An Analysis of the Impact of International Activity on the Domestic Balance Sheets of U.S. Banks

Management International Review, Vol 35, No. 1, pp. 45-68, 1995

25 Pages Posted: 19 Nov 2012 Last revised: 4 Jul 2015

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Carl A. Scheraga

Fairfield University - Charles F. Dolan School of Business

James Bedingfield

University of Maryland - Robert H. Smith School of Business

Date Written: May 30, 2015

Abstract

The results of the cluster analysis indicate that domestic and international banks had significantly different domestic office balance sheet profiles in the 1984, 1987, and 1989 pooled sample period that included the "LDC loan crisis." Analysis of these results also found that international banks did not generally alter their domestic office profiles between 1984 and 1989. In addition, foreign focused international banks that had the largest overall returns on total assets are those that aligned their domestic office profiles with those of predominantly domestic banks, but which, nonetheless, inadequately controlled the relative size and asset quality (primarily default risk) of their large, unprofitable degree of foreign office activity. Domestic focused international banks that had the largest overall returns on total assets are those that aligned their domestic office profiles with predominantly international banks and controlled the relative size and credit quality of their small, profitable degree of foreign office activity. On average, the most profitable domestic focused international banks generated larger overall returns on total assets than the most profitable foreign focused international banks. This is due to their larger returns on both domestic and foreign total assets. These results appear consistent with the normative practice of ALM by the most profitable domestic focused international banks, but not so for the most profitable foreign focused banks. These foreign focused banks did not adequately control the size and credit quality of their foreign office activity.

Based on these overall findings from the period of the "LDC loan crisis," international banks with significant foreign office activity should perhaps either reduce it to the specific needs of their core customers or continue as a major participant in this market with much stronger control over its relative size and credit quality. At the same time, these banks should also adopt or maintain the domestic balance sheet profiles of predominantly domestic banks. This implies that their domestic office profiles should be isolated from any significant ad- verse effects of their foreign office activity. These profiles of predominantly domestic banks be characterized as consumer ("retail") banks that focus on lending, especially real estate and consumer loans, and U.S. and other securities that are largely funded by interest-bearing (primarily savings) deposits.

These conclusions have relevance for both bank regulators and managers in terms of more specifically understanding the impact of this tumultuous period that included the "LDC loan crisis" on the domestic (but also foreign) office balance sheet profiles and performance of international banks. Further, understanding the implications of this experience should assist them in minimizing the adverse effects of future crises of this or related nature.

Suggested Citation

Haslem, John A. and Haslem, John A. and Scheraga, Carl A. and Bedingfield, James, An Analysis of the Impact of International Activity on the Domestic Balance Sheets of U.S. Banks (May 30, 2015). Management International Review, Vol 35, No. 1, pp. 45-68, 1995, Available at SSRN: https://ssrn.com/abstract=2177608

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

University of Maryland - Robert H. Smith School of Business ( email )

5901 MacArthur Blvd NW 124
Washington, DC DC 20016
United States
202-236 3172 (Phone)

Carl A. Scheraga

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

James Bedingfield

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
40
Abstract Views
742
PlumX Metrics