ⅤOffshore banking practices

A. How to measure the net size of the Eurocurrency market?

Measuring the actual size of the Eurocurrency market can be difficult because a distinction needs to be made between thegross and net size of the Eurocurrency market.

• The gross measure includes both non-Eurobank and interbank deposits.

• The net measure excludes interbank deposits.

The gross measure gives an idea about theoverall activity in the Euromarkets, while the net measure gives a betterindication concerning the ability of the Eurobanking system to create credit.

If we only look at the total activities inthe market, we would overstate the actual amount of activities.

The net size of the Eurocurrency marketactivity = the total deposits (or total loans) minus the interbank activity.

B. Example: Gross vs. net volume of Eurodollar activity

Ⅵ International banking facilities

In 1981, the Federal Reserve allowed U.S.banks to engage in a special type of Eurobanking activity on the U.S. soil.

International banking facilities (IBFs) allow depository institutions in the UnitedStates to offer services to foreign residents and institutions free of someFederal Reserve requirements and some state and local income taxes.

IBFs enable U.S. institutions to compete moreeffectively for foreign-source deposits and loan business.

Banks may conduct their IBF activities in their existing quarters, but they mustmaintain separate IBF books.