国际金融学课件：Lecture 7 International Banking and Money Market

7

InternationalBankingandMoneyMarket(Chapter11)

EssentialReadingTheWholeChapterMainContentsInternationalBankingInternationalMoneyMarketInternationalDebtCrisisTheWorld’s10LargestBanks1. BNPParibas France2. RoyalBankofScotlandGroup UnitedKingdom3. HSBC UnitedKingdom4. Crédit

Agricole France. BankofAmerica UnitedStates. Barclay’s UnitedKingdom7. DeutscheBank Germany. JPMorganChase UnitedStates. MitsubishiUFIFinancialGroup Japan. Citigroup UnitedStatesLowMarginalCostsManagerialandmarketingknowledgedevelopedathomecanbeusedabroadwithlowmarginalcosts.ReasonsforInternationalBankingLowMarginalCostsKnowledgeAdvantageTheforeignbanksubsidiarycandrawontheparentbank’sknowledgeofpersonalcontactsandcreditinvestigationsforuseinthatforeignmarket.ReasonsforInternationalBankingLowMarginalCostsKnowledgeAdvantageHomeNationInformationServicesLocalfirmsinaforeignmarketmaybeabletoobtainmorecompleteinformationontradeandfinancialmarketsinthemultinationalbank’shomenationthanisobtainablefromforeigndomesticbanks.ReasonsforInternationalBankingLowMarginalCostsKnowledgeAdvantageHomeNationInformationServicesPrestigeVerylargemultinationalbankshavehighperceivedprestige,whichcanbeattractivetonewclients.ReasonsforInternationalBankingLowMarginalCostsKnowledgeAdvantageHomeNationInformationServicesPrestigeRegulatoryAdvantageMultinationalbanksareoftennotsubjecttothesameregulationsasdomesticbanks.ReasonsforInternationalBankingLowMarginalCostsKnowledgeAdvantageHomeNationInformationServicesPrestigeRegulatoryAdvantageWholesaleDefensiveStrategyBanksfollowtheirmultinationalcustomersabroadtoavoidlosingtheirbusinessathomeandabroad.ReasonsforInternationalBankingReasonsforInternationalBankingLowMarginalCostsKnowledgeAdvantageHomeNationInformationServicesPrestigeRegulatoryAdvantageWholesaleDefensiveStrategyRetailDefensiveStrategyMultinationalbanksalsocompeteforretailservicessuchastravelerschecks,touristandforeignbusinessmarket.KnowledgeAdvantageHomeNationInformationServicesPrestigeRegulatoryAdvantageWholesaleDefensiveStrategyRetailDefensiveStrategyTransactionsCostsMultinationalbanksmaybeabletocircumventgovernmentcurrencycontrols.ReasonsforInternationalBankingHomeNationInformationServicesPrestigeRegulatoryAdvantageWholesaleDefensiveStrategyRetailDefensiveStrategyTransactionsCostsGrowthForeignmarketsmayofferopportunitiestogrowthnotfounddomesticallyReasonsforInternationalBankingPrestigeRegulatoryAdvantageWholesaleDefensiveStrategyRetailDefensiveStrategyTransactionsCostsGrowthRiskReductionGreaterstabilityofearningsduetodiversification.ReasonsforInternationalBankingTypesofInternational

