simple amendment to Sec. 19
of the Federal Reserve Act. (See the attached text of a possible amendment to Sec. 19.)
Taxation
Congress took a major step towards attracting non-resident deposits to United States
banks by making the exemption from withholding taxes applicable to interest on
bank deposits a permanent part of the Internal Revenue Code in 1976, although the
expected transfer of foreign held deposits from off-shore centers to U.S. offices
will not be realized unless other impediments to domestic deposits are removed.
On the level of taxation of bank profits, rather than on depositors, it is commonly
:hought that the lack of local income taxes, or low rates of such taxes, in some off-
shore centers is an incentive to carry on international banking in those centers
rather than at domestic U.S. locations. As far as the federal income tax is concerned,
:his is not the case. A U.S. bank is subject to federal tax on its world-wide income,
whether this is earned in domestic locations or foreign branches, and it may credit
foreign income taxes which it pays against its liability for federal tax, but not more
:han that proportion of the federal tax which equals the proportion of the bank's total
:axable income which is from foreign sources. Thus the bank's tax burden, foreign
and federal, will be at least 48 percent of foreign income and will exceed 48 percent
only if foreign source income is subject to foreign taxes in excess of 48 percent.
Income earned in a low-tax foreign center is subject to the same federal tax as is
income earned in a domestic branch.
Many off-shore centers, London (52 percent), Bahrain (20 percent), Singapore (10
percent) levy income taxes. To the extent that income earned in branches in these
centers were earned instead in domestic locations, more taxes would be paid to the
federal treasury because creditable foreign taxes would be reduced.
Many loans to foreign borrowers are subject to withholding taxes levied at the source
on interest, in addition to the income taxes assessed on foreign branches where these
loans are made. As between foreign banking centers, the lower taxed centers are
more attractive because the total foreign tax burden on such loans is thereby reduced
and the risk is diminished that the total amount of such foreign taxes may exceed the
maximum credit permitted. If loans to foreign borrowers were made from domestic
offices the same effect would be achieved as making such loans from lower taxed
foreign centers since one layer of foreign tax would be eliminated. Thus, except for
state and local taxes, domestic locations can compete on the tax level with no-tax
or low-tax foreign centers in attracting foreign loans out of higher-taxed foreign
centers.
State and local taxes on branch operations do represent an obstacle to location of
operations which are carried on in foreign centers, because these taxes are not
creditable against the federal tax, but are deductible. Due to reserve requirements
and limitations on interest payments, however, domestic locations do not at present
attract international operations, and there is some hope that states may eliminate
profits taxes on international operations or reduce the burden in order to gain such
international operations and the additional employment, expertise and economic
benefits which international banking could bring. This is especially true of states
with cities equipped to be international centers of considerable size.
GERALD LIS8481 ? FORD
Conclusion
To overriding policy requires that reserve requirements and interest rate limitations
nposed for domestic reasons be so structured that U.S. banks are caused to carry
n international banking primarily, if not exclusively, through foreign branches,
nd that midsize and smaller banks, unable to justify foreign branches, are largely
xcluded from receiving deposits from and making loans to non-residents. This
argely accidental effect of the present structure of regulation has penalized United
tates cities by excluding them from developing international banking with its
dvantages in employment, economic activity, and creation of competitive knowledge
esources, and by creating vigorous dollar banking centers in foreign cities. The
isadvantages of this regulatory structure include also increased difficultities and
osts of examination by U.S. regulatory agencies and greater costs and risks for
I.S. banks. Therefore, amendment of the applicable laws and regulations to permit
I.S. banks to carry on international banking in the United States, and to permit
any banks unable to maintain foreign branches to compete in this business with
arger banks, is warranted now.
'itibank
uly 13, 1977
LIGRARY GERALD R. FORD
NOTES
1)
62nd Annual Report, 1975, Board of Governors of the
Federal Reserve System, pp. 303-4.
2)
Ibid, table, p. 304
3)
Federal Reserve Bulletin, March, 1977, p. A62.
4)
Ibid, p. A61, Tables 3.19, 3.20
5)
Federal Reserve Bulletin, April, 1977, pp. A62-A63.
6)
Ibid.
7)
See table I, presented by Mr. Brimmer, attached.
8)
Federal Reserve Bulletin, January, 1977, pp. A62-A63;
Bank of England Quarterly Report, Vol. 16, September,
1976, Table 21. These data also show that, from
December, 1975, to June, 1976, non-U.S. banks in the
U.K. used only ten percent of their dollar resources
to acquire claims on the U.S., even though the amounts
of those U.S. claims exceeded those of U.S. bank
branches in the U.K. During the period, the amount of
all U.K. banks' liabilities to U.S. persons exceeded the
amount of their claims on U.S. persons.
9)
Financial Institutions and the Nation's Economy
"Discussion Principles". Hearings before the
Subcommittee on Financial Institutions Supervision,
Regulation and Insurance, House of Representatives,
December 11, 12, 16, and 17, 1975, Statement of
Hon. George W. Mitchell, at pp. 1035-6, Vol.2
GERALD FORD LIBRARY
TABLE 1
International Operations of U.S. Banks: Selected Indicators, 1960-1975
(Monetary Magnitudes are in Billions of Dollars)
CATEGORY
1960
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1
1.
U.S. Offices
2
Bank Credit to Foreigners
$4.2
9.4
9.7
9.6
9.8
9.2
9.3
9.7
12.1
13.4
17.2
29.0
29.5
Foreign Deposits 2,3 (other than
Due to Foreign Branches)
$9.1
13.4
13.6
12.6
14.4
14.7
16.5
16.5
17.1
17.4
21.8
24.2-
24.1
4
Due to Foreign Branches
$--
1.2
1.3
4.0
4.2
6.0
12.8
7.7
0.9
1.4
2.5
4.5
4.1
5
11.
Overseas Branches of Banks
Number of Banks with Overseas
Branches
8
11
13
13
15
26
53
79
91
108
125
125
126
Number of Overseas Branches
131
181
211
244
295
375
459
536
583
627
699
732
762
6
Assets of Overseas Branches
$3.5
6.9
9.1
12.4
15.7
23.0
41.1
52.6
67.1
77.4
118.0
151.9
165.0
111.
Edge and Agreement Corporations
Number
15
38
42
49
53
63
71
77
85
92
104
114
116
Assets
$N.A.
0.9
1.0
1.4
1.5
2.5
3.5
4.6
5.5
6.0
6.9
10.1
NA
MEMORANDUM:
All Insured Commercial Banks in U.S.
906.3
912.0,
S
Total Assets
$255.7
343.9
374.1
401.4
448.9
498.1
527.6
576.2
640.3
732.5
827.1
Total Deposits
228.4
305.1
330.3
351.4
394.1
432.7
434.1
480.9
537.9
612.8
677.4
741.7
741.8
NOTE: N.A. Not Available. Data are for end of year, except subscript S - September, 1975.
p.e. Partly Estimated.
1.
