Keep your money (Hamodia, September 19)

Veteran New Yorkers may still remember when Bank Leumi bought 13 branches from Bankers Trust, back in 1980. Bankers Trust, then a major bank, had decided to get out of retail banking, whereas Leumi was getting into that business in a big way. By 1981, thanks to the branches purchased from Bankers Trust and others, as well as the rapid expansion of its own branch network, Leumi — then formally called ‘Bank Leumi Trust Co. of New York’ — had no less than 25 branches in the New York area, 13 of them in Manhattan.

The Israeli parent also opened branches in Miami, Philadelphia, Chicago and Los Angeles, whilst its British subsidiary, Bank Leumi UK, opened a string of branches across the Jewish neighborhoods of London and some provincial cities– and pursued a similar strategy in France. All this was driven by the dream of being ‘the bank of the Jewish people’ — a dream that ended nightmarishly, as the banks’ heavy exposure to the property markets in New York and London resulted in heavy losses when these markets slumped in the late eighties and early nineties.

The only positive aspect of this sad tale was that in the much bigger slump of 2007-09, Leumi and other Israeli banks operating overseas were largely absent, having learned from their previous bitter experiences. Nevertheless, the process in which the Israeli banks are gradually withdrawing from their once-sprawling overseas empires is still underway. Two of them, Hapoalim and First International, have even closed their operations in London — which used to be considered an essential place for banks to ‘hang their flag’.

In truth, there is nothing unique in the Israeli experience. Banks from almost every country are far less active overseas than they used to be — and with good reason. What is driving them out of even key global financial centres, such as London and Zurich, is the hugely increased regulation of banks, especially in everything to do with international clients. Whereas once banks actively sought wealthy customers and these, in turn, would look to banks to provide a broad range of services, now the rules imposed on banks by national and international regulators generate heavy costs and create significant risks. The ironic result is that banks no longer seek to attract foreign clients and even — not infrequently — discourage them from opening accounts. In some cases, they go further and encourage their existing clients to leave!

This situation, which would have been considered weird and even unimaginable in the twentieth century, is now commonplace with regard to US citizens who hold bank accounts overseas. What has caused banks to treat existing or potential American account holders with suspicion is something called FACTA — the Foreign Account Tax Compliance Act. The US Treasury website explains that “FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. “

That is, of course, just the introduction, the veritable tip of the iceberg. But it highlights the key point: the US government has imposed on foreign financial institutions the obligation to tell the IRS who their customers are, how much money they hold with them, where and when it came from, etc. Banks who fail to do so will be heavily fined — while banks found to have helped US citizens send money offshore, even many years ago, have been and are being slapped with fines running to billions of dollars.

Given this potential threat, most banks have chosen, however reluctantly, to part company with their existing American clients and to forgo new ones. This is tough, but not surprising: however much things have changed in their environment, putting their own interests first has always been a key tenet of banks and bankers.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.