BankingOfficesCorrespondentBankRepresentativeOfficesForeignBranchesSubsidiaryandAffiliateBanksEdgeActBanksOffshoreBankingCentersInternationalBankingFacilitiesCorrespondentBankAcorrespondentbankingrelationshipexistswhentwobanksmaintaindepositswitheachother.Correspondentbankingallowsabank’sMNCclienttoconductbusinessworldwidethroughhislocalbankoritscorrespondents.RepresentativeOfficesArepresentativeofficeisasmallservicefacilitystaffedbyparentbankpersonnelthatisdesignedtoassistMNCclientsoftheparentbankindealingswiththebank’scorrespondents.Representativeofficesalsoassistwithinformationaboutlocalbusinesscustoms,andcreditevaluationoftheMNC’slocalcustomers.ForeignBranchesAforeignbranchbankoperateslikealocalbank,butislegallypartofthetheparent.Subjecttoboththebankingregulationsofhomecountryandforeigncountry.Canprovideamuchfullerrangeofservicesthanarepresentativeoffice.BranchBanksarethemostpopularwayforU.S.bankstoexpandoverseas.SubsidiaryandAffiliateBanksAsubsidiarybankisalocallyincorporatedbankwhollyorpartlyownedbyaforeignparent.Anaffiliatebankisonethatispartlyownedbutnotcontrolledbytheparent.U.S.parentbankslikeforeignsubsidiariesbecausetheyallowU.S.bankstounderwritesecurities.EdgeActBanksEdgeActbanksarefederallycharteredsubsidiariesofU.S.banksthatarephysicallylocatedintheU.S.thatareallowedtoengageinafullrangeofinternationalbankingactivities.TheEdgeActwasa1919amendmenttoSection25ofthe1914FederalReserveAct.EdgeActBanksFederalReserveRegulationKallowsEdgeActbankstodothefollowing:AcceptforeigndepositsExtendtradecreditFinanceforeignprojectsabroadTradeforeigncurrenciesEngageininvestmentbankingactivitieswithU.ScitizensinvolvingforeigncurrenciesItisthroughjtheEdegeActthatU.Sparentbanksownforeignbankingsubsidiariesandhaveownershippositionsinforeignbankingfacilities.OffshoreBankingCentersAnoffshorebankingcenterisacountrywhosebankingsystemisorganizedtopermitexternalaccountsbeyondthenormalscopeoflocaleconomicactivity.Thehostcountryusuallygrantscompletefreedomfromhost-countrygovernmentalbankingregulations.OffshoreBankingCentersTheprincipalfeaturesthatmakesacountryattractiveforestablishinganoffshorebankingoperationaretotalfreedomfromhost-countrygovernmentbankingregulations-LowreserverequirementsandnodepositinsuranceLowtaxesAfavorabletimezoneforinternationalbankingtransaction.StrictbankingsecrecylawsAttractiveInterestrateOffshoreBankingCentersTheIMFrecognizestheBahamasBahraintheCaymanIslandsHongKongtheNetherlandsAntillesPanamaSingaporeasmajoroffshorebankingcentersInternationalBankingFacilitiesAninternationalbankingfacilityisaseparatesetofaccountsthataresegregatedontheparentsbooks.Aninternationalbankingfacilityisnotauniquephysicalorlegalidentity.AnyU.S.bankcanhaveone.InternationalbankingfacilitieshavecapturedalotoftheEurodollarbusinessthatwaspreviouslyhandledoffshore.CapitalAdequacyStandardsBankcapitaladequacyreferstotheamountofequitycapitalandothersecuritiesabankholdsasreservesagainstriskyassetstoreducetheprobabilityofabankfailure.Ina1988agreementknownastheBasleAccord,theBankforInternationalSettlement(BIS)establishedaframeworkformeasuringbankcapitaladequacy.8%isstipulatedastheminimumrate.Therearevariousstandardsandinternationalagreementsregardinghowmuchbankcapitalis“enough”toensurethesafetyandsoundnessofthebankingsystem.CapitalAdequacyStandardsWhiletraditionalbankcapitalstandardsmaybeenoughtoprotectdepositorsfromtraditionalcreditrisk,theymaynotbesufficientprotectionfromderivativerisk.Forexample,BaringsBank,whichcollapsedin1995fromderivativelosses,lookedgoodonpaperrelativetocapitaladequacystandards.CapitalAdequacyStandardsShareholderequityTier1:CoreCapital≥50%RetailedEarnings

