Journal Analysis Offshore loan from foreign bank on U.S business

THEME / TOPIC

Offshore loan from foreign bank on U.S business

TTTLE

Foreign Bank Credit to U.S Corporations : The Implications of Offshore Loans by Robert N. McCauley and Rama Seth

BACKGROUND

International Financial transaction have grown in recent years far faster than has our ability to understand their significance for economic. A case in point is the rise in bank loan from banks outside the United States to U.S businesses. The rapid growth of such loans bears on issues ranging from the extent of the corporate debt builtup in US in late 1980’s to the progress of securities markets in intermediated corporate credit, to the loss of market share in U.S. commercial  lending by US owned bank

PURPOSE

To explain the influences between offshore loans from foreign bank to U.S. business

To show the argument of the reaserch that : offshore bank loans to U.S businesses in 1980’s surged as forign banks aviled themselves of an opportunity to avoid the cost of U.S regulation, namely the reserve cost of booking loans in the United State

METHOD OF REASERCH

Estimation Method : at least one component of offshore loans to nonbanks, the 60% share is underestimate. Commercial and industrial loans were 85% of loans to U.S. non banks made by foreign branches of U.S owned bank in 1990

Calculating the Ratio : Calculating the ratio of commercial and industrial loans booked offshore to those booked in the United State

RESULT and ANALYSIS

·         The accumulation of debt by U.S . firm was even more rapid than generally thought in the late 1980’s and the recent drop in bank lending far less striking.

·         More of the corporate funding was supplied by bank, including foreign bank, and less by the securities markets than generally thought

·         Finally, the overwhelmingly forign ownership of the bank responsible for offshore lending means that the foreign bank shere of the U.S. commercial lending market is higher than frequently citied 30 % figure which is based on loans books in U.S.. Imstead, foreign bank have won a market share for themselves closer to 45%, putting commercial lending ahead of chemical and automaking in the foreign command of the U.S market

CONCLUSION

In the latter half of the 1980’s reserve requirements interacted with money market interest rates to give foreign banks an incentive to book loans offshore the rapid growth in this offshore component in that system

Bank lending to U.S. corporations in the 1980 more rapidly and securitization proceeded more gradually, than conventional measure

When the foreign loans booked offshore are estimated more comprehensively, foreign penetration of the US market for commercial and industrial loan amerges as more extensive  than generally recognize