ntral banks involved, with the exception of arrangements with the central banks of Canada and Mexico.currency arrangements can be an important policy tool in times of unusual market disruptions. For example, immediately after the terrorist attacks of September 11, 2001, the Federal Reserve established temporary swap arrangements with the European Central Bank and the Bank of England, as well as a temporary augmentation of the existing arrangement with the Bank of Canada. The purpose of these arrangements was to enable the foreign central banks to lend dollars to local financial institutions to facilitate the settlement of their dollar obligations and to guard against possible disruptions to the global payments system. The European Central Bank drew $ 23.5 billion of its swap line; the balance was repaid after three days. The other central banks did not draw on their lines. The temporary arrangements lapsed after thirty days. Federal Reserve is interested in the international activities of banks, not only because it functions as a bank supervisor but also because such activities are often close substitutes for domestic banking activities and need to be monitored carefully to help interpret US monetary and credit conditions. Moreover, international banking institutions are important vehicles for capital f lows into and out of the United States. international banking activities are conducted depends on such factors as the business needs of customers, the scope of operations permitted by a country s legal and regulatory framework, and tax considerations. The international activities of US-chartered banks include lending to and accepting deposits from foreign customers at the banks US offices and engaging in other financial transactions with foreign counterparts. However, the bulk of the international business of US-chartered banks takes place at their branch offices located abroad and at their foreign-incorporated subsidiaries, usually wholly owned. Much of the activity of foreign branches and subsidiaries of US banks has been Eurocurrency business-that is, taking deposits and lending in currencies other than that of the country in which the banking office is located. Increasingly, US banks are also offering a range of sophisticated financial products to residents of other countries and to US firms abroad. international role of US banks has a counterpart in foreign bank operations in the United States. US offices of foreign banks actively participate as both borrowers and investors in US domestic money markets and are active in the market for loans to US businesses. (See chapter 5 for a discussion of the Federal Reserve s supervision and regulation of the international activities of US banks and the US activities of foreign banks.) Banking by both US-based and foreign banks facilit...
