Fed eases rules on foreign banks


WASHINGTON -- Responding to pressure from the international banking community, the Federal Reserve announced new procedures yesterday that could make it easier for foreign banks to open offices in the United States.

In the wake of the Bank of Credit and Commerce International scandal, at least a dozen foreign banks have been waiting for more than a year for regulatory approval. In the eyes of foreign bankers, this was hurting them in the move toward globalized banking.

The five-point plan approved by the Fed was designed to speed up the process by streamlining rules and allowing Fed regulators more flexibility in their demands for information.

"This won't completely cure the time problem, but is a genuine attempt to address your problems," Richard Spillenkothen, the Fed's director of banking supervision and regulation, said yesterday at a conference of international bankers.

Foreign bankers generally responded positively to the decision.

One reason the new rules would not be a panacea for foreign banks' efforts to penetrate the U.S. market is that their own secrecy laws often are the regulators' biggest stumbling block, according to a statement issued by the Fed.

"The chief source of delay . . . has been the time necessary to complete the name checks requested by the Board. It is anticipated that completion of these name checks will continue to delay processing of applications," the statement read.

The Fed said the names provided important sources of information about who runs the bank, who its shareholders are and if any blatant conflicts of interest exist between the groups.

Under a 1991 law that regulates foreign bank activities in the United States, the Fed must approve that foreign banks meet financial, managerial and organizational standards similar to those that U.S. banks must meet.

Strict control over foreign banks became politically popular after the BCCI scandal, which culminated a year ago when the Pakistani-owned bank pleaded guilty to federal racketeering charges and surrendered $550 million in U.S. assets.

But foreign bank organizations said BCCI was atypical of foreign banks.

"Other banks shouldn't be penalized based on a regretable but isolated incident. Regulation of foreign banks should not be based on BCCI," said Lawrence Uhlick, executive director of the Institute of International Bankers.

The Fed's new rules would:

* Require the Fed and its regional reserve banks to simultaneously review applications. Currently, the regional reserve bank first reviews an application followed by the Fed, forcing foreign banks to go back again and again for more information;

* Encourage foreign banks to meet with the Fed to iron out preliminary problems;

* Allow the Fed flexibility in its time requirements for foreign banks to provide information;

* Establish streamlined guidelines for processing applications once they have been approved;

* Keep records of various countries' rules and their main personalities, allowing the Fed to refer to these records for information on foreign banks instead of burdening each new applicant for the information.

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