Standby letters of credit: Are banks overextending themselves?

Article Abstract:

The growth in the issuance by banks of standby letters of credit (SLCs) well beyond a reasonable level, in comparison to bank assets and liabilities, has led to industry speculation that banks are overextending themselves. Bank examiners and capital markets have each reacted differently to this trend, which is examined. It was found that the only banks which adjust their capital in accordance with the SLCs they issue are banks with assets less than $100 million. So far, no banks have been penalized by the capital markets for issuing SLCs.

Interpretation and construction, Finance, Letters of credit, Bank management

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A note on Eurodollar borrowing by U.S. banks: derivation of Reg D equation

Article Abstract:

U.S. banks and their foreign branches are limited in their borrowings of Eurodollars by a reserve ratio known as Reg D, instituted by the Federal Reserve. Reg D is said to be hurting domestic bank competition because of its rigidity. A possible solution to this problem would be to allow the Reg D reserve ratio to float, absorbing the changes in nominal cost of the Eurodollar. As a result, parity could be reached on the effective cost of both foreign and domestic funds.

Banking industry, Economic aspects, International aspects, Eurocurrency market

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