INTERNATIONAL BANKING AND FINANCE

Transcription

1 INTERNATIONAL BANKING AND FINANCE

2 By the same author FOREIGN INVESTMENT, CAPITAL CONTROLS, AND THE BALANCE OF PAYMENTS (monograph) (ccrautlwr) FOREIGN BANKING AND INVESTMENT IN THE UNITED STATES INTERNATIONAL FINANCIAL MARKETS THE ECONOMIC AND POLITICAL DEVELOPMENT OF THE SUDAN (ccrautlwr) INTERNATIONAL LENDING, RISK AND THE EUROMARKETS (ccrautlwr)

3 International Banking and Finance FRANCIS A. LEES Director, Business Research Institute, StJohn's University, New rork

4 Francis A. Lees Softcover reprint of the hardcover 1st edition All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First edition Reprinted 1975, 1977, 1980 Published by THE MACMILlAN PRESS LTD London and Basingstoke Companies and representatives througlwut the world ISBN ISBN (ebook) DOI / Library of Congress Catalog Card No

5 To my wife and parents

6 Contents List of Tables List of Illustrations Preface page IX XI Xlll II Background and Regulatory Environment 1 Introduction 3 2 Federal and State Regulation 17 II Organising for International Banking 3 Managerial Objectives and Strategies 49 4 The International Department 79 5 Foreign Branches of American Banks 97 6 Edge Act and Agreement Corporations Foreign Banking in the United States 167 III Role and Function of Overseas Banking 8 Foreign Lending Relations with Domestic and International Financial Markets Banking in Major Countries The Eurocurrency Market International Banking and the Developing Countries The Federal Reserve and International Banking 329 IV Role of the United States as World Banker 14 Benefits and Costs for the United States The Future of International Banking 367

7 viii Epilogue Notes Index of Proper Names Index of Subjects CONTENTS

8 List of Tables page 1-1 Key Statistics relating to the role of the United States in International Banking Major Banks with Foreign Offices, 1968 (by Country) Location of Foreign Branches, Agencies, or Offices of Major Banks, Concentration of Banks with Overseas Branches and Edge-Agreement Corporations, by State, Year-end Postwar Expansion of Foreign Branches and Banking Corporations of Federal Reserve Member Banks ( ) Analysis of Relative Advantages from Alternative Organisational Forms Geographic Distribution of Foreign Branch Assets and Assets per Branch by Region, 31 December Assets and Liabilities of Foreign Branches of U.S. Banks-30June Postwar Growth of Edge and Agreement Corporations Assets and Liabilities - Edge and Agreement Corporations, 1954and Equity Holdings of the Corporations Distribution of Equity Holdings by percentage of Stock Ownership, 30June Offices of Foreign Banks m the United States by Type of Office and by State, State-chartered Subsidiaries of Foreign Banking Corporations, Condensed Composite Balance Sheet for all Branches of Foreign Banks Licensed in NewYorkState Condensed Composite Balance Sheet for all Agencies of Foreign Banks Licensed in NewYorkState 180

9 X LIST OF TABLES Claims on Foreigners reported by Banks in the United States, Short-term Claims on Foreigners reported by Banks in the United States, by Region and Type, 1972 Regional Distribution of Short-term Claims on Foreigners reported by U.S. Banks, 1970 U.S. Money Market Instruments- Volume Outstanding Non-sterling Liabilities in U.K. Banks Foreign Branches, Short-term Assets and Liabilities in Less Developed Countries, Year-end Estimates of Annual Net Benefit and Cost from World Banker and International Banking Roles of the United States, based on Figures

10 List of Illustrations page 2-A Information to be Submitted with Applications for Establishment of Foreign Branches 20 4-A International Banking Division - Seattle First National Bank 88 4-B International Department New Organisation -Chase Manhattan Bank 89

