Search Results

The late 1950s and early 1960s marked the beginning of a period of important structural change and innovation within British banking. After the war, of course, the City's fortune was far from assured — with the UK's relative economic weakness, the weak international financial legacy from sterling's experience in the 1930s and during the Second World War, and the continued unfavourably restrictive international financial environment facing City institutions. This chapter examines the re-emergence of London as an international banking centre by focusing on the rapid growth of foreign banks locating in the City in the 1950s, 1960s, and 1970s, and the consequent competition they posed for British banks.

The differences between the City of London's position as the world's leading financial centre in 2000 and in 1900 can be understood by considering the actors who occupied centre stage during the late 19th century. These actors, more precisely, those involved in the City's international financial operations, form the subject of this chapter. The chapter is limited to a few reflections upon these actors' experiences in the light of the changes that were to happen within the City as a result of further globalization during the late 20th century. After establishing who the main actors were in international banking, these reflections are concerned with three broad themes: first, the question of entry and exit; second, the level of competition; and, third, strategic options.

This chapter examines the impact of China's financial services trade liberalization on capital flows. First, it reports that foreign banks, in spite of their small presence in China, have already played an important role in channeling capital flows in and out of the country. Second, it examines the impact of the liberalization commitments made under the GATS in financial services and especially in the banking sector on international bank loans to developing economies. The chapter is organized as follows: Section 13.2 provides an updated review of the GATS with a focus on the financial services. Section 13.3 documents the role of foreign banks in channeling capital flows in and out of China. Section 13.4 presents some empirical findings on whether the financial services trade liberalization commitments promote bank loans to emerging market economies. Section 13.5 concludes and discusses implications for policy.

Chapter 8 examines the role of private sector in the post-1991 period with reference to the Indian banking sector. Empirical analysis reveals that the private sector is increasing its share although public sector banks still dominate the Indian banking sector. Private sector banks including foreign banks are also showing their impact on the sector in terms of improving the efficiency of public sector banks, and reducing their operating expenses and non-performing assets. Notwithstanding numerous policy measures such as priority sector lending, Indian banks—public as well as private sector banks-are yet to expand financial access to agriculture and small enterprises.

One reason governments have protected their banks from foreign ownership is that they feared foreign-owned banks would “cut and run”—i.e. abandon their host markets—in a financial crisis. An unexpected finding of this chapter, however, is that while foreign banks’ commitments to host markets have indeed been fleeting in crises, those commitments were weakest when the relationship between foreign banks and host markets was not characterized by ownership. Thus it was foreign ownership through a “second home market” model and bank subsidiaries during the acute phase of the US financial crisis (2008–9) that saved East Central Europe from economic catastrophe. In Western Europe, meanwhile, where foreign bank ownership levels were low but cross-border lending was significant, bank lending retreated behind national borders. This chapter also rejects the argument that the Vienna Initiative, a voluntary bank rollover agreement, compelled foreign-owned banks to maintain their exposures in East Central Europe.

Initially, many believed that China would not be affected by the international financial crisis. In fact, some even believed that China would be the one to relieve the world from its troubles. Prime Minister Wen Jiabao stated that he was confident that the 10 years of reform that the country had recently undergone would render it stable and would mean it would be able to endure the crisis. Also, this belief was furthered by a US$586 billion economic stimulus package that had been introduced in November 2008. Even after officials realized that the ability to maintain a stable export growth of manufacturing goods was in sharp decline, confidence persisted. The country continued to accumulate foreign reserves and its banks did not collapse. However, the banking industry appeared to be still susceptible to adverse effects, and the size of the country's financial system hindered policy-making. Also, competition had to be controlled and the role of foreign banks had to be restricted.

Global data on foreign bank ownership shows that the advanced industrial and major emerging economies have low levels of foreign bank ownership—a clear rebuke to marketized bank–state ties. Among developing and smaller emerging economies, however, foreign bank ownership levels are significantly higher on average. The chapter explains the divergence, highlighting both perceived advantages of banking sector protectionism, as well as specific pressures brought to bear on weaker states that forced banking market opening in the context of crisis or transition. Mirroring global trends, West European protectionism juxtaposed against East Central European openness appeared to be a case of stronger states exploiting weaker ones. But the consequences were in fact more complicated. West European banking nationalism was a key source of the European debt and currency crisis and financial fragmentation. And while West Europeans were paying trillions to save their banks, East Europeans largely escaped those fiscal burdens.

