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• What is a Global bank? – A bank with active operations in multiple countries. – a bank that is active in the international markets and has a presence in several continents
• History of Global Banking – Shortly after World War II, the management of international companies was restructured to meet the needs of international operations. During the 1960s, a global company evolved. – Its foreign operations were integrated into a single organizational structure. This is now the transitional corporation (TNC) or multinational corporation (MNC). It is a corporation which maintains its headquarters in one country but performs production, marketing, finance, and personal functions within many other countries.
The owners of such transnational corporations are highly industrialized countries of the world like the :• United States• Great Britain• France• Germany• Japan
• Transnational Banks – Transnational banks are international finance institutions which do their business in many countries of the world. These are special types of transnational corporations whose field of specialization is global banking or international finance. – Their customer are primarily the transnational corporations, governments (mostly developing countries and rich individuals.•
– Since England is the cradle of the Industrial Revolution, it started the factory system of production. This made England the leader in International Trade.– Other countries followed the footsteps of England. French Financial institutions began overseas operations in the 1870s. German banks likewise participated in international banking in 1886 with the establishment of an overseas bank in South America.
• Top 10 Biggest Banks of 2011 – 1. BNP Paribas (France) – 2. Deutsche Bank (Germany) – 3. HSBC Holdings (United Kingdom) – 4. Barclays (United Kingdom) – 5. The Royal Bank of Scotland Group (United Kingdom) – 6. Bank of America (United States) – 7. Crédit Agricole (France) – 8. JPMorgan Chase(United States) – 9. Industrial & Commercial Bank of China (China) – 10. Citigroup (United States)
• Expansion of Global Banking – One major factor in the rapid expansion of transnational banks is the growth of transnational corporation. These transnational banks support global manufacturing and trade of the transnational corporations. Hence, there is a symbiotic relationship among international industries, trade, and finance. Each depends on one another for their own development and growth.•
- Another Factor is the supply or growth of the Eurodollar market. Such particular type of currency market was organized in the 1950s when British banks started accepting US dollar deposits and lend them. A few years later, other banks including US banks joined in such business. This practice of accepting US dollars for deposits and lending them to borrowers outside the United States is called Eurodollar market.•
The Eurodollar market has greatly expanded. The growth of such Eurocurrency market has been mainly due to: – Increasing profits of the transnational corporation – Expansion of US bank activity in Europe – Rise of petrodollars of the oil-producing countries in the Middle East – Outflow of dollars from the United States•
• Global Banking in the Philippines – The Philippines is a part of the global banking system. The transnational banks constitute a major part of the Philippine financial system. These global financial institutions consider out country a good market for lending and even participate actively in the affairs of the Philippines financial system. They have their branches, offshore banking units and shares in domestic financial institutions. Because of their huge credit facilities, they can dominate the Philippines financial system, and even the whole economy under the leadership of IMF, WB, and ADB.•
The major customer of transnational banks in the Philippines are:• The government• Branches and subsidiaries of multinational corporations• And the top 1,000 corporations
• Penetrations of TNBs into the Philippine Financial System – In compliance with the recommendations of a joint IMFCB survey in 1971,major monetary reforms were undertaken. Banks were required to increase their capital to a minimum of 100 million pesos. To comply with such provision, some banks had to merge with each other. Other banks had to accept foreign bank capital or enter into partnership with foreign banks. – In 1979, a joint WB-IMF mission in the Philippines introduced monetary reforms that took effect in 1980. these reforms include the formation of universal banking or expanded commercial banking which requires a minimum capital of 500 million pesos. This new concept of banking aims to increase the mobilizations of savings, and channel the financial resources into long term lending which the economy urgently needs.
• Participation of TNBs – Branches – The four branches for transnational banks in the Philippines were established to support and facilitate British and American business interests. The Bank of America put up its Manila branch in 1947 primarily to finance trade between the United States and the Philippines.
– It extended loans for development of agricultural exports like sugar mills and plantations, tobacco, coconut, and abaca mills and plantations, logging and saw mill companies. most of them are owned by Americans.– It has been observed that foreign banks are operating in the Philippines with very little of their own capital. Transnational banks do not operate on their capital alone but on the wealth and savings of their depositors.
Representative Offices– A representative office is composed of one foreign executive who represents his transnational bank in the Philippines. He is assisted by his secretary and perhaps by one or two Filipino employees who are very knowledgeable about the Philippine national system, and have good contacts.
– A representative office is not allowed to accept any deposits nor to lend dollars. Its main function is to generate business for its head office by identifying prospective loan applicants in the country.– It serves as a bridge between a potential borrower and the transnational bank.
Offshore banking• This means doing business with non-residents that is, the clients are not based in the Philippines. However, our Government allows the offshore banking units (OBUs) to do business with Philippine-based clients. Known as onshore banking, the government aims to make Manila the regional finance center in Asia.• It hopes to compete with the highly developed finance centers of Hong Kong and Singapore. To attract the offshore banking units, the government has extended tax incentives on their earnings.
The basic operations of the OBUs are to accept dollar and to lend these to their transnational banks for which they earn a fee. Offshore banking units are not supposed to extend peso loans but they do it through an arrangement with the Central Bank and with foreign currency deposits units (FCDUs) of local banks. Moreover, OBUs are allowed to confirm letters of credit for Philippine-based borrowing clients: – Bangko Sentral – Government corporations – Domestic banks – And private corporations – Ex. Philippine Long Distance Telephone, San Miguel Corp. , etc.•