New Orleans financial industry debates the effect of international banking laws on economy

A debate stirring in New Orleans over international banking is pitting advocates of technology-based banking against those who say Louisiana's financial restrictions are stifling economic growth.

One side says protectionist Louisiana banking laws cramp economic development. Companies are

Opponents, including the state banking industry, say technology already provides the means for a global financial community. Companies in need of large loans can easily arrange them from local retail banks with international departments or from foreign banks located in other states.

The city of New Orleans wants to open its market to foreign banks because a physical presence is more conducive to business, said Beth James, executive assistant for economic development.

We've been working very hard to position ourselves for foreign trade with CAFTA coming, James said. It makes transactions a lot easier if they have a presence here in terms of turning over paper.

The Central American Free Trade Agreement would lift duties on trade between the United States and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, giving New Orleans a boost in its effort to regain its status as the gateway to Central America. CAFTA is still awaiting approval by Congress.

The foreign banking issue involves Louisiana law, which permits international banks to establish representative offices and make loans here but does not let them build branches. Florida, for example, has no such restriction, which means a bank can easily establish branches in the Sunshine State no matter where its headquarters are located.

State Rep. Charles Lancaster Jr., R-Metairie, introduced House Bill 1540 during last year's session of the Louisiana Legislature, which would have authorized the creation of international development banks within this state. The bill was rejected but Lancaster plans to reintroduce it this year.

Changing the law requires the combined efforts of state and city departments of economic development, the Louisiana Bankers Association and local banks, Lancaster said.

This is one of the holes in economic development in the state, Lancaster said. But little old legislators don't fill holes like that.

Lancaster said he wants to generate interest in opening the local market for international banking. The bill is a vehicle so that if someone comes up with a solution, we can stick an amendment on it, he said.

Peter Gwaltney, chief executive officer of the Louisiana Bankers Association, said state laws do not discriminate against international banks. Any bank from outside Louisiana - foreign or domestic - must buy a Louisiana bank that's at least 5 years old in order to set up shop here, he said.

Bill proponents say foreign banks in Louisiana would make financial transactions involving international trade easier. Joe Hunter, a Metairie Realtor who has championed changing the law for years, said the law allows a loophole for foreign banks to enter the market.

Large multinational banks aren't interested in buying retail branches, Hunter says. Such banks want to make large-scale commercial and industrial loans for plants, factories and shiploads of cargo. Most retail banks in Louisiana simply can't make loans of more than $10 million, he said, and most can't loan nearly that much.

But a proposed megadeal might open the Louisiana market even without the law change.

The Bank One merger with J.P. Morgan Chase means there could be a bank in the market capable of making a bigger loan, Hunter said. That will change the market completely.

Proponents say the local banking community doesn't support changes because of a fear of competition.

Some people are concerned that if we did this, bigger banks would take business away from Louisiana banks, but when you talk to other states, that's not been the case, said Scott Adams, executive director of Jefferson Parish Economic Development Commission. The foreign banks came in and brought new business that didn't exist before.

New Orleans-area bankers say competition is a non-issue.

It's been a topic of conversation for many years, said Jan Tanner, vice president of Hibernia's international department. If a bank chooses to come and do business in Louisiana, we all compete, whether it's a foreign bank or from another state or a nouveau bank.

Gwaltney said the Louisiana Bankers Association is open to investigating the issue.

We do not want to be an obstacle to growing international trade out of New Orleans, Gwaltney said. We want to do whatever we can to help, but at the same time we want to make sure we don't do anything that does harm.

Gwaltney said careful consideration is required before any changes are made.

Bankers have told us they want to protect their franchise value and have this requirement, Gwaltney said. A policy question the legislators have to answer is: Do they want to give international banks an advantage over domestic banks by exempting them from this requirement, and then further do they just want to do away with this requirement altogether? I think the banking industry would oppose that.

Proponents say New Orleans should pursue a banking model similar to Miami, Houston and other major port cities with many foreign banks.

Eugene Schreiber, managing director of the World Trade Center, said the business climate in New Orleans doesn't require foreign banks, particularly since some local banks have comprehensive international services departments. It's difficult to compare the New Orleans economy to the business climate in other cities, Schreiber said.

I don't really see any evidence that the banking sector is problematic to our economic development but I'm open to being convinced, he said. We're not a highly industrialized state, except for the oil and gas industry. We're not a Florida or a Texas. If economic development goes well, if the new governor succeeds in creating jobs and attracting new industries, it could definitely be an improving environment for banks.

Adams said if Louisiana is perceived as a state with restrictive laws, foreign banks won't show interest.

It's a little bit of a chicken-and-egg situation, he said. You have to have the business to drive the banking but you have to have the banking to drive the business.