Pacific Rim Trade Rise Calls for California Banks' Services: West Coast Focus Marks Trade Shift from Europe to Asia
Pezzuti, John A., American Banker
As America's international trading focus shifts from Western Europe to Asia, that shift is fanning the development of international banking facilities in California.
The U.S.-Asian trade boom, which started with Japan and now includes South Korea, Taiwan, Hong Kong, and Singapore, reached $136 billion in 1983 -- exceeding by $26 billion the trade with America's traditional European business partners.
Roughly 80% of that Asian trade passes through California, while an estimated 35% of Asian investment in the United States is concentrated in that state, where more than 1,000 Japanese companies now operate.
As a result, banks throughout the socalled Pacific Rim -- the West Coast and East Asia -- increasingly look to California-based financial institutions for international banking services.
Some Japanese banks, including some of the world's major banks, are choosing California as their home base for U.S. operations. Of the 12 largest banks in California, half are Japanese-owned. In addition, there are 176 branches and agencies of foreign banks in Los Angeles and San Francisco. The most growth has been in Los Angeles, where 107 foreign bank offices are located.
With much of the Pacific Rim trade passing through the state, California-based institutions are called upon to provide documentary trade financing services, such as arranging letters of credit and settling payments made to Pacific Rim banks.
U.S. banks are applying new technologies to support their Pacific Rim trade finance services. Personal computers are used to make letter-of-credit applications and to allow customers to track trade finance activities. Banks with Pacific Rim branch systems have installed proprietary communications networks that link the branches to speed trade finance transactions.
Pacific Rim banks that establish offices in California often look to their U.S. correspondents to gain access to U.S. money markets. Issuance of commercial paper and placement of bankers acceptances and certificates of deposit on behalf of Pacific Rim banks and their customers is extremely active. Rising Investment
American investment is rising faster in Pacific Rim countries than other regions. In the last five years it increased nearly 39%, and at the beginning of 1984 stood at $30 billion. California banks have become very involved in merchant banking activities, such as loan syndications and project financing to support Pacific Rim investments.
California is also becoming a major Pacific Rim foreign exchange trading market, with communications links to banks' branches and correspondents throughout the region. Major U.S. and Asian banks have opened trading desks in Los Angeles, and Pacific Rim currencies such as the Japanese yen are actively traded.
Banks are beginning to recognize that payment services and payment systems technology are the keystone of Pacific Rim banking service strategy. A Louis Harris survey of Pacific Rim correspondent banking confirms the importance of this service area, which has been a major focus of bank-to-bank services in Europe. Its importance is now prevalent in the Pacific Rim. Payment services place the bank in contact with both sides of a trade transaction and as the holder of demand balances supporting payments, a bank is in a preferred place as a provider of international transaction services. Impact of SWIFT
The SWIFT (Society for Worldwide Interbank Financial Telecommunications) network, which handles international banking transactions worldwide, has been installed in six Asian countries, and rapid expansion is planned. Customers of Pacific Rim correspondent banks are making use of SWIFT to send "straight through" payment messages to the United States, thus minimizing funds transfer service costs, and are using computers to automate the reconcilement of bank statements. The benefits of conversion to electronic payments systems have led to a very rapid spread of payments systems applications throughout the Pacific Rim. …