INTERNATIONAL BANKING

EURO BANK, TYPES OF BANKING OFFICES,

CORRESPONDENT BANK REPRESENTATIVE
OFFICE, FOREIGN BRANCH , SUBSIDIARY
BANK, OFFSHORE BANK
• International banking provides accessibility
and ease of doing business to the companies
from different countries. An individual or
MNC can use their money anywhere around
the world. This gives them a freedom to
transact and use their money to meet any
requirement of funds in any part of the world.
 What Is a Eurobank?

• A eurobank is a financial institution that

accepts deposits and makes  loanslin foreign
currencies. It is not necessary for a eurobank to be
located in Europe; it can in fact be located anywhere
in the world. For example, an American bank located
in New York which holds deposits and issues loans in 
Japanese Yes (JPY) would be considered a eurobank.
• Eurobanks may operate in their own country, such as
the American bank in the example above, or they may
operate in a country outside their home.
• KEY TAKEAWAYS
• Eurobanks are financial institutions that accept
foreign currencies for deposits and loans.
• Because they handle multiple currencies
transactions, these institutions play a key role in
facilitating global trade.
• Eurobanks cater mainly to governmental and
institutional clients, and will often form syndicates
to facilitate especially large transactions.
• Working of Eurobanks
• Eurobanks play an important role in the global
economy because they facilitate international
trade. Following World War II, this model of 
banking became popular due to demand
from communist countries which wished to
remove their holdings from U.S. banks in order
to hedge against political risks  stemming from
the then-nascent Cold War.
• Since then, the emergence of eurobanks has done
much to facilitate trade and investment between
countries. In the past, cross-border trade was
hampered by a lack of international  intermediaries
capable of accommodating transactions involving
multiple foreign currencies. The substantial
growth in  international trade which we have
witnessed since the 1980s is due in part to the
proliferation of eurobanks throughout the world.
• This growth was further propelled by the development of
large and dynamic economies such as those of China,
India, and other  emerging economies. As these nations
have pursued policies of  economic development
and industrialization through export-led growth the
demand for eurobanking has grown accordingly. This is
especially true because, despite the growing importance of
these economies, some of the currencies of these nations
are still not widely traded on global currency markets. As
such, emerging economies often find it necessary to
conduct international trade using foreign currencies.
• Real World Example of a Eurobank
• The currencies held and lent by eurobanks are
known as eurocurrencies, although it is
important to note that the term “eurocurrency”
is used even if the currency in question is not
the euro. Today, the most widely used
eurocurrencies are the U.S(USD), JPY,British
Pound (BP), and the euro (EUR). 
• When eurobanks issue loans denominated in
eurocurrencies, these are referred to as  eurocredits.
More specifically, a eurocredit is any loan given by
a eurobank which is not denominated in that
eurobank’s domestic currency. Typically, eurocredits
are issued to sovereign governments,  corporations,
international organizations, and commercial banks.
In this respect, eurobanks are mainly oriented
toward facilitating commerce at the international
and institutional level.
• If an especially large loan is required,
eurobanks will typically work together in
a syndicate, in order to spread their respective
risks. The loans themselves often have short or
medium-term durations, with the outstanding
balances rolled over at the end of the term. As
in many banking transactions, the interest
rate  used on eurocredits is typically based on
the London Interbank Offered Rate. 
• Types of International Banking Offices
• The services and operations which an international bank
undertakes is a function of the regulatory environment in
which the bank operates and the type of banking facility
established.
• A correspondent bank relationship- Established when two
banks maintain a correspondent bank account with one
another. The correspondent banking system provides a
means for a bank’s MNC clients to conduct business
worldwide through his local bank or its contacts.
• A representative office- A small service facility
staffed by parent bank personnel that is
designed to assist MNC clients of the parent
bank in its dealings with the bank’s
correspondents. It is a way for the parent bank
to provide its MNC clients with a level of
service greater than that provided through
merely a correspondent relationship.
• A foreign branch bank- Operates like a local
bank, but legally it is a part of the parent bank.
As such, a branch bank is subject to the banking
regulations of its home country and the country
in which it operates. The primary reason a parent
bank would establish a foreign branch is that it
can provide a much fuller range of services for
its MNC customers through a branch office than
it can through a representative office.
• A subsidiary bank- is a locally incorporated
bank that is either wholly owned or owned in
major part by a foreign subsidiary. An affiliate
bank is one that is only partially owned, but
not controlled by its foreign parent. Both
subsidiary and affiliate banks operate under
the banking laws of the country in which they
are incorporated.
• Edge Act Banks
• This designation applies to certain U.S. banks,
and is based on a 1919 constitutional
amendment. While physically located in the
United States, Edge Act banks conduct
business internationally under a federal
charter.
• Offshore Banking Unit (OBU)
•  An offshore banking unit (OBU) is a bank shell branch, located in
another international financial center. For instance, a London-based
bank with a branch located in Delhi. Offshore banking units make
loans in the Eurocurrency  market when they accept deposits from
foreign banks and other OBUs. Eurocurrency simply refers to money
held in banks located outside of the country which issues the
currency. 
• Local monetary authorities and governments do not restrict OBUs'
activities; however, they are not allowed to accept domestic deposits
or make loans to residents of the country, in which they are physically
situated. Overall OBUs can enjoy significantly more flexibility
regarding national regulations.
• KEY TAKEAWAYS
• Offshore banking units (OBUs) refer to bank branches located
outside of its home country, and handling transactions made in
foreign currency (known generically as "eurocurrency")
• OBUs make it easier for individuals and businesses to bank
internationally and establish offshore accounts.
• Individuals may choose to keep their money offshore if there is
instability in their own country, and they fear losing their
investments.
• Offshore bank accounts must be declared to the holder's home
country for tax reasons; however, some countries allow foreigners
to earn capital gains tax-free.
• Working Offshore Banking Units
• OBUs have proliferated across the globe since the 1970s. They
are found throughout Europe, as well as in the Middle East,
Asia, and the Caribbean. U.S. OBUs are concentrated in the
Bahamas, the Cayman Islands, Hong Kong, Panama, and
Singapore. In some cases, offshore banking units may be
branches of resident and/or nonresident banks; while in other
cases an OBU may be an independent establishment. In the first
case, the OBU is within the direct control of a parent company;
in the second, even though an OBU may take the name of the
parent company, the entity’s management and accounts are
separate.
• Some investors may, at times, consider moving money
into OBUs to avoid taxation  and/or retain privacy.
More specifically, tax exemptions on withholding tax
and other relief packages on activities, such as
offshore borrowing, are occasionally available. In
some cases, it is possible to obtain better interest
rates  from OBUs. Offshore banking units also often
do not have currency restrictions. This enables them to
make loans and payments in multiple currencies, often
opening more flexible international trade options.
• History of Offshore Banking Units
• The euro market allowed the first application of an offshore
banking unit. Shortly afterward Singapore, Hong Kong,
India, and other nations followed suit as the option allowed
them to become more viable financial centers. While it took
Australia longer to join, given less favorable tax policies, in
1990, the nation established more supportive legislation.
• In the United States, the  International Banking Facility
(IBF)acts as an in-house shell branch. Its function serves to
make loans to foreign customers. As with other OBUs, IBF
deposits are limited to non-U.S applicants.