Foreign Banks in the City
By ANTHONY VICE
THE City is generally considered a particularly British institution. Yet roughly one bank
office out of every three is foreign-owned. This is no paradox : London's predominance as an international financial centre means that foreign banks find it necessary and profitable to maintain branches here.
London can, in fact, boast more foreign-owned bank branches than either New York or Paris. Probably the best-known are the American banks (the subject of a special article), and those of France and Japan. But foreign banks in the City range from the Bank of Baroda to the Zivnostenka Bank of Prague, and from the Bangkok Bank to the Moscow Narodny Bank.
The first of the existing foreign banks were set up in London around the 1860s. These were French, headed by the Credit Lyonnais. By the outbreak of the First World War there were nearly thirty foreign banks in the City. Their main business was handling, at first hand, bills of exchange on London; they also enlarged the foreign exchange market in the City. After the First World War—which saw the disappearance of the German banks—there was more competi- tion in foreign exchange business. But some banks, such as the Japanese, prospered through growing trade with this country, while the American and European-owned banks developed a sizeable arbitrage • business. They moved liquid funds to and from London in order to take advantage or higher interest rates, and they also bought and sold stock exchange securities in one centre or another when prices moved out of line. The French banks were especially important in this 'security arbi- trage,' dealing in gold-mining shares which are active markets in both London and Paris.
Despite all the difficulties of the inter-war years, the foreign banks consolidated their position in the City. Some took up British domicile, and- a number of Anglo-foreign banks—that is, banks whose share capital is held in British and foreign hands—were established. Inevitably, however, the
foreign banks suffered during the Second World War. The Italian banks were taken over by the Custodian of Enemy Property. After 1945 official controls, high taxation and the shortage of suit- able premises tended to keep foreign banks away from the City. But as controls were relaxed, more foreign banks came to London. In all, some thirty new branches or representative offices have been opened here since 1945, including those of several Japanese banks.
What is the present business of the foreign banks in London? Their current activities seem to fall under four main heads. (1) Acceptance credits, and general help in financing trade be- tween Britain and their home countries. It is no accident that branches of Spanish banks, for example, are to be found near Covent Garden and Spitalfields. Foreign banks can perform a particularly useful role when British firms may find it difficult to obtain information on their customers' credit status. This was the way the Japanese banks played an important part in help- ing the growth of Anglo-Japanese trade. (2) The foreign banks, notably the American and Swiss, are important in foreign exchange dealings, and help to channel foi ,ign funds to this country for short-term investment. Allied to this, foreign banks often carry out portfolio investment for their nationals, and handle dividends, etc., from investments held in Britain by,individuals or firms resident in their country. (3) Foreign banks often help to arrange insurance business, particularly marine insurance business, for foreign firms. (4) Finally, of direct benefit to British residents, foreign banks here help to arrange travel finance to their ow countries. It is significant, for in- stance, that the Credit Lyonnais operates an important West End office.
Unfortunately, it is impossible to form even a rough idea of the volume of business done by foreign banks in London. Very few Publish details of their transactions. Among the few that .do publish accounts—such as the British and
French Bank and the Banco Espanol en Londres —acceptances play an important part in turnover. It is even difficult to generalise about the import- ance of various types of business. For instance, travel business is clearly more important for the French than for Far Eastern banks. Morever, it is clear that for the foreign banks as a whole the importance of various types of business can fluctuate from one year to the next.
All this makes it diflicult to be precise about the benefits to this country of having foreign banks in London. The general advantages can be summed up in three ways. First, the foreign banks' acceptance credit business, and their trade intel- ligence work, help to promote this country's foreign trade. Without the foreign banks' services, Britain's export and import trade with the countries concerned would be much more costly
—if it could even operate on its present scale. Secondly, the existence of foreign banks here enables the City to act as the world-wide financial centre which is the key to its status and earning poWer. The foreign banks also provide a range of direct services to Britain which the merchant and clearing banks might find it difficult to replace. The foreign banks help to arrange travel facilities for British residents, they give a good deal of background guidance on overseas markets and investment. Finally, they have a payroll of several thousand, and must account for a sizeable part of the City's total rent roll. But the key to the foreign banks' importance in London is that during the last fifty years they have become an integral part of the City machinery, and it is difficult to visualise the City working without them.
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