BANKING IN

OTHER COUNTRIES
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 Banking in Germany
Home to Universal Banking- haus bank system
Close relationship with corporates with
cross share holding And shared ownership.
Gros banken National banks
Landes banken Regional clearing banks
Sparkassen savings bank linked to regional/ local Govts
Mortgage banks
Post offices
Mutuals
Loan associations Co-operatives
Regulator Ba Fin (2002),prior it was managed by Bundsbank 2

And nine regional supervisors.

 European Central bank

Established in 1ST.JUNE,1998. Aat Frankfurt.

The governing council of the ECB(Currently 18 members
Originally 11) that decides on Changes in
monetary policy.

Objective : Price stability in the Euro zone

And maintaining Currency stability

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 Organizational Structure &
Decision Making Body of the ECB
EXECUTIVE BOARD GOVERNING COUNCIL GENERAL COUNCIL

PRESIDENT PRSIDENT PRESIDENT

VICE PRESIDENT VICE-PRESIDENT VICE -PRESIDENT

4 OTHER MEMBERS FOUR OTHER

OF THE EXECUTIVE MEMBERS OF THE
BOARD EXECUTIVE BOARD

GOVERNERS OF THE GOVERNERS OF THE

EURO AREA EURO AREA
NCBs NCBs 4
 Executive Board

The overall responsibility for day-to day business.

Members appointed by the General Council
Implementation of Monetary policy as defined
by Governing Council
Giving NCBs due instructions for implementation
It arranges Governing Council meetings

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 The Governing Council
The council consists of the 6 members of the executive
board of ECB Plus the Governors of the national
central banks.

Meets Bi-Weekly

Mandate Price stability & Sustainable growth.

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OBJECTIVEs of Governing Council:

1.To adopt guidelines and take the decisions necessary

to ensure the performance of the tasks entrusted
to the Euro Systems.

2. To formulate monetary policy for the Euro area,

including key interest rates and reserves
in the euro system.
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Government action in
Countries

Guarantees for bank liabilities

Recapitalizations
Asset Repurchase Support
( Relief for troubled assets)
Increased deposit insurance coverage

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 European Banking Union

Three pillars:

o A single supervisory mechanism

o A pan-European Resolution
o A Deposit Insurance Scheme.

Disagreements on core principle and technical details.

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 Bank Structure in Japan
Pot-war Japan faced shortage of Capital &
weak financial infrastructure.
A highly fragmented financial system, with strong
regulatory control
Exerted by MOF backed by Bank of Japan.
Domestic & Foreign short &Long term financial transactions
were Kept separate
Interest rates Regulated
Financial firms organized on functional line ,
functional segmentation
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 1981 Banking Law

Banking as either simultaneous provision of

lending and Deposit taking
Or just provision of Payments/ Settlement services.

Banking Law also permits investing in securities-

Bonds & Stocks and are allowed to own equity
In non-financial corporation.

(1948-separation of commercial Banking from investment 11

Banking.)
Keiretsu System

The functional segmentation fitted in with

the Keiretsu system.

A Keiretsu is a group of companies with

cross shareholdings and a shared directorships.

A bank supplies services including Loans to other

Keiretsu members.
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 Bank Regulation
A.MOF was the key Regulator with three MoF Bureaux;
Banking
Securities
International Finance.
Banks were protected from foreign competition
Highly segmented Markets limited domestic competition
Until 1995, Banks were protected by Government safety nets.

B. Bank Of Japan (BOJ) were responsible for Monetary policy,

But was not independent.

Foreign funding was restricted & by 1998, 60% of

Corporate finance was domestic bank funded 13
compared with 10% in USA.
 Japans Big Bang- 1996
Following stock market crash of 1989, financial sector
was in Very bad shape. Majority banks were insolvent.

Big Bang introduced in1996.

Financial sector was restructured putting an end to
functional segmentation.
Restore Financial stability
Financial Supervisory Agency & Financial Reconstruction
Commission created(Two merged in 2001 with
The Financial Services Agency (JFSA)- reporting to PM).
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Bank Of Japan was granted Independence from MoF.
 Basic Principles

FREE- Free market principle

FARE - A transparent system with disclosures
GLOBAL- Tokyo was made an international financial centre
MOF role largely curtailed & The Bank of Japan act (1998)
gave the Banks a large degree of autonomy.

Deposit Insurance up to yen 10 million in 1998 by DIC (1971) in

Response to large bank failures. 15
 Post 2008 crisis in Japan
Japan was not significantly affected by the crisis:

I. Residential mortgages underwritten are prime in nature.

II. Securitization market was relatively underdeveloped.
III. RMBS was only 25% of total RM underwritten
IV. Japan did not experience a real estate bubble
V. Japanese banks exposure to US sub-prime MBS was minimal
VI. Japanese banking being dominated by domestic players
was not Much capital-impaired like in Europe.

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Transition Economies
Refers to the bunch of countries who migrated to
market structure from communist regime.

