INTERNATIONAL

BANKING

International Banking

International banks can be characterised

by the type of services they provide that
distinguish them from domestic banks

International Banking
Major Functions:
1. Facilitate imports and exports of their
clients trade financing
2. Arrange for foreign exchange crossborder transactions and foreign
investments
3. Assist in hedging exchange rate risk
4. Trade foreign exchange products for their
own account

International Banking
Major Functions:
5. Borrow and lend in the Eurocurrency
market
6. Participate in international loan
syndicate lending to MNCs- project
financing and to sovereign governments
economic development
7. Participate in underwriting of Eurobonds
and foreign bonds issues

International Banking
Major Functions:
8. Provide consultancy and advice on
hedging strategies, interest rate and
currency swap financing and international
cash management services
Banks providing all the above are commonly
known as universal banks or full service
banks

Top 10 Global Banks in 2009

1
2
3
4
5
6
7
8
9
10

Royal Bank of Scotland

Deutsche Bank
Barclays Bank
BNP Paribas
HSBC Holdings
Credit Agricole Group
JP Morgan Chase & Co
Mitsubishi UFJ Financial Group
Citigroup
UBS

UK
Germany
UK
France
UK
France
US
Japan
US
Switzerland

Types of International Banking Offices

1. Correspondent Bank :

Two banks maintain a correspondent

bank account with one another
Helps MNCs clients to conduct business
worldwide through his local bank or its
contacts

Types of International Banking Offices

2. Representative Offices:

A small service facility staffed by parent

bank personnel to assist MNC clients

They assist MNC clients with

information about local business
practices, economic information, credit
evaluation of customers etc.

Types of International Banking Offices

3. Foreign Branches:

Operates like a local bank but legally is

a part of the parent bank

Subject to both the banking regulations

of its home country and the country in
which it operates

Types of International Banking Offices

4. Subsidiary and Affiliated Banks:
A subsidiary is a locally incorporated bank
that is either wholly owned or owned in
major part by a foreign parent
An affiliate bank is one that is only
partially owned but not controlled by its
parent
Both operate under the banking laws of
the country in which they are incorporated

Types of International Banking Offices

5. Offshore Banking Centers:

An offshore banking centre is a country

whose banking system is organised to
permit external accounts beyond the
normal economic activity of the country

IMF recognises the Bahamas, Bahrain, the

Cayman Islands, Hong Kong, the
Netherlands Antilles, Panama and
Singapore as major offshore banking
centers

Types of International Banking Offices

5. Offshore Banking Centers:

Offshore banks operate as branches or

subsidiaries of the parent bank

The primary activity of offshore banks

are to seek deposits and grant loans in
currencies other than the currency of
the host government

Types of International Banking Offices

5. Offshore Banking Centers:

The offshore banks function with lower

spreads:
They are unregulated institutions ( low
reserve requirements and no deposit
insurance)
They are not subject to interest rate
ceilings

Types of International Banking Offices

5. Offshore Banking Centers:

They can take advantage of low tax

location
High degree of competitiveness- low
margins, low overheads
No pressure from domestic government

Euro-Money
As per definition of money, the components
of domestic money are : Currency and
demand deposits ( narrow definition)
In the same way, Euro-money comprises of
Euro-deposits and Euro-currency money
mobilised by banks and financial institutions
in a currency other than of a country in
which they are located

Euro-Money
The market which consists of such banks
and financial institutions is called Euromoney market or Euro-currency market
Such institutions have grown worldwide,
such as London, New York, Luxembourg,
Hong Kong, Singapore etc.
They are also called as offshore markets

How is Euro-money Created?...

A national currency becomes part of
offshore currency market when it is
transferred to a bank outside its own
monetary system
Which also means the deposit is made in
that segment of banking structure which
is not regulated by the central bank of
the country which has issued the
currency

International Banking
International banking relates to financial
intermediaries that bid for time deposits
and make loans in the offshore market
It is an unregulated market involving
greater risk
It is a wholesale segment of lending and
deposit activity

International Banking
International banking brings together
borrowers and lenders from same country
or different countries
They are substitutes for the domestic
banking system

Growth of Euro-money Market

The rapid growth of these markets is due to:
Depositors receive better interest rate on
deposits
Borrowers can borrow more, possibly at
lower interest rate than they can at home

Euro-Deposits

The deposits denominated in currencies

made outside the domestic banking
systems operation are called Euro-deposits
They are more risky
They are conventional short term nonnegotiable-deposits ( 30 days or 90 days)
A large part is of CDs ( certificate of
deposits) negotiable traded in secondary
market

Thank
you