Essay Notes

0. Abstract
- In the 1960s and 1970s American banks were the acknowledged leaders of the world
banking community. They burst on the world scene at a time when United States
multinational corporations and United States government (by means of foreign aid)
were pumping vast sums of dollar into world market. Many of dollar remain abroad of
which European countries borrowed dollar heavily because they needed a "hard
currency" with which to purchase badly needed raw materials and goods. (2)
- At the same time, the United States became the world's largest importer of oil, paying
for this oil, naturally, in United States currency ("petrodollars"). The Arab nations, who
were the primary benefactors of these petrodollars, began spending and investing
dollars heavily. United States banks moved abroad, in increasing numbers in pursuit of
this market. By 1972 there were 107 United States banks doing business abroad (up
from seven in 1947 and from only thirteen in 1965), operating 588 foreign branches and
holding approximately eighty billion dollars in assets. (2)
- By 1956 it had become popular for holding companies to own one or more banks.
Therefore, Congress passed the Bank Holding Company Act (BHCA) to regulate multi-
bank (i.e., more than one) holding companies. The BHCA was amended in 1970 to
include all bank holding companies (BHCs), even single bank BHCs. (2)
- It is useful, therefore, to understand the structure and evolution of the banking
organizations that play vital roles in the world economy. Such background aids in
evaluating events as they unfold. (5)
- The globalization of financial markets made possible largely through market
deregulation and technological gains, has been widely recognized. Increased trading and
derivatives activities are often cited as making financial markets more liquid and efficient
and bringing markets throughout the world closer together. International lending by U.S.
and foreign banks, along with international trade and the innovative financing necessary
to support trade and economic growth, has also grown rapidly in recent decades. (5)

1 Introduction:
-
- International banks have been beset by a multitude of problems ranging from the
sovereign-debt crisis, the real-estate fiascoes, to the heavy commitments to highly
leverage transactions. (3)
- Today, American banks are stronger than they have been in decades. The American banking
industry reported profits of $62 billion for 1997, the most impressive results ever. One
hopes, of course, that they have learned their lessons from their difficult past (3)
- The last two decades have witnessed dramatic bank deregulation in united states. Of
particular importance at national level have been relaxation of geographical & activity
limitations on bank holding company achieved in 1980 & 1990. (4)
- Federal reserve bank & comptroller of currency furthered enhanced relaxation – passing
landmark legislation to repeal outright the separation of commercial & investment imposed
by banking act 1933 & expand in other direction. (4)
- Pressure of 1980 of deregulation came from outside of American banking system & made it
required for survival of banks in market. (4)
 - the number of U.S. banks having foreign branches began to grow. In late 1965, only 13 U.S.
banks had foreign branches, and most of those had only a few; the branches' assets totaled
less than $10 billion. By 1970, 79 banks had foreign branches, with assets totaling $53
billion. Ten years later, 159 banks-nearly every U.S. bank having assets of more than $2
billion-had at least one foreign branch, the number of branches had grown to 787, and
combined branch assets exceeded $340 billion. Before the 1960s, few U.S. banks owned
subsidiaries abroad, and total subsidiary assets in 1965 were less than $3 billion. During the
1970s, however, subsidiaries also began to grow, building assets to $39 billion by 1975 and
to more than $80 billion by 1980. They typically conducted commercial or merchant banking
or pursued local retail business. (5)
- As banking becomes increasingly global, this regulatory difference faced by U.S.
banks becomes more important in that it selectively handicaps U.S. banks and forces
them to become more competitive so that they can continue to deliver a
comprehensive package of financial products to their corporate customers. In their
efforts to become more competitive, coordination and structuring of foreign
operations are key strategic tools. For example, foreign branches and subsidiaries
have different capabilities and costs. So the choice of organizational form
preferences (branches versus subsidiaries) in host countries can affect the global
reach and competitiveness of U.S. banks. {1} (Parkhe & Miller, 2001)
- Since foreign branches and subsidiaries have different costs and capabilities, a
global reach and the requisite combinations of foreign banking offices in host
countries become extremely important for multinational banks to compete in a
competitive global economy. (1)
)Ghoshal and Nohria (1993) underscored the importance of organizational form, arguing
that an organization's structure strongly impacts its performance. Supporting this
argument, Waheed and Mathur (1995) found that the reaction of equity investors to a
bank's foreign expansion announcement is influenced by the choice of organizational
form. (1)

- .Agarwal and Ramaswami (1992) argued that "to compete with host country firms in
their own markets, firms must possess superior assets and skills that can earn
economic rents that are high enough to counter the higher costs of servicing these
markets. A Parkhe and Miller~Journal of International Management (1998) 59-83 61
firm's asset power is reflected by its size and multinational experience, and skills by
its ability to develop differentiated products" (1992:4). Therefore, we analyze
ownership advantages using four bank characteristics: size, multinationality, product
diversity, and charter value. (1)

