Bill Hulse Bill Hulse
Senior Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce


May 16, 2019


American businesses need banks of all shapes and sizes, including foreign banks, to meet their financing needs. In fact, foreign banks (also known as international banks or FBOs) provide healthy competition that contributes to efficient and vibrant capital markets and serve millions of American customers through commercial and retail lending. These banks are also able to leverage their strengths – whether that is accessing markets outside the U.S. or in-depth understanding of niche industries – to meet the needs of American businesses.

American businesses cannot succeed when their sources of financing are hamstrung by inefficient regulation.

U.S. businesses depend on the financial products and services of international banks in order to meet the needs of their customers, create jobs, and contribute to economic growth that broadly benefits our country.

In fact, 42% of U.S. businesses believe financial regulation has negatively impacted their ability to access capital and have consistently noted the importance of their bank partners having an international footprint, according to a new survey from the U.S. Chamber of Commerce. Furthermore, 88% of businesses support the notion that foreign banks operating in the U.S. should be held to the same regulatory standards as U.S. banks – likely because they recognize the critical banking services provided by these financial institutions.

International banks are a key source of capital in the U.S., and contribute to deep and liquid markets that fuel lending and help U.S. businesses thrive in a number of ways. The U.S. operations of foreign banking organizations have total assets that exceed $4.5 trillion, which represents about 20% of our banking system. For example, these banks:

  • Provide one-third of the small business loans in the U.S., giving direct financing to job creators that drive economic growth;
  • Provide financing to help businesses expand their customer base by accessing overseas markets;
  • Finance infrastructure projects – whether that’s new roads or ports – making it easier and more cost effective for businesses to reach their customers;
  • And assist with the financing of the federal governments’ operations by acting as primary dealers for the Federal Reserve and support many state and local governments with raising capital.

Unfortunately, some of the products and services that foreign banks provide in the U.S. have decreased in recent years as their ability to compete in the market has been handicapped by new regulations.

In 2014, the Federal Reserve finalized a rule requiring foreign banks with large U.S. operations to establish intermediate holding companies (IHCs) subject to enhanced prudential regulations. Since then, the market share of FBOs in capital markets and asset management has declined and U.S. banks are not filling in all the gaps, according to data compiled by SIFMA. This is evidence that American businesses will have more trouble accessing the financing they need to grow, and that the competition that is a fundamental part of our financial markets has suffered.

Admittedly, foreign banks can have slightly different business models in the U.S. than their domestic counterparts. However, regulators can appropriately regulate and supervise foreign banks in a way that reflects the scope of their operations and potential for risk while guarding against failure and promoting healthy competition. Foreign banks should be subject to regulation that permits for healthy competition and guards against failure, but any regulation should appropriately reflect the scope of their operations and the potential for risk.

Key policymakers have recommended that regulations be updated to address this retrenchment by foreign banks, but recent proposals appear to have missed the mark. The U.S. Treasury Department noted in 2017 that, “changes to the current framework should be considered to encourage foreign banks to increase investment in the U.S. financial markets and provide credit to the U.S. economy.” Additionally, leaders in Congress have requested regulations be tailored so that they are comparable to U.S. bank holding companies of similar size and risk profile.

However, it could become more difficult, rather than easier, for foreign banks to increase investment in U.S. businesses.

Federal banking regulators recently released a proposal that aims to tailor requirements imposed on foreign banks operating in the U.S. While tailoring these requirements is an extremely important first step intended to better balance regulation to risk provide and to increase foreign bank investments, it’s not imminently clear the proposal, as drafted, achieves this objective. In general, it includes a complicated set of risk-based indicators that may not accurately measure the risk posed by covered financial institutions or create a level playing field on which to compete. For example, foreign banks’ businesses require certain transactions – many of which are mandated by U.S. regulation to ensure safety and soundness – which under the proposal would negatively impact the calculation of those risk-based indicators. It also unnecessarily includes the branch activity of foreign banks, which are directly overseen by their home country and are already subject to new requirements as recently as 2014 from U.S. regulators, when assessing risk of the holding company. By including branch assets and activities in the scope of this proposal, federal banking regulators are setting a dangerous precedent that could risk new punitive requirements being imposed on U.S. banks operating in foreign jurisdictions.

While banking regulators did tailor some requirements for foreign banks, more work needs to be done to convince these financial institutions – and the businesses that they serve – that they are welcome in the U.S.

U.S. businesses recognize that they need a plethora of options from the financial services sector in order to thrive. Businesses also know that international banks have unique strengths that are important to their success. The U.S. Chamber of Commerce is emphasizing the importance of efficiently tailored regulations for all financial institutions, including foreign banks, and encourages the broader businesses community to amplify this message before policymakers.

About the authors

Bill Hulse

Bill Hulse

Hulse oversees the day-to-day efforts of CCMC including policy development, advocacy, and communications.

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