Regal Assets Analytics

Monday, March 4, 2024

    U.S. Banks Internationalization

    The United States entered World War I as a debtor nation, and emerged from it as a creditor. The growing needs of the Allies and neutral nations generated the necessary momentum for the growth of exports. At the same time, this war stimulated the influx of flight capital from Europe and thus contributed to the rise of New York as an international financial center.

    In the postwar period, the United States experienced greater demand for its manufactured products, increased its investments abroad and generally witnessed its transformation into an industrial and financial power.

    In fact, by 1929, it was the world’s outstanding manufacturing country, expanding its international operations and presence overseas. The banks’ move to abroad was a repetition of what the Europeans had done a generation or two earlier.

    However, there was an important difference. U.S. banks were following their customers into industrialized countries as well as into developing countries so that a more truly international network of banking relationships and competition was beginning to develop.

    The international expansion of U.S. banks is exemplified in the following data. In 1960, U.S. banks had a physical presence overseas consisting of 139 branches and subsidiaries. By 1970, 80 U.S. banks operated abroad through 540 branches and subsidiaries.

    And by 1982, almost every large and medium sized bank in this country engaged in international banking; 162 banks had 900 branches and 758 subsidiaries operating abroad.

    Their combined assets amounted close to $471 billion; about half of this amount was held in major European centers, with London accounting for the largest share. U.S. banks were in active competition not only among themselves but also with the major international commercial banks, and with merchant investment banks in loan syndications and in Euro bond underwriting.

    The energy crisis, brought about by the quadrupling of oil prices in late 1973, created a great need for the global financial intermediation of the surplus oil revenues of OPEC (Organization of Petroleum Exporting Countries).

    U.S. banks were in the forefront of this intermediation recycling petro dollars from oil-exporting to oil importing nations. Their international eminence contributed to attracting a large share of petro dollars in the form of deposits which were then loaned out to various borrowers, including less developed countries (LDCs).

    Bank lending to these countries grew rapidly until the early 1980s. Pursuit of a tight monetary policy in the United States, in order to curb inflationary pressures led the country into a deep recession which reduced the demand for imports and adversely affected the world commodity process.

    Similar conditions in other industrialized countries accentuated these trends and contributed to the collapse of the export markets of debtor nations with drastic consequences on their ability to service their debts to major banks around the world.

    In the summer of 1982, when Mexico announced to the world its inability to meet scheduled payments, it set off the international debt crisis. This announcement produced a chain reaction and, within a year, 30 countries – including Poland and many Latin American countries – followed suit.

    With the onset of the debt crisis, new lending to LDCs dried up and many U.S. banks took large losses.


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