Low Soo Peng Universal Banking

1. Global banking business
 One clear trend in the evolution of financial
institutions and markets is the expansion of
activities across national boundaries.
 Technology has made it possible to conduct
business around the world with relative ease
and minimal cost.
 Producers recognize that export markets are
as important as domestic markets, and that
the range of competitors includes both
domestic and foreign operations.

2. Global banking activities
…involve both traditional commercial
banking and investment banking
operations.
U.S. commercial banks now accept deposits,
make loans, provide letters of credit, trade
bonds and foreign exchange, and underwrite
debt and equity securities in dollars and other
currencies.
 With the globalization of financial markets, all
firms compete directly with other major
commercial and investment banks throughout
the world.
 Foreign banks offer the same products and
services denominated in their domestic
currencies and in U.S. dollars.
 Still, it was not always this way.


3. U.S. banks, although a dominant player in
some world markets, have not been
considered “large” by international
standards
 Restrictive branching laws,
 Restrictions on the types of activities U.S.
banks could engage in, and
 Other regulatory factors generally meant that
U.S. banks were greater in number,
but smaller in size.

4. U.S. banks, although a dominant player in
some world markets, have not been
considered “large” by international
standards.
Rank
1
2
3
4
5
6
7
8
9
10
17
26
Company Name
Bank of Tokyo-Mitsubishi Ltd., Tokyo, Japan
Deutsche Bank AG, Frankfurt, Germany
Credit Agricole Mutual, Paris, France (2)
Credit Suisse Group, Zurich, Switzerland (1)
Dai-Ichi Kangyo Bank Ltd., Tokyo, Japan
Fuji Bank Ltd., Tokyo, Japan
Sanwa Bank Ltd., Osaka, Japan
Sumitomo Bank Ltd., Osaka, Japan
Sakura Bank Ltd., Tokyo, Japan
HSBC Holdings, Plc., London, United Kingdom
Chase Manhattan Corp., New York, United States
Citicorp, New York, United States (b)
12/31/1996
$648,161.00
575,072.00
479,963.00
463,751.40
434,115.00
432,992.00
427,689.00
426,103.00
423,017.00
404,979.00
333,777.00
278,941.00
Billions of dollars
Source: The AmericanBanker: http://www.americanbanker.com.

5. By the end of the 20th century, many
factors had changed in the U.S. banking
system.
 The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 effectively eliminated interstate branching
restrictions in the U.S. such that:
 by early 1994, there were 10 U.S. banks with 30 interstate
branches.
 by June 2001, there were 288 U.S. banks with 19,298
interstate branches.
 U.S. banks were also hampered in their ability to compete
internationally by the Glass-Steagall Act, which effectively
separated commercial banking from investment banking.
 As such, U.S. commercial banks essentially provided two
products: loans and FDIC-insured deposits.
 In November 1999, the U.S. Congress passed the GrammLeach-Bliley Act, which allowed U.S. banks to fully compete
with the largest global diversified financial companies by
offering the same broad range of products.
 The Gramm-Leach-Bliley Act of 1999 repealed restrictions
on banks affiliating with securities firms and modified
portions of the Bank Holding Company Act to allow
affiliations between banks and insurance underwriters.

6. By the end of 2000, the largest banking
company in the world was Citigroup at just
under one-trillion dollars and three of the
largest ten banking companies in the world were
U.S. banks.

7. The merger between Citicorp and Travelers
created Citigroup, the first diversified financial
services company in the U.S.
 The merger, however, was not completely
permissible at the time it was approved under
provisions of the Glass-Steagall Act.


The passage of the Gramm-Leach-Bliley Act, made
this merger permissible and thereby allowed
Citigroup to legally be the world’s largest banking
company.
Citigroup formed a financial holding company under
the provisions of the Gramm-Leach-Bliley Act and
became one of the first integrated financial services
companies engaged in investment services, asset
management, life insurance and property casualty
insurance, and consumer lending.

Its operating companies include Salomon Smith
Barney, Salomon Smith Barney Asset Management,
Travelers Life & Annuity, Primerica Financial Services,
Travelers Property Casualty Corp., and Commercial
Credit.

8. Today, the product offerings of Citigroup
are similar to that of Deutsche Bank in
Germany
 Prior to the merger between Citibank and Travelers,
however, Citibank’s product line was more limited.
 Outside the U.S., Citibank was able to offer a
diversified set of products using an Edge Act
corporation.

Edge Act corporations are domestic subsidiaries of
banking organizations chartered by the Federal
Reserve.


All “Edges” are located in the United States and may be
established by U.S. or foreign banks and bank holding
companies, but are limited to activities involving
foreign customers.
They can establish overseas branches and
international banking facilities (IBFs) and own foreign
subsidiaries.