Centralized Planning=>
Capital was allocated by direct credit to SOEs
Credit Evaluation & Risk Management played no role

No disintermediation:
State Savings bank
State Credit Agencies
Foreign Credit Agencies
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 Emergence of banking sector from planned economies

Macro economic Collapse/ considerable economic uncertainties

SOCBs- state owned Commercial banks.

Banking is nascent and being getting integrated

Quite rapidly with increasing dominance of Foreign banks.

By enhanced COMPETITION with ease of Entry.

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Present status
Entry to EURO zone was the initiative made
Restructuring In banking very fast and Privatization
was the Key.
Still financial market lacks depth.
Regulatory laxity
Lack of competent regulatory staff
Credit dispensed with relationship and people
nearer to power
Accumulation of new bad loan

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 Concern of Foreign banks
Foreign Banks: Home country Vs Host country Regulation
Subject to International shocks.
Poor capitalization of banking sector
Weak Governance
Poor / weak legal protection
(Bankruptcy , collateral laws & weak implementation)
Bank dominated Financial sector

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 Latin American Countries

Banking sector liberized with full Capital Account Convertibility

(during 1990s)
Cross- border M&A
Restructuring was done after the crisis rather than eliminate
excess capacity / improve bank efficiency .
( Like in developed markets).
Process of consolidation is more market driven
Foreign banks asset ownership has increased,
But presence is minimal(Except Mexico & Argentina)
Tendency for Dollarization for stability of currency
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 Financial Market Status

Financial depth limited

Bank based financial sector, Capital market weak
None existent corporate debt market
Intermediation margins are high
Banking Sector concentration has increased
Bank lending low in relation to overall
economic activity.

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Foreign Banks effect
Foreign banks operate with lower spread
than domestic banks.

FB entry is to reduce cost by all banks

rather than marked decline in spread.

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 Emerging Economies
Mostly referred to BRICS & ASEAN countries at different stages
Of development.
Financial Repression-
Attempts by Govt. to control financial Market.
Control over interest rate
High Reserve requirement
Directed lending
Interference with day today bank management
Restriction on bank entry
Control External borrowing & lending
Trend towards less Govt ownership and Control,
More towards foreign participation. 24
Concentration of Banking business with Govt owned banks.
 ISLAMIC BANKING
Based on NON-INTEREST principles.
Islamic Shariah Law prohibits the payment of
RIBA or interest.
Banks that wish to offer Islamic banking services
have to develop products Or services
that do not charge or pay interest.
Solution is basically to provide profit sharing products,
where the depositors Share the risk of lending by the bank.
Depositors earn a Return and the borrowers pay
the loan based on the Profits generated from
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the project on which the loan is lent
 MUSHARAKAH
(Profit Sharing Arrangement)
A PROFIT SHARING CONTRACT BETWEEN BANK AND
THE BORROWER.
The basis rules of this contract:

The profit of the enterprise can be distributed by mutual consent.

Not permissible to fix a lump-sum payment.
In case of loss, shared as proportion of capital contribution.
As a general rule all contribute to capital and management.
In case, no management Participation, Share on the basis of capital.
The liability of all partners are unlimited.
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Sustainable Banking

Sustainable Banking can be defined as;

A decision by Banks to provide products and Services
only to Customers, who take in to account
the Environmental and Social impacts of their activities.

(Bouma et al,2001)

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International finance orporation,2007.
The definition of Sustainability as applied to
financial institutions
Should include four aspects to good Business performance:

The Financial sustainability

The Economic Sustainability

Environmental Sustainability

Social Sustainability 28
 The Financial sustainability

of the financial Institutions & Clients so that

they can continue to make a long-term contribution to
Development.

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 The Economic Sustainability

of the projects and companies the FI finances

through their contribution to host economies.

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 Environmental Sustainability

through the preservation of the natural resources.

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 Social Sustainability through

o Improved living Standards,

o Poverty Reductions,
o Concern for the welfare of the
communities
o And respect for the key Human rights.

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 Positive & Negative Investment
Criteria
UK- based Investment Management Association-(IMA)
provides an effective guide to ethical investing and
clarifies that ethical funds have different objectives:

Some people want to invest in those companies

which contributes positively to GREEN & ETHICAL issues.

Some prefer to avoid companies that may carry out

activities that diverge from their Ethical principles.
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 Negative Criteria
Activities that FUNDS may seek to avoid:
Animal Testing Testing of Cosmetics finished
products on Animals
Genetic Engineering Manipulation of Nature
High Environment Impact Health & Safety breaches
Human Rights Activities of Certain Companies
Nuclear Power Threat of Radioactive Contamination
Pesticides Reduced fertility, effects on
Flora/fauna
Environmental Pollution Impact on Health
Third World Concerns Profit before ethics in third world 34
operation of MNCs
Positive Criteria
Activity that the fund actively chooses to invest in:
Community Involvement
Corporate Governance
Disclosure
Environmental
Equal opportunities
Positive products & Services-
( Environmental Technology ,Waste Disposal,
Public Transport , Safety & protection,
Health care) 35

(Source: Investment Management Association ,UK, 2011)

The financial sector is a critical channel through which
price signals,
Regulation,
and civil society pressure
can direct Financial capital to More or less sustainable
Economic activity.

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thanks
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