L.A. not a banking town? Not quite.
Lost amid the recent departures of First Interstate, Security Pacific, Crocker, California Federal and Great Western is the flourishing foreign bank sector.
In particular, foreign banks in Taiwan and Korea are aggressively setting up branches throughout Los Angeles, and dramatically growing the assets of those branches.
“Taiwan is probably the biggest growth area in new banks coming (to L.A.),” said David Scott, chief examiner of the California Department of Financial Institutions. “The Taiwanese have done very well since they came here.”
Only one Taiwanese bank branch existed in L.A. prior to 1989. Today, there are nine Taiwanese banks, second only to Japan, which has maintained roughly the same number of branches since the 1970s. (Those Japanese branches are much smaller and less active today than they were in past years, due primarily to financial problems of their parent banks back home.)
A 10th Taiwanese bank, Land Bank of Taiwan, will open a branch this summer or fall. In addition, Taiwan’s Bank Sinopac recently entered the L.A. market with its purchase of locally based Far East National Bank.
The rise of Taiwanese banks corresponds directly to the explosive growth in trade between L.A. and Taiwan, Hong Kong and China, and a corresponding growth in the local Taiwanese business community.
Since 1988, annual two-way trade between the U.S. and China, Taiwan and Hong Kong has mushroomed from $17.4 billion to $46.5 billion an increase of nearly 200 percent.
“The real meat and bones of the business here in California has been trade finance,” said Scott. “Foreign banks from the Pacific Rim are following their customers, which is mostly to Los Angeles.”
Of the 91 foreign banks with branches in California, 75 are in L.A. Of those 75, 47 are Asian banks.
Bank of Taiwan exemplifies the strong growth most Taiwanese banks have seen since coming to L.A. Starting with $10 million in capital in 1993, Bank of Taiwan’s L.A. branch has grown to $352 million in assets as of June 30, said branch general manager Maw-Yan Lin.
“We have more than 100 branches in Taiwan, and a lot of our customers have affiliates in Southern California,” said Lin. “So we would like to provide commercial loans and trade finance for their needs here.”
Like most Asian banks in L.A., Bank of Taiwan is building from a base of customers in its home country, but would like to expand that base to include local customers here as well. As selling points, the Asian banks offer experience in foreign trade finance, ties to Asia and more personalized service.
About 20 percent of Bank of Taiwan’s customer base in L.A. consists of local clients, but the bank would like to increase that number to closer to 50 percent, Lin said.
Like the Taiwanese, Korean banks first came to L.A. to better serve their international clients from Korea and capitalize on the growth in U.S.-Korea trade, said Yoon Kyu Shik, general manager of SeoulBank’s L.A. branch.
“At first we liked to help Koreans in the U.S. that was the main reason to establish a branch in L.A.,” said Yoon. “Most of the Koreans who came to the United States also live in L.A.”
Despite their relative inactivity in recent years, Japanese banks still have the largest L.A. presence among foreign banks.
Japan has 15 banks with branches in Los Angeles, including the 10 largest, based on asset size. Those do not include the wholly owned U.S. subsidiaries of Japanese banks, such as downtown L.A.-based Sanwa Bank California and San Francisco-based Union Bank of California, which operate independently of their Japanese parents.
The Japanese bank with the largest L.A. branch is Industrial Bank of Japan Ltd. With $6 billion in assets, Industrial Bank’s L.A. branch is far larger than the largest locally based independent bank, City National Bank of Beverly Hills, which has $4.7 billion in assets.
While Taiwanese, Korean and Japanese banks are relatively free to set up branches in L.A., banks from less-developed Asian countries, such as China, Indonesia and Thailand have had a much harder time doing so since 1991 because of U.S. Federal Reserve Board restrictions.
Under the Foreign Bank Supervision Enhancement Act of 1991, the Congress required the Fed to make an assessment of each host country’s banking system whenever a foreign bank wanted to open a U.S. branch, said Abbey Cheng, spokeswoman for the L.A. branch of the Federal Reserve Board of San Francisco.
The 1991 act has effectively prohibited foreign banks from establishing branches in the United States if banking regulations in their home country are deemed inadequate by the Fed, said P.J. Grasmick, a partner at the law firm of Pillsbury Madison & Sutro.
U.S. branches of banks from such countries that pre-date the 1991 act have been allowed to continue operating, but they are not allowed to expand, Grasmick added.
Meanwhile, European-based banks continue playing a more limited role in L.A.’s foreign banking sector, and that role is not expected to grow in the near future, according to Scott.
In fact, a number of European banks have left L.A. in the 1990s, after many first swarmed here in the 1970s to capitalize on Southern California’s explosive growth.
“Most of the European banks that came here didn’t find a deep market to touch,” said Scott. “Many of them were expecting to capitalize on growth in the Pacific Rim, but the reality is, there wasn’t much business for them here. If you’re a Pacific Rim company, you want to do business with an American bank or a bank from your own country.”