The study’s findings from Europe have implications for other major powers, including that: (1) banking sector protectionism became increasingly costly given other liberalizing trends; (2) foreign-owned bank subsidiaries can provide more stable funding in crises than alternative foreign or even domestic bank activity; (3) foreign domination in finance limited catching up in the global economy, but in fact few states showed the capacity to exploit domestic banks for national goals; and (4) centralized bank governance through European Banking Union weakened bank–state ties in Europe, and elevated the role of markets there. This chapter analyzes the relevance of the findings for the BRICS (Brazil, Russia, India, China, and South Africa). China is perhaps the clearest case of a country struggling to both liberalize and retain the economic policy autonomy associated with a largely state-controlled financial system. The conclusion specifies the broader transformation in bank–state ties, but also its limits.

At the same time that the National City Bank of New York was attempting to take over the privately-owned central bank in Haiti, they were making a broader push into the international field. Largely due to the efforts of bank president Frank A. Vanderlip, this push occurred through two new organizational innovations. First, the use the bank’s “security affiliate,” the National City Company, a parallel entity that engaged in activities illegal for the bank itself. Second, through an extensive, developing branch bank networks. While the National City Company’s history was premised on the City Bank’s explicit skirting of domestic banking regulations, the branch bank network was mobilized on the bank of new banking regulation, specifically that of the Federal Reserve system. Both the security affiliate and the branch network required the development, training, and hiring of a new group of managers and executives – including the notorious and important figure of Roger L. Farnham – and both represented the attempt by the City Bank to recast itself as an imperial entity with the aim of displacing European and Canadian competition in the Caribbean and establishing Wall Street as the dominant presence in the finances and banking of the region.

This chapter sketches the role of foreign banks opening branches, joint ventures, and representative offices in China over the past decade. Although their market share is only 2%, they have played an important role in technology transfer and in introducing more sophisticated products to the market. The largest and most successful of the foreign banks has been HSBC, due to its well-conceived China strategy and excellent relations with the financial authorities. Chinese banks are now expanding overseas in support of the government’s policy of “going out.” Chinese banks are expected to support Chinese investment overseas. They are limited in experience and capabilities for international expansion at this time, and so are cautious.

The paradox of financial control refers to the fact that while most governments resent or resist incursions on national bank ownership or management, European states with high levels of foreign bank ownership paid much lower costs through the recent financial crises than countries that had pursued banking sector protectionism. Europe is an ideal setting in which to investigate this paradox because extreme banking sector openness in the East coincided with banking sector protectionism in many western Eurozone countries. The otherwise homogenous institutional context of the European Union therefore revealed with precision the disparate effects of marketized bank–state ties through foreign bank ownership versus national control over banks via domestic ownership or management. While foreign bank ownership mitigated economic volatility in crises, marketized bank–state ties also limited or threatened to limit economic policy autonomy.

The Chase National Bank of New York arrived late to imperial banking but quickly developed a strategy for foreign expansion that was aggressive and reckless. As this chapter describes, this strategy initially occurred through the organization of the American Foreign Banking Corporation, an entity that, like the Mercantile Bank of the Americas, was enabled by permissive banking legislation and marked by concentration, collusion, and corruption. It too,was short-lived. In the wake of its failure, the Chase turned to its securities affiliate, the Chase Securities Corporation, and increasingly, the issuance of sovereign debt became a staple of the Chase’s internationalization. Nowhere was this more apparent in Cuba, where the Chase aggressively sought to fund the government of Gerardo Machado y Morales through loans that were questionable for both their fiscal logic and their ethical character. By the end of the 1920s, as the Cuban economy stuttered, largely due to the low price of sugar, and the Machado regime became increasingly repressive, the Chase was called to account for its lending practices and increasingly, its Cuban debts were deemed “odious.” These debts reflected a crisis of sovereignty in Cuba, for the Chase, they promoted a crisis of imperial banking in the Caribbean.

The banking crisis of 1920-21 forced a house-cleaning on the part of the National City Bank of New York, and a rethinking of its strategies for internationalization. A new executive, Charles E. Mitchell, was appointed, and a new group of managers, including Joseph H. Durrell, were hired. Mitchell and Durrell came to define the City Bank’s history during the 1920s with Durrell becoming central to the bank’s foreign operations. While under Mitchell, the National City Company became and increasingly critical for the bank’s domestic profits, especially through the marketing of securities and bonds, under Durrell the foreign branch network was pared back and a strategy of savings and thrift became key to the City Bank’s imperial operations. At first, such a shift proved profitable. However, by the end of the decade the Caribbean’s ongoing economic malaise sounded warning signs within the bank concerning the sustainability of imperial banking. There were also increasing protest from Caribbean citizens against the dominant presence of foreign banks and the practices of US imperialism. Based on the previously-unused private papers of Durrell, this chapter recounts the history of the City Bank’s shifts in imperial policy in the Caribbean and the beginnings of Caribbean anti-banking protest.

