Offshore Banking in the Caribbean by U.S. Commercial Banks: Implications for Government-Business Interaction
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* A recent key development in international banking is the shifting geographi- INTRODUCTION cal pattern of Eurocurrencyoperations. Muchof the latest increase in international bank lending through the Eurocurrencymarket is concentrated in nontraditional, secondary centers of offshore financing, especially in the Caribbean. Granted that the Caribbeanoffshore banking marketexists primarilyfor bookkeeping purposes and that the recent explosive growth of the Caribbean market has not so far brought any substantive change in the nature of international banking operations, the changing geographical distribution of assets and liabilities of banks dealing in the Eurocurrencymarket still raises several critical questions for government-business interaction. To begin with, what has been the impact of offshore banking operations on the economic development of the Caribbean basin in particular and the LatinAmerican region in general? Second, what are the policy implications of the runaway growth of Caribbean offshore banking for home and host government taxation and public regulation of multinational banking? Finally, what are the prospects for furtherdevelopment of this regional market in an era characterized by increasing regulatory mood in the United States and proposals by U.S. commercial banks to establish offshore banking facilities in the United States itself? Judged purely by the size of assets/liabilities portfolio of Eurobanks, the Carib- THESIZEOF bean offshore banking market is large, amounting to nearly one-fifth of the gross THEMARKET size of total Eurocurrencyoperations as contrasted with a less than 10 percent share for the Asian offshore centers.1 Table 1 shows that the three major offshore financing centers of the Caribbean basin-the Bahamas, Cayman Islands, and Panama-accounted for more than half of all offshore banking transactions undertaken in 1975-1977 by banks reporting to the Bank for InternationalSettlements (BIS).Table 2 shows that the external nonbank claims of the Caribbean branches of U.S. commercial banks increased from 17 percent of total claims in 1974 to 22 percent in 1977. This increase in Caribbean operations contrasts with a declining trend in claims of both head offices and bank branches in the United Kingdom. Total assets of U.S. bank branches in the Caribbean now comprise more than one-third of the assets of all U.S. foreign bank branches belonging to
Businessat the *AnindyaK.Bhattacharyais AssistantProfessorof Finance-International GraduateSchool of Businessof Pace Universityin NewYork.Theauthorwishes to thank anonymousreviewersof JIBSfortheirhelpfulcommentson an earlierdraftof the study. Journal of International Business Studies, Winter 1980 37
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TABLE 1 External Positions in Domestic and Foreign Currency of Banks Reporting to the BLS, 1975-1977 (Billions of U.S. $ and percentages) 1975
Liabilities All offshore centers* -of which
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