国际金融学英文课件：ch06 International Banking

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1、International BankingCentral Banks and Supranational Financial Policymaking InstitutionsINTERNATIONAL MONETARY AND FINANCIAL ECONOMICSThird EditionJoseph P. DanielsDavid D. VanHooseCopyright South-Western, a division of Thomson Learning. All rights reserved.The worlds banking markets are increasingl

2、y interconnected.Bank customers are becoming more sophisticated to reduce borrowing costs.National banking regulators and central banks must pay close attention to global interdependence of words financial institutions.2This chapter focuses on international dimensions of financial intermediation, th

3、e growing interconnectedness of banking markets, payment systems and regulations, the evaluation of the role of central banks in the worlds financial system.3Section 1: Financial Intermediation Across National BoundariesThe financing of capital investment projects may be direct or indirect.Direct Fi

4、nance: When savers allocate some of their wealth to the purchase of a bond issued by a company, they effectively make a direct loan to the company. Indirect Finance: When a banking firm pools together the funds of deposit holders and purchases a bond issued by a company, savers are indirectly lendin

5、g funds to the company.I Indirect Finance Through Financial IntermediationFinancial intermediaries facilitate indirect financing by issuing their own financial instruments and using the funds they obtain from savers to finance capital investments of businesses.Why Financial Intermediaries exist?Save

6、rs may desire to direct funds through a financial firm because of asymmetric information.Asymmetric Information: Possession of information by one party in a financial transaction that is not available to the other party.Asymmetric information can lead to several types of problems in financial market

7、s such as:Adverse Selection: The potential for those who borrow funds to undertake unworthy, high-risk investment projects.Moral Hazard: The possibility that a borrower might engage in more risky behavior after receiving funds from a lender.Economies of Scale: Another important reason for financial

8、intermediaries to exists is that, by pooling the funds of savers, and increasing the scale of the total amount of savings managed by a single entity, they may reduce the average costs of managing savings.Financial intermediaries specialize in collecting information and analyzing the risk of potentia

9、l capital investment projects. Hence, they may help reduce asymmetric information problems.II Financial Intermediation across National BoundariesInternational Financial Diversification: Holding financial instruments in various countries to spread portfolio risks.World Index Fund: A portfolio of glob

10、ally issued financial instruments with yields that historically have moved in offsetting directions.International financial intermediation: the indirect finance of capital investment across national borders by financial intermediaries such as banks, pension fund companies, or investment companiesThe

11、 reasons for international financial intermediation are the same as the justifications for the existence of domestic intermediation.Global banking: banks located in various countries take part in the process of international financial intermediation by using some of the funds of deposit holders arou

12、nd the globe to finance loans to individuals and companies based in other nations.Consequently, very few nations investment projects are purely domestically financed. Most of the largest banking institutions, called megabanks, are located in Japan and Europe. Economies of scale can explain the exist

13、ence of megabanks whose operations span the globe. Some economists believe that a particular form of economies of scale may explain the existence of megabanks: economies of scale in information processing. 12Section 2: Banking Around the GlobeBusiness of banking varies from nation to nation.Each cou

14、ntry has its own unique banking history, and this fact alone accounts for distinctive features of national banking system. Banks role; bank market structure; legal environment; I Bank versus Market FinanceOne dimension along which banking systems differ concerns the extent to which banks are the pre

15、dominant means by which firms finance their working capital needs. In the U.K., for example, firms raise nearly 70 percent of their funds through bank loans, while U.S. firms raise fewer than 30 percent of their funds through bank loans.II Bank Market StructureBank market structure, or the organizat

16、ion of loan and deposit markets in which banks compete, is another dimension along which banking systems differ.Potential rivalry, or banking competition, measured by portion of total deposits/assets concentrated among a nations largest banks, is the main indicator of bank market structure.The top f

17、ive banks in Belgium, Denmark, France, etc. have more than 30% of the deposits of their nations residents. In Greece this figure is more than 80%. In the USA, this figure is fewer than 15%. On the asset side, the U.S. banking system is more competitive among its banks, as fewer than a half of total