This chapter examines the attempts of the National City Bank of New York to take over the banking and financial affairs of the Republic of Haiti. The chapter argues that the bank’s ventures into Haiti were a core element of a strategy of internationalization that itself was part of a broader project of modernization and managerial reform. Additionally, the chapter demonstrates that the City Bank’s managerial reforms served to operationalize in policy notions of racial difference and ideologies of white supremacy which in turn served to construct and reinforce the racial hierarchies governing US-Haitian relations. While the City Bank’s efforts in Haiti were arguably its most successful early international venture, it was also among the most controversial. The bank’s actions exacerbated long-standing strife between foreign bankers and the Haitian government and fomented the conditions leading to a repressive nineteen-year US Marine intervention into and occupation of Haiti, beginning in 1915.

After discussing the failed late-nineteenth century attempts to form a “Pan-American” or “International American” banking institution to support the United States’ growing foreign commercial presence, this chapter recounts the history of the International Banking Corporation. Founded in 1902 by lawyer and industrialist Thomas H. Hubbard and often described as the United States’ first international bank, the International Banking Corporation was organized to serve as an adjunct to the US colonial presence in Panama, the Philippines, and China. The banks activities thus straddled the division between commercial and colonial or governmental activities. The chapter demonstrates how its unique legal organization allowed it to skirt regulatory restrictions on US foreign banking, while its overseas employees, rogue bankers, served as the foot-soldiers for its imperial expansion while suturing together the tattered legal geography of internal finance – and the relationship between finance capitalism and racial capitalism.

Focusing on the Cuban banking crisis of 1920–21, this chapter examines the expansion of US imperial banking and finance into the Caribbean and Latin America in the years immediately following World War I through the history of the Mercantile Bank of the Americas. Backed by a consortium of powerful Wall Street interests including J. & W. Seligman and Co., Brown Brothers and Co., and J. P. Morgan and Co., the Mercantile Bank of the Americas was organized to both take advantage of the unsettled financial conditions of the post-war years and the new permissive federal legislation for international banking put in place by the Federal Reserve system. The chapter shows how the new legal order permitted forms of concentration, cartelization, and collusion in foreign banking, allowing the Mercantile Bank of the Americas to quickly create a expansive network of dependent branch banks and semi-autonomous local banks throughout the American hemisphere. Yet the new legal regimes also encouraged over-expansion and, combined with managerial incompetence, personal corruption, and market instability, the bank's network proved precarious and frail. Its collapse occurred almost as quickly as its emergence; its failure offered lessons on the problems of imperial banking and the limits of US empire.

This chapter investigates whether the dollar might eventually follow the precedent of the pound and cede its status as leading international reserve currency. The link between currency shares and their determinants is nonlinear, but changes are felt only with a long lag. The sustainability of the U.S. current account deficit may depend on the continued willingness of foreign central banks to collect ever-greater quantities of U.S. assets. The euro soon after its debut came into wide use to denominate bonds. The euro is the number two international currency, and has rapidly gained acceptance. Euro enthusiasts endured some serious setbacks in 2005. Data indicate that dollar depreciation would be no free lunch: it could have consequences for the functioning of the international monetary system as profound as the loss of the dollar's preeminent international currency position, and along with it the exorbitant privilege of easily financing U.S. deficits.

This chapter analyzes how the crisis in Asia spread during the second half of 1997. The main findings can be summarized as follows. First, as regards the propagation of shocks across national borders during the Asian crisis, the behavior of foreign banks, particularly Japanese banks that began drastically to curtail their lending to the affected Asian countries following the Thai devaluation, appears to have played a role in spreading the crisis, particularly to Indonesia, Malaysia, and South Korea. Second, only Malaysia and South Korea appear to have any significant trade links to Thailand. Thus, the spread of crisis to Indonesia and the Philippines cannot be explained through interdependence arising from a substantial volume of trade in goods and services. Third, the contagion vulnerability indexes do reasonably well in anticipating which countries were most vulnerable to contagion in three recent crises episodes (the Mexican 1994 devaluation, Brazil's crisis in early 1999, and the Asian episode). Fourth, the evidence from the daily data suggests that the patterns of causality and interdependence do change during the course of the crisis, as turbulence in affected countries such as Indonesia begins to have additional feedback effects on the other countries, including the initial crisis country, Thailand. Lastly, Malaysia's interest rates remain uninfluenced by shocks to other interest rates in the region in the post-crisis sample. This result may be due to the presence of extensive capital controls—an issue which merits further scrutiny. Two commentaries are included at the end of the chapter.