international banking topic bbf 4 1.pptx

international banking

1. INTRODUCTION TO INTERNATIONAL BANKING CHAPTER ONE

2. Introduction to International Banking International banking involves financial institutions that provide services across borders, facilitating trade, investment, and financial stability.

3. Evolution of International Banking Pre-globalization banking (gold standard, national banks). Post-World War II developments (Bretton Woods System). Rise of multinational banks and financial liberalization.

4. Role of International Banks Facilitating trade finance and foreign exchange transactions. Managing cross-border investments and remittances. Supporting multinational corporations (MNCs) with global financial services.

5. Types of International Banks Retail Banks: Serve individual clients internationally (e.g., HSBC, Citibank). Corporate Banks: Provide financial solutions to businesses operating globally. Investment Banks: Offer capital market services, M&A advisory, and international financial structuring. Offshore Banks: Located in low-tax jurisdictions, often for wealth management (e.g., Cayman Islands, Switzerland).

6. Key Functions of International Banking Correspondent Banking : Relationship between domestic and foreign banks for cross-border transactions. Trade Finance : Letters of credit, export/import financing. Foreign Exchange Services : Currency conversion, hedging against exchange rate risks. Syndicated Loans : Large-scale financing shared among multiple banks.

7. Regulatory Environment Basel Accords (Basel I, II, III) – global banking regulations on capital adequacy and risk management. IMF and World Bank roles in financial stability. National and supranational regulations (e.g., European Central Bank oversight).

8. Industry Terms & Parties Key Industry Terms Interbank Market : Market where banks trade currencies and loans among themselves. Eurocurrency Market : Deposits held in a currency outside its home country (e.g., Eurodollars in London). Foreign Exchange (Forex) Market : The global marketplace for currency trading. Sovereign Risk : Risk that a country defaults on its financial obligations. LIBOR & SOFR : Former and current benchmark interest rates for interbank lending. Capital Adequacy Ratio (CAR) : A measure of a bank’s capital relative to risk-weighted assets

9. Key Parties in International Banking Central Banks : Regulate currency, monetary policy, and financial stability (e.g., U.S. Federal Reserve, European Central Bank). Multinational Corporations (MNCs) : Require international banking services for trade, investments, and hedging. International Financial Institutions : IMF, World Bank, and BIS (Bank for International Settlements). Correspondent Banks : Facilitate transactions between domestic and foreign banks. Regulatory Bodies : Financial Stability Board (FSB), Basel Committee on Banking Supervision (BCBS).

10. Banking Products Part I Traditional Banking Products Deposits : Demand deposits (checking accounts). Savings deposits (interest-bearing accounts). Time deposits (fixed-term deposits like certificates of deposit). Loans : Business loans (working capital, expansion financing). Personal loans (mortgages, auto loans). Syndicated loans (shared by multiple banks to reduce risk).

11. Trade Finance Instruments: Letters of Credit (LCs): Bank guarantees payment to exporters on behalf of importers. Bank Guarantees: Financial security for business transactions.

12. Foreign Exchange Services: Spot transactions: Immediate currency exchanges. Forward contracts: Agreements to exchange currencies at a future date. Currency swaps: Exchanging principal and interest payments in different currencies.

13. Banking Crises I Definition & Causes of Banking Crises What is a Banking Crisis? A situation where banks suffer massive withdrawals, leading to instability or failure.

14. Key Causes of Banking Crises Poor Risk Management: Excessive exposure to bad loans. Liquidity Shortages: Banks unable to meet withdrawal demands. Macroeconomic Shocks: Recession, inflation, or currency depreciation. Moral Hazard & Speculation: Excessive risk-taking due to expectations of bailouts. Regulatory Failures: Weak oversight and enforcement of banking laws.

15. Examples of Major Banking Crises Great Depression (1929-1939): Bank failures due to stock market collapse and economic downturn. Savings and Loan Crisis (1980s, USA): Poor lending practices and deregulation. Asian Financial Crisis (1997-1998): Currency collapses leading to banking sector failures. Global Financial Crisis (2008): Subprime mortgage crisis leading to major bank collapses.

16. Impact of Banking Crises Economic downturns and recessions. Loss of depositor confidence and bank runs. Government bailouts and financial sector reforms.