2 (i) Example:
- The United States Supreme Court in 1924 ruled that national banks have no inherent power
under the National Bank Act to branch.3' Since neither the McFadden Act nor any
subsequent act permits branching, courts have long taken the view that interstate
br'anching of national banks is prohibited. (1)

2. Main Body
- Differences in banking regulations across countries and entry mode requirements can make
such considerations an important part of global competitiveness. (1)

- Competitive advantage

- According to Yannopoulos (1983), there are two sources of product differentiation that may
provide ownership advantages over host-country banks. The first source deals with the different
roles of a national currency in settling international transactions. The second source deals with a
bank's size. Yannopoulos also argued that size may present advantages. Larger proportions of
international operations provide more linkages, which in turn reduce the cost of gathering
information on currencies and of managing exchange risk. That is, banks with greater global reach
are likely to have cost advantages over less global banks. (5)

- Miller and Parkhe (1998) is the only study to date that has examined U.S. banks' organizational
form decisions in their foreign operation.

- Decision of foreign operation in host countries is also based on legal requirements, foreign direct
investment plans, banking system development & tax related regulation. Currently it has seen that
higher percentage of US bank subsidiaries in EU countries follows banking regulation which reflect
US bank to participate in large scale of financial service activities. (1)

- Due to high restriction on operation in united states, in order to increase presence & structure in
high competitive market it become important for US bank to establish to enter in foreign Market. As
Foreign Branch & Subsidiary office are required to follow their host countries rules & regulation. So,
Such foreign branch can involves in various financial activities on large scale such as Investing
banking, Mutual fund, issuing loan & others. (1)

-establishing a subsidiary office in a host country, U.S. banks will be able to enjoy the benefits of
universal banking, subject to the limits of Regulation K, thus expanding their products supplied,
improving scale and scope economies, and thus their performance (Saunders and Walter, 1994). A
higher percentage of subsidiaries enables U.S. banks to deepen their client relationship along with
new dimensions which will enrich their information capital base & strengthen their internalization
advantages (Yannopoulos , 1983).

- In order to gin higher competitive advantage Us bank establish foreign operation to access higher
percentage of retail banking service as well as investment banking service to get internalization
presence & advantages associated with maturity transformation. (1)

- In growing competition market bank need to show product diversification which can be reflect
from percentage of noninterest revenue of total revenue in bank plans as there are different
variable of revenue such as fees-based activities which reveals that bank is engage in non-traditional
commercial activities. Therefore, high product diversification banks offers board range of financial
service which lead banks to more inclined toward universal banking. Rajan (1995) conjectured that
higher levels of ex ante profitability for a bank are obtained in a universal bank as opposed to a
separated commercial bank. For U.S. banks to resemble universal banks, a subsidiary-oriented
strategy is required. (1)

- Data for oversea office of U.S. Banks are given for the period 2018-19. Federal reserve Board of
Governors. Annual reports. International Financial Statistics. Bank for International Settlements.
Central bank (1)
J.P. Morgan is the brand name given to the Investment Bank, Asset Management and Treasury & Securities
Services businesses of parent company JPMorgan Chase & Co., which formed in 2000 after Chase Manhattan
Bank acquired JPMorgan. JPMorgan Chase has assets of about $1.8 trillion and more than 170,000 employees.
Its corporate headquarters are in New York, but it operates in 60 countries worldwide. Its corporate, government,
and institutional investor clients are serviced by J.P. Morgan, while the Chase brand serves customers in its U.S.
consumer and commercial banking business.

While J.P. Morgan grew on its own, Chase grew by merger mania, devouring Chemical National Bank, the
Manhattan Company (later the Bank of Manhattan), Chase National Bank, Hanover Bank, Phoenix Bank, the
Brooklyn Trust Co., and the Manufacturers Trust Co., among others, with acquisitions dating back to 1799. In
1930, Chase National become the world’s largest bank in terms of assets and brought the Rockefeller family into
the business by merging with Interstate Trust and Equitable Trust (whose president, Winthrop Aldrich, was David
Rockefeller’s uncle). By late 1999, Chase was a powerhouse consumer bank and budding investment bank,
though it hadn’t broken through to the top tier of I-banking. The JPMorgan Chase merger solved this problem and
was hailed as a winner by analysts who expected the combined firm to become the leader in underwriting and
commercial banking.

- JP morgan chase is positioned as largest U.s. Bank a global financial service behemoth with
operations in more than 60 countries and ranked number 32 on the Fortune Global 500 list
of the biggest companies in 2008.

3. Conclusion

- Our results suggest that a bank's strategy, and thus its organizational form preferences, are
contingent upon its ownership advantages and the environment in which is chooses to operate. For
example, larger, more global banks establish a higher percentage of subsidiaries in host countries
with high banking system development than in countries with low banking system development.

