1. International Banking26
C h a p t e r
International Banking
Money and Capital Markets
Financial Institutions and Instruments in a Global Marketplace
Eighth Edition
Peter S. Rose
McGraw Hill / Irwin
Slides by Yee-Tien (Ted) Fu

2.  Learning Objectives 
To understand the importance of large multinational banks in both domestic and foreign markets.
To explore how multinational banks operate around the globe and to identify the financial services that they offer.
To see how and why international banking is closely regulated in many areas of the world.

3. The Scope of International Banking Activities
The facilities operated by multinational banking corporations include:
international departments in their home offices
full-service branch offices in foreign markets
shell branches on offshore islands
representative offices
Edge Act and Agreement corporations
international banking facilities (IBFs)
agency offices

4. The Scope of International Banking Activities
The kind of facility adopted by a multinational bank depends on government regulations, as well as the bank’s size, goals, and location.

5. Services Offered by International Banks
Multinational banks offer a wide variety of international financial services to customers:
issuing letters of credit for importers
buying and selling foreign currencies
accepting Eurocurrency deposits and making Eurocurrency loans
marketing and underwriting domestic and Eurocurrency bonds, notes, and equity shares
securitizing loans
advising and assisting foreign investments

6. Services Offered by International Banks
Some of the world’s largest banking firms attempt to offer their customers “one-stop shopping” and become “universal banks.”
Universal banking combines traditional banking, insurance, securities trading, and even real estate brokering under one corporate umbrella.

7. Foreign Banks in the United States
$ billions
Total assets held by commercial banks in the U.S.
Assets held by domestically owned banks
Assets held by U.S. offices of foreign banks
5.3%
11.9%
16.1%
21.4%
21.7%
19.9%
Data Source: Board of Governors of the Federal Reserve System

8. Foreign Banks in the United States
There was pressure on Congress for more extensive regulation of foreign banks, so as to be fair to domestic banks, and to ensure the effectiveness of domestic monetary policy.
Bank Holding Company Act Amendments (1970)
International Banking Act (1978)
Depository Institutions Deregulation and Monetary Control Act (1980)
Foreign Bank Supervision Enhancement Act (1991)

9. Regulation of the International Banking Activities of U.S. Banks
The Federal Reserve Board is the chief regulatory agency for U.S. international banking activities, especially where Fed member banks are involved.
Since it is difficult to separate a bank’s foreign operations from its domestic activities, the protection of domestic deposits and the stability of the domestic banking system is of prime concern to the Fed.

10. The Future of International Banking
The future of international banking is clouded at this time due to the many cross-currents of economics and politics that pervade our world.
Considering political and currency risk, lending funds in the international arena is riskier, on average, than domestic lending.
Not surprisingly, surveys of U.S. banks show that loans to distant nations are mainly short term, and many are made to banks themselves.

11. The Future of International Banking
A persistent problem in international banking is the preservation of public confidence in the banking system.
Essentially, this means protecting the major multinationals against failure.
International Lending and Supervision Act (1983)
Basle Agreement (1988) (11 countries)

12. The Future of International Banking
Deregulation: There is a growing trend toward relying more on the private marketplace and less on government rule-making in order to regulate global banking.
At the same time, regulatory cooperation and harmonization of banking regulations across nations is necessary to ensure a minimum level of public scrutiny.

13. Prospects and Issues for the 21st Century
Limited by capital and the availability of experienced management, the future growth of international banking should be more gradual and loan quality more of a factor.
The actions of regulatory authorities and competition from nonbank firms can also affect the future development of international banking.

14. Money and Capital Markets in Cyberspace
More information about international banking can be found at:

15. Chapter Review The Scope of International Banking Activities
Multinational Banking Corporations
Types of Facilities Operated by Banks Abroad
Services Offered by International Banks
Universal Banking Services and One-Stop Shopping
Foreign Banks in the United States
Recent Growth of Foreign Banks in the U.S.
Federal Regulation of Foreign Bank Activity

16. Chapter Review
Regulation of the International Banking Activities of U.S. Banks
The Future of International Banking
The Risks of International Banking
Public Confidence and Bank Failures
The Spread of Deregulation: How Fast Should We Go?
Prospects and Issues for the 21st Century