PreferredstocksTier2:SupplementaryCapital:≤50%Subordinatedbonds

governmentobligation0%

short-terminterbankassests20%Assetsresidentialmortage50%otherassets100%

CapitalAdequacyStandardsInJune2004,thenewcapitaladequacyframeworkcommonlyreferredtoasBaselIIwasendorsedbycentralbankgovernorsandbanksupervisorsintheG-10countries.It’simplementedintheendof2006.CapitalAdequacyStandardsBaselIIisbasedonthreemutuallyreinforcingpillars:minimumcapitalrequirements,asupervisoryreviewprocess,andtheeffectiveuseofmarketdiscipline.CapitalAdequacyStandardsWithrespecttothefirstpillar(theminimumcapitalrequirements),bankcapitalisdefinedasper1988accord,buttheminimum8%ratioiscalculatedonthesumofthebank’scredit,market,andoperationalrisk.CapitalAdequacyStandardsThesecondpillarisdesignedtoensurethateachbankhasasoundinternalprocessinplacetoproperlyassesstheadequacyofitscapitalbasedonathoroughevaluation.CapitalAdequacyStandardsThethirdpillarisdesignedtocomplementtheothertwo.Itisbelievedthatpublicdisclosureofkeyinformationwillbringmarketdisciplinetobearonbanksandsupervisorstobettermanageriskandimprovebankstability.InternationalMoneyMarketTheinternationalmoneymarket:

WhereborrowingorlendinghaveayearorlesstomaturityTheInternationalMoneyMarketFunctionsBankswithatemporaryshortageofmoneycanborrowfromthosewithasurplusCompanies,financialinstitutionsandlocalgovernmentswithatemporaryshortageofmoneycanborrowformthosewithasurplusTheInternationalMoneyMarketCharacteristicsThereisnosinglemarketplaceWebsofborrowsandlenders-linkedbytelephonesandcomputersAwholesalemarketAllshorttermlendingandborrowingNomortgageNosinglesetofpostedpricesMoneymarketinstrumentspayfixedinterest-andmostaresoldatadiscounttothefacevalueTheInternationalMoneyMarketActually,theinternationalmoneymarketmainlyincludeseurocurrencybusiness.InternationalMoneyMarketEurocurrencyisatimedepositinaninternationalbanklocatedinacountrydifferentfromthecountrythatissuedthecurrency.Forexample,EurodollarsareU.S.dollar-denominatedtimedepositsinbankslocatedabroad.Euroyenareyen-denominatedtimedepositsinbankslocatedoutsideofJapan.Theforeignbankdoesn’thavetobelocatedinEurope.MostEurocurrencytransactionsareinterbanktransactionsintheamountof$1,000,000andup.CommonreferenceratesincludeLIBORtheLondonInterbankOfferedRatePIBORtheParisInterbankOfferedRateSIBORtheSingaporeInterbankOfferedRateAnewreferenceratefortheneweurocurrencyEurocurrencyMarket