11 Preface Business is one of the most prominent engines of social and economic change. In the past decade and a half the business of banking has itself become transformed into one of these catalysts of growth on a global basis. The multinationalisation of business and banking is but one phase in the many long cycles of economic growth and fluctuations that have gripped the world since the industrial revolution. In the current phase there is a strong likelihood that the socialist and capitalist ideologies will become welded together in a common market web. The Russians have a friend at Chase Manhattan- now located at No. 1 Karl Marx Square, Moscow; the British have the Moscow-Narodny Bank in London; and the Mainland Chinese have Mr Nixon's affirmations of peace and freer trade. A single volume on international banking can do little more than survey the scene, outline the major elements, and provide a brief but critical analysis of the effectiveness and efficiency of existing institutions and operations. At present international banking is in the midst of a dramatic expansion phase, accompanied by an upheaval in its organisational forms and competitive relationships. It is effecting change, as well as being affected by these changes. As an essential ingredient in the growth of multinational business, development financing, and stabilisation of the world economy, international banking now appears destined to occupy a permanent 'seat on the exchange', after having been made virtually extinct during the excesses of deep depression and catastrophic wars. This book may be used for several purposes. It is written for the banker and businessman who wishes to obtain a broad

12 XIV PREFACE picture of what international banking is about, and to understand more cleatly how the various aspects of international banking fit together. It is written for the teacher of courses in international finance and investment, international corporate finance, and international banking, who wishes to have a deeper understanding of the organisational approaches, the broad type of lending and investment operations conducted by international banks, and the many financial service areas into which banks have moved. Finally, it is written for the university and special programme student who wishes to dig deeply into an enormously interesting and significant aspect of banking and business. International Banking and Finance is intended for college and university courses in international finance and international business, at the graduate and upper division undergraduate levels. It would also be appropriate for use in management institutes or executive development programmes in Europe, the United States, or in other countries. While previous background or course work in banking or international economics would be desirable, this volume has been written so that such background is not essential. In this connection this book might be used as a supplement or companion reader in introductory courses in banking and international economics. Research and writing of this volume was initiated by the author in 1969, largely due to the wide information gap found after searching for specific facts and descriptions of overseas and international banking activities. In the course of researching and collecting information many widely dispersed sources of information had to be consulted. The following acknowledges the helpful assistance of those who provided information, or in other ways materially aided in the preparation of this volume. A substantial debt is owed to those who generously supplied information concerning operational, regulatory, or other aspects of international banking. This includes Roger A. Hood and Robert E. Mitchell, both Assistant General Counsel, Federal Deposit Insurance Corp.; Paul Horvitz, Division of Research, FDIC; Frederick R. Dahl, Division of Supervision & Regulation, Board of Governors of the Federal Reserve System; Norman Klath, Economics Department, Morgan Guaranty

13 PREFACE XV Trust Co.; Don Cameron, Chase Manhattan Bank; Robert Scully and Richard Capone, United California Bank International, New York; Frank Carlson and Robert F. Cassidy, New York State Banking Department; Zissimos A. Frangopoulos and Karl Bernd, Chemical Bank, New York; Y. C. Jao, Professor of Economics, University of Hong Kong; Bernard Norwood, Division of International Finance, Board of Governors of the Federal Reserve System; Walter Holland, Richard Lee, Joseph Vacca, and Walter Richter, First National City Bank of New York; R.N. Christiansen, International Banking Division, Seattle First National Bank; A. Blake Friscia, Chase Manhattan Bank; Donald E. Pearson, Superintendent of Banks, California; Bertwing C. Mah, Director of Research, California State Banking Department; Roland W. Blaha, Commissioner of Banks and Trust Cos., State of Illinois; John H. Sherman, Chief Deputy, California State Banking Department; Wallace R. Anker, Director of International Division, Comptroller of the Currency; William Boyd, Jr, Pittsburg National Bank, President of Bankers Association for Foreign Trade ( ); and Arthur L. Reisch, President of Bankers Association for Foreign Trade ( ). A number of experts and specialists in the field of international finance and banking read various chapters of the book, and offered many helpful comments and suggestions for improvement. These include Fred H. Klopstock, Manager, International Research Department, Federal Reserve Bank of New York; Lee C. Nehrt, Professor of International Business, Indiana University; Charles N. Henning, Graduate School of Business Administration, University of Washington; Sipa Heller, Stjohn's University; and Maximo Eng, Stjohn's University. Residual errors accrue to the author. Much of the work on data collection and digging into sources was undertaken by several capable graduate assistants, including Kenneth Heard, Joseph Schwartz, and William Marino. Herculean typing efforts were expended by Ethel Angeletti and Margaret Willaum. Finally, a deep debt of gratitude is due to the administration of StJohn's University and its president, Father Joseph Cahill, for the substantial resource support that was made available to me during my work on the manuscript. May 1973 FRANCIS A. LEES