DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW

2022-2023

LAW ANDBANKING
INTERNATIONAL AGRICULTURE
AND FINANCE
PROJECT
PROJECT

TITLE – Operations in International Banking: Role and

Functioning of International Banks

SUBMITTED TO: SUBMITTED BY:

Dr. Bhanu Pratap Singh Anushri Chaturvedi

Assistant Professor (Law) Enrolment no. 190101106

ACKNOWLEDGEMENT

I gratefully acknowledge and express deep appreciation to many people who have
made this project possible and visible. Many thanks to our guide Prof. Bhanu
Pratap Singh Sir seems pretty small compared to the months of tremendous support
and indulgence he gave. It gives me immense pleasure to present this project on the
subject of International Banking and Finance.

Anushri Chaturvedi
OBJECTIVE:

This study on International Banking is important not only to an organization, shareholders, and
banking sector but also to an Indian economy as a whole. Due to globalization and liberalization
our economy is opening its door for reforms.
While in foreign developing countries, international banks besides performing the usual
commercial banking functions play an effective role in their economic development.

METHODOLOGY: PRIMARY DATA / SECONDARY DATA

 TABLE OF CONTENT

Sr. no. Topics Page No.

1 International Banking 1

2 Role of International Commercial Banks in Developing 10

Countries

3 International Bank Accounts 13

4 International Banking Institutions 16

5 Conclusion 19

6 Bibliography 20
1. International Banking

International Banking is a process that involves banks dealing with money and credit between
different countries across the political boundaries. It is also known as Foreign/International
Banking. In another words, International Banking involves banking activities that cross national
frontiers. It concerns the international movement of money and offering of financial services
through off shore branching, correspondents banking, representative offices, branches and
agencies, limited branches, subsidiary banking, acquisitions and mergers with other foreign
banks. All the basic tools and concepts of domestic bank management are relevant to
international banking. However, special problems or constraints arise in international banking
not normally experience when operating at home.

In particular: Business activities have to be transacted in foreign languages and

 Under foreign laws and regulations. Information on foreign countries needed by a

particular bank
 Wishing to operate internally may be difficult to obtain. Control and communication
systems are normally more complex, for foreign than for domestic operations. Risk level
may be higher in foreign markets.
 Foreign currency transaction is necessary.
 International bank managers require a broader range of management skills than
managers who are concerned only with domestic problems. It is more difficult to observe
and monitor trends and activities in foreign countries.

Larger amounts of important work might have to be left to intermediaries, consultants and
advisers.

International banking deals with all banking transactions-private and governmental- of two or
more countries. Private Banks undertake such transactions for profit; governments may be for
provision of various services.

Reasons for Engaging in International Banking

Banks undertake international operations in order to expand their revenue/profit base, acquire
resources from foreign countries, or diversify their activities. Specific reasons expanding
operations abroad include the saturation of domestic market; discovery of lucrative opportunities
in other countries; desire to expand volume of operations in order to obtain economy of scale.
Further motives for operating internationally are as follows:

• Commercial risk can be spread across several countries.

• Facilitation of international businesses and trade.

• Involvement in international banking can facilitate experience curve effect

• Economies of scope might become available

• Reduce cost of service delivery

• Recognition and reputation

History of International Bank

It is an unfortunate fact that Europeans have always been subjected to relatively heavy tax
burdens. This was as true on the British Isles as it was on the continent. Faced with the prospect
of watching their hard earned assets and wealth diminish with every out-reach of the tax
collector’s hand, they were ripe for a solution. And a solution came--the small, island nation state
known as the Channel Islands convinced these frustrated depositors that deposits placed in its
banks could be free from scrutiny and hence the heavy-handed taxation burden. The Euros were
convinced--and soon this service thrived, with other small jurisdictions becoming savvy to this
foreign capital-attracting status and they began to revamp their banking institutions, adopting
sound, pragmatic banking rules and regulations that eased the potential concerns of investors and
depositors. The International bank was off to a running start!And soon the term “International
banking” became synonymous with any smaller, haven jurisdiction that offered safe, secure,
confidential banking with practical regulations. Soon the rest of the world was “in the know”,
and began to look at these havens as viable solutions to their needs. Americans, Africans, Asians,
etc., found these international bank accounts quite useful for a myriad of reasons. Unlike their
banks at home, these international banks were not regularly subjected to political turmoil or
economic strife, and were most welcome for their stability and asset protection benefits.

