McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved Chapter Twenty International Banking and the Future of Banking and Financial Services

20-2 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Foreign Banking Organizations Representative Offices Agency Offices Branch Offices Subsidiaries Joint Ventures Edge Act Corporations Agreement Corporations International Banking Facilities Shell Branches Export Trading Companies

20-3 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Goals of International Banking Regulation Protecting the Safety of Depositor Funds Promote Stable Growth in Money and Credit Foreign Exchange Controls Restrict the Outflow of Scarce Capital Protect Domestic Financial Institutions and Markets from Foreign Competition

20-4 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Regulation of Foreign Bank Activity in the U.S. International Banking Act of 1978 Foreign Bank Supervision Act of 1991 International Lending and Supervision Act of 1983 Basel Agreement

20-5 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Customer Services Supplied By Banks in International Markets Making Foreign Currency Available Hedging Against Foreign Currency Risk Exposure Supplying Customers with Short and Long Term Credit and Credit Guarantees Supplying Payment and Thrift Instruments Underwriting Customer Note and Bond Issues in the Eurobond Market Protecting Customers Against Interest Rate Risk Helping Customers Market Their Products Through an Export Trading Company

20-6 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Tools for Reducing Currency Risk Forward Contracts Currency Futures Contracts Currency Options Currency Swaps

20-7 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Ways of Supplying Customers with Credit Note Issuance Facilities Eurocommercial Paper (ECP) Depository Receipts (DR)

20-8 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Payment and Thrift Instruments Payment Services –Sight Drafts –Time Drafts Thrift services –Tap CDs –Tranche CDs –Floating Rate CDs –Floating Rate Notes

20-9 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Future Problems for International Banks Growing Customer Use of Securities Markets to Raise Funds Developing Better Methods to Estimate Risk in International Lending Adjusting to New Market Opportunities Created By Deregulation and New International Agreements

20-10 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Solutions to Troubled International Loans They may be Restructured They can be Sold in the Secondary Market They can be Written Off, Either a Portion or in its Entirety

20-11 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. International Loan Risk Evaluation Systems The Checklist Approach The Delphi Method Advanced Statistical Methods Published Country-Risk Indicators –Euromoney Magazine –Institutional Investor Index –International Country Risk Guide

20-12 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. New Opportunities Opportunities Created By NAFTA and CAFTA Opportunities in the Expanding European Community Opportunities in Asia as Barriers Erode

20-13 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. The Future of Banking and Financial Services Convergence Consolidation Survival of Community Financial-Service Institutions Reaching the Mass Media Invasion by Industrial and Retailing Companies The Wal-Mart Challenge