MODULE 2 – The Growth
In this module the growth of IB will be discussed regarding the menu of financial services
that was offered throughout its development.
The role played by the laws and regulatory
agencies that were enacted for providing checks and balances in the operation of IB, and
the roles of the different economic models played in its growth and development from the
contemporaries to the present time will be discussed.
Also, we will discuss how the role
that the Internet has played from its inception is changing the total picture of the type of
growth, due to globalization, for every aspect of the financial market and economic system,
and hence IB.
Upon successful completion of this module, the student should be able to:
• Describe the financial services provided by IB.
• Examine the roles different laws and regulatory agencies played in the growth of IB.
• Identify the role that the Internet played in facilitating IB activities, especially in the
• Examine the financial intermediaries’ role in monetary policy decisions.
s far as the history of international banks is concerned, it goes way back to the Middle Ages
when Italian merchants set the foundation for trading activities through lending and borrowing
throughout southern Europe and beyond.
As businesses grew and commercial activity expanded,
some form of IB entities were gradually shaped. This activity complimented the continuous
growth of business and commercial activity, especially in the European continent.
domestic and international trade without a financial intermediary is not possible, this led to the
growth of international banks in the European continent and beyond.
To define IB, we can summarize it as such: IB is banking activity, such as making loans and
financial involvement in the worldwide securities, trading and exchange markets.
bank’s operations and financial activities are taken beyond its domestic boundaries, the bank
becomes internationally involved, and therefore it is called an international bank.
The other factor that played an important role in the growth of IB was the availability of a large
amount of US denominated deposits in foreign countries, which in financial terms are known as
To tap into those large deposits, American banks branched out in different parts of
the globe in order to have access to that pool of deposits.
Access to these reserves was the
catalyst for international banks to become active in international capital and bond markets.
Another important issue for the growth of IB, especially US banking, was removal of the
limitations that were imposed by regulations on US banking institutions.
For example, we can
look at the Glass-Steagall Act.
For further information, please see Footnote #1
As we know,
the US economy experienced a serious downturn in 1929, also known as the Great Depression.
The US economy was guided by the economic model known as the Classical Economic Model.