IDEAS home Printed from https://ideas.repec.org/p/cla/uclawp/385.html
   My bibliography  Save this paper

The Internationalization of American Banking and Finance: Structure, Risk, and World Interest Rates

Author

Listed:
  • Michaek Darby

    (UCLA)

Abstract

The transformation of American banking from the parochialism of 1960 to the internationally linked structure of the 1980s is analyzed and detailed quantitatively. While the liberalization of trade and the existence of and changes in financial regulations profoundly affected the pace and order of this transformation, it is argued that international banking is the historic norm. International banking on the one hand provides the opportunity to banks to diversify their portfolio, but may simultaneously expose them to increased systematic risk, especially with regards to movements in the U.S. real interest rate. Deposit insurance provides an incentive for banks to take on such priced systematic risk with welfare costs which must be balanced against the welfare gains from the insurance. The paper closes with an exploration of the nature of the linkage of major movements in real interest rates and exchange rates. Further research seems warranted on monetary-policy-regime changes and investment-demand shifts as a result of changes in tax, regulatory, and political climate.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Michaek Darby, 1985. "The Internationalization of American Banking and Finance: Structure, Risk, and World Interest Rates," UCLA Economics Working Papers 385, UCLA Department of Economics.
    • Handle: RePEc:cla:uclawp:385
    as

