International Operations of U.S. Banks: Growth and Public Policy Implications

Abstract

Change and innovation dominate the contemporary banking scene both in this country and abroad. In the United States, considerable attention has been directed to a number of changes in banking that have already occurred, are taking place, or are in prospect as they affect the structure of financial institutions, the functioning of markets for money and credit, and the ways in which financial transactions are effected. Automation, credit cards, the checkless society, the role of banks as financial intermediaries-these are but a few of the current topics of study, discussion, and debate. Abroad, too, though perhaps to a less marked degree, the face and character of banking are undergoing changes of similar far-reaching significance. One of the major areas of change in American banking in the past decade has been international operations. This rather short period has seen an unusually rapid expansion of the international activities of American banks and the extension of a growing number of domestic banking institutions into international banking and financial operations. In contrast to the rather passive character of these operations in the early I950s, major American banking institutions are today operating large networks of branches encircling the globe. Affiliations have been established with banking and financial institutions on every continent. Foreign loans and credits at banks in this country have undergone a nearly six-fold expansion. This lending now encompasses a full range of borrowers-foreign banks, governments, subsidiaries of U.S. corporations, and others; and, in addition to traditional financing of this country's foreign trade, credits are extended to provide working capital, to finance large-scale capital projects, and for a variety of other purposes in countries ranging from Australia to Zambia. Major American banks, together with their foreign branches and affiliates, are important intermediaries for the channeling of funds among international financial centers in quick response to changes in interest rates and in demand and supply relationships for money. Funds obtained in foreign financial markets have been used to support bank lending and investment activities in the United States, and, for a few banks, one quarter or more of their earnings are attributable to their international operations. The expanded international operations of American banks have introduced or accelerated change in foreign banking markets and in foreign banking practices. In