Statements to the Congress.

Statement by Richard Spillenkothen, Director, Division of Banking Supervision and Regulation, before the Subcommittee on General Oversight and Investigations of the House Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, presented in Orlando, Florida, November 15, 1991

I appreciate the opportunity to be here to discuss the availability of bank credit and the possible effect of certain bank supervisory policies on the willingness of banks to lend. During the past year and a half, there has been a marked slowdown of bank lending in the Southeast as well as in many other parts of the country. This development is disturbing because an adequate flow of credit to sound borrowers is essential for a healthy and growing economy. Chairman Greenspan has cited the "credit crunch" as an impediment to a full economic recovery, and this condition is a major concern, and relieving it a high priority, of the Federal Reserve.

As I suspect these hearings will demonstrate, the problem is a difficult one that has no single cause or solution. In my remarks today, I will discuss several factors that have contributed to the slowdown in bank lending and the recent performance of commercial banks. I will also address the questions the subcommittee has raised and will describe steps the Federal Reserve has taken to encourage more bank lending.

LENDING Conditions NATIONWIDE AND IN THE SOUTHEAST

Loan growth at commercial banks has, unquestionably, declined sharply during the past year or so, not only in the Southeast, but also nationwide. From June 1990 to June 1991, the volume of bank loans increased only 0.6 percent in the Southeast and actually declined 0.5 percent in the rest of the United States. More recent estimates based on the Federal Reserve's weekly sampling of banks suggest that outstanding bank loans continued to contract nationwide during the third quarter and that recently they also have fallen in the Southeast. This experience compares with annual increases of 4 to 6 percent only a few years ago and with a growth rate of 2.7 percent reported by the industry last year.

Many factors have contributed to this situation, most notably, in my opinion, the sharp decline in commercial real estate values along the east coast and in other parts of the country and the general weakness of economic activity. These developments have severely harmed the financial condition of some banks and have caused the failure or near failure of others, including, recently, the Southeast Banking Corporation in Miami. As a result of these problems, banks throughout the country have been forced to reassess their growth strategies and pricing policies and to rebuild their financial strength. In the process, many banks have lost much of their appetite for risk and have taken steps to improve their credit standards.

Such strengthening of credit standards was entirely appropriate. During much of the 1980s, U.S. banks and other depository institutions provided what has now been shown to be excessive amounts of credit to certain sectors of the economy. Loan-pricing terms were eased and underwriting standards declined, and many borrowers found substantial financing at attractive rates. Many real estate loans, in particular, were made on the basis of exaggerated evaluations that relied, in turn, on overly optimistic assumptions or the prospects of sales at speculative price levels. Such lending activity led to overbuilding in many real estate markets, to the high debt levels of many companies and individuals, and to the high volume of nonperforming loans that banks hold today.

In recent periods, banks have been requiring more collateral or guarantees, additional borrower equity, stronger loan covenants, and wider profit margins than previously. The effect has often been most pronounced for construction loans and for other lending involving commercial real estate. This new environment has undoubtedly prevented some borrowers who may be creditworthy, or believe they are creditworthy, from obtaining or renewing needed financing, It has also, however, enabled many banks to begin to strengthen their own conditions and to improve their profit margins.

Many businesses, weakened by heavy levels of debt and by generally poor economic conditions, have also reduced their spending on fixed capital and inventories and lessened their financial leverage. As a result, their demand for bank credit has fallen off. Indeed, weak credit demand and the banks' own concerns about the economy and with industry-specific problems have been consistently cited by respondents to the Federal Reserve's quarterly surveys of senior lending officers as the principal reasons for restrained lending.

This explanation of weak demand is also consistent with the recent decline in bank credit card loans, the volume of which is, in the short run, determined largely by consumer demand. It may also be supported by the drying up of borrowings by nonfinancial companies in the U.S. commercial paper market, which have declined more than 3 percent in the first half of this year.

Supervisory Factors

Other factors cited as contributing to the "credit crunch" and of specific interest to the subcommittee relate to the supervisory policies and procedures of the bank and thrift regulatory agencies-or to possible misunderstandings of these policies by depository institutions. Of particular concern is the effect of certain bank examination procedures and the new risk-based capital standards. Let me address the capital standards first.

