THE EMERGENCE OF MODERN BANKING
Banksare among the most important financial institutions in the economy andare essential businesses in thousands of local towns and cities. They are the principal source of credit (loanable funds) for households (individuals and families) and for most local units of government (school districts, cities, etc.). Nationwide and worldwide, banks grant more installment loans to consumers than any other financial institution and, in most years, they are among the leading buyers of bonds and notes issued by states and local governments to finance public facilities. The deposits held by banks are the principal money medium for global transactions and the principal channel for government economic policy to stabilize the economy.
When did the first banks appear? Both the Old French word banque and the Italian word banca were used centuries ago to mean a "moneychanger's table". They were money-changing institutions, situated usually at a table or in a small shop in the commercial district, aiding travelers who came to town by exchanging foreign coins for local money or discounting commercial notes for a fee.
The first bankers were goldsmiths. Several centuries ago, money consisted primarily of gold coins. Wealthy people found the amounts of gold they accumulated quite heavy. An even bigger drawback is that thieves love gold; stolen gold pieces (or modern coins for that matter) are rarely identifiable. Looking around for safe places to store their wealth, people in medieval Europe thought of goldsmiths. Goldsmiths made jewelry, gold statues, and other precious goods. Most also had some excess space in their heavily guarded vaults.
Most goldsmiths were willing to store valuables for a small fee and issued receiptsfor the gold deposited with them. Buyers found it convenient to exchange thesereceipts instead of physically getting the gold, and sellers were happy to take the receipts because they knew they could redeem them for gold whenever they wished. This was the beginning of checking accounts – the receipts issued by the goldsmiths were primitive demand deposits.
The banking industry gradually spread outward from the classical civilizations of Greece and Rome into northern and western Europe. Аs the Middle Ages drew to a close and the Renaissance began in Europe, the bulk of bank loans and deposits involved relatively wealthy customers, which helped to reduce religious opposition to banking practices.
The development of new overland trade routes and improvements in navigation in the 15th, 16th, and 17th centuries gradually shifted the center of world commerce from the Mediterranean region to northern and western Europe, where banking became a leading industry.
Banks that could deliver on these needs grew rapidly, led by such institutions as the Medici Bank in Italy and the Hochstetter Bank in Germany.
When colonies were established in North and South America, Old World banking practices were transferred to the New World. The 19th century began, however, state governments in the United States began chartering banking companies. Many of these were simply extensions of other commercial enterprises in which banking services were largely secondary to, for example, sales of food, housing utensils, and farm equipment. The development of large, professionally managed banking firms was centered in a few leading commercial centers, especially in New York. The federal government became a major force in US banking during the Civil War. The Office of the Comptroller of the Currency (OCC) was established in 1864, created by Congress. This divided bank regulatory system, with both the federal government and the states playing key roles in the control and supervision of banking activity, has persisted to the present day and is a truly unique American invention.
1. What is the etymology of the word ‘bank”?
2. When and where did the first bank appear?
3. Can you say what idea became an important source of bank funding?
4. What can you say about the banking industry in the Middle Ages? In the time of the Renaissance?
5. Speak on the development of the banking system in the USA.
T E X T 2
WHAT IS A CENTRAL BANK?
Country's central bank watches economic data carefully and adjusts the money supply in an effort to keep the economy headed in the right direction.
Instead of taking deposits and making loans as normal banks do, a central bank controls the economy by increasing or decreasing the country's supply of money.
Since most "money" is actually nothing more than a savings or checking account at a local bank, the most effective way for a central bank to control the economy is to increase or decrease bank lending and bank deposits. When banks have money to lend to their customers, the economy grows. When the banks are forced to cut back lending, the economy slows.
Central banks often use these reserve requirements to control the money supply.
A central bank, unlike other players in the economy, does not have to secure funding from any other source. It can simply print more money or use its virtually unlimited credit with banks in the system.
