Banking and Finance world.

The U.S. banking system

admin — Fri, 03 Feb 2012 13:59:13 +0000

Banking sectors in the U.S. occurs after declaring independence. The U.S. banking system generally includes a central issue Bank, commercial banks and special credit institutions. On 23/12/1913, the U.S. Congress, as the supreme legislative body, adopted the Federal Reserve System, also known as Federal reserve act. It creates a central bank of issue of the U.S.. The activity of the Federal Reserve System was initially designed exclusively for the assistance of other banks in times of economic disturbances and to preserves public confidence in the banking system as a whole. In organisation structure of the Federal Reserve System are highlight the following key points:

Board of Governors Federal Reserve System
Twelve Federal Reserve Banks
Federal Committee on the open money market
Federal Advisory Council

Board of Governors is composed of seven permanent members appointed by the President of the United States. Its headquarters in Washington. Each of its members are elected for seven years and is entitled to at least 2 consecutive terms. It is relatively independent and have the necessary powers to establish minimum required reserves of commercial banks with the central bank to conduct transactions with securities on the open money market and carry out their discount policy. The activities of the Board of Governors shall be assisted by a considerable number of economic and legal assistants.
Federal Reserve Bank operating under the control of the Board of Governors and putting into practice the guidelines of its monetary and credit policy in their respective counties. All national banks in the U.S. are required to join the Federal Reserve System, and state banks may join if desired. The system now includes about 6,000 commercial banks, which account for more than 70% of deposits. The capital of the 12 reserve banks formed mainly by contributions from banks, members of the system. Against paid-in capital received last devidenti certain of its shares. Federal Reserve Bank do not aim to maximize profits and to implement regulation of the credit system as a whole. Therefore, more than 90% of income paid to the budget.The activity of the Federal Reserve System is particularly important policy of the open money market. Not accidentally as a separate unit in 1953 it was organized Federal Committee oktritiya money market. It is composed of 12 members – 7-something members of the Board of Governors and 5 presidents of the team from various Federal Reserve banks. Federal Reserve System is not subject to government and is independent of the executive. It is a working body of the U.S. Congress. As such Tsentralnta Bank each year submit to it a report on its activities. U.S. commercial banks accept deposits, grant loans and mainly serve to the payments turnover. Some U.S. banks are known as one of the largest in the world, but most U.S. banks are relatively small. The most common are banks without branches. Legislation severely limits the ability to open bank branches outside the state concerned, and in some states are generally prohibited the opening of bank branches. That is why the U.S. operate numerous but not particularly large banks. Half of them have assets of between 10 and 50 million dollars. The 10 largest U.S. banks account for less than 30% of bank assets.Another feature of the U.S. banking system is razgranizachaneto of commercial banks into two groups – national and state banks. Banks called national are licensed to carry on banking business by the federal government and state are banks that are licensed by the authorities of different states. Characteristic for the U.S. banking system is strong development of correspondent relations between commercial banks. Small banks often establish correspondent relationships with major banks as direct part of their deposits in them.An important point of the U.S. banking system is the creation of FDIC deposit insurance corporation in 1934. FDIC insure deposits initially envisaged at insurance of all bank deposits up to $ 2,500, but over time the amount has increased steadily. The Law on deregulation of depository institutions and control of money circulation in 1980 the maximum amount of deposits subject to insurance FKZD grew from 40 000 to 100 000 dollars. All banks that are members of the Federal Reserve System are required to insure their deposits, and banks no – members can make it optional.Besides commercial banks in the U.S. banking system operate multiple credit institutes. They include credit and savings institutions, investment trusts, insurance companies, pension funds and others. Compared with the commercial banks, they are experiencing greater specialization. For example, the activity of credit and savings institutions were mainly focused on granting consumer loans as predominate medium and long term loans against real estate collateral, house lending and others. In recent years, there has been narrowing the gap between commercial banks, savings and loan institutions. Investment trusts specialized in long-term investment in industry, transport, construction and others. They raised their resources by issuing stock and bond loans.

Banking system of England

admin — Thu, 02 Feb 2012 21:24:20 +0000

Bank of England is the oldest in the world. It was founded in 1694 as a joint venture by a group of private bankers and traders. Was created by the acute need to English country funds for its war with France. Bank of England has two departments – emission and banking. The role of the Department of emission is confined mainly to the issue of banknotes and their security. Banknotes put it is transmitted to the banking department.

