Essay Example on Differences Between Domestic and International Banks

Introduction

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Differences between Domestic and International Banks

There are several ways in which foreign and domestic banks are different from each other. The key differences between the two occur in the borderline of how they undertake their operations. Domestic banks are the ones whose activities are made within a country. They are the banks whose economic transactions are also conducted within the country's geographical boundaries. International banks are banks that can traverse geographical boundaries (Bouzgarrou, Jouida & Louhichi, 2018). Their commercial transactions can take place from any country.

Because domestic banks are strictly oriented to a single country, their transactions are small scale as compared to the ones of international banks. Due to this, their financial standards and income are lower than those of the global banks. Domestic banks mostly deal with a single currency. International banks always deal with multiple money. It is so because of economic globalization, which in most cases, entails a change of currencies (Bouzgarrou, Jouida & Louhichi, 2018).

International banks face the threat of dealing with socio-cultural factors. They also have to deal with challenges such as economic changes within the countries where they operate. Due to this, they have to implement and emphasize several restrictions to curb the uncertainties. On the other hand, domestic banks are more secure about these factors (Bouzgarrou, Jouida & Louhichi, 2018).

How Do U.S. Companies Use International Banks?

Most American companies require almost all bank sizes and shape with the inclusion of foreign money lenders to address their current financial needs. There is a healthy competition provided by foreign banks, which creates a vibrant and efficient capital market by serving diverse customers within the United States through either retail and commercial lending. International banks are as well able to level the key capabilities through the access of the outside markets and also providing the current financial problem of the companies to meet American business needs (Aivazian, 2017). The American government is imposing inefficient regulations; hence companies are unable to achieve their goals, especially when such control hamstrung their resources.

United States business relies on financial services and products offered by international banks to address customer needs, make a contribution to economic growth, and create jobs that can potentially benefit the country. Over 42% of companies within the united states continuously hold that financial regulation imposed by the government has an adverse effect on capital access (Chamberlain, 2017). Most companies have stressed the importance, including some of the bank partners, to have international banking partnerships. Due to the essential services offered by the international banks, over 88% of the total business support the notion of having the same financial regulation imposed on domestic banks to be applied to foreign banks (Chamberlain, 2017). International banking has a significant impact on the liquid and deep market, which supports lending services, which, in return, help most businesses achieve substantial profit margins. Therefore, International banking is a critical capital source within the united states since they play a massive role in overall business development.

Across the United States, international banking usually contributes to over $4.5 trillion of the total financial assets hence contributing to over 20% of the whole banking system (Chamberlain, 2017). Several factors make it essential to adopt international banking within the United States businesses. Over a third of the total small businesses within the United States rely on foreign banks for loans either through direct provisioning to job creators, which significantly contribute to overall economic growth. International Banking also offers financial infrastructure on current business.

Infrastructure such as ports or road making becomes cost-effective and more comfortable when there is sufficient financial help from international banks allowing interconnection with a larger pool of customers. International banking also helps in assisting financial aid to the operations of the federal government by playing the principal dealers in support of government projects. Some services and products in which the foreign government products have, however, decreased recently in the United States. It is, however, crucial for U.S companies to rely on foreign banks for financial assistance.

References

Aivazian, V., Booth, L., & Cleary, S. (2017). Do emerging market firms follow different dividend policies from U.S. firms?. Journal of Financial Research, 26(3), 371-387. https://onlinelibrary.wiley.com/doi/abs/10.1111/1475-6803.00064?casa_token=hGp1S0Qa2b4AAAAA:iW5mSc0TgM2U5CbZpY2WrufZQbhkeAco7xXl9HRp77SrIhRjafItFoW93Pev-N4ZXtoplPMoYYq767pzWQ

Chamberlain, S., Howe, J. S., & Popper, H. (2017). The exchange rate exposure of U.S. and Japanese banking institutions. Journal of banking & finance, 21(6), 871-892. https://www.sciencedirect.com/science/article/pii/S0378426697000022

Bouzgarrou, H., Jouida, S., & Louhichi, W. (2018). Bank profitability during and before the financial crisis: Domestic versus foreign banks. Research in International Business and Finance, 44, 26-39. https://www.sciencedirect.com/science/article/pii/S0275531917300636