ere eager to take advantage of the high rates of return offered by takeovers and junk bonds. In this way, investment banking benefited from the turning away from commercial banks as intermediaries as investors sought money market funds and other securities.
Globalization had two noticeable effects on banking: on the one hand, it increased opportunities for American banks abroad since they were able to open overseas branches and to service American multinational corporations as well as foreign corporations with credit and investment banking products. However, globalization also opened the way for foreign banks to compete in the United States.
Many foreign banks were able to undercut their American competition by providing letters of credit and extending loans in part because their governments imposed lower capital requirements on them. Japanese banks were particularly successful in this regard, with the result that Japanese banks are now among the largest in the world, while American banks lag behind significantly.
Just as foreign banking operations began operating in the United States, so American banks sought opportunities abroad. It was American banks who were instrumental in the large Eurodollar market deposits booked in banks located overseas. Such operations allowed American banks to operate outside the constraints of Regulation Q, and to bid for funds on a more equal basis with their foreign counterparts. For investment bankers, the benefit was an expansion of markets without the legal constraints imposed by the American regulatory environment. In this way, securities underwriting, distribution and trading, the traditional purview of investment bankers, were able to operate without the "Chinese wall" that the Glass-Steagall Act of 1933 put into place between commercial and investment banking activities within the United States.
Increased globalization brought with it not only additional opportunity, but also...