International Commercial Banking Chapter 4 Hughes and MacDonald Text Key Concepts International commercial banking must evolve to meet the needs of international companies in terms of securing financing for their global activities It also must respond to and reflect the state of competition, technology and trends in globalization. Overseas Operations Overseas operations can be structured in a number of ways. The following are in order of commitment: 1. Correspondent Banking – lowest possible level of exposure to the foreign market involving using a native bank in the foreign market to provide services for the foreign bank. 2. Representative Office – the foreign bank establishes a physical presence in the foreign market offering a limited range of services. Officers troll for business opportunities but cannot accept deposits or lend funds on its own books. 3. Agency – an integral part of the parent bank but cannot perform all of the functions of a branch. 4. Branch Office – is an integral part of the parent bank and acts as a legal and functional arm of the head office. Branches may perform all banking functions that are permitted by the host country. 5. Subsidiary – separate legal entity from the parent, thereby isolating liability within the subsidiary itself. It must be separately capitalized, and if it is not deposit-taking, the cost of capital in the foreign market can be considerable. 6. Consortium Banks – a group of banks that form an alliance to enter a new market. Functions of Global Commercial Banks Syndicated loans – a credit extended by a group of banks to a single customer Project Finance Trade Finance (letter of credit, standby letter of credit, performance letter of credit Commercial Paper and Note Issuance Facilities Non-credit services – including global custody and cash management services.