Reciprocity Clause Feared : Banks Fight Proposed Europe Directive

America’s largest banks have warned the European Commission that the reciprocity provisions of the commission’s proposed banking directive risk provoking retaliatory action by the United States against European Community banks operating there.

The Bankers Assn. for Foreign Trade, which represents all U.S. banks that operate internationally, says in a detailed submission to Brussels that the provision could prove dangerous and counterproductive.

The proposed directive contains a controversial clause that would require all entrants to the single EC banking market after 1992 to undergo a reciprocity test to ensure that EC banks have equal access to the entrant’s home market.

U.S. banks are worried that they will be restricted in the EC because U.S. law limits the geographical and operating freedom of banks on their home territory. They argue that these restrictions are irrelevant to the reciprocity issue because they apply to all banks in the United States, whether domestic or foreign.

The association warns specifically that a reciprocity test would undermine competition within the EC and push up prices for financial services, which would affect the ability of EC cities to remain or become leading financial centers.

The banks remind the commission of the innovative role played in the European markets by U.S. banks and their contribution to the growth of the Euromarkets.

The association also claims that the measure could affect the EC’s export prospects and jobs market. If reciprocity were to be invoked against the United States, it says, “such an arbitrary provision could possibly provoke retaliation against EC banking organizations in the United States. Such a conflict would produce only victims, not victors.”

The submission has been sent to all leading officials in Brussels as well as to members of the European Parliament concerned with financial services legislation.

John Simone, association president, says in a covering note to Sir Leon Brittan, the commission vice president and competition commissioner: “We regard these proposals as potentially dangerous for the continuation of a close and mutually beneficial relationship between the financial services markets of the United States and the EC.”

The submission also points out that in some respects, U.S. banking law is more generous than that in EC countries, such as Greece and Portugal which prohibit banks from engaging in leasing.