Modern Financial Systems: Theory and Applications

CHAPTER 18

International Banking and Banking Markets

Chapter 18 focuses on international intermediaries and related institutions. It considers the similarities and differences among international banks, investment banks, and financial conglomerates.

It also discusses reasons for the emergence of a truly international group of markets—the Euromarkets.

INTERNATIONAL BANKING

While there was little international banking activity between the 1930s and the late 1950s, burgeoning international trade in the 1960s stimulated a resurgence that has been ongoing up to the credit crunch of 2007-2008. The first forays into international banking took the form of banks following their nonfinancial clients into new markets as a way of protecting existing connections. The continuing growth of multinational firms contributed to more growth in both financial and nonfinancial international business, and from those beginnings, international finance and risk management have grown into today’s integrated global activity.

Overview

International banks sometimes enjoy comparative advantages in being able profitably to make loans or investments that domestic banks do not find profitable. In smaller markets the average costs of an international bank can be lower than those of an indigenous bank because of scale economies, since the international bank has a larger volume of business over which to spread the fixed costs of entering new markets. Citigroup, with some 300,000 employees, is one of the best-known ...