holding company that Lloyds controls, so I would not regard that as an acquisition.

The CHAIRMAN. What are the national interest implications of foreign ownership of large portions of our banking system?

Ms. SIEBERT. Well, we really don't know yet how they are going to behave in terms of an inflation, if they're going to follow our policy, if they're going to finance our schools, our school districts. I was surprised when we took out the figures and when New York was-even as of the end of last year, the foreign banks in New York only had 2.9 percent of New York City securities.

The CHAIRMAN. And what do they constitute in total assets? Ms. SIEBERT. They're over $80 billion now, so they've got to belet's see-they've got to be about 20 percent.

The CHAIRMAN. So you say they had only 2.5 percent of the securities held by banks, so

MS. SIEBERT. They might have $400 billion in our State and so if

CREDIT SYSTEM

The CHAIRMAN. That's a good example. I think many of us forget the fact this is a credit system we live in and the economy moves on credit. That's its lifeblood and the bankers make the determination and they do it very well in this country I think, by and large, but a foreign bank in a foreign country with foreign interests can have entirely different attitudes with respect to energy, for example. That's another area where an attitude of a banking system is going to be critical in the coming months and years.

Ms. SIEBERT. Well, our banks go abroad to make money. Their banks come to our country to make money.

The CHAIRMAN. Well, all bankers do that.

Ms. SIEBERT. Sure. That's natural. I don't think when England was in trouble several years ago that our banks particularly did anything to participate. One of our banks told me they did offer to buy a couple of banks that were in trouble and they were told by the Bank of England to stay away.

So that's why we just don't have this size of acquisitions abroad. The CHAIRMAN. Supposing we follow a "hands-off" policy, a permissive policy of permitting acquisition of large New York clearing house banks. What possibility is there that a substantial number of them might be acquired by foreign interests?

Ms. SIEBERT. I believe there is a good possibility. I say that with some knowledge and with some knowledge of rumors. The New York banks in many cases are selling at 30 and 40 and 50 percent discount from book value, which means that you can buy these securities for stock considerably below book value.

The CHAIRMAN. If you buy enough you could just liquidate the bank and make 100 percent overnight, couldn't you?

Ms. SIEBERT. I wouldn't anticipate that.

The CHAIRMAN. The bank is relatively liquid. You might have a little trouble selling some of your loans, but compared to other corporations-I remember when I was at Harvard Business School and we had the case of the White Motor Corp. and that was back in the 1930's and you might have bought the White Motor Corp. and liquidated just the cash. The cash value of the stock was about four times the market value. So all you had to do was move in

there and forget about all the other assets, just take the cash. In this case you're talking about the book value of the banks and with a bank as a financial institution that book value is very close to its liquidatable value rather quickly.

Ms. SIEBERT. Yes; it is, and there are other factors. When you're dealing with a bank you have to realize that the assets are fungible. They can be moved and they can be moved fast. If you buy U.S. Steel you're buying some plants that are in this country and are going to stay in this country. When you buy farmland you must work the farmland. You can't lift it up and take it elsewhere. But when you're talking about a bank, a bank actually has a charter which almost enables it to create money. It's a different kind of an institution.

The CHAIRMAN. Ms. Siebert, you outline a case generally favorable to IBF's. Do you believe that without the ability to branch in New York that regional banks will be able to compete fairly with New York banks for IBF business?

FOREIGN EXCHANGE FOLLOWS THE SUN

MS. SIEBERT. Theoretically, yes. In reality, no. Theoretically, they could open up in various parts of the country. I would expect to see IBF's where their time differences gave them advantages-maybe Chicago, maybe the west coast. I had heard about Hawaii. Because money now-foreign exchange follows the Sun. It trades around the clock. The banks from out of State do want a better defined presence in New York.

The CHAIRMAN. Mr. Mottern, would you give me your reaction to the IBF proposal?

Mr. MOTTERN. Really, we have no firm position as far as the CSBS is concerned on that particular point at this particular time. It is under study and we will be responding to that in the future. Having said that, personally I might comment that I don't see a large influx of regional banks into an IBF system and I don't see them operating effectively.

