Miami's position as a hemispheric banking capital could be weakened as some foreign depositors close their accounts in U.S. banks to avoid new disclosure regulations.
The new rules, set to go into effect early next year, require U.S. banks to report interest information on accounts held by nonresident foreign nationals to the Internal Revenue Service, which could then share it with depositors' home countries. To protect their financial privacy, some international clients have already moved their money to more discreet havens like Panama and the Cayman Islands.
"Since April 19 (when the regulation was passed), we've heard that several hundred million dollars have left Florida for foreign jurisdictions," said David Schwartz, executive director of the Florida International Bankers Association. "Customers have said, 'We're aware of what's going on, and we prefer to take our money overseas.' "
At play is more than $14 billion in South Florida banks that comes from offshore individuals, according to a 2011 survey by the Florida Office of Financial Regulation. That breaks down to 41 percent of total deposits in Florida-chartered banks -- generally community banks -- plus 90 percent of total deposits in foreign-owned financial entities regulated by the state. Those numbers do not include foreign funds in nationally chartered or federally regulated institutions -- a figure that likely would "substantially" exceed the $14 billion, according to the survey.
Banking and business groups have opposed the rule, continuing the fight by persuading lawmakers to include the tax rule in a congressional bill that would freeze all "significant regulatory action" until the unemployment rate drops to 6 percent. Though the measure passed the House of Representatives last month, it is not expected to become law.
The stakes are especially high for South Florida banks because of the concentration of foreign deposits in the region. The Florida regulator's survey indicates that 11 of 16 South Florida's locally based banks could risk failure if faced with a deposit run-off. For 16 of the region's 22 state-regulated foreign institutions, foreign deposits account for at least 90 percent of holdings. The survey does not name the institutions surveyed.
The impact could go beyond the institutions that are directly involved. Fewer deposits translates into less money to lend; the OFR study shows that a 20 percent decrease in foreign deposits would result in a $25 billion decrease in funds available for community lending.
Local business people worry that if the foreign bank accounts go, other types of investment could go too.
"I don't see why we would want to make any of these offshore depositors nervous, because they bring tremendous value to us," said Richard Dailey, president and CEO of Miami-based Apollo Bank, where about 40 percent of accounts are held by foreign nationals. "We use that money to make loans, and they buy real estate and make other investments here."
Yet some local experts doubt the new disclosure rule will cause a massive outflow of cash from South Florida. Few banking systems are as secure as that of the U.S. Plus, the trend toward increased transparency isn't limited to U.S. banks. Governments around the world are starting to crack down on tax evasion, which is responsible for up to $280 billion in uncollected income tax globally, according to a report from the Tax Justice Network.
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