All data for U.S. offices are on a balance of payments basis.
2.
Bank credit to foreigners and foreign deposits relate to all commercial banks reporting on the Treasury foreign exchange forms, and
GENALD
include credits and deposits of branches and agencies of foreign banks as well as U.S. banks. Bank credit includes short- and long-
term loans and acceptance credits denominated in dollars; for 1960, some other short- and long-term claims are also included. Data
for 1972 through 1974 do not include claims on U.S. banks or their foreign branches or claims of U.S. agencies and branches of foreign
0803
banks on their head offices.
3.
Foreign deposits include demand and time deposits of one-year or less maturity, and beginning in 1964, include negotiable certificates
of deposit Issued to foreigners and international institutions.
4.
Due to branches refers to the gross liabilities due to foreign branches of large U.S. weekly-reporting banks.
5.
Overseas branches include branches of member banks in U.S. possessions and territories as wall as in foreign countries.
6.
Branch assets include interbranch balances.
,
Sources: Treasury Forms N-2 and B-3; Federal Reserve Board.
Proposed Legislative Amendment to Effect the Establishment of Domestic
International Banking Facilities of Member Banks
Federal Reserve Act
Section 19 (a) of the Federal Reserve Act (12 U.S. Code 461) is amended by adding the
following sentence thereto:
"The Board may by regulation on such basis as it may deem reasonable
authorize the creation by member banks of international banking facilities
at such locations where such banks are authorized to conduct business
within the United States for the purpose of receiving deposits from foreign
governments, their agencies, persons conducting business outside the
United States, foreign branches of United States business entities, and
from individuals not resident in the United States, and for making loans
to such foreign persons and entities for use outside the United States
and such other purposes concerning foreign banking as may be determined
by the Board by regulation, and the Board may by the affirmative vote of
not less than four members of the Board exempt from any of the provisions
of this section any one or more of the types of deposits authorized to be
held by such international banking facility. If
Alternatively, the foregoing sentence could, as a technical matter, equally well be
added as a new Section 19(k).
LIBRARY GERALD : FORD
RFCD IN RECORDS SECTION
JUL 201377
421.2
W
July 27, 1977
CARDED
Mr. Walter B. Wriston
Chairman
Citibank, N.A.
399 Park Avenue
New York, New York 10022
Dear Walter:
7/15/27
Thank you for your letter proposing the
establishment of'international banking branches in
the United States. Several years ago, the Board
evaluated a similar proposal. At that time, it
concluded that the advantages of such a proposal
were outweighed by its negative implications for
the control of domestic money and credit. Since
then, there have been significant increases in the
volume of international loans and deposits both at
U.S. offices and at overseas branches of our banks,
and our banking system is undergoing important
changes. It may, therefore, be appropriate to under-
take another evaluation of this proposal.
A useful first step would be to ascertain
how other banks now would regard such a proposal,
and what they would envision might result from the
statutory and other changes you propose. I therefore
plan to ask the Federal Advisory Council for its views
as we did in early 1974 Su2/1/74
Sincerely yours,
FOR FILES
Arthur F. Burns
S. Connor
RFG/FRD:aw
#1006
N.B
FORD is LIBRARY 078870
H FILE COPY
July 26, 1977 421.2
Governor Gardner
Wriston letter on international
Messrs. Gemmill, Dahl, Tuttle
banking facilities
7/26/77
The attached draft reply is about as forthcoming as
would want to be on this issue at the present time. Among the
considerations we have taken into account in framing this reply
are the following:
1) While the proposal is described as one that would
merely substitute deposits and loans in international
banking branches located in the United States for deposits
and loans in overseas branches of U.S. banks, it has the
potential for substituting for lending and deposit business
already occurring at domestic banking offices.
a) Roughly $30 billion of foreign-owned demand
and time deposits (including CD's )might become eligible
for shifting to the new facilities, should they be estab-
lished as proposed;
b) U.S. corporations with overseas affiliates
might well shift their deposit business from U.S. banking
offices by having their foreign branches or subsidiaries
conduct the same business (free of regulation) through
the newly-created international banking branches.
2) It would be awkward for the Board to endorse a
proposal that could remove such a volume of deposits from
reserve requirements at a time when the Board is vigorously
advocating subjecting foreign banks in the United States to
monetary controls.
3) It is not clear that substantial benefits to
employment and income in New York (and other cities) would
result from the new facility. All the administrative work
and bookkeeping for Nassau branches is already taking place
in New York. And to the extent that foreign business now
being done in New York would be done in the new facilities,
New York City and State tax revenues would be reduced.
These issues were raised in the questions submitted by the
:
FORD
Board to the Federal Advisory Council in February. (A copy of those
questions is attached.) We would propose to revise these questions
GER,
LIBRARY
as needed and then send them to the present members of the FAC.
FOR TU.ES
D. Critclier
FILE COPY
Governor Gardner
-2-
For your information there is also attached a copy of
Governor Mitchell's statement on this question for the FINE study.
Attachment
Jmp FRD:dac
FORD & LIBRARY DERALD
FILE COPY
DRAFT
RFG/FRD
6-26-77
Mr. Walter B. Wriston, Chairman
Citibank, N.A.
399 Park Avenue
New York, New York 10022
Dear Walter:
Thank you for your letter proposing the establishment
of international banking branches in the United States. Several
years ago, the Board evaluated a similar proposal. At that time,
it concluded that the advantages of such a proposal were outweighed
by its negative implications for the control of domestic money and
credit. Since then, there have been significant increases in the
volume of international loans and deposits both at U.S. offices and
at overseas branches of our banks, and out banking system is under-
going important changes. It may, therefore, be appropriate to
undertake another evaluation of this proposal.
A useful first step would be to ascertain how other banks
now would regard such a proposal, and what they would envision might
result from the statutory and other changes you propose. I there-
fore plan to ask the Federal Advisory Council for its views as we
did in early 1974.
Sincerely yours,
Arthur F. Burns
FORD is LIBRARY 04V830
Questions for Federal Advisory Council
Various suggestions have been made from time to time by
U.S. bankers that their banks be permitted to conduct international
operations out. of U.S. offices under rules similar to those that apply
to foreign branches. For example, it has been proposed that deposits
owned by foreign entities be exempt from reserve requirements, Regulation Q
ceilings, and the prohibition of payment of interest on time deposits with
maturities under 30 days. The amount of foreign deposits that would be
given special treatment would be limited, at the maximum, to the amount
of a bank's foreign loans and investments in foreign securities.
The Board would appreciate the Council's views on the following
questions:
1. Should such "freeport" facilities for international
banking be permitted?
2. What, if any, advantages, corporate and public, would
likely ensue if banks engaged in international lending
and deposit-gathering had such facilities? Would
adoption of the proposal obviate the need for "shell"
branches? Would it tend to reduce the amount of business
conducted through full service branches in foreign
financial centers, perhaps with some substitution of
representative offices for such branches?
