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CHAPTER 15 INTERNATIONAL BANKING CHAPTER OBJECTIVES 1. To describe the evolution and organizational forms of U.S. international banking and important legislation that influenced its growth. 2. To discuss international lending activities; to explain risks involved in international banking and discuss methods used to reduce these risks. CHANGES FROM THE LAST EDITION 1. The chapter preview has been revised. 2. The chapter tables and statistics have been updated. 3. A new People and Events box titled “A Banker to the Rescue?” has been added. 4. The subsections “Risk in International Lending” and “Methods of Reducing Risk” have been expanded. 5. One “Do You Understand?” questions has been added (Question 4 in the second series of questions). 6. End-of-chapter questions have been revised. CHAPTER KEY POINTS 1. The development of U.S. international banking should be emphasized to provide some insight into the reasons for the rapid expansion in the 1960s and the apparent slowdown in growth that has occurred in the late 1970s. 2. An understanding of the regulation of U.S. overseas banking activities by both the U.S. and foreign governments is important. The U.S. government's conservative banking philosophy is in contrast with the regulatory practices of many foreign governments. 3. The organizational forms that U.S. banks can use to deliver overseas banking services are varied. They are representative offices, shell branches, correspondent banks, foreign branches, Edge Act corporations, and foreign subsidiaries. [See Exhibit 15-3] 4. The characteristics and practices of international lending should be emphasized, especially the differences in funding, syndication, pricing, and collateral compared to domestic lending. Although it is more difficult to gather information, credit analysis of international borrowers is similar to that of U.S. business firms. Country risk and 1
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currency risk are risks unique to international lending. 5. The growth of foreign bank activities in the United States is of interest because of the rapid growth in recent years. The International Bank Act (IBA) of 1978 addresses many of the inequities that existed between foreign and domestic banks. 6. Students seem to enjoy a discussion about the future direction of international banking. A good idea is to discuss the impact that the changing U.S. financial system will have upon the international banking scene. ANSWERS TO END-OF-CHAPTER QUESTIONS 1. Why were U. S. banks slow to expand overseas? What changed to encourage overseas expansion? While legislative impetus to expand overseas existed since 1913, U.S. banks did not really begin expanding overseas until well after World War II. Even then, it was the increase in foreign direct investment by non-financial corporations from the U.S. that forced U.S. banks to expand overseas in order to provide required services for their globally expanding domestic clients. 2.
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This note was uploaded on 02/23/2011 for the course FINA 4090 taught by Professor S during the Spring '11 term at Toledo.

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