In the years since they have come into greater use and thus more visible, international banking
accounts have been unfairly portrayed by the media and by the larger jurisdictions as the
stomping grounds of the criminal underground--a veritable haven for their illicitly-obtained
assets and funds, or the choice locales for their money-laundering schemes. Money-wise
investors and depositors have long known that these prejudices could not be further from the
truth. They know that international banks can be remarkably effective havens for assets and
funds in need of safe, secure, confidential keeping. They know that these banks can safeguard
their funds from the perils of civil, economic, or political strife in their home countries. Today,
international banks continue to keep their end of the bargain and continue to provide a safe,
confidential haven for those seeking to safeguard their assets and funds from the perils of undue
regulation and taxation.Many a discriminating depositor has benefited from the safe,
confidential, and low taxation environment that an International banking account has to offer.
While it is important to assess your goals and discuss these with a competent, experienced agent
before leaping into un-chartered waters, there are many unquestionable benefits provided by
establishing an international bank account. Their reputation among depositors and investors for
providing a viable banking location featuring protection from liability and confidentiality is
growing, and international banks will continue with this hard-earned reputation for asset
protection, tax reduction, depending on your jurisdiction, and superb confidentiality of deposits.

Modes of International Banking

There are a lot of available methods for entry into international banking Operations. This
include; Correspondent Banks, Representative Offices, Branches and Agencies, Limited
Branches, Subsidiary Banks, Bank Acquisitions and Bank Mergers.

Correspondent Banks
In order to adequately provide needed international banking services, commercial banks establish
a network of foreign correspondent banks to supplement their own facilities worldwide.
Frequently, the expense of establishing a related banking entity, such as overseas branch, is not
warranted due to the low volume of transactions concluded for the banks’ international clients.
Therefore, to provide services while keeping costs minimal, account relationships are developed
with foreign banks to facilitate international payment mechanisms between the institutions.
Deposit accounts are opened at the correspondent banks, which enable them to make direct
payments overseas by means of debiting and crediting the respective accounts with settlement to
be made at a later date. Such accounts are termed due to (or nostro) accounts and due from (or
vostro) accounts on the bank’s books. In addition to payment accounts, correspondent bank
relationship facilitates transactions such as letters of credit, documentary collection, foreign
exchange services, and loan services for a bank’s international clients. Thus, the correspondent
bank relationship gives the domestic bank apresence in overseas markets, which permits
international transactions to be concluded.

Representative Offices

A representative’s office is both the most commonly used and the most limited in function of all
foreign banking operating internationally. The international representative office functions
mainly as liaison between correspondent banks and the parent bank. Representative offices are
usually prohibited from engaging in general banking activities, although they may receive checks
for forwarding to the home office, solicit loans for the home office, and develop customer
relations. However, they may not receive deposits or make loans. Generally, representative
offices serve as the preliminary step to other forms of banking activity since they are a relatively
inexpensive means of establishing a presence in a new location.

Branches and Agencies

Depending upon the extent of services that the institution wishes to offer, either a branch or an
agency may be established. The basic definition of “branch” and “agency” may be found in the
U.S. International Banking Act of 1978. A branch is any office of a foreign bank at which
deposits are received. On the other hand, an agency is any office at which deposits may not be
accepted from citizens or residents of the U.S. if they are not engaged in international activities,
but at which credit balance may be maintained. Thus, the principal difference between branches
and agencies is that agencies cannot accept deposits for U.S citizens or residents and can only
maintain credit balances related to their international activities. In addition, agencies cannot
engage in either fiduciary or investment advisory activities with the exception of acting as
custodians for individual customers.

Agencies do engage in a variety of activities to finance international trade, such as the handling
of letters of credit.

Both agencies and branches are principally active in international market.

As extensions of the foreign parent bank, branches are generally subject to more stringent state
regulation than agencies due to the more extensive nature of their operations. The powers of a
federal branch are similar in scope of those of a national bank; these branches possess full
deposit-taking, loan, and commercial banking powers in addition to other trust powers. They are
also subject to duties, restrictions, and limitations similar to those of a national bank organized in
the same area.

Limited Branches

In pursuant to the International Banking Activities, an additional means by which a foreign bank
may participate in foreign banking market is through a so-called limited federal branch.
Basically, this is an office chartered by the Comptroller of the Currency subject to the condition
that the foreign bank enter into an agreement with the country’s apex bank or regulatory
authorities restricting the branch’s deposit-taking activities to those permitted by law. Since this
office may be established outside the foreign bank’s home state, they are restricted to deposit
taking activities of an international nature.
Subsidiary Banks

Foreign banks gain control of subsidiary banks by establishing new institutions or by acquiring
existing domestic banking institutions and these subsidiaries generally may engage in a full line
of banking activities. With respect to the designation of a foreign bank subsidiary, the term
“bank” and subsidiary” has the same meaning as those provides by section 2 of the Bank
Holding Company Act (BHCA). A subsidiary bank of a foreign bank may be either a national or
a state bank. State banks are governed by the laws of the state in which they are located, while
national banks are chartered by the Comptroller of the Currency under the National Bank Act. In
United States for example, although foreign ownership is not restricted, non-U.S. citizens may
not form a majority of a national bank’s Board of Directors.