3. Would the Council expect the use of such facilities
to increase the total amount of international business
done by U.S. banks? Would deposits in such "freeport"
facilities located in the U.S. be more useful to customers
than deposits in "shell" branches or foreign branches?
FORD is LIBRARY 07V830
4. Would the Council expect the existence of such facilities
to result in a shift of deposits and borrowing of multi-
national concerns away from domestic deposit and loan accounts
and into the freeport facilities? Would such shifts have
potential adverse effects on the conduct of domestic monetary
policy?
- 2 -
5. Would the existence of "freeports" tend to discriminate
against U.S. customers with no foreign subsidiaries?
6. Does the Council believe that the kinds of reports needed
for regulatory policing of such "privileged" operations would
raise serious compliance problems? Would it be desirable
to segregate the privileged activity into a separate
subsidiary of the bank, with separate bookkeeping?
7. Would adoption of such a policy lead to a more equitable
system of competition for international business between
small and large banks? Would it create an undesirable
incentive for inexperienced banks to enter the field of
international banking?
8. If such facilities were permitted, how might the problem
of phasing-in be handled? (Presumably a very substantial
amount of foreign deposits would suddenly become eligible
for favored treatment, creating at least transitional
problems for the conduct of monetary policy.)
FORD is LIBRARY
1034
all parties and their responsibilities through the maintenance at U.S.
head offices of adequate information for examination purposes.
It is proposed in Title VII that U.S. banks should not be allowed
to operate in such bank secrecy countries. That proposal does not give
sufficient weight to the importance of facilities in these countries to
the over-all international operations of the banks in question. Nor does
it give enough weight to the evolutionary process of arriving at the proper
type of supervision for bank facilities in those countries.
Multinational Cooperation on Bank Supervision
Problems associated with the growth of international banking
are common to bank supervisors everywhere. As a result of this experience
and events of the past year or so, there is now a far greater awareness of
the mutuality of interests among the banking authorities of various countries.
It is well known that under the aegis of the Bank for International
Settlements a committee has been set up to serve as a forum for exchanging
information and views on problems of bank supervision in the major industrial
countries. The Federal Reserve is participating in the work of that com-
mittee. Already that committee is proving useful as a means of sharing
experiences of dealing with such problems as capital, liquidity, supervision
of foreign exchange operations, and so forth. Hopefully, it will serve as
part of an international early warning system to alert banking authorities
to emerging problems in international banks. It is too early to say how
FORD is LIBRARY QERALD
1035
this will all work, but one can be hopeful that this cooperation among
banking authorities will lead to better supervision of the international
banking system.
The Foreign Window
In principle 2 of Title VII, it is stated that in order to pro-
mote competition among banks of different sizes in international financial
markets, U.S. banks should be able to establish overseas departments in
their domestic offices. These offices would be allowed to engage in the
same activities as foreign branches and would not be subject to the restric-
tions placed on the domestic activities of U.S. banks.
About a year and a half ago, our staff reviewed the possible
advantages and disadvantages of establishing at U.S. offices of U.S. banks
a new "foreign window", or overseas department, that would be segregated
from domestic accounts, and through which U.S. banks could conduct business
with foreign customers free of regulations that are applied to domestic
banking transactions. Although such foreign windows could provide some
cost advantages, and might promote international banking by smaller banks,
it was concluded that the regulatory disadvantages outweighed any potential
benefits.
A poll of banks taken at the time indicated that foreign windows
would not serve as substitutes for full-service branches abroad, and for
many banks would not provide significant cost or other operational advan-
tages over "shell" branches abroad. An important consideration in banks'
FORD is LIBRARY
1036
decisions about any substitution of foreign windows for foreign branches
would doubtless be the tax status of the window, and on this issue the
Committee may want to consider the status of any such window under municipal
and State taxes as well as under federal taxes.
Our reservations concerning the window arise mainly because of
the scope for misuse of the window to conduct essentially domestic business.
U.S. corporations--using foreign subsidiaries as intermediaries--might
shift substantial amounts of their domestic U.S. banking transactions
to the foreign window to take advantage of the special advantages offered
by the window (e.g., higher rates on deposits, reflecting the absence of
interest rate limitations and reserve requirements). If the Federal Reserve
were unable to control such shifts, there could be a serious weakening of
the System's influence over domestic monetary and credit conditions. An
extensive and cumbersome system of regulation would thus be needed in
order to control the use of any foreign window. The administrative and
other costs of establishing such a system of regulation in order to prevent
any potential weakening of the System's influence over domestic monetary
policy would appear to outweigh any potential benefits.
Discount of Foreign Paper--Principle 5
In order to discuss the ramifications of the proposal to restrict
access to the Federal Reserve discount window to borrowings secured by "do-
mestic paper", it would be necessary to understand exactly what is meant to be
included within the term "domestic paper" and what considerations led to
FORD LIBRARY
ce:
CITIBAN
SCARD
ik, N.A.
Walter B. Wriston
rk Avenue
Chairman
RECERAL RESERVE
ork. N.Y.
421.2
1977 JUL 22 AM U: 33
RECEIVED
July 15, 1977
OFFICE ThE CHAIRMAN
#1006
The Honorable Arthur F. Burns
Chairman
Federal Reserve System
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D.C. 20051
Dear Arthur:
We have been considering ways to help the United States--and
specifically New York City--regain position as the financial
center of the world. One way which we believe this could be
done is to attract back to this country those truly international
banking transactions which, because of the adverse impact
of domestic Federal regulations and local laws, are currently
being booked in various off-shore locations outside the United
States.
Attached is a proposal which, through some relatively simple
amendments to current laws and the promulgation of appropriate
regulations, would provide for the establishment within the
United States of International Banking Branches of U.S. banks.
With the establishment of these branches, transactions of the
type now being booked by American banks outside the United
States could instead be booked within the United States.
This is not a wholly novel idea, but one which is, in my judg-
ment, timely. I am enclosing for your consideration and comment
a document generally outlining the proposal for the establishment
of such International Banking Branches as well as a somewhat
more detailed and technical memorandum entitled "A Background
Paper on International Dollar Banking by U.S. Banks". I am
concurrently sending copies of these documents to Paul A. Volcker,
President, Federal Reserve Bank of New York and Governor Hugh L.
Carey of New York for their consideration and review.
FORD LIBRARY
The Honorable Arthur F. Burns
Page 2
July 15, 1977
If you and your associates believe this proposal has merit, I would
be most pleased to cooperate in pushing this proposal forward
toward its implementation. Personally, I believe the implementation
of such proposals would result in not only strengthening the role of
the United States but also, specifically, New York City, as the
world's leading financial center.
I look forward to your reaction.
Sincerely,
With
FORD is LIBRARY SERALD
A Proposal To Establish
International Banking Branches
In The United States
In a time when efforts are being made to revitalize New York's declining economic
position, we would like to propose a simple, logical approach to help New York
regain its once preeminent role as an international money center -- a monetary free
trade zone.
