Are banks really necessary?
Academia de StudiiEconomice – FABIZ
TOC o “1-3” h z u 1.Introduction PAGEREF _Toc508913102 h 32.The contemporary economy PAGEREF _Toc508913103 h 43.Evolution of banks PAGEREF _Toc508913104 h 54.WHAT IS AN ECONOMIC CRISIS? PAGEREF _Toc508913105 h 65.Advantages PAGEREF _Toc508913106 h 86.Disadvantages PAGEREF _Toc508913107 h 107.The impact of the exchange rate PAGEREF _Toc508913108 h 118.Literature review PAGEREF _Toc508913109 h 129.Conclusion PAGEREF _Toc508913110 h 14Thorough research – what if analysis PAGEREF _Toc508913111 h 14Bibliography PAGEREF _Toc508913112 h 14
1.IntroductionNowdays, banks are everywhere and almost everyone (that lives in a city) has set foot in one.Even If you were there to make a deposit, withdraw some money or to receive a loan, you have somehow made contact with the building or the concept of a bank.We have some knowledge about this subject without even wanting to, because the bank is always associated with money and money is a critical element in our lives even if we want to admit that or not.
Even so, the actual concept of a bank is starting to fade as people are starting to ask themselves if they are really a necessity in their lives. Of course, like with any other subject in this world, the opinions are parted. Some might say that the concept of a bank makes no sens at all, others might be of the opinion that they are a necessary evil.
However the banking process and the bank itself are two different things that are related to one another but not dependent. As technology is improving, the building is becoming more and more inefficient as people tend to do their transfers, or any operation related to money online. That being said, some years from now all the banking process might be done online.
There will always be people that are traditional and would keep their money at home so they don’t have to deal with all the formalities or because they think it is safer that way. So the banking process doesn’t apply to them.
As it has been seen trough time, the downfall of banks had had a negative impact on the economy of some countries as they were the principal support in this area. The economical crisis had had a critical impact on the economy, many people losing their money because of their bankruptcy so it could be said that banks are not totally safe, but what is, afterall?
When it comes to the progress made by the banks over time, it can be seen that they have created many benefits for their clients such as 0% interest when you withdraw money from an ATM and that they have made their loan policies much more available to everyone. Today is not as hard as it used to be to comply all the requirementsin order to receive a loan. If you want to start a business, buy a house, a car, or even pay for a surgery that you’re not insured for, you’ll have to apply for a loan, so some might say that banks are a big help in that department.
Banks bring along advantages and disadvantages and whether they are necessary or not we will try to decide in this case study.
2.The contemporary economyThe crisis, which started at the end of 2008 and has not ended, has now accentuated some of the negative public prejudices among the public.
Thus, from criticizing some negative aspects both from the banks’ activity as such and from their regulatory and supervisory institutions, it was possible to put all the evils of the recession in the bank and the difficulty to get out of it.
Among other things, it has been repeated until satiety that bankers give you the umbrella when it’s sunny and take it back when it rains (lend easily when the economy grows and tightens lending conditions when the crisis comes, aggravating it) and that banks put the costs non-performing loans, paid to the bad-payers, in charge of the disciplined debtors.That because of low interest rates and commissions it is no longer worth saving through bank deposits. Not to mention hidden or abusive clauses in credit agreements.
There is no doubt that there are a lot of things that should be changed regarding the banks. The problem is that, unfortunately, it looks that, without banks, there is no modern economy.Perhaps we should remember how much the banking system means for the economy and for each of us, and realize that beyond the hubs of the system, we simply cannot live without banks and it is very good that this is the case.
The great service that banks make to the economy is that it directs financial resources from those who want to save and hold cash to those who need money, either for consumption or for investment. Each of us, in the course of his life, gets to be in both of the above mentioned posts, to make deposits and take credits. In the absence of this essential brokerage service provided by the banking system, we all, either companies or individuals, would be condemned to stagnation.
Secondly, banks make our lives much more easier by taking care of our money and facilitating the fulfillment of our daily financial obligations. Wages, pensions, and other types of income we get on the card, which saves us from the risks, discomfort and inconvenience of having to move around and carry cash in large quantities.To make any kind of payments, including current utility bills such as taxes and fees, we can make bank transfers from our account to those of the holders. If we are confronted with a small temporary liquidity crisis and we need money quickly, we can ask the banks, quite quickly and in relaxed conditions, to find an account.