As you may know, the current capital standards were adopted in early 1989 after years of intemational negotiations and were agreed upon as a way to strengthen capital standards of banks around the world and to provide for more equitable international competition. In short, these standards currently require banks to have capital equal to 7.25 percent of risk-weighted assets (including off-balance-sheet obligations) and to increase that ratio to 8.0 percent by the end of 1992.

By far, most U.S. banks met the 1992 standard when it was adopted and continue to meet it now. Even some of those banks that do not meet the 1992 standard meet the current interim target ratio or have holding companies that meet it on a fully consolidated basis. Nevertheless, some banking organizations currently do not meet the minimum. Moreover, many banks that meet the minimum standard feel the need to operate above minimum levels in view of current problems or their desire to maintain a comfortable margin of safety to weather periods of adversity. As a result of all of these factors, concern about capital ratios has forced some banks to raise additional capital or curtail asset growth, or both.

The low asset and loan growth rates we have recently seen reflect, in part, the effect of this concern. It is also reflected in the record amount of equity capital the U.S. banking system has raised during the past year. Although the industry's restrained lending has been painful for many borrowers, we should recognize that a slower or more prudent rate of growth-especially by weaker banks-is consistent with an overall strengthening of the banking system. Some banks were undercapitalized relative to their risk exposure and needed to take action to improve their condition. Indeed, as noted above, the recent tightening of credit has many of its roots in the excesses of the 1980s. Many of the weaker credits extended during that period have resulted in heavy losses and have made the industry's task of achieving desired capital levels more difficult.

Examination policies-as they are implemented by examiners and understood by bankers-have, in some cases, been a matter of controversy in explaining the credit conditions. I would certainly not deny that in some cases examiners may have been too severe in their assessments of bank credits or that some bankers, in perceiving a new supervisory approach, have been overly conservative and excessively cautious in their own lending practices. Assessing the quality of existing loans and new loan requests requires a material degree of human judgment on the part of both bankers and bank supervisor that is sometimes wrong.

I would like to emphasize, however, that the current procedures Federal Reserve examiners use to evaluate loans-and real estate loans, in particular-are not conceptually different from those they have used in the past. Both now and previously, examiners have placed substantial importance on the strength, commitment, and performance of the borrower; the ability of the collateral to generate cash flow and service debt over time; the results of recent appraisals; and current market conditions.

However, an important difference is that the lending and economic environment itself has changed. Currently, many commercial real estate markets throughout the United States are more clearly saturated with excess office space than they have been in the past, and the market values of many properties have sharply declined. In many cases, this decline has left the market value of a loan's collateral below the loan's outstanding balance. In view of these conditions, bankers themselves are identifying sizable losses even at current prices and believe that the value of collateral underlying many existing loans may continue to fail.

Once again, the importance of judgment is critical. None of us wants to worsen conditions for banks or to discourage bank lending to sound borrowers. Nor, however, do we want to overlook problems or engage in a program of forbearance that may ultimately increase the cost of bank failures. Proper balance is the key.

Because of these uncertainties, the supervisory agencies have taken special efforts to clarify their policies. We want examiners to evaluate the loans rigorously and truthfully, but we do not want them simply to extend the current unfavorable market trends indefinitely into the future. Similarly, we want banks to understand that they may and, indeed, should work with troubled borrowers and avoid foreclosures when possible. If considered necessary, these workout efforts may involve the extension of additional financing.

EFFORTS TO EASE CREDIT CONDITIONS

I would like to review briefly some of the supervisory steps we have taken to communicate our policies and ease the problems caused by any unnecessary and excessive tightening in the availability of bank credit. First of all, as the subcommittee knows, the Federal Reserve has on several recent occasions moved to reduce short-term interest rates. Its own discount rate, which it charges on loans to depository institutions, has been lowered by the Board of Governors five times in the past twelve months, and the prime rate charged by large banks has declined 2 1/2 percentage points over this period. In addition, the reserve requirement on nontransaction liabilities was reduced from 3 percent to 0 around the beginning of the year in an effort to encourage more lending by reducing funding costs to depository institutions.

In other actions, officials of the Federal Reserve and at other banking agencies have met on numerous occasions with bankers and with bank examiners to communicate and clarify their bank supervisory policies and to emphasize the importance of banks continuing to lend. On March 1, the agencies adopted a joint statement that spelled out their intent in greater detail. That statement specifically encouraged banks to work with troubled borrowers, consistent with sound banking practices. It also indicated that even banks that do not meet the minimum capital standard are not necessarily required to stop making sound loans to creditworthy borrowers, provided they had reasonable and effective plans in place to achieve adequate capital levels.

