International Banking Act of 1978
What Is the International Banking Act of 1978?
The International Banking Act of 1978 put every single American branch and agencies of foreign banks heavily influenced by U.S. banking regulators. It permitted Federal Deposit Insurance Corporation (FDIC) insurance to be given to these branches. It likewise required them to adjust to U.S. banking regulations connected with issues, for example, reserves and accounting and regulatory requirements, so that all banks operating domestically are dealt with similarly according to a regulatory point of view.
Understanding the International Banking Act of 1978
The International Banking Act of 1978 was the main legislation enacted in the U.S. to bring domestic branches of foreign banks operating in the U.S. into the system of Federal banking regulation. Up to that point, foreign banks operating in the U.S. had been subject to different state laws with no solidarity nationally by they way they were dealt with. This had given foreign banks both certain advantages and certain disadvantages compared to US banks.
For instance, foreign banks enjoyed the benefit of having the option to branch interstate, yet experienced in attempting to attract retail deposits since they couldn't offer FDIC insurance.
Pressure for legislation to deal with American branches of foreign banks escalated throughout the span of the 1970s as the number and size of foreign banks operating in the U.S. increased fundamentally. In 1973, 60 foreign banks with assets of $37bn were operating in the U.S.; by April 1978, this had developed to 122 banks with $90bn in assets. By that stage, they likewise held $26bn worth of loans in the U.S. These statistics implied that the previous origination of foreign banks being particular institutions principally financing foreign trade at this point not applied, and their wide association overall banking services featured calls for Federal oversight.
Concerns Leading to the International Banking Act of 1978
The Federal Reserve Bank and U.S. Treasury Department were especially worried that foreign banks enjoyed upper hands over domestic banks in attracting deposits through their multi-state tasks — with deposit-taking being critical to a bank's business. Combined with the range of services these banks could offer, there were huge worries that if business as usual were permitted to proceed, just a small bunch of large domestic banks would turn out to be able to rival foreign institutions.
The 1978 Act endeavored to address these worries by laying out rules that advanced competitive balance among foreign and domestic banks, while saving the ability of states to attract capital and lay out international banking centers. Simultaneously, the Act permitted Federal specialists to manage and administer foreign banks operating in the U.S. (an important factor behind banking system stability). It is in terms of this that foreign banks need to go along to similar reserve ratios and other regulatory issues as domestic banks, including reporting and bank examination requirements. Control over reserve requirements of these banks likewise permits the Federal Reserve to be more efficient in setting monetary policy.
Features
- The International Banking Act was a law passed in 1978 that put foreign bank units operating the U.S. under the domain of American regulators and the FDIC.
- Prior to the Act, U.S. branches of foreign banks were rather subject to an interwoven of state-by-state regulations.
- With the Act, all banks, domestic or foreign, operating inside U.S. borders became subject to similar uniform regulatory rules and investigation.
