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The U. S. Commercial and Investment Banks, the Eurocurrency Markets, and the International Economy: from the Late 1970s Through the Start of the 1980s

Received: 2 May 2023     Accepted: 9 June 2023     Published: 20 March 2024
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Abstract

This article, through the case study of Merrill Lynch and Lehman Brothers, investigates the role of U. S. commercial and investment banks in the development of the Eurocurrency markets from the 1970s to the start of the new decade, as well as the investment activities of U. S. financial institutions in the new financial environment of the 1980s based on the appearance of new financial actors and instruments. The first purpose is to frame the investment activities of American banking in the Eurodollar and other non resident markets against the backdrop of changing market pressures on the dollar from the first oil shock through to the monetary and financial consequences of combined second oil crisis and the historic decision by the newly appointed Chairman of the Board of Governors of the Federal Reserve System Paul A. Volcker to raise interest rates at unprecedented highs since 1980. Therefore, this article links the investment behaviour of American banks to the trajectory of U. S. dollar in the foreign exchange markets between the two oil crises of the 1970s. Secondly, this contribution pinpoints the variety of financial activities of American bankers during this period, which went way beyond the Eurodollar markets and involved, at least by the mid-1970s, a wide array of financial instruments both overseas and on domestic markets, from government securities to commercial paper assets. In the third instance, the aim is, as much as possible, to shed some preliminary lights on how the process of securitising, typical of the 1980s, was on the investment portfolios of American investors by the start of this decade. At the outset of this three-fold research target, the final objective is to make sense of the limited role of Eurodollar dealings and offerings in the context of trading and investment activities of U. S. financial institutions during the time frame considered, and particularly since the start of the new decade. In turn, this article suggests the multi-fold scope of financial activities of American banks in the context of macroeconomic and monetary transformations following the end of fixed exchange rates, the tottering of the dollar in the foreign exchange markets, and the meteoric rise of unregulated money markets since the 1970s, as well as the rise of securitisation since circa the year 1980.

Published in International Journal of Economics, Finance and Management Sciences (Volume 12, Issue 2)
DOI 10.11648/j.ijefm.20241202.11
Page(s) 44-53
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

U. S. Banks, Eurocurrency Markets, Merrill Lynch, Lehman Brothers, U. S. Dollar, Securitisation, Money Market Mutual Funds

References
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[2] Altamura Carlo Edoardo, “Global Banks and Latin American Dictators”, Business History Review, Vol. 95 (2021), pp. 301-332.
[3] Alvarez Sebastian, Mexican Banks and the Foreign Finance. From Internationalization to Financial Crisis 1973-1982. London: Palgrave, 2019.
[4] Bank of International Settlements, Recent Innovations in International Banking, April 1986.
[5] Balaban Ioan, International and Multinational Banking under Bretton Woods (1945-1971): the Italian Experience, PhD Dissertation, European University Institute, Florence, 2020.
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[9] Bini, Elisabetta, Garavini, Giuliano and Federico Romero (eds), Oil Shock. The 1973 Crisis and Its Economic Legacy, IB Tauris, London 2016.
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[18] FRBNYA. Correspondence with New York City Bankers.
[19] Gray, William G, Learning to Recycle: Petrodollars and the West 1973-1975, in E. Bini, G. Garavini, F. Romero (eds), Oil Shock. The 1973 Crisis and Its Economic Legacy. London: IB Tauris, 2016.
[20] Gilpin, Robert, The Political Economy of International Relations. Princeton, NJ: Princeton University Press 1987.
[21] Green, Jeremy. “Anglo-American development, the Euromarkets, and the deeper origins of neoliberal deregulation”, Review of International Studies, Vol. 42, n. 3 (2016), pp. 425-449.
[22] IBRD, Borrowing in International Markets, Washington DC: IBRD 1977.
[23] Jimmy Carter Presidential Library, Atlanta, GA, Remote Archives Capture Program (RAC), Declassified RAC Presidential Documents.
[24] Kim, Seung Woo. The Euromarket and the making of the transnational market of finance (1959-1979), PhD Dissertation, Cambridge University, 2021.
[25] Lehman Brothers Inc., Memorandum for McCormick & Company: A Profile of Lehman Brothers, July 1975, in Harvard University, Harvard Business School, Baker Library Special Collections, Lehman Brothers records, b. 476, fold. Lehman Brothers. Profile of Lehman Brothers (McCormick & Company), 1974.
[26] Lehman Brothers, Memorandum 1978, in Harvard University, Harvard Business School, Baker Library Special Collections, Lehman Brothers records, b. 600, fold. LBKL merger, descriptive Memorandum 1978.
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[41] Yago, Kazuhiko. "Before the ‘locomotive’ runs. The Impact of the 1973-74 oil shock on Japan and the international financial system”, Financial History Review, Vol. 27, n. 3 (2020), pp. 418-435.
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  • APA Style

