THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 311

CHAPTER 11

Banking Industry: Structure and Competition

279

conduct its international transactions. Second, Eurocurrencies are offshore
deposits they are held in countries that will not subject them to regulations such
as reserve requirements or restrictions (called capital controls) on taking the
deposits outside the country.
The main centre of the Eurocurrencies market is London, a major international
financial centre for hundreds of years. Eurocurrencies are also held outside Europe
in locations that provide offshore status to these deposits for example, Singapore,
the Bahamas, and the Cayman Islands.
The minimum transaction in the Eurocurrencies market is typically $1 million,
and approximately 75% of Eurocurrency deposits are held by banks. Plainly, you
and I are unlikely to come into direct contact with Eurocurrencies. The
Eurocurrencies market is, however, an important source of funds to Canadian banks.
Rather than using an intermediary and borrowing all the deposits from foreign
banks, Canadian banks decided that they could earn higher profits by opening their
own branches abroad to attract these deposits. Consequently, the Eurocurrencies
market has been an important stimulus to Canadian banking overseas.

Canadian
Banking
Overseas

Canadian banks have been present in international financial markets for over 100
years, providing services to Canadians and multinational businesses. As Table 11-4
shows, the international presence of the Big Six varies among the individual
institutions. In particular, the Bank of Montreal, the Canadian Imperial Bank of

Commerce, and TD Canada Trust have a significant presence in the United States,
whereas Scotiabank has established a presence in South America, and the Royal
Bank in Europe and Asia.
During the 1970s and early 1980s a large proportion of the banks foreign lending was in sovereign loans; loans to foreign governments and their agencies in
the less-developed countries (LDCs), particularly Mexico, Brazil, Venezuela,
Argentina, and Chile. Most of this activity in international lending was unregulated,
with near disastrous consequences. One example is the international debt crisis,
which had its origin in the oil price shocks of the 1970s. In particular, the
1973 1974 increase in the price of oil was a bonanza for some oil-exporting countries like Mexico, but a disaster for oil-importing countries like Brazil, which had
to either cut their living standards or borrow massively abroad in order to pay their
higher oil bills. At the time, real interest rates were very low (in fact negative) and
the oil importers couldn t resist the temptation to borrow abroad.

TA B L E 11- 4
Bank

International Activity of the Big Six (as of March 31, 2009)
Primary Focus

Bank of Montreal

United States, Mexico

CIBC

United States

International Assets
($ millions)

Percent of International
Assets in Total Assets

246 618

52%

97 794

27%

Bank of Nova Scotia

South America, Mexico

247 682

47%

Toronto Dominion

United States

295 267

49%

Royal Bank

Europe, Asia

369 121

51%

National Bank

No significant international
presence

21 177

14%

Source: OSFI website, www.osfi-bsif.gc.ca, and authors calculations.