The International Banking Act of 1978 of 1978 - International Finance

The US Banking Act of 1978

In the 1960s, when there was a particularly rapid development of commercial banks in the US, Western Europe and Japan, European and Japanese banks rushed to the United States. A huge American capital market beckoned banks from other countries because in this country they could act in accordance with US law. This period was characterized by the rapid ascent of Western Europe and Japan, the strengthening of the positions of their corporations and banks in the global competitive struggle. They vigorously won positions in the banking system of the United States, closely owning American banks. The big resonance in America was caused by the fact that the British trading company Barings bought a 40% stake in the old investment form on Wall Street. But an even more negative reaction triggered the offensive of Japanese banks. The American media threw in the idea that foreign banks enjoy privileges compared to American ones and demanded the elimination of this "discrimination". In such a situation, in 1978, the US Congress adopted the International Banking Act.

What was the discrimination that this law eliminated? According to American financiers and economists, it was about the following three facts:

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1) Foreign banks were able to conduct deposit operations in different states, having a branch or subsidiary in New York, a branch in Chicago and a branch or subsidiary in California. On the other hand, US banks were banned inter-state deposit operations;

2) Some foreign banks opened branches for operations with securities in the US, using the universal banking method that they apply in their country. Under the Glass-Steagall Act, American banks were prohibited from engaging in investment banking. (The new law allowed this, and in 2008-2009 all US investment banks went bankrupt. "- Note Auth.)

3) Foreign banks largely did not obey the requirements for the formation of mandatory reserves, as determined by the Federal Reserve. Many foreign banks operating in the US were subject only to reserve requirements imposed by state authorities, which most often allowed operations with government securities and transactions with inter-bank time deposits. Such a policy gave these banks advantages over US banks that were subject to the requirements of the Federal Reserve for cash.

The law on international banking operations was designed to eliminate this supposedly "competitive inequality", but at the same time adopted an open approach in dealing with foreign banks. In this respect, this law refers, rather, to the methods of legislative regulation, and not to the methods of interaction of agents of the financial market. In addition, detailed bilateral negotiations have ceased to be necessary. In order to make sure that US banks are given fair and equal positions in host countries, the US Treasury Department must, according to this law, submit periodic reports: "Relations of foreign authorities to US banking organizations". Since the law came into force, several such reports have been submitted. The very content of the law on international banking operations was reduced to the following provisions:

1) Federal supervision of foreign banks operating in the United States was established. It also provided for federal licensing of branches and agencies of foreign banks in the US as an alternative to licensing in the states;

2) limited the deposit operations of foreign banks between states in accordance with the practice applied to US banks. The law required that foreign banks select a certain staff for their actions and the location of the bank in which such transactions will be permitted. The inter-state deposit operations that have been conducted have been terminated, except for activities that were carried out before the law was enacted;

3) large foreign banks operating in the US became members of the Fed, subject to reserve requirements applied to deposits in US banks. Accordingly, these banks received preferences granted by membership in the FRS, including access to the & quot; discount window & quot ;;

4) the new activity of the branches in securities transactions was terminated with the exception of operations conducted before the adoption of the law;

5) US banks have been granted the right to participate in more flexible interbank operations through Edge corporations. Edge corporations were allowed to open offices in different states. At the same time, foreign banks have the right to invest in Edge corporations.

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The adoption of the Law on International Banking Operations, despite its restrictive nature, did not stop the expansion of European and Japanese banks into the American banking market at that time, but experts argued that this fight has since occurred on more equal terms than those, which existed before 1978. Of course, it was not a "lack of equal conditions" in those days, but that Japan and Western Europe were developing more successfully than the United States. As soon as they entered the band "fading" their economic growth compared to the US, the situation quickly began to change in favor of US banks.

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