Most people are familiar with the free trade zones that countries set up for imports
and exports of goods which are never actually sold in the domestic market. The
basic principle is that imports into a free zone are not subject to customs duties if
the goods flow back into international trade. If, however, the trade goods leave the
free zone and flow into domestic commerce, they would be taxed accordingly.
In our country the zones have a long history and a wide geography. The Foreign
Trade Zones Board was established by Congress in 1934 and oversees 19 free zones
which extend from the Brooklyn Navy Yard to Honolulu. The zones are designed so that
goods which are not intended for sale or use in the United States may be imported,
stored, assembled or manufactured by domestic firms and labor without being
burdened by United States import duties.
The same principle could be applied to banking operations not involving the domestic
markets. If loans and deposits of purely international origin and destination could
be transacted free of the regulatory and legislative constraints and taxes designed to
apply to domestic operations, they would be maintained and serviced in the United
States using domestic bank personnel and expertise. In effect, banks would be allowed
to establish specifically designated branches which would deal only in international
transactions. The concept already exists in many foreign cities and countries which,
as a result, have become international banking centers at the expense of the United
States and, more specifically, New York.
In such designated "International Banking Branches", located within the United States,
banks could accept non-U.S. deposits free of the burden of non-earnings reserves and
interest rate restrictions imposed by Congress and the Federal Reserve and make
loans to foreign borrowers. The location of such branches would be subject to
existing limitations on interstate banking, i.e. New York banks would be limited to
a New York location, Chicago banks to Chicago, etc. There would be no State or
City taxes applied to the earnings of these International Branches. There would be
no loss of local tax revenues because these operations are not presently conducted in
the United States.
Just as in the case of existing free trade zones for goods, in these International
Branches the absence of domestic restrictions would apply only to foreign transactions--
deposits from and loans to non-residents. Any financial transactions between the
LIBRAR
-4-
International Branches ana other domestic offices or resident customers would be
subject to the same restrictions, regulations, and taxes which presently exist on
transactions between United States domestic banks and their foreign branches.
Federal and/or State supervisory authorities would authorize and oversee the
operations of such International Branches.
Background
While International Banking Branches could be set up anywhere in the United States,
New York would particularly benefit because of the size and international scope of
New York headquartered banks and the large number of foreign banks already located
here. New York has all of the foundations necessary for an international banking
center -- excellent world communications and transportation; a vast pool of experienced
financial analysts, legal counselors and skilled banking personnel; and available office
space. New York was the world's primary banking center until the early 1960s. At
that time, balance of payments considerations led the U.S. Government to impose
regulations -- Interest Equalization Tax (IET), Voluntary Foreign Credit Restraints
(VFCR), Office of Foreign Direct Investment regulations (OFDI) -- which served to
stimulate corporate funding outside the United States, motivated banks to set up or
expand foreign branches, and spurred the growth of the Eurodollar markets.
During the time the IET, VCR, and OFDI restrictions were in effect London's position
as an international banking center had been vastly expanded and several new inter-
national financial centers had developed. New York City's preeminence had been
seriously eroded not only by London, but by Singapore, Hong Kong, the Bahamas,
Cayman Islands, Panama and, more recently, Bahrain. Moreover, in the three
years since the removal of United States balance of payments restrictions, foreign
international money centers have continued to grow dramatically.
The growth of these overseas financial centers is a logical result of the nature of the
Eurodollar business. In global financial transactions, it is not a simple matter to
decide where negotiations really take place and thus on which branch locations books
a loan shall be entered. If a loan is made to the Brazilian subsidiary of a German
company, people may become involved in its negotiation in Brazil, the United States,
Germany, and various other places. Claims on people's time and other expenses may
well be incurred in half a dozen countries. These loans could be booked in any
number of places where a bank has a branch, including New York for New York head-
quartered institutions; but, because of domestic reserve requirements and restrictions
on interest payments, the loans tend to be placed in branches in money centers outside
the United States.
When American banks book Eurodollar loans in the United States, the deposits
necessary to fund the loans are subject to reserve requirements (these reserves
represent a non-earning asset), and Regulation Q which forbids payment of interest
on deposits under 30 days. Since foreign banks have access to Eurodollars, are not
subject to reserve requirements, and can pay interest on short-term deposits, United
States banks have to find ways to remain competitive. This can only be done, under
existing Federal Reserve regulations, by establishing a Eurodollar center outside the
United States.
FORD LIBO
Advantages of United States International Banking Branches
The establishment of International Banking Branches in New York City, and else-
where, free from domestic restrictions, would enable United States banks to
conduct much of their international deposit gathering and international lending in
a domestic location rather than in offshore booking centers. It would benefit
New York City, other major cities in this country, United States banks, the Treasury
and the Federal Reserve.
The advantages for New York City could be significant. It would help New York regain
its lost prestige in the world financial community not only in banking, but in the
investment industry as well. Wall Street, once the foremost securities center, now
has only a fraction of the Eurobond underwriting while London has become the center
for international bond financing. If international banking returns to New York, at
least some portion of the Eurobond underwriting activities should return as well.
The return of the international financial services business should have a significant
positive impact on New York City employment both in terms of direct employment
and in expanded need for support services; it would help the occupation of under-
utilized office space; it would attract to New York commercial and industrial users
of international banking. In sum, it would generally aid the revitalization of New
York City and result in a net increase in tax revenues due to more jobs and more
spending by visitors, etc., even though the international banking activity itself would
not be taxed.
The proposal would be advantageous to United States banks because it would permit
easier, more effective control and audit of operations which are now spread out in
many foreign branches. It would result in a reduction of costs for American banks
which could be particularly important to medium size banks.
It would also promote international banking by many smaller United States banks
which are presently restricted from international banking operations by the high costs
and control risks of separate branch operations. The Federal Reserve has tried to
accommodate these smaller banks by approving some eighty "shadow branches" in
the Bahamas and the Cayman Islands which are not fullfledged branches but have
enabled the smaller banks to enter the international market. A domestic location
would be a more effective solution.
The establishment of International Banking Branches in the United States would also
return more tax revenues to the Treasury. Tax payments which are paid on foreign
branch profits to foreign governments are presently offsetting the Federal taxes paid
on the same income. Profits of the proposed International Branches would be made
in the United States rather than abroad and, therefore, would not be subject to
foreign taxation. More taxes would be paid to the Federal Government because the
FORD
offsets, or credits, would be reduced.
Finally, establishment of these Branches would improve the ability of the Federal
supervisory agencies to examine international operations more efficiently and effec-
tively.
Necessary Legislative/Reg alatory Changes
The key components for establishing International Banking Branches within the United
States are to create a legal/regulatory environment which will preserve for non-
residents substantially all of the benefits they now enjoy through the use of off-shore
booking centers of American banks and, in addition, extend to such non-residents the
economic, political and social stability which has traditionally been associated with
the United States.
