INTERNATIONAL BANKING

The expansion of trade in recent decades has been paralleled by the growth of multinational banking. Banks have historically financed international trade, but a notable recent development has been the expansion of branches and subsidiaries that are physically located abroad, as well as the increased volume of loans to foreign borrowers. In 1960 only eight U.S. banks had foreign offices with a total of 131 branches. By 1998 about 82 U.S. banks had about 935 foreign branches.

Similarly, the number of foreign banks with offices in the United States has increased dramatically. In 1975, 79 foreign banks were chartered in the United States, accounting for 5 percent of U.S. bank assets. In 1998, 243 foreign banks had U.S. offices, accounting for 23 percent of U.S. bank assets. Most of these banks are business-oriented banks, but some have also engaged in retail banking. In 1978 the U.S. Congress passed the International Banking Act, which imposed constraints on the activities of foreign banks in the United States, removing some of the advantages they had acquired in relation to U.S. banks.

As banks make more international loans, many experts believe that there must be greater international cooperation regarding standards and regulations to lower the risk of bank failure and international financial collapse. In 1988 the Basel Committee on Banking Supervision, an international organization of bank regulators based in Basel, Switzerland, took the first steps in this direction with the Basel Capital Accord. The accord established a global standard for assessing the financial soundness of banks and required banks to maintain a minimum ratio of capital to risky assets. Many banking experts believe this accord became the primary tool for strengthening the safety of international banking. The accord was eventually adopted by 100 countries. In 2001 the Basel Committee recommended a new set of regulations known as the New Basel Capital Accord to replace the 1988 agreement.