Importance of Banking in the Economy of a Country.
The importance of the banking system is difficult to overestimate in our time. Professionals view the essence of banking through the lens of marketing and management, innovation, statistics, and logistics.
The essence of banking is the gradual accumulation, safe storage, increase of capital through the management of assets and liabilities. The provision of savings, investment, credit services, as well as currency exchange operations, securities trading, non-cash payment. Nowadays the most important functions of the Banks are the following:
- Channeling of savings through the demand for a return based on the client’s confidence in his deposit of capital in the Bank.
- Security in the capital deposit. Banks keep people’s money and have very powerful security systems that guarantee their customers’ money.
- Issuance of loans and credit. For example, a personal loan to set up a business or a loan for the purchase of a home.
- Issuance of financial products that offer a guaranteed return or not.
- Control of the monetary mass in circulation following the guidelines of the Central Banks.
- Compliance with the minimum reserve ratios to guarantee the liquidity of the capital stock of its clients. And, in this way, avoid risks of defaults and contagion to other sectors of the economy.
- Balance the quotient between credit expansion and volume of deposits in the hands of the public.
- It offers financial and patrimonial advice services in insurance matters, payroll direct debit, optimization of savings profitability.
- Allows postponing payments and use of credit and debit cards for the provision of cash.
In conclusion, we can say that banks perform very important tasks of the economy, after all, people deposit their capital in these in addition to their confidence.
Function And Role Of The Bank In The Development Of The Economy of the Nation
In the conditions of the market, banks serve as the most important source feeding the national economy with additional monetary resources. Modern banks not only trade in money, at the same time they are market analysts.
By location, banks are closest to the business, its needs, changing market conditions. Thus, the market inevitably puts the bank in the number of fundamental, key elements of economic regulation. The bank in the economy performs the following functions:
- accumulation of funds;
- cash flow regulation;
- The essence and functions of the bank determine its role in the economy, which consists of:
- in the concentration of free capital and resources necessary to maintain continuity and speed up production;
- streamline cash flow.
The role of commercial banks in the modern market economy is quite large. The activity of commercial banks is of great importance due to their links with all sectors of the economy. The tasks of banks are to ensure uninterrupted money and capital turnover, lending to industrial.
The state and the population, and creating conditions for national economic accumulation. Modern commercial banks, acting as financial intermediaries, perform an important economic function, providing inter-sectoral. And the interregional redistribution of capital across sectors and industries, allow the economy to be developed depending on the objective needs of production.
And promote the restructuring of the economy. The increasing economic role of commercial banks is currently manifested in the expansion of their activities and the development of new types of financial services. Today, commercial banks in individual countries are able to provide customers with up to 300 types of services.
Commercial banks are the most important link in the market economy. In the course of their activity, a large part of the money turnover in the state is mediated. The sources of capital are being formed for expanded reproduction by redistributing the temporarily freed money of all participants in the reproduction process – the state / economic entities.
At the same time, commercial banks contribute to the flow of capital from the least efficient sectors of the national economy to the most competitive ones. They provide for the accumulation of temporarily free funds of enterprises, organizations, the population, the state. And transfer, on condition of repayment, money capital from the areas of accumulation to the spheres.
Thanks to commercial banks, there is a mechanism for the distribution and flow of capital across spheres and branches of production. Through the banks, large capital can be mobilized, which is necessary for investment, the introduction of innovations, expansion, and restructuring of production, housing, etc.
Commercial banks as an element of the banking system contribute to saving public costs of circulation. By helping to accelerate the circulation of money by accelerated settlement, transfer money by issuing credit tools instead of cash, such as bills of exchange, checks, debit and credit cards, certificates, etc.
The trend of expanding the functions of commercial banks in modern conditions continues. In order to strengthen their positions in the market, they more actively carry out operations that are uncharacteristic for commercial banks, taking root in non-traditional areas of financial entrepreneurship. Thereby increasing the role of banks in the functioning of the economy.
