Foreign-owned Banks: (way) Underestimated - and Volatile - Participants in the U.S. Banking Market

Banking and financial industry participants, analysts, and policy makers appreciate the fact that foreign banks play an important role in the U.S. financial system, but many lack a precise understanding of the size, composition, and impact of the foreign banking sector. In large measure, that vagueness is due to the fact that standard statistical reports on the banking industry, and analyses based on data underlying those reports, have traditionally "under-accounted" for foreign-owned banks in the U.S. The purpose of this study is to explain the nature of this statistical "blind spot," and to suggest how it might best be addressed. The issue is far from trivial. As this study shows, it is crucial from an economic point of view to account fully for foreign-owned banks' presence and activities in the U.S. banking market. That point is driven home by a consideration of the radical changes in foreign banks' U.S. operations over the past decade of extreme turbulence in financial markets. In particular, the study shows that despite the well-documented, large swings in the performance and stability of U.S.-owned domestic banks over the decade surrounding the financial crisis, the volatility of foreign-owned in the U.S. was even more dramatic.