Technological progress, which is far from stopping, makes all these banking services faster and faster, more ergonomic and interactive.It’s not the day yet when, as it is already happening in developed countries like the US or the UK, we will no longer have to go to the bank to take credit. Everything will be done online, including client submission of documentation requested by the bank to assess the risk profile.
Appropriate bank account management applications have already appeared through smart phones. Online shopping, with direct payment via the Internet, is already almost trivial, including in Romania.
We are not the slaves of the banks, but we pay the banks for them to provide us with extremely important services that make life easier. Banking malfunctions can be corrected, and banks will be forced to adapt to the requirements of an increasingly demanding and growing customer culture and financial expertise. But without banks there is neither financial intermediation nor economicy. Because the money, which is said to represent the blood of the economy, must circulate.
3.Evolution of banksBanks have been around since the first currencies were minted. Currency, particularly the use of coins, came out of taxation.
In the early days of ancient empires, taxes were considered to be reasonable, but as empires expanded, this type of payment became less desirable. Additionally, empires began to need a way to pay for foreign goods and services, with something that could be exchanged more easily. Coins of multiple sizes and precious metals served in the place of fragile paper bills.
These coins, however, needed to be kept in a safe place.
Coins could be loaned more easily than other commodities, so there appeared a class of wealthy merchants that started lending these coins, with interest, to people in need. Temples generally handled large loans, and these new money lenders took up the rest.
The Romans took banking out of the temples and formalized it within distinct buildings. During this time, moneylenders still profited, but most legitimate commerce involved the use of an institutional bank.
Julius Caesar was the first to allow bankers to confiscate land, replacing loan payments. This was a monumental shift creditor-debtor relationship, as noblemen were untouchable through most of history, passing debts off to descendants until either the creditor’s or debtor’s lineage died out.
Banking was already well established in the British Empire when Adam Smith came along in 1776 with his “invisible hand” theory. Empowered by his views of a self-regulated economy, moneylenders and bankers succeeded in limiting the state’s involvement in the banking sector and the economy as a whole. This free market capitalism and competitive banking had a better evolution in the New World, where the United States of America was getting ready to emerge.
Alexander Hamilton, the secretary of the Treasury, established a national bank that would accept member bank notes. Through the imposition of taxes on the relatively lawless state banks, the national banks pushed out the competition.
The first private banks were Goldman and Sachs, Kuhn, Loeb, and J.P. Morgan and Company. Originally, they relied on commissions from foreign bond sales from Europe, with a small flow of American bonds trading in Europe. This allowed them to build up their capital.
J.P. Morgan and Company emerged at the head of the merchant banks during the late 1800s. It was connected directly to London, then the financial center of the world. Morgan and Co. created U.S. Steel, AT&T and International Harvester.
Although the dawn of the 1900s had well-established merchant banks, it was difficult for the average American to get loans from them. These banks rarely offered credit to the “common” people. Racism was also widespread and, even though the Jewish and Anglo-American bankers had to work together on large issues, their customers were split along clear class and race lines.
Even with the establishment of the Federal Reserve, financial power and residual political power was concentrated in Wall Street. When World War I broke out, America became a global lender and replaced London as the center of the financial world by the end of the war.
World War II may have saved the banking industry from complete destruction. WWIIlifted the U.S. and world economies back out of a great fall.
For the banks and the Federal Reserve, the war required financial maneuvers using billions of dollars. This massive financing operation created companies with huge credit needs that, in turn, motivated banks into mergers to meet the new needs.
More importantly, domestic banking in the United States had finally settled to the point where, with the possession of deposit insurance and mortgages, an individual would have reasonable access to credit.
Banks have come a long way from the temples of the ancient world, but their basic business practices have not changed. Banks issue credit to people who need it, but they demand interest on top of the repayment of the loan. Although history has altered the fine points of the business model, a bank’s purpose is to make loans and protect depositors’ money.
And an economic crisis is the phenomena that shows how a bank can influence a state and its economy.
4.WHAT IS AN ECONOMIC CRISIS?Economic crisis = A situation where a country’s economy is suddenly going through a decline in its strength, a decline usually caused by a financial crisis.
An economy that is going through an economic crisis will almost certainly experience a drop in gross domestic product (GDP), a volatility evaporation and a rise / fall in prices due to inflation / deflation.
Economic crises may take the form of stagnation, recession or economic depression, and may sometimes lead to economic collapse.
In the 19th and 20th centuries, many economic crises were associated with the phenomenon “bank run”. Customers suddenly decide to withdraw most, if not all, their money from an account. This situation creates a problem for many banks, given the fact that a bank borrows most of the cash it receives from deposits, so it becomes difficult to find funds in order to pay back all customers if they decide to withdraw their money at the same time. Such situations may leave the bank insolvent, which later leads to the loss of customer deposits.
