THAT REPORT PROVIDES SOME EXTREMELY USEFUL INSIGHTS. THE BANKING DEPARTMENT CONTINUES TO SUPPORT THE GAO PROPOSAL THAT THERE SHOULD BE A MORATORIUM ON FOREIGN ACQUISITIONS OF LARGE DOMESTIC BANKS, EXCEPT IN SITUATIONS INVOLVING BANKRUPTCY OR INSOLVENCY, UNTIL SUCH TIME AS THE POLICY ISSUES RELATING TO SUCH ACQUISITIONS AS WELL AS TO INTERSTATE BANKING AND TO THE ANTITRUST LAWS HAVE BEEN RESOLVED.

THE GAO REPORT ALSO HIGHLIGHTED WHAT HAS BEEN ONE OF OUR
CONCERNS FOR SOME TIME, NAMELY, THE ADEQUACY OF THE FINANCIAL

INFORMATION PROVIDED BY FOREIGN INSTITUTIONS SEEKING TO ACQUIRE
U. S. BANKS. WE FIRST HAD THIS DIFFICULTY IN NEW YORK IN CONNECTION
WITH THE PROPOSED ACQUISITION OF MARINE MIDLAND BANKS BY THE
HONGKONG AND SHANGHAI BANKING CORPORATION.

WHILE IT IS TRUE THAT THE DISCLOSURE PRACTICES IN MOST FOREIGN
COUNTRIES ARE MUCH LESS EXTENSIVE THAN IN THE U. S., IT MAY WELL
BE THAT SOME OF THE OPPOSITION TO MAKING INFORMATION AVAILABLE TO
REGULATORY AUTHORITIES ARISES BECAUSE OF THE FEAR THAT IT WOULD
BECOME PUBLICLY AVAILABLE AS A RESULT OF OUR FREEDOM OF INFORMATION
STATUTES. IT MAY, THEREFORE, BE DESIRABLE TO CONSIDER WHETHER
LEGISLATIVE ACTION TO EXEMPT MUCH OR ALL OF THIS FINANCIAL INFORMA-
TION FROM PUBLIC DISCLOSURE MIGHT REMOVE SOME OF THE PROBLEMS AND
GENERATE A GREATER WILLINGNESS TO MAKE THE NECESSARY DATA AVAILABLE
TO THE REGULATORY AUTHORITIES.

THE GAO REPORT ALSO POINTED OUT THE PROBLEMS ARISING FROM

THE FACT THAT THE RESTRICTIONS ON INTERSTATE BANKING AS WELL AS THE U. S. ANTITRUST LAWS HAVE THE EFFECT OF ALLOWING FOREIGN BANKS

THE OPPORTUNITY TO BUY LARGE DOMESTIC BANKS WHICH U. S. BANKS ARE PREVENTED FROM BUYING. CERTAINLY, THIS IS AN INEQUITY WHICH NEEDS TO BE CORRECTED.

MOREOVER, FOREIGN BANKS HAVE BECOME MUCH STRONGER COMPETITORS OF DOMESTIC BANKS AND ARE ALREADY ENGAGED IN INTERSTATE BANKING. UNDER THE INTERNATIONAL BANKING ACT, FOREIGN BANKS CAN ONLY ESTABLISH DOMESTIC DEPOSIT-TAKING BRANCHES IN ONE STATE. HOWEVER, THEY MAY CONTINUE TO ENGAGE IN INTERNATIONALLY-ORIENTED WHOLESALE BANKING ACTIVITIES BY ESTABLISHING OR ACQUIRING AGENCIES OR COMMERCIAL LENDING COMPANIES ACROSS STATE LINES; BY OPERATING DEPOSIT-TAKING BRANCHES IN MORE THAN ONE STATE PROVIDED THAT THE BRANCHES ARE SUBJECT TO THE SAME RESTRICTIONS ON DEPOSITS AS ARE APPLICABLE TO EDGE ACT CORPORATIONS; AND BY CONTINUING TO OPERATE ALL BRANCHES IN EXISTENCE IN ANY STATE AS OF JULY 27, 1978.

AT THE SAME TIME, OF COURSE, DOMESTIC INSTITUTIONS ARE ALSO OPERATING ACROSS STATE LINES. THIS IS BEING ACCOMPLISHED THROUGH THE INTERSTATE NETWORK OF OFFICES OF MANY BANK HOLDING COMPANIES PROVIDING VARIOUS TYPES OF FINANCIAL SERVICES. THESE INCLUDE EDGE ACT SUBSIDIARIES, MORTGAGE BANKING AFFILIATES, SMALL LOAN COMPANIES, LEASE FINANCING ORGANIZATIONS AND COMMERCIAL FINANCING AND FACTORING

SUBSIDIARIES.

