What Is the Foreign Bank Supervision Enhancement Act (FBSEA)?

The Foreign Bank Supervision Enhancement Act (FBSEA) is an act enacted on December 19, 1991, to increase the Federal Reserve's authority over foreign banks seeking entry into the United States. Part of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991, the act enabled the Fed to not only supervise authorization of foreign banks applying for operating ability in the U.S., but also existing foreign banks already operating within the country.

Understanding the Foreign Bank Supervision Enhancement Act (FBSEA)

Foreign banks were able to operate within the United States free of federal regulation until the International Banking Act of 1978 was passed. When enacted, the act limited foreign banks' geographic expansion and banking activities to similar U.S.-based banks and required foreign banks to carry adequate reserves. By the time the Foreign Bank Supervision Enhancement Act (FBSEA) was passed, more than 280 foreign banks were operating in the U.S., and held more than $626 billion in assets, or 18% of all banking assets in the U.S.

The Foreign Bank Supervision Enhancement Act was in large part a response to several highly publicized scandals in the early 90s. The international banking community responded by revisiting international banking activities. The passage of FBSEA in 1991 altered the manner in which foreign bank operations were regulated in the U.S., thereby demanding heightened levels of accountability from all foreign participants. These changes reflected a growing international consensus that each nation should regulate its market to make market access dependent on the structure of bank regulation in the international banks' home country. At the time of passage in 1991, the U.S. was the first major marketplace to adopt new international standards, which likely went a long way in solidifying the U.S. as a drive or international banking orthodoxy.