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Chapter 3


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Chapter 3

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Glass-Steagall Act - repealed in 1999 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