Economics
Foreign Banks in the United States
Foreign banks in the United States refer to banks that are based in other countries but have branches or subsidiaries operating within the United States. These banks play a significant role in the US financial system, providing a range of services such as lending, investment banking, and trade finance. They are subject to regulation by both their home country's regulatory authorities and US banking regulators.
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5 Key excerpts on "Foreign Banks in the United States"
eBook - PDF- Michelle Bertho, Beverly Crawford, Edward A. Fogarty, Michelle Bertho, Beverly Crawford, Edward A. Fogarty(Authors)
- 2008(Publication Date)
- Praeger(Publisher)
The market for financial services is highly competitive, and many banks try to convince customers that their services are unique. In reality, most retail customers select banks based on their geographic location (i.e., a bank near their home or workplace) and the services that the offer. However, business customers may require more specialized services. In addition, banks may specialize in their lending activities and not serve all markets; for example, a small bank in the middle of a large city is not likely to make farm loans to buy cattle. In summary, the share of assets held by foreign banks can and does vary when looking at specific forms of organization, such as large bank holding companies, individual banks, or other subsidiary organizations. Most of the growth in assets in U.S. offices of foreign banks occurred during the 1980s, peaking at 22.6 percent in 1991. 19 Subsequently it declined to about 19.8 percent in 2005, the latest date for which data are available. Nevertheless, foreign-owned banking organizations are increasing their presence in the United States. HSBC, UBS, and ING Direct are examples of how three major international banking organizations are making signifi- cant inroads in U.S. financial markets and institutions without a large number of ‘‘traditional’’ banking offices. As previously noted, these large foreign-owned banks target high- net-worth individuals by offering them ‘‘wealth management’’ and other securities services. This is different from the traditional banking products of taking deposits and making loans. Wealth management and investment services provide fee income and are not subject to the same regulations or capital requirements as traditional commercial banking services. Neverthe- less, there can be ‘‘cross-selling’’ of products. That is, the investment advi- sor can recommend his or her parent bank to provide other financial services such as loans.
eBook - PDFThe Changing Face of American Banking
Deregulation, Reregulation, and the Global Financial System
- Ranajoy Ray Chaudhuri(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
CHAPTER 12 U.S. Banks and the Global Financial System 12.1 The Causes of Internationalization of the American Financial System International banking has undergone many ups and downs in the past century. Toward the end of the Victorian era at the close of the nineteenth century, it was very common for banks to fund investment projects abroad. The reason was partly because it was the heyday of colonization, and the ruling countries fre- quently undertook capital-intensive construction projects in the colonies. That changed with the First World War and the interwar period. After decades in decline, international banking again started increasing in importance with the Second Age of Globalization. This refers to the period starting in the eighties when large corporations began to move their production facilities to countries with low labor costs. 1 Focarelli and Pozzolo identify three ways in which banks can expand their activities across borders. 2 First, they can provide loan, asset- management, and liability-management services to foreign counterparts. Loans usually take the form of syndicated loans to large borrowers. Second, they can open a branch abroad. These typically focus on the wholesale market. Third, they can acquire shares in a foreign bank; in other words, they can create a subsidiary. These subsidiaries typically focus on the retail market. Focarelli and Pozzolo also identify three reasons for bank internationalization from their review of the literature on the subject. First, the degree of integration between the country where the parent company is headquartered and the country where the branch or the subsidiary is located is an important predictor of bank internationalization. They define integration broadly to include both economic integration, like the level of foreign direct investment, and cultural integration, like the presence of a common language.
