Structure of International Banking

Structure of International Banking MNEs find that their banks offer a variety of services worldwide through a variety of different operational modes. The major way that banks become involved in cross-border operations is through correspondent relationships, banks in different countries facilitate inter-national financial transactions for each others clients. For example, a bank in Country A may ask its correspondent in Country B to remit funds from an importer in Country B to an exporter in Country A. A bank may have several correspondent banks m the different countries where it wants to do business, or it may operate through a key bank. Banks may also increase their influence abroad through establishing branches. A branch is a legal form of operation that is an extension of the parent bank. It is not a separate corporation where the parent owns stock, like a subsidiary. A branch is used to gain access to local capital or Eurocurrencies, and it is often established to eliminate relying on correspondent relationships. Branches are also being used to gain access to local clients. The bank that has the largest global spread is Citicorp, the large U.S. bank that placed twelfth in The Bankers 1989 list of top-1000 banks. Citicorp has total assets of over $207 billion, offices in 90 countries, and is expanding even yet. It is the only bank that has offices in each OECD country where foreign banks are allowed to establish offices, and it has the broadest network of any bank in Europe. The total number of domestic and overseas branches, offices, subsidiaries, and affiliates is almost 3300.27 Some banks also have entered into more formal relationships with banks at home and abroad in order to service clients better. A consortium bank, for example, occurs when several banks from different countries pool their resources to form another bank that engages in international transactions. This enables the banks to draw on the strengths of their partners, such as foreign-currency deposits, branches in different countries, or expertise in specific types of banking transactions. Domestic U.S. banks can also establish Edge Act corporations in different cities in the United States in order to get involved in international transactions. By law, a bank is allowed to establish an Edge Act company in different cities outside of its home state, as long as the Edge Act bank is involved in international and not domestic banking activities. A final major type of operation for U.S. banks is the International Banking Facility. IBFs were created in the United States to allow U.S. banks to engage in Eurodollar-type operations. There are currently IBFs m 20 states, at 150 banks and 328 agencies and branches, mostly in New York. Although the dollar deposits in the IBFs are not exactly Eurodollars, they are almost identical in terms of interest rates, etc. The IBFs have lower costs due to the absence of reserve requirements and state income taxes. U.S. companies can obtain access to IBF funds through their foreign subsidiaries, and they must prove that the funds are being used to support international operations. The IBFs are not exactly separate physical facilities but are simply an accounting separation of activities engaged in by international bank