Foreign Banking Organizations (FBOs) are a heterogenous group of banks which have collectively been key participants in the US banking system. These firms play a crucial role by connecting global markets, providing critical operations to the financial system, driving capital inflows from abroad, and by being responsible for almost a fifth of total assets in the Federally regulated US banking system.
However, as a group and on average, FBOs have achieved below hurdle booked returns, with large IHCs generating an average ~2% ROE in recent years, while suffering from significant US regulatory fines and consent orders. This is driven by several structural disadvantages these banks face in the US market, including from the high bar set by local regulation and from a lack of scale versus US mammoth banks; disadvantages which are only partially offset by their innate differentiators.
Despite these challenges, the US market remains appealing to most FBOs — with US economic growth and associated market opportunity outpacing other regions and many FBOs’ home markets. As such, there is a common denominator of challenges and opportunities that is unique to senior executives of FBOs — namely, driving US strategy to maximize returns in this attractive market, while staying ahead of a changing regulatory landscape.
This paper makes four concrete recommendations for FBO executives as we progress through 2022 and beyond.