Foreign Banks in the United States - Assignment Example

 Foreign banks are banks that operate outside their home countries. They are required to follow the rules and regulations of both the host and the home countries. Foreign banks in the US employ various business models. These foreign banks have a physical presence in the United States, though their home country is outside the US. American regulators intend to allow foreign banks in the US to have ample capitalization. This has not always been the case until the Federal Reserve allows foreign banks in America to have no capital at all. The idea was that a well-capitalized parent in the home countries of these banks is capable of standing behind the foreign bank operation in the US incase it ran into any sort of trouble. As a result, the US could rely on the home countries of these foreign countries to regulate these banks and bail them out in the event of any problem. Thus, these banks received financing from their home countries until the financial crisis emerged when they could borrow money from the United States and send it back to their home countries resulting into the dying up of their financing form home countries. Due to this, there is a rule in place that requires an adequate level of liquid assets relative to the short term financing of the foreign banks. Thus, in case the short term dries up again, the foreign banks will be in a position to cope for a while. Thus, the American subsidiary of each foreign bank have to be put together in a specific holding company that is able to maintain capital and the liquidity of the foreign bank in the US. How US banks engage in international banking The US banks organize an international department within their head office. The main aim of these banks engaging in international banking is to provide overseas market for the domestic customers of the banks. The activities of these international departments parallel the domestic operations of the bank itself. Some of the activities that such banks undertakes in the international market is accepting deposits, paying checks, drawing against the funds that are deposited abroad, receiving and even paying out cash, making transfers using cables, lending money and maintaining the information on credit and bank’s relations. US banks can also conduct international banking through foreign branches and offshore banks. These branches are located in other countries other than the United States (Christophers, 2013). These branches are able to provide a range of banking activities and services to US companies and individuals with various international dealings. It cans also establish an international banking facility or facilities. This was due to the realization that a good number of international banking businesses were moving from the US to other offshore financial centers. Thus, the board granted the member banks the authority to establish international banking facilities in US. This allows international banking to be conducted in the United States. The US banks can also conduct international banking through the establishment of edge and agreement corporations. These offer banks an alternative to conduct international banking and various financial operations. Edge corporations are separately incorporated into entities whose activities are only limited to international banking and those activities closely related to international banking. How banks conduct, international banking depends on the size and the character of the international business, laws and regulations, management capabilities and availability of capital. Closing down a bank There are various grounds that exist for terminating a bank’s operations. One of them is the commission by the bank or its boards of directors or its trees of the unsafe or unsound practices. The second one is the violation of a law or regulation subject to the bank (Naaborg, 2007). What may be an acceptable practice for a given institution with a stronger reserve position may be unsafe or unsound for a marginal operation. Termination is often evoked on a strict liability basis with no need of culpability. The bank in question issued with a 30 day advance notice on the grounds of termination to secure the correction of the practice, condition or violation. After the 30-day period have expired, if the unsafe practices specified in the notice continues to require the termination of the banking facility, the board then issues a written intention of its decision to terminate the bank. The notice specifies a date and place for an adjudicative hearing to be held in no fewer than 30 days from the date of the notice of the institution. In case the matter proceeds to adjudication, the board determines the issues on the pursuant record. If they find an existence of any violations of the banking institutions, it issues an order to terminate the institution. The institution is entitled to review by a federal court of appeals if the final termination order lacks substantial evidence. Impact of Dood-Frank Act The act is a financial legislation passed by the Obama’s legislation responding to the financial crisis in 2008. It was established in 2010 (Skeel, 2011). The act monitors the financial responsibility of various major firms in the economy who would impact negatively on the US economy. It ensures that there is the provision of orderly liquidations if these firms become weak and prevent dollars to be used to bring back or elevate such firms. Secondly, the act prevents predatory mortgage lending and enables consumers to understand the terms of a mortgage before they finalize the paper work. Thus, it is able to prevent mortgage brokers from earning very high commission from higher interest rates. Third, it governs the consumer lending including the credit and the debit card and addresses any consumer complaints. Thus, it requires that all lenders disclose information in a form that is easier for the consumers to understand. Fourth, it limits speculative trading and eliminates any proprietary trading by various banks. As a result, it is able to regulate various derivatives that were widely blamed for the financial crisis in 2008. It regulates the use of derivatives by financial firms that prevents big institutions from taking large risks that might ruin the broader economy (Anand, 2011). References Anand, S. (2011). Essentials of the Dodd-Frank Act. Hoboken, New Jersey: Wiley. Christophers, B. (2013). Banking across boundaries. Oxford: Wiley-Blackwell. Naaborg, I. J. (2007). Foreign bank entry and performance. Groningen: University Library Groningen. Skeel, D. A. (2011). The new financial deal . Hoboken, N.J.: Wiley. Read More