Henry S. Terrell

The Development of International Banking Facilities

The Federal Reserve Board permitted banking offices located in the United States to establish International Banking Facilities (IBFs) beginning in December 1981. The purpose was to allow these banking offices to conduct a deposit and loan business with foreign residents, including foreign banks, without being subject to reserve requirements or to the interest rate ceilings then in effect.1 IBFs are also exempt from the insurance coverage and assessments imposed by the Federal Deposit Insurance Corporation. In addition, a number of states have encouraged banking institutions to establish IBFs by granting favorable tax treatment under state or local law for IBF operations. As a result, banking offices located in the United States can, through their IBFs, conduct transactions with foreign residents in a regulatory environment broadly similar to that of the Eurocurrency market without having to use an offshore facility.

The Future of International Commercial Banking

International commercial banking is a subset of commercial banking transactions or activities that involve some cross-border element. Three different types of activities can be distinguished. One type of activity involves a loan from a bank in one country to a borrower in some other country; or individuals residing in one country may acquire deposits from a bank in some other country. Within the last decade banks have become important intermediaries in international capital flows; and their loans have increased rapidly relative to direct portfolio flows. The second type of activity occurs when banks with their headquarters in one country sell deposits and buy loans through a branch or subsidiary located in some other country with the transactions denominated in the currency of the country in which these banks are based. The third type of activity occurs when the foreign branches or subsidiaries of banks based in particular countries sell deposits or buy loans denominated in the currencies of the countries in which they are located in competition with host country banks.

The United States and United Kingdom activities of Japanese banks, 1980-1988

Abstract This paper analyzes the United States and United Kingdom activities of Japanese banks by integrating their activities in these two markets with the regulatory environment for banks in Japan and Japans overall external financial position, as well as with business opportunities in the two host countries. The paper concludes that the regulatory environment in Japan, including restraints on interest rates and possible quantitative restraints, has had an impact on activities of Japanese banks in these two foreign markets. Japanese banks appear to have adjusted to their domestic regulatory environment by using their London branches as a flexible funding source and their U.S. offices in extending commercial and industrial loans to Japan-based companies as well as a substitute location for interbank trading. In both markets Japanese banking offices are large net barrowers from unrelated banks because of constraints on raising funds in their homer market.