Important in the smooth functioning of banking operations in both domestic and foreign fields are the cooperative relationships between our own banks. It is not too much to say that orderly and expeditious foreign exchange operations are almost entirely the result of this bank-correspondent relationship. This relationship links the smaller banks with the great metropolitan foreign exchange bankers and through the latter gives the smaller banks indirect contacts with the major banks of every important city of the world.
At almost every point in the average foreign exchange transaction the bank correspondent is indispensable. If an American bank purchases a sterling draft from an American exporter it will, unless it immediately resells the draft to another bank, need an English correspondent bank to present the draft to the drawee for acceptance and subsequent payment and in which to deposit the proceeds. If an American exporter requests his bank to transmit to the drawee for collection a dollar or foreign-currency draft with accompanying shipping documents, the bank can safely do so only if it has a dependable correspondent somewhere near the drawee. Even the sale of drafts by an American bank against its foreign balances presupposes a correspondent relationship with a foreign bank. Nor could a bank arrange a letter of credit for either a traveler or a merchant, unless it had previously arranged with foreign banks to recognize the letter of credit.
The domestic correspondents of a large American bank having foreign relationships are scarcely less important. They serve the function of enabling the larger bank to fulfill certain obligations for its own foreign correspondents. To illustrate, suppose an English exporter draws a draft on an importer in Bethlehem, Pa., and that the exporter's bank in London has no Bethlehem correspondent. Let us suppose further that the Guaranty Trust Company of New York is the New York correspondent of the London bank. In that case, the draft, with shipping documents, might be sent to the Guaranty Trust Company for collection. The Guaranty Trust Company would forward the draft and documents to its own correspondent bank in Bethlehem which would, following instructions, make the collection and deliver the shipping documents to the importer. Whether the draft would be payable at sight or after a lapse of time, whether it would be in dollars or in sterling, are questions to be discussed later on. All that need be noted here is that the chain of correspondent banks made it possible for an English exporter to safeguard a collection on an inland American importer. It might also be observed, in passing, that if the draft was in dollars, the net effect after the collection was made would be an increase in the dollar balances owned by the London bank in the United States and, in England, either an outpayment of sterling to the exporter or an increase in the exporter's bank account (in sterling, of course) in the London bank.
Now look at the correspondent system from the standpoint of the bank in Bethlehem. By agreeing to render such services as that above to the Guaranty Trust Company of New York, the Bethlehem bank can depend on the Guaranty Trust Company for services in return, some of which may be purely domestic. We are concerned, however, with the international aspects of a correspondent relationship between a small bank and a large metropolitan foreign exchange banker.
It is probable that a bank in Bethlehem will not have sufficient demand from its customers for foreign exchange to justify the maintenance of deposits in banks in various foreign cities against which foreign-currency drafts could be sold.
Nor is this the only foreign service made available to the bank in Bethlehem by its correspondent relationship with the Guaranty Trust Company. If the former bank has customers who are actively exporting, their dollar drafts on foreign buyers may be forwarded through it to the Guaranty for collection. In the event the drafts are drawn in foreign currency they could be sent through the Bethlehem bank to the Guaranty Trust Company for sale. In addition, letter of credit and other facilities, later explained, are provided.
But it should not be imagined that the New York City foreign exchange bankers are the sole intermediaries between the other banks of the United States and the banks in foreign countries. Many American banks maintain relationships with banks in the important foreign cities. Consequently, few large cities in this country are without a bank engaging in wholesale exchange operations, although in many cases their foreign correspondents may not be so numerous as those of the great New York City banks; nor will they, with few exceptions, have their own foreign branches. Thus a bank in Chicago, Cleveland, or Pittsburgh will draw drafts on and collect drafts through its own foreign correspondents wherever possible; but if a client--say an exporter --should present a draft for collection on a merchant in some part of the world where one of these inland banks has no correspondent, then it will probably make use of the larger foreign facilities of its New York correspondent. It might forward the draft to that New York bank for collection, or, if the New York bank happens to have a foreign branch near the drawee, the inland bank may forward the draft directly to that branch.
Let us suppose again that no bank in Bethlehem, Pa., has its own foreign correspondent system. In that case there are a number of channels through which an exporter in that city may collect or borrow against his drafts.
(1) He may maintain relations with a New York City bank directly or through his New York export office.
(2) He may depend on the nearest bank with its own foreign correspondents--possibly one in Philadelphia.
(3) He may turn the business over to his local bank, which would probably forward the draft to its New York correspondent.
(4) If he is shipping his goods through a freight forwarder with New York or other metropolitan facilities, he may request the forwarder to arrange for the collection of the draft through its bank.
(5) If the manufacturer's export business is not substantial he may make use of the services of a combination export manager, who will represent, as a general rule, a number of inland manufacturers doing an export business. In some cases where manufacturers do not wish to assume the credit or exchange risk in selling abroad, they make an arrangement with an export house to undertake sales in foreign countries on its own responsibility. The export house for an arranged commission will in addition pay the manufacturer cash at the point of export and take care of any necessary financing under its own name. It will be observed that all these channels are ultimately dependent on foreign banking correspondents and that several of them require domestic correspondent relations as well.
Each foreign collection problem presents its own variations, and no standard agreement between correspondent banks could cover every contingency, so that, attached to foreign drafts based on export transactions, there will be an instruction sheet advising the collecting bank what to do and whom to consult in an emergency. Many of the activities arising out of collections, however, can be reduced to the terms of standard fees and procedures.
Hence it is customary for correspondent banks to give their principals in the United States a tariff schedule, setting forth the charges mutually agreed upon.
No comments:
Post a Comment