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Chapter 3
 

Chapter 3

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    Chapter 3 Chapter 3 Presentation Transcript

    • Banking Systems Around the World Hughes and MacDonald Chapter 3 Business 4039
    • Key Chapter Concepts/Issues
      • OECD – Organization for Economic Development and Cooperation – the club of industrialized nations
      • Universal banking
      • Glass-Steagall Act - repealed in 1999
      • Convergence/bancassurance/allfinanz
      • Banks are present in all countries…but with widely different powers and functions
      • Most banks are involved in credit allocation
      • Problems with goals …asset growth being more important than profitability
    • Key Chapter Concepts/Issues
      • Different banking systems:
        • OECD countries
          • The U.S.
          • Japan
          • Euroland
          • United Kingdom
          • France
          • Germany
        • Emerging Market Countries
          • Mexico
          • Indonesia
          • India
          • China
          • South Africa
          • Hungary
          • Russia
          • Islamic Banking
    • Important Terms
      • Tranche
      • Convergence
      • Firewalls ( in house, intentional separation of investment and commercial/retail banking involving a complete refusal to share sensitive information between the two functions within one FI)
      • Keiretsu (cluster of businesses with dedicated bank support)
      • Transparency
      • Bridge banks (also known as bad banks in some instances)
      • usury
    • Question 1
      • Universal banking – now possible under the Financial Service Modernization Act of 1999 in U.S. (following the repeal of Glass-Steagall) is the offering to corporate clients a full range of banking services including loans, investment services and insurance. (Financial supermarket concept)
      • Allfinanz – German term describing universal banking
      • Bancassurance - French term describing universal banking
    • Question 2
      • The Glass-Steagall Act forced the separation of bank and investment services
      • It certainly delayed the move to convergence and universal banking unlike banking systems elsewhere
    • Question 3
      • The Japanese system did have Glass-Steagall like restrictions.
      • The Keiretsu system caused Japanese banks to become very specialized…removed the discipline of the marketplace…and perhaps resulted in:
        • Undiversified bank portfolios
        • A tendency to extend credit to situations that were imprudent
    • Question 4
      • The Indonesian problem was due to:
        • Overbanking (too many banks in a liberalized environment during times of rapid economic expansion) with too close ties to conglomerates
        • Weak credit analysis
        • Politically-based lending practices (Suharto government corruption)
    • Question 5
      • Islamic Banking
        • Riba al-qarud – usury of loans
        • So how is financing done?