I've got a question on the foreign banks. Do you feel that foreign banks in the United States should remain essentially unregulated with respect to reserve requirements, branching laws and acquisitions?

I've always favored inviting them in--and they have responded by taking a good share of our market.

My view, from day one, has been that instead of putting handcuffs on them, why not take them off us? I'm not afraid to compete anywhere anytime on a reasonably equitable basis. I think historians will look back and see the enormous influx of foreign banks as one of the factors that modernized our domestic banking system at great benefit to our people.

Does the additional competition have much impact on interest rates?

It has squeezed the margins down very substantially for two reasons. First: reserve requirements add about fifteen or twenty base points to our cost, but not to theirs. Second: the European and the Japanese banks do not have the capital ratios that our regulators think are good for us. So, their gearing is much higher, and their costs are much less. Those are our main disadvantages opposite foreign banks in the United States.

What about competing with foreign banks worldwide?

First of all, the competitive disadvantage is sort of like flying against SAS.[28]  A lot of the overseas banks are owned by their governments, like the three big French banks. Their gearing ratio and their capital would put any New York bank into bankruptcy. Their total earnings base is a joke, and they meet us head on without our reserve requirements. They're pricing loans at some razor thin spreads.

Second, they have the support of their governments. When I make customer calls around this world, a guy will say to me, "The U.S. Ambassador hasn't been to see me." And I'll say, "Why should he?"

Then he says, "The German Ambassador was just here complaining that Deutschebank got only four hundred credits last year." The last place you go to get business for an American bank is the American Embassy. We have more of an adversarial position with our government. I'm not saying that's bad, but you asked about the competitive advantages. And that's one.

[28] Scandanavian Airline System is owned jointly by the governments of Sweden, Norway and Finland.