18、bank assets are concentrated among the top ten. In Germany, Japan, and the UK, this figure is about two-thirds.16III A New Convergence: Universal BankingUniversal banking is a feature that traditionally distinguished national banking systems.Universal banking is an environment in which banks face fe

19、w restrictions on their authority to offer full ranges of financial services and to own equity shares in corporations.There is now a convergence toward universal banking among the advanced economies.In Germany and the United Kingdom, as well as in several other European nations, banks have faced few

20、 restrictions to offer full range of financial services. The U.S. Congress passed the 1933 Glass-Steagall Act to prohibit universal banking. In 1999, the U.S. Congress passed the Gramm-Leach-Bliley Act to adopt the European universal-banking model.18Section 3: Global Payments and Financial System Ri

21、sksI Global Payment SystemPayment System: A term that broadly refers to the set of mechanisms by which consumers, businesses, governments, and financial institutions make payments.Non-electronic Payment Systems: cash, checks, debit cards, credit cards, money order, and giro transaction. Like check-b

22、ased systems, giro systems involve payment intermediaries. They are common in both Europe and Asia.20Electronic Payment SystemsLarge-value wire transfer systems are payments systems that permit electronic transmissions of large volumes of funds.Fedwire is a large-value wire transfer systems operated

23、 by the U.S. Federal Reserve.Clearing House Interbank Payments System (CHIPS) is a privately owned system that is primarily used for foreign exchange and Eurocurrency transactions.II Payment-System RisksLiquidity Risk is the risk of loss that may occur if a payment is not received when due.Credit Ri

24、sk is the risk of loss that could take place if one party to an exchange does not honor the complete terms of the exchange.Systemic Risk is the risk that some payment institutions may not be able to meet the terms of payment arrangements because of the failure of other institutions to settle unrelat

25、ed transactions.Herstatt Risk (international payment risks) is liquidity, credit, and systemic risks across international borders. This form of risk encompasses two types of risk.Herstatt risk is named after the event that the German bank Bankhaus Herstatt collapsed on June 26, 1974. After the event

26、, the US banks determined that they had lost as much as $200 million.24III Financial Instability and International Financial CrisesFinancial instability is a situation in which a nations financial sector is no longer able to allocate funds to the most productive projects.Financial crisis is when an

27、nations financial system is unable to function and typically involves a banking crisis, a currency crisis, and a foreign debt crisis. Payment system risks, major fluctuations in currency values and unexpected difficulties that a countrys businesses or government might experience in repaying domestic

28、 and foreign debts are major causes of financial instability.26 Economic Imbalances and International Financial CrisesTraditional view of financial crises focuses on economic fundamentals, namely basic factors determining a nations current exchange rate, such as the countrys present and likely futur

29、e economic policies and performance. An inconsistency between the value of the exchange rate corresponding to a nations economic fundamentals and an officially targeted exchange-rate value can engender a financial crisis. The misalignment may cause speculative attacks (a concerted effort by financia

30、l-market speculators to induce abandonment of an exchange-rate target that will yield them profits in derivative markets), leading to financial crises.28 Self-fulfilling Expectations and Contagion EffectsSelf-fulfilling expectations and contagion effects also can bring about international financial

31、crises even when underlying economic fundamentals are consistent with an officially pegged exchange rate or when central banks have sufficient foreign exchange reserves. According to this view, all that is needed to induce a speculative attack is a relatively widespread perception that a nations pol

32、icymakers face relatively high internal costs to maintain the official exchange rate.30 Structural Moral Hazard ProblemsFrom this view, crisis conditions exist when governmental policies create a situation of rampant （猖獗的）moral hazard problems. When a nations government requires its banks to make lo

33、ans to specific firms, because these firms know that they will receive credit no matter how they use the funds, they commit them to risky projects. Such problems exist in Malaysia and Indonesia in 1990s and in Argentina in the early 2000s when financial crises happened there.Section 5: Bank Regulati

