Tuesday, May 5, 2009

foreign lending of U.S. banks

In addition to the domestic lending of U.S. banks, which has been emphasized in this blog,large American banks in recent years have also greatly expanded their lending abroad,either from their home offices or from foreign branches. Such foreign lending has greatly increased because(1)the dollar is the major international unit of account,(2)international trade more than quadrupled from the mid-1960's to the mid-1970's,and(3)foreign lending was so profitable that it often accounted for half or more of the profits of large and very large American banks. At the end of 1976,total claim on foreigners of domestic offices and foreign branches of U.S.banks amounted to $207 billion,most of which was held by foreign branches.
Slightly over half of this total was to the highly developed countries in Europe,Japan and Australia in the Pacific,South Africa in Africa,and Canada in the Western Hemisphere. (These loans totaled about $115.2 billion in 1976.)some $12.7 billion had been loaned to the OPEC countries,e.g., $4.1 billion t Venezuela and $2.2 billion to Indonesia. The nonoil developing countries received $45.2 billion in loans from U.S. banks with one fourth($11.8 billion)to Brazil and another one fourth ($11.5 billion)to Mexico.Eastern Europe accounted for only $5.2 billion,whereas the offshore banking center, e.g.,the Bahamas,accounted for another $23.9 billion of loans. Despite the risk in making any kind of loan,and the special"country risks"(balance of payments difficulties and the risk of social or political upheavals)in making foreign loans,such loans had a lower loss experience than domestic loans. From 1971 to 1975 inclusive,the loss ratio on international loans of the seven largest U.S. banks was about one third of the loss ratio on the total loan portfolio. In addition to the contribution to total bank profitability of these foreign loans, the great bulk of funds to make these loans is secured from foreign sources, i.e.,deposits in branches of U.S. branches abroad. This means that these foreign loans are not being made at the expense of would-be domestic borrowers.

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