    Download full text from publisher

    File URL: http://www.econ.ucla.edu/workingpapers/wp385.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Walker, David A., 1983. "U.S. banking regulations and foreign banks' entry into the United States," Journal of Banking & Finance, Elsevier, vol. 7(4), pages 569-580, December.
    2. Anna J. Schwartz, 1987. "The Postwar Institutional Evolution of the International Monetary System," NBER Chapters, in: Money in Historical Perspective, pages 333-363, National Bureau of Economic Research, Inc.
    3. Richard Meese & Kenneth Rogoff, 1983. "The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 67-112, National Bureau of Economic Research, Inc.
    4. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    5. Mark, Nelson C., 1985. "Some evidence on the international inequality of real interest rates," Journal of International Money and Finance, Elsevier, vol. 4(2), pages 189-208, June.
    6. A. Steven Holland, 1984. "Real interest rates: what accounts for their recent rise?," Review, Federal Reserve Bank of St. Louis, vol. 66(Dec), pages 18-29.
    7. Horvitz, Paul M, 1980. "A Reconsideration of the Role of Bank Examination: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 654-659, November.
    8. Goldberg, Lawrence G & Saunders, Anthony, 1980. "The Causes of U.S. Bank Expansion Overseas: The Case of Great Britain," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 630-643, November.
    9. Michael R. Darby, 1979. "The Effects of Social Security on Income and the Capital Stock," Books, American Enterprise Institute, number 936292, September.
    10. Robert E. Cumby & Maurice Obstfeld, 1984. "International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence," NBER Chapters, in: Exchange Rate Theory and Practice, pages 121-152, National Bureau of Economic Research, Inc.
    11. Krasker, William S., 1980. "The `peso problem' in testing the efficiency of forward exchange markets," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 269-276, April.
    12. James R. Barth & R. Dan Brumbaugh, Jr. & Daniel Sauerhaft & George H. K. Wang, 1985. "Insolvency And Risk‐Taking In The Thrift Industry: Implications For The Future," Contemporary Economic Policy, Western Economic Association International, vol. 3(5), pages 1-32, September.
    13. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-622, September.
    14. Cumby, Robert E. & Mishkin, Frederic S., 1986. "The international linkage of real interest rates: The European-US connection," Journal of International Money and Finance, Elsevier, vol. 5(1), pages 5-23, March.
    15. Mishkin, Frederic S, 1984. "Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-1357, December.
    16. Beranek, William & Humphrey, Thomas M & Timberlake, Richard H, Jr, 1985. "Fisher, Thornton, and the Analysis of the Inflation Premium: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 370-377, August.
    17. Sebastian Edwards, 1985. "The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis of Developing Countries," UCLA Economics Working Papers 382, UCLA Department of Economics.
    18. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
    19. Solnik, Bruno H., 1982. "An empirical investigation of the determinants of national interest rates differences," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 333-339, January.
    20. Darby, Michael R & Haltiwanger, John C & Plant, Mark W, 1985. "Unemployment Rate Dynamics and Persistent Unemployment under Rational Expectations," American Economic Review, American Economic Association, vol. 75(4), pages 614-637, September.
    21. Ball, Clifford A. & Tschoegl, Adrian E., 1982. "The Decision to Establish a Foreign Bank Branch or Subsidiary: An Application of Binary Classification Procedures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(3), pages 411-424, September.
    22. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    23. Siegel, Jeremy J, 1979. "Inflation-Induced Distortions in Government and Private Saving Statistics," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 83-90, February.
    24. Boyes, William & Cheng, Hang Sheng & Ortiz, Guillermo & Hope, Nicholas & Heller, H. Robert, 1986. "Roundtable discussion on international financial risk," Journal of International Money and Finance, Elsevier, vol. 5(1, Supple), pages 161-175, March.
    25. Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework," NBER Working Papers 1531, National Bureau of Economic Research, Inc.
    26. Kochin, Levis A, 1974. "Are Future Taxes Anticipated by Consumers? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(3), pages 385-394, August.
    27. Jump, Gregory V, 1980. "Interest Rates, Inflation Expectations, and Spurious Elements in Measured Real Income and Saving," American Economic Review, American Economic Association, vol. 70(5), pages 990-1004, December.
    28. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    29. Michael C. Keeley & Gary C. Zimmerman, 1985. "Geographic deposit competition," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep13.
    30. Cosandier, Pierre-Alexis & Lang, Bruno R., 1981. "Interest rate parity tests : Switzerland and some major western countries," Journal of Banking & Finance, Elsevier, vol. 5(2), pages 187-200, June.
