Bank holding companies : a better structure for conducting universal banking?

Banking systems in many countries have become increasingly unstable in recent years. At the same time, market forces have pushed banks to expand into a variety of universal banking activities without impairing the stability of the banking system. The basic bank holding company proposal contains three major elements : first, any bank that wants to operate as a universal bank must first form a holding company and then conduct all riskier activities in holding company units rather than directly in the bank. The bank would continue to engage in traditional banking activities that involve the usual level of risk; second, the government would develop laws and regulations designed as safeguards to insulate the bank from any financial problems that might occur in holding company affiliates of the bank; and lastly bank regulatory authorities would impose little or no supervision on holding company units. The use of the bank holding company device to conduct universal banking activities can promise important public benefits including : 1) a sounder commercial banking system; 2) less banking regulation; and 3) greater competitive equality between banking and nonbanking units.Microfinance,Banks&Banking Reform,Financial Intermediation,Private Participation in Infrastructure,Small Scale Enterprise

Business Divisions from the Perspective of the U.S. Banking System

The Bank Holding Company Act of 1956 ( Act ),\u27 as amended, most recently in 1999 by the Gramm-Leach-Bliley Act ( GLB ) divides all economic activity into five groups. These groups are: 1) banking, 2) activities closely related to and a proper incident to banking; 3) activities of a financial nature; 4) activities complimentary to those of a financial nature; and 5) activities not of a financial nature. This article will explore these five groups of activities separately. The policies behind the divisions will be analyzed and questioned whether they serve the policies behind the Act. This article will also question whether the divisions make good economic sense and whether they are drawn in a logical manner. Finally, this article examines the effects that the divisions have had on the banking industry, in both the United States and abroad, and looks to what they portend for the future

Back to Basics in Banking? A Micro-Analysis of Banking System Stability

This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount.diversification;non-interest income;financial conglomerates;banking stability;extreme value analysis;tail risk

Business Divisions from the Perspective of the U.S. Banking System

The Bank Holding Company Act of 1956 ( Act ),\u27 as amended, most recently in 1999 by the Gramm-Leach-Bliley Act ( GLB ) divides all economic activity into five groups. These groups are: 1) banking, 2) activities closely related to and a proper incident to banking; 3) activities of a financial nature; 4) activities complimentary to those of a financial nature; and 5) activities not of a financial nature. This article will explore these five groups of activities separately. The policies behind the divisions will be analyzed and questioned whether they serve the policies behind the Act. This article will also question whether the divisions make good economic sense and whether they are drawn in a logical manner. Finally, this article examines the effects that the divisions have had on the banking industry, in both the United States and abroad, and looks to what they portend for the future

Back to the basics in banking ? A micro-analysis of banking system stability

This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discountdiversification, non-interest income, financial conglomerates, banking stability, extreme value analysis, tail risk

States take the lead

Nonbank activities ; Banks and banking - West ; Bank holding companies ; Banking law ; Securities

The German banking system : system of the future?

In early 1991 the United States Treasury Department of the Bush Administration recommended in ib proposal for Modemizing The FinancialSystem l that, in addition to other remarkable breaks with the traditional United States financial Services framework, the current bank holding Company structure be replaced with a new financial Services holding Company that would reward banks with the ability to engage in a broad new range of financial activities through separate afbliates, including full-service securities, insurance, and mutual fund activities. The Treaaury Department pointed out that commercial banking and investment banking are complementary Services and that the Glass-Steagall Separation was unnecessary. The Treasury Department gave many reasons for the need for financial modernization and why such a modemized System would work better. As an example that demonstrates the advantages of the System proposed by the Treasury Department, the proposal pointed to the German banks and called the German model of a universal banking System the most liberal banking System in the world. -What makes the German universal banking System so unique and desirable? The following outline of the history and the current structure of the Getman banking System is intended to give readers a background tc determine whether the German banking System could be a model for the System of the future

Banking Sector Crises and Related New Regulations in Turkey

In Turkey, the financial sector is traditionally dominated by banking activities, and the banking sector experienced several systemic crises since late 1970s. This paper reviews and summarizes the major banking sector problems in the country. It also outlines the latest regulations and reform attempts in Turkey, with particular reference to Turkey's future EU membership.Banking sector, financial fragility, banking crises, banking regulations, Turkey

The Banking System in Ukraine

Banking services, during Soviet times were primarily provided by a government dominated bureaucracy that processed documentation. Bank personnel were used to provide financial accounting records on credits obtained by entities for projects approved under five year plans. The banks' activities did not include serious financial analyses, or a review of the profitability or credit worthiness of projects and their sponsoring entities. These traditional banking activities were effectively considered to be irrelevant by bankers. One could say that the clients of the banking system were essentially government ministries, rather than the enterprises who received credits approved by higher authorities in government.transition, banking system, Ukraine

The Volcker Rule: A Legal Analysis

This report provides an introduction to the Volcker Rule, which is the regulatory regime imposed upon banking institutions and their affiliates under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (P.L. 111-203). The Volker Rule is designed to prohibit “banking entities” from engaging in all forms of “proprietary trading” (i.e., making investments for their own “trading accounts”)—activities that former Federal Reserve Chairman Paul A. Volcker often condemned as contrary to conventional banking practices and a potential risk to financial stability. The statutory language provides only general outlines of prohibited activities and exceptions. Through it, however, Congress has empowered five federal financial regulators with authority to conduct coordinated rulemakings to fill in the details and complete the difficult task of crafting regulations to identify prohibited activities, while continuing to permit activities considered essential to the safety and soundness of banking institutions or to the maintenance of strong capital markets. In December 2014, more than two years after enactment of the law, coordinated implementing regulations were issued by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC). The Rule is premised on a two-pronged central core restricting activities by “banking entities”—a term that includes all FDIC-insured bank and thrift institutions; all bank, thrift, or financial holding companies; all foreign banking operations with certain types of presence in the United States; and all affiliates and subsidiaries of any of these entities. Specifically, the Rule broadly prohibits banking entities from engaging in “proprietary trading” and from making investments in or having relationships with hedge and similar “covered funds” that are exempt from registering with the CFTC as commodity pool operators or with the SEC under the Investment Advisors Act. The Rule couples its broad prohibitions with numerous exclusions and by designating myriad activities as permissible so long as various terms and conditions are met, unless they otherwise would involve or result in a material conflict of interest; a material exposure to high-risk assets or high-risk trading strategies; pose a threat to the safety and soundness of the banking entity; or pose a threat to the financial stability of the United States. The exceptions to the ban on proprietary trading include underwriting by securities underwriters; market-making “designed not to exceed the reasonably expected near term demands of clients”; trading in government securities; fiduciary activities; insurance company portfolio investments; and risk-mitigating hedging activities. The ban on investing in and owning “covered funds” exempts certain types of funds, under specified conditions, and permits de minimis investment in any such fund up to 3% of the outstanding ownership interests of the fund with an aggregate cap on the total ownership interest in “covered funds” of 3% of the banking entity’s core capital. To prevent evasion, the Rule has extensive requirements mandating comprehensive compliance programs that include ongoing management involvement, precise metrics measuring risk assessment, verification and documentation of any activities conducted under one of the Rule’s exceptions or exclusions, and recurring reports and assessments. Full compliance is required by July 21, 2015, subject to the possibility that further extensions may be provided by the regulators. In the case of investments involving “illiquid funds” subject to contractual provisions seriously impacting their marketability or sale, full divestiture might not be required until July 21, 2022