The statement also directed examiners to consider the stabilized capacity of real estate property to service debt and not to base their evaluation of a real estate loan solely on the current market or liquidation value of its collateral. Another provision indicated that banks with concentrations in certain economic sectors could continue making loans to borrowers in such sectors if the borrowers were sound and if prudent risk controls and programs were in place to reduce the concentrations.

The Federal Reserve has undertaken special efforts to ensure that its examiners and other supervisory personnel understand these and other supervisory policies. Toward that purpose, the Federal Reserve issued a supplemental statement in July to its own bank supervisory personnel. That supplement elaborated on parts of the March I guidance but also discussed the importance of banks refinancing or renewing loans to sound borrowers (including those in the real estate sector) in the absence of well-defined weaknesses that jeopardize their repayment.

Most recently, the federal banking agencies have announced further steps to address the potential effect of supervisory policies on credit availability. This latest statement also elaborates on the statement of March I and emphasizes that examiners should consider factors other than a property's liquidation or current appraised value when evaluating real estate loans. In particular, the statement indicates that a performing real estate loan should not be criticized or charged off solely because the current value of the underlying collateral has declined to an amount less than the loan balance. Rather, such actions should only occur when well-defined weaknesses exist that jeopardize repayment of the loan.

In these actions, we have endeavored to develop reasonable procedures that balance consideration of current market conditions with the long-term or stabilized value of what is inherently an illiquid asset. This approach is preferable to one that relies solely on appraisals that can be exaggerated in both the upside and downside phases of the real estate cycle. The new measures also include procedures to ensure that examiners are properly applying relevant policy statements to loan evaluations as well as a proposal to provide greater flexibility for bank holding companies to include certain preferred stock in meeting risk-based capital standards. Finally, the Federal Reserve, together with the other federal banking agencies, is reviewing its existing procedures for allowing banks to appeal examiner decisions with the aim of supplementing or strengthening these procedures.

It is difficult to determine at this point what effect the recent efforts to clarify supervisory policies will have on the availability of bank credit. Many factors other than examiner actions have contributed to tighter credit conditions, and these other factors must change before conditions will materially improve. I would stress, however, that the banking agencies have directed substantial time and effort toward the issue of credit conditions. To the extent that certain supervisory policies-or a lack of clear understanding of such policies-have created unwarranted impediments to lending by some banks, I believe that the actions we have taken should help to improve the situation, without undermining the integrity of the supervisory process.

CONCLUSION

In closing, I would like to assure the subcommittee that the Federal Reserve recognizes the need for banks to meet legitimate credit demands and that it is doing all that it believes it can do at this time to increase the availability of credit to sound borrowers in a prudent and responsible manner. Its recent efforts to lower interest rates and to clarify its supervisory policies should have positive effects in removing unnecessary obstacles to credit extension.

In recent years, a portion of the U.S. banking system has experienced substantial stress, a high rate of failure, and poor profitability. Understandably, and prudently, the industry's appetite for risk has declined, and its need to generate improved earnings has become clear. Accordingly, many banks have tightened their credit standards and are in the process of strengthening their own financial condition. Nevertheless, there remain many healthy banks with strong financial profiles that are looking to make sound loans.

This transition process is painful but-at least to a large degree- nonetheless necessary. Terms of lending have changed and generally for the better. Although we all want to minimize the harm to truly creditworthy customers, we also want strong and responsible banks-banks that have the capability to serve the long-term needs of individuals and businesses in a sound and growing economy.

In the final analysis, we should recognize that the U.S. financial sector is a highly competitive industry. Examiners are evaluating loans, but they are not preventing banks from extending them. Bankers are well aware that if they fail to meet the needs of creditworthy borrowers, they risk losing those customers permanently to other lenders. Unless supervisory policies are unduly restrictive-and we have taken steps to prevent that-this prospect would also encourage banks to lend to borrowers that they believe are creditworthy.

We have worked hard to ensure that our supervisory policies are balanced, fair, and prudent-and that they do not artificially encourage or discourage lending. The intent of these efforts is to contribute to a climate in which banks make loans to creditworthy borrowers and work constructively with borrowers experiencing financial difficulties, consistent with safe and sound banking practices. In all of these steps, we have been guided by the premise that prudent lending standards and effective and timely supervision should not inhibit banking organizations from playing an active role in financing the needs of sound, creditworthy borrowers.