Bank Acquisitions

Firms willing to gained access to international banking operations may also adopt the acquisition
approach by acquiring indigenous or domestic banks. However, the acquisition process is guided
by stringent conditions. For instance, Under the United States Bank Holding Company Act, the
Federal Reserve Board must approve the acquisition of direct or indirect control of a U.S. bank
by a domestic or foreign bank holding company. Various factors are considered in the approval
or denial of a BHC application. These include analysis of the competitive effect of the
acquisition, the acquirer’s financial and managerial resources, and future prospects of the bank
being acquired, community needs, and the applicant’s organizational structure.

Bank Mergers

Bank mergers is another option that is opened to those who whishes to provide international
banking services in foreign countries. There are several reasons for a foreign bank merging with
a domestic bank. For example, this provides an expedient and economical means of expanding
into new markets; it becomes easier to establish an identity on a state-wide basis; and the bank is
able to continue smooth operations with experienced management and personnel.

2. Role of International Commercial Banks in Developing Countries

While in foreign developing countries, international banks besides performing the usual
commercial banking functions play an effective role in their economic development. These roles
include the followings.

• Mobilization of Savings for Capital Formation

• International commercial banks help in overcoming savings through a network of branch

banking. People in developing countries have low incomes but the banks induce them to
save by introducing varieties of deposit scheme to suit the needs of individual depositors.
They also mobilize idle savings of the few rich.

• By mobilizing savings, the banks channel them into productive investments. Thus, they
help in capital formation of a developing country.

Financing Industry

The international commercial banks finance the industrial sector. They provide short time,
medium-term and long-term loans to industries. Besides, they underwrite the shares and
debentures of large scale industries. Thus, they not only provide finance for industry but also
help in developing the capital market, which is underdeveloped in such countries.
Financing Trade

The international commercial banks help in financing both internal and external trades. The
banks provide loans to retailers and wholesalers to stock which they deal. They also help in the
movement goods from one place to another by providing all types of facilities such as
discounting and accepting bills of exchange. Moreover, they finance both exports and imports of
developing countries by providing exchange facilities to importers and exporters.

Financing Agriculture

The international commercial banks help the large agricultural sector in developing countries in a
number of ways. They provide loans to traders in agricultural commodities. They provide
finance directly to agriculturists for the marketing of the modernization and mechanization of
their farms, for providing irrigation facilities and for developing lands.

Help in Monetary Policy:

The international commercial banks help in economic development of a country by faithfully

following the monetary policy of the country’s central bank. In fact, the central bank depends
upon the commercial banks for the success of its monetary management in keeping with
requirement of a developing economy.

Features of international banking

• International banks provide access to politically and economically stable jurisdictions.

This may be an advantage for that resident in areas where there is a risk of political
turmoil who fear their assets may be frozen, seized or disappear.
• Some international banks may operate with a lower cost base and can provide higher
interest rates than the legal rate in the home country due to lower overheads and a lack of
government intervention.

• Interest is generally paid by international banks without tax deducted. This is an

advantage to individuals who do not pay tax on worldwide income, or who do not pay tax
until the tax return is agreed, or who feel that they can illegally evade tax by hiding the
interest income.

• Some international banks offer banking services that may not be available from domestic
banks such as anonymous bank accounts, higher or lower rate loans based on risk and
investment opportunities not available elsewhere.

• International banking is often linked to other structures, such as international companies,

trusts or foundations, which may have specific tax advantages for some individuals.
3. International Bank Account.

An Offshore Bank Account

As with any "bank", onshore or offshore, there is one primary deposit account that is managed by
software. It's been hundreds of years since your local bank had a space reserved on the shelf for
'your money'. Even the largest U.S. national bank has a primary deposit account and everything
is computerized. The same goes for your offshore bank, you have your financial institution and a
deposit account that is computer managed. We assist you with acquiring and configuration of
your online banking and account management software when you start your offshore bank. Your
bank offshore account is set up and is the transaction center of your finance company.
Depositors, deposit, spend and wire money in and out of the account through your online system.