Bank of England performs all the usual central bank functions as:
Made monetary emission influence of money market instruments through its monetary and credit policy, plays the role of credit of last resort to all other banks, exercise control over the country’s gold reserves. Basic unit in the banking system of England are commercial banks. These include:

- Deposit banks – called clearing banks. They participate in, etc. London Chamber of clearing and payment made within a particular clearing agreement. Clearing banks balance their mutual cross-claims and obligations and factual relations governing the payment only in balance. Their main activities are taking deposits and lending, which are mainly short-term nature. They carry and credit much of British exports.
- acceptance facilities houses occurred in 18 century, when London became the largest financial and industrial center. Acceptance facilities houses were originally commercial companies, which know well the solvency of their counterparties and acquirers their trade policies, i.e they gave their consent to be paid on them of the day of maturity. Due to the wide international popularity and the reputation of British companies policies, accepted of them were benefited particularly with high confidence.
- acceptance facilities houses have other activities to carried out:
They perform consulting services operating in the foreign exchange and gold markets, are involved in buying and disposing of securities of various corporations, safekeeping and administration of securities to their clients.
- The discount houses are typical for the banking system of England. Their main activity is the discounting of bills. They are kind of intermediary between the Bank of England and other commercial banks. In need of resources banks may not turn for credit to the Central Bank, and to the discount houses, of which a deduction against their policyholders receive the necessary amount.
The financial houses provide consumer credit, leasing out and other operations.
- To commercial banks can refer and numerous foreign banks opened their branches in London. Within the group of special credit institutions include: investment trusts, savings banks, insurance companies and pensionnte funds.

Almost all about the money as a product

admin — Thu, 02 Feb 2012 20:43:24 +0000

Money – they are a specific product, which is measured by the value of all other goods and services, and is carried settlement of obligations used as a universal equivalent, and also by their value is retained for future periods. Electronic money – they are for preservation of prepaid monetary value on a technical device that allows its widespread use for making purchases or financial transactions without the need relation to bank accounts.

Money functions:
medium of exchange – everybody is trying to get money and then use them to buy the necessary goods.
a store of value.
means of payment – all debts are expressed in money and be discharged through them. Money is used as an economic measure, the exchange agent, means of payment and store of value.
differentiated to 3 more functions – social function of money, money as a tool for deferred payment, money as a tool for macroeconomic analysis.
Active money – this money involved in the transactions with goods and services. They participate directly in shaping the national income. They are also called money to secure deals and transactions.
Passive money – they serve to facilitate financial transactions. They pass from hand to hand and do not lead directly to accumulation of national income. They are cash transactions,which are not participating in deals and transactions.
Commodity money serve as a unit and are defined as goods, which is expressed by the price of other commodities. They allow to compare different quantities of single products or order to evaluate the global quantities of goods. Through the unit is made cost savings for information and savings plans and decisions.
Commodity money – first for money were used goods which are rare, expensive and unique, then for the money were used goods which are widespread.
Quasi money – they are a set of assets in the form of actively saving – term deposits in banks, deposits in savings banks, treasury bills and other.
Money multiplier – by determining factors of the money supply depending on the monetary base, at the base of which stand cash and deposits are make it possible to determine the money multiplier and measuring its value. It gives information about the quantity of money in circulation.
Speculative search for money – it occurs when the are expected changes in interest level. The expectation of rising interest rate% and drop of the rate of securities leads to speculative search of money passive, and the expectation of lower interest% and increase the rate securities causes a fall in speculative demand for cash.
Money supply – it is associated with detection needs of asking for money and the impacts to their entry money into the economy.
Interest – it is defined as the amount of money which the debtor pays of its lender for use in loan funds. It is seen as a reward for parting with liquidity. It is inextricably linked to the loan.

Banking system of Germany

admin — Fri, 03 Feb 2012 13:07:46 +0000

According to the taxonomy used by the Bundesbank, banking in Germany can be divided as follows:

Commercial banks, called “credit banks” occupy a leading position in the banking system of Germany. Most of them are universal and perform a wide range of activities. Most of their operations are short. Commercial banks play a significant role in lending to foreign trade. In Germany, stand three large commercial banks – Deutsche Bank, Dresdner Bank and Commerzbank. This is one of the largest banks in the world with branches all over the planet. To commercial banks can refer and foreign banks that have branches in major financial centers of Germany. To the special credit institutions include: mortgage banks, credit cooperatives, savings banks, investment companies, banks for consumer credit, insurance companies and others.

