State; such an amendment would broaden the range of alternatives that might be open to bank supervisors in cases of failing banks. On the other hand, some questions have been raised regarding possible adverse effects of foreign ownership of U.S. banks. The first concerns the ability of the Federal Reserve to achieve its monetary policy objectives. Most large foreign-owned banks accept membership in the Federal Reserve System, and thus are subject to reserve requirements and other instruments of monetary policy. Moreover, the record indicates that foreign-owned banking institutions are likely to live by the spirit as well as the letter of U.S. monetary policy measures-just as overseas banking offices of American banks abide by monetary policy and regulatory actions in force in their country of domicile. This is not surprising, since nonindigenous banks generally regard themselves as guests in the host country. I might note, as an example, that foreign banks cooperated with the Federal Reserve's anti-inflationary voluntary marginal reserve program that was in effect a number of years ago. Bills to improve monetary control that are currently under consideration in the Congress would, of course, help insure that foreign-owned banks remained subject to the Board's monetary policy measures.

A second question concerns supervision of foreign-owned banks. When the investor is a foreign bank, the Federal Reserve has authority under the Bank Holding Company Act. The Board's policy statement on foreign bank holding companies makes clear that the foreign bank is expected to be a source of strength-both financial and managerial to its American subsidiary. Moreover, the Board recently announced new measures to improve the evaluation of foreign banks at the time of an acquisition, and subsequently to monitor their condition and increase surveillance of their subsidiary banks.

When the foreign investor is an individual, rather than a bank or bank holding company, the standards for approval of acquisitions are those of the Change in Bank Control Act of 1978. That act requires individuals seeking to acquire control of a bank to give the relevant Federal bank regulatory agency 60 days' prior notification. The proposed acquisition may be disapproved if it would substantially lessen competition, result in a banking monopoly in any part of the United States, jeopardize the financial stability of the bank or otherwise be contrary to the interests of the bank to be acquired. Once a bank has been acquired by a foreign investor, the Board has the same supervisory powers available that it has in dealing with possible abuses by domestic owners-notably the ability to issue cease-and-desist orders.

A third question concerns the impact of foreign acquisitions on the supply of banking services to meet the needs of U.S. industry and consumers. Probably the best protection in this regard is the competitiveness of U.S. banking. Banks that do not meet the needs of their community quickly lose business to those that do. As they are good businessmen, foreign bankers can be expected to recognize that fact and act accordingly. Moreover, the Bank Holding Company Act requires the Board in acting on any proposed acquisition to consider the convenience and needs of the community being served. In this connection, the Board reviews how an acquisition will affect

the services of the bank being acquired and generally expects some showing of improved services. Further, foreign owned banks-like domestic banks-are subject to the Community Reinvestment Act, which requires the Federal bank regulatory authorities to evaluate the extent to which a bank is servicing all elements of its community, and also the Equal Credit Opportunity Act, which prohibits discrimination in lending.

Finally, I should like to emphasize that while we should work diligently to insure that our banks receive national treatment in their activities abroad, it would not be appropriate for us to hold up approval of otherwise desirable foreign investments in U.S. banks because some countries may not permit nonindigenous banks, including U.S. banks, to acquire majority investments in their very large banks. Large American banks have been able to develop extensive foreign operations, and I would expect that some U.S. banks will continue to grow internationally both through branches and subsidiaries.

U.S. banks, have, in the past, acquired sizable ownership interests in large foreign banks. For example, in 1974-75, Citibank acquired control of a German merchant bank and a related German consumer bank. These two at the time had combined assets of $2 billion. Also, in 1975, Citibank increased its ownership of Grindlays Bank to 49 percent and installed a Citibank employee as chief operating officer. Grindlays is a major British overseas bank whose assets at the time approximated $4.5 billion. It is not possible to state precisely how large a foreign acquisition might be permitted by foreign authorities because the only instances that come to the Board's attention are those where a U.S. bank has successfully negotiated an acquisition that has required U.S. approval. At the present time, we have no information that U.S. banks are seeking to purchase very large foreign banks.

I support fully current efforts underway to insure national treatment for U.S. banks abroad. However, it would be wrong in my view to limit arbitrarily the growth of sound international banking activity, particularly on the basis of policies that foreign authorities might follow in hypothetical circumstances.

Nor would I favor establishing arbitrary limits on the total percentage of a particular banking market in this country that could be held by foreign-owned banks as a group. Such a limit would needlessly interfere with national treatment, and, if publicized, might tend to accelerate foreign efforts to acquire U.S. banks to get in under the wire. The Bank Holding Company Act contains protection against domination of a market by one or more large banks-foreign as well as domestic. Under the act the Board may not approve acquisitions that would substantially lessen competition or lead to an undue concentration of resources. In most cases involving a foreign bank acquisition, the foreign bank would not be a substantial competitor in the market in question, but it could be considered a significant potential competitor.