The CHAIRMAN. Well, the two of you agree that implies that the effect could be adverse to regional banks. They would not have the advantage if they don't move into the system. The competition would then be very favorable to New York banks; is that right? Mr. MOTTERN. At least initially.

Ms. SIEBERT. Could I change my answer then, because I feel that the Chicago banks, by being able to establish facilities there and the banks in California, would have certain time advantages over some of our transactions.

The CHAIRMAN. What happens to the banks in Wisconsin?

MS. SIEBERT. Well, they would be allowed to open up also in Wisconsin.

The CHAIRMAN. But they wouldn't, from a realistic standpointWisconsin, Tennessee-except for the money centers like New York, Chicago, and Los Angeles-San Francisco I should say, you can pretty much forget it; can't you?

Ms. SIEBERT. I would say, yes, you're correct, but it's still easier to operate here. It would open it up for banks who will not go to London. It's cheaper.

The CHAIRMAN. In your judgment, Mr. Mottern, would Tennessee bankers be inclined to object to the Fed adopting the IBF proposal? Mr. MOTTERN. I really do not know the answer. I would be afraid

to say.

The CHAIRMAN. Let me ask you, Ms. Siebert, how many jobs would approval of IBF mean for New York?

MS. SIEBERT. The study I saw said about 1,700 in banking, of which about 1,300 was coming from the foreign banks and using a multiplier of 21⁄2 they got up to I guess 4,000 or 5,000.

The CHAIRMAN. 4,000 or 5,000 new jobs in New York. Would they move from London mostly?

Ms. SIEBERT. London and the Grand Caymans. I have been surprised-and I think this figure is low, because every time a foreign bank makes a courtesy call in my office, the first question that they ask is what about the free zone. I think the foreign employees would be much, much higher than that because it's much cheaper now to have employees live in the United States than it is to have them live in London and other countries.

The CHAIRMAN. Well, I want to thank you very, very much. You have made an excellent record and we do appreciate your responsiveness. I notice you consulted with one of your people. Do you want to modify and add anything?

Mr. MOTTERN. We had some of the Tennessee bankers in the city yesterday and I was just wondering if the subject of IBF's came up. It had not.

The CHAIRMAN. Very well. On Friday the committee will reconvene and we will hear from bankers on the issues at that time. The committee will stand in recess until Friday.

[Whereupon, at 12:35 p.m., the hearing was adjourned.]

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, D.C.

The committee met at 10 a.m., in room 5302, Dirksen Senate Office Building, Senator William Proxmire (chairman of the committee) presiding.

Present: Senators Proxmire, Stevenson, Sarbanes, and Tower.

OPENING STATEMENT OF CHAIRMAN PROXMIRE The CHAIRMAN. The committee will come to order. This morning we continue hearings on three important international banking issues: No. 1, the matter of domestic deposit taking by Edge corporations across State lines; No. 2, whether and under what conditions international banking facilities should be sanctioned; and No. 3, the matter of foreign takeovers of U.S. banks. Because of my concern over foreign bank takeovers of U.S. banks, I have introduced legislation placing a moratorium on foreign acquisitions of U.S. banks pending a study and recommendations by the President. The President would be required to report back to Congress by July 1, 1980, and the moratorium would expire on April 1, 1981, giving Congress 9 months to act on the President's recommendations.

Foreign banks are welcome in the United States, but they should not have privileges here that our banks do not have. At the same time, U.S. banks operating overseas should be treated on an equal basis with their foreign counterparts. In short, competitive equality worldwide is a key factor.

We had testimony on Monday before this committee that there is no country in the world that permits a takeover of an established bank by foreign interests and that testimony was not contradicted, but there may be a country somewhere that does permit it, but it was the expert testimony we had on Monday that that's the case. This is not a matter of xenophobia because I think we all recognize-I certainly do-that we should welcome foreign investment. I think it's a great thing to have as much mobility of investment as possible in the world. Just as we should welcome trade, and it's certainly to our great advantage as a great, probably the outstanding capital formation country in the world, to have that kind of open opportunity for investment. It has many, many advantages,