Mortgage loans in Germany is highly developed and it involved both public and private banks. Mortgage banks provide long-term loans against real estate collateral and obtain their resources mainly from the issuance of securities.Credit cooperatives provide loans to small and medium-sized industrial and commercial companies, craftsmen and farmers. They have significant assets and developed a wide network outpost.Savings banks are engaged in attracting savings of the population. A new phenomenon in the banking system in Germany are investment companies that invest their capital in shares of industrial and other companies.Banks are provided consumer credit loans, as well as immediate users and commercial companies, to facilitate the realization of their goods.
In recent years the banking system in Germany has some changes caused by the the unification of previously existing Western and Eastern Germany. The main direction of these changes is to adapt the banking system of GDR to these of West Germany.

The nature of e-banking

admin — Sat, 28 Jan 2012 20:46:07 +0000

One of the trends in banking is the transition from traditional to electronic banking. The development of electronic banking means dramatically change of the banks participation in business and generates new development opportunities for the banking system.

Electronic banking is not any additional field of banking, and the new way for its implementation is by means of electronic equipment and electronic networks in real time.
The idea for the creation of electronic banks has appeared in USA coincidence. One reason is the existing limit of detection by banks to their subsidiaries in other States. Specific U.S. high labor migration, which is why banks and their customers suffer certain losses. Banks lose their customers and clients lose all those privileges which they acquired in banks as regular customers. Virtual Bank enables clients to manage their accounts in real time from any state bank and saving costs for its services. For this reason, virtual banks often offer their customers a higher interest rate on deposits than conventional banks. That is why many of our clients translate their deposits from traditional virtual banks. Following the accumulation of specific experience in the establishment and operation of virtual banks in the market of banking services occurs very specific “internal” competition between traditional bank itself and its virtual branch. Subsidiaries virtual branch began to attract more clients from the parent bank, which in turn prompted banks to move towards the provision of new high-tech banking services, including in real time. The only “offices” virtual banks have their Web sites.

Different types of communication began to be used by the banks back in the 80s of last century. In 1983 was first implemented remote banking system Homelink through the joint participation of the Bank of Scotland and the telecommunications company British Telecom and tested by the construction company Nottingham Building Society1. In those years the optimistic forecasts for the implementation of the Internet and special electronic banking networks seem unreal. Has already started to create systems for remote banking (remote banking), receiving the name Banking home (home-banking). Remote banking system that is based entirely on electronic media and networks, is actually the e-banking, which covers only the part of banking activity that is related to the work of the bank’s clients (ie This is a virtual system “Bank – Client”) and includes electronic processing of internal documents and e-services for interbank payments. There are currently two models of distributed electronic banking:

a) fully virtual banks, operating in a global, local or private electronic network and not having a ‘physical’ offices;
b) traditional banks that are among the traditional and electronic banking services, called. channel banks.

The banking system has only multichannel commercial banks. Studies show that 91% of all commercial banks have a Web site, and 77% – provide customers with electronic banking services. Competition between these two models of electronic banking has a decisive influence on the development of the banking sector as a whole. So far, traditional banks earn in the competitive struggle for a strong starting positions:

a) The experience of working with clients;
b) created over many years of prestige;
c) reliable ratings of these banks in the banking system.

Among the economic consequences for the banking system in the development of electronic banking are the most basic:
1) intensification of competition in the banking sector;
2) shift of the entire banking system to the practical implementation of the concept of multi-channel (integrated) model of the bank;
3) the possibility of diversification of banking operations;
4) banks to attract the most promising customers who get the opportunity to manage their finances and invest most profitably in real time;
5) increasing the concentration of capital in the banking sector;
6) providing real time to the globalization of banking;
7) international legalization of electronic banking;
The consolidation of the banking sector to non-contractors, who began to provide financial services in the field of electronic payment systems.

