Finance & Loans

The Key Points of the International Banking Act of 1978

Written by Phineas Upham

Prior to 1978, foreign banks were not allowed within the Federal Reserve regulatory framework. This put those banks at a competitive disadvantage if they hoped to expand into America. It was difficult for these foreign entities to establish banks on the ground, and even more difficult to accept deposits with any kind of trust between the guarantee and guarantor. The International Banking Act of 1978 changed many of those rules, and allowed foreign banks to work their way into the system.

Key Points

Provided that state law did not prohibit the opening of bank branches, foreign banks were allowed to open branches subject to approval from the Board of Governors and the Office of the Comptroller of the Currency. If that same board approved, the bank could further branch out into the state.

The act also made it possible for foreign banks to operate under the same laws, with equal rights and privileges, to national banks in the Federal Reserve System. For consumer protections, the act limited the amount of single deposits to these foreign institutions to $100,000. This total could change if the bank was insured for deposits.

Lastly, the act named the governing bodies for these foreign banks and provided some scope of power.

Lasting Effects

The biggest lasting effect is the ability to bring in foreign banks and let them establish a US presence. Banks like HSBC and TD Bank would not exist in America today without this act. The International Banking Act also provided some oversight for these institutions, and held them accountable for the money they held from American customers.

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Phineas Upham is an investor from NYC and SF. You may contact Phineas on his Phineas Upham website