Summary

Foreign banks, individuals, and businesses have dramatically increased their participation in the U.S. banking industry. For the most part, foreign investors have improved weak U.S. banks and maintained strong U.S. banks they acquired by adding new capital, changing management, improving loan portfolios, and stopping self-dealing transactions. Who controls a bank is not always clear. Foreign banks operate throughout the U.S. banking market. Although it is generally agreed that the current level of U.S. banking assets under foreign control is not too high, there is a general concurrence that the situation bears watching. Federal and state banking regulators generally regulate and supervise foreign and foreign-controlled banks the same as their domestic counterparts. Banking regulators are not fully able to assess the qualifications of foreign applicants to purchase U.S. banks because they cannot always verify information submitted to them; they lack the legal jurisdiction. They can also experience difficulty in recovering damages from foreign investors who harm U.S. banks.

Although foreign acquired banks generally showed some improvement after acquisition, they may not have improved as much as similar domestic-controlled banks. The federal agencies' application review processes and procedures do not seem to favor either foreign or domestic buyers. The differences result from a recognition of the unique information problems posed by many foreign buyers. The merger process provides the regulators with an opportunity to strengthen the resulting bank by requiring additional capital. This was not done in the mergers GAO reviewed, resulting in a continuance of many problems in some surviving banks. In many bank purchase circumstances, foreign banks have an advantage over domestic banks, which is unfair. Large foreign banking institutions have been able to establish multistate operations in the United States, which large domestic banks have not been able to do.