Thank you, Mr. Chairman. I appreciate the opportunity to comment on these important issues.

The CHAIRMAN. Thank you very much.

I'm happy to see that the distinguished Senator from Pennsylvania, Senator Heinz, has arrived and before I recognize Mr. Carswell I'm going to call on Senator Heinz for any remarks he may have.

OPENING STATEMENT OF SENATOR HEINZ

Senator HEINZ. Thank you, Mr. Chairman. I would like to make a brief opening statement. I apologize to our witnesses for being late.

I want to thank you at the outset, Mr. Chairman, for calling these timely hearings on the three critical questions: The IBA, the new Edge Act regulations, and the new issue of foreign acquisition of U.S. banks. The list of witnesses is most certainly a distinguished one and I'm sure they will be most illuminating on these complex issues.

As my colleagues and many in this audience already know, I am particularly concerned about the issue of foreign acquisition of American banks for I firmly believe that those acquisitions have a profound implication not only for the American banking system but for our entire economic system.

I have been pleased to learn that many others, both in Government and in the private sector, share the concerns which I voiced when I introduced my resolution calling for a 6-month study of this issue by the bank regulatory agencies with a moratorium on takeovers during the period of the study.

With foreign banks showing more than a fivefold increase in their U.S. bank assets over the past 7 years, with much of that growth coming as a result of takeovers of U.S. banking institutions, and with the rate showing a dramatic increase over the past 2 years, I think it's time to pause and talk about the direction our banking system, and by implication, our whole economy is going. Perhaps it does not bother the Governors of the Federal Reserve or the Comptroller of the Currency or the Treasury when the 12th largest bank in the United States with assets as large as the entire banking assets of 21 States goes under foreign control. Perhaps they see no trend when foreign interests become almost the only buyers of the branch offices of Bankers Trust. Perhaps the reports of investment houses making up shopping lists of American banks for foreign buyers are only scare stories. Perhaps the New York Times report that the Bank of Brazil is considering a bid to buy Chase Manhattan is not disquieting to our bank regulatory bodies, as long as the Brazilians infuse new capital.

But, Mr. Chairman, I must say I am concerned. I am concerned that we have not fully considered the implications of the substantial portion of our banking system falling under foreign control. I am concerned that our banking regulatory agencies have not fully worked out the criteria to judge what are acceptable foreign buyers, and with petrodollars piling up foreign buyers may become a major new force in bank acquisitions. Can we adequately identify and investigate the assets and interests of those individuals and be sure they do not transfer ownership without proper notification? Remember, they are essentially beyond our jurisdiction and beyond our control.

I am concerned that foreign takeovers of U.S. banks may have a perverse snowball effect, so that with each additional acquisition.

other foreign banks may come to believe that they too must make a comparable acquisition in the United States in order to keep pace with their competitors. Similarly, U.S. banks may become irresistably attracted to the advantages of foreign bank holding companies which, unlike our domestic ones, are able to establish and retain affiliations with a broad variety of nonbanking businesses.

Finally, I am concerned that the current wave of foreign takeovers of American banks may place U.S. banks, and in the long run perhaps even American business, at a significant disadvantage. U.S. banks already have fallen behind the growth rates of the largest foreign banks. It would be impossible for a major U.S. bank to acquire a comparable clearinghouse size bank abroad. If foreign banks alone can acquire leading positions in both their home markets and in the United States, they will have significant advantages in many areas of international finance.

If these hearings begin the process of alerting my colleagues, the bank regulatory agencies, and indeed the U.S. banking community to these concerns, they will have served their purpose. The time to think about these questions is now, before they become unmanageable and while there is still an opportunity for rational debate and intelligent policymaking.

Thank you, Mr. Chairman.

[S. J. Res. 92 as introduced by Senator Heinz follows:] [Testimony resumes on p. 16.]

96TH CONGRESS

18T SESSION

S. J. RES. 92

Relating to foreign control of United States financial institutions.

II

IN THE SENATE OF THE UNITED STATES

JUNE 26 (legislative day, JUNE 21), 1979

Mr. HEINZ introduced the following joint resolution; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

JOINT RESOLUTION

Relating to foreign control of United States financial institutions.

1

Resolved by the Senate and House of Representatives

2 of the United States of America in Congress assembled, 3 That the Congress finds that the takeover in whole or in part 4 of United States financial institutions by foreign interests 5 may constitute a threat to the health of the economy of the 6 United States.

7

8

9

SEC. 2. As used in this resolution—

(1) "United States financial institution" means any bank, mutual savings bank, or savings and loan as