Now the field of activity of commercial banks has expanded greatly due to the formation of international capital markets. And although in some areas they are losing ground under the pressure of competitors, nonetheless, commercial banks find an amazing ability to adapt to changing conditions of the credit market.
Types of banks
For the ordinary consumer who opens a current account and draws money from the ATM with his card. It may seem not all banks have the same purpose or work with the same financial products.
We could classify them according to their property and distinguish between private banks (if they belong to one or several natural or legal persons), public (if they belong to the State) and mixed (private and public co-ownership). But in this article, we are going to review how many types of a bank exist in the function of the activity to which they are dedicated.
1. Central banks:
The central banks are in charge of ensuring the proper functioning of a country’s financial system, that is, they are the banks of the banks. Because they are the entities that are in charge of directing and supervising the operation of a country’s financial system.
They are also called issuer because among their tasks is to issue the bills and coins that are in circulation in each country. They are also responsible for setting monetary policy and maintaining the reserves of a country. From here, what is tried is to supervise and direct the entire financial system of the country.
This type of bank is in charge of putting the policies based on the currencies, issuing the currencies to the country, as well as keeping all the country’s reserves in perfect condition. In Nepal, we have the Nepal Rastra Bank as the central bank of the nation.
2. Commercial banks:
Most of the banks that you know fall into this category. Commercial banks are dedicated exclusively to commercial banking operations, such as deposits, loans. They are activities related to saving and financing, but not to investment. Or at least in theory.
This is the most common type of bank within the current scenario. It is about the entities that offer all the operations requested by the clients of a bank. That is, capture deposits, lend money, maintain current accounts and finance operations either within or outside the country of origin.
A commercial bank is a type of bank or financial institution that offers services such as the acceptance of deposits, loans to the company and basic investment products. After the Great Depression, the United States Congress demanded that banks only carry out banking activities, while investment banks were limited to activities in the capital market.
Since it was no longer necessary for the two types of banks to be owned by different owners according to US law. Some used the term “commercial bank” to refer to a bank or a division of a bank that mostly managed deposits and loans of corporations or large businesses.
In other jurisdictions, the strict separation of investment banking and commercial banking was never applied. Commercial banks can also be seen separately from retail banks, which fulfill the provision of financial services directly to consumers. Many banks offer services in both retail banking and commercial banking.
It is known as the commercial bank to the type of credit bank whose mission is to address own day-to-day operations of the general public. In other words, these types of entities are the closest to the traditional bank concept. The usual activity of a commercial bank passes through the opening.
And maintenance of the savings accounts or current accounts of its clients, which perform deposits in it with the expectation of storing it or to achieve a certain level of profitability to their savings. Alternatively, the functions of this type of bank are diverse. Since they cover from the granting of credits of all kinds (for example, the mortgage loans) to a wide range of financial products to work with investment funds or private pension plans.
Basically, a commercial bank receives deposits by individuals or companies with a saving profile. So that it brings together funds that subsequently intended for the granting of bank loans. With the aim of creating profits through the returns of those amounts plus the corresponding interests.
In this sense, the importance of commercial banking lies in which it is basic when it comes to understanding the operation of most of the economy of families and companies.
3. Investment banks:
They specialize in investment issues for both individuals and companies. They are in charge of buying and selling shares, participating in merger and acquisition of companies operations or raising capital. It should be noted that most investment banks are also commercial, and vice versa.
These two categories are not usually exclusive. Amongst its main functions are to participate in operations of merger and acquisition of companies, raising capital, purchase-sale of securities in different markets and prepare reports both treasury management and advice and control operations.
This type of bank receives term deposits, issues bonds, grants medium and long-term credits, grants guarantees, makes investments in transferable securities and acts as trust among others. Its performance helps the consolidation and expansion of companies and their capitalization. Within investment banks, we find all products related to the future.
