Types of International Banking
At the heart of international finance are international banks, which come in different structures and roles. "The Handbook of International Banking" notes that international banks have helped pave the way for the globalization of finance. Since people across the world hold diverse interests and pursuits in the financial world, it is natural that global banks conform to a diversity of roles to accommodate the nature of international banking.
International bank types can be categorized by the services they perform. For example, retail banks--also known as commercial banks--serve consumers with basic transaction services such as withdrawals and deposits. Retail banks have been internationalized by incorporating investment banking features, giving their clients access to global markets for investing.
The mode in which a bank exercises its role may qualify a bank as being international. The University of Michigan cites different types of banks, each possessing a distinct banking manner, namely: correspondent banks, representative offices, foreign branches, subsidiaries and affiliates, Edge Act banks and offshore banking centers.
Correspondent banking implies a relationship between at least two banks, including those in differing countries. Multinational corporations (MNCs) may utilize these banks for conducting global business, according to the University of Michigan. Correspondent banks are usually small, and may have representative offices serving MNCs outside of the bank's home country.
These banks operate in countries foreign to the parent bank to which they are legally tied. They must abide by banking regulations established in the home and host countries, according to Investopedia.com.
A subsidiary bank is incorporated in one country, but is either partially or completely owned by a parent bank in another country. An affiliate works in a similar manner except it is not wholly owned by a parent company and operates independently.
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.
A "Swiss bank account," commonly referred to in Hollywood movies, is an example of an offshore banking center's services. According to the University of Michigan, these centers are actually countries with banking systems allowing foreign accounts that function independent from the country's banking regulations.