By Pam Martens and Russ Martens: August 9, 2022 ~
The Federal Reserve recently released its 2021 Annual Report. We decided to peruse its wonky pages. We came upon a passage that gave us pause. It read:
“As of year-end 2021, a total of 135 foreign banks from 48 countries operated 144 state-licensed branches and agencies, of which 6 were insured by the FDIC, and 50 OCC-licensed branches and agencies, of which 4 were insured by the FDIC… Altogether, the U.S. offices of these foreign banks controlled approximately 17 percent of U.S. commercial banking assets.”
The FDIC (Federal Deposit Insurance Corporation) is a federal agency. Its federal deposit insurance is backstopped by the U.S. taxpayer. Why should U.S. taxpayers be insuring foreign bank deposits in the U.S. – especially since federal regulators cannot even provide adequate oversight of domestic megabanks?
We knew that big foreign banks like Barclays, UBS, Deutsche Bank, Mizuho, HSBC, Toronto Dominion (TD Bank), etc. had FDIC-insured branches in the U.S., but we decided to see what else might be lurking in this FDIC-insured basket that we might not know about. We found the full list of foreign banks operating in the U.S. on a Federal Reserve website here, which includes a partial list of those with FDIC insurance. We then located the additional names of those that had FDIC insurance at the FDIC’s “BankFind” website here.
We were shocked to find that two banks owned by the People’s Republic of China, Bank of China and Industrial and Commercial Bank of China USA, were operating FDIC-insured offices in the U.S.
According to the FDIC, Bank of China’s U.S. FDIC-locations held $16.9 billion in deposits in the U.S. as of June 30, 2021. The Industrial and Commercial Bank of China USA held a much smaller $2.3 billion in deposits on the same date.
For the labyrinthine history of how foreign banks were able to obtain U.S. taxpayer-backstopped FDIC insurance on U.S. deposits, see here.
American taxpayers might be getting a little fed up with China given its lack of polite behavior. For years China has thumbed its nose at U.S. accounting laws while the U.S. Securities and Exchange Commission blindly allowed China to continue to list dubious securities on U.S. exchanges. (See our report: 248 Chinese Companies with Off-Limit Audits and a Market Cap of Over $2.1 Trillion Are Listed on U.S. Exchanges – Now Congress Demands Action from the SEC.)
Then there was the Chinese drywall scandal that resulted in tens of thousands of homes having to be gutted of drywall in the United States. NPR reports that episode as follows:
“Between 2004 and 2007, an estimated 100,000 homes in more than 20 states were built with toxic drywall imported from China.
“Emissions from the drywall corrode plumbing and electrical systems. Homeowners also blame them for headaches and respiratory ailments. Replacing Chinese drywall in the United States could cost $15 billion to $25 billion, according to National Underwriter, an insurance industry publication. The estimate, derived by consultants Rachel Boles and Ronald Kozlowski, factors in the cost of replacing drywall, as well as legal fees, the toll on health and other costs.”
Then there was China’s melamine-laced baby formula scandal; charges of human rights abuses of the Uyghur population; mass arrests of dissidents; and the recent threats against House Speaker Nancy Pelosi over her trip to Taiwan. Pelosi is second in line to the Presidency of the United States, which apparently held little weight as China threated her safety.
While we certainly don’t want to see any military escalation of tensions with China, it’s never a good idea to send the message to China that the U.S. is going to continue to look the other way at its abuses – whether those abuses involve human rights, accounting, sanitary conditions in manufacturing, or respect for U.S. leaders’ rights to travel freely abroad.