U.S. banks are in the vulnerable position of being both rich and weak in an increasingly hostile world. When they made large loans to foreign nations during the 1970s, they assumed that the relevant risk was the borrowers' ability to repay. The recent events in Iran suggest that the willingness of foreigners to repay may be an equally serious risk.

For most of the 35 years since World War II, willingness to repay was not a major issue. The United States dominated the world militarily and economically, so its companies operating abroad had the protective umbrella of this nation's power. The rules of international commerce were made in the United States, and one of these rules was the obligation of foreign countries to respect American assets held abroad.

The protective umbrella of U.S. power began to fold in the 1970s. Oil-producing countries nationalized the assets of U.S. oil companies, an action that would have been unthinkable 20 years ago. As the power and influence of the United States declined, the political risk to U.S. assets held abroad began to rise.

As this was taking place, U.S. bankers made the anomalous decision to begin a massive lending program abroad. Members of the Organization of Petroleum Exporting Countries had no intention of risking their money in loans to unstable Third World countries with perpetual balance-of-payments problems, but they were quite content to let U.S. banks take that risk for them.

The U.S. bankers who made those foreign loans based their decisions on two optimistic assumptions: 1) that continued world prosperity would generate the financial means for foreign nations to repay their debts and that the unparalleled explosion of prosperity that followed World War II was a normal and sustainable trend, even though history offers no examples of perpetual prosperity; and 2) that foreign nations would be as willing to repay their debts in the future as they had been when U.S. power was at its zenith.

The classic banker, J. P. Morgan, maintained that a borrower's character is far more important than his finances, but U.S. bankers were content with only financial analysis. They assumed that the character of all foreign borrowers was and would be exemplary.

The recent events in Iran demonstrated how questionable that assumption is. Iran's oil reserves give it the ability to pay its debts, but its willingness to pay became doubtful when members of the Revolutionary Council disclaimed responsibility for debts incurred by the deposed shah. When Iran began to withdraw its funds from U.S. banks, they quickly seized those bank deposits as security for Iranian loans.

Iran is a unique situation because its deposits with U.S. banks offset its loans from them. But most Third World nations' heavy and increasing debts are not offset by deposits in U.S. or any other banks. A default by other large Third World countries would be far more costly to their lending banks.

The real significance of the Iranian crisis lies in the breakdown of the old rules of diplomatic and commercial behavior that Americans once thought were unquestioned. The Iranians flouted international law in seizing our diplomats as hostages, and we are powerless to change the situation. If they did not have deposits in U.S. banks, we would have been just as powerless in the face of Iran's default on its debts.

The enormous outpouring of Iranian hostility toward the United States came as a shock to many Americans, but the potential for similar feelings exits elsewhere. Latin Americans have long memories of real and imagined wrongs inflicted on them by the "Collossus of the North." Turkey resents our tilt toward Greece over the Cyprus Issue. Black Africans dislike our ties to South Africa.

Many nations have particular grievances against the United States, but most share the age-old resentment the poor feel toward the rich. Whether individuals or nations, the rich and powerful seldom are loved, but rather are envied, feared and respected at best. Napoleon observed, "Religion is what keeps the poor from murdering the rich." U.S. banks find themselves in the vulnerable position of being both rich and weak in a world with an increasing number of apostates to the commercial religion that U.S. bankers take for granted.

Faced with a default by a foreign borrower, bankers cannot seize its income or assets as they can if a domestic borrower defaults. They cannot expect the Marines to go in as they did in Banana Republics at the turn of the century. There is little that U.S. bankers can do in the face of default except to protest that other nations are not playing by the made-in-U.S.A. rules of commercial behavior that U.S. bankers have come to expect.

Loans to the Soviet Bloc may be as vulnerable to political risk as loans to Third World nations. For a decade members of the Soviet Bloc took advantage of European and American hopes about detente to revitalize their flagging economies with infusions of Western technology. They paid for much of that Western technology with loans, particularly from European banks. If the current cooling of relations between NATO and the Soviet Bloc continues, those loans may be subject to default for political reasons regardless of the ability to repay them.

The rise of political risk on foreign loans coincides with an inconvenient rise in economic risk. Last year's increase in oil prices threw the non-oil-producing Third World nations into a $60 billion annual balance-of-payments deficit. Even if they all remain willing to pay their debts, there is increasing doubt about their financial ability to do so, particularly now that many U.S. banks have reached legal or self-imposed limits on foreign lending.

Brazil illustrates the economic risk facing U.S. banks. Brazil is unable to repay its $50 billion in foreign debts because virtually all its export earnings go for oil and interest payments. To prevent a catastropic default by such a large borrower, U.S. banks have no choice but to roll over their old loans and to make large new ones.

The real danger in foreign loans does not lie in isolated problems such as Turkey, Peru or Zaire, which are small enough for the banking system to handle. A willing suspension of disbelief is necessary when U.S. bankers roll over loans to nations that have no way of repaying them, but no real harm is done so long as the amounts involved are small.

The real risk in foreign loans lies in a once-in-a-lifetime wave of defaults by many borrowers at the same time, an event that would render many large banks insolvent.