Statement by John P. Laware, Member, Board of Governors of the Federal Reserve System, before the Subcommittee on Financial Institutions Supervision, Regulation and Insurance and the Subcommittee on International Development, Finance, Trade and Monetary Policy of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, November 20, 1991

I am pleased to appear before you this morning to present the views of the Federal Reserve Board on two legislative proposals, the Fair Trade in Financial Services Act and the Foreign Bank Supervision Enhancement Act of 1991. Each of these proposals has important ramifications for the U.S. financial system, the former because it embodies a fundamental shift in U.S. policy regarding foreign financial firms from one of national treatment to one of reciprocal national treatment and the latter because it would strengthen the existing supervisory framework governing foreign bank operations in the United States. Given our direct responsibilities for financial services generally, and foreign banks in particular, the Federal Reserve has a special interest in these two bills. I shall first discuss the Fair Trade Act and then turn to the Foreign Bank Supervision Enhancement Act.

FAIR TRADE iN FINANCIAL SERVICES ACT

I would like to focus on two major elements of the proposed Fair Trade in Financial Services Act as passed by the U.S. House of Representatives. First, the Secretary of the Treasury would be required to submit to the Congress every two years a report identifying those countries that do not offer national treatment to U.S. banks, securities brokers and dealers, or investment advisers. A country would be considered to offer national treatment to foreign firms if it offers "the same competitive opportunities (including effective market access)" as those that are available to their domestic firms. When a significant failure to accord national treatment is found, the secretary generally would enter into negotiations with the country to end the discrimination. The secretary may, at his discretion, publish in the Federal Register a determination that a country does not give national treatment; if he does so, regulatory agencies would have discretionary authority to use such a determination as a basis for denying applications by financial institutions from that country to make acquisitions or start new activities.

Another proposal, H.R.3503, entitled the Fair Trade in Financial Services Act of 1991, would go a step further by eliminating the discretion available to the Secretary of the Treasury and mandating publication by the secretary when a finding is made that a country does not provide national treatment. Thus, H.R.3503 would establish standards that make it more likely that reciprocity sanctions would be imposed.

Second, if a determination with respect to a country is published in the Federal Register, institutions from that country that are already operating in the United States may not commence "any new line of business" or conduct business from a "new location" without obtaining prior approval from the appropriate regulators. This provision would apply even to new U.S. activities or U.S. offices for which no approval process is currently required for either domestic or foreign banks. For example, a foreign-owned U.S. bank may decide to begin to offer consumer mortgage lending or investment advisory services. Currently, no application for regulatory approval is required for either a domestic or a foreign-owned U.S. bank to commence these activities. However, under the proposed act, such activities by a foreign-owned U.S. bank would be viewed as "new lines of business," requiring regulatory approval.

The objectives of this legislation are important, and their achievement is desirable. The Federal Reserve actively supports efforts of the U.S. government that encourage other countries to liberalize their financial markets and improve the treatment of foreign firms operating in those markets. Such liberalization and other actions would provide both improved competitive opportunities to U.S. financial institutions and greater benefits to the economies of the other countries through freer trade. In our view, however, this legislation does not guarantee that those objectives will be achieved and could have unfortunate, unintended consequences. The proposal would fundamentally change two basic elements in the foundation for participation by foreign financial firms in U.S. markets-national treatment and maintenance of rights lawfully acquired, that is, grandfather rights. Both elements are worth preserving; national treatment for the benefits it provides and grandfathering for practical and fairness reasons.

The principle of national treatment with respect to foreign banks was established as U.S. policy by the Intemational Banking Act of 1978. Despite some individual legislative initiatives in recent years, virtually all major industrial countries acknowledge it as the principle upon which regulation of the international operations of banks ought to be based. Over many years, the U.S. government has assumed a leadership role in building a consensus around this concept. At home, our policy of national treatment seeks to ensure that foreign and domestic banks have a fair and equal opportunity to participate in our markets. The motivation is not merely a commitment to equity and nondiscrimination, although such a commitment in itself is worthy. More fundamentally, the motivation also is to provide U.S. consumers of financial services with access to a deep, varied, competitive, and efficient banking market in which they can satisfy their financial needs on the best possible terms.