    Selva, S. (2024). The U. S. Commercial and Investment Banks, the Eurocurrency Markets, and the International Economy: from the Late 1970s Through the Start of the 1980s. International Journal of Economics, Finance and Management Sciences, 12(2), 44-53. https://doi.org/10.11648/j.ijefm.20241202.11

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    ACS Style

    Selva, S. The U. S. Commercial and Investment Banks, the Eurocurrency Markets, and the International Economy: from the Late 1970s Through the Start of the 1980s. Int. J. Econ. Finance Manag. Sci. 2024, 12(2), 44-53. doi: 10.11648/j.ijefm.20241202.11

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    AMA Style

    Selva S. The U. S. Commercial and Investment Banks, the Eurocurrency Markets, and the International Economy: from the Late 1970s Through the Start of the 1980s. Int J Econ Finance Manag Sci. 2024;12(2):44-53. doi: 10.11648/j.ijefm.20241202.11

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  • @article{10.11648/j.ijefm.20241202.11,
      author = {Simone Selva},
      title = {The U. S. Commercial and Investment Banks, the Eurocurrency Markets, and the International Economy: from the Late 1970s Through the Start of the 1980s},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {12},
      number = {2},
      pages = {44-53},
      doi = {10.11648/j.ijefm.20241202.11},
      url = {https://doi.org/10.11648/j.ijefm.20241202.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20241202.11},
      abstract = {This article, through the case study of Merrill Lynch and Lehman Brothers, investigates the role of U. S. commercial and investment banks in the development of the Eurocurrency markets from the 1970s to the start of the new decade, as well as the investment activities of U. S. financial institutions in the new financial environment of the 1980s based on the appearance of new financial actors and instruments. The first purpose is to frame the investment activities of American banking in the Eurodollar and other non resident markets against the backdrop of changing market pressures on the dollar from the first oil shock through to the monetary and financial consequences of combined second oil crisis and the historic decision by the newly appointed Chairman of the Board of Governors of the Federal Reserve System Paul A. Volcker to raise interest rates at unprecedented highs since 1980. Therefore, this article links the investment behaviour of American banks to the trajectory of U. S. dollar in the foreign exchange markets between the two oil crises of the 1970s. Secondly, this contribution pinpoints the variety of financial activities of American bankers during this period, which went way beyond the Eurodollar markets and involved, at least by the mid-1970s, a wide array of financial instruments both overseas and on domestic markets, from government securities to commercial paper assets. In the third instance, the aim is, as much as possible, to shed some preliminary lights on how the process of securitising, typical of the 1980s, was on the investment portfolios of American investors by the start of this decade. At the outset of this three-fold research target, the final objective is to make sense of the limited role of Eurodollar dealings and offerings in the context of trading and investment activities of U. S. financial institutions during the time frame considered, and particularly since the start of the new decade. In turn, this article suggests the multi-fold scope of financial activities of American banks in the context of macroeconomic and monetary transformations following the end of fixed exchange rates, the tottering of the dollar in the foreign exchange markets, and the meteoric rise of unregulated money markets since the 1970s, as well as the rise of securitisation since circa the year 1980.
    },
     year = {2024}
    }
    

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    AB  - This article, through the case study of Merrill Lynch and Lehman Brothers, investigates the role of U. S. commercial and investment banks in the development of the Eurocurrency markets from the 1970s to the start of the new decade, as well as the investment activities of U. S. financial institutions in the new financial environment of the 1980s based on the appearance of new financial actors and instruments. The first purpose is to frame the investment activities of American banking in the Eurodollar and other non resident markets against the backdrop of changing market pressures on the dollar from the first oil shock through to the monetary and financial consequences of combined second oil crisis and the historic decision by the newly appointed Chairman of the Board of Governors of the Federal Reserve System Paul A. Volcker to raise interest rates at unprecedented highs since 1980. Therefore, this article links the investment behaviour of American banks to the trajectory of U. S. dollar in the foreign exchange markets between the two oil crises of the 1970s. Secondly, this contribution pinpoints the variety of financial activities of American bankers during this period, which went way beyond the Eurodollar markets and involved, at least by the mid-1970s, a wide array of financial instruments both overseas and on domestic markets, from government securities to commercial paper assets. In the third instance, the aim is, as much as possible, to shed some preliminary lights on how the process of securitising, typical of the 1980s, was on the investment portfolios of American investors by the start of this decade. At the outset of this three-fold research target, the final objective is to make sense of the limited role of Eurodollar dealings and offerings in the context of trading and investment activities of U. S. financial institutions during the time frame considered, and particularly since the start of the new decade. In turn, this article suggests the multi-fold scope of financial activities of American banks in the context of macroeconomic and monetary transformations following the end of fixed exchange rates, the tottering of the dollar in the foreign exchange markets, and the meteoric rise of unregulated money markets since the 1970s, as well as the rise of securitisation since circa the year 1980.
    
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Author Information
  • Department of Humanities and Social Science, University of Naples L’Orientale, Naples, Italy

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