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, Sanwa Bank, Japan, 37, NationsBank, US 34, Barclays, UK 32, Industrial Bank of Japan 30, Deutsche Bank Germany 29, Union Bank of Switzerland 25, Wells Fargo Bank, US 25, ABN Amro Holding, Netherlands 25, First Union, US 23, Hang Seng Bank, Hong Kong 23, National Westminster Bank, UK 22, Credit Suisse Group, Switzerland 22, Abbey National, UK 22, Sakura Bank,Japan 21, National Australia Bank 20, Norwest, US 20, 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 Bank of New YorkNANA Chase Manhattan Citicorp684531,4861,6281,569 Credit Suisse First BostonNANA Deutsche BankNANA1, Mellon Financial Corp Morgan (J.P.) & Co Republic National Bank State Street Bank

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 ImporterExporter 1. Exporter ships the goods 2. Importer pays after receiving the goods Importer’s preference

A Primer on Import/Export Payments ImporterExporter 2. Exporter ships the goods after payment 1. Importer pays the goods Exporter’s preference

The Bank as an Export/Import Intermediary ImporterExporterBank 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 the bank 4. Bank pays exporter 5. Bank releases merchandise to importer 6. Importer pays bank

A Typical Trade Transaction ImporterExporter Bank I Bank X 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 investor 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

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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: Benefits Lincoln belge gets a tax deduction Old Abe gets a tax free interest income