WE MUST RECOGNIZE THE REALITY THAT MULTISTATE BANKING HAS ALREADY ARRIVED TO A SIGNIFICANT EXTENT FOR BOTH DOMESTIC AND FOREIGN BANKS, AND THAT THE TIME HAS COME FOR A FURTHER ORDERLY EVOLUTION WITH APPROPRIATE SAFEGUARDS

-

IN INTERSTATE BANKING

COMPETITION.

NEW YORK STATE HAS RECOGNIZED THIS BY ENACTING INTO LAW THIS YEAR A BILL WHICH PERMITS OUT-OF-STATE BANK HOLDING COMPANIES TO ACQUIRE OR ESTABLISH BANKING OFFICES IN NEW YORK PROVIDED THAT RECIPROCAL PRIVILEGES ARE ACCORDED TO NEW YORK BANKS. NEW York IS THE FIRST MAJOR BANKING STATE IN THE COUNTRY TO PASS SUCH LEGISLATION. WE ARE HOPEFUL THAT OTHER LARGE STATES WILL FOLLOW OUR LEAD.

WE BELIEVE THAT MAINTAINING THE PRINCIPLE OF RECIPROCITY CAN PROVIDE AN INCENTIVE FOR OTHER COUNTRIES TO RELAX THEIR RESTRICTIONS ON ENTRY BY U.S. BANKS. SPAIN, FOR EXAMPLE, BEGAN TO PERMIT ENTRY BY AMERICAN BANKS SEVERAL YEARS AGO, ENABLING THE BANKING DEPARTMENT TO APPROVE CONVERSION OF A NUMBER OF SPANISH BANK AGENCIES IN NEW YORK TO FULL SERVICE BRANCHES. CANADA IS AN EXAMPLE OF ANOTHER COUNTRY WHICH RECENTLY REVISED ITS BANKING LAWS. ALTHOUGH THIS CHANGE DID NOT PROVIDE FOR TOTAL RECIPROCITY, WE WERE SATISFIED THAT THE CHANGES WERE SIGNIFICANT ENOUGH FOR US TO RELAX OUR RESTRICTIONS, THEREBY ENABLING CANADIAN BANKS IN NEW YORK TO EXERCISE THE SAME RIGHTS AND PRIVILEGES ACCORDED OTHER NEW YORK STATE

CHARTERED BANKS.

HOWEVER, EVEN IF THERE IS SOME BROADENING OF THE EXPANSION OPPORTUNITIES OF DOMESTIC BANKS, THIS COMMITTEE AND THE CONGRESS MUST STILL CONSIDER THE QUESTION OF WHAT OUR NATIONAL POLICY SHOULD BE WITH RESPECT TO FOREIGN BANKS SEEKING TO ACQUIRE LARGE U.S. BANKS. WOULD SUCH ACQUISITIONS PROMOTE THE PUBLIC INTEREST? WHAT WOULD THEIR IMPACT BE ON OUR ECONOMY? WOULD THERE BE THE SAME DEGREE OF COMMITMENT TO MEETING LOCAL CREDIT NEEDS?

IN CONSIDERING THESE QUESTIONS, WE CAN START BY EXAMINING THE EXTENT TO WHICH FOREIGN BANKS HAVE ALREADY MADE INROADS INTO THE

U. S. BANKING MARKET. THE GAO REPORT CITED A FIGURE INDICATING
THAT FOREIGN INTERESTS ALREADY CONTROL ABOUT 15% OF THE NATION'S
BANKING ASSETS AND STATED THAT WHILE THERE IS GENERAL AGREEMENT
THAT THE CURRENT LEVEL OF FOREIGN OWNERSHIP IS NOT TOO HIGH, THERE
IS ALSO GENERAL CONCURRENCE THAT THE SITUATION BEARS WATCHING.
IN THIS CONNECTION, IT IS RELEVANT TO NOTE THAT THE FEDERAL
RESERVE ESTIMATED THAT FOREIGN BANKS MAKE CLOSE TO 20% OF ALL THE
BUSINESS LOANS IN THE U. S. AND ACCOUNT FOR 40% OF THE BANKING
BUSINESS IN NEW YORK. IN SOME AREAS, THE ACTUAL LEVEL OF FOREIGN
BANKING ACTIVITY IS EVEN HIGHER. FOR EXAMPLE, IN EIGHT NEW YORK
STATE METROPOLITAN AREAS, INCLUDING LONG ISLAND, A FOREIGN CON-
TROLLED BANK IS THE FIRST OR SECOND LARGEST BANK.

