slike bài giảng quản trị ngân hàng chương 1 an overview of banking sector

William Chittenden edited and updated the PowerPoint slides for this edition.
AN OVERVIEW OF
BANKING SECTOR
Chapter 1
Key topics
1. Bank definitions
2. Bank regulation

Goals of regulation

Regulators

Rationality of regulation
3. Bank functions
4. Bank services
5. Bank organization
6. Fundamental sources of changes
1. What is a bank?

Definition by functions it serves

Institutions involves in transferring funds from
savers to borrowers (financial intermediation)
& in paying for goods and services (payment
intermediation)

Definition by services it offers to
customers

Accept deposits, make commercial loans,
offer trust services, manage cash, etc.

What is a bank?

Necessity of a legal definition:

Regulation purpose

Banking service menu is expanding

Other financial-service institution provide
similar services
What is a bank?

Definition by legal basis for regulation

US: any institution that could qualify for
deposit insurance administered by the FDIC

VN (Law of credit institution 2004): a credit
institution permitted to conduct all banking
activities and other related business
operations.
What is a bank?

Definition by legal basis for regulation

VN: "Non-bank credit institution" is a credit
institution permitted to engage in some
banking activities as its regular business, but
not permitted to receive demand deposits and
to provide payment services.


VN: "Banking activities" are monetary
business activities and banking services, the
regular operation of which is the receipt of
deposits and use of that to extend credits,
provide payment services.
Financial service competitors of banks

Savings associations

Credit unions

Money market funds

Mutual funds (investment companies)

Hedge funds

Security brokers and dealers

Investment banks

Finance companies

Financial holding companies

Life and property-casualty insurance companies
2. Goals of bank regulation

Ensure safety and soundness of banks protecting

public’s savings and confidence

Provide an efficient and competitive financial system

Provide monetary stability to achieve national broad
economic goals

Maintain the integrity of the payments system

Ensure equal opportunity and fairness in the public’s
access to financial services

Provide government with credit, tax revenues and
other services

Help sectors that have special credit needs
Banking principal regulatory agencies (US)

Federal Reserve System (FED)

Comptroller of the Currency (OCC)

Federal Deposit Insurance Corporation (FDIC)

Department of Justice

Securities and Exchange Commission (SEC)

State Boards of Commissions
Banking principal regulatory agencies (VN)


State Bank of Vietnam (SBV)

Deposit Insurance of Vietnam (DIV)

Ministry of Finance (MOF)

State Securities Commission of Vietnam (SSC)
Why banks are closely regulated?

Banks are among leading repositories of public’s
savings

Bank’s power of creating money in form of
readily spendable deposits

Banks provide individuals and businesses with
loans for consumption and investment, which
should be equally and adequately supplied.

Government rely upon banks in conducting
economic policies, collecting taxes and
dispensing government payment.
Shortcomings of restrictive bank regulation

May encourage monopoly due to conditional entry

Does not prevent bank failure

Cannot eliminate economic risk


Does not guarantee that bank management will
make good decisions, but create a struggle
between regulators and banks going on definitively

Less-regulated business win customers away from
more-regulated banks.
The Federal Reserve System

The Federal Reserve System

Fundamental Functions

Conduct monetary policy

Provide and maintain the payments system

Supervise and regulate banking operations

Organization

Board of Governors

12 Federal Reserve District Banks
State Bank of Vietnam
The Federal Reserve System

Monetary Policy Tools

Open Market Operations


Open market purchases (sales) increase
(decrease) reserves & the money supply

Discount Rate

Decreasing (Increasing) the discount rate
makes bank borrowing less (more)
expensive, which leads to an increase
(decrease) in the money supply

Reserve Requirements

Decreasing (Increasing) reserve requirements
increases (decreases) the money supply
3. Commercial banks and the economy
-Bank functions

Banks are the primary conduit for monetary policy

Banks are the primary source of credit for most
small businesses and many individuals

Banks are the major repository of public savings

Banks are the principal operator of payment
system.
4. Traditional services offered by banks
– Bank services
1. Carrying out currency exchange

2. Discounting commercial notes and making
business loans
3. Offering savings deposits
4. Safekeeping of valuables
5. Supporting government activities with credit
6. Offering checking accounts
7. Offering trust services
More recent services offered by banks
– Bank services
8. Granting consumer loans
9. Providing financial advice
10. Managing cash
11. Offering equipment leasing
12. Making venture capital loans
13. Selling insurance policies
14. Selling retirement plans
15. Dealing in securities: brokerage and
investment banking services
Carrying out currency exchange

Bank trade one form of currency to another in
return for fee

Start from early days of banks

Become more complicated in the global financial
market

Be provided by large and well-experienced banks
Discounting commercial notes and

making business loans

Discounting commercial notes/making loans to
merchants based on accounts receivable

Making direct loans for purchasing inventories
of goods (short-term) or for constructing new
facilities (long-term)

Be provided by banks and many other financial-
service competitors

Be the core and main revenue-earning service
of many banks
Offering savings deposits

Be the earliest and major source of fund for
making loan

Compose of many types different in maturity,
form of currency, interest, etc.

Be the most stable funding source

Deposit is subject to reserve requirement and
insurance
Safekeeping of valuables

Keep gold and other valuables of customers in
secure vaults in return for fee


Start since the old days of banks in the Middle
Ages
Supporting government with credit

Banks in Europe during the Industrial Revolution
and in America during the Revolutionary War
had to purchase government bonds with a
portion of deposits.

The custom continues in the modern world

Banks use government bond as a shelter of
liquidity risk and a source of revenue
Offering checking accounts

Demand deposits permit depositors to write
draft/cheque for payment of goods and services

Be one of the most important offerings of the
industry

Service is provided by not only banks but also
credit unions, savings associations, etc.

Today the service is extended to the internet
with the use of smart cards

Provide banks with cheap source of fund.
Offering trust services


Banks manage financial affairs and property of
individuals and firms in return for fee

In property management, banks acts as a
trustee for wills, managing the deceased
customer’s estate,…

In commercial trust department, bank manages
pension plan for businesses and acts as an
agent issuing stocks and bonds.