In order to achieve such a legal/regulatory environment, essentially two steps must
be taken:
(1)
State and Municipal laws imposing tax and other local risks within the juris-
diction where such International Banking Branches are to be located must be
amended SO as to be inapplicable to income derived from non-residents deal-
ing with such Branches and
(2)
Federal Reserve regulations must be promulgated to remove reserve require-
ments and interest rate restrictions on all, or substantially all, foreign
source deposits made in an International Branch by non-residents dealing with
such Branch.
Specifically, the Federal Reserve would have to amend Regulation D to remove reserve
requirements on foreign deposits in the International Banking Branches. In addition,
the Federal Reserve would have to amend Regulation Q to remove the restriction for-
bidding the payment of interest on foreign deposits of less than 30 days and to allow
market rates of interest to be paid on time deposits held by foreign persons in such
International Branches. Part of this requirement is already accomplished. There are
presently no rate limits on time deposits held by certain foreign depositors such as
foreign governments, foreign monetary authorities, or international financial institutions.
However, it would be better to base the exemption for the International Branches on the
general foreign character of the depositor, both to free the market and build overall
non-resident depositor confidence in this freedom.
The Federal Reserve may already have sufficient regulatory power to remove reserve
requirements and interest rate restrictions with respect to all foreign deposits which
might be held by International Banking Branches other than those deposits which are
literally payable without notice and immediately on "call" or "demand". As a practical
matter, the vast preponderance of prospective non-resident depositors utilizing
International Branches would probably be willing to deposit funds subject to some, albeit
very short, notice period (e.g. one, two or three days) in order to avoid foreign
"country risk".
If, however, the Federal Reserve felt it necessary or advisable it would, of course,
seek Congressional authorization to remove reserve requirements and interest rate
restrictions with respect to all non-resident deposits which might be held in Inter-
national Banking Branches. Such Congressional authorization could take the form of
a relatively simple amendment to Sec. 19 of the Federal Reserve Act.
CRALO FORD LIBRES
In the past, concern has been expressed over potential for misuse, a weakening of
monetary policy control, and the need for new and elaborate regulatory apparatus if
existing regulations and restrictions were removed on international transactions and
International Banking Branches authorized. The adequacy of existing regulatory
controls and available evidence on the limited impact of the already large foreign
dollar market on U.S. monetary control indicate those concerns are overstated.
Simply stated, United States International Banking Branches would not create new
opportunities for misuse; they would allow American banks to conduct the same inter-
national operations in the United States that they presently conduct in off-shore
locations. It makes little sense to define reserve requirements and interest rate
limitations in such a way that international dollar banking cannot be conducted in the
home country of the dollar.
If the Federal Reserve were to open the way for the establishment of designated
International Banking Branches pursuant to Federal Reserve Act amendments and/or
new regulations, then it would be necessary for New York State and City (if this is
where the Branches were to be located) to eliminate an excessive tax burden in order
to make New York an attractive site for these Branches. This represents no revenue
loss to the local taxing authorities as these activities are not now taking place in the
United States. The level of New York taxes, combined with Federal taxes, remains
an obstacle in attracting international banking. Federal, State and City income taxes
on New York banking operations are now 62.3%, a level far above London at 52%. Even
with a 52% rate, in the past few years London has been losing its relative share of
international banking to lower-taxed centers.
In addition, New York State should: a) remove its reserve requirements on State
chartered non-member banks that wish to establish similar International Branches
(in line with the Federal Reserve's move for its members), and b) change the New
York State escheat law, better known as the Abandoned Property Law, to exclude
non-resident owned deposits or at least to lengthen the period to a more reasonable
15 to 20 years. This law now requires inactive deposits to be turned over to the State
after five years.
Conclusion
The United States is the most attractive country in the world from the point of view
of economic, political and business stability. It is a natural locus of international
finance. However, the impact of reserve requirements and interest rate ceilings
coupled with exposure to local tax and simlar laws tends to deter non-residents from
making deposits in the domestic branches of U.S. banks. Were these deterrents
eliminated, such non-residents could effectively obtain all of the benefits and pro-
tection which they now enjoy by utilizing foreign branches of United States banks and
FORD
still, at the same time, avoid the sovereign risks implicit in foreign laws and
regulations.
GERALD
No overriding policy requires that reserve requirements and interest rate limitations
imposed for domestic reasons be so structured that United States banks are caused
to carry on international banking primarily through foreign branches and that medium
and smaller banks, unable to justify foreign branches, be largely excluded from
receiving deposits from and making loans to non-residents. This largely accidental
effect of the present strue re of regulation has penalized ited States cities by
excluding them from developing international banking with its advantages in employ-
ment, economic activity, and creation of competitive knowledge resources, and
served to create vigorous dollar banking centers in foreign cities. It has increased
the difficulties of inspection by United States regulatory agencies and raised the costs
and risks for United States banks.
With all the natural competitive advantages that the United States offers, efforts should
be made immediately to remove the legislative/regulatory obstacles so that the
United States can once again become the international financial center of the world.
New York, as the major financial center of the United States, has much to gain in
seeing this proposal implemented. By encouraging Federal Reserve action and being
prepared to implement the required changes in State and City tax regulations, the
City can move to reestablish its reputation as the leading international financial center.
Citibank
July 13, 1977
FORDO is GERALD LIBRARY
APPENDIX I
Proposed New York Legislative Amendments for a
Domestic International Banking Zone in New York City
Taxes on Banking Corporations
A. New York State
The statutory provision dealing with allocation of a bank's net income
to branches outside New York, thus removing this income from taxation
by New York, is very brief (New York Tax Law, Article 32)
"$1454. Allocation of Entire Net Income
If the taxpayer's entire net income is derived from business
carried on both within and without the state, the portion
thereof which is derived from business carried on within the
state shall be allocated under rules and regulations prescribed
by the tax commission."
If the income attributable to the proposed New York City international
banking facilities is to be excluded from taxation by New York State,
the following sentence should be added to that section:
"For the purposes of this section a segregated international
banking facility maintained within the state for the purpose
of receiving deposits from non-residents of the United States
and making loans to non-residents of the United States shall
be deemed to be business carried on without the state and
the portion of entire net income allocated to such facility under
rules and regulations prescribed by the tax commission shall
not be treated as derived from business carried on within the
state."
B. New York City
The provision in New York City law imposing taxes on banking
institutions (New York City Administrative Code, Title R, Part III,
Subject 4) which deals with the allocation of net income (§R46-37.4)
is identical to §1454 of the New York State tax law. Therefore a similar
amendment would accomplish the same result:
FORD is GRAVID LIBRARY
-2-
"For purposes of this section a segregated international
banking facility maintained within the city for the purpose
of receiving deposits from non-residents of the United States
and making loans to non-residents of the United States shall
be deemed to be business carried on without the city and the
portion of entire net income allocated to such facility under
rules and regulations prescribed by the finance administrator
shall not be treated as derived from business carried on
within the city."
This amendment must be enacted by the New York City Council. No
change is required in the New York State Enabling Act under which the
City is authorized to tax banks 1966, Ch. 772, §1), so long as the
amendment to Article 32 ($1454, above) is first enacted.
