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 Company Name 12/31/1996 1 Bank of Tokyo-Mitsubishi Ltd., Tokyo, Japan $648,161.00 2 Deutsche Bank AG, Frankfurt, Germany 575,072.00 3 Credit Agricole Mutual, Paris, France (2) 479,963.00 4 Credit Suisse Group, Zurich, Switzerland (1) 463,751.40 5 Dai-Ichi Kangyo Bank Ltd., Tokyo, Japan 434,115.00 6 Fuji Bank Ltd., Tokyo, Japan 432,992.00 7 Sanwa Bank Ltd., Osaka, Japan 427,689.00 8 Sumitomo Bank Ltd., Osaka, Japan 426,103.00 9 Sakura Bank Ltd., Tokyo, Japan 423,017.00

10 HSBC Holdings, Plc., London, United Kingdom 404,979.00 17 Chase Manhattan Corp., New York, United States 333,777.00 26 Citicorp, New York, United States (b) 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 Gramm-

Leach-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.

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 world’s 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, Citibank’s 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.

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

$ Mill % TA $ Mill % TACitibank NA, New York NY 452,343 98,899 208,024 46.0% 121,901 157,462 34.8% 277J PMorgan Chase Bk, New York NY537,826 160,102 120,371 22.4% 135,872 39,022 7.3% 612Bank of America NA, Charlotte NC 551,691 334,909 56,634 10.3% 287,364 20,867 3.8% 4,350Fleet NA Bk, Providence RI 187,949 110,148 22,316 11.9% 102,956 19,737 10.5% 1,709Bank of New York, New York NY 78,019 28,786 27,024 34.6% 19,822 16,879 21.6% 362Bank One NA, Chicago IL 161,023 81,020 26,358 16.4% 76,440 4,991 3.1% 804MBNA America Bk NA, Wilmington DE43,066 26,187 1,448 3.4% 18,733 4,123 9.6% 3First Union NB, Charlotte NC 232,785 135,276 12,473 5.4% 118,053 3,479 1.5% 2,143State Street B&TC, Boston MA 65,410 12,137 26,718 40.8% 4,519 1,402 2.1% 1Wachovia Bk NA, Winston-Salem NC71,555 42,684 3,627 5.1% 45,434 807 1.1% 790Keybank NA, Cleveland OH 71,526 40,010 2,721 3.8% 54,047 785 1.1% 980PNC Bk NA, Pittsburgh PA 62,610 44,079 2,307 3.7% 39,072 777 1.2% 735Mellon Bk NA, Pittsburgh PA 27,813 9,947 4,949 17.8% 6,269 548 2.0% 346Bank of Hawaii, Honolulu HI 10,493 5,621 1,369 13.0% 5,312 495 4.7% 78Northern Trust Co, Chicago IL 32,758 10,380 9,424 28.8% 11,331 397 1.2% 1National City Bk, Cleveland OH 39,214 20,464 1,007 2.6% 31,022 154 0.4% 353Wells Fargo Bk NA, San Francisco CA140,675 73,644 5,433 3.9% 93,799 20 0.0% 939Wells Fargo Bk MN NA, Minneapolis MN52,428 26,311 7,459 14.2% 34,277 1 0.0% 169

Domestic Offices

# of US BranchesName

Total Assets

Domestic Offices

Foreign Offices Foreign OfficesNet Loans and leasses:Deposits Held in:

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

Domestic Offices

Foreign Offices

HSBC Bank USA, Buffalo NY 84,230 37,067 21,153 3,194 HSBC Holdings PLC, LONDON NA 100 440 19Lasalle Bank NA, Chicago IL 54,731 24,963 4,226 0 ABN Amro, AMSTERDAM NA 100 122 2Bankers Trust Co, New York NY 42,678 11,423 10,000 253 Taunus Corporation, NEW YORK NY 100 4 14Standard Federal Bk NA, Troy MI 42,088 19,702 624 0 ABN Amro, AMSTERDAM NA 100 385 2Union Bk of CA NA, San Francisco CA 35,591 26,518 3,305 1,041 Bank of Tokyo-Mitsubishi, TOKYO NA 66 286 6Banco Popular De PR, San Juan PR 20,477 11,459 190 10,306 Popular Inc., SAN JUAN PR 100 2 204Harris T&SB, Chicago IL 19,673 9,498 1,708 151 Bank of Montreal, MONTREAL NA 100 57 2Allfirst Bk, Baltimore MD 17,762 12,758 545 249 Allied Irish Banks Limited, DUBLIN NA 100 270 2RBC Centura Bk, Rocky Mount NC 13,732 7,388 273 0 Royal Bank of Canada, MONTREAL NA 100 241 1Bank of The West, San Francisco CA 13,412 9,212 N/A 0 Bancwest Corporation, HONOLULU HI 44 193 0United CA Bk, San Francisco CA 10,524 8,285 428 0 Sanwa Bank, Limited, OSAKA NA 100 121 1First Hawaiian Bk, Honolulu HI 8,682 5,691 463 364 Bancwest Corporation, HONOLULU HI 44 56 6Firstbank PR, San Juan PR 8,143 4,117 N/A 0 First Bancorp, SAN JUAN PR 100 1 49Banco Santander PR, Hato Rey PR 7,656 4,811 0 0 Banco Santander S .A., SANTANDER NA 80 1 72TD Waterhouse Bk NA, Jersey City NJ 6,069 5,546 N/A 0 TD Waterhouse Holdings, Inc., NEW YORK NY 80 2 0Israel Discount Bk of NY, New York NY 6,021 2,112 2,094 415 Israel Discount Bank Limited, TEL-AVIV NA 100 7 1Westernbank Puerto Rico, Mayaguez PR 5,887 3,214 N/A 0 W Holding Company, Inc., MAYAGUEZ PR 100 1 35Banco Popular North America, New York City NY5,606 4,761 0 0 Popular Inc., SAN JUAN PR 100 98 0Safra NB, New York NY 5,010 2,548 320 875 SNBNY Holdings Limited, MARINA BAY NA 99 2 1Banco Bilbao Vizcaya Argenta, San Juan PR 4,801 2,971 N/A 0 BBVAPR Holding Corporation, SAN JUAN PR 100 1 61Bank of Tokyo Mitsubishi TC, New York NY 4,337 1,491 1,310 46 Bank of Tokyo-Mitsubishi, TOKYO NA 100 1 1Bank Leumi USA, New York NY 4,082 1,496 1,800 169 Bank Leumi Le-Israel B.M., TEL-AVIV NA 99 8 1R-G Premier Bk of PR, San Juan PR 3,963 2,115 N/A 0 R&G Financial Corporation, SAN JUAN PR 100 1 25Doral Bk, San Juan PR 3,486 1,528 N/A 0 Doral Financial Corporation, SAN JUAN PR 100 1 26Laredo NB, Laredo TX 2,349 2,029 N/A 0 Incus Co. Ltd., ROAD TOWN NA 71 24 0

# of Foreign

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Assets

Deposits Held in: Loans in Frgn

Offices Top Holding CompanyName

% Foreign Owned

# of US Branches

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. The second was the enactment of the Banking Act of 1933 and the Glass-Steagall provision, which separated commercial banking from investment banking activities.

3. 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