The Federal Reserve Board yesterday tentatively approved establishment of what would amount to free-trade zones for banks doing international business. The international banking facilities would be like duty-free ports.
In return for certain conditions, banks would be able to conduct some international business without keeping reserve requirements of interest rate ceilings.
The Fed will put out details of its proposal probably sometime next week and will ask for comments within 30 days. The Board said it plans to authorize an international banking facility beginning Oct. 21, 1981. The New York Clearing House association has lobbied heavily for the establishment of a free banking zone to enable U.S. banks in New York to compete more effectively with foreign banks for international business.
Under the Fed's proposals, bank offices could qualify for the lifting of regulations on reserve requirements and interest rate ceilings if they accept deposits only from foreign residents; have a minimum transaction size, or reserve balance, of $500,000; and have a minimum two-day notice requirement.
The Fed said it wanted to delay the regulation allowing the international banking facilities so that states other than New York could pass legislation authorizing such offices. The New York legislature already has passed enabling legislation, which would exempt such offices from state and local taxes.
The supporters of such a scheme argue that it will boost the standing of U.S. banks and bring back some jobs from overseas as banks are able to return their purely international operations to the main office. At present, many large banks have offices in, for example, the Bahamas, London or Hong Kong in order to escape U.S. banking regulations and local taxes.
These offshore centers could, if the Fed gives final approval to the proposal, be moved back into the United States but remain immune from reserve requirements or limits on interest rates. At present, foreign banks operating in the United States are free of these restrictions on their international borrowing and lending.
The Fed had decided there would be little if any impact on its ability to control the money supply, as all the transactions would be with foreign residents. There could be some creation of new jobs in the cities where the banks set up the new offices, although this is likely to be rather limited.