Abandoned Property
At present New York State has an extraordinarily short escheat period
for unclaimed property held or owned by banking organizations - five
years - which may inhibit the placing of deposits by non-residents.
The solution lies in either extending this period to the former (prior to
1976) ten years for deposits or providing that deposits payable only at
an international banking facility as defined would fall within the
present exemption for deposits payable only at foreign branches. In
view of the fact that a general lengthening of the period would delay
revenue, just as the 1976 amendment, as intended, accelerated state
revenue, the exemption method would be preferable.
Abandoned Property Law
"300(a)
exception (iv) any such amount payable only at
or by a branch office located in a foreign country, or at or by
a segregated international banking facility maintained and
operated in New York for the purpose of receiving foreign
deposits and making foreign loans, or payable in currency other
than United States currency, or"
FORD is 07V830 LIBRARY
July 13, 1977
A Background Paper On
International Dollar Banking By U.S. Banks
The Size of Off-Shore Banking
Latest data show that, as of December, 1975, 97 national banks operated 674 branches
utside the United States, and 29 State member banks operated 88 such foreign branches.
1)
Over 34 percent of these branches, or 265 in total, were located in "off-shore" centers
or international dollar banking such as the Bahamas, Cayman Islands, Bahrain, Panama,
Singapore, and the United Kingdom. 2) As of December, 1976, member bank branches
n the U.K., Bahamas, and the Cayman Islands, held $125 billion in U.S. dollar assets
ut of a total of $167 billion in U.S. dollar assets of all foreign branches, or just under
'5 percent of foreign branch dollar assets. 3) In contrast, U.S. offices of all banks
in
he U.S. held at end December, 1976, $78 billion of dollar claims on foreigners, of
which $32 billion were claims other than loans, mostly claims on foreign branches and
gencies of those U.S. banks. 4) Why should foreign branches of member banks hold
J.S. dollar assets equal to more than double the total of dollar claims on foreigners of
L11 U.S. banks ?
How Did This Come About
t is clear that the tremendous growth of foreign branch dollar banking was caused in
arge part by, and coincided with, implementation of the various parts of the U.S.
alance of payments programs from 1963 to 1973. The Interest Equalization Tax, the
Federal Reserve Voluntary Foreign Credit Restraint program, and the Office of Foreign
Direct Investment regulation combined to discourage and partially prohibit persons
vithin the United States from lending to persons outside the United States and from
nvesting domestic source funds abroad, while at the same time encouraging the develop-
nent of funds gathering capability abroad, particularly the creation of foreign banking
branches. On April 30, 1976, former Federal Reserve Board Governor Andrew F.
Brimmer presented to a conference on "New York: World Financial Center" at the
Waldorf Astoria, a comprehensive view of the growth of foreign branches of U.S. banks,
oth during the period of the balance of payments program prior to early 1974, and in
he two years following the termination of the program. Table I of former Governor
Brimmer's presentation (attached) summarized the history of growth of foreign branches
n relation to credit extended to foreigners by U.S. offices from 1960 to end 1975. Up
O 1966 credits to foreigners by U.S. branches were greater than the assets of foreign
branches. Starting in 1966 foreign branch assets grew precipitously until the relation-
ships were reached described at the beginning of this paper. And the proportional
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importance of foreign branches has continued to grow even after termination of the
balance of payments programs at end 1973. Governor Brimmer reported:
LIBRARY
"At the end of last December, U.S. commercial banks had $29. 5 billion of loans
to foreigners outstanding on the books of their head offices. At the same time,
their foreign branches had total assets of $165. 0 billion. Of this total of
$194. 5 billion, the head offices held 15 percent, and the remainder was held
by the branches. In ntrast, in 1973 (prior to the to nination of restraints
on bank lending abroad from their head offices), the head offices in the United
States held 13 percent of the combined foreign assets, and the branches held
the remainder. So, partly in response to capital constraints imposed by the
Federal Government, American banks had come to rely primarily on their
foreign branches as vehicles through which to conduct the bulk of their inter-
national lending activities. This is still the case today."
Why Off-Shore Banking Today ?
Γo understand this phenomenon it is necessary to realize that while the balance of
ayments programs was the primary impetus for U.S. banks to move international
lollar banking to foreign branches, other factors sustain this movement today.
These factors are 1) freedom from deposit reserve requirements in foreign centers,
tnd 2) freedom in those foreign centers to pay market rates of interest on demand
und time deposits. While taxes on bank branch profits are also sometimes mentioned
is incentives to carry on dollar banking in foriegn branches, this is true only to a
ery limited extent, as will be discussed below. If these two competitive advantages
offered by foreign dollar centers were also available in U.S. centers it is fairly
certain that a large part of foreign branch dollar banking would be returned to domestic
fices. Are there any sound policy reasons for the U.S. to continue to create
competitive advantages for dollar banking in foreign centers to the detriment of U.S.
cities ?
The response to this question may rest either on inquiry into the need for deposit
reserves and restrictions on deposit interest payment in general, or on inquiry into
he appropriateness and administrative feasibility of removing foreign-source, or
international deposits held in domestic offices from the constraints of deposit reserves
ind limitations on interest payments.
Deposit Reserves and Limitations on Interest Applied to Deposits From Foreigners
n Domestic Banking Offices.
While some economists argue that reserve requirements have relatively little value
is a monetary policy mechanism, it is not the purpose of this paper to deal with that
ssue. We will assume, for purposes of this presentation, that deposit reserves and
imitations on deposit interest will continue as instruments of monetary management
of the domestic economy. Therefore, in order to respond to the basic question, it is
necessary to examine whether such requirements should be applied to deposits held in
domestic banking offices by foreign persons and entities.
Under present regulation, dollar funds held by foreigners can be deposited in domestic
banking offices at rates competitive with free Euromarket rates only if the size and
erm of the deposit is such that it is free from limitations on interest payments, and
it
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:he market power of the depositor is such that the bank can be persuaded to absorb
he cost of required reserves. Thus, it can be assumed that the great bulk of dollar
GERALD
funds held by non-residents of the United States will be deposited in foreign branches
of U.S. banks or in foreign banks outside the United States. These foreign held
dollar funds, placed in banks abroad, can exercise an influence on domestic monetary
kets only through the following banking channels; A) advant in any form by
ign branches of U.S. banks to their domestic offices; B) extensions of credit
uch foreign branches to domestic borrowers for use in the U.S.; C) advances
breign banks to their domestic offices; and D) extensions of credit by foreign
is to domestic borrowers for use in the United States. The Federal Reserve
rd has controlled channels A) and B), where it has imposed reserves based on
inces or extensions of credit by member banks' foreign branches. However,
ms by foreign branches on U.S. persons, other than their domestic offices,
e been very small, as a percentage of their assets. From 1973 to end 1976 the
1 has never exceeded 2. 6% of total uses of foreign branch funds, and the amounts 5)
e been more than offset by the liabilities of these branches to U.S. depositors.
