1 international banking. i.the structure of the international capital market –the most important...
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INTERNATIONAL BANKING
INTERNATIONAL BANKING
I. The Structure of the International Capital Market– The most important players are:
• Commercial banks• Corporations• Nonbank financial institutions• Central banks and other government agencies
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INTERNATIONAL BANKING
II. Offshore Banking• The business that banks’ foreign offices conduct
outside of their home countries• Banks operate offshore through any of three types
of institution:– Agency office– Subsidiary bank– Foreign branch
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EUROBANKING
– Eurodollars• Dollar deposits located outside the U.S.
– Eurobanks• Banks that accept deposits denominated in
Eurocurrencies
– Eurocurrency trading has grown for three reasons:
• Growth in world trade
• Evasion of financial regulations like reserve requirements
• Political concerns4
EUROBANKING
• The Growth of Eurocurrency Trading– London is the leading center of Eurocurrency
trading.
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EUROBANKING
– The early growth in the Eurodollar market was due to:
• Growing volume of international trade• Cold War• Federal Reserve regulations on U.S. banks (e.g.,
the Fed’s Regulation Q)• Move to floating exchange rates in 1973• Reluctance of Arab OPEC members
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INTERNATIONAL BANKING SERVICES
A. Working Capital - LCs
B. Letters of Credit
C. Local Currency Financing
D. Financial Services
E. Creation of U.S. International Banking
IBF Facilities
IBFs
– International banking facilities (IBFs)• Banks that accept time deposits and make loans to
foreign customers.• They are not subject to reserve requirements or
interest rate ceilings.• They are exempt from state and local taxes.
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INTERNATIONAL BANKING
II. BANKING STRUCTURE
A. Expansion Overseas
1. Original Motivation
2. Foreign Branches
a. Advantagesb. Disadvantages
3. Associations4. Representative Offices
INTERNATIONAL BANKING
B. Edge Act and Agreement Corporations
1. 1919 Amendment
2. Use of Edge Act Banks
C. Multinational Services
D. Multinational Banking Groups
INTERNATIONAL BANKING
III. FINANCING VEHICLESto meet demand for short- and
medium-term financing.
A. Financing Innovations
B. Parent Guarantees
C. Syndication
D. Cash Management: Centralization
COMMERCIAL BANKS
I. BASIC BANKING FUNCTIONS ABROAD
A. Functions
II. LENDING
A. Organization
B. Analyzing and Making Loans
COMMMERCIAL BANKS
C. Types of Credit
1. Unsecured Line
2. Lines for Opening L/C’s
3. Refinancing sight payments
4. Financing foreign receivables
5. Purchasing foreign currency drafts
COMMERCIAL BANKING
III. INTERNATIONAL OPERATIONS
A. International Payments
1. Nostro Accounts
2. Vostro Accounts
3. Dollar payments
4. Foreign exchange futures contract
5. Term Loan
COMMERCIAL BANKS
6. Revolving credit
7. Importer/exporter information
8. Introductions
IV. BRANCH BANKING
A. Major U.S. Restrictions1. McFadden Act, 19272. Glass-Steagall Act, 19333. Bank Holding Act, 1956
COMMERCIAL BANKING
V. CORRESPONDENT BANKING
A. The Importance of InternationalBusiness to Small Banks
1. Definition2. Letters of Credit3. Disadvantages
COMMERCIAL BANKING
1. Small banks
Slide 21-18 Copyright © 2003 Pearson Education, Inc.
• Difficulties in Regulating International Banking– Deposit insurance is essentially absent in
international banking.– The absence of reserve requirements reduces
the stability of the banking system.
Regulating International Banking
Difficulties in Regulating International Banking
– Bank examination to enforce capital requirements and asset restrictions becomes more difficult in an international setting.
– There is uncertainty over which central bank is responsible for providing LLR assistance in international banking.
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Slide 21-20 Copyright © 2003 Pearson Education, Inc.
• International Regulatory Cooperation– Offshore banking is largely unprotected by the
safeguards national governments have imposed to prevent domestic bank failures.
Regulating International Banking
BASEL
– Basel Committee• It is a group of central bank heads from 11
industrialized countries.• It enhances regulatory cooperation in the
international area.• Its 1975 Concordat allocated national responsibility
for monitoring banking institutions and provided for information exchange.
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