UNIT V BANKING

OBJECTIVES:

 -familiarize with specific professional terminology

 -change of the meaning from general to specific
 -passive voice
 -listening, writing, reading skills

I. Answer the questions before reading the text:

1. How do you think that banks appeared?
2. What is their role in market economy?
3. Is there any difference in banking in a command economy and market economy?

Reading comprehension

History and Organization of Banking in England

Modern banking has its origin in the finance of foreign trade. In the great medieval trading states
of Venice, Genoa and later Florence, a need arose to exchange one currency with another and the
early changers also began the practice acceptance of deposits of cash and valuables or
safekeeping. They also undertook the financing of commerce at the great medieval trade affairs,
and they also were called upon to provide finance of the rulers of the states in which they were
established, and they often became involved in financing the running of their own and other
countries. Because of the power they were seldom popular. Readily indefinable groups, such as
Jews, were persecuted and sometimes expelled, and the laws against usury were strict.
Since modern banking originated in the cities of northern Italy, it is not surprising that some of
its basic vocabulary has Italian roots. The word "bank" itself comes from the Italian word
"banco" meaning a bench. The "bankrupt" has the same origin and refers to the practice of
breaking the money-changers bench to indicate that he was no longer able to honor his
obligations and therefore unable to continue his business.
When Jews were expelled from England by Edward I in 1290, the Lombards, who were already
established in England, took their place. They became the merchants and the important financiers
in many European countries. The name of "Lombard Street" in the heart of the city of London is
the permanent reminder of the importance of these early times.
The accepting of deposits, the making of loans and the transfer of funds evolved during the
seventeenth century with the growth of the goldsmiths-bankers who had by that time, taken over

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from the Lombards as major financiers in England.
Because of the nature of their trade, their premises had to be secured, and even before the 1640
seizure, there is evidence that they accepted coin on deposit from their customers, issuing
receipts for them.
The receipts entitled the holder to the return of his actual deposit, but they later became
promissory notes, giving the holder the promise that he would be able to withdraw, on demand,
an equivalent to that deposited.
Gradually, these notes themselves began to circulate among the merchants in the settlement of
their debts. Thus, these receipts became the forerunners of the modern banknote. Then, the words
"on bearer" were added after the name of the original depositor and they became "bearer
instruments", giving them a greater circulation.
The practice of placing money with goldsmiths with a given notice of required repayment had
emerged, thereby originating what we call today "deposit accounts". The private banknote came
into being, but in the following century the Bank of England gradually took over the function of
exclusive note issuer, when it appeared as a historical necessity, when the Government of the day
was in need for funds to pursue the war against France.
In 1773 the London private bankers also established a Clearing House that increased the ease of
transfer and allowed the individual banks to keep a smaller total of cash in their tills with which
to meet withdrawals and transfers. The fluctuating economic conditions at the beginning of the
19th century were attributed to the relatively unrestricted right to issue banknotes and the
problems caused by over-issue, so the Bank Charter Act provided the control of note issue that
eventually led to the Bank of England acquiring a monopoly of the note issue.
Further developments took place as legislation and other changes brought about a restructuring
in the supply of financial services. Increasing overseas competition and the freedom of building
societies offered a much wider range of financial services.
This is a far cry indeed from the goldsmiths' shops, wooden mills and mercers' premises where it
all began three hundred years ago.

VOCABULARY
I. Find the definitions of the following commercial banking functions displayed by
the diagram and make their oral presentation.

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 II. Read the following gapped text and find the needed matching specific words: interest;
monetary strategy, foreign exchange; investment; business, tax revenues, resources, cash

Banks are not just safe places to secure money, but they are also a)…………….. required for the
development of business, industry and ultimately the nation. The banks increase the participation of
the private sector in economic development by making loans available for a reasonable rate of
b)…………... The concept of corporate banking provides tailor-made solutions to business. Banks
facilitate the development of saving plans and they are instruments of the government’s c)…………
………… . Credit fuels economic activity by allowing businesses to invest beyond their cash on
hand, and governments to smooth out their spending by mitigating the cyclical pattern of d) ……..
……….. . Banks are the core of the financial markets as they facilitate e) …………… to pool their
risks from exposures through derivatives instruments. Individuals and businesses can take part in the
global f)………. …………. and commodity markets indirectly through banks. g)………. can be
transferred easily from one place to another and from one country to another through banks, which, in
turn, expand the internal and external trade and market. Banks are entitled to grant loans to
agriculture, industry and trade through direct h)…………. of the private sector which accelerate the
pace of economic growth.

