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- 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