Global banking business

One clear trend in the evolution of financial

institutions and markets is the expansion of activities across national boundaries. Technology has made it possible to conduct business around the world with relative ease and minimal cost. Producers recognize that export markets are as important as domestic markets, and that the range of competitors includes both domestic and foreign operations.

Global banking activities

involve both traditional commercial banking and investment banking operations.

U.S. commercial banks now accept deposits, make loans, provide letters of credit, trade bonds and foreign exchange, and underwrite debt and equity securities in dollars and other currencies. With the globalization of financial markets, all firms compete directly with other major commercial and investment banks throughout the world. Foreign banks offer the same products and services denominated in their domestic currencies and in U.S. dollars. Still, it was not always this way.

U.S. banks, although a dominant player in some world markets, have not been considered large by international standards
Restrictive branching laws, Restrictions on the types of activities U.S.

banks could engage in, and Other regulatory factors generally meant that

U.S. banks were greater in number, but smaller in size.

U.S. banks, although a dominant player in some world markets, have not been considered large by international standards.
Rank 1 2 3 4 5 6 7 8 9 10 17 26 Company Name Bank of Tokyo-Mitsubishi Ltd., Tokyo, Japan Deutsche Bank AG, Frankfurt, Germany Credit Agricole Mutual, Paris, France (2) Credit Suisse Group, Zurich, Switzerland (1) Dai-Ichi Kangyo Bank Ltd., Tokyo, Japan Fuji Bank Ltd., Tokyo, Japan Sanwa Bank Ltd., Osaka, Japan Sumitomo Bank Ltd., Osaka, Japan Sakura Bank Ltd., Tokyo, Japan HSBC Holdings, Plc., London, United Kingdom Chase Manhattan Corp., New York, United States Citicorp, New York, United States (b) 12/31/1996 $648,161.00 575,072.00 479,963.00 463,751.40 434,115.00 432,992.00 427,689.00 426,103.00 423,017.00 404,979.00 333,777.00 278,941.00

Billions of dollars Source: The AmericanBanker: http://www.americanbanker.com.

By the end of the 20th century, many factors had changed in the U.S. banking system.
The Riegle-Neal Interstate Banking and Branching Efficiency

Act of 1994 effectively eliminated interstate branching restrictions in the U.S. such that: by early 1994, there were 10 U.S. banks with 30 interstate branches. by June 2001, there were 288 U.S. banks with 19,298 interstate branches. U.S. banks were also hampered in their ability to compete internationally by the Glass-Steagall Act, which effectively separated commercial banking from investment banking. As such, U.S. commercial banks essentially provided two products: loans and FDIC-insured deposits. In November 1999, the U.S. Congress passed the GrammLeach-Bliley Act, which allowed U.S. banks to fully compete with the largest global diversified financial companies by offering the same broad range of products. The Gramm-Leach-Bliley Act of 1999 repealed restrictions on banks affiliating with securities firms and modified portions of the Bank Holding Company Act to allow affiliations between banks and insurance underwriters.

By the end of 2000, the largest banking company in the world was Citigroup at just under one-trillion dollars and three of the largest ten banking companies in the world were U.S. banks.
World Rankings of Financial Companies (by Assets) after Mergers, the full enactment of Riegle-Neal Interstate Banking and Branching Efficiency Act and Gramm-Leach-Bliley Act
2000 Rank 1 2 3 4 5 6 7 8 9 10 Company Name Citigroup Inc , New York Deutsche Bank , Frankfurt, Germany Bank Of Tokyo-Mitsubishi Ltd. , Tokyo J.P. Morgan Chase & Co. , New York UBS, Zurich HSBCHoldings , London BNP Paribas , Paris Bank of America Corp. , Charlotte, N.C. Credit Suisse Group , Zurich Fuji Bank Ltd. , Tokyo Total Assets 2000 $902,210.00 872,626.68 720,808.94 715,348.00 673,705.58 673,475.21 651,431.86 642,191.00 612,098.13 557,111.70 Total Assets 1999 $716,937.00 829,155.67 638,926.83 406,105.00 615,324.33 600,680.41 702,370.25 632,574.00 451,062.77 467,410.23 % Change 25.84% 5.24 12.82 76.15 9.49 12.12 -7.25 1.52 35.7 19.19

Note: Assets are in billions of dollars. Source: American Banker, http://www.americanbanker.com/

The merger between Citicorp and Travelers created Citigroup, the first diversified financial services company in the U.S.
The merger, however, was not completely

permissible at the time it was approved under provisions of the Glass-Steagall Act.

The passage of the Gramm-Leach-Bliley Act, made this merger permissible and thereby allowed Citigroup to legally be the worlds largest banking company. Citigroup formed a financial holding company under the provisions of the Gramm-Leach-Bliley Act and became one of the first integrated financial services companies engaged in investment services, asset management, life insurance and property casualty insurance, and consumer lending.

