QUESTIONS WERE ALSO RAISED WHETHER, AFTER A FOREIGN ACQUISI

TION 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 INSTITU-
TIONS 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 COMPANY AFTER ITS CONVERSION TO NATIONAL CHARTER.
THE BANKING DEPARTMENT'S CONCERNS INCLUDED THE FACT THAT SINCE
B.C.I. 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 OWNERSHIP,

WITH OVER 45% OF TOTAL DEPOSITS IN COMMERCIAL BANKING OFFICES ON LONG ISLAND BEING HELD BY FOREIGN-OWNED BANKS. ONCE AGAIN, THE QUESTION OF WHETHER THERE WOULD BE THE SAME DEGREE OF COMMITMENT TO LOCAL CREDIT NEEDS WAS A MATTER OF SOME CONCERN TO US.

ON THIS LATTER ISSUE, IT IS ADMITTEDLY VERY DIFFICULT TO DRAW FIRM CONCLUSIONS AS TO WHETHER LARGE BANKS PREVIOUSLY ACQUIRED BY FOREIGN PURCHASERS CONTINUE TO SERVE THEIR LOCAL COMMUNITY CREDIT NEEDS. PART OF THE DIFFICULTY ARISES FROM LACK OF ADEQUATE DATA. IN ADDITION, TOO SHORT A PERIOD OF TIME HAS ELAPSED SINCE MOST OF THESE LARGE BANKS HAVE COME UNDER FOREIGN CONTROL. NEVERTHELESS, WE BELIEVE IT WOULD BE UNREALISTIC TO CLOSE OUR EYES TO THE RISK THAT THE DEGREE OF COMMITMENT TO THE LOCAL COMMUNITY MAY BECOME LESS STRONG AS THE YEARS GO BY.

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- A COPY OF WHICH IS

TO SUM UP, THE BANKING DEPARTMENT CONTINUES TO BE CONCERNED ABOUT THE ISSUE OF FOREIGN ACQUISITIONS OF LARGE U. S. BANKS, AS DOES THE NEW YORK STATE BANKING BOARD, AS INDICATED BY THE RESOLUTION IT UNANIMOUSLY ADOPTED THIS PAST APRIL ATTACHED TO MY TESTIMONY AND WHICH I WOULD LIKE TO HAVE INCLUDED AS PART OF THE RECORD OF THIS HEARING. WE CONSIDER IT ESSENTIAL THAT CONGRESS ESTABLISH POLICY IN THIS AREA AND WE BELIEVE THAT RECIPROCITY SHOULD BE A KEY ELEMENT IN SUCH A POLICY. THIS COMMITTEE CAN HELP PROVIDE LEADERSHIP AND GUIDANCE IN RESOLVING THIS IMPORTANT ISSUE.

THANK YOU.

State of New York,
Banking Department

RESOLUTION

WHEREAS, the acquisition of control of a New York banking organization by foreign interests raises important issues concerning the strength and continuity of operation of the acquired bank, the maintenance of competitive equality among U.S. and foreign banking organizations and the responsiveness of foreign investors to local banking needs; and

WHEREAS, these important issues are not adequately addressed by existing State and Federal legislation; and

WHEREAS, the existence of the dual banking system requires that any meaningful attempt to create a comprehensive policy concerning foreign acquisitions of New York banking organizations must involve a cooperative effort among State and Federal officials; and

WHEREAS, it is in the public interest that the acquisition of control of a New York banking organization by foreign interests be subject to prior review and approval by State and Federal authorities pursuant to comprehensive and uniformly administered criteria designed to maintain competitive equality among U.S. and foreign banks and to ensure the continuance of the New York banking organization as an institution committed to serve the people of the State; NOW, THEREFORE, BE IT RESOLVED THAT

The appropriate elected officials and governmental agencies in Albany and Washington, D.C. be requested to undertake, in conjunction with the New York State Banking Department, an analysis of the issues presented by foreign acquisitions of banking organizations in order to develop an overall policy on such acquisitions.

I, GARY BRODY, Deputy Superintendent of Banks and Secretary of the Banking Board of the State of New York, DO HEREBY CERTIFY that the foregoing copy of a resolution that was adopted by the Board on April 13, 1982, is a true and correct copy thereof.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the Banking Department this day of April, nineteen hundred and eighty-two.

Gary Randa

Secretary of the Banking Board

Mr. ROSENTHAL. Mr. Kohn, I wish you would expand on the reciprocity theme a little more.

Mr. KOHN. We found that, when we checked with central banks in major countries all over the world, their policies would clearly have been negative toward any proposal for a foreign bank to acquire one of their large domestic banks in those countries.

Mr. ROSENTHAL. Were the countries that you checked countries that had made an overture toward takeover in New York State? Mr. KOHN. No, we did not limit it in that way. We were just trying to get some sense of how other countries' banking authorities would view large acquisitions of their banks.