III. Match the following vocabulary with their definitions:

abbreviation of Automated Teller Machine: a machine, usually
1 bounce a in a wall outside a bank, from which cash can be withdrawn out
of your bank account using a card

2 cash a check/cheque b the amount of money that a person has in a bank account
checkbook (US) /
3 c sums of money paid by a customer for a bank's services
chequebook (UK)
a printed record of the money put into and removed from a bank
4 bank statement d
account
when a check cannot be paid or accepted by a bank because of a
5 ATM e
lack of money in the account

6 bank balance f (verb) to exchange a check for cash

a printed form, used instead of money, to make payments from
7 bank charges g
your bank account:
savings account (US) / a bank account that you can take money from at any time and
8 h
deposit account (UK) which usually earns little or no interest
deposit (US) /
9 i to put money into a bank account
pay in (UK)

10 standing order (UK) j The act of overdrawing a bank account

checking account (US) / a bank account in which you usually leave money for a long
11 k
current account (UK) time and which pays you interest
an instruction to a bank to pay a particular amount of money at
12 overdraft l regular times from a person's bank account to another bank
account (compare direct debit)

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 IV. Fill in the blanks the missing words: future earnings, money changers, trade,
foreign exchange, culture of financial services, financial center
As the standardization of coinage was needed for fair transactions, the profession of ……….
………….. appeared. The episode in the New Testament where Christ overturns the tables of the
money changers in the Temple of Jerusalem (Matthew 21.12) demonstrates how wide spread the
banking industry and …………. ………… dealing was. The tables used by the money changing
trade were trapezium in shape, which is the origin of the word “trapezitai” – the name used for
Greek bankers. The fall of the Roman Empire led to banking disappearance in the chaos of
barbarian invasions that produced the breakdown of ……….. and social organization. The
rebirth place of the banking industry was the Italian medieval society which began to broaden the
………….. … ……….. ………….. . It was the Knights Templar that began to provide banking
services. Economics credits the birth of capitalism with the Protestant Reformation, as before it
banking activity was exclusively conducted by the Jewish community, due to their religion
permitting it. With the Revolution in Britain in 1688, the Bank of England was established by the
Royal Charter in July 27th, 1694. The rise of the British Empire made London become the
primary …………. …………. within Europe. As with all things in life, the development of the
banking industry has its side effects. While leverage allows an individual to purchase items today
using tomorrow’s …………… ……………, it also tends to create greater levels of inflation.
Throughout the monetary history of the world, credit made business cycle over-expand and over-
contract. Nonetheless, the absence of banking and credit discourages human interaction that
could destroy the very foundations of civilization.

V. Answer the questions before reading the following text:

1. What is role that central banking has in economy?
2. Is it important that central banking be politically autonomous?

The Bank of England

The Bank of England was established in 1694 by the Act of Parliament and Royal Charter as a
corporate body; the entire capital stock was acquired by the Government under the Bank of
England Act in 1946. The main functions of the central bank are to execute monetary policy, to
act as banker to the Government, to act as a note-issuing authority and to exercise prudential
supervision over and to provide banking facilities for the banking system. The central bank is
also responsible for arranging government borrowings and managing the National Debt. It also
oversees the soundness of the financial system as a whole.
As the single note-issuing authority, The Bank of England issues banknotes in England and
Wales, banknotes that are no longer backed by gold that is fiduciary. The Scottish and Northern
Ireland banks have limited right to issue notes that are mostly covered by holdings of Bank of
England notes.
The Bank of England has also the right to influence money market conditions through its
dealings with the discount houses that appeared and developed in the nineteenth century as bill
brokers for industrialists. The discount houses hold mainly treasury, local authority and
commercial bills, and negotiable certificates of deposit financed by short-term loans from the
banks. For covering a shortage of cash in the banking system, the Bank can release it either by

