International Banking
Concepts and examples
World’s Biggest Banks
(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
.
.
.
40 Royal Bank of Canada 13,430
World's financial centers:
London
Tokyo
New York
Paris, Frankfurt, Zurich, Amsterdam, etc.
Foreign Exchange Trading Income of Selected Banks
( in millions of US$ )
Company
1977
1987
1997
1998
1999
Bank of New York
Chase Manhattan
Citicorp
Credit Suisse First Boston
Deutsche Bank
Mellon Financial Corp
Morgan (J.P.) & Co.
Republic National Bank
State Street Bank
NA
55
68
NA
NA
6
40
5
2
NA
385
453
NA
NA
8
251
39
21
109
790
1,486
699
1,040
118
493
98
159
126
936
1,628
97
636
165
781
120
177
137
807
1,569
897
807
173
777
141
209
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 Payments
Importer’s preference
1. Exporter ships the goods
Importer
Exporter
2. Importer pays after receiving the goods
A Primer on Import/Export Payments
Exporter’s preference
2. Exporter ships the goods after payment
Importer
Exporter
1. Importer pays the goods
The Bank as an Export/Import Intermediary
1. Importer obtains
bank’s permission to pay
on importer’s behalf
Importer
6. Importer pays bank
5. Bank releases
merchandise to
importer
2. Bank promises
exporter to pay on
behalf of importer
Bank
4. Bank pays exporter
3. Exporter ships to
the bank
Exporter
A Typical Trade Transaction
2. Exporter agrees to fill order
Importer
Exporter
1. Importer orders goods
6.. Exporter ships goods
3. Importer
arranges L/C
with bank I
12. Payment
4. Bank I sends L/C to bank X
7. Exporter
presents
shipping
documents
to bank X
5. Bank X
advises
exporter of
L/C
11. Payment
8. Bank X presents shipping documents to bank I
Bank
X
Bank
I
9. Bank I accepts documents and promises to pay within 60 days
13. Investor presents
documents and gets paid
Public
investor
10. Bank X sells acceptance documents
Types of international banking offices:
•
•
•
•
•
•
Correspondent banks
Representative office
Foreign branch
Subsidiaries
Affiliates
Offshore banking centers
What is offshore banking?
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Offshore banks:
operate outside the jurisdiction of most industrialized countries
are subject to very few regulations
are located in tax havens
Tax havens countries
Tax avoidance: Exemplification
Tax avoidance: Exemplification
Tax avoidance: Benefits
Lincoln belge gets a tax deduction
Old Abe gets a tax free interest income