would become publicly available as a result of our freedom of information statutes. It may be desirable, therefore, to consider whether legislative action to exempt much or all of this financial information 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 deposittaking 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, commercial financing, and factoring subsidiaries.

We must recognize the reality that multi-State 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 Statechartered banks.

However, even if there is some broadening of the expansion opportunities of domestic banks, this subcommittee 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 percent 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 percent of all the business loans in the United States and account for 40 percent 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-controlled 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 percent 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 sizable market position of Marine Midland. In the Elmira metropolitan area the foreignowned bank share is almost 53 percent of total commercial bank deposits; in the Nassau-Suffolk County area the ratio is over 46 percent; in the Buffalo area, almost 36 percent; in the Binghamton area, almost 25 percent; in the Utica-Rome area, over 24 percent; and in the Syracuse area, over 23 percent.

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 United States may raise be addressed at this time, rather than 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 & Mergers Commission in England which concluded that the proposed acquisition of the Royal Bank Group by either the Hong Kong & Shanghai Banking Corp. 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 and that the acquisition of any one of these banks would therefore represent a much more substantial control over their economy than would a comparably sized acquisition in the United States which has over 14,000 banks.

However, the contrast between the relatively few banks in each of the major countries of the world and the very large number of banks in the United States does not necessarily mean that acquisitions of large U.S. banks by foreign institutions involves a much lesser impact on the banking structure than would U.S. acquisitions of large foreign banks. There are several reasons for this.

First, ratios based upon nationwide figures can be misleading because they do not take into account specific market areas within which banking competition and the availability of banking services is vital for the health of the economy of that area.

As previously indicated there are eight metropolitan areas in New York State, in each of which a relatively few banks are dominant, and a foreign-controlled bank is the first or second largest bank in each such area. This is a highly significant fact and one which may be replicated in other markets throughout the country if the acquisition trend continues.

Second, the reference to the over 14,000 banks in the United States tends to be misleading since the overwhelming preponderance of them are relatively small- or modest-sized institutions. For example, almost 99 percent of the banks in the United States have less than $1 billion in assets, and 99.8 percent have less than $5 billion in assets. These figures include only domestic assets. They do not include assets in overseas branches of U.S. banks.

Stated differently, there are 187 banks in the United States with over $1 billion in assets, and only 29 of these banks have over $5 billion in assets. The 187 banks account for over 52 percent of all commercial banking assets in the United States and the 29 banks account for 31 percent of all U.S. banking assets.

What is relevant for our purposes therefore is not the many thousands of banks in the United States since foreign acquisitions of small- or moderate-sized institutions are not and never have been a controversial issue. It is the acquisition of the multibillion dollar U.S. banks that generates concern and which, in my judgment, requires the development of a national policy.

It is true, of course, that the largest banks in foreign countries account for a larger aggregate percentage of their countries' banking assets than is the case, for example, for the 29 largest banks in the United States

However, two important points should be noted. One is that, as I have already indicated, nationwide ratios can significantly understate market shares and penetration in local U.S. markets. Thus, the 29 largest banks in the United States undoubtedly account in

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the aggregate for a very high proportion of the banking assets in the local U.S. markets in which they operate.

Moreover, as restrictions on interstate expansion are reduced or eliminated, it is likely that the greatest degree of expansion will be by large banks. As a result the differences between the banking structure and degree of banking concentration in the United States from those in foreign countries will almost certainly diminish substantially as time goes on.

I would recommend, therefore, that careful consideration be given to whether, in the absence of reciprocity or bankruptcy, we should permit our largest banks to be acquired by foreign institutions.

I hope that no one will misunderstand the comments I have made today. We welcome competition from foreign banks, and the policy of the New York State Banking Department has long been, and continues to be, to encourage foreign bank entry into New York by means of establishing new branches, agencies, and subsidiary banks or by means of acquisitions of small- and moderate-size institutions.