    31. Darby, Michael R. & Lothian, James R. & Gandolfi, Arthur E. & Schwartz, Anna J., 1983. "The International Transmission of Inflation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226136417, December.
    32. Husted, Steven & Kitchen, John, 1985. "Some Evidence on the International Transmission of U.S. Money Supply Announcement Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 456-466, November.
    33. Darby, Michael R. & Lothian, James R., 1983. "British economic policy under margaret thatcher: A midterm examination," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 18(1), pages 157-207, January.
    34. Rodney H. Mills & Henry S. Terrell, 1983. "International banking facilities and the eurodollar market," Staff Studies 124, Board of Governors of the Federal Reserve System (U.S.).
    35. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-384, April.
    36. Crouhy, Michael & Galai, Dan, 1984. "A New Look at the Theory of Financial Intermediation," University of California at Los Angeles, Anderson Graduate School of Management qt8z72b46w, Anderson Graduate School of Management, UCLA.
    37. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
    38. Edwards, Sebastian, 1986. "The pricing of bonds and bank loans in international markets : An empirical analysis of developing countries' foreign borrowing," European Economic Review, Elsevier, vol. 30(3), pages 565-589, June.
    39. John F. O. Bilson & Richard C. Marston, 1984. "Exchange Rate Theory and Practice," NBER Books, National Bureau of Economic Research, Inc, number bils84-1, March.
    40. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    41. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 266-276, June.
    42. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
    43. Seater, John J, 1982. "Are Future Taxes Discounted?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(3), pages 376-389, August.
    44. Kareken, John H & Wallace, Neil, 1978. "Deposit Insurance and Bank Regulation: A Partial-Equilibrium Exposition," The Journal of Business, University of Chicago Press, vol. 51(3), pages 413-438, July.
    45. Loopesko, Bonnie E., 1984. "Relationships among exchange rates, intervention, and interest rates: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 257-277, December.
    46. Hartman, David G., 1984. "The international financial market and US interest rates," Journal of International Money and Finance, Elsevier, vol. 3(1), pages 91-103, April.
    47. Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, vol. 74(4), pages 726-734, September.
    48. Dothan, Uri & Williams, Joseph, 1980. "Banks, bankruptcy, and public regulation," Journal of Banking & Finance, Elsevier, vol. 4(1), pages 65-87, March.
    49. Porzecanski, Arturo C., 1981. "The international financial role of U.S. commercial banks: Past and future," Journal of Banking & Finance, Elsevier, vol. 5(1), pages 5-16, March.
    50. Sydney J. Key, 1979. "Implementation of the International Banking Act," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 785-796.
    51. Lee, Moon H. & Zechner, Josef, 1984. "Debt, taxes, and international equilibrium," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 343-355, December.
    52. Ayanian, Robert, 1983. "Expectations, Taxes, and Interest: The Search for the Darby Effect," American Economic Review, American Economic Association, vol. 73(4), pages 762-765, September.
    53. Goldberg, Lawrence G. & Saunders, Anthony, 1981. "The determinants of foreign banking activity in the United States," Journal of Banking & Finance, Elsevier, vol. 5(1), pages 17-32, March.
    54. Ian Giddy, 1985. "Regulation of off-balance sheet banking," Proceedings, Federal Reserve Bank of San Francisco, issue June, pages 165-190.
    55. Seater, John J. & Mariano, Roberto S., 1985. "New tests of the life cycle and tax discounting hypotheses," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 195-215, March.
    56. Fratianni, Michele & Wakeman, L. MacDonald, 1982. "The law of one price in the eurocurrency market," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 307-323, January.
    57. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-1157, December.
    58. Cornell, Bradford & Shapiro, Alan C., 1984. "The International Debt Crisis and Bank Stock Prices," University of California at Los Angeles, Anderson Graduate School of Management qt6g22s4sd, Anderson Graduate School of Management, UCLA.
    59. Martin Feldstein & Robert J. Barro, 1978. "The Impact of Social Security on Private Saving: Evidence from the U.S. Time Series," Books, American Enterprise Institute, number 936368, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brealey, R. A. & Kaplanis, E. C., 1996. "The determination of foreign banking location," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 577-597, August.
    2. Frankel, Jeffrey A. & MacArthur, Alan T., 1988. "Political vs. currency premia in international real interest differentials : A study of forward rates for 24 countries," European Economic Review, Elsevier, vol. 32(5), pages 1083-1114, June.
    3. Goldberg, Michael A & Helsley, Robert W & Levi, Maurice D, 1988. "On the Development of International Financial Centers," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 22(0), pages 81-94, February.
    4. Hübler, Michael, 2011. "Technology diffusion under contraction and convergence: A CGE analysis of China," Energy Economics, Elsevier, vol. 33(1), pages 131-142, January.
