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Banking Sector in Advanced Countries

The Banking System of the United States of America

The Banking System of the United States of America
The Banking System of the United States of America

The United States has the most developed financial system. The Central Bank of the United States, the Federal Reserves (FED), was established in 1913 as the Federal Reserve System of the United States having all characteristics of a complex central bank. Federal Reserve, as the central bank, consists of 12 Federal Reserve Banks, respecting the federal state structure.

The Federal Reserves

The FED formulates and implements monetary policy, conducts operations and services for member banks, performs functions for the government, supervises and controls the operations of member banks. The FED acts as the fiscal agent of the U.S., as member states hold government deposits and pay obligations for state treasuries. The central bank system issues currency through the state treasury, and the FED’s capital is formed from the capital of member banks.

The governor presides over the Board of Governors, and the most crucial decisions are made by the Open Market Operations Committee, as open market operations play a predominant role as a monetary regulation tool. The FED has a high degree of autonomy, but more recently, significant decisions have been marked by a political imprint.

Types of banks

There are many types of banks in U.S.A. as follows:

Commercial banks functioning by mobilizing deposits, extending credit, and providing other services. There are national and state commercial banks.

Savings banks mobilize time deposits and invest the funds in bonds, mortgage funds, and other long-term investments.

Effective banks gather funds through the issuance of securities, dispose of substantial amounts of their capital, and invest in dominant industries.

Trust banks are characterized by their core activities, safeguarding and managing clients’ assets as agents, trustees, representatives, guardians, and executors of wills.

The EXIM Bank was established to encourage foreign trade.

The U.S. banking system is characterized by a multi-tiered structure and a mechanism of control and supervision over the operations of banks. Firstly, regulatory bodies operate according to financial control and oversight guidelines. Secondly, national and commercial banks are under the supervision of the FED. Thirdly, state and commercial banks that are members of the Fed are under the control of the Federal Deposit Insurance Corporation (FDIC). Fourthly, banks that are not members of the FED are under the control of the state banking department and the FDIC.

The Banking System of the United Kingdom

The Banking System of the United Kingdom
The Banking System of the United Kingdom

The central bank, Bank of England, was formed in 1694 with a monopoly on issuing banknotes. It is organized as a unique institution, consisting of the issue department and the banking department. It was owned by private shareholders until 1966 when it was nationalized. The governor and deputy governor are appointed by the government on the prime minister’s recommendation, serving a 5-year term. The board of directors comprises 16 members, including four executive directors. Despite its nationalization, the Bank’s autonomy has been diminished. It is authorized to open branches within the UK.

In addition to the central bank, the banking system includes various types of banks as follows:

Commercial deposit banks are the predominant group, managing significant funds and deposits, mainly granting short-term loans and handling payments. They cannot be stock exchange members or engage in stock market transactions.

Discount banks (Bill Brokers) are privately owned banks specialized in discounting bills and government securities. They generate potential through deposit collection and credit lending.

Effective banks (Stock Brokers) specialize in speculative transactions with government securities listed on the stock exchange, forming potential based on their own funds and Lombard loans secured by the pledge of securities.

Acceptance banks (Merchant Banks) specialize in international payments, foreign exchange trading, and investment mediation.

Corporations for long-term financing, funded by private and state capital, engage in providing long-term loans to the economy.

The Banking System of Germany

The Banking System of Germany
The Banking System of Germany

The central bank, Bundesbank, was established in 1875, but it gained the monopoly on issuing money in 1924. The organization of Bundesbank underwent several changes. Until 1948, it operated as a single entity, then as a central bank system, and from 1957, it returned to being a unified institution. Until 1945, it was privately owned before being nationalized.

The governor and deputy governor serve eight-year terms without the possibility of removal. The board of directors consists of 21 members. Due to the lengthy terms and the tradition of defining the role of the central bank, it was autonomous in decision-making and conducting monetary and credit policies for decades.

European Monetary Union

After joining the European Monetary Union (EMU) and the establishment of the European Central Bank (ECB), including the management of monetary and credit policies and money issuance, these responsibilities were transferred to the ECB.