EURIBORtherateatwhichinterbanktimedepositsof areofferedbyoneprimebanktoanother.EurocreditsEurocreditsareshort-tomedium-termloansofEurocurrency.TheloansaredenominatedincurrenciesotherthanthehomecurrencyoftheEurobank.Eurocreditsfeatureanadjustablerate.OnEurocreditsoriginatinginLondonthebaserateisLIBOR.EurocreditsBecauseeurocurrencyloansarefrequentlytoolargeforasinglebanktohandle,Eurobankswillbandtogethertoformabanklendingsyndicatetosharetherisk.ThelendingrateonthesecreditsisstatedasLIBOR+X%RolloverpricingiscreatedonEurocreditssothateurobanksdonotenduppayingmoreontimedepositsthantheyearnfromtheloans.EurocreditsExampleTeltrexinternationalcanborrow$3,000,000atLIBORplusalendingmarginof0.75percentperannumonathree-monthrolloverbasisfromBarclaysinLondon.Supposethatthree-monthLIBORiscurrently517/32percent.Furthersupposethatoverthesecondthree-monthintervalLIBORfallsto51/8percent.HowmuchwillTeltrexpayininteresttoBarclaysoverthesix-monthperiodfortheEurodollarloan?ExercisesGrecianTileManufacturingofAthens,Georgia,borrows$1,500,000atLIBORplusalendingmarginof1.25percentperannumonasix-monthrolloverbasisfromaLondonbank.Ifsix-monthLIBORis4½percentoverthefirstsix-monthintervaland53/8percentoverthesecondsix-monthinterval,howmuchwillGrecianTilepayinterestoverthefirstyearofitsEurodollarloan?ForwardRateAgreements(FRAs)FRAsareusefuldevicesforhedgingfutureinterestraterisks.Theyareagreementsaboutthefuturelevelofinterests.TherateofinterestatsomepointinthefutureiscomparedwiththelevelagreedwhentheFRAwasestablished.Thecompensationispaidbyonepartytotheotherbasedonthedifference.ForwardRateAgreementsAninterbankcontractthatinvolvestwoparties,abuyerandaseller.Thebuyeragreestopaythesellertheincreasedinterestcostonanotationalamountifinterestratesfallbelowanagreedrate.Theselleragreestopaythebuyertheincreasedinterestcostifinterestratesincreaseabovetheagreedrate.ForwardRateAgreements:UsesForwardRateAgreementscanbeusedto:Hedgeassetsthatabankcurrentlyownsagainstinterestraterisk.Speculateonthefuturecourseofinterestrates.ForwardRateAgreementAcompanyneedstoborrow$6millionin3monthforaperiodofoneyear.Currentinterestrateis7%.HowwillthecompanyusetheFRA?Thecompanyisconcernedthattheinterestratewillrisein3month.SoitwillbuytheFRA.

ForwardRateAgreementA$10millionisexpectedtobeavailableforputtingintoaone-yearbankdepositinthreemonth.HowwillthecompanyusetheFRA?ThecompanycouldlockintoaratenowbysellinganFRAtoabank.FinancialInstrumentsTreasuryBill(T-Bills)EuronotesEuro-commercialpaperTreasuryBillWhatisaTreasurybill?Treasurybillaresecuritieswithamaturityofoneyearorless,issuedbynationalgovernmentsIfissuedbyreputablegovernmenttheyarethesafestinvestments.US:3or6months,1yearmaturityUK:3or6monthsmaturityTreasuryBillCharacteristicsSecurityHighliquidity-holderscanconverttocasheasilyTaxwaivedTreasuryBillIfa3monthT-billisissuedon15th,January,itwillmatureon15th,April.UKmoneymarketsassumea365-dayyear.US&Euromarketassumea360-dayyear.TreasuryBillHowtocalculatetheinterestrates?T-billareoftensoldatadiscount,e.g.1yearUST-bill,Face(par)value=$100Dealerbidsandpaysfor$95Discountedby5%Interestrateearned,5/95=5.26%TreasuryBillAUK91day£100Treasurybillissuedwithaquotedannualinterestrateof10.256%.Howmuchwouldtheissuingpricebe?P=100

=£97.50681+0.10256(91/365)Or,moregenerally,P=F

1+r(N/365)Where:F=facevalueP=issuepriceormarketpricer=interestrate(annualrate)N=numberofdaystomaturity

TreasuryBillAlternatively,wemayknowthepriceandhavetosolvefortheyield:

£97.5068=£100

1+r(91/365)r=10.256%Thisisthesameasanannualdiscountrateof10%:2.4932(365/91)=10%100EuronotesEuronotesareshort-termnotesunderwrittenbyagroupofinternationalinvestmentbanksorinternationalcommercialbanks.Theyaresoldatadiscountfromfacevalueandpaybackthefullfacevalueatmaturity.Maturityistypicallythreetosixmonths.EurocommercialPaperUnsecuredshort-termpromissorynotesissuedbycorporationsandbanks.Placeddirectlywiththepublicthroughadealer.Maturitiestypicallyrangefromonemonthto