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buying bills from the discount houses or by lending directly to them. This way the banks can
replenish their cash balances at the Bank by recalling some of their short-term loans to the
discount houses.
The main wholesale markets in London for money, foreign exchange and gold bullion operated
by professionals, are also supervised by the same central Bank.
All the deposit-taking organizations require authorization from the Bank of England and are
subject of its supervision. The present banking legislation increased the Bank's power to modify
the conduct of banking institutions, to investigate cases of illegal deposit-taking, to block bank-
mergers and takeovers on prudential grounds. It also enables information to be shared, in strictly
controlled ways, among supervisors in different financial services, and permits auditors to make
reports to the Bank of England about a bank if the circumstances require it.
The Bank may intervene in the foreign exchange markets to check undue fluctuations in the
exchange value of sterling. As Europe moves towards economic and monetary union (EMU), the
Bank of England will join The European Central Bank, which has its central office in Frankfurt
and it is independent of instructions.

VI. Finding a title for each fragment, you will identify the main functions of the Bank of
England:
Bank-notes issuer, Supervision of Monetary Policy, Supervision of Commercial banking, Money
Market Regulator

A. ______________________
The Bank is responsible for arranging government borrowing or repaying debt and for managing
the National Debt. The Bank's principal role in government finance is to borrow money in the
markets and from the public. The main forms of borrowing are through Treasury Bills,
government bonds (known as gilts or gilt-edged stock) and occasional foreign exchange
borrowings. The bank is responsible for issuing and redeeming these securities.
The Bank is directly involved in executing the Government' monetary policy, thus providing a
framework for non-inflationary economic growth. The Government Treasury has an important
role in providing advice and is closely involved in implementing government decisions on the
appropriate level of interest rates through dealings in money markets.

B. _________________________
The Banking Act in 1987 created a Board of Banking Supervision and increased the Bank's
powers to modify the conduct of banking institutions, to investigate cases of illegal deposit-
taking, to block bank mergers and takeovers on prudential grounds and to require information
from banks. The Bank is also responsible for the supervision of the main wholesale markets in
London for money, foreign exchange and gold bullion. The Bank may also intervene in the
foreign exchange markets to check undue fluctuations in the exchange value of currency.

C. ___________________
The Bank has the sole right to issue banknotes that are no longer backed by gold but by
government stock and other securities (known as the fiduciary issue of notes). Scottish and
Northern Ireland banks have limited rights to issue notes.

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D. ________________________
The Bank's money market operations are designed to smooth out fluctuations in the flow of cash
between government and the private sector. Shortage of money is offset by the Bank buying
short-dated bills and maturities from the market and lending funds to the market. When there is a
surplus of money, the Bank seeks to offset this by selling Treasury and other bills. Normally, the
pattern of government and Bank operations results in a shortage of cash in the market each day
with the result that the Bank is the final provider of liquidity in the system and can help to
implement and direct monetary policy by choosing the interest rates at which it provides funds.
When the Bank changes its dealing rate the commercial banks tend to follow suit promptly and
change their own rates from which deposit and lending rates are calculated.

VII. Develop an oral presentation of the following diagram showing the functions of a Central
Bank:
banker to the banker to the
government commercial banks

commercial banking
bank notes and system control,
coins issuer regulation and
supervision

manager of the lender of last resort

national debt and (liquidity provider)

holder of the
transaction
country gold and FX
facilitator
reserves

DEBATE
I. Work in groups: debate the following issues:

II. Read the text and answer the questions:

1. What were the main functions of the Central Romanian banking before 1990?
2. What are now the main functions of the Central Bank in Romania?

The structure of the banking system prior to 1990 in Romania combined the functions of a
central bank and some functions of a commercial bank. Together with other state institutions it

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conceived the drafts of the credit and cash plans of the economy and monitored their
implementation. It organized the granting of short-term credits on the basis of approved plans
and extended credits to enterprises and economic organizations that had accounts with it. The
main monetary and credit objectives were to provide enterprises with required credit, so that they
could meet their plan targets, to provide sufficient liquidity in the economy, consistent with the
planned availability of goods.
Now, the functions of the National Bank of Romania changed and they are covered by the
Statute Law. Under this status, in order to preserve the political independence of the central
bank, the Governor and the Board of Administration are appointed by the Parliament, at the
recommendation of the Prime Minister, for an eight-year renewable term.
The first article of the Status defines the role of the National Bank formulates and conducts
monetary and credit policy within the framework of the country's economic and financial policy
with the goal of preserving the stability of the national currency. The National Bank of Romania
determines the money supply in the economy conducts the foreign exchange policy and
supervises the commercial banks. The National Bank of Romania is also the single institution to
issue banknotes and coins, to manage the international reserves of the country, and grant
advances to the Central State Budget to cover temporary deficits.
The Board of Administration of the Bank meets regularly. It determines the broad parameters of
the monetary policy and decides on such matters licensing of banks, introduction of new or
changes in existing prudential regulations, actions on operating banks (extension of special
loans, imposition of penalties, etc) and other policy in internal budgetary matters.

