18:43
Learning from each other: the U.S. and European banking experiences ,!!!!
What is happening in the U.S. banking system should be a lesson to those who wonder about the currency and the European Central Bank.
That, at least the opinion of two eminent economists of the Federal Reserve System.
Europe can still learn from the experience of major American banking: the financial guarantee insurance system by the government may undermine a prosperous banking system [1].
This article reveals how the fundamental mechanisms of capitalism are distorted by regulation, particularly in the U.S. yet known to be the champions of market economy.
It is not surprising that currency, the stock market and financial activity are completely deregulated: the rules were changed banking unconsciously and by clumsy government intervention.
A swarm of small banks
The home of gigantic works with banks of a very small size, which are at considerable risk.
That differentiates the U.S. from most European countries.
This originality is very old. It reflects, first, the opposition of the American people to large financial institutions, on the other hand, fear that competition between banks is harmful for depositors and borrowers.
Very soon, the U.S. legislation is taken to organize the banking system in a swarm of small establishments strictly controlled.
At December 31, 1990, there were 12,383 banks in the United States, with median assets of $ 45 million only. 5425 banks did not have a subsidiary or a single office.
This is because the banking law, which is the responsibility of Member States is hostile to large national banking networks. The federal government had tried to impose a banking system extended to the entire U.S. territory, but the experiment was conducted from 1791 to 1811 and from 1816 to 1836, was not pursued: these networks have the privilege can be installed anywhere, were too subject to influence politicians and the public has turned away. Today, most states recognize the possibility for banks to have subsidiaries within their borders, but only fourteen accept bank subsidiaries located outside, while three do not admit any subsidiary any kind.
The banks had found a way by creating multi-bank holding companies (CHM): they were associated while retaining their legal independence, and were therefore in good standing with the state legislation. Douglas Amendment to the Companies Act in 1956 prevented holding companies even this attempt to interétatisation. Yet, from 1978, and following the example of Maine, a growing number of states have authorized local subsidiaries of CHM. But it is far from a national network. CHM 80% of the 163 operating in three states at most. Even Citicorp, the organization's largest national bank, operates in only ten states.
The consequence of this structure is to make U.S. banks are particularly vulnerable. The first such cost is the geographical restrictions banking risk increased by lack of product diversification. In 1980 alone, there were 480 bank failures in Texas. By delaying their expansion into markets outside their own states, geographical restrictions forced the banks to concentrate Texan significantly their credits on the sectors of energy and stores.
Cordon sanitaire around the banks
Another specific feature of the banking system is the prohibition on banks to link their interests with those of companies with a trade or business. Whereas in Europe it is not uncommon to see close financial links between banks and insurance companies, banks and industry, banking and real estate, etc. ... such confusion is not possible in the U.S..
Here is a federal law, the Glass-Steagall Act of 1933 which advocated the separation of banking and investment banking. This was confirmed by Act 1956 CHM: you can not turn the law by forming holding companies.
How to explain such provisions?
One reason is the fear of the association-business banks enjoy a huge advantage in the market and destroy competition. It was suggested that the business of such an organization (commercial-banking conglomerate) operating with a fair advantage over their competitors who are not part of such conglomerates.
There was also fear that giving banks the ability to create conglomerates, they give undue political power. It is the old popular fear of the "wall of money". But why industry concentration would not it creates the same feelings? Yet there is no law limiting the size of firms or the establishment of industrial conglomerates. We can also say that industry composed of small businesses organizing as a corporation can be as effective politically powerful industry dominated by a few large firms.
Basically, it all rests on the idea that banks hold any degree of market power and can set the price of credit. If it was, they would hold everyone to them thank you. But in these terms, do not we see that the best defense would not restrict the banking business, but to allow free competition between banks?