    5. Elyas Elyasiani & Rasoul Rezvanian, 2002. "A comparative multiproduct cost study of foreign-owned and domestic-owned US banks," Applied Financial Economics, Taylor & Francis Journals, vol. 12(4), pages 271-284.
    6. Carmela D'Avino, 2015. "Net Interoffice Accounts of Global Banks: The Role of Domestic Funding," IJFS, MDPI, vol. 3(3), pages 1-17, June.
    7. Nicholas Apergis & Christis Hassapis & Christina Christou & Steve Johnson, 2015. "International Earnings To Price Ratio Convergence: Evidence From The European Union," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(5), pages 37-55.
    8. Frederick T. Furlong & Michael C. Keeley, 1986. "Bank regulation and the public interest," Economic Review, Federal Reserve Bank of San Francisco, issue Spr, pages 55-71.
    9. Chowdhry, Bhagwan & Titman, Sheridan, 2001. "Why real interest rates, cost of capital and price/earnings ratios vary across countries," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 165-189, April.
    10. Battilossi, Stefano, 2009. "The Eurodollar revolution in financial technology. Deregulation, innovation and structural change in Western banking in the 1960s-70s," IFCS - Working Papers in Economic History.WH wp09-10, Universidad Carlos III de Madrid. Instituto Figuerola.
    11. Chowdhry, Bhagwan & Titman, Sheridan, 1993. "Why Real Interest Rates, Cost of Capital and Price/Earnings Ratios Vary Across Countries," University of California at Los Angeles, Anderson Graduate School of Management qt93k425dd, Anderson Graduate School of Management, UCLA.
    12. Aneta Hryckiewicz & Oskar Kowalewski, 2008. "The Economic Determinants and Engagement Models of Foreign Banks in Central Europe," NBP Working Papers 50, Narodowy Bank Polski.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486.
    2. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316, National Bureau of Economic Research, Inc.
    3. David Alan Aschauer, 1990. "Is Government Spending Stimulative?," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 30-46, October.
    4. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    5. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    6. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A quantitative assessment of real and financial integration," China Economic Review, Elsevier, vol. 14(3), pages 281-303.
    7. Michael R. Darby, 1984. "Some pleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 8(Spr).
    8. Jana Riedel, 2020. "On real interest rate convergence among G7 countries," Empirical Economics, Springer, vol. 59(2), pages 599-626, August.
    9. Hodrick, Robert J., 1989. "Risk, uncertainty, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 433-459, May.
    10. Jeffrey A. Frankel, 1985. "International capital mobility and crowding-out in the U.S. economy: imperfect integration of financial markets or of goods markets?," Proceedings, Federal Reserve Bank of St. Louis, pages 33-74.
    11. Ross Levine, 1988. "The forward exchange rate bias: a new explanation," International Finance Discussion Papers 338, Board of Governors of the Federal Reserve System (U.S.).
    12. Chan, Tze-Haw, 2002. "Dynamic financial linkages among the Asia Pacific economies: an empirical assessment of real interest parity condition," MPRA Paper 34642, University Library of Munich, Germany.
    13. Charles Engel & James D. Hamilton, 1989. "Long Swings in the Exchange Rate: Are they in the Data and Do Markets Know It?," NBER Working Papers 3165, National Bureau of Economic Research, Inc.
    14. Mark Wheeler, 1999. "The macroeconomic impacts of government debt: An empirical analysis of the 1980s and 1990s," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(3), pages 273-284, September.
    15. Jorion, Philippe, 1996. "Does real interest parity hold at longer maturities?," Journal of International Economics, Elsevier, vol. 40(1-2), pages 105-126, February.
    16. Meese, Richard & Rogoff, Kenneth, 1986. "Was it real? The exchange rate -- Interest differential relation: 1973-1984," Journal of Economic Dynamics and Control, Elsevier, vol. 10(1-2), pages 297-298, June.
    17. repec:hal:spmain:info:hdl:2441/5221 is not listed on IDEAS
    18. Arghyrou, Michael G. & Gregoriou, Andros & Kontonikas, Alexandros, 2009. "Do real interest rates converge? Evidence from the European union," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 447-460, July.
    19. Sofiane H. Sekioua, 2004. "Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the dominant root and half-lives of shocks," Money Macro and Finance (MMF) Research Group Conference 2004 91, Money Macro and Finance Research Group.
    20. Keshab Shrestha & Kok Tan, 2005. "Real Interest Rate Parity: Long-Run and Short-Run Analysis Using Wavelets," Review of Quantitative Finance and Accounting, Springer, vol. 25(2), pages 139-157, September.
    21. Alpha C. Chiang & Stephen M. Miller, 1998. "The Perception of Government Bonds and Money as Net Wealth: An Integrated Approach," Eastern Economic Journal, Eastern Economic Association, vol. 24(4), pages 435-448, Fall.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cla:uclawp:385. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David K. Levine (email available below). General contact details of provider: http://www.econ.ucla.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.