Examples: the Great Depression (1929-1933) / the Northern Rock run (2007)
The Big Economic Crises of the Twentieth Century
The global crisis of 1929-1933 started in the United States, which, after a period of record economic growth, entered a period of unprecedented recession as a result of the fall of the stock by 40% in just a few days. The world exploded in mid-1929, affecting the production of cast iron, copper, steel, coal, salt, huge quantities of products remaining unsold in warehouses. The crisis of the 1930s was also felt in Romania, where domestic products prices dropped by as much as 60% and bankruptcies in all branches of industry were kept. The main measures taken were collective redundancies, wage cuts officials, but also forcing exports.
Fig. 2 People protesting for jobs
Trying to throw a ray of optimism over the stock market disaster at the beginning of the Great Depression, JD Rockefeller said “In those days, many feel discouraged. In the 93 years of life, crises have come and gone, prosperity has recovered every time, and so it will happen now .” And he was right. Ever since 1929, different financial crises hit the world and every time, at a faster or slower pace, mankind has recovered .
The oil crisis of ’73 and the Great Stagflation happened after 25 years of sustained economic growth. The year 1973 brings a new major crisis: that of oil. On October 15, OECD countries (OPEC Countries plus Egypt, Syria and Tunisia) decide to stop deliveries of oil to the US and other developed countries that have supported Israel in the Yom Kippur war. The oil crisis forces the change of vision on energy consumption, focusing on reducing it and finding alternative sources.
Fig.3Graph of oil prices from 1861–2015
Graph of oil prices from 1861–2015, showing a sharp increase in 1973 and again during the 1979 energy crisis. The orange line is adjusted for inflation
Western central banks decide to cut interest rates to encourage growth, not worried about rising inflation. Although the measure was perfectly normal for the economic theory of the weather, the consequences would be devastating: for 10 years, the world entered the longest stagflation period in history.
The Great Stagflation was characterized by lower incomes, lower consumption, rising unemployment and higher prices. The phenomenon poses many problems to central banks, and in practice there are no measures to cope with inflation and economic downturn: monetary stimulus policies lead to the explosion of inflation, while the fight against inflation will lead to a deepening economic downturn.
The Lehman Brothers bankruptcy/ The economic crisis of 2007-2008
On September 15, 2008, Lehman Brothers became the largest bankruptcy in US history, marking the official debut of the financial crisis that ruins the US financial system under the pressure of subprime loans. The first significant declines in capital markets began eleven years ago, on August 9, 2007, when BNP Paribas, France’s largest bank, suspended withdrawals from two real estate funds on the grounds that it could not properly assess assets.
USA faced nearly 6 million jobs lost, stock market crashes, nationalization of hundreds of banks left without money, bankruptcy of General Motors and Chrysler giants, doubling unemployment and millions of people out of impoverished homes.
5. Opportunities and Benefits
The existence of the bank offers a large amount of advantages to society.
For example commercial banking can help a small business by making it easier to manage day-to-day financial tasks. An established commercial account with a bank will make it easier to borrow money for the business.Some banks offer retirement account management for a company’s employees as well as other employee benefits. This can save money for companies, and make it easier to manage all of the services. Some banks allow customers to make deposits online by scanning checks. The bank may offer discounts on the merchant services fees. Commercial banking allows setting up direct deposits for employees as well as for any invoices you need to pay, which will save time for companies .
In order to start a business, buy inventory for an existing one or expand operations, you need a substantial amount of money. If you don’t have enough money, you’ll need financing. One of the best financing options is a bank loan.With bank loans, you only need to worry about making your regular installment payments on time. This is an advantage over overdrafts, where you must pay the full amount when the bank demands it. In addition, the bank is not interested in how you use your loan, so you can invest it however you want , as long as you make your payments on time.
A bank loan also involves interest when you pay back in order for the bank to make profit and continue it’s economic activity. In terms of interest rates, bank loans are usually the cheapest option. According to Bankrate,on 3/07/2018 the average fixed interest rate for credit cards is 16.84 percent, while certain bank-provided loans guaranteed by the Small Business Administration have a maximum interest rate 9.25 percent. The lower interest rates of bank loans will definitely save you money.
