The District of Columbia could become a major international banking center as the result of new legislation approved by Congress permittings foreign banks regulated by federal law to establish branch operations in the United States.
The Senate acting on a bill already approved by the House, voted last week to allow foreign branch banks.
Under existing federal law, foreign banks are barred from setting up branch operations. Certain states, such as New York and California, do permit foreign bank branches, however.
The new law would restrict the foreign branch operations, however. If a foreign bank established more than one branch, the additional branches would only be permitted to accept deposits from foreign sources or deposits for use in international commerce.
Permitting foreign banks to branch into the city would "put a lot of life into international banking in this area," said John Clark, senior vice president of Porter International Co., a Washington business broker.
"Washington has a lot of potential to be an international banking center, but much of that business has been going to New York." Clark said. Local banks are not big enough to become involved heavily in international financing, he said, so the arrival of foreign banks would greatly open up international financing opportunities here.
Former Congressman Thomas Rees, who claims he helped write the international banking bill, said, "I think there is sufficient international business for foreign banks to come here." He predicted that, as the nation's capital and center of international affairs, Washington is an attractive location for foreign banks.
Foreign banks should be attracted to Washington, Rees said, by the presence here of many of the nation's financial regulatory agencies, such as the Federal Reserve Board, the Federal Deposit Insurance Corp., the Securities and Exchange Commission, the Export-Import Bank, the International Monetary Fund, the World Bank and the Inter-American Development Bank.
Financial General Bankshares Chairman William Middendorf III said he already has had inquiries from banks in England and Japan interested in coming into Washington. He said he would expect a foreign bank to set up a branch in the District "within a year" after the legislation is passed. Middendorf said the foreign banks would bring "a badge of recognition" to Washington, which he has predicted will become "the new international banking capital."
Rees predicted the arrival of several foreign banks within "a couple of years." Once one foreign bank comes, many foreign banks should follow rapidly, he said.
Local bankers involved in international business don't seem threatened by any increased competition from foreign banks. Rather, they welcome the increased banking activity they feel the foreign banks will bring the area. William Ryland, head of American Security Bank's international division, said he "would like to see more international banking activity in the area."
More generally, the banking bill will "bring about a parity of treatment between foreign and American banks," Middendorf stressed. Under existing laws, foreign banks in the U.S. are regulated much less than American banks.