International BankingInternational Banking

Concepts and examplesConcepts and examples

World’s Biggest Banks World’s Biggest Banks (assets in billion of dollars:1998)(assets in billion of dollars:1998)

1 Bank of Tokyo-Mitsubishi, Japan, 85,372 

2 HSBC Holdings, UK, 76,357 

3 Lloyds TSB Group, UK, 54,453 

4 Citicorp, US, 53,822 

5 Sumitomo Bank, Japan, 41,944 

6 BankAmerica, US, 41,344 

7 Dai-Ichi Kangyo Bank, Japan, 41,131 

8 Chase Manhattan, US, 40,363 

9 Fuji Bank, Japan, 38,440 

10 Sanwa Bank, Japan, 37,990 

11 NationsBank,  US 34,625 

12 Barclays, UK 32,426 

13 Industrial Bank of Japan 30,077 

14 Deutsche Bank Germany 29,142 

15 Union Bank of Switzerland 25,764 

16 Wells Fargo Bank, US 25,579 

17 ABN Amro Holding, Netherlands 25,168

18 First Union, US 23,617 

19 Hang Seng Bank, Hong Kong 23,088 

20 National Westminster Bank, UK 22,430 

21 Credit Suisse Group, Switzerland 22,361 

22 Abbey National, UK 22,144 

23 Sakura Bank ,Japan 21,229 

24 National Australia Bank 20,532 

25 Norwest, US 20,074

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40 Royal Bank of Canada 13,430 

World's financial centers:World's financial centers:

LondonLondon

Tokyo Tokyo

New YorkNew York

Paris, Frankfurt, Zurich, Amsterdam, etc.Paris, Frankfurt, Zurich, Amsterdam, etc.

Foreign Exchange Trading Income of Selected BanksForeign Exchange Trading Income of Selected Banks( in millions of US$ )( in millions of US$ )

Company 1977 1987 1997 1998 1999

Bank of New York NA NA 109 126 137Chase Manhattan 55 385 790 936 807Citicorp 68 453 1,486 1,628 1,569Credit Suisse First Boston NA NA 699 97 897Deutsche Bank NA NA 1,040 636 807Mellon Financial Corp 6 8 118 165 173Morgan (J.P.) & Co. 40 251 493 781 777Republic National Bank 5 39 98 120 141State Street Bank 2 21 159 177 209

Reasons for international banking:Reasons for international banking:

• International trade and investment • Low marginal costs• Arbitrage regulations• Defensive strategies

• Limited domestic market• Risk reduction

A Primer on Import/Export PaymentsA Primer on Import/Export Payments

ImporterImporter

ExporterExporter

1. Exporter ships the goods

2. Importer pays after receiving the goods

Importer’s preferenceImporter’s preference

A Primer on Import/Export PaymentsA Primer on Import/Export Payments

ImporterImporter

ExporterExporter

2. Exporter ships the goods after payment

1. Importer pays the goods

Exporter’s preferenceExporter’s preference

The Bank as an Export/Import IntermediaryThe Bank as an Export/Import Intermediary

ImporterImporter

ExporterExporter

BankBankBankBank

1. Importer obtains bank’s permission to pay on importer’s behalf

2. Bank promises exporter to pay on behalf of importer

3. Exporter ships to 3. Exporter ships to the bankthe bank

4. Bank pays exporter4. Bank pays exporter

5. Bank releases 5. Bank releases merchandise to merchandise to importerimporter

6. Importer pays bank6. Importer pays bank

A Typical Trade TransactionA Typical Trade Transaction

ImporterImporter

ExporterExporter

Bank Bank II

Bank Bank II

Bank Bank XX

Bank Bank XX

1. Importer orders goods

2. Exporter agrees to fill order

3. Importer arranges L/C with bank I

4. Bank I sends L/C to bank X

6.. Exporter ships goods

5. Bank X advises exporter of L/C

7. Exporter presents shipping documents to bank X

8. Bank X presents shipping documents to bank I

9. Bank I accepts documents and promises to pay within 60 days

Public Public investorinvestor

Public Public investorinvestor

10. Bank X sells acceptance documents

11. Payment

12. Payment

13. Investor presents documents and gets paid

Types of international banking offices:Types of international banking offices: 

• Correspondent banks

• Representative office

• Foreign branch

• Subsidiaries• Affiliates• Offshore banking centers

What is offshore banking?What is offshore banking?

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Offshore banks:Offshore banks:

operate outside the jurisdiction of most industrialized countries

are subject to very few regulations

are located in tax havens

Tax havens countriesTax havens countries

Tax avoidance: ExemplificationTax avoidance: Exemplification

Tax avoidance: ExemplificationTax avoidance: Exemplification

Tax avoidance: BenefitsTax avoidance: Benefits

Lincoln belge gets a tax deduction

Old Abe gets a tax free interest income