Fig. 1 Current credit card interest rates
Loan Size: Standard 7a (Repayment Term Less Than 7 Years) Standard 7a (Repayment Term 7 Years or Greater)
Less Than $25K 8.75% (4.50% base rate + 4.25% markup) 9.25% (4.50% base rate + 4.75% markup)
$25k – 50K 7.75% (4.50% base rate + 3.25% markup) 8.25% (4.50% base rate + 3.75% markup)
Over $50K 6.75% (4.50% base rate + 2.25% markup) 7.25% (4.50% base rate + 2.75% markup)
Tabel 1 Small Business interest rates
https://www.bankrate.comSome banks offer more types of loans .There are loans for buying a home, a car, for students or personal loans, because banks tend to favor existing customers, particularly those who manage their money well. Plus, going to small loan lenders that lend you cash quickly can be quite expensive because they charge lending fees and high interest rates.
While businesses that issue equity to raise capital often give a percentage of their profits to shareholders, banks require borrowers to pay only the principal and interest amount on a loan. As such, you will retain all your business profits.
Depositing your money in a bank could be also an advantage to consider. Your money will be protected from theft and fires. Furthermore, your money will be federally insured so if your bank closes you will get your money back.
Many banks offer an interest rate when you put your money in a savings account. The interest will help you make more money over time.There are two types of deposits, which are discussed as follows:demand and time deposits
Refer to that kind of deposits in which you can easily withdraw money anytime by simply writing a check. These deposits are the part of money supply as they are used as a means for the payment of goods and services as well as debts. Receiving these deposits is the main function of commercial banks.
Refer to deposits that are for certain period of time. Theese and the deposits from whick you can make more money because banks pay higher interest on time deposits. These deposits can be withdrawn only after a specific time period is completed by providing a written notice to the bank.If you have a checking and saving account with the same institution, you can have your money transferred periodically from checking to savings, putting the money aside to help grow your savings.
Banks generally offer their account holders free or low-cost services.
One example is transferring or wiring money.If you use a money transfer company to wire money to another person’s account, you will pay a fee, usually a percentage of the amount of the transfer. Depending on the amount you want to transfer, this fee can be expensive. If you wire from your bank account to another person’s account, your bank will usually charge a flat rate that is generally lower than the money transfer company.
Another example of service provided by banks is accessing cash. When you need cash but don’t have a bank account, you may decide to use a credit card to get a cash advance from an automated teller machine(ATM). The credit card company will charge you a transaction fee and interest. If you have a bank account, you can access your money from your own bank’s ATM for free. Although you can access your money from any ATM, you will likely pay a transaction fee if you use an ATM other than your bank.Nevertheless, some banks have no transaction fee at any ATM machine.
Another advantage for the population of a state is the fact that banks provide locker facilities.This service implies safe keeping of jewellery, shares, debentures, and other valuable customers items. This minimizes the risk of loss due to theft at homes.
One more advantage that come from banks services is represented by online banking.Online banking is becoming much more common and is a great feature that most of the banks offer.. You can pay your bills online and access a record of your transactions online. Paying the bills online will eliminate the need for stamps. This is the quickest way to check and see if a transaction has cleared your account. This can help you to find out the amount of a transaction after you have lost your receipt. It also allows you to find out about unauthorized transactions more quickly. Online banking makes everything you do with your finances a bit easier. You can access the information from almost any device that have access to the Internet. It makes your financial life much easier to manage.
Some banks will show you pending transactions. These are transactions that you made that day. If you spot something you did not authorize, you can contact your bank and the vendor in order to reverse the charges. The sooner you catch a problem like this, the more quickly you can resolve it.
6. Barriers and Shortcomings
One disadvantage of banks is related to bank fees. The main source of revenue for a bank is net interest income, but a significant percentage of total revenue comes from bank fees. When the net interest margin for a bank is squeezed in a low interest rate environment, bank fees provide a measure of stability to bank earnings. While high bank fees and interest rate represent a source of profitability for the lender (the bank) , this may be a downside for the bank’s customers, constituting a cost of debt for individuals and businesses. Thus, interest rates at most banks can be quite high. First, for an individual, repayment of the credit increases his fixed monthly expenses, in addition to that, the cost of the interest rate also increases the entire credit and if he does not know how to make good forecasts and balance his spendings, he could end up in over-indebtedness.
In addition, a start-up in the seed phase or a company in bad financial period is unlikely to obtain a bank credit. Banks favor secure financing where they are not likely to lose money. On the other hand, bank loans solicited by companies often require securities or collateral. This means that the creditor has the option to seize the mortgaged property or the guarantee in case of insolvency of the company. It is the same for individuals who subscribe a mortgaged mortgage.
