International Bankingand Money MarketChapter Eight
ChapterObjectives: This chapter introduces the world financialmarkets and institutions
❖Chapter Objectives: ❖This chapter introduces the world financial markets and institutions
ChapterOutlineGlobalBankingOverviewInternational Banking ServicesReasons for International BankingTypes of International Banking OfficesCapitalAdequacyStandardsInternational Money MarketInternational Debt Crisis
Chapter Outline ❖Global Banking Overview ❖International Banking Services ❖Reasons for International Banking ❖Types of International Banking Offices ❖Capital Adequacy Standards ❖International Money Market ❖International Debt Crisis
profitbeforetax(billiondollars)and income-to-assetratio(%)oftop1000GlobalBanks(byassets),2007-20112006.520072007.520082008.520092009.520102010.520112011.56003.00%5315185082.70%2.60%5002.50%40%2.40%244002.00%H1.90%2783001.50%2001.00%1000.50%?20072009201020112008-35-1000.00%profitbeforetax-income-to-asset数据来源：CapgeminiAnalysis,2012BankerDatabase
数据来源：Capgemini Analysis,2012,Banker Database
Foreign Banks operations in China20102011200420052006200720082009338360387188224274311207number5823715592791252513448134921742321535assetpercentageofChina's1.841.912.112.382.161.711.831.93bankingindustry%source: CBRC Annual Report 2oll
Foreign Banks operations in China 2004 2005 2006 2007 2008 2009 2010 2011 number 188 207 224 274 311 338 360 387 asset 5823 7155 92791252513448 13492 17423 21535 percentage of China’ s banking industry% 1.84 1.91 2.11 2.38 2.16 1.71 1.83 1.93 source：CBRC Annual Report 2011
InternationalBankingServicesInternational banks do everythingdomestic banks do and:Arrange trade financing.ArrangeforeignexchangeOffer hedging services for foreign currencyreceivables and payables through forwardand option contractsOffer investment banking services (whereallowed)
International Banking Services ❖International banks do everything domestic banks do and: ▪ Arrange trade financing. ▪ Arrange foreign exchange. ▪ Offer hedging services for foreign currency receivables and payables through forward and option contracts. ▪ Offer investment banking services (where allowed)
ReasonsforInternationalBankingLowmarginalcostsManagerial andmarketingknowledgedevelopedathomecanbeusedabroad with low marginal costs.KnowledgeadvantageTheforeign bank subsidiary candrawon theparentbank'sknowledgeofpersonal contacts and credit investigationsforuseinthatforeignmarket.HomenationinformationservicesLocal firmsinaforeignmarketmaybeableto obtainmorecompleteinformationontradeandfinancialmarketsinthemultinationalbank'shomenationthanisobtainablefromforeigndomesticbanks.PrestigeVery large multinational banks have high perceived prestige, which canbeattractivetonewclients
Reasons for International Banking ❖ Low marginal costs ▪ Managerial and marketing knowledge developed at home can be used abroad with low marginal costs. ❖ Knowledge advantage ▪ The foreign bank subsidiary can draw on the parent bank’s knowledge of personal contacts and credit investigations for use in that foreign market. ❖ Home nation information services ▪ Local firms in a foreign market may be able to obtain more complete information on trade and financial markets in the multinational bank’s home nation than is obtainable from foreign domestic banks. ❖ Prestige ▪ Very large multinational banks have high perceived prestige, which can be attractive to new clients
Reasonsfor InternationalBankingRegulatoryadvantageMultinationalbanksareoftennot subjecttothesameregulationsasdomesticbanksWholesaledefensive strategyBanks follow theirmultinational customers abroad to avoid losingtheirbusinessat home and abroadRetaildefensivestrategyMultinationalbanksalsocompeteforretailservicessuchastravelerschecksandthetouristandforeignbusinessmarket
Reasons for International Banking ❖ Regulatory advantage ▪ Multinational banks are often not subject to the same regulations as domestic banks. ❖ Wholesale defensive strategy ▪ Banks follow their multinational customers abroad to avoid losing their business at home and abroad. ❖ Retail defensive strategy ▪ Multinational banks also compete for retail services such as travelers checks and the tourist and foreign business market
Reasonsfor InternationalBankingTransactionscostsMultinational banks maybe ableto circumventgovernmentcurrencycontrols+GrowthForeign markets may offer opportunities for growth not founddomesticallyRiskreductionGreaterstabilityofearningswithdiversification
Reasons for International Banking ❖ Transactions costs ▪ Multinational banks may be able to circumvent government currency controls. ❖ Growth ▪ Foreign markets may offer opportunities for growth not found domestically. ❖ Risk reduction ▪ Greater stability of earnings with diversification
Types of InternationalBankingOfficesCorrespondentbankRepresentativeofficesForeign branchesSubsidiary and affiliatebanksEdge Act banksOffshorebanking centers“Shell”branchesInternational banking facilities
Types of International Banking Offices ❖Correspondent bank ❖Representative offices ❖Foreign branches ❖Subsidiary and affiliate banks ❖Edge Act banks ❖Offshore banking centers ❖“Shell” branches ❖International banking facilities