III. Develop the meanings of the following quotations

1. "Neither a borrower nor a lender be." (William Shakespeare)
2. "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual
income twenty pounds, annual expenditure twenty pounds ought and six, result misery". (Charles
Dickens)
3. "Debt is the prolific mother of folly and crime." (Benjamin Disraeli)
4. "I wish it were possible to obtain an additional article to our Constitution. ... I mean an article
taking from the federal government the power of borrowing." (Thomas Jefferson
5. "Who goeth a borrowing goeth a sorrowing". (Benjamin Franklin)
6. "At the heart of our national finances there is a simple, inescapable act ... that our government
- any government - like individuals and families - cannot spend and continue to spend more than
they take in without inviting disaster." (Clarence Cannon)

WRITING

I. Rebuild the history of the Central Bank of Romania following the milestones information.

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 1861 I. C. Bratianu: "As long as we don't have a Central Bank,
financial crisis will not disappear in our country"
1880 the foundation of the Central Bank (1/3 state shares; 2/3
public subscription)
1880-1890 covered the Independence War
discount credits for agriculture
1901-1914 state shares sold and the bank become entirely private
1914-1918 financed the Romanian war effort
1917 transfer of the Romanian treasury to Moscow to be sheltered
against the war
activity of the bank transferred in Iasi
1929-1933 the leu becomes convertible
1933-1944 cover the Second World War Romanian expenses
1946 the bank becomes a subject of nationalization
1965 State Bank of The Popular Republic of Romania
1971 The National Bank of The Socialist Republic of Romania
1991 The National Bank of Romania

TRANSLATION AND INTERPRETATION

A
"Informața este la fel de importantă, ba chiar mai importantă decât pămîntul, munca, materiile
prime și capitalul" (Alvin Toffler-Corporația adaptabilă, 1993).
Informează-te dimineața, ia o decizie la amiază și treci la acțiune a doua zi, după o noapte de
reflecție. (anonim)
"Morala și economia politică resping deopotrivă pe individul care consumă fără să producă."
(H.de Balzac-Maxime si cugetări, 1979).
Când ai îndoieli, întreabă, când nu ai îndoieli, întreabă.
Ceea ce merită să fie făcut, merită să fie bine făcut. (Cugetări engleze, 1980).
Doar cei ce se ajută singuri știu cum să-i ajute pe alții și să respecte dreptul lor de a se ajuta
singuri. (Cugetări engleze - 1980).
Nici o zi fără să tragi o linie. (cugetare latină).
Există totdeauna motive excelente pentru a nu acționa; numai că, dacă motivele predomină,
lucrurile rămân nefăcute (G.B.Shaw).
B.
Cel mai puternic, întins și influent angrenaj bancar de la dispariția Ordinului Templierilor, a fost
casa Fugger din Augsburg, iar perioada sa de apogeu a fost în secolul al XVI-lea. Faima și
influența i-au fost aduse, pentru mai multe generații, de afacerile bănești în care au reușit să
ajungă pe primul loc pe continent. Datorită resurselor acumulate și a prestigiului dobândit, un
număr imens de clienți – capete încoronate, nobili, comercianți, mesteșugari, navigatori – apelau
la serviciile sale, depuneau capitaluri spre păstrare, luau împrumuturi, efectuau transferuri de
fonduri.
Intreaga sa evoluție a fost legată și influențată de evenimentele politice ale vremii care treceau
prin curțile regale. Rețeaua de sucursale și agenții își crease un adevarat serviciu de informații
confidențiale care urmărea atent mișcările pe scena politică și anticipa schimbările de palat sau
operațiunile militare, existând o permanentă preocupare și pentru urmărirea pulsului economic
internațional.