A second disadvantage is connected to online banks regarding their more restrictive entry contitions, admission criteria are sometimes applied, especially for the issue of means of payment. These criteria tend to be more selective, and therefore reflect the willingness of online banks to build rather affluent customers. One of online banks entry conditions is proof of income. While some have a rather low amount of money to give proof of, others expect their customers to have net incomes that exceed $1.500. Instead of the proof of income, an alternative is often to pay a minimum outstanding amount in a home product. In the end, although not all banks online display the same level of selectivity, they are still globally for the most affluent consumers, which can be a brake on their development.
Credit and debit cards also have their disadvantages. For example, at withdrawal an individual may face some problems such as the ATM not functioning for the moment, or there are not enough money in it. Also, if the person who runs into such problems would withdraw money from an ATM that does not belong to the bank from which he has the card, a comissionwill be percieved, in most cases. Furthermore, at most banks, in the case of a debit card, a monthy fee has to be paid, concerning the functioning continuity of the account.
7.The impact of the exchange rateThe exchange rate is determined by a suite of economic, political and social phenomena each country issuing the currency. Also, the world economy exerts an important influence on exchange rate developments. Each country mentions a series of elements regarding how to define the value of the currency, the type of course practiced, the way in which currencies are denominated in the national currency and the authorities that set and supervise the exchange rate.
Exchange rate fluctuations are due to fluctuations in demand and supply of currency offer, so the increase in currency demand leads to an increase in the exchange rate causing the depreciation of the currency, and the decline in currency demand results in a decrease in the currency exchange rate by determining the appreciation of the currency; the increase in the currency supply leads to a decrease in the equilibrium exchange rate, determining the appreciation of the currency, and the decrease of the decline currency supply leads to an increase of the equilibrium exchange rate causing the depreciation of the currency.
At the exchange rate fluctuation we can talk about:
– currency appreciation (the currency increases its purchasing power relative to other currencies over a period of time)
– revalorisation (increasing by law the value of a currency)
– depreciation (a currency diminishes its purchasing power relative to other currencies over a given time interval)
– devaluation (decreasing by law the value of a currency)
A company has advantages and disadvantages in the financial market, obtained from the increase or decrease of the exchange rate, and any speculator has to lose or gain from its fluctuation. (http://curseuro.over-blog.com/2014/08/avantajele-si-dezavantajele-fluctuatiilor-cursului-valutar.html)
Inflationary pressures become worrying if indicators grow faster than forecasts by governments and analysts. The bigger the difference, the stronger the impact on the market.
The increase in inflation may lead to an increase in the reference interest rate by officials, the national currency appreciating initially on the basis of speculation of such measures.Three years ago, more precisely in January 2015, the exchange rate of the Swiss franc had practically exploded, with a massive increase. The most affected were, of course, those who made bank loans in francs during 2008-2014. Without taking into account the fact that the Swiss franc could grow considerably and thinking only of the franc at that time, they made large-volume franchise loans being the most favorable for them, with an affordable interest rate. Of course, at the time, besides the franc explosion, the banks had to face the explosion of the people after hearing this news. For many of them the interest rate has doubled or tripled, and so everyone has tried to regain their old rights and pay the same value as at the beginning but was in vain. Only banks had had an advantage out of this because since the exchange rate increased automatically, interest rates also increased, but they also had some disadvantages because some of clients quit paying their installements, expecting the price of francs to drop
8.Literature reviewBanking is the most important mover in the economic development of a nation and research is so essential to make its working results better. Although the literature covers a wide variety of such theories, this chapter will focus on four major themes which emerge repeatedly throughout the literature review. These themes are based on the advantage and disadvantage of the banking sector :
Irina Bena (2010) examined the satisfaction level of the customers of a specific Romanian bank. The survey represents a qualitative research and was based on a questionnaire. Consequently primary data were gathered from 50 retail clients of a Bucharest branch. The response clients were aleatory interviewed, face to face, on their way out of the bank. Their age ranges between 18 and 60 years. Two weeks in the spring of 2009 represent the time span of the survey: 30.03. – 10.04.2009. As the conducted survey points out, there are some of the problems that surface in the effort of evaluating customers’ satisfaction. First, the dimensions of satisfaction have to be established according to the area of business and the company’s specifics. Even in the frame of banking there are differences, for instance, in the service portfolio or the interaction procedure. Secondly, customers tend to state they are satisfied or check an undecided response. Therefore, the scale for future surveys to be conducted within the bank should eliminate the middle way answers, obliging the customers to adopt a positive or negative position. The benefits of such surveys represent not only a clear picture of the customers but also an overview of the areas the branch needs to improve. In this manner the bank has the chance to accede to a higher customer satisfaction level and maintain a strong relationship with its clients. (Irina Bena (2010). “Evaluating Customer Satisfaction in Banking Services”, Management & Marketing, Vol.5, No.2, pp.143-150.)Jessica Lindbergh, Ruth-A?