As the Federal Reserve has previously stated in connection with this proposed legislation, the U.S. policy of national treatment has served the United States well. The U.S. banking market, and U.S. financial markets more generally, are the most efficient, most innovative, and most sophisticated in the world. It is not a coincidence that our markets are also among the most open to foreign competition. Foreign banks, by their presence and with the resources they bring from their parents, make a significant contribution to our market and to our economic growth; they enhance the availability and reduce the cost of financial services to U.S. firms and individuals as well as to U.S. public sector entities.

The proposed act in its various forms would replace the U.S. policy of national treatment with a policy of reciprocal national treatment. Through this legislation, the United States would be saying that we are prepared to forgo some of the benefits of foreign banks' participation in our market, including benefits to U.S. consumers generally, if U.S. banks were not allowed to compete fully and equitably abroad.

Based on experience to date, the Federal Reserve feels strongly that there are better ways to encourage other countries to open their markets. Market forces are an important source of pressure to induce liberalization. Any country that wants to have a financial market with sufficient intemational stature to compete with New York and London must liberalize and open its market. Many countries, including notably-but not only-japan and Germany, are moving inexorably in that direction.

Nevertheless, the United States has not relied solely on allowing the market to determine changes, however successful such a strategy ultimately may be. In 1979, after passage of the International Banking Act, the Treasury Department, with the help of other agencies, prepared its first National Treatment study, which has been updated several times and which will be prepared regularly in the future. Based on the findings of those reports, the Treasury has engaged in bilateral talks with several countries, including Japan. Partly as a consequence of these talks, we have seen a substantial degree of liberalization in foreign financial markets.

Beyond those efforts, the Treasury, supported by the Federal Reserve and other agencies and groups, urged countries of the European Community (EC) strongly, and with some success, to modify and soften the reciprocity provisions in their proposed Second Banking Directive so that it would be clear that subsidiaries of U.S. banks and bank holding companies would have the same ability as their local competitors to branch throughout the EC. The Federal Reserve has participated in a range of committees meeting at the Bank for Intemational Settlements in Basle and at the Organisation for Economic Co-operation and Development in Paris, where work has been aimed, in part, at establishing the legal, supervisory, and regulatory conditions that are a precondition for ensuring a " level playing field. " In addition, the Federal Reserve has joined others in the U.S. government in working to reach a meaningful agreement on trade in financial services within the current Uruguay Round of multilateral trade negotiations. Consequently, other initiatives aim at the same results as this legislation but in a less confrontational and possibly more constructive manner.

I turn now to grandfathering, a practice widely accepted internationally as a means of protecting investment in existing foreign banking operations at a time of statutory change. U.S. operations of foreign banks were grandfathered in the International Banking Act. With respect to foreign operations of U.S. banks, the Federal Reserve, along with others in the U.S. government and the U.S. financial industry, objected strenuously when the EC was considering the elimination of grandfather rights for foreign banks, including U.S. banks, operating in Europe; in the end, the EC preserved those rights. Consequently, European subsidiaries of U.S. banks may continue to conduct business and expand their operations on a national treatment basis.

If, contrary to this widely accepted practice, the Congress were to adopt the proposed act, the United States could no longer hold to a principled position in advocating liberalization in international circles. By telling existing foreign-owned banks in the United States that the rules and procedures that have applied equally to them and to all other banks operating in the United States now apply only to U.s.-owned banks, we would be denying national treatment to foreign banks. We would run the risk of introducing instability and discouraging foreign investment in our markets. We may also be inviting retaliation against our banks around the world, a result contrary to the intention of the legislation.

In an effort to address these types of concerns, H.R.3503 would provide limited grandfather rights but only for U.S. subsidiaries owned by banks from Canada and the EC. Moreover, the grandfather rights granted to banks from the EC are specifically conditioned on the EC and any member country not restricting the rights of U.S. banks and bank holding companies to operate under the Second Banking Directive. Thus, even the grandfather rights available to banks from the EC are conditioned on reciprocity. It must be recognized, however, that a potential consequence of adopting reciprocal requirements in banking legislation would be the adoption of retaliatory legislation by other countries threatening sanctions against our banks if the United States were to take some types of action affecting their banks, especially given that some countries do not perceive the U.S. market to be as open as their own due to geographic or activity limitations applicable to banks. In this regard, the Board has supported the efforts of the Congress and the Treasury to achieve reform of the U.S. banking system to make it safer, more efficient, and more competitive. Such reform is essential if U.S. banks are ever to be in a position to take advantage of opportunities both at home and in the foreign markets at which this legislation is aimed.