Still others were in favor of the limitations of the banking business on the grounds that banks enjoyed a government guarantee (with the Federal Deposit Insurance Corporation). But, as we shall see, the FDIC has been imposed on banks, and more at risk with banks of small size and shackled with banks released. Anyway, this problem is rather an argument for restructuring the insurance of deposits to prevent the confusion of banking and commerce. Free banks to expand their activities could diversify their portfolio and overall risk has diminished, although some non-bank activities were very risky. Even high-risk activities can be incorporated to reduce the variability of total earnings if its covariance with the existing bank earnings are low or negative.
At the limit, moreover, that a bank would not take more risk? This would, for example, a bank that would grant more credit!
The European Way
It seems that the European bank has taken in the past a very different tack. Will she kept in the coming years?
So far, apart from the English who are closer to the tradition of "specialization" U.S., European banks, especially German banks have extensive networks and activities in all areas. It seems that the deadlines of 1993 did not alter this general line.
European countries will in fact benefit the game of the principle of "mutual recognition of standards" established by the Single Act. The principle of mutual recognition means that the power of control over banking regulation up to the country of origin. This approach will lead financial firms to be located in countries with the most liberal banking regulations. This trend, in turn, will push other countries to review their banking regulatory and recast them to give them the form developed by the most liberal governments.
This system is much better than the U.S., where relations between states involving federal regulations. Thus, there is, within each state, two laws: that of the state and the federal powers in Washington. Is a banking system "dual".
Congress does not seem to understand this situation. EDF and its Chairman, Alan Greenspan, try to introduce new rules, including increasing the financial powers of commercial banks. Although the economic arguments in favor of universal banking are obvious, the American political system has not arrived to seize the benefits to be derived from the European approach of banks.
The prognosis seems so easy in the 90s, Europe, or at least the EEC, will exchange bank freer than the United States.
The trap of deposit insurance
Today, not only U.S. banks are in trouble, but the breakup is complete in the Caisses d'Epargne.
This is so because of the diabolical invention of Americans in 1933: the auto insurance of deposits by the public.
Impressed by the bankruptcies of the 1929 crisis, politicians have forced U.S. banks to join a federal system of deposit insurance (FDIC): these are American citizens protected against bank failures. But here also that lessens the severity of bank failures: the banker always has the safety net of the FDIC. And as long as the bank in question is important, and make them take big risks the FDIC, the Federal Reserve System, which will come to the rescue of threatened property. This practice has led to a growing stream of unconsciousness bankers, but things have gone even further with the Caisses d'Epargne.
It all started with a serious increase in the amount of guaranteed deposits.
In 1933, the maximum was $ 2,500. In 1980, Congress fixed the ceiling at $ 100,000!
At the same time being lifted ceilings, it liberalized the conditions under which the savings banks could open credits: in practice, almost no operation they were banned.
Under these conditions, many savings banks began to aggressively buy insured deposits (ie guaranteed) to finance their rapid growth. Banks then rush in the cavalry: they claim absorb current losses due to unnecessary risks with the profits they realized on future operations more risky! As always, the horse ends with a quest for money overnight.
The Caisses d'Epargne looking for high profitability is therefore engaged in operations in increasingly risky, so utterly irresponsible. The possibility of financing this growth was the result of the deregulation of deposits and raising the ceiling for coverage, regardless of the moral hazard inherent in deposit insurance system. An insurer must pay even for suicidal behavior of its policyholders, has little chance to survive, it is true that in the circumstances, the insurer has insured himself because he works out of public funds .
Commercial banks would have come out better than the Caisses d'Epargne, because they did not get the freedom to engage in any type of operations.
The moral of this story is that in the USA, the government eventually distort all the rules of the game's credit, and introduced in the financial climate of euphoria and artificial widespread irresponsibility.
In banking, the government has injected a dose of harmful social practices in the allocation of investment funds. Guarantees comfortable, like deposit insurance, anesthetize the credit markets, hiding feelings of risk ... It replaces the evaluation of market regulation.
Europe will choose
The American experience has a double influence on European projects.
