Abstract
FOREIGN banking agencies in the United States have been growing rapidly as depositories of international balances and as a source of domestic money market funds. Much of the growth reflects further expansion of their traditional role in the foreign exchange market, but they have made dramatic inroads in financing brokers and dealers in securities and in the Federal funds market. It appears that their transactions in the American money market have about doubled in the last five or six years. This impressive gain has been registered despite the restrictive banking law in New York State (where 25 of the 28 foreign agencies are located 1) whichuntil the law was amended in the spring of I960prevented foreign banks from accepting deposits of domestic firms or individuals. This inability to accept deposits is the chief distinction between a banking agency and a regular branch. However, the agencies have had the right to deal in foreign exchange and to make certain types of loans to borrowers in the United States. The extent and variety of these financial transactions cannot be traced readily because of a lack of published information. The 25 agencies in New York submit each week a detailed report to the State Banking Department showing their assets and liabilities, but this report is not open to the public. The Federal Reserve System also receives statistics on the agencies' liabilities to foreigners and the foreign assets they hold. These figures are combined with those from other sources and published in summary form in the Federal Reserve Bulletin in the monthly survey of short-term liabilities to and claims on foreigners reported by banks in the United States. However, through personal interviews with New York State banking officials and with persons working in the New York financial district as well as from miscellaneous published sources, it has been possible to sketch the role of foreign banking agencies in the money market. Section I discusses the growth of short-term dollar balances owned abroad but held by United States banks and by foreign banking agencies located in this country. An indication of the extent of the agencies' financing of domestic securities dealers is shown in Section II where their part in the Federal funds market is also outlined. In Section III, the position of foreign banks in the United States is compared with that in other countries, and the prospect of foreign banks establishing branches in New York as provided in legislation adopted in the spring of I960 is appraised.
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