This paper describes the foreign banking landscape in the United States. It begins by establishing a vocabulary for discussion of the subject, and then identifies a number of important data-related issues. With that information in hand, the remainder of the paper focuses on identifying the most important underlying trends on both sides of the balance sheets of foreign-owned banks’ U.S. operations. At each step, the investigation considers how foreign-owned banks compare to U.S.-owned domestic banks, and how two types of foreign banks operations in the U.S. — branches and agencies of foreign banks (FBAs), and foreign-owned subsidiary banks (FSUBs) — compare to each other.
For those who wish to understand the true nature of our current financial system, the Pujo Committee’s 1912-1913 investigation of the “Money Trust” is essential reading. The Committee identified a concentrated group of Wall Street bankers who operated a sophisticated financial network unified by 341 interlocking directorships held in 112 corporations valued at more than $22 billion in resources and capitalization exerting significant control and influence over the U.S. economy and monetary system. The companies and individuals comprising this network were primarily agents of the Morgan and Rockefeller banking empires which dominated U.S. finance following the “Industrial Revolution”. The Committee names a number of prominent banking institutions as participating in this system including J.P. Morgan & Co., First National Bank of New York, Kuhn Loeb & Co. and individuals such as Paul Warburg, Jacob H. Schiff, Felix M. Warburg, Frank E. Peabody, William Rockefeller and Benjamin Strong, Jr. Understanding this system of overlapping financial networks and how those networks are used to dominate utilities, railroads, banking and the U.S. financial infrastructure throughout much of the twentieth century is key to the proper analysis of our current economic situation and the influence that the “Money Power” wields over global politics.
Even at this late date, it is difficult to assess the precise international impact of the TARP or other U.S. rescue programs because Treasury gathered very little data on how TARP funds flowed overseas. As a result, neither students of the current crisis nor those dealing with future rescue efforts will have access to much of the information that would help them make wellinformed decisions. In the interests of transparency and completeness, and to help inform regulators‟ actions in a world that is likely to become ever more financially integrated, the Panel strongly urges Treasury to start now to report more data about how TARP and other rescue funds flowed internationally and to document the impact that the U.S. rescue had overseas. Going forward, Treasury should create and maintain a database of this information and should urge foreign regulators and multinational organizations to collect and report similar data. The crisis also underscored the fact that the international community‟s formal mechanisms to resolve potential financial crises are very limited. Even though the TARP legislation required Treasury to coordinate its programs with similar efforts by foreign governments, the global response to the financial crisis unfolded on an ad hoc, informal, countryby-country basis. Each individual government made its own decisions based on its evaluation of what was best for its own banking sector and for its own domestic economy. Even on the occasions when several governments worked together to rescue specific ailing institutions, as in the rescues of European banks Dexia and Fortis, national interests often came to the fore. These ad hoc actions ultimately restored a measure of stability to the international system, but they underscored the fact that the internationalization of the financial system has outpaced the ability of national regulators to respond to global crises.
In the fall of 2008, the Federal Reserve and Treasury faced several key decisions about the future of AIG. After attempts to find private-sector financing failed, they chose to provide assistance to AIG rather than allow the company to file for bankruptcy. FRBNY officials believed that an AIG failure would pose considerable risk to the entire financial system and would have significantly intensified an already severe financial crisis. FRBNY was concerned about the effect of an AIG bankruptcy on key sectors of the market, such as retirement accounts and the credit markets. FRBNY adopted in substantial part the economic terms of a draft term sheet under consideration by a consortium of private banks, the terms of which included a very high interest rate.
Home addresses for Vikram Pandit, CEO of Citigroup; James Dimon, CEO of J.P. Morgan Chase; John Stumpf, CEO of Wells Fargo; Ken Lewis, CEO of Bank of America; and Lloyd Blankfein, CEO of Goldman Sachs Group, Inc.
By itself, the Troubled Asset Relief Program (“TARP”) is a huge program at $700 billion. As discussed in SIGTARP’s April Quarterly Report, the total financial exposure of TARP and TARP-related programs may reach approximately $3 trillion. Although large in its own right, TARP is only a part of the combined efforts of the Federal Government to address the financial crisis.
Despite a horrible year in most global markets, these 100 funds all have three-year annualized returns that run to solid double digits; a majority were up in 2008. Remarkably, one firm, Paulson, has two funds in the top four, No. 1 Paulson Advantage Plus (event-driven) and No. 4 Paulson Enhanced (merger arbitrage). In second place is Balestra Capital Partners, a global macro fund, third is Vision Opportunity Capital, a merger arbitrage fund, and fifth was Quality Capital Management-Global Diversified. Strong performance in weak markets is hedge funds’ most basic appeal and these funds did nothing to dispel that idea last year.