- On one hand, European banks are accustomed to large networks are willing to expand in Europe beyond national borders. Having thus "Europeanized", they already claim to "Americanize". But here, as evidenced by the GATT negotiations, they clash with U.S. law, and the U.S. then go to protect their domestic banking space (when their own banks face the same constraints).
- Secondly, the European authorities are beginning to sow the seeds of a regulation that would limit U.S. practices in their most harmful: free insurance deposits.
The idea that some banks are "too big to fail" is gaining ground. The Second Banking Directive of the EEC (1989) research regulatory harmonization of national systems, instead of letting play the principle of mutual recognition of standards, much better. On this occasion, Europe seems more conducive to the adoption of a policy to support troubled banks. While European governments have sown the seeds of problems in the banking system of American style.
Today British banks are in trouble because of the housing market collapse and the situation is as bad in France. In both cases, we see that banks have gone too far because they felt to be covered in any event.
The cover comes from tampering with public authorities. Ultimately, since neither the applicant nor the shareholder or the bond or the bank assumes the risk, the state-ie, the taxpayer who does.
The U.S. banking crisis, however, should be a lesson to the Europeans. We must remind ourselves that capitalism, as economic life is based on risk management. But no serious management can be made if public funds are permanently net. We must allow insolvent banks to deal with such failures. Private economic agents should be exposed to losses from investment funds in financial institutions.
This reminder of general principles is helpful when Europe wants to remove its internal economic borders. This deletion should not be a pretext for a US-style banking regulations.
The warning of R. Clear and G. O'Driscoll should be understood with particular attention to France, where the banking sector and Caisses d'Epargne is controlled by the State for three quarters, and where the "institutional investors" put their money more according to political criteria risk considerations. But France saw it not been for a long time in a socialized economy?
source : libres.org
by Robert T. Clair and Gerald P. O’Driscoll.
That, at least the opinion of two eminent economists of the Federal Reserve System.
Europe can still learn from the experience of major American banking: the financial guarantee insurance system by the government may undermine a prosperous banking system [1].
This article reveals how the fundamental mechanisms of capitalism are distorted by regulation, particularly in the U.S. yet known to be the champions of market economy.
It is not surprising that currency, the stock market and financial activity are completely deregulated: the rules were changed banking unconsciously and by clumsy government intervention.
A swarm of small banks
The home of gigantic works with banks of a very small size, which are at considerable risk.
That differentiates the U.S. from most European countries.
This originality is very old. It reflects, first, the opposition of the American people to large financial institutions, on the other hand, fear that competition between banks is harmful for depositors and borrowers.
Very soon, the U.S. legislation is taken to organize the banking system in a swarm of small establishments strictly controlled.
At December 31, 1990, there were 12,383 banks in the United States, with median assets of $ 45 million only. 5425 banks did not have a subsidiary or a single office.
This is because the banking law, which is the responsibility of Member States is hostile to large national banking networks. The federal government had tried to impose a banking system extended to the entire U.S. territory, but the experiment was conducted from 1791 to 1811 and from 1816 to 1836, was not pursued: these networks have the privilege can be installed anywhere, were too subject to influence politicians and the public has turned away. Today, most states recognize the possibility for banks to have subsidiaries within their borders, but only fourteen accept bank subsidiaries located outside, while three do not admit any subsidiary any kind.
The banks had found a way by creating multi-bank holding companies (CHM): they were associated while retaining their legal independence, and were therefore in good standing with the state legislation. Douglas Amendment to the Companies Act in 1956 prevented holding companies even this attempt to interétatisation. Yet, from 1978, and following the example of Maine, a growing number of states have authorized local subsidiaries of CHM. But it is far from a national network. CHM 80% of the 163 operating in three states at most. Even Citicorp, the organization's largest national bank, operates in only ten states.
