С Reading

  1. l. Read the text and answer the questions.
  1. Why are the shares of total financial assets of banks and thrifts declining?
  2. How have banks and thrifts responded to the relative decline in traditional banking?
  3. What do banks want changes in the law for?
  4. What are the consequences of the increased integration of world financial markets?
  5. How does E-cash work?

Recent Developments in Money and Banking

  1. R.
    McConnell, S. L. Bme

The banking industry is undergoing a series of sweeping changes, spurred by competition from other financial institutions, globalization of banking, and advances in information technology.

The Relative Decline of Banks and Thrifts

Banks and thrifts are just two of several types of firms offering financial services. Although banks and thrifts remain the main institutions offering checkable deposits, their shares of total financial assets (value of things owned) are declining.

Pension funds, insurance companies, securities-related firms, and especially mutual funds have all expanded their shares of financial assets. Clearly, US households and businesses are channeling relatively more savings away from banks and thrifts and toward other financial institutions, mainly because these ones generally offer higher rates of return than do banks and thrifts. They are able to do so largely because they can participate more fully than banks and thrifts in national and international stock and bond markets. Banks and thrifts have responded to the relative decline in traditional banking in several ways.

Expansion of Services. In recent years, banks and thrifts has begun offering a variety of new services. For example, banks have increased their lending for commercial real estate projects such as housing developments, apartments, and office buildings.

Banks and thrifts have developed new loan “products” such as home equity loans (loans based on the value of one’s house) and low- or zero-down-payment mortgages. They also now offer a variety of

interest-bearing accounts such as money market deposit accounts.

Banks and thrifts have made banking more convenient by opening up full-service branch banks in suburbs and “minibanks” in shopping malls and grocery stores. Supplementing these branches has been an explosion in the number of bank-owned automatic teller machines (ATMs) which allow customers to withdraw cash, deposit checks, move money between accounts, and make other banking transactions. They have also introduced “bank-by-telephone” and, more recently, “bank by Internet” services.

Push for Regulatory Reform. In 1994 Congress ended Federal restrictions on banks’ branching into other states, and a 1996 reform partially ended the legal separation of the banking industry and the securities-related industry. Banks are now allowed to obtain up to one-fourth of their revenues from security transactions. This change set up a flurry of purchases of small security firms by banks. Banks have pressed for further latitude in engaging in security-related activities. They would like to offer stock accounts, much as mutual fund companies and security-related companies do now.

Banks point out that less-regulated firms have invaded traditional banking, while banks have been prohibited from offering non-banking products. For example, General Motors and ATamp;T now offer credit cards, and mutual fund companies now offer money market mutual funds, which pay relatively high interest and on which large checks ($ 500 or more) can be written. To counter such encroachments, banks want changes in the law so that they can own and operate companies in any line of business. With such reform, a bank could merge with, say, an insurance company or even a manufacturer of cash registers.

Critics of these reforms are concerned that increased participation by banks in non-banking businesses could endanger the stability of the banking system.

Losses in other lines of business during times of recession might cause the firms to fail, collapsing their banking operations along with them. Such bank failures might undermine confidence in the entire banking system and in the Fed’s ability to maintain an adequate supply of money.

Globalization of Financial Markets

Another significant banking development is the increased integration of world financial markets. Major foreign financial institutions have operations in the United States, and US financial institutions do business abroad. For example, VISA, MasterCard, and American Express offer worldwide credit card services. Moreover, US mutual fund companies now offer a variety of international stock and bond funds. Globally, financial capital increasingly flows in search of the highest risk-adjusted returns. As a result, US banks must increasingly compete with foreign banks for both deposits and loan customers. Recent advances in computer and communications technology mean the trend toward international financial integration is likely to accelerate. Nevertheless, we must not overstate the extent of this globalization. Studies indicate that the bulk of investment in the major nations is still financed through domestic savings within each nation.

Electronic Money

Technological progress has also led to a new form of money: electronic cash and “smart cards.” Although still in their infancies, these innovations potentially are of great significance to commercial banks, thrifts, and central banks.

Electronic money, dubbed E-cash, is simply an entry in an electronic file stored in a computer. The Internet and the widespread availability of personal computers have made it possible for individuals to use E-cash instead of checks or currency in making transactions. E-cash is deposited, or “loaded,” into the account through Internet payments such as a paycheck, retirement benefit, or stock dividend. It is withdrawn, or “unloaded,” from the account through Internet, easing payments to others for a wide variety of goods and services.

In the future, account holders will he able to load sums from their E-cash accounts onto so-called stored-value cards. These smart cards are plastic cards containing computer chips which store information, including the amount the consumer has loaded. The amount of each purchase or other payment is then automatically deducted from the balance in the card’s memory. Consumers will be able to transfer traditional money to their smart cards through their computers or telephones or at automatic teller machines. Thus, nearly all payments could be made with a personal computer or a smart card.

  1. l. Decide whether these statements are True (T) or False (F).
  1. Sweeping changes in the banking industry result from the lack of competition between banks and other financial institutions.
  2. Banks spur housing developments, construction of apartments and offices.
  3. Recently the number of automatic teller machines have dramatically decreased.
  4. After a 1996 reform banks are allowed to obtain more than one-fourth of their revenues from security transactions.
  5. Competition for deposits and loan customers has become tougher as a result of the increased integration of world financial markets.

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Источник: Е. Н. Малюга. Английский язык для экономистов: Учебник для вузов / Е. Н. Малюга, Н.              В. Ваванова, Г. Н. Куприянова, И. В. Пушнова. — СПб.: Питер,2005. — 304 с.: ил.. 2005

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