These banks are focused both for companies and individuals and within these banks, you can find options such as the acquisition of companies or the merger of two. Here, you can also access the sale of securities in the market and get good advice in order to get good operations in the future.
Investment banking or business banking assists individual clients, private companies and governments to obtain capital, through underwriting and/or becoming the agent of the client for the issuance and sale of securities in the capital markets. An investment bank can also offer consulting services to companies interested in mergers and acquisitions, and other financial services to clients.
Such as acting as an intermediary agent for market making, operation of financial derivatives, fixed income, currencies, commodities, and shares. Investment banking generally has two large business segments. The operation, trade or exchange of securities for cash or other securities (ie, facilitate operations, the market making) or the promotion of securities (underwriting, research) is considered the side of the sale, i.e., sell-side.
On the other hand, the treatment and services with pension funds, mutual funds, hedge funds, etc., constitute the side of the purchase, i.e., buy-side. In some countries, investment banks operate on both the purchase and sale sides. Generally, countries require special licenses for investment banks and do not allow them to operate simultaneously as commercial banks, that is to say, taking deposits.
An investment bank operates at different levels and is typically subdivided into the front office, middle office, and back office. Often these areas are separated by a Wall of China that seeks to prevent conflicts of interest. While the largest investment banks offer services in all lines of business, both buy-side, and sell-side.
Smaller banks tend to focus, for example, on segments of the sell-side, such as boutiques or small broker-dealers, specializing in investment banking and sales/operations research, respectively. Particularly, their performance of these are: on the one hand, is responsible for the issuance and marketing of securities titles.
As well as operations of capital extension, loans, actions and corporate debt, whose primary work is to advise and direct the process of distribution of the shares, with these labors carried out for large companies.
On the other hand, investment banks can also invest in those companies that consider attractive and strategic, either for its current profitability (benefits, dividends) or for its future revaluation.) Or its future revaluation. In addition, investment banks have created their own investment products, placing them through financial markets or directly marketed through their own entities.
One of the most recent and additional services is the management of large assets, through companies, investment funds and the like.
4. Corporate banking:
The activity of corporate banking is not aimed at ordinary consumers, but at large companies that need financing or investment services. For them, they market very specific products such as discounts of effects, lines of credit or management of receipts.
It is banking at the service of private enterprise. These are entities that direct their business to companies, this type of bank provides specific products to this type of clients so that they can develop their activity. Its main products are lines of credit, the discount of promissory notes or bills of exchange. The operation of payments and income through checks and the issuance of receipts for the collection of services.
Incorporate banks, they have clients that are mostly companies. Here they have specific products that help companies to develop their activity. These types of products are those related to lines of credit, promissory note discounts, payments and income from checks or receipts in order to charge for services.
It is a specialized unit whose objective is to meet the needs of large companies, through a broad portfolio of financial solutions that allow managing their investments. And the volume of transactions as a result of their collection and payment management.
Well, Corporate Banking is a specialized division of a commercial bank responsible for promoting appropriate banking solutions for each corporate problem. They offer various banking solutions, such as credit management, asset management, cash management and subscription to large corporations, as well as small and medium-sized companies.
Corporate Banking, or corporate financing, is an area specialized in the needs of companies. It is usually subject to a series of changes that will fundamentally alter the nature of wholesale banking. Unlike what many people think, commercial banking is completely different from investment banking. However, the terms are often used interchangeably.
The professionals in this area are concerned with increasing the corporate value of the company. In this sense, the global value of the company goes beyond income. Thus, what is tried is to be sure that, if a loss occurs at the minimum level. That said, the objective of financial management is to address the financial needs of companies or their customers.
Corporate banks are related to commercial banking. But commercial banking is one that only engages in commercial operations. In this sense, we find loans, credits, deposits, and all those operations that are not directly related to the investment. The point of divergence between commercial banking and investment banking was generated in 1929, during the crisis.