- U.S. regulations that separate commercial and investment banking by establishing more
subsidiary-oriented operations in countries that have low restrictions pertaining to security-related
activities (1)

- specialized information to protect

- Advantage of Internalization – cross selling

- American international banks have led in the reforms of their industry. They have trimmed their
expenses in very impressive ways while successfully abandoning unprofitable lines of business and
unbundling their services.

- The continuing growth of international banking and the strengthening of links between banking
and securities markets have produced larger, more diversified financial institutions and further
concentration of international activities among fewer Us Bank. These trends are not unique to U.S.
banking but apply to financial markets broadly.

- On the one hand, consolidation should offer surviving institutions greater financial strength and
diversification of risks along with larger asset size and equity base. On the other hand, greater
concentration of decisionmaking within the industry can lead to larger problems when they occur.
Large problems, in turn, raise the specter of systemic risks.

4. Reference & Citation

- Parkhe, A. and Miller, S.R., 1998. Foreign operations of US banks: Impact of environmental
differences and ownership advantages on organizational form preferences. Journal of International
Management, 4(1), pp.59-83. (Parkhe & Miller, 1998)

- Nunes, M.A., 1990. Foreign Banks Come Sailing in as United States Banks Tack Slowly
Upwind. Hous. J. Int'l L., 13, p.39. (Nunes, 1990)

- Khoury, S.J. and Pal, P., 2000. Foreign banks in the United States: Entry strategies and
operations. Thunderbird International Business Review, 42(5), pp.529-550. (Khoury and Pal, 2000)

- Calomiris, C.W. and Calomiris, C.W., 2000. US bank deregulation in historical perspective.
Cambridge University Press. (Calomiris, 2000)

- Houpt, J.V., 1999. International activites of us banks and in us banking markets. Fed. Res. Bull., 85,
p.599. Houpt, 1999

- Miller, S.R. and Parkhe, A., 1998. Patterns in the expansion of US banks' foreign operations. Journal
of international business studies, 29(2), pp.359-388.

- O'Brien, J. and Dixon, O., 2012. The common link in failures and scandals at the world's leading
banks. Seattle UL Rev., 36, p.941.

- Goldberg, L.S., 2007. The international exposure of US banks: Europe and Latin America compared.
In Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and
Consequences (pp. 203-240). University of Chicago Press. (Goldberg L.S., 2007)

- Cattani, G. and Tschoegl, A. (2002). An evolutionary view of internationalization: Chase

manhattan bank, 1917 to 1996. Wharton School Center for Financial Institutions, University
of Pennsylvania, Center for Financial Institutions Working Papers.

- https://www.jpmorganchase.com/about/our-history

- https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/the-
world-s-100-largest-banks-2022-69651785

- McCauley, R.N., McGuire, P. and Von Peter, G., 2010. The architecture of global banking: from
international to multinational?. BIS Quarterly Review, March.

- Huertas, T.F., 1985. The Rise of the Modern Business Enterprise: The Case of Citibank. Business
and Economic History, pp.143-157. (Huertas, 1985)

https://www.citigroup.com/citi/about/timeline/

Yannopoulos, G. 1983. The growth of transnational banking. In: M. Casson (ed.), The
Growth of International Business. George Allen and Irwin: London

Saunders, A., Walter, I. 1994. Universal Banking in the United States. Oxford University
Press: New York. Scholes, M., Wolfson, M. 1992. Taxes and Business Strategy: A Planning
Approach. Prentice-Hall: Englewood Cliffs, NJ.
Porter, M.E., Wayland, R.E. 1995. Global competition and the localization of competitive
advantage. In: P. Shrivastava, A. Huff, J. Dutton (eds.), Advances in Strategic Management,
vol. 11A (pp. 63-105). JAI Press, Inc.: Greenwich, CT

Rajan, R. 1995. An investigation into the economics of extending bank powers. Working
Paper no. 346. University of Chicago

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hase & Co. (merged 2000) (merged 1996)[90] (merged 1991) (reorganized 1988)
       

Manufacturers Hanover
(merged 1961)
 

Chase Manhattan Bank  
The Bank of the Manhattan Compan
(merged 1955)   (est. 1799)
 
 
Chase National Bank
  of the City of New York
(est. 1877)[87]

J.P. Morgan & Co.  
Guaranty Trust Company
(formerly Morgan Guaranty Trust)  
of New York
(merged 1959)
(est. 1866)
 
 Bank One Banc One Corp.[91]  
City National Bank
(acq. 2004) (merged 1968)   & Trust Company
   
 
Farmers Saving
  & Trust Company

First Chicago NBD  
First Chicago Corp.
(merged 1995)   (est. 1863)
 
 
NBD Bancorp.
  (formerly
National Bank of Detroit)
(est. 1933)

Louisiana's First
  Commerce Corp.
J.P. Morgan Chase & Co

J.P Morgan

Chase Manhattan Bank