An error in judgment at the central bank has grave consequences for everyone in the economy. If a central bank allows the economy to expand too rapidly by keeping too much money in circulation, it may cause inflation. If it slows down the economy by removing too much money from circulation, an economic recession could result, bringing unemployment and reduced production. A central serves as a watchdog to supervise the banking system, in most cases acting independently of its government to provide a stabilizing influence on the country's economy.
The activities and responsibilities of central banks vary widely from country to country. For example, Britain's Bank of England is responsible for printing the money as well as supervising the banking system and coordinating monetary policy. In the United States, the duties of a central bank are divided among different agencies: the U.S. Treasury borrows the government's money through Treasury bond and note issues, while the Federal Reserve Board is put in charge of monetary policy and oversees the printing of money at the Bureau of Printing and Engraving.
The French central bank, the Banque de France, prints and issues the money, but the French treasury makes the decisions regarding monetary policy and bank supervision. In Germany, the central bank, called the Bundesbank, is noted for its active policy of strict monetary control, limiting money supply growth in order to control inflation at all costs.
The Bank of Japan, like many of the world's central banks, acts as banker to the government. This activity is a major source of revenue for the bank since fees are charged for issuing the government's checks
1. What are the main functions of a central bank?
2. In what way can a central bank control the economy?
3. How can central banks control the money supply?
4. Do the activities and responsibilities of central banks vary from country to country?
Give your examples.
5. What is the BIS?
6. What does the BIS provide?
Ex. 8.Open the brackets.
Globalization of Banking.
The rapid geographic expansion and consolidation of banking units (to reach) well beyond the boundaries of a single nation (to encompass) the entire globe. Today the largest banks in the world (to compete) with each other for business on every continent. In recent years Japanese banks, (to lead) by Dia-Ichi Kangyo Bank and Fuji Bank, (to grow) much faster than most of their competitors worldwide due to the strength of the Japanese economy. Huge banks (to headquarter) in France (led by Caisse Nationale de Credit Agricole), West Germany (paced by the Deutsche Bank), and Great Britain (led by National Westminster Bank) also (to become) heavyweight competitors in the global market for corporate and government loans. Deregulation (to help) all of these institutions (to compete) more effectively with U.S. banks. Moreover, these leading international banks (to score) sharp gains in global market shares, along with growing shares of the domestic U.S. market.
1. What is meant by “globalization of banking”?
Ex.9.Carefully explain the meaning of the following terms.
Bank account; bank advance; bank bill; bank card; bank certificate; bank charges; bank draft; bank guarantee; bank holiday; bank loan; banknote; bank rate; bankable; banker’s cheque; banking.
Ex. 10. Give 2-3 sentences of your own, using each word given below, to show that youunderstand the difference in the shades of their meanings.
Defend, protect, secure, insure, ensure, guarantee.
Ex. 11.Join the halves. Translate the sentences into Russian.
1. Many savers lack the financial expertise
2. Banks are closely watched because
3. Cameras and guards patrol banks
4. Banks are regulated because they provide
5. Fed services are available on the same terms
6. Banks are a source of jobs and satisfying
7. Credit analyst and loan offices need professional training in
8. Branch managers must know how to manage and motivate people
9. Regulation acts as a safeguard against such losses
10. All banks charted by the Controller of the Currency are
11. Consumers also receive help in managing their property
12. Personal bankers must have excellent interpersonal skills
13. Discrimination in the granting of credit would represent a significant obstacle
a) by providing deposit insurance and by periodically examining bank policies.
b) individuals and institutions with loans which support consumption and investment spending.
c) to personal well-being and an improved standard of living.
d) to other depository institutions keeping reserve deposits at the Fed.
e) and in-depth knowledge of the bank’s menu of services.
f) and in building an estate for retirement or other purposes.
g) and how to represent the bank well in the local community.
h) and depth of information to correctly evaluate the riskness of a bank.
i) of their power to create money in the form of readily spendable deposits.
j) designated member banks.
k) accounting, financial statement analysis, and business finance.
l) professional careers for millions of people.
m) lobbies to reduce the risk of loss due to theft.
Ex. 12.Translate the following text into Russian.