9. 60.0%
10.0%
55.0%
5.0%
50.0%
0.0%
Domestic total assets
Foreign owned total assets
20
01
15.0%
19
99
65.0%
19
97
20.0%
19
95
70.0%
19
93
25.0%
19
91
75.0%
19
89
30.0%
19
87
80.0%
19
85
35.0%
19
83
85.0%
19
79
19
81
40.0%
19
77
90.0%
19
75
45.0%
19
73
50.0%
95.0%
Percent of total domestic
100.0%
Domestic total deposits
Foreign owned total deposits
Percent of total foreign owned
Foreign banks operating through their
American banking offices have also
aggressively pursued U.S. business.

10. The growth in market share of U.S. offices
of foreign banks in total loans and
business loans.
45.0%
90.0%
40.0%
85.0%
35.0%
80.0%
30.0%
75.0%
25.0%
70.0%
20.0%
65.0%
15.0%
60.0%
10.0%
55.0%
5.0%
50.0%
0.0%
Domestic total loans
Foreign owned total loans
Domestic business loans
Foreign owned business loans
Percent of total foreign owned
95.0%
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
50.0%
Percent of total domestic
100.0%

11. The largest U.S. banks with
significant international operations.
Total
Name
Assets
Citibank NA, New York NY
452,343
JPMorgan Chase Bk, New York NY
537,826
Bank of America NA, Charlotte NC 551,691
Fleet NA Bk, Providence RI
187,949
Bank of New York, New York NY
78,019
Bank One NA, Chicago IL
161,023
MBNA America Bk NA, Wilmington DE
43,066
First Union NB, Charlotte NC
232,785
State Street B&TC, Boston MA
65,410
Wachovia Bk NA, Winston-Salem NC1,555
7
Keybank NA, Cleveland OH
71,526
PNC Bk NA, Pittsburgh PA
62,610
Mellon Bk NA, Pittsburgh PA
27,813
Bank of Hawaii, Honolulu HI
10,493
Northern Trust Co, Chicago IL
32,758
National City Bk, Cleveland OH
39,214
Wells Fargo Bk NA, San Francisco140,675
CA
Wells Fargo Bk MN NA, Minneapolis MN
52,428
Deposits Held in:
Domestic Foreign Offices
Offices
$ Mill
% TA
98,899 208,024 46.0%
160,102 120,371 22.4%
334,909
56,634 10.3%
110,148
22,316 11.9%
28,786
27,024 34.6%
81,020
26,358 16.4%
26,187
1,448
3.4%
135,276
12,473
5.4%
12,137
26,718 40.8%
42,684
3,627
5.1%
40,010
2,721
3.8%
44,079
2,307
3.7%
9,947
4,949 17.8%
5,621
1,369 13.0%
10,380
9,424 28.8%
20,464
1,007
2.6%
73,644
5,433
3.9%
26,311
7,459 14.2%
Net Loans and leasses:
Domestic Foreign Offices
# of US
Offices
$ Mill
% TA Branches
121,901 157,462 34.8%
277
135,872
39,022
7.3%
612
287,364
20,867
3.8%
4,350
102,956
19,737 10.5%
1,709
19,822
16,879 21.6%
362
76,440
4,991
3.1%
804
18,733
4,123
9.6%
3
118,053
3,479
1.5%
2,143
4,519
1,402
2.1%
1
45,434
807
1.1%
790
54,047
785
1.1%
980
39,072
777
1.2%
735
6,269
548
2.0%
346
5,312
495
4.7%
78
11,331
397
1.2%
1
31,022
154
0.4%
353
93,799
20
0.0%
939
34,277
1
0.0%
169