Its operating companies include Salomon Smith Barney, Salomon Smith Barney Asset Management, Travelers Life & Annuity, Primerica Financial Services, Travelers Property Casualty Corp., and Commercial Credit.

Today, the product offerings of Citigroup are similar to that of Deutsche Bank in Germany
Prior to the merger between Citibank and Travelers,

however, Citibanks product line was more limited. Outside the U.S., Citibank was able to offer a diversified set of products using an Edge Act corporation.

Edge Act corporations are domestic subsidiaries of banking organizations chartered by the Federal Reserve.

All Edges are located in the United States and may be established by U.S. or foreign banks and bank holding companies, but are limited to activities involving foreign customers. They can establish overseas branches and international banking facilities (IBFs) and own foreign subsidiaries.

Foreign banks operating through their American banking offices have also aggressively pursued U.S. business.
95.0%
45.0% 40.0% 35.0%

90.0% 85.0% 80.0% 75.0% 70.0% 65.0%

30.0%
25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

60.0%
55.0% 50.0%

Domestic total assets Foreign owned total assets

Domestic total deposits Foreign owned total deposits

Percent of total foreign owned

100.0%

50.0%

Percent of total domestic

The growth in market share of U.S. offices of foreign banks in total loans and business loans.
100.0% 95.0% 50.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Domestic total loans Foreign owned total loans

Domestic business loans Foreign owned business loans

Percent of total foreign owned

45.0%

Percent of total domestic

The largest U.S. banks with significant international operations.

Total Name Assets Citibank NA, New York NY 452,343 JPMorgan Chase Bk, New York NY 537,826 Bank of America NA, Charlotte NC 551,691 Fleet NA Bk, Providence RI 187,949 Bank of New York, New York NY 78,019 Bank One NA, Chicago IL 161,023 MBNA America Bk NA, Wilmington DE 43,066 First Union NB, Charlotte NC 232,785 State Street B&TC, Boston MA 65,410 Wachovia Bk NA, Winston-Salem NC 71,555 Keybank NA, Cleveland OH 71,526 PNC Bk NA, Pittsburgh PA 62,610 Mellon Bk NA, Pittsburgh PA 27,813 Bank of Hawaii, Honolulu HI 10,493 Northern Trust Co, Chicago IL 32,758 National City Bk, Cleveland OH 39,214 Wells Fargo Bk NA, San Francisco140,675 CA Wells Fargo Bk MN NA, Minneapolis 52,428 MN Deposits Held in: Domestic Foreign Offices Offices $ Mill % TA 98,899 208,024 46.0% 160,102 120,371 22.4% 334,909 56,634 10.3% 110,148 22,316 11.9% 28,786 27,024 34.6% 81,020 26,358 16.4% 26,187 1,448 3.4% 135,276 12,473 5.4% 12,137 26,718 40.8% 42,684 3,627 5.1% 40,010 2,721 3.8% 44,079 2,307 3.7% 9,947 4,949 17.8% 5,621 1,369 13.0% 10,380 9,424 28.8% 20,464 1,007 2.6% 73,644 5,433 3.9% 26,311 7,459 14.2% Net Loans and leasses: Domestic Foreign Offices # of US Offices $ Mill % TA Branches 121,901 157,462 34.8% 277 135,872 39,022 7.3% 612 287,364 20,867 3.8% 4,350 102,956 19,737 10.5% 1,709 19,822 16,879 21.6% 362 76,440 4,991 3.1% 804 18,733 4,123 9.6% 3 118,053 3,479 1.5% 2,143 4,519 1,402 2.1% 1 45,434 807 1.1% 790 54,047 785 1.1% 980 39,072 777 1.2% 735 6,269 548 2.0% 346 5,312 495 4.7% 78 11,331 397 1.2% 1 31,022 154 0.4% 353 93,799 20 0.0% 939 34,277 1 0.0% 169

The largest foreign owned banks operating in the U.S.

