An analysis of the foreign and domestic balance sheet strategies of the US banks and their association to profitability performance

This study analyzed the 1987 data of 176 relatively large U.S. banks that have both foreign and domestic offices. Canonical analysis and the interpretive framework of asset/liability management were used to identify and interpret their foreign and domestic balance sheet strategies in the context of the "crisis in lending to LDCs." The analysis found a consistent dichotomy in foreign and domestic asset/liability matching strategies, the former being more generally conservative with respect to interest-rate and liquidity risks. Among the 44 very large banks, those that were found to follow a predominant or consistent foreign strategy are more profitable than those that follow a mixed or, especially, domestic strategy. Further, these banks that follow a consistent foreign (domestic) matching strategy have the smallest (largest) mean proportions of all foreign asset and liability variables.