MOREOVER, IN THE NEW YORK CITY METROPOLITAN AREA AS WELL AS
ON A STATEWIDE BASIS, DEPOSITS HELD IN FOREIGN-OWNED BANKS AND
BRANCHES EXCEED 30% OF TOTAL COMMERCIAL BANK DEPOSITS, MAINLY
REFLECTING DEPOSITS HELD BY FOREIGN BANK BRANCHES. IN OTHER AREAS
OF NEW YORK STATE, THE DEPOSIT SHARES HELD BY FOREIGN-OWNED BANKS
ARE ALSO VERY SUBSTANTIAL, DUE TO THE SIZEABLE MARKET POSITION OF
MARINE MIDLAND. IN THE ELMIRA METROPOLITAN AREA, THE FOREIGN-
OWNED BANK SHARE IS ALMOST 53% OF TOTAL COMMERCIAL BANK DEPOSITS;
IN THE NASSAU-SUFFOLK COUNTY AREA, THE RATIO IS OVER 46%; IN THE
BUFFALO AREA, ALMOST 36%; IN THE BINGHAMTON AREA, ALMOST 25%; IN
THE UTICA-ROME AREA, OVER 24%; AND IN THE SYRACUSE AREA, OVER 23%.
THUS, THERE ARE ALREADY AREAS IN NEW YORK STATE WHERE THE

LEVEL OF FOREIGN CONTROL OF BANKING IS FAR HIGHER THAN THE NATIONAL AVERAGE, AND AREAS ELSEWHERE IN THE COUNTRY MAY HAVE THE SAME EXPERIENCE. IT IS IMPORTANT THAT THE ISSUES WHICH SUBSTANTIAL

FOREIGN CONTROL OF BANKING MARKETS IN THE U. S. MAY RAISE BE
ADDRESSED AT THIS TIME, RATHER THEN HELD IN ABEYANCE UNTIL THE
AVERAGE LEVEL OF FOREIGN OWNERSHIP OF BANKING THROUGHOUT THE
COUNTRY REACHES SOME TRIGGER POINT.

IN OUR VIEW, THE MATTER OF RECIPROCITY IS A KEY ELEMENT IN MAKING A POLICY DETERMINATION. SEVERAL YEARS AGO, WE CONTACTED EVERY MAJOR CENTRAL BANK IN THE WORLD. ON THE BASIS OF THE INFORMATION WE RECEIVED, WE BELIEVE IT IS HIGHLY UNLIKELY THAT THE

BANKING AUTHORITIES OF ANY OTHER MAJOR COUNTRY IN THE WORLD WOULD
PERMIT ONE OF THEIR LARGEST BANKS TO BE ACQUIRED BY FOREIGN INTERESTS.
THIS WAS DRAMATICALLY CONFIRMED BY THE RECENT ADVERSE DECISION

BY THE MONOPOLIES AND MERGERS COMMISSION IN ENGLAND WHICH CONCLUDED
THAT THE PROPOSED ACQUISITION OF THE ROYAL BANK GROUP BY EITHER
THE HONGKONG & SHANGHAI BANKING CORPORATION OR BY STANDARD CHARTERED
BANK WOULD NOT BE IN THE PUBLIC INTEREST. THE COMMISSION, IN ITS
REPORT, EXPRESSED CONCERN ABOUT THE REDUCED RESPONSIVENESS TO LOCAL
NEEDS THAT MAY RESULT FROM SUCH A MERGER AND, IN THE CASE OF HSBC,
. THAT TRANSFER OF ULTIMATE CONTROL OF A SIGNIFICANT PART OF
THE CLEARING BANK SYSTEM OUTSIDE THE UNITED KINGDOM WOULD HAVE THE
ADVERSE EFFECT OF OPENING UP POSSIBILITIES OF DIVERGENCE OF INTEREST
WHICH WOULD NOT OTHERWISE ARISE."

IT HAS BEEN MAINTAINED THAT THE JUSTIFICATION FOR THE POLICY
OF OTHER COUNTRIES IN NOT PERMITTING THEIR MAJOR BANKS TO BE
ACQUIRED BY FOREIGN INTERESTS IS THAT THEIR BANKING SYSTEMS ARE
COMPOSED OF A RELATIVELY SMALL NUMBER OF VERY LARGE INSTITUTIONS