12. The largest “foreign owned” banks
operating in the U.S.
Deposits Held in: Loans in
%
# of
Total Domestic Foreign
Frgn
Foreign # of US
Foreign
Top Holding Company
Name
Assets Offices Offices Offices
Owned Branches Branches
HSBC Bank USA, Buffalo NY
84,230 37,067 21,153
3,194 HS BC Holdings PLC, LONDON NA
100
440
19
Lasalle Bank NA, Chicago IL
54,731 24,963
4,226
0 ABN Amro, AMS TERDAM NA
100
122
2
Taunus Corporation, NEW YORK NY
Bankers Trust Co, New York NY
42,678 11,423 10,000
253
100
4
14
Standard Federal Bk NA, Troy MI
42,088 19,702
624
0 ABN Amro, AMS TERDAM NA
100
385
2
Bank of Tokyo-Mitsubishi, TOKYO NA
Union Bk of CA NA, San Francisco CA
35,591 26,518
3,305
1,041
66
286
6
Banco Popular De PR, San Juan PR
20,477 11,459
190 10,306 Popular Inc., S AN JUAN PR
100
2
204
Harris T&SB, Chicago IL
19,673
9,498
1,708
151 Bank of Montreal, MONTREAL NA
100
57
2
Allfirst Bk, Baltimore MD
17,762 12,758
545
249 Allied Irish Banks Limited, DUBLIN NA
100
270
2
RBC Centura Bk, Rocky Mount NC
13,732
7,388
273
0 Royal Bank of Canada, MONTREAL NA
100
241
1
Bank of The West, San Francisco CA
13,412
9,212
N/A
0 Bancwest Corporation, HONOLULU HI
44
193
0
United CA Bk, San Francisco CA
10,524
8,285
428
0 S anwa Bank, Limited, OS AKA NA
100
121
1
First Hawaiian Bk, Honolulu HI
8,682
5,691
463
364 Bancwest Corporation, HONOLULU HI
44
56
6
Firstbank PR, San Juan PR
8,143
4,117
N/A
0 First Bancorp, S AN JUAN PR
100
1
49
Banco S antander S .A., S ANTANDER NA
Banco Santander PR, Hato Rey PR
7,656
4,811
0
0
80
1
72
TD Waterhouse Bk NA, Jersey City NJ
6,069
5,546
N/A
0 TD Waterhouse Holdings, Inc., NEW YORK NY 80
2
0
Israel Discount Bank Limited, TEL-AVIV NA 100
Israel Discount Bk of NY, New York NY
6,021
2,112
2,094
415
7
1
Westernbank Puerto Rico, Mayaguez PR
5,887
3,214
N/A
0 W Holding Company, Inc., MAYAGUEZ PR
100
1
35
Banco Popular North America, New York City NY
5,606
4,761
0
0 Popular Inc., S AN JUAN PR
100
98
0
Safra NB, New York NY
5,010
2,548
320
875 S NBNY Holdings Limited, MARINA BAY NA 99
2
1
Banco Bilbao Vizcaya Argenta, San Juan PR 4,801
2,971
N/A
0 BBVAPR Holding Corporation, S AN JUAN PR 100
1
61
Bank of Tokyo Mitsubishi TC, New York NY 4,337
1,491
1,310
46 Bank of Tokyo-Mitsubishi, TOKYO NA
100
1
1
Bank Leumi USA, New York NY
4,082
1,496
1,800
169 Bank Leumi Le-Israel B.M., TEL-AVIV NA
99
8
1
R-G Premier Bk of PR, San Juan PR
3,963
2,115
N/A
0 R&G Financial Corporation, S AN JUAN PR 100
1
25
Doral Bk, San Juan PR
3,486
1,528
N/A
0 Doral Financial Corporation, S AN JUAN PR 100
1
26
Incus Co. Ltd., ROAD TOWN NA
Laredo NB, Laredo TX
2,349
2,029
N/A
0
71
24
0

13. Universal banking model
 Universal banking is the conduct of a variety
of financial services such as:

trading of financial instruments; foreign
exchange activities; underwriting new debt
and equity issues; investment management,
insurance; as well as extension of credit and
deposit gathering
 Universal banks have long dominated
banking in most of continental Europe.
Universal banks engage in everything from
insurance to investment banking and retail
banking—

similar to U.S. banks prior to the enactment of
the Banking Act of 1933 and Glass-Steagall
provisions and now post the passage of the
Gramm-Leach-Bliley Act of 1999

14. Three events changed the historical
development of banking in the united states.
1.
The first was the stock market crash of 1929 and
the following Great Depression.

1.
2.
Many people blamed the banks and the universal
banking activities for the problems although there is
no strong evidence to link the speculative activities
of banks with the crash.
The second was the enactment of the Banking Act
of 1933 and the Glass-Steagall provision, which
separated commercial banking from investment
banking activities.
The third was the rising importance of the federal
government in financial markets.
Prior to these events, the U.S. banking
system operated more of less under a
universal banking system.

15. The advantages of universal banking
…risk diversification and expanded business
opportunities.
 A universal bank can spread its costs over a
broader base of activities and generate more
revenues by offering a bundle of products.
 Diversification, in turn, reduces risk.

insurance companies, investment banks and
other suppliers of financial services are
moving toward building financial
conglomerates
 The GLB Act repealed Glass-Steagall and
allows U.S. banks to operate in the business
of commercial banking, investment banking,
and insurance.

Although there are many restrictions, U.S.
banks are allowed to compete with foreign
banks on an equal footing for the first time
since the passage of the Glass-Steagall Act,

16. Disadvantages of universal banking
…inherent conflict of interest
 A universal bank might use pressure tactics
to coerce a corporation into using its
underwriting services or buy insurance from
its subsidiary by threatening to cut off credit
facilities.
 It could force a borrower in financial
difficulties to issue risky securities in order
to pay off loans.
 A universal bank could also abuse
confidential information supplied by a
company issuing securities as well.

One area of the new GLB Act that has
received significant attention is that of privacy
protection