34、on and Capital RequirementsI The goals of bank RegulationBank regulation and supervision is a fundamental part of most nations strategies for reducing the potential for financial instability and crisis. Typically, regulation aims to limit bank failures, maintain bank liquidity, and promoting an effi

35、cient financial system. (Three objectives) Insolvency is a situation in which the value of a banks assets falls below the value of its liabilities. （资不抵债） A bank is illiquid if it has insufficient funds available to meet the cash needs of its depositors. An efficient banking system: low-cost banking

36、 services and banks normal profits （正常利润） profits just sufficient to compensate bank owners for holding equity shares of banks instead of other businesses.33II Bank Capital RequirementsRisk-Based Capital Requirements are regulatory capital standards that account for different risk factors that disti

37、nguish banks assets.Under the Basel capital standards, developed at the Bank for International Settlements (BIS), banks must compute ratios of capital in relation to their risk-adjusted assets. This is a weighted-average of assets in which the weights reflect regulators perception of distinctive ass

38、et risks.35I Computing Required CapitalIn the United States: risk-adjusted assetsCash assets and most government securities receive zero weight;Assets having a slight possibility of default, such as interbank deposits, bonds issued by cities, states, or regions, and partially government-guaranteed s

39、ecurities, receive a weight of 20%;More risky but highly collateralized assets, such as the bulk of private mortgage loans, receive a weight of 50%; All other loans and securities receive a weight of 100%; Off-balance-sheet banking activities, such as derivatives trading, receive a weight of 10%.The

40、 sum is an individual banks total risk-adjusted assets.37Under the Basel capital standard, banks must compute two ratios of capital relative to risk-adjusted assets:“Tier 1 capital”, or core capital, is equal to the sum of common shareholders equity and retained earnings.“Tier 2 capital”, or supplem

41、entary capital, includes some types of preferred stock and most types of subordinated debt. Banks must satisfy two specific minimum capital ratio requirements.The ratio of core capital to risk-adjusted assets (ratio 1) must exceed 4%; the ratio of total capital to risk-adjusted assets (ratio 2) must

42、 be greater than 8%. Total capital is equal to core capital plus “Tier 2 capital”. 39II Toughening the Basel Capital StandardsBanks regulators have encountered a major stumbling block in their quest to encourage increased bank capital: bank managers have developed creative ways to avoid the regulati

43、ons.Since 1998, national banking regulators have been working on a follow-up to the original Basel capital rules, namely the Basel II capital standards.40Section 6: Central BanksI History of central banksThe first central bank in the world was the Swedish Sveriges Riksbank, which began operations as

44、 a state-owned institution in 1668.In 1694, the British parliament established the Bank of England, Englands central bank. Until 1800, the Riksbank and Bank of England were the only central banks. The total number of central banks worldwide remained a single digit as late as 1873.Number of Central B

45、anking Institutions 1670 - PresentThe twentieth century witnessed considerable growth in the number of central banks.II Central Bank Assets and LiabilitiesBalance sheet: tabulation of assets, liabilities and net worthThe assets of the Federal Reserve (2003): (percentage to total assets)U.S. Treasury

46、 Securities: 92.2%;Gold and SDR Certificates: 1.7%;Foreign Currency Assets: 2.7%; Cash items in Process of Collection: 0.8%Other Assets: 2.6%Total: 100%The liabilities of the Federal Reserve (2003):(percentage to total liabilities)Federal Reserve Notes（联邦储备券）: 89.4%;Bank Reserve Deposits: 3.3%;U.S.