ddition, advances by foreign branches to their domestic offices have been
atively unimportant.
ce 1973 they have never exceeded 3.3% of total foreign branch fund uses, and
ce December, 1974, have been offset by advances by the U.S. offices to foreign
nches. 6) Even in 1969, prior to imposition of the Reg. M reserves, the total
ances by foreign branches to domestic offices, in the face of severe restraints
U.S. money markets, represented only 31% of the assets of foreign branches, or
re significantly only 2.4% of the total assets of all U.S. commercial banks. 7)
S difficult to assess the total amount of U.S. dollar funds held by foreign banks,
opposed to foreign branches of U.S. banks, because statistics are either not
npiled in various centers on different bases. For London, however, statistics
blished by the Bank of England do permit some estimates. As of December 31,
15, for example, total U.S. currency liabilities of U.K. banks were about $104
lion, while those of branches of U.S. banks in the U.K. were about $58 billion.
the other side total U.S. currency assets of U.K. banks at that date were $97
lion, and those of U.S. bank branches there were $57 billion. Thus, non-U.S.
nks in the U.K. held sizeable totals of U.S. dollar liabilities and assets although
e larger part of the totals for all U.K. banks were those of branches of U.S. banks.
lese dollar operations of foreign banks outside the United States are not subject,
ther actually or potentially, to control by U.S. authorities. At the same time, the
ank of England data indicate that only a small part of these U.S. currency liabilities
id assets of U.K. banks were to U.S. persons (9.4%) or due from U.S. persons
.9%). 8) Thus, given both the substantial U.S. dollar operations of foreign banks
id the small portion of these operations which involve transactions with persons in
e United States, it is at least questionable whether the present program under
eg. M is necessary or appropriate.
Ioreover, available evidence suggests that conditions in the "uncontrolled" foreign
ollar markets are, in fact, dictated by conditions in the U.S. markets. Eurodollar
terest rates move in a quite close relationship with U.S. domestic interest rates,
nd even the fluctuations in the growth of the Eurodollar market appear to be pre-
ictably related to the growth in U.S. monetary aggregates, notably the monetary
ase. Thus there is much stronger influence running from the U.S. economy to
he foreign dollar centers than in the opposite direction. The imposition of
&
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Regulation M reserve requirements in order to strengthen the Federal Reserve's
control over U.S. monetary conditions, therefore, may be unnecessary.
GERALD
LIBRARY
Domestic International Bani g Offices
But if there is a need to apply reserve requirements in order to isolate foreign dollar
narkets from domestic markets, there is no convincing reason to do this in a way
which encourages U.S. banks to carry on their dollar operations with non-residents
rimarily in foreign locations. U.S. banks could be permitted to create international
anking facilities at domestic locations for the receipt of deposits from non-residents
nd the making of loans to non-residents just as they do today in foreign branches.
[here is no reason why the regulation of such facilities to control their effect on
lomestic markets should be more difficult or burdensome than the regulation of
oreign branches. In fact, the location of such facilities in domestic cities would
nake the task of supervision easier than is the case with widespread foreign branches.
f such controls were needed, essential to their implementation would be 1) a def-
nition of such domestic international facilities, 2) definitions of those deposits
which such facility would be empowered to accept, free of reserve requirements and
estrictions on interest payments, and 3) provisions for reserve requirements to
tpply where such a facility makes funds available to other domestic offices (such
lomestic offices could be required to maintain ordinary reserves on such funds
received from the facility) of the bank or to domestic borrowers for use in the United
States. While the Federal Reserve Board has, through former Governor George
Mitchell, taken the 9) position that these regulations would, of necessity, be costly
and burdensome
this does not appear to be the case.
if the domestic international banking facility were required to keep separate books
of account, and be maintained as a separate unit, just as if it were a foreign branch,
imited to certain categories of transactions (receipt of despoits from "non-residents"
and making loans to "non-residents") its regulation should be no more difficult or
costly than is the regulation of Edge Act corporations.
A definition of non-residents is already contained in the pertinent provisions of Reg. M.
(These provisions (s213.7 of Reg. M) still reflect the OFDI requirements and, if
continued, are in need of revision.) The term "non-residents" should be so adapted
50 as to include domestic international banking facilities of other banks so that an
inter-bank international market in non-resident source funds could develop.
The Federal Reserve may already have current regulatory power to remove reserve
requirements and interest rate restrictions with respect to all foreign deposits which
might be held by domestic international banking facilities other than those deposits
which are literally payable without notice and immediately on "call" or "demand". As
a practical matter, the vast preponderance of prospective non-resident depositors
utilizing such facilities would probably be willing to deposit funds subject to some,
albeit very short, notice period (e.g. one, two or three days) in order to avoid
foreign "country risk". Nevertheless, should the Federal Reserve deem it approp-
riate, it could seek specific legislative authorization from Congress to remove
reserve requirements and interest rate restrictions with respect to such non-resident
deposits as might be held in domestic international banking facilities. Such Congres-
sional authorization could take the form of a relatively simple amendment to Sec. 19
of the Federal Reserve Act. (See the attached text of a possible amendment to Sec. 19.)
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Taxation
Congress took a major step towards attracting non-resident deposits to United States
banks by making the exemption from withholding taxes applicable to interest on
bank deposits a permanent part of the Internal Revenue Code in 1976, although the
expected transfer of foreign held deposits from off-shore centers to U.S. offices
will not be realized unless other impediments to domestic deposits are removed.
On the level of taxation of bank profits, rather than on depositors, it is commonly
thought that the lack of local income taxes, or low rates of such taxes, in some off-
shore centers is an incentive to carry on international banking in those centers
rather than at domestic U.S. locations. As far as the federal income tax is concerned,
this is not the case. A U.S. bank is subject to federal tax on its world-wide income,
whether this is earned in domestic locations or foreign branches, and it may credit
foreign income taxes which it pays against its liability for federal tax, but not more
than that proportion of the federal tax which equals the proportion of the bank's total
taxable income which is from foreign sources. Thus the bank's tax burden, foreign
and federal, will be at least 48 percent of foreign income and will exceed 48 percent
only if foreign source income is subject to foreign taxes in excess of 48 percent.
Income earned in a low-tax foreign center is subject to the same federal tax as is
income earned in a domestic branch.
Many off-shore centers, London (52 percent), Bahrain (20 percent), Singapore (10
percent) levy income taxes. To the extent that income earned in branches in these
centers were earned instead in domestic locations, more taxes would be paid to the
federal treasury because creditable foreign taxes would be reduced.
Many loans to foreign borrowers are subject to withholding taxes levied at the source
on interest, in addition to the income taxes assessed on foreign branches where these
loans are made. As between foreign banking centers, the lower taxed centers are
more attractive because the total foreign tax burden on such loans is thereby reduced
and the risk is diminished that the total amount of such foreign taxes may exceed the
maximum credit permitted. If loans to foreign borrowers were made from domestic
offices the same effect would be achieved as making such loans from lower taxed
foreign centers since one layer of foreign tax would be eliminated. Thus, except for
state and local taxes, domestic locations can compete on the tax level with no-tax
or low-tax foreign centers in attracting foreign loans out of higher-taxed foreign
centers.