The consequence of this structure is to make U.S. banks are particularly vulnerable. The first such cost is the geographical restrictions banking risk increased by lack of product diversification. In 1980 alone, there were 480 bank failures in Texas. By delaying their expansion into markets outside their own states, geographical restrictions forced the banks to concentrate Texan significantly their credits on the sectors of energy and stores.
Cordon sanitaire around the banks
Another specific feature of the banking system is the prohibition on banks to link their interests with those of companies with a trade or business. Whereas in Europe it is not uncommon to see close financial links between banks and insurance companies, banks and industry, banking and real estate, etc. ... such confusion is not possible in the U.S..
Here is a federal law, the Glass-Steagall Act of 1933 which advocated the separation of banking and investment banking. This was confirmed by Act 1956 CHM: you can not turn the law by forming holding companies.
How to explain such provisions?
One reason is the fear of the association-business banks enjoy a huge advantage in the market and destroy competition. It was suggested that the business of such an organization (commercial-banking conglomerate) operating with a fair advantage over their competitors who are not part of such conglomerates.
There was also fear that giving banks the ability to create conglomerates, they give undue political power. It is the old popular fear of the "wall of money". But why industry concentration would not it creates the same feelings? Yet there is no law limiting the size of firms or the establishment of industrial conglomerates. We can also say that industry composed of small businesses organizing as a corporation can be as effective politically powerful industry dominated by a few large firms.
Basically, it all rests on the idea that banks hold any degree of market power and can set the price of credit. If it was, they would hold everyone to them thank you. But in these terms, do not we see that the best defense would not restrict the banking business, but to allow free competition between banks?
Still others were in favor of the limitations of the banking business on the grounds that banks enjoyed a government guarantee (with the Federal Deposit Insurance Corporation). But, as we shall see, the FDIC has been imposed on banks, and more at risk with banks of small size and shackled with banks released. Anyway, this problem is rather an argument for restructuring the insurance of deposits to prevent the confusion of banking and commerce. Free banks to expand their activities could diversify their portfolio and overall risk has diminished, although some non-bank activities were very risky. Even high-risk activities can be incorporated to reduce the variability of total earnings if its covariance with the existing bank earnings are low or negative.
At the limit, moreover, that a bank would not take more risk? This would, for example, a bank that would grant more credit!
The European Way
It seems that the European bank has taken in the past a very different tack. Will she kept in the coming years?
So far, apart from the English who are closer to the tradition of "specialization" U.S., European banks, especially German banks have extensive networks and activities in all areas. It seems that the deadlines of 1993 did not alter this general line.
European countries will in fact benefit the game of the principle of "mutual recognition of standards" established by the Single Act. The principle of mutual recognition means that the power of control over banking regulation up to the country of origin. This approach will lead financial firms to be located in countries with the most liberal banking regulations. This trend, in turn, will push other countries to review their banking regulatory and recast them to give them the form developed by the most liberal governments.
This system is much better than the U.S., where relations between states involving federal regulations. Thus, there is, within each state, two laws: that of the state and the federal powers in Washington. Is a banking system "dual".
Congress does not seem to understand this situation. EDF and its Chairman, Alan Greenspan, try to introduce new rules, including increasing the financial powers of commercial banks. Although the economic arguments in favor of universal banking are obvious, the American political system has not arrived to seize the benefits to be derived from the European approach of banks.
The prognosis seems so easy in the 90s, Europe, or at least the EEC, will exchange bank freer than the United States.
The trap of deposit insurance
Today, not only U.S. banks are in trouble, but the breakup is complete in the Caisses d'Epargne.
This is so because of the diabolical invention of Americans in 1933: the auto insurance of deposits by the public.
Impressed by the bankruptcies of the 1929 crisis, politicians have forced U.S. banks to join a federal system of deposit insurance (FDIC): these are American citizens protected against bank failures. But here also that lessens the severity of bank failures: the banker always has the safety net of the FDIC. And as long as the bank in question is important, and make them take big risks the FDIC, the Federal Reserve System, which will come to the rescue of threatened property. This practice has led to a growing stream of unconsciousness bankers, but things have gone even further with the Caisses d'Epargne.
