FN1024 Summary of Chapter 3 - Comparative Financial Systems

PRINCIPLES OF BANKING
AND FINANCE
- Chapter 3: Comparative financial systems -

Note: We suggest first studying this chapter from the Subject
Guide. Notes for ch3 are based on the essential readings.




Good luck studying!


short manual:
- includes a graph
- includes a schema/diagram
- includes an introduction
- includes additional information that
is not in the main textbook updated: 25/03/2018

, CONTENTS
CHAPTER 5: BANKING INDUSTRY - STRUCTURE AND COMPETITION
- Mishkin chapter 19 -
5.1. Historical development ……………………………………………………………….. 1
5.2. Financial innovation
5.2.1. Introduction ……………………………………………………………………. 3
5.2.2. Responses to changes in demand conditions …………………… 4
5.2.3. Responses to changes in supply conditions …………………….. 5
5.2.4. Regulation avoidance ……………………………………………………… 8
5.2.5. Trends …………………………………………………………………………….. 9
5.3. Structure of the US commercial banking industry ……………………….. 10
5.4. Bank consolidation ……………………………………………………………………… 11
5.5. The effect of decrease in interstate banking restrictions …………….. 13
5.6. Separation of the banking and other financial service industries ….. 14
5.7. Thrift industry ……………………………………………………………………………… 16
5.8. International banking ………………………………………………………………….. 17

CHAPTER 6: COMPARING FINANCIAL SYSTEMS
- Comparing Financial Systems chapter 1 -
6.1. General opinion and overview of the financial systems ………………. 19
6.2. Current trend of financial systems ………………………………………………. 20
6.3. Market-based vs. bank-based financial system ……………………………. 21

CHAPTER 7: HISTORICAL DEVELOPMENT OF FINANCIAL SYSTEMS
- Comparing Financial Systems chapter 2 -
7.1. Early financial systems …………………………………………………………………. 22
7.2. Market-oriented financial systems
7.2.1. United Kingdom ……………………………………………………………… 24
7.2.2. United States ………………………………………………………………….. 25
7.3. Bank-oriented financial systems
7.3.1. France …………………………………………………………………………….. 26
7.3.2. Germany ………………………………………………………………………… 27
7.3.3. Continental Europe …………………………………………………………. 28

, 5.1. Historical development

DIFFERENCE BETWEEN US AND OTHERS
 individually: commercial banks are similar in US to those in the world
 as a whole: in most countries there’s certain number of large commercial banks - in USA
there’s over 6200 of them!

1782  BANK OF NORTH AMERICA CHARTERED
 caused a controversy - WHO SHOULD CHARTER BANKS: federal gov or states?
 THOUGHTS:
o FEDERALISTS (Alexander Hamilton)
 federal charting
 bank centralization
 1791  Bank of US chartered (mix of private and central bank)
o AGRICULTURAL AND OTHER INTERESTS
 state charting
 bank decentralization
 1811  Bank of US lapsed

1816  SECOND BANK OF US CHARTERED
 REASONS:
o abuses by state banks
o CB needed to raise funds for war
 1832  Second Bank of US lapsed (by Andrew Jackson)

1863  NATIONAL BANK ACT
 conditions (1832 - 1863):
o no national currency (banks obtained funds by issuing banknotes)
 BANKNOTE  currency circulated by the banks that could be redeemed for gold
o there were lax regulations in many states
 this caused fraud and insufficient capital which caused failure of banks
 1863  National Bank Act
o purpose: create NATIONAL BANKS instead of STATE BANKS (also caused by Civil War)
 supervised by Office of the Comptroller of the Currency
 dry up funds for state banks by imposing a tax on banknotes
 state banks escaped through deposits so now we have dual banking system