Global Financial Stability - Essay Example

When the FED raises interest rates the value of the dollar tends to go up. “An increase in the foreign exchange value of the dollar, in turn, would raise the price in foreign cur­rency of U.S. goods traded on world markets and lower the dollar price of goods imported into the United States” (Federalreserve) The growth of the U.S banking industry oversees has been significant since the 1950’s. In 1950 there were seven U.S. banks operating oversees with 126 branches; by 1976 the U.S. had 731 branches abroad (Fieleke).

In 1978 the value of the total assets of U.S. banks oversee had reach $306 billion which is nearly 100 times higher than its asset balance 20 years earlier. U.S. banks were motivated to expand oversees because the international branches had a higher return on investment than the domestic bank branches. The U.S. banks that operated oversees were able to steal market share from the local banks due to their superior marketing expertise. The balance of payments records and tracks all the financial transaction made by consumers, government, and the business community with other nations.

It measures the amount of imports that entered the United States territory. The biggest imported of goods in the world is the United States. The reason for this phenomenon is the high gross domestic product per capita of the people and the consumerism culture of American citizens. The United States has taken advantage of its banking industry to generate money oversees. The U.S has also used its power and economic resources to lend money to other countries to help in their development process. The U.S has used its banking industry as a tool to improve its diplomatic relations with many countries.

For instance the U.S. controls Panama and the channel since they have provided a lot of the money used for expanding the canal which is extremely important for the trading activity between North and South America. The FDIC was created in 1933 and at the time it guaranteed the client’s money up to $2500. Today the FDIC guarantees deposits up to $250,000. The FDIC insurance was very instrumental in the growth of the banking industry during the past 50 years. Foreigners felt a greater level of security depositing their money in U.

S banks because their local banks could not offer the types of guarantees in their deposits that the U.S. banks could due to their FDIC insurance protocol. In the 1980’s approximately 20% of the deposits of U.S. banks came from its international branches. During this decade there were inflationary forces in the U.S economy. At the time the government created The Emergency Credit Control Act which gave the Federal Reserve virtually unlimited powers to alter the nature of financial services available in the economy during emergency periods (Hester).

The Reagan Administration did a bad job of controlling interest rates, but his tax cut initiatives during the early part of the 1980’s helped appreciate the value of the U.S. Dollar in international markets. A lot of restructuring of banks occurred during this era. The United States during the 20th century was the biggest international player in the banking industry. The country’s banking sector aggressively expanding into the foreign territory to take advantage of foreign