It all started with a serious increase in the amount of guaranteed deposits.
In 1933, the maximum was $ 2,500. In 1980, Congress fixed the ceiling at $ 100,000!
At the same time being lifted ceilings, it liberalized the conditions under which the savings banks could open credits: in practice, almost no operation they were banned.
Under these conditions, many savings banks began to aggressively buy insured deposits (ie guaranteed) to finance their rapid growth. Banks then rush in the cavalry: they claim absorb current losses due to unnecessary risks with the profits they realized on future operations more risky! As always, the horse ends with a quest for money overnight.
The Caisses d'Epargne looking for high profitability is therefore engaged in operations in increasingly risky, so utterly irresponsible. The possibility of financing this growth was the result of the deregulation of deposits and raising the ceiling for coverage, regardless of the moral hazard inherent in deposit insurance system. An insurer must pay even for suicidal behavior of its policyholders, has little chance to survive, it is true that in the circumstances, the insurer has insured himself because he works out of public funds .
Commercial banks would have come out better than the Caisses d'Epargne, because they did not get the freedom to engage in any type of operations.
The moral of this story is that in the USA, the government eventually distort all the rules of the game's credit, and introduced in the financial climate of euphoria and artificial widespread irresponsibility.
In banking, the government has injected a dose of harmful social practices in the allocation of investment funds. Guarantees comfortable, like deposit insurance, anesthetize the credit markets, hiding feelings of risk ... It replaces the evaluation of market regulation.
Europe will choose
The American experience has a double influence on European projects.
- On one hand, European banks are accustomed to large networks are willing to expand in Europe beyond national borders. Having thus "Europeanized", they already claim to "Americanize". But here, as evidenced by the GATT negotiations, they clash with U.S. law, and the U.S. then go to protect their domestic banking space (when their own banks face the same constraints).
- Secondly, the European authorities are beginning to sow the seeds of a regulation that would limit U.S. practices in their most harmful: free insurance deposits.
The idea that some banks are "too big to fail" is gaining ground. The Second Banking Directive of the EEC (1989) research regulatory harmonization of national systems, instead of letting play the principle of mutual recognition of standards, much better. On this occasion, Europe seems more conducive to the adoption of a policy to support troubled banks. While European governments have sown the seeds of problems in the banking system of American style.
Today British banks are in trouble because of the housing market collapse and the situation is as bad in France. In both cases, we see that banks have gone too far because they felt to be covered in any event.
The cover comes from tampering with public authorities. Ultimately, since neither the applicant nor the shareholder or the bond or the bank assumes the risk, the state-ie, the taxpayer who does.
The U.S. banking crisis, however, should be a lesson to the Europeans. We must remind ourselves that capitalism, as economic life is based on risk management. But no serious management can be made if public funds are permanently net. We must allow insolvent banks to deal with such failures. Private economic agents should be exposed to losses from investment funds in financial institutions.
This reminder of general principles is helpful when Europe wants to remove its internal economic borders. This deletion should not be a pretext for a US-style banking regulations.
The warning of R. Clear and G. O'Driscoll should be understood with particular attention to France, where the banking sector and Caisses d'Epargne is controlled by the State for three quarters, and where the "institutional investors" put their money more according to political criteria risk considerations. But France saw it not been for a long time in a socialized economy?
source : libres.org
by Robert T. Clair and Gerald P. O’Driscoll.
Revue des Etudes Humaines, numéro 9, septembre 1992.
|
This entry was posted on 18:43
You can follow any responses to this entry through
the RSS 2.0 feed.
You can leave a response,
or trackback from your own site.
Inscription à :
Publier les commentaires (Atom)
usa and canada systeme banck. Fourni par Blogger.
SES by business degree online promotion team.
Submit ExpressSEO Services & Tools
visites
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
0 commentaires:
Enregistrer un commentaire