47、Treasury Deposits: 0.8%;Deferred Credit Items: 0.8%;Other Liabilities: 3.2%;Equity capital: 2.5%;Total: 100%Federal Reserve Notes: if the United States were to close down its central bank, it would be liable to holders of its notes for the dollar value of goods and services at the time of the closur

48、es.46Bank Reserve Deposits: private banks may hold some of these deposits to meet legal requirements established by the central bank. They also hold a portion of these deposits as excess reserves to help facilitate check clearing and transactions with the central bank and other private banks, includ

49、ing transfers of funds that they may lend to one another in the interbank funds markets（银行间资金市场）. 47These are markets for very short-term loans among banks (typically between one day and one week). The market interest rate on these loans performs important roles in U.S. monetary policymaking.48III W

50、hat do central banks do?Central Banks as Government Banks: Central banks may serve as government depositories and as fiscal agents.Government often argue that they “need” central banks. A primary motivation for the founding of the Bank of England in 1694 was the desire for the Bank to raise governme

51、nt funds to finance one of Britains wars with France. A reason that French government established the Banques de France in 1800 was to better manage the nations public debt that had ballooned as France and Britain continued their military buildups. The United States established the Federal Reserve S

52、ystem in 1913 to rely it as providers of depository services. The U.S. Treasury holds deposits at each of the twelve Federal Reserve banks. 50Fiscal agent: a term describing a central banks role as an agent of its governments finance ministry, in which the central bank issues, services, and redeems

53、debts on the governments behalf.51Central Banks as Bankers Banks: Central banks supervise and regulate the systems through which individuals, businesses, and banks exchange payments and promote confidence in the banking system by acting as a lender of last resort.The key rationale why banks need a c

54、entral bank is the idea that financial markets are subject to externalities, a situations in which transactions among individuals or firms can spill over to affect others.A bank run is a term describing a situation that large numbers of bank customers lose confidence in the ability of banks to maint

55、ain their asset values and , hence, anticipate depletion of the banks net worth.53A system failure is a result of continuous bank runs.Lender of last resort: a central banking function in which the central bank stands willing to lend to any temporarily illiquid but otherwise solvent banking institut

56、ion to prevent its illiquid position from leading to a general loss of confidence in that institution.54Central Banks as Monetary Policy Makers:In a number of economic settings, central banks can considerably affect the price level and real economic activity. Central banks do not set a nations price

57、 level, nor do they add much to a nations real output. But they have policy instruments that they can control, either directly or indirectly. By altering these policy instruments, central banks can bring about variations in market interest rates, thereby changing the volumes of money and credit in i

58、ts nations economy and the value of a nations currency.56Traditionally these instruments are: Interest Rates on Central Bank Advances (loans to private banks) Open-Market Operations Reserve RequirementsOpen-Market Operations: central bank purchases or sales of government or private securities. Reser

59、ve Requirements: central bank regulations requiring private banks to hold specified fractions of transactions and term deposits either as vault cash （库存现金）or as funds on deposit at the central bank.58Section 7: Supranational Financial Policymaking InstitutionsInternational Monetary Fund (IMF): A mul

60、tinational organization that promotes international monetary cooperation, exchange arrangements, and economic growth. It provides temporary financial assistance to nations experiencing balance-of-payments difficulties.The number of member nations in the IMF since it was founded in 1944.Growth in IMF

61、 Membership A quota subscription is required when joining. These are a pool of funds that IMF managers can use for loans to member nations.Conditionality is a set of limitations on a government that is receiving IMF loans.61World Bank: A sister institution to the IMF that is more narrowly specialize

62、d in making loans to developing nations in an effort to promote their long-term development and growth.In contrast to the IMF, the World Bank has always specialized in long-term loans designed to spur long-term development and growth.Typically governments seek World Bank loans for specific projects

63、as opposed to supplementing their overall budget.The wealthiest nations fund most of the World Banks activities, though the Bank also raises funds in private capital markets.63Chapter Summary and QuestionsThree questions in the text.P165 1-2Research the assets of Peoples Bank of China (PBOC) and the Fed in a certain year. Analyze the differences between PBOC and Federal Reserve System. Research the liabilities of Peoples Bank of China and the Fed in a certain year. Analyze the differences between PBOC and Federal Reserve System.64