International Banking
The Federal Reserve is interested in the international activities of
banks, not only because it functions as a bank supervisor but also because such
activities are often close substitutes for domestic banking activities and need
to be monitored carefully to help interpret
U.S.
monetary and credit conditions. Moreover, international banking institutions are
important vehicles for capital flows into and out of the United States.
Where international banking activities are conducted depends on such
factors as the business needs of customers, the scope of operations permitted
by a country’s legal and regulatory framework, and tax considerations. The
international activities of U.S. chartered banks include lending to and
accepting deposits from foreign customers at the banks’
U.S.
offices and engaging in other financial transactions with foreign counterparts.
However, the bulk of the international business of U.S. chartered banks takes
place at their branch offices located abroad and at their foreign incorporated
subsidiaries, usually wholly owned. Much of the activity of foreign branches and
subsidiaries of U.S.
banks has been Eurocurrency business which is taking deposits and lending in
currencies other than that of the country in which the banking office is
located. Increasingly, U.S.
banks are also offering a range of sophisticated financial products to
residents of other countries and to
U.S.
firms abroad.
The international role of U.S. banks has a counterpart in foreign bank
operations in the United
States.
U.S. offices of foreign banks
actively participate as both borrowers and investors in U.S. domestic money markets and are active in the
market for loans to U.S.
businesses.
International banking by both U.S. based and foreign banks facilitates
the holding of Eurodollar deposits in banking offices outside the
United States by nonbank U.S. entities. Similarly, Eurodollar
loans from banking offices outside the United
States can be an important source of credit for U.S. companies
(banks and nonbanks). Because they are close substitutes for deposits at
domestic banks, Eurodollar deposits of nonbank
U.S.
entities at foreign branches of U.S.
banks are included in the
U.S.
monetary aggregate M3. Eurodollar deposits of nonbank U.S. entities at all other banking offices in the
United Kingdom and Canada are also
included in M3.
Back
Back to Test