Banking Systems Around the World

1
Banking Systems Around the World

• Hughes and MacDonald
• Chapter 3
• Business 4039

2
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• Glass-Steagall Act - repealed in 1999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 countriesbut with
  widely different powers and functions
• Most banks are involved in credit allocation
• Problems with goals asset growth being more
  important than profitability

3
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

4
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

5
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

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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

7
Question 3

• The Japanese system did have Glass-Steagall like
  restrictions.
• The Keiretsu system caused Japanese banks to
  become very specializedremoved the discipline of
  the marketplaceand perhaps resulted in
• Undiversified bank portfolios
• A tendency to extend credit to situations that
  were imprudent

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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)

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Question 5

• Islamic Banking
• Riba al-qarud usury of loans
• So how is financing done?