The institutional structure of the banking system (beside central bank) consists of

Private and public banks: The first group includes the so-called “three big D banks” – Deutsche Bank, Dresdner Bank, and Deutsche Diskont Gesellschaft, later renamed Commerzbank. The second group comprises state, regional, and local banks that conduct traditional banking activities in smaller areas. Private banks, relatively numerous, operate based on their own capital, forming the basis of their potential.

“Sparkassen” (savings banks), credit unions, credit institutions for immobilizing loans are specific types of banks in Germany. Sparkassen are formed at the municipal level or their associations to mobilize free funds through savings and for lending. They are organized in three tiers: Sparkassen, Landesbanken, and Deutsche Zentralbank. Credit unions are also organized in three tiers, performing various banking activities for small and medium-sized enterprises. Credit institutions for immobilizing loans provide loans for real estate and appear in the form of savings banks and credit unions for housing construction financing.

The Banking System of Japan

The Banking System of Japan
The Banking System of Japan

The Bank of Japan was formed in 1882, gaining a monopoly on issuing money two years later. It is organized as a unified institution, with 45% of the bank’s shares owned by private capital. The Ministry of Finance appoints the governor and deputy governor, and the board of directors comprises 67 members. Normatively, it does not have huge amount of autonomy.

In addition to the Central bank of Japan, the Japanese banking system consists of:

City banks primarily form their potential based on citizens’ savings and channel funds through short-term lending to major corporations.

Regional banks mobilize funds and finance small and medium-sized companies, focusing on short-term placements.

Banks for long-term financing form potential based on long-term sources to provide long-term loans.

Trust banks, which rapidly developed due to a high savings propensity, combine banking with postal savings, with investments mainly directed towards government securities.

Specialized banks include those for foreign exchange operations, export and import banks, the Japanese Development Bank, and so on.

It is significant to mention that Japanese banks rank among the world’s largest in terms of size.

The Banking System of France

The Banking System of France
The Banking System of France

The central bank was established in 1800 through the merger of several private banks, gaining a monopoly on banknote issuance in 1848. It is organized as a unified institution. Ownership was mixed until 1945 when it was nationalized. The governor and deputy governor are appointed by the government for a period of 5 to 7 years. The central bank is significantly dependent on the government’s policies.

In addition to the central bank, the French banking system includes:

Deposit banks which mobilize deposits on demand and time deposits, and engage in granting short-term loans, current account credits, Lombard, and acceptance credits. They are divided into national and private deposit banks.

Commercial banks are tasked with financing the economy through direct participation in company development, loan approval, and issuing their own securities. Investments are based on the resources of these banks.

Credit banks for medium and long-term financing have a special status as they deal with matters of special public interest.

The Banking System of Italy

The Banking System of Italy
The Banking System of Italy

The central bank was formed in 1893 through the merger of six private banks that held a monopoly on money issuance, exclusively gaining control over the money supply in 1926. It is organized as a unified institution. Ownership of the bank is divided among credit institutions, social funds, and insurance companies. The governor and deputy governor are appointed by the government, with the mandate formally unlimited in duration. The board of directors is elected by the assembly of shareholders. Considering ownership, the method of selecting leaders, and the governor’s term length, the level of autonomy of the Central bank of Italy is significant. However, in practice, autonomy is often limited.

In addition to the central bank, the Italian banking system includes:

Public law banks (instituti di diritto pubblico) performing all banking activities with the possibility for their organizational units, with their own resources, to engage in specialized lending for agriculture, mining, and tourism.

Banks of national interest (banco di interesse nazionale) large deposit banks with numerous branches nationwide, handle all banking operations.

Ordinary credit banks (banco di credito ordinario) – private banks, with the largest being the national agricultural bank.

People’s banks (banco popolare) established and operated as cooperatives.

Savings banks (Casa di Risparmio) operate nationwide, mainly collecting funds from the public and are oriented towards the population in their lending policies.

Special credit institutions for medium and long-term financing also form part of the Italian banking system.

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