A proposed federal rule that would require the automatic reporting to the Internal Revenue Service of interest earned on accounts held in U.S. banks by foreigners would create "serious safety and soundness concerns to banks" in Florida, a former state commissioner of financial regulation told Congress on Thursday.
Tom Cardwell, who was commissioner of financial regulation in Florida for two years until August of this year, planned to testify to the House Financial Services Committee in Washington and raise the concerns of Florida banks, which hold lots of deposits of "nonresident aliens."
In prepared testimony, Cardwell said Florida has looked at foreigners' deposits and determined they aren't particularly associated with money laundering or other crimes. Foreigners often want to park their money in the United States because of fear of uncertainty or instability in their home countries, or because of fears of corruption there that could lead to their money being plundered. In many cases, they're also trying to avoid paying taxes in their home country -- something that would be put in jeopardy by the proposed regulation.
Cardwell planned to tell the Financial Services Committee that the proposed U.S. Treasury rule to require the collection of additional information on interest earned -- which could be shared with the depositors' home countries -- would lead those depositors to pull their money out of Florida banks. How much those banks have in nonresident alien deposits isn't totally clear. Cardwell says in his prepared remarks that it is more than $14 billion. The state's banking association says it's anywhere from $60 billion to $100 billion.
Also slated to testify to the panel Thursday was Alex Sanchez, president and CEO of the Florida Bankers Association. Florida banks have criticized the proposal for months.
"It will kill our economy," Sanchez said in prepared testimony.
"This proposal could result in the flight of tens to hundreds of billions of dollars of capital leaving our country, thereby hurting our economy," Sanchez said. The entire Florida congressional delegation has urged withdrawal of the proposed IRS regulation.
Foreigners' deposits are exempt from U.S. taxation.
"We should be encouraging foreigners to put their money to work in U.S. banks," Sanchez planned to tell the panel. "But at a time when our economy is struggling and we are seeking to increase capital to lend to small businesses, the real job creators, the Obama administration's proposal to require reporting of such interest payments would put these deposits at risk, and lead to billions of dollars being withdrawn from U.S. financial institutions."
The proposed rule would be applied starting next year if it goes into effect.