Mr. ROSENTHAL. It seems to me that that becomes somewhat less relevant because there had been no application by those countries. Where did you check? Was it the Soviet Union? Was it China? Mr. KOHN. We checked every country in Western Europe. Mr. ROSENTHAL. Why?

Mr. KOHN. Because they may not have an application now, but they may have one tomorrow, next week, next year. We wanted to get some sense of what their policies were in those countries.

Mr. ROSENTHAL. I am interested in how extensively you have checked the reciprocity of the countries that were involved, whose citizens were involved in an actual takeover application.

Ms. BERMAN. There certainly is no reciprocity in Abu Dhabi.
Mr. ROSENTHAL. I am trying to come to that.

Mr. KOHN. The answer to the question is that we found in every case that we checked

Mr. ROSENTHAL. Did you send people over there to do that?

Mr. KOHN. No, we had correspondence with these major central banks in every country in Western Europe as well as a number of countries in Latin America and Asia.

Mr. ROSENTHAL. Of all the countries in Western Europe, Latin America, and Asia, none of those have applications pending?

Mr. KOHN. At the time that we made this inquiry, none of those countries had acquisitions pending. This is correct.

Mr. ROSENTHAL. You are engaging in foresight for the future.
Mr. KOHN. Exactly.

Mr. ROSENTHAL. I am interested in the present and/or the immediate past. Tell me about the reciprocity relationships you determined exist in the countries that were involved in takeovers. Give us the list, one by one.

Mr. KOHN. In the case of Italy where the situation involved Long Island Trust Co., there is no reciprocity in terms of large acquisitions. In terms of the Financial General application, those countries also do not have reciprocity.

Mr. ROSENTHAL. If you had to make a prognosis as to reciprocity in those Arab countries, what would it be for the next millenium? Mr. KOHN. We have no reason to believe that their policies will change.

Mr. ROSENTHAL. So what was the purpose of your whole study about reciprocity? Where does reciprocity become a relevant issue? Mr. KOHN. If your question is tied to the Financial General application then I would say that we consider, if a major bank in New York were being sought to be acquired, we would consider reciprocity a key element.

Mr. ROSENTHAL. Did you in fact do that in the Financial General case?

Mr. KOHN. We were aware that reciprocity did not exist.

Mr. ROSENTHAL. You said you would consider it as a major element.

Mr. KOHN. When there was an acquisition of a major bank. The two banks in New York that were involved in the acquisition were both relatively small banks. In the case of the Albany bank it accounted for approximately 2 percent of the Albany market. In the case of the Bank of Commerce in New York City it accounted for a fraction of 1 percent of the New York City market.

Mr. ROSENTHAL. Did Financial General make a run at any major banks?

Mr. KOHN. Not in New York City, to the best of our knowledge. Mr. ROSENTHAL. Where did they do that?

Mr. KOHN. They did it in other States, but we of course have no supervisory control over what happens in other States.

Mr. ROSENTHAL. They were supposed to put some additional capital, for example, into the Community State Bank in Albany. Did they do that?

Mr. KOHN. They are planning to do that based upon their divestiture of the Bank of Commerce. When that divestiture occurs, they plan to put some $10 million in capital-that is the latest figure we have been informed of-into strengthening Community State Bank. Mr. ROSENTHAL. In other words what you are telling us is that you would be more concerned if foreign interests were trying to take over Chase Manhattan or Chemical or Bankers Trust or one of those institutions.

Mr. KOHN. We have always made a distinction between major banks and relatively small institutions. In the case of Financial General, the two banks in New York relative to the markets in which they operated were of insignificant size.

Mr. ROSENTHAL. Were you ever able to interview personally any of the major investors that were involved in the Financial General takeover?

Mr. KOHN. We did not seek to, no.

Mr. ROSENTHAL. You did not seek to do that?

Mr. KOHN. No; we spoke with their representatives.

Mr. ROSENTHAL. Who were their representatives?

Mr. KOHN. Mr. Clark Clifford was one of them. Mr. Altman was another, who I believe is with Mr. Clifford's law firm. Those were the two individuals with whom we had the bulk of our contacts.

Mr. ROSENTHAL. Tell us how you satisfied the need to determine that these people were sound, law-abiding citizens with a decent respect in and knowledge of the banking community.

Mr. KOHN. They had indicated to us that they planned to retain the local management-the local domestic management-operating management as well as board of directors of both of those banks. Also, that while they would add to the board of directors, they would continue on the board of directors to hold a minority position on the board rather than a majority position. Those were assurances that they had given us in writing.

Mr. ROSENTHAL. For how long do those assurances exist?
Mr. KOHN. There is no time limit.