In sum, we have witnessed substantial liberalization and structural reform in financial markets abroad over the past decade. Like members of the Congress, we too would like to see further progress. We would not, however, wish to see additional progress jeopardized through a process of escalating retaliatory measures.

One consequence of the liberalization in financial markets over the past ten to fifteen years has been the rapid international expansion of banks. This expansion leads into the reasons that support the second legislative proposal that I would like to discuss briefly today, the Foreign Bank Supervision Enhancement Act of 1991.

FOREIGN BANK Supervision ENHANCEMENT ACT OF 1991

The presence of foreign banks in the United States has grown significantly. Whereas intemational banking was once the domain of a few large banks from industrialized countries, many different banks from both developed and developing countries have now opened U.S. operations. As already noted, the participation by these banks in the U.S. market has contributed significantly to its liquidity and depth. More than 300 foreign banks operate in the United States holding aggregate assets of more than $800 billion. Given this expansion and some well-know problems associated with the U.S. operations of a few foreign banks, the Board proposed strengthening the regulatory structure governing foreign bank operations in the United States.

The Foreign Bank Supervision Enhancement Act is intended to fill gaps in the supervisory and regulatory framework governing foreign bank operations in this country. The legislation is intended to help ensure that the banking policies of the United States, as established by the Congress, are implemented in a fair and uniform manner with respect to all entities conducting a banking business in the United States and that the sizable foreign bank community in this country adheres to legal requirements and operates in a safe and sound manner.

Currently no uniform nationwide standards apply to foreign banks that choose to enter through state-licensed offices. In light of the size and importance to our banking system of the foreign bank presence, that presence is rightly a matter of national banking policy. This policy, if it is to be both fair and effective, must be applied on an equitable basis not only as between domestic and foreign banks but also among foreign banks themselves. In proposing the Supervision Enhancement Act, the Board intended to establish uniform standards for entry and participation by foreign banks, whether through state or federal license, and to provide a basis for improved coordination and cooperation among state and federal supervisors in overseeing foreign bank operations in the United States.

To summarize briefly, the act's major provisions would allow the Board to do the following: (1) deny an application by a foreign bank that proposes to establish an office or buy a bank in the United States unless the foreign bank meets the same standards regarding financial and managerial strength that apply to U. S. banks; (2) take into account various factors in approving any applications, including whether the foreign bank is subject to consolidated supervision by its home country authority and whether U.S. bank regulators will have adequate access to information from the bank and its affiliates to determine compliance with U. S. law; (3) terminate the U. S. activities of foreign banks for violations of law or unsafe or unsound practices; (4) coordinate with other regulators and supervisors in examining simultaneously the nationwide offices and subsidiaries of a foreign bank; and (5) cooperate more fully with foreign regulators in sharing information on banks that are operating internationally. The act would also require that foreign bank offices be examined on-site annually.

In sum, the act is designed to be consistent with the policy of national treatment for foreign banks and to provide the federal regulators with the same authority over the U.S. operations of foreign banks as they have with respect to domestic banks. The Board strongly urges the enactment of the Foreign Bank Supervision Enhancement Act this year.

CONCLUSION

The Board's attitude toward both the Fair Trade Act and the Supervision Enhancement Act reflects the recognition that foreign banks are, and will continue to be, important to the U.S. market. The Board believes that strengthened supervision of foreign banks is in the national interest and also fully consistent with the policy of national treatment. By keeping our market open to well-run and supervised foreign banks, we will continue to enjoy the benefits they bring to our economy.

By the same token, the Board does not think it is good policy potentially to forgo benefits that foreign institutions bring to the U.S. economy by legislative efforts to open foreign markets to our banks. The Board recognizes that the implementation of the policy of national treatment is difficult in a world in which the structures of banking markets in various countries differ significantly. Lawmakers in each country, including the United States, must balance considerations of competitive equity with other legitimate concerns. It could prove to be a costly mistake if we were to jeopardize the gains we have made, and are continuing to make, in improving our own markets, in opening markets abroad, and in gaining access for U.S. financial firms to those markets for the sake of trying to force others to adhere to our own timetable.