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The Banking System


06.01.2019, 10:56
The modern world system of the central bank was created relative recently.Until to middle 18 century commercial and central banks did not differ. With the development of credit system there is a process of centralization banknote issues in some of commercial banks. Thus the monopoly rights on issues of banknotes gradually fixed only to one bank. Such bank in differen time called differently. First - national , and then central , that answered its managing role in credit system of the certain country.

The first central bank was created in Sweden (Rixbank) in1668.Later ,1694 was founded the Bank of England. But on that time central banks had not rights on banknotes issues .Their functions differ from functions of modern central banks. For example , the main role of the Bank of England was financing the trade and industry ,the first role of the Bank of Holland - domestic and international trade .The central banks as a modern types appeared only in 19 century. Now , in many countries of the world has a central bank : the Federal Reserve System in the USA , the Bank of Japan,etc. But all of them differ from each other , because there are political and financial differs between the countries.

In 20 century allocation in banking system central level in many advanced countries of the world is not only natural phenomenon , but also an obligatory condition of achievement of high economic development.

The legal status of central banks , their status in the advanced countries is determined by the legislation.In many countries the basic act which regulates activity of the centralbanks , the act of the supreme validity is the law. In law about the banks their structure, the basic tasks , function and the competence, the order of relations with bodies of legislative and executive authority , the state controls is determined.In legal acts which determine the status of central banks , their dutiesin spheres of management of monetary circulation, currency transaction , functioning of credit system will be worn out.

On a pattern of ownership central banks can be state or join-stock. For example , in France, UK, German , Spain the capital completely belongs to the state. In some countries the state owns a part of the capital (Belgium , Japan) .In the USA shareholders of the central bank (Federal reserves banks) are only commercial banks. Therefor , in any case the state plays a leading role in formation of controls of central bank.

There are two models of mutual relation between cental banks and ixisting branches of authority. The first - central bank is the agent of the government and a conductor of its credit policy. The second - central bank is independent of the government that provides independence in realization of a monetary and credit policy without influence from the side of governmental bodies. But in practice these models in "a pure kind " do not function.In most countries there are intermediate models.

The legislation only 5 countries - USA , Germany , Sweden , Holland , Suice - provides submission of central banks to the government. In most countries of the world the central banks submit to exchecuer or to the ministry of finance.

In legislation of UK, France, Italy, Japan and some others countries is provided, that ministry of finance has the right to give out the instruction to the central banks. But such cases are very rare.

In the countries where legislation acts submission of central banks directly to parlaments is stipulared , with the help of the certain procedures are possible acceptance of decisions with wich regulatory authorities undertake to promote central banks in the decision of the certain problems , in fulfilment of a monetary and credit policy. Except for it , the legislation of some counties provides the reporting central banks before parlaments. For example , Federal Reserve System gives to the Congress of USA the report about the activity two times per one year . Central bank of Germany and Japan give report in the parlament annually.

Central banks in the majorityof the countries of the world constantly are supported support of the state . Central banks are capable to register all payment operations , qualitatively to carry out tranxfer mutual duties of bank. Central bank makes macroeconomic supervision , the control of functioning of all bank system , and also of activity of each bank separately.

The role of central bank is different countries is not identical. In particular , the big value plays a skill level of participants of payment attitudes , wich will carry out depository operations. There are differences both in legal base and in approaches of the different states to fulfilment by subjects of the market financial activity.

What about federal Reserve System of the USA you can read in the next chapter.

I. The Banking System of the United State of America

1) Central Banking

The banking system of the United States of America consists of the Federal Reserve System,commercial banks,savings and loans associatios,mutual savings banks,and credit unions.

The Federal Reserve System (the Fed) is the central bank of the United States.It was established in 1913 to promote a healthy economic climate that banks in financial difficulties by providing limited crsdit facilities. A central bank is often thought of a bankers' bank,overseeing the banking system.The central bank also is usually the goverment 's bank and conducts monetary policy in major developed countries .The Fed has a number of responsibilities,many involving the commercial banking system directly.These include regulating a major portion of the system and leading funds as required to all commercial banks and many other depository financial intermediaries.The Fed 's influense on commercial banking in particular and on the whole financial system.The Federal Reserve System also provides federal insurance to commercial bank-members of insurance scheme.If these banks go bankrupt,their depositors will receive a compensation of up to 100,000 dollars for each account they had.

Commercial banks can be thought of as the hub of the financial system.They are difined by federal statutes as an entity that accept demand deposits and makes commercial loans.They account more than 60 percent of all deposits in the United States.Commercial banks' lending activity is also substantial.For example,the banks had almost $650 billion in commercial and industrial loans and $756 billion in mortgage loans outstanding at the end of 1989.They were by far the lagest lenders to bussiness and the second largest mortgage lenders after savings institutions.In recent years , they have surpassed savings institutions in mortgage lending in many periods.

2) Commercial Banking and the Development of the Federal Reserve System

Commercial banks in the United States include money centres,regional,local and foreign banks.Their operations are generally similar to those of banks in other countries.

One of the specific characteristics of American banks is that they cannot own securities for their own account exept in the case of foreclosure on a defaulted loan.Another particular requirement to the activities of commercial banks is that they must distinguish their commercial activities from their trust activities,i.e. information obtained by one bank department cannot be transmitted to the another one.

When funds deposited into a demand deposit or checkable deposit account at a commercial bank,they are immediately available on demand.Checks can be written on the account and are honored by the bank on presentation.However,the bank does not hold the funds on deposit until the check is written.Banks are business and the goal of their operations is to make a profit.Therefore, they must make use of the funds deposited with them , primarily by making loans and purchasing securities.How funds on deposit can be used for lending and at the same time be available on demand requires an understanding of fractional reserv banking.
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