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

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.