In 1933 in the United States, the well-known Act Banking Act of Glass-Steagall appears. The aim was to avoid again a collapse of the financial system. The bank’s corporate banking segment typically serves a wide range of clients, ranging from small to medium-sized local businesses.
With some millions in revenue to large conglomerates, with billions in sales and offices across the country. It is expected that corporate or financial banker will make different long-term and short-term decisions about the financial future of the corporation.
Most short-term decisions have to do with cash flow, inventory and the management of general issues such as credits and debts. The long-term decisions of a corporate banker will make him responsible for issues such as the company’s investments and the payment of dividends to shareholders.
Some companies use specialized investment bankers to design their investment portfolios and to increase capital. A company manages much higher amounts of money than individuals or smaller companies. And as a result, there are a number of specialized tools and analysis disciplines that have been developed to exclusively address the needs of companies.
Many of these disciplines have limited use outside the business scope. Therefore, it is a benefit for the company to have someone who is familiar with these tools. The decreasing profitability margins, the growing desertion of clients and greater and more diversified competition are some of the multiple challenges that the corporate banking faces in these times.
5. Consumer banks:
This time it is about banks whose target customer is the individual who needs a personal loan, a credit card, a mortgage … In short, banking operations linked to the consumption of goods and services.
They are also called retail banks since their business is retail. Banks are thus referred to as focusing only on people, so their products refer to current accounts, credit cards, and consumer loans. They usually have a large number of branches located mainly in shopping centers. Within the consumer banks, there are natural persons.
These types of banks are the ones we visit every day and where we can find personal loans, mortgages to buy the house of our dreams, request credit cards, presentation of guarantees for mortgages or credits, etc. Retail banking which also known as consumer banking is one dedicated to establishing operations with savers and private investors and small and medium-sized companies.
Retail, commercial or retail banking is perhaps the most well-known bank in society, as it is the most widespread and known among the citizens. In general, retail banking performs basic operations of financing and raising savings.
Although in recent years it has undergone a major restructuring to offer all kinds of complex products to the entire population. We can divide retail banking Private banking: financial advice, investment funds, etc. Particular banking: sight accounts, deposits, receipts and payrolls, mortgages, loans, etc.
In addition to the above, retail banking has introduced in recent years a progressive channeling of wholesale or corporate banking products so that small savers could access these products. As investment products, bonds, corporate debt, mortgage bonds, loans … with which to improve its profitability.
And in addition to being able to obtain financing from a market that until then was prohibited by its low volume of assets. In the most recent period commercial banks that operate electronically within an online framework have proliferated. This has happened thanks to the development of electronic banking and the rapid extension of Internet networks in all corners of the world.
Initially, the retail banking was dedicated to receiving money from agents with economic surplus (persons or small institutions) in exchange for the payment of interest, to lend it with interest to other agents with financial needs. At the bank, it tried to capture savers with basic products such as deposits.
While its financing operations went through consumer loans, mortgages and business financing, through savings accounts and payment of receipts. Over time, these savings and financing products have taken a more complex position, dedicating products that were usually offered to large estates and capital to small and medium-sized savers and SMEs.
Generally, retail banking has been available to consumers through offices and bank branches. Through which intermediation was produced, however, with the expansion and modernization of new technologies, online banking has been a revolution in the access. And the immediacy of the consumers towards their products, and in substitution of the physical place in the transactions towards telematic means.
6. Mortgage banks:
As its name suggests, mortgage banks are entities that have specialized in the mortgage market. Its activity focuses on the granting of mortgages for the purchase and/or reform of homes, garages, commercial premises and real estate of all kinds.
They are banks whose activity focuses on the granting of loans for the purchase or reform of homes and real estate with mortgage guarantee, this is a very frequent type of entity, especially in the United States. These types of banks are very popular when it comes to granting loans in order to buy a property. Both individuals and companies come to this bank.
A mortgage bank is a type of financial entity that performs assignments of loans and loans with mortgage guarantee. These banks emerged several centuries ago to provide financing and liquidity to people and institutions in exchange for the backing of a real guarantee, generally real estate.
