Summary: Since 1970, foreign investors have acquired 93 U.S. banks. For the most part, the foreign investors have exerted a positive influence by improving financially weak U.S. banks and maintaining financially strong banks. However, unfairness exists between foreign and domestic banks in the acquisition of large-to-medium U.S. banks. Although the International Banking Act of 1978 has provided for more equal treatment of foreign and domestic banks in the United States, foreign banks continue to realize some advantages over domestic banks. The act limits future foreign bank multistate endeavors, but permits the 63 existing foreign bank multistate operations to continue, an activity not permitted to domestic banks. Domestic and foreign banks and individuals are subject to the same charter, examination, insurance, reporting, merger, and acquisition processes. In spite of this, banking regulators are not fully able to assess the qualifications of foreign applicants to purchase U.S. banks because they cannot always verify the information submitted to them. Therefore, GAO recommended that the federal banking regulators contact the home country banking regulator to determine the foreign individual acquirer's financial strength and reputation, and require that foreign banks and other businesses acquiring U.S. banks submit certified consolidated financial statements prepared in accordance with American Generally Accepted Accounting Principles. It further recommended that, in other than emergency situations, the federal banking agencies require action be initiated to correct major problems noted in bank examination reports of both foreign and domestic banks proposing to merge. Congress should enact a moratorium on future foreign acquisitions of U.S. banks with total assets of $100 million or more. The moratorium should continue until the basic policy issues causing the unfair situation have been fully addressed. The moratorium should exclude foreign acquisitions necessary to prevent the bankruptcy or insolvency of domestic banks. Because the moratorium should not be viewed as a long-term solution to the problem, Congress should set an expiration date for the moratorium and a specific timetable for the action it will take to address the policy issues.
