abroad, providing real tangible benefits to our economy. The international banking ... multinational businesses, providi
March 2016
Size Allows U.S. Banks to Compete Internationally The size and scope of the largest U.S. banks allows them to compete with foreign banks, both here and abroad, providing real tangible benefits to our economy. The international banking landscape is extremely competitive and, contrary to popular belief, is not dominated by U.S. institutions. The size of our largest institutions enables them to offer a wide array of services necessary to meet the needs of U.S. multinational organizations—helping them grow, and spurring nationwide economic growth. Without this scale, the largest U.S. and foreign companies would quickly turn to foreign banks to meet funding and banking requirements. Our economy would subsequently lose the jobs and income stimulated by the financial services these banks provide.
Large Banks Reduce the U.S. Trade Deficit The international footprint of our largest banks allows them to serve foreign multinational businesses, providing critical exports that improve the U.S. trade balance. Financial services ran a $66 billion trade surplus in 2015 alone, offsetting large trade deficits in other areas of the economy. Moreover, U.S. banks support large multinational U.S. companies. These companies account for one-fifth of private sector U.S. jobs.1 If U.S. banks could not meet U.S. and foreign company needs, jobs would shift abroad. Foreign governments and economies would reap the benefits.
U.S. Banks Compete in a Tough International Market The largest U.S. banks face stiff competition from the largest foreign banks. The chart to the right on the largest banks in the world reveals that U.S. banks are not dominant globally. Out of the largest 25 internationally active banks, the U.S. has four. Chinese banks account for four of the top 10 largest banks. Even the U.K., whose economy is less than one-sixth the size of the U.S. economy, has the same number of banks in the top 25.2
U.S. banks do not only compete with foreign banks abroad, but also at home. In fact, 9 of the 50 largest U.S. banks by assets – 18 percent – are foreign owned.
1 2
Bureau of Economic Analysis, Data on Activities of Multinational Enterprises (Washington: U.S. BEA, 2016) Divya Lulla, JahanZaib Mehmood Chaudhary, Maria Tor, Largest 100 Banks in the World, (New York: SNL Financial, 2015)
1
March 2016
The Scale of Our Largest Banks Allows Them to Compete Our largest banks must be able to compete against their foreign peers. The international footprint, scope and scale of services that they provide require size to provide. Any company seeking financial services is going to favor a bank that can deliver a full array of services in every market. The borrowing needs of our largest companies require a large amount of capital that only the largest banks can provide. Some observers suggest that smaller banks can participate in loan syndications, spreading the risk across institutions to match the scale offered by larger banks. Regional banks, however, do not typically participate in the largest loan syndications in the U.S., much less internationally. Syndications already include many large banks—domestic and foreign—and management of these is already complicated. When large banks put together a syndicate for a large loan, it is simpler to include one large institution rather than dozens of smaller banks. If U.S. banks are not able to fund large corporations, it is likely that foreign banks will step in. The prime example of this is last year’s largest syndicated loan of $75 billion loan to Anheuser-Busch Inbev3. According to Thomson Reuters, the loan featured financing from a variety of domestic and international sources, including Banco Santander, Bank of America, Bank of Tokyo-Mitsubishi UFJ, Barclays, BNP Paribas and Deutsche Bank. U.S. multinational corporations play an important role in our economic growth. Part of that growth is due to loans banks provide. Loan syndications are extremely important for the funding of the largest U.S. corporations. In fact, out of the top 25 loan syndicate participants in the U.S., the largest U.S. banks comprised 52 percent of the market. Even standard business lines of credit require the scale of large banks. The largest corporations in the U.S. need large lines of revolving credit to handle day-to-day business expenses and investments in their future. Our largest banks compete heavily with foreign banks to offer these services to American businesses. Facebook sourced half of its $6.5 billion revolving credit line from foreign institutions. Large U.S. banks compete directly with foreign banks to offer revolving lines of credit.
Conclusion U.S. businesses rely heavily on our largest banks to provide the funding and services that they need to operate both domestically and abroad. These large banks provide real tangible benefits to the U.S. economy, financing trade and bolstering exports. The size of our large banks means that they have capital to make the large loans that U.S. multinationals need. U.S. banks often lead or have significant shares of loan syndications and lines of revolving credit. Without their size, large U.S. banks would not be positioned to compete internationally and would likely lose market share to foreign banks. In turn, our economy would lose the jobs and income stimulated by the financial services these banks provide.
3
Thomson Reuters, Global Syndicated Loans Review, (New York, Thomson Reuters, 2016)
2
