BWBB3033

INTERNATIONAL BANKING

TOPIC 2
SYSTEM AND STRUCTURE

1
 TOPIC OUTLINE

 OECD Banking System

 Emerging Market Banking System
 Structure of International Banking
Operation
 Scope of Foreign Bank Activities

2
 INTRODUCTION
 To make a comparative view of banking system
around the world, banks are divided into two
broad groups;
 Those within the OECD group of countries.
 Those within the emerging markets.
 Although these terms are not exact, they serve
as a rough dividing line between more
developed banking systems than those that are
less mature and open to greater risk (though
OECD banks are certainly NOT exempted from
market volatility & crisis).

3
 Banking Systems

OECD
Emerging
(Organization for
Market
Economic
Cooperation and Countries
Development)

4
 OECD Banking Systems
 Include those with the most developed
economies in the world.
 OECD was established in the postwar era by the
most economically developed countries to
conduct economic research & help provide a
policy framework for economic development
– the club of industrialized nations.
 By 1990s – membership expanded beyond the
major G-7 economies (USA, Japan, Germany,
France, Italy, UK & Canada)
 OECD country – higher level of economic
development & sophisticated banking system.
 http://www.oecd.org/about/membersandpartn
5 ers/
 THE UNITED STATES
Depository Institutions
• Commercial banks
• Saving institutions
•Credit unions

Structure of Contractual
Investment
Intermediaries
Banking & Savings Institutions
Financial
System
• Mutual funds • Insurance
• Investment companies
banks • Pension funds
• Securities firms
• Finance houses

6
 REGULATION OF THE US BANKING
SYSTEM
1. Office of the Comptroller of the Currency
(OCC)
2. Federal Reserve System
3. Federal Deposit Insurance Corporation (FDIC)
4. Other regulatory agencies

7
 OCC
 The OCC charters, regulates and supervises all national
banks.
 The OCC is an independent bureau of the Department
of the Treasury, set in in 1983 to regulate all banks
chartered by the Federal Reserve government.
 The national banks – have the word ‘national’ in their
title or carry abbreviations ‘NA’ or ‘NS&T’. Example: 1st
National Bank and Community National Bank.

8
 OCC
In regulating national banks, the OCC has the power to:
1. Examine the banks.
2. Approve or deny applications for new licenses (or
charters), branches, capital, or other changes in
corporate or banking structure.
3. Take actions against banks that do not comply with
laws and regulations or that otherwise engage in
unsound banking practices.
4. Issues rules and regulations governing bank
investments, lending and other practices.

9
 Federal Reserve System (Central Bank)
 Responsible for regulating and supervising various
types of banks. These include:
1. Bank holding companies, including diversified
financial holding companies formed under the
Gramm-Leach-Bliley Act of 1999 and foreign banks
with US operations.
2. State-chartered banks that are members of the
Federal Reserve System (state member banks).
3. Foreign branches of member banks.
4. Edge Act and agreement corporations, through which
US banking organizations may conduct international
banking activities.
10
http://www.federalreserve.gov/
 Federal Reserve System (Central Bank)
5. US state-licensed branches, agencies and representative
offices of foreign banks; and
6. Non-banking activities of foreign banks.

 Typically, the Federal Reserve is responsible for

regulating the largest and most complex US banks as it
has responsibility for bank and diversified financial
holding companies.
 It also regulates the operations of foreign banks, many
of which are engaged in relatively complicated
investment and corporate banking activity.
11
 Federal Deposit Insurance Corporation
(FDIC)
 The main federal regulator of banks that are chartered
by the states that do not join the Federal Reserve
System.
 It can also supervise the branches and agencies of
foreign banks that take deposits.
 In general, deposit insurance protects the deposit of
retail customers in the event of a bank failure – insured
up to $100,000 per depositor in each bank or thrift.

12
 Other regulatory agencies
 Office of Thrift Supervision (OTS)
 National Credit Union Administration (NCUA)
 Federal Financial Institutions Examination Council
(FFIEC)
 Security Commission (SEC)

13
 The Japanese Financial System

Private deposit- Private non-deposit- Public financial

taking institutions taking institutions institutions

14
 Private deposit-taking institutions
1. City Banks
2. Regional banks
3. Second-tier regional banks
4. Long-term credit banks
5. Trust banks
6. Foreign banks

15
 Private deposit-taking institutions
 City banks are the largest banks in the Japanese banking
system and the main corporate banking service providers in
Japan.
 They are commercial banks that offer the full range of
banking services including retail, corporate and investment
banking services.
 Major commercial banks: Mizuho Bank, Bank of Tokyo-
Mitsubishi, UFJ Bank, Sumitomo Mitsui Banking
Corporation, Resona Bank, Mizuho Corporate Bank, and
Saitama Resona Bank.

