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Introduction to International Banking.
Banks are the key players in the financial system of a country. They
perform the function of financial intermediation in an effective
manner.
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History of International Banking.
The origin of international banking dates back to the second century
BC when Babylonian temples under the code of Hammurabi,
safeguarded the idle funds of the affluent and extended loans to
merchants to finance the movement of goods.
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2.1 Reasons for the growth of international
banking.
There are a number of explanations or theories provided to support
the growth in international banking operations.
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ORGANIZATIONAL FEATURES OF
INTERNATIONAL BANKING.
International banks are organized in various formal and informal ways
from simply holding account with each other to holding common
ownership. Given below are some forms of banking organizations that
exist across the world.
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3.3 Bank Agencies
An agency is similar to a bank except that it does not handle ordinary
retail deposits. The agencies mostly deal in the local currency markets
and in the foreign exchange markets, arrange loans, clear bank drafts
and cheques, and channel foreign funds into financial markets.
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INTERNATIONAL INTERBANK BUSINESS
Interbank market is the mainstay of international banking market.
Nearly sixty to seventy percent of all international banking market
comes from other banks. The large interbank market makes the
market look essentially a wholesale market for banks. It enables banks
to fund rapidly growing loan portfolios.
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INTERNATIONAL PRIVATE BANKING
Private banks are entering the international scene and are creating a
lot of competition in the banking system. Thus evolved the concept of
INTERNATIONAL PRIVATE BANKING.
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Some of the services offered by the International
private banks:
• Banks lend their international clients certain small amounts that
are backed by assets for short time periods. Generally banks
operating internationally do not provide unsecured loans as part
of their business, but certain institutions provide trade financing
and other forms of transactional or corporate lending activities.
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Need for Regulation of International Banking
Since international banking activities take place between parties,
that are not in the same country, the international banks are exposed
to regulations of the host country as well as the country in which the
borrower is located. To aid the banks operating internationally from
dual regulations, a need to regulate the international banking system
as a whole was felt.
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REGULATORY ARBITRAGE: Birth of
Offshore Banking And Euro-Currency
Markets.
The gaps that arise either deliberately or unintentionally as a
result of regulations, give rise to arbitrage opportunities in banking,
Two developments have taken place under this — euro-currency and
offshore banking units.
act as close substitutes to one another, it is not possible to close down
an offshore banking unit even if certain concessions are withdrawn
and the location center becomes less attractive.
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