Smart cards advantages

admin — Sat, 28 Jan 2012 21:03:14 +0000

Comparison between traditional and electronic banking allows to be derived the following eight key indicators:
The first indicator – a place for banking. The performance of banking operations and customer support in e-banking is not in the banking office through direct contact with live staff of the bank (as in traditional banking), but immediately established or in the client resident (house, shop, street , etc.).
The second indicator – access to banking. Electronic banking enables bank transactions to be carried out practically any time of day and all the days of the week, not just when the bank is open during working hours of its employees (as in traditional banking).
The third indicator – time banking. In Electronic Banking operations are carried out and confirmed practically instantaneously in online banking unlike conventional banking operations. The latter is performed offline and the client is obliged to wait indefinitely depending on the complexity of surgery and the presence of other bank customers who require performance by the staff of the same or another transaction.
The fourth indicator – the scope of banking. Range of banking operations, the customer can meet online, on the one hand, is limited by the parameters of the electronic media and the possibilities inherent in the software of electronic networks, unlike conventional banking, in which the client has access to all banking operations. On the other hand, these same tools and electronic networks provide electronic banking opportunity for diversification of banking operations. It is important to emphasize that e-banking can provide the implementation of such operations are not at all accessible to customers with traditional banking from the office. It is that online banking customers of the banks have the opportunity to manage in their finances online, and in accordance with the changed situation in the financial markets react instantaneously to these changes and thus to avoid losses or vice versa – do not miss the moment to gain more profit from their investments in deposits, securities or profitable to buy (sell) a particular currency.
The fifth indicator – the cost of banking. To provide banking services in online banking to make investments for the purchase of the electronic and software products in traditional banking would not do. The same applies to customers in the use of this service. Moreover, calls for a comparison of current costs in the performance of online and offline banking operations from both the banks and from customers.
The sixth indicator – security of banking. One factor that becomes important in particular for electronic banking, is the danger of a breach of security of electronic banking operations and their protection from unauthorized external influences. For example, in 2000 announced release of the possibility of unauthorized access to bank accounts onlaynovite using known software company Fiserv AIS (Fiserv Advanced Insurance Solutions – Insurance Software & Technology). Shock in financial circles was very great, as worldwide using the software of Fiserv AIS managed 200 million online bank accounts worth more than $ 15 billion here actually get to the specific risk of computer crime. Furthermore, using the electronic online transactions much easier can be washed so-called “dirty” money, which is conditioned by the absence of direct contact “face” between bank employees and customers.
The seventh indicator – the legality of banking. Electronic banking opens the way to true globalization of banking. In on-lain banking operations is typical discrepancy between the location of the bank and its customers stay because they can be found not only in different countries, but even in different parts of the world. In this situation it is imperative solving a real-life problem for the international legalization of electronic banking. There is a need for coordination of the law of electronic banking at international level – a problem that stands so strongly on traditional banking. One objective is to avoid the creation of zones of impunity for criminal acts in the field of banking.
The eighth indicator – payment system of banking. Electronic banking is based entirely on electronic payment systems and electronic money. It represents the development of systems for cashless payments in traditional banking. It should be noted that in developed countries cash payments for the bulk of the circulation. Electronic banking is based entirely on electronic media and networks, which in some cases generate special electronic money.

During the 5000 study surveyed major global companies in the financial services sector, high technology, automotive and energy industries, including corporations, Produces products for the consumer market and healthcare services located in Europe (London and Frankfurt), America (New York) and Asia (Hong Kong). About 93% of the managers of these companies have responded positively to questions about whether their companies will use and put money in Internet Banking. For details of this study in Western Europe, 45% of all customers of banks, during the period from 2000 to 2002 (some 50 million customers) have used the services of Internet Banking (most are in the UK – 76 1% and Germany – 39%). According to Datamonitor forecasts a year (i.e. at the end of 2007) nearly 70% of potential customers in Western Europe will benefit from these services.

Why smart cards ?

Lower-costs – because the authorization is in offline mode, telecommunication costs include retailers and acceptance of electronic payments of small value becomes profitable for them.Data stored on them are protected by complex mechanisms.
Speed - protected perform off-line transactions in fractions of seconds, while on-line takes several seconds. There are also smart cards based on RFID technology so that the card simply to get close to the device, rather than be placed in it, which further increases speed.
Larger capacity – they can store larger amounts of data. This determines the wider application – debit / credit ticket for public transport, phone cards, etc.
Flexibility – used not only for the execution of transactions from ATM and POS terminals
but also through the Internet, public pay telephones, pay TV channels, mobile phones.
Regarding perspectives for development namely Internet Banking data are indicative of a survey conducted in 2002 by company Datamonitor1.