Just as there are commercial banks, investment banks, and private banks, mortgage banks are oriented to production and not to consumption like the previous ones. And have among their main objectives the business of obtaining savings and providing loans that are guaranteed by a mortgage.
That is, that they lend support with an asset of real estate type (land, house, industry …). The way of operating of these financial institutions is through the issuance of mortgage bonds, savings bonds and savings deposit acceptances, with which they obtain liquidity.
And capital from the market, giving as collateral to these the mortgaged property of the borrower or the nominal value of this one. In this way, it can be said that the mortgage bank is a pure financial intermediary between surplus savings and those in need of financing, with a real estate asset as collateral.
In practice, there are no longer only mortgage-type banks, but they have diversified their activities to commercial banks. Or have been merged or absorbed by the latter, constituting the part or mortgage division of a banking group. However, the specialization of this type of bank resides in the type of guarantees.
That is to say, their point of negotiation is based on mortgages and their approach is more tending to production than to consumerism. Unlike a commercial bank. This is explained as follows: If a person is interested in doing a remodeling of the house or apartment, the mortgage bank gives you the option to access the money you need to make this happen.
By giving you a loan in which you put as a mortgage (guarantee ) the same house or apartment that is going to make the modification. It is important to note that the other institutions can do this too. However, it is more common for these types of transactions to be made by mortgage banks.
Because having this specialization allows you to have greater flexibility in terms of rate, expenses, and costs related to the loan as such. The evaluation of financial institutions, for the general public, is closely linked to the taste and service that has been received from said institution.
However, one of the main elements that must be taken into account is the comparison with other similar banks. This is achieved by doing a little market research, but do not be impressed by this last term. To do this, all you have to do is call the different mortgage banks available and ask them about some basic things
What financial products do you offer? How much time do you have in the market? What are your active (loans) and passive rates (certificates of deposit, savings accounts, etc.)? What are the deadlines in their different products? Based on the responses received, and the expectations created.
Then you can have a broader overview of the market and therefore allow you to identify the ideal mortgage bank. The one that best suits your interests and financial planning.
7. Savings Banks:
These are non-profit entities with a marked social are aimed at supporting the savings generally of small investors. They dedicate an important effort to social work. This type of entity existed in order to offer social work to both individuals and companies in order to give them the possibility of having savings accounts.
The savings bank is one of the functions that is offered by banking companies. These have the occupation of depositing the money in a special account called “savings account”. This money stored can be directly in cash or through checks originals issued by other banks, although they are stored in the savings bank.
The money will remain the owner’s and maintain the availability or access by the owner. These transactions or deposits can be executed in a quantified number of occasions that are generally five times a month. The banks when serving as money storages charge a monthly interest of a very small sum for having offered their service to the client that owns the account at their first name.
It should be noted that the interest received by the bank is so minimal that it does not cover the cost that these institutions have for the maintenance of the active accounts. Within that savings account in addition to depositing money directly in the bank, payments can be received online (transfers).
Deposits of salaries and the migration of money from one account to another, this in order to preserve security at the time of making any monetary movement. As well as this account can be used for the payment of taxes or household services. All transactions or movements that have been made will be registered.
These vouchers are printed inside the notebook received by the client when the account is opened. The savings bank can work with the use of national or international currencies. This will be influenced by the economic measure possessed by each nation.
Generally, when the creation of accounts with foreign currencies is allowed it is for the storage of US dollars. There are few requirements for opening an account in a savings bank. These will be imposed according to the criteria of each bank company but usually the requested collections certificate of identification of the client.
Any document that endorses the address of the same (letter of residence, a bill for any public service) and letters issued by people known (letter of recommendation).
8. Treasury Banks:
Its mission is to support functions between companies that require an important contribution of capital. They do not usually have clients that are individuals or have offices open to the public. These types of treasury banks are known among companies and not