The banking department's record with respect to entry by these means speaks for itself. At the end of 1970 there were 66 Štate-licensed foreign bank branches and agencies in New York with assets of $11 billion. At the end of 1981 there were 172 such branches and agencies with assets of $155 billion. We have sought to bring about changes in various laws and regulations in New York in order to enable these branches and agencies to operate and compete more effectively.

The banking department has also been in the forefront of the effort to bring about the necessary changes in laws and regulations to enable international banking facilities, IBF's to become a reality. The culmination of these efforts is evident in the fact that there are now over 200 IBF's in operation nationwide with $128 billion in assets, of which 110 IBF's with $100 billion in assets are in New York.

Moreover, we have not opposed foreign acquisitions of small- or moderate-size banks in New York. The most recent illustration of this was the application by a group of Arab investors to take over Financial General Bankshares, which owned two relatively small banks in New York State. On the banking board's first consideration of the matter in November 1981, the application did not get the requisite number of votes for approval, principally because of a lack of reciprocity for American banks in the Arab countries of which the applicants were citizens.

We were able, however, to work out a compromise, which was subsequently approved by the banking board, which involved an agreement by the applicants to divest themselves of the Bank of Commerce in New York City, enabling it to remain an independent, State-chartered institution. The applicants would then control only a small upstate New York bank with assets of $83 million and an insignificant share of the upstate market in which it operated. Although there was continued opposition in some quarters to this proposal, we urged the banking board to approve the application. Under the existing regulatory framework the applicants could get what they wanted at the Federal level. Approval by the banking

board at least enabled the larger of the two New York bank subsidiaries of Financial General, by divestiture, to once again be a locally controlled bank which will continue to serve the needs of the local residents and small business firms in New York City. The necessary steps to achieve this divestiture are already underway. On a related matter this subcommittee has expressed interest in the question of whether different or more serious supervisory problems arise when U.S. banks are sought to be acquired by foreign individuals rather than by foreign banks. In all candor we must say that there frequently are additional concerns when the foreign acquirer is an individual or a group of individuals.

For one thing, it becomes difficult to check on the character and fitness of individuals. References, even bank references, are not necessarily a reliable source of information. Related to this is the reluctance of individuals to disclose personal net worth or the source of their wealth. This may be because they do not want this information to be known in their home country for a variety of reasons including possible tax consequences.

By contrast, foreign banking institutions are regulated and supervised by the banking or monetary authority of their home country. This substantially increases the ability to obtain a meaningful evaluation of the background and track record of the potential acquirers.

This is not to say, however, that when the foreign acquirer is a banking institution or bank holding company no supervisory difficulties exist or that all of the necessary financial information will be forthcoming or will be verifiable or will be based on accounting principles acceptable in this country. Our experience with Marine Midland certainly suggests that this is not necessarily the case.

Questions were also raised whether, after a foreign acquisition has taken place, there are any particular supervisory problems created by foreign ownership of a U.S. bank. Our view is that if the bank is healthy, strong, and well managed the fact that its stock is owned by foreigners does not in and of itself create supervisory problems. However, if the bank is a problem institution the fact that it is foreign-owned can make effective supervision more troublesome.

For example, it would be more difficult if not impossible for a foreign owner to inject needed capital into a domestic bank if its home country imposes foreign exchange restrictions. Subject to this caveat, we consider it easier to deal with foreign institutions rather than foreign individuals owning a U.S. bank because if there were need for capital foreign institutions would be likely to have better access to the capital markets than individuals.

One of the most recent cases of a foreign acquisition of a large New York bank involved Banca Commerciale Italiana's acquiring Long Island Trust Co., after its conversion to national charter. The banking department's concerns included the fact that since BCI was owned by the Italian Government the problems associated with foreign ownership were likely to be even more serious because the owner is a sovereign power, including the inability to obtain the detailed financial statements we felt were necessary.

Also of concern to us was the fact that with this acquisition the Long Island market would have a very sizable degree of foreign