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Lecture 3 (International banking services (Other debt finance, including…
Lecture 3
International banking services
Other debt finance, including asset-backed
financing
Domestic and international equity raisings
Debt finance via bond issuance
Securities underwriting and fund
management services
Syndicated loans
Foreign exchange and risk management
services
Credit facilities – loans, overdrafts, standby
lines of credit and other facilities
Trade finance
Money transmission, foreign exchange
transactions and cash management
What is international banking
International banking is the business undertaken by banks across national borders and/or activities that involve different currencies
classify
traditional international banking
transactions with non-residents in domestic currency that facilitates trade finance and other international transactions
以本国货币与非居民进行交易，以促进贸易融资和其他国际交易
Eurocurrency banking
wholesale foreign exchange transactions (loans and deposits) with both residents and non-residents
居民和非居民的大额外汇交易(贷款和存款)
Both entail financing trade, transacting foreign exchange business and making wholesale shortterm Eurocurrency loans and deposits
两者都包括融资贸易、办理外汇业务和批发短期欧洲货币贷款和存款
different between international banking and multinational banking
Traditionally international banking and eurocurrency banking does not necessarily require banks to have a physical presence in a foreign country
Multinational banking requires some element of ownership & control of banking operations outside home market through foreign direct investments (FDIs)
difination
international banking
It has branches and/or subsidiaries
overseas
It conducts business in a foreign currency irrespective of its location
It has international customers
Global banks
operate through subsidiaries or branches in several countries and have a presence in most continents
Local/domestic banks
provide services only
in the country where they are headquartered
International banks
provide cross-border services, but operate in only a few countries, or are relatively too small, to be defined as global
Strategies of multinational banks
acquisition of an existing bank
History of international banking
two distinct waves
The first wave came with the colonialism in the 1800s and concentrated on developing countries
The second wave came after WWII and concentrated more on developed countries
catalysts催化剂
macroeconomic
political environment were relatively stable, which promoted international trade and investment
Gradual liberalization of domestic banking sectors
regulatory
Regulation Q effectively limited US banks raising funds domestically due to interest rates ceilings on US deposits. Other US regulations forced US firms to raise their foreign investment funds overseas.
microeconomic
Improved technology
Why do domestic banks go abroad?
Opportunities for growth and profit
facing a mature or intensely competitive domestic banking and financial services sector
expand into less competitive
foreign banking sectors
Leveraging of strengths
By expanding their scale of operations overseas, managerial resources will be more efficiently utilised
Large banks may have advantages
their access to lower-cost funds
Economies of scale or scope
their lower cost of capital
Client activities
on-going client relationships
These relationships place them in privileged position to follow their customers abroad
Diversification of earnings
By expanding into different markets, banks expose their operations to the risk and return profile of specific business areas
Location and the product cycle
maturing product
standardised product
Innovative (new) product
Other rationales include firm-specific advantages, location advantages, impact of regulation, exchange rates and distance from domestic markets
Types of multinational organizational forms
Correspondent banking
involves a reciprocal agreement互惠条例 between domestic banks in different countries
issuing bank cheques in local currency from the foreign bank‘s account with the correspondent从外国银行在代理行开立的账户中以当地货币开具银行支票
foreign currency credits
issuing or honouring letters of credit
providing information about foreign market conditions
Representative offices
most limited form
highly restricted their activities and functions in support the MNB operations
They are not authorized to conduct banking
functions like deposit taking or lending.
serve as a marketing outlet
collect information
first step in entering a foreign market
Agencies
Their operations lie somewhere between
branch and representative office
with the ability to make commercial,
but generally not consumer loans
and limited power to raise deposits
facilitate foreign trade between home and foreign countries
Branches
Branches can perform all the functions allowed by the authorities of both home and host country
Branches also participate in short-term lending to commercial enterprises and financing of international trade
They are also active in foreign capital, money and foreign exchange markets and so play part in managing home-country assets in foreign markets
Subsidiaries
Separate legal entity from parent bank, has its own capital and is incorporated under the laws of the host country
独立于母行的法人实体，拥有自己的资本，并根据东道国的法律注册成立
They tend to operate more like a domestic bank in foreign host market, and are usually allowed to undertake a broad range of banking business
tend to be costly
Main advantage
it generally signals stronger commitment to do business in a country compared with other forms and reflects foreign company’s more positive assessment of prospects for the market
The risk exposure of a subsidiary is limited by its own capital exposure as oppose to branches
other forms
Joint ventures
Edge Act Corporations
Agreement Corporations
International banking facility (IBF)
Shell branches
Export Trading Companies (ETCs)
Branches vs. subsidiaries
Branch has lower cost of doing business than a subsidiary
Subsidiary maybe better for containing losses
in the event of distress of an affiliate
All else being equal, one could expect global retail banks to have a preference for subsidiaries, while global universal banks would prefer branching
The performance of multinational banks in
the US market