International Finance Discussion Papers

The U. S. and U.K. Activities of Japanese Banks: 1980-1988 Henry S. Terrell, Robert S. Dohner, and Barbara R. Lowery 1989-361  (September 1989)

Abstract:  In addition to dominating the list of the world's largest banks, Japanese banks currently account for about two-fifths of measured international banking assets of all banks. Between year-end 1984 and year-end 1988 Japanese banks accounted for slightly over one-half of the measured growth of total international banking activity. A large proportion of their international assets are at their branches in the United Kingdom and their agency and branch offices in the United States.

This paper analyzes the U.S. and U.K. activities of Japanese banks. The paper integrates the activities of the Japanese banks in these two markets with the regulatory environment for banks in Japan, with Japan's overall external financial position, as well as with business opportunities in the two host country markets. The paper concludes that the domestic regulatory environment in Japan, including restraints on interest rates, and possible quantitative restraints, has had an important impact on the activities of Japanese banks in these two foreign markets.

Japanese banks appear to have adjusted to their domestic regulatory environment by using their London branches as a flexible funding source, and their branches and agencies in the United States as substitutes for their head offices in extending commercial and industrial loans to Japan-based companies as well as a substitute location for large interbank trading activities. In both markets Japanese banking offices are large net borrowers from unrelated banks because of the constraints on raising funds in their home market.

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