Banking system of Great Britsin & usa

Today the British banking is a complicated tripartite system like a three-layer cake. The system is headed by the Bank of England.

The other two layers are:

— the commercial or joint stock clearing banks

— specialized banking institutions such as the discount houses and merchant banks.

In the UK the central bank is the Bank of England which was taken into public ownership in 1946. It has many responsibilities, the more important of which are:

1. It is the government's bank. It handles the income and expenditure of the Exchequer and other government departments.

2. It manages the National Debt.

3. It is the bankers' bank. The clearing banks maintain accounts at the Bank of England and the balances they hold in these current accounts are counted as part of their cash reserves.

4. It is the central note-issuing authority for the UK and the sole note-issuing authority for England and Wales.

5. It is the lender of last resort.

6. It acts as the government's agent in the foreign exchange market.

It has the responsibility for carrying out the government's monetary policy.

The commercial or joint-stock banks deal with the general public. Commercial banks are designed to make a profit for their stockholders. Commercial banks render various services to companies and individuals. Some of the services are:

— to receive or accept from their customers the deposit of money

— to collect and transfer money both at home and abroad against deposit and current accounts

— to provide overdrafts to both personal and business customers

— to lend loans to their customers

— to exchange money

— to supply economic information and to prepare economic reviews to be published

— to make foreign exchange transactions, including spot transactions, forward transactions and swap transactions

— to issue various banker's cards.

The banks attract deposits from the public in three main forms: current accounts, deposit accounts, large-term deposits

The Bankers' Clearing House. The procedure for making payments by cheque creates problems when the person making the payment keeps his account in a different bank from that which holds the account of the person receiving the payment. It is an obvious solution for each bank lo pay (or receive) the net amount owing after the banks have totalled their claims against each other. Cheques drawn on one bank but payable to another arc sent to the clearing house where the mutual claims are offset and the banks merely settle the outstanding amounts. These payments from one bank to another are carried out by means of cheques drawn on the bankers' deposits at the Bank of England.

The merchant banks. The main activities of the merchant banks are: acceptance businesses, financial advice to companies, share issues, investment managers, wholesale banking.

The discount houses. The London discount market is an important part of the financial structure of the City of London and is basically concerned with dealings in short and very short-term loans.

Foreign banks. One reason why banks establish foreign networks is to meet the requirements' of their customers' international operations and this is particularly important in these days of large multinational companies.

Finance houses operate in a similar manner to banks by taking deposits from the public and employing them in loans, but they tend to specialise in providing hire purchase and other types of instalment credit.

Savings banks and the National Giro There are two major savings banks, the National Savings Bank which is operated by the Post Office on behalf of the Department for National Savings and the Trustee Savings Dank. Both banks provide deposit facilities for small savers and these are collected at 21000 post offices (in the case of the NSB) and at I 500 branches of the Trustees Saving Bank. The Trustees Savings Bank now provides a current account service (i.e. payments may be made by cheque); the National Savings Bank does not provide such a service, but the National Giro provides money transmission services.

The primary purpose of building societies has been to provide finance for residential housing, and as such they provide a large proportion of the finance for house purchase within the UK.

Unit trusts are long-term investment products sold by managers to investors, often with charges of up to 5 % of the purchase price.

Investment trusts have a similar name to unit trusts, and they also pool investments managed by specialists. However

Credit unions are, in general, very small scale savings and lending societies.

Insurance companies. Companies a distinction is made between the short-term and long-term insurance business of insurance companies.

Dual banking system means that there are two parallel regulatory structures in chartering, supervising, and examining banks in the United States. One side of the regulatory structure consists of the state regulatory agencies and their regulatory systems and the other side 'consists of three federal agencies, namely the Office of the Comptroller of the Currency (OCC), the Federal Reserve System, and the Federal Deposit- Insurance Corporation (FDIC), and their respective regulatory systems.

FUNCTIONS of Reserve banks:

1. hold the cash reserves of depository institutions and make loans to them

2. move currency and coin into and out of circulation

3. collect anc process millions of checks each day

4. provide checking accounts for the Treasury

5. issue and redeem government securities

6. act as fiscal agent for the U.S. government

7. supervise and examine member banks for safety and soundness

8. set monetary policy.

Federal Reserve Banks operate under the general supervision of the Board of Governors in Washington, D.C. Each Bank has a nine-member Board of Directors that oversees its operations.

Source of income

1. Federal Reserve Banks generate their own income, primarily from interest earned on government securities that are acquired in the course of Federal Reserve monetary policy actions.

is derived from the provision of priced services to depository institution.

The primary responsibility of the central bank is to influence the flow of money and credit in the nation's economy.

Depository Institution Services

Currency and Coin - The Federal Reserve Banks distribute currency (paper money) and coin to depository institutions to meet the public's need for cash.

1. During periods of heavy cash demand, such as the Christmas season, institutions obtain larger amounts of cash from the Federal Reserve Banks.

2. When public demand for cash is light, institutions deposit excess cash with the Reserve Banks, for credit to their reserve accounts.

Check Processing - The Federal Reserve serves as a central check-clearing system.

Wire Transfers - The Federal Reserve Banks and depository institutions are linked electronically through the Federal Reserve Communications System.

Automated Clearinghouses. Allow for the electronic exchange of payments among participating depository institutions. Are used to effect recurring transactions, such as direct deposit of payrolls and payment of mortgages, and serve as a replacement for checks.

NONBANKING FINANCIAL INSTITUTIONS