Deposits Held in: Loans in % # of Total Domestic Foreign Frgn Foreign # of US Foreign Name Assets Offices Offices Offices Top Holding Company Owned Branches Branches HSBC Bank USA, Buffalo NY 84,230 37,067 21,153 3,194 HS BC Holdings PLC, LONDON NA 100 440 19 Lasalle Bank NA, Chicago IL 54,731 24,963 4,226 0 ABN Amro, AMS TERDAM NA 100 122 2 Bankers Trust Co, New York NY 42,678 11,423 10,000 253 Taunus Corporation, NEW YORK NY 100 4 14 Standard Federal Bk NA, Troy MI 42,088 19,702 624 0 ABN Amro, AMS TERDAM NA 100 385 2 Union Bk of CA NA, San Francisco CA 35,591 26,518 3,305 1,041 Bank of Tokyo-Mitsubishi, TOKYO NA 66 286 6 Banco Popular De PR, San Juan PR 20,477 11,459 190 10,306 Popular Inc., S AN JUAN PR 100 2 204 Harris T&SB, Chicago IL 19,673 9,498 1,708 151 Bank of Montreal, MONTREAL NA 100 57 2 Allfirst Bk, Baltimore MD 17,762 12,758 545 249 Allied Irish Banks Limited, DUBLIN NA 100 270 2 RBC Centura Bk, Rocky Mount NC 13,732 7,388 273 0 Royal Bank of Canada, MONTREAL NA 100 241 1 Bank of The West, San Francisco CA 13,412 9,212 N/A 0 Bancwest Corporation, HONOLULU HI 44 193 0 United CA Bk, San Francisco CA 10,524 8,285 428 0 S anwa Bank, Limited, OS AKA NA 100 121 1 First Hawaiian Bk, Honolulu HI 8,682 5,691 463 364 Bancwest Corporation, HONOLULU HI 44 56 6 Firstbank PR, San Juan PR 8,143 4,117 N/A 0 First Bancorp, S AN JUAN PR 100 1 49 Banco Santander PR, Hato Rey PR 7,656 4,811 0 0 Banco S antander S .A., S ANTANDER NA 80 1 72 TD Waterhouse Bk NA, Jersey City NJ 6,069 5,546 N/A 0 TD Waterhouse Holdings, Inc., NEW YORK NY 80 2 0 Israel Discount Bk of NY, New York NY 6,021 2,112 2,094 415 Israel Discount Bank Limited, TEL-AVIV NA 100 7 1 Westernbank Puerto Rico, Mayaguez PR 5,887 3,214 N/A 0 W Holding Company, Inc., MAYAGUEZ PR 100 1 35 Banco Popular North America, New York City NY 5,606 4,761 0 0 Popular Inc., S AN JUAN PR 100 98 0 Safra NB, New York NY 5,010 2,548 320 875 S NBNY Holdings Limited, MARINA BAY NA 99 2 1 Banco Bilbao Vizcaya Argenta, San Juan PR 4,801 2,971 N/A 0 BBVAPR Holding Corporation, S AN JUAN PR 100 1 61 Bank of Tokyo Mitsubishi TC, New York NY 4,337 1,491 1,310 46 Bank of Tokyo-Mitsubishi, TOKYO NA 100 1 1 Bank Leumi USA, New York NY 4,082 1,496 1,800 169 Bank Leumi Le-Israel B.M., TEL-AVIV NA 99 8 1 R-G Premier Bk of PR, San Juan PR 3,963 2,115 N/A 0 R&G Financial Corporation, S AN JUAN PR 100 1 25 Doral Bk, San Juan PR 3,486 1,528 N/A 0 Doral Financial Corporation, S AN JUAN PR 100 1 26 Laredo NB, Laredo TX 2,349 2,029 N/A 0 Incus Co. Ltd., ROAD TOWN NA 71 24 0

Universal banking model

Universal banking is the conduct of a variety

of financial services such as:

trading of financial instruments; foreign exchange activities; underwriting new debt and equity issues; investment management, insurance; as well as extension of credit and deposit gathering

Universal banks have long dominated

banking in most of continental Europe. Universal banks engage in everything from insurance to investment banking and retail banking

similar to U.S. banks prior to the enactment of the Banking Act of 1933 and Glass-Steagall provisions and now post the passage of the Gramm-Leach-Bliley Act of 1999

Three events changed the historical development of banking in the united states.
1.

The first was the stock market crash of 1929 and the following Great Depression.

Many people blamed the banks and the universal banking activities for the problems although there is no strong evidence to link the speculative activities of banks with the crash.

2.

3.

The second was the enactment of the Banking Act of 1933 and the Glass-Steagall provision, which separated commercial banking from investment banking activities. The third was the rising importance of the federal government in financial markets.

Prior to these events, the U.S. banking system operated more of less under a universal banking system.

The advantages of universal banking

risk diversification and expanded business opportunities.

A universal bank can spread its costs over a

broader base of activities and generate more revenues by offering a bundle of products. Diversification, in turn, reduces risk.

insurance companies, investment banks and other suppliers of financial services are moving toward building financial conglomerates

The GLB Act repealed Glass-Steagall and

allows U.S. banks to operate in the business of commercial banking, investment banking, and insurance.

Although there are many restrictions, U.S. banks are allowed to compete with foreign banks on an equal footing for the first time since the passage of the Glass-Steagall Act,

Disadvantages of universal banking

inherent conflict of interest
A universal bank might use pressure tactics

to coerce a corporation into using its underwriting services or buy insurance from its subsidiary by threatening to cut off credit facilities. It could force a borrower in financial difficulties to issue risky securities in order to pay off loans. A universal bank could also abuse confidential information supplied by a company issuing securities as well.

One area of the new GLB Act that has received significant attention is that of privacy protection