¨da Nahum and Sofia Sandgren (2008) shed light on the challenges and opportunities demographic transitions bring about to the banking sector. Increasing life expectancy, coupled with an increasing old age dependency ratio has implications for the demand forfinancial services. This opens a window of opportunity for the banking sector to adjust its services so as to meet these changes and reap the benefit of demographic changes. The life cycle models predict a higher overall asset accumulation level and a higher savings level, at least initially, in an ageing population. Other life cycle behaviour models pointed out those individuals’ risk aversion increases with age; while evidence shows that population ageing exposes individuals to greater risks. The paper proposes that banks can contribute to creating financial stability. They suggest that banks can participate in financial education and consequently increase households’ motivation to save more and in better ways. (Jessica Lindbergh, Ruth-A?¨da Nahum and Sofia Sandgren (2008). “Population Ageing: Opportunities and Challenges for Retail Banking”, International Journal of Bank Marketing, Vol.26, No.1, pp.6-24.)
Sharma Alka and Mehta Versha (2005) in their paper “Service Quality Perceptions in Financial Services: A Case Study of Banking Services” argued that services sector was the most important sector, which contributed largely to the national economy. In India, the banking sector was an important component of this sector. The share of banking and insurance sector has burgeoned from 2.78% in 1980-81 to 6.27% in 1997-98. It had been so due to the increased significance of financial services in post-reforms era. In case of banking services, the varied service products being offered and their interface with the information technology had emerged as the potent tools of competition. The banks were using these tools to seize the markets and be the ultimate winners. In this context, the service quality perception among the customers of the banks was the most critical issue. The study was attempted in this direction, where quality perceptions of the select banks had been compared to reach at logical conclusions. (Sharma Alka and Mehta Versha (2004). “Service Quality Perceptions in Financial Services: A Case Study of Banking Services”, Journal of Services Research, Vol. 4, No.2, October 2004 – March 2005, pp.205-222.)
Parimal Vyas (2000) studied customers’ satisfaction from the services provided by different banks and also analyzed the response of customers towards the actual time taken by banks to complete the banking transactions. The findings of the study revealed that nationalized banks and co-operative banks need to improve on reducing the time taken to complete banking transactions. Comparatively the private and foreign banks take much less time for completing their transactions. The study suggested that the nationalized commercial banks and co-operative banks have to increase the use of information technology and customer relationship management to deliver standardized services to their target customers. (Parimal Vyas (2000). “Measurement of Customer Satisfaction: A Study of Banking Services”, Business Perspectives, Vol. 4, September, pp.73-87 ).
9.ConclusionThe market economy requires the existence of a banking system to ensure the population’s and companies’ attraction for the money’ s availability and to guide them towards the development of some efficient activities.
The banks are financial institutions which connect the means of payment and grant credits, facilitating the settlement of the market’s problem. These institutions have appeared since ancient times.
While the banking continued to develop both through the diversification and the improvement of some new fields of activity. Of course, there is a huge difference between the limited operations, conducted by bankers at the beginning of banking and the complex range of services which can be given by a modern bank.
The financial system is dominated by the banking sector representing the most important financial agent. Its dominant position in Romania can be explained through a series of factors:
– insufficient development of the capital market
– economic heritage with centralised planning
Banks provide and facilitate payments, provide risk management services and represent the main transmission channel in the implementation of the monetary policy. Through the activity of collecting financial resources, while placing them on the market through credits, operations (…) and other operations on the financial market, banks fulfil the role of intermediaries between the shareholders and their users.the The development of specific operations, services and tools allows diversification of banking activity. This leads to increased competition, the old sector being replaced by a real banking specialisation that depends on the nature and size of the operations carried out by the category of clients to which each bank is addressing and, last but not least, the quality of the services offered.
Besides products and services for individuals and companies, commercial banks provide the government’s needs related to economic governance, which has led to a massive increase in loans to medium and long-term loans. Governments borrow by issuing bonds that are usually considered as safe investments.
Thorough research – what if analysis-in progress
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