The important distinction here is that it excludes “paper” document, including and shape and signing contracts.
Six step process in the creation and maintenance of financial products
Pricing, valuation, trading and hedging of structured products
1. Determination of investor demand.
Structured products are offered by various types of organization and investment firms and companies. Although investment companies raised free cash capital from individual investors, the investment portfolios are managed by investment firms, which are awarded and securitie transactions primarily in the secondary capital market. This does not exclude investment firms, to execute transactions on the primary issue of securities at the primary capital market.
Except for the securities transactions on organized stock market, investment mediation also applies to the sale of whole companies, independent parts, packages of shares in the OTC market. In this case the functions of investment firms can be implemented by banks, insurance companies, consulting firms, brokerage houses, marketing agencies and others, as entities carrying out intermediation activities with investments in general, is not necessarily made exclusively this activity. On the contrary, experience shows, that they carry out other basic activities (banking, insurance, consulting), but at the same time and investment intermediary activities.
Obviously, the above mentioned entities should know the investment market, investors’ interests, characteristics and attractiveness of the investment itself, the way of market research, how to negotiate, how the pricing of investment schemes and financial guarantees of performance of transactions and more.
In this respect it is essential the selected firm to be a partner and to act on behalf of his principal within the delegated rights.
At the same time he is obliged to provide truthful and accurate information to the prospective investors about the condition and prospects of investment for the economic benefit that will pay its future owners, and the risks that will take them.
Pricing, valuation, trading, hedging and risk management.
Financial institutions use the money market in order to better manage risk and liquidity. Typically issue securities, when institutions suffer from shortage and require cash flow, to cover short-term needs. Cash mutual funds (money mutual funds) are institutional investors who keep their portfolio in short-term financial instruments. Investment pools (short-term investment pools) are associations of investment funds, banks and public institutions. Municipal investment funds are also one of the leading players in the money market. The interest rate varies between countries and the difference in interest rates is the basis for the inflow and outflow of capital. Money markets in terms of financial globalization are integrated and many cc use to manage currency risk and prevent depreciation of the currency in which securities are denominated.
The risk of financial instruments, excluding treasury bills, is the possibility of issuer insolvency or business failure and not fulfill its obligation to the investor.
The acquisition of cash resources within the financial markets can be done by issuing debt instrument or its sale on the secondary market.
Debt securities express transferable claims predetermined or determinable income against the issuer of the securities arising from a loan granted to him in cash or other property rights.
In essence, the bonds are securities with fixed income. In countries with developed capital markets bonds as a means of financing are popular. Their popularity is due to: 1) the price limitation and long (additional profit generated by the purchase and sale on the secondary market), 2) liquid and low risk tools, 3) flexibility of the company’s capital structure in case of an obligation to repurchase; 4) relatively low maintenance costs of the bonds.
Trading of a structured products on capital markets is done through brokers and investment dealers. The use of interest rate swaps is profitable for the issuer, because they are improving knowledge and facilitate the coverage of debt obligations. Trading of bonds is carried out electronically.It is remote.

Bank debit cards

admin — Thu, 02 Feb 2012 20:36:16 +0000

Bank card is an electronic payment instrument and is a plastic card on which information is stored electronically and used repeatedly to identify the cardholder, remote access to bank accounts and to perform the following operations:

- withdraw cash through ATMs;
- payment of goods and services and obtaining – cash through POS terminals;
- payment of goods and services through virtual POS terminals;
- transfer between accounts through ATMs;
- payment services through ATMs;
- reference and other payment operations.

Bank card can be issued only to an individual (cardholder). Bank card can be used only by the cardholder. Bank card is issued on a contract basis for a bank card, in which must be specified rights, obligations and responsibilities of the issuing bank and cardholder. Bank card is the property of the publisher. Issuers of bank cards in our country are all banks that have issued to them by the Bulgarian National Bank banking license issuance and management of bank cards.
The card can be:

Debit – allowing authorized holder to access funds in the amount of available funds in the bank account or to a certain limit agreed between the issuer and the authorized holder;
Credit – allowing authorized holder to access funds under pre-agreed between the authorized loan holder and publisher.

Bank card is issued for a fixed period. The name of the authorized holder, card number and date of expiry of the validity of the card is placed on the face. Card number shall include the identification number of the publisher. Numbering, design, physical and technical specifications of bank cards are determined in accordance with guidelines issued by the BNB. Devices through which payments are made, have a kind of brand card products that are accepted by the device. Banks provide free access to all cardholders to devices that these banks and financial service located in accessible locations.