CHAPTER TWENTYInternational Banking

Service Options

The purpose of this chapter is to learn what services international banks offer their customers and to discover the options a bank manager has under law and regulation to organize a multinational bank.

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Types of Foreign Banking Organizations

Representative OfficesAgency OfficesBranch OfficesJoint VenturesEdge Act Corporations

Agreement Corporations

International Banking Facilities

Shell Branches

Export Trading Companies

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Goals of International Banking Regulation

Protecting the Safety of Depositor Funds

Promote Stable Growth in Money and Credit

Foreign Exchange Controls

Restrict the Outflow of Scarce Capital

Protect Domestic Financial Institutions and Markets from Foreign Competition

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Regulation of Foreign Bank Activity in the U.S.

International Banking Act of 1978

Foreign Bank Supervision Act of 1991

International Lending and Supervision Act of 1983

Basle Agreement

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Customer Services Supplied By Banks in International Markets

Making Foreign Currency AvailableHedging Against Foreign Currency Risk ExposureSupplying Customers with Short and Long Term Credit and Credit GuaranteesSupplying Payment and Thrift InstrumentsUnderwriting Customer Note and Bond Issues in the Eurobond MarketProtecting Customers Against Interest Rate RiskHelping Customers Market Their Products Through an Export Trading Company

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Tools for Reducing Currency Risk

Forward Contracts

Currency Futures Contracts

Currency Options

Currency Swaps

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Ways of Supplying Customers with Credit

Note Issuance Facilities

Eurocommercial Paper (ECP)

American Depository Receipt (ADR)

McGraw-Hill/IrwinBank Management and Financial Services, 6/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Future Problems for International Banks

Growing Customer Use of Securities Markets to Raise Funds

Developing Better Methods to Estimate Risk in International Lending

Adjusting to New Market Opportunities Created By Deregulation and New International Agreements

Opportunities Created By NAFTA

Opportunities Created in the EU and Eastern Europe

Opportunities Created in Asia