How Offshore Bank Accounts Work

When you start an offshore bank, your account will work the same way all bank accounts do.
Below is a diagram showing how your offshore bank account works.
Receiving / Sending Money with Your Offshore Bank

Your primary deposit account with be with a much larger offshore bank in a jurisdiction that you
choose. Just as your local bank, having a single account with a larger bank, here we are
replicating banking infrastructure on a smaller scale for your offshore bank. With few clients, or
rather, low client activity, your single deposit account can very well be the primary transaction
hub. However once you start increasing the number of depositors and the amount of
inbound/outbound banking activity, it might be necessary to start performing bulk transactions
to/from your offshore bank. This is done through a holding company that has several offshore
bank accounts that are used to perform larger transaction volume. In the most cases when you
start an offshore bank, your transaction frequency will not require the use of holding companies
to manage bulk transfers.
Offshore Bank Accounting

Your offshore bank will be fully managed by the industry leading banking software. Each client
will have secure access to their account and just like all other types of financial recording,
computer systems will automatically account for everything. Initial deposits will be recorded by
client identification and each transaction will be identified by secure ID and related to the client
account. This is how the actual banking takes place. Client accounts are merely a long list of
transactions that control the access to funds in the master bank deposit account, in this case, the
offshore bank account for your finance company.

International Bank Account Setup

Most international banks will require an eligible introducer. This is someone who already has a
relationship with the bank. InternationalCompany.com is an eligible introducer for many
financial institutions throughout the world. Common items that may be necessary when setting
up international bank accounts:

• Application forms with original signatures

• Valid passport copy or driver's license

• Banking references

• Corporate legal documents

International banks have different requirements. Once the international bank account has been
processed, the confirmation is sent typically via email. At that time the bank will wait for a wire
transfer of initial deposit in order to activate your new account. Some expenses include opening
fee, additional banking cards (if applicable), courier and other expenses. Again, these will vary
between the international banking account providers. Once the bank account is active, you
typically receive online access to create your user account and password. You may also receive
items such as an easy-to-use digital signature device, test key table and other enabling tools to
access your account balance and perform transactions quickly, easily, privately and
securely.InternationalCompany.com has helped thousands of customers worldwide set up
international bank accounts and establishes private financial accounts and asset protection plans.
A trusted provider that has relationships with the right international jurisdictions should conduct
these services with you.

International banking service

Once your international bank account has been established, you will enjoy the luxury of
numerous international banking services including:

• International platinum debit credit cards, allowing you access to your money from over
20,000 ATM machines located across the world. Credit cards can be issued under your
international IBC name, affording you complete privacy when accessing your funds.

• Internet access to your account, ability to verify account balances, transfer funds and
make stock purchases. This will enable you to conduct all your banking affairs from the
comfort of your home.

• International trading / brokerage accounts for online trading of stocks and bonds in global
International markets.

• Corporate checks can be issued in the name of your IBC name with your IBC name
printed on each check operating the same as domestic onshore checking account.
International Bank Accounts and Security

Banking privacy and security is a major concern. It is a priority that you and your money
are safe. InternationalCompany.com regularly recommends banking institutions that
participate in a central banking system. The system is highly regulated and implements
stringent accounting practices, which provides a stronger infrastructure and independent
oversight for local international banks. Many institutions provide secure and private
international banking accounts to American and foreign corporations and local government
officials. The institutions provide employment and support the local economy. Because of
the economy's dependence on the financial services sector, the privacy and financial safety
laws are a longstanding and stable. It is critical that all prospective clients make the right
choice of jurisdiction. We perform extensive research on many of the top international bank
account providers and are glad to provide helpful information to help you make the proper
choice.International banks in some countries participate in mandated financial protection
insurance systems. Security and privacy is taken very seriously. International banking
security and privacy is statutorily enforced, meaning, it's the law, limiting any information
whatsoever to be shared with a third party, including foreign governments. Naturally, laws
permit international bank account providers to share information in cases of severe criminal
acts or terrorism. Banking privacy is not taken lightly. In Switzerland, forexample, any
employee violating a customer's privacy is punished severely by law including stiff fines and
jail time.
Conclusion

As a student of BBI I had a great opportunity to do a project of “International

Banking” which was indeed a wonderful experience and has enhanced my
knowledge in banking sector. This study on International Banking is important
not only to an organization, shareholders, and banking sector but also to an
Indian economy as a whole. Due to globalization and liberalization our
conomy is opening its door for reforms. The onset of International banking
will undoubtedly accelerate the pace of structural change within the Indian
banking system. The financial institutions as a segment will essentially convert
into banks.
Bibliography

BOOKS:

International Banking and

FinanceBy Dr. Chandra
Hariharan Iyer

• http://www.offshorecompany.com
• http://www.confidentialbanking.com/
• http://www.statebankofindia.com/
• http://www.offshorebank.net/
• http://www.sterlingoffshore.com
• http://taxhavenco.com
• http://www.offshorecompany.com
• www.wikipedia.com
• www.nvestopedia.com
• www.moneycontrol.com