16
 Private deposit-taking institutions
 Regional banks – have a much larger geographical
presence than the city banks, and tend to focus more on
retail financial services and lending to small and
medium-sized enterprises (SMEs) in the various region.
 Major regional banks – Bank of Yokohama, Chiba Bank
and Bank of Fukuoka.
 Second-tier regional banks – smaller regional banks
that also focus on retail and SME business.

17
 Private deposit-taking institutions
 Trust banks – perform commercial banking activity
but their main function is asset management for retail
and other customers.
 The trust banks offer a range of investment services as
do the city, regional and many other banks in the
Japanese system.
 Long-term credit banks – provide medium and long
term finance to the corporate sector.

18
 Private deposit-taking institutions
 Co-operative banks – established for the benefit of
SMEs in certain industries such as agriculture and
fisheries and other groups including residents in various
areas.
 The main feature of co-operative banks is that they act as
a strong competitors to regional banks in local banking
markets.
 Foreign banks – Mainly engaged in corporate and
investment banking activity, although some undertake
private banking business.

19
 Private non-deposit-taking institutions
 A wide variety of securities, insurance and other firms.
 Securities firms include major broking and investment
banking type operations that offer securities services to
both the corporate and household sectors.
 Other firms include consumer finance, leasing, money
market dealers and mortgage securities firms.

20
 Public financial institutions
 Post office – has over 24,000 branches nationwide.
 Post office provides a variety tax-exempt savings
products with a maximum limit on how much can be
deposited.
 All savings in the postal system have government
guarantees and are therefore fully protected.
 Development banks – provide financial services to
various industrial sectors and regions.

21
 Banking crisis in Japan
 Excessive lending
 Negative impact of asset price deflation
 Policy failure to contain problem

22
 Regulation of Japanese Banks
Financial Services Agency
 Established in 1998 and does the supervisory and
inspection functions with respect to private-sector
financial institutions.
 Supervise and inspect all private banks in Japan. Public
banks remain supervised by the Bank of Japan.
 The FSA monitors the financial soundness of banks
including the status and performance of their control
systems for business activities.

23
 United Kingdom
Building Societies
• Significant share in resident
Clearing banks
• Dominate UK
mortgage market
• declining due to regulation financial services
• significant role as
international bankers
• have nationwide
Investment banks/ branch networks
merchant bank • activities include
• Lending and medium
4 trade services, corporate
finance, forex,
term finance for exports Major advisory services
to overseas project
finance, investment groups • e.g: Barclays,
management National Westminster
& corporate finance Bank ets

Foreign banking sector

• easy access, open policy

24
  Since late 1980s –
undergone considerable
change (privatizations &
consolidation)
 Universal in operation &
regarded as leaders in the
area of bancassurance.
 Traditionally divided
among savings institutions,
retail banks, and
specialized banks.
 1980s – push to change the
French banking system
resulted in nationalization
of the national banking
sector.
 Major trends – push for
consolidation,implementati
on of new technology and
innovation.
25
France
 Deregulation lead to increasing
lending capacity especially to
a speculative real estate
industry.
 1992-1993 recession – bad
commercial & property loan
and restrictive labor law.
 Changes in banking law &
collective agreements with
trade union - +ve impacts
 Primary bank regulator is
Commission Bancaire
(attached to Banque de
France)
 Two others are CECEI & CRBF.
 Banque de France coordinates
activities of CECEI, CRBF &
Commission Bancaire.
  Three major groups:
Germany  Commercial banks
 Germany’s banking system is  Savings banks & their
universal regional giro institutions
 Universal banks involved in  Cooperative banks & their
taking deposits, providing regional giro institutions
loans and mortgages,
 Other banking institutions
underwriting securities, &
include specialized banks,
investing directly in securities
including equities. building savings banks and
investment funds
 Constitute on of the most
powerful groups in IB based  Around 600 saving banks &
on the strongest Euroland 194 regional banks.
economy.  CB are most actively
 Primary supervisory authorities engaged in IB – The Big
are the federal banking Three
Supervisory Office & the
German central bank.
26
 http://www.thestar.com.my/business/busin
ess-news/2016/03/01/moodys-says-
malaysian-banks-have-buffer-to-face-rising-
credit-risks/

27