- Jesús Ferreiro, Felipe Serrano, P. Arestis(Authors)
- 2005(Publication Date)
- Palgrave Macmillan(Publisher)
Many countries have in the past had regulatory policies and substantial barriers to entry, that prevented foreign ownership of the domestic banking system, especially in emerging markets. Examples of such barriers include number of branches, controls over permissible activities and strict limits to the percentage of foreign ownerships of domestic banks. Indeed, as Eichengreen and Mussa (1998) show, many emerging economies have eliminated a number of such barriers especially since the early/mid-1990s, specifically to attract foreign banks. However, with the advent of banking crises and the instability that followed, coupled with the increased emphasis on a greater openness to foreign trade and investment, which the Washington Consensus embodies, for example, it was deemed necessary to stabilize the banking system by attracting ‘sound’ and ‘efficient’ banks. This was a quick solution, and one that many believed would bring much-needed stability. Hence domestic banking crises were the catalyst for the removal of these so-called barriers to entry: domestic banks faced severe financial situations, poor balance sheets and low capitalization. At the heart of these policies was the belief that allowing foreign banks to enter was a better (cheaper) way of rapidly restructuring and recapitalizing domestic banks following an important crisis (IMF, 2000, p. 158; see also Lindgren et al., 1996). 180 Impact of Multinational Banking on Domestic Banking Claude Gnos and Louis-Philippe Rochon 181 Foreign banks, on the other hand, facing increased competition from financial deregulation in their own countries, were quick to take advantage of the situation. Indeed, the globalization of financial services implies increasingly that large banks face competition from non-bank sources of credit and other financial services at home, which has put considerable pres- sure on their domestic profits.
eBook - PDF- Giriappa, Somu(Authors)
- 2021(Publication Date)
- Daya Publishing House(Publisher)
Financial sector liberalization enables foreign banks’ expansion into local financial systems. In Canada restrictions on foreign branch banking and on the market shares of foreign subsidiaries made foreign banks to science customers from outside the country rather than through local affiliates. Financial crisis weakening the local banks often offers the foreign banks to expand their operations. Further decline of unremunerated reserve requirements as part of monetary control (as in India) also invites foreign participation. In Europe where there are several important financial centres and inter This ebook is exclusively for this university only. Cannot be resold/distributed. bank money market is integrated has experienced mergers within countries and the introduction of Euro has accentuated the relative strength of international banking such that it has yet to realize a evolution in globalizes banking. In the case of global lending there is a shift from transfer risk to the broader one of country risk. Transfer risk is the risk that the borrower is able to pay in domestic currency but is not permitted to exchange foreign currency to make the payment country risk is a broader concept covering both the risk of a change in the legal environment and that of changes in taxes within a country. Local deposit taking and leveling can avoid transfer risk but are susceptible to country risk. In Europe where international banking is flourishing, in-country mergers have enhanced scale economies and amalgamation of banking and insurance. This has brought little change in its pattern of cross border banking. The introduction of the Euro has caused Trans-European competition in the loan market founded with home market deposits. In East Asia, the shift to global banking is partly due to the recent financial crisis. East Asia is not generally accumulating net international liabilities and hence foreign banks may not have an expanded role.
eBook - PDF- Martin Feldstein(Author)
- 2008(Publication Date)
- University of Chicago Press(Publisher)
rates, might be thought of as another tax. U.S. reserve requirements were one reason for the growth of the Euromarket in the 1960s and 1970s. Banks do not have to hold reserves against their offshore de- posits and for that reason are willing to pay a higher interest rate on deposits in the Euromarket than on deposits in the United States. The 577 International Capital Flows and Domestic Economic Policies differential in three-month interest rates between the Eurocurrency market and the U.S. interbank market exceeded one hundred basis points in 1980, as the second column of table 9.6 indicates. By the early 1980s, discouraging capital ouflow was no longer a goal for the United States, and authorities were concerned that the U.S. banking industry was losing business to Eurobanks. Beginning Decem- ber 1981, U.S. banks were allowed to participate in a sort of domestic Euromarket by establishing International Banking Facilities (IBFs), which are simply a separate set of deposit accounts without reserve requirements.20 There followed a large shift in accounts from overseas offices of U.S. banks to the offices at home, the majority in New York. But the change is to be thought of as a shift in the location at which banking services are provided, rather than as a net capital inflow: both claims and liabilities to foreigners were shifted to U.S. banks. An important factor in determining international capital flows is with- holding taxes. Until recently, the United States and most other major countries withheld income taxes on bond interest paid to foreigners, unless the foreign residents fell under bilateral tax treaties, on the theory that the income might otherwise escape taxation altogether. But in July 1984, the United States abolished its withholding tax.*’ This move was an inducement to foreign investment in the United States.
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