State and local taxes on branch operations do represent an obstacle to location of
operations which are carried on in foreign centers, because these taxes are not
creditable against the federal tax, but are deductible. Due to reserve requirements
and limitations on interest payments, however, domestic locations do not at present
attract international operations, and there is some hope that states may eliminate
profits taxes on international operations or reduce the burden in order to gain such
international operations and the additional employment, expertise and economic
benefits which international banking could bring. This is especially true of states
with cities equipped to be international centers of considerable size.
i
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LIBRARY
Conclusion
No overriding policy requires that reserve requirements and interest rate limitations
imposed for domestic reasons be so structured that U.S. banks are caused to carry
on international banking primarily, if not exclusively, through foreign branches,
and that midsize and smaller banks, unable to justify foreign branches, are largely
excluded from receiving deposits from and making loans to non-residents. This
largely accidental effect of the present structure of regulation has penalized United
States cities by excluding them from developing international banking with its
advantages in employment, economic activity, and creation of competitive knowledge
resources, and by creating vigorous dollar banking centers in foreign cities. The
disadvantages of this regulatory structure include also increased difficultities and
costs of examination by U.S. regulatory agencies and greater costs and risks for
U.S. banks. Therefore, amendment of the applicable laws and regulations to permit
U.S. banks to carry on international banking in the United States, and to permit
many banks unable to maintain foreign branches to compete in this business with
larger banks, is warranted now.
Citibank
July 13, 1977
FORD : LIBRARY 076831
NOTES
1)
62nd Annual Report, 1975, Board of Governors of the
Federal Reserve System, pp. 303-4.
2)
Ibid, table, p. 304
3)
Federal Reserve Bulletin, March, 1977, p. A62.
4)
Ibid, p. A61, Tables 3.19, 3.20
5)
Federal Reserve Bulletin, April, 1977, pp. A62-A63.
6)
Ibid.
7)
See table I, presented by Mr. Brimmer, attached.
8)
Federal Reserve Bulletin, January, 1977, pp. A62-A63;
Bank of England Quarterly Report, Vol. 16, September,
1976, Table 21. These data also show that, from
December, 1975, to June, 1976, non-U.S. banks in the
U.K. used only ten percent of their dollar resources
to acquire claims on the U.S., even though the amounts
of those U.S. claims exceeded those of U.S. bank
branches in the U.K. During the period, the amount of
all U.K. banks' liabilities to U.S. persons exceeded the
amount of their claims on U.S. persons.
9)
Financial Institutions and the Nation's Economy
"Discussion Principles". Hearings before the
Subcommittee on Financial Institutions Supervision,
Regulation and Insurance, House of Representatives,
December 11, 12, 16, and 17, 1975, Statement of
Hon. George W. Mitchell, at pp. 1035-6, Vol.2
FORD & LIBRARY
TABLE 1
International Operations of U.S. Banks: Selected Indicators, 1960-1975
(Monetary Magnitudes are in Billions of Dollars)
CATEGORY
1960
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1
1.
U.S. Offices
2
Bank Credit to Foreigners
$4.2
9.4
9.7
9.6
9.8
9.2
9.3
9.7
12.1
13.4
17.2
29.0
29.5
2,3
Foreign Deposits
(other than
Due to Foreign Branches)
$9.1
13.4
13.6
12.6
14.4
14.7
16.5
16.5
17.1
17.4
21.8
24.2.
24.1
4
Due to Foreign Branches
$--
1.2
1.3
4.0
4.2
6.0
12.8
7.7
0.9
1.4
2.5
4.5
4.1
5
II.
Overseas Branches of Banks
Number of Banks with Overseas
Branches
8
11
13
13
15
26
53
79
91
108
125
125
126
Number of Overseas Branches
131
181
211
244
295
375
459
536
583
627
699
732
762
6
Assets of Overseas Branches
$3.5
6.9
9.1
12.4
15.7
23.0
41.1
52.6
67.1
77.4
118.0
151.9
165.0
III.
Edge and Agreement Corporations
Number
15
38
42
49
53
63
71
77
85
92
104
114
116
Assets
$N.A.
0.9
1.0
1.4
1.5
2.5
3.5
4.6
5.5
6.0
6.9
10.1
NA
MEMORANDUM:
All Insured Commercial Banks in U.S.
Total Assets
$255.7
343.9
374.1
401.4
448.9
498.1
527.6
576.2
640.3
732.5
827.1
906,3
912.0S
Total Deposits
228.4
305.1
330.3
351.4
394.1
432.7
434.1
480.9
537.9
612.8
677.4
741.7
741.8
NOTE: N.A. Not Available. Data are for end of year, except subscript S - September, 1975.
P.8. Partly Estimated.
1.
All data for U.S. offices are on a balance of payments basis.
2.
Bank credit to foreigners and foreign deposits relate to all commercial banks reporting on the Treasury foreign exchange forms, and
include credits and deposits of branches and agencies of foreign banks as well as U.S. banks. Bank credit includes short- and long-
term loans and acceptance credits denominated in dollars; for 1960, some other short- and long-term claims are also included. Data
for 1972 through 1974 do not include claims on U.S. banks or their foreign branches or claims of U.S. agencies and branches of foreign
banks on their head offices.
3.
Foreign deposits include demand and time deposits of one-year or less maturity, and beginning in 1964, include negotiable certificates
of deposit issued to foreigners and international institutions.
4.
Due to branches refers to the gross liabilities due to foreign branches of large U.S. weekly-reporting banks.
5.
Overseas branches include branches of member banks in U.S. possessions and territories as well as in foreign countries,
6.
Branch assets include interbranch balances.
Sources: Treasury Forms B-2 and B-3; Federal Reserve Board.
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LIGHT
Proposed Legislative Amendment to Effect the Establishment of Domestic
International Banking Facilities of Member Banks
Federal Reserve Act
Section 19 (a) of the Federal Reserve Act (12 U.S. Code 461) is amended by adding the
following sentence thereto:
"The Board may by regulation on such basis as it may deem reasonable
authorize the creation by member banks of international banking facilities
at such locations where such banks are authorized to conduct business
within the United States for the purpose of receiving deposits from foreign
governments, their agencies, persons conducting business outside the
United States, foreign branches of United States business entities, and
from individuals not resident in the United States, and for making loans
to such foreign persons and entities for use outside the United States
and such other purposes concerning foreign banking as may be determined
by the Board by regulation, and the Board may by the affirmative vote of
not less than four members of the Board exempt from any of the provisions
of this section any one or more of the types of deposits authorized to be
held by such international banking facility."
Alternatively, the foregoing sentence could, as a technical matter, equally well be
added as a new Section 19(k).
FORD & 07W837 LIBRARY