The Foreign Greening of America : Outsiders’ Banking Moves Threaten Our Ability to Compete
Who owns America? More and more foreign investors, that’s who.
There is growing concern among U.S. policy-makers that rising foreign ownership of American economic assets could well undermine our ability to compete in the world economy.
The trend toward foreign ownership extends to many sectors, including our agricultural and industrial base. But potentially the most troubling acquisition has occurred in the financial arena.
Foreigners are buying up our banks.
For example, Marine Midland Bank of Buffalo, the nation’s 16th-largest bank, is owned by the Hong Kong Shanghai Banking Corp. Other banks with significant foreign ownership include National Bank of Georgia, Republic Bank of New York and Bank of Virginia. Here in California, where five of the largest 11 banks are Japanese-owned, foreign investors now hold more than 50% ownership in 170 banking institutions. In New York the number is 300.
Even banks that remain American have become much more dependent on foreign business. By the end of 1985 Citicorp, the largest U.S. bank, held nearly $55 billion in foreign deposits, or 52% of its total. As in commercial banking, foreign entry into U.S. investment banking is steadily increasing. Sumitomo Bank, one of the largest in Japan, was recently permitted by the Federal Reserve to have a passive interest in Goldman Sachs. Other U.S. investment giants like Salomon Bros., First Boston and Drexel Burnham Lambert feature significant foreign ownership.
My concern is not only that foreign influence in our domestic economy is growing; what is more worrisome is that we have lost our position as the world’s preeminent financial power.
Measured by market capitalization, Citicorp today ranks 29th and BankAmerica 58th in the world. The top nine banks are all Japanese. But just 10 years ago BankAmerica was No. 1 and Citicorp No. 2. Indeed, our banks are losing market share and profits; foreign banks now make 25% of all loans to American businesses.
Partly because this degree of foreign takeover is unprecedented, there is disagreement over whether it is harmful to American interests. I think that it will be. We simply must have viable domestic institutions that can meet the needs of our businesses and consumers, and ultimately the government, if we are to retain adequate control of our nation’s future.
As Federal Reserve Board member H. Robert Heller wrote recently, “When the day comes in the future that we want to build an Alaskan pipeline or similar project, there won’t be a single U.S. institution strong enough to finance it. That’s scary.” Indeed it is.
Foreign banks’ loyalties are to businesses in their own countries. If a computer firm in the Silicon Valley applies for a loan at a Japanese bank in California, and that same Japanese bank is affiliated with a computer firm in Japan, will the Japanese bank offer the best rates and services to an American competitor of its affiliates? Such relationships are not hypothetical.
In fact, not only do foreign banks own companies in their own countries; they also are buying up increasing numbers of American firms. In California, for example, foreign banks own hundreds of large and small companies in a variety of manufacturing and service industries. American banks, however, are generally prohibited from engaging in such activities.
To allow foreign banks operating in this country to also own a wide range of other businesses here and to prohibit American banks from doing the same is an inconsistency that undermines America’s competitiveness. Why? For one thing, it forces American banks that want to broaden their activities to go overseas, where laws are less restrictive. This means that we’re exporting jobs as well as capital. In any event it makes no sense to place fewer restrictions on foreign banks than we place on our own.
Without question, the global decline of our banks has been rapid and dramatic. Yet it has occurred quietly, without so much as a peep from Washington. It is symbolic of policies that have changed America’s status as the No. 1 creditor nation in the world to the No. 1 debtor nation in just six years.
This is not to imply that the foreigners are doing anything wrong. Indeed, they are playing by our rules and at our invitation, mainly because we need their help to finance our national debt.
Yet policy-makers in Washington have not adequately considered the long-term consequences of these policies. Most Americans would be shocked to learn that we are in effect turning over our economic security to foreign investors, whose highest priority is not necessarily continued international economic domination by the United States.
Congress will soon begin debating major “competitiveness” legislation. We need to evaluate, among other things, what role our restrictions on domestic economic activity have played in these developments. There are many laws on the books, including those governing our banks, that were appropriate when they were enacted many years ago but that do not reflect contemporary economic needs, conditions and relationships.
In short, we have a choice: We can confront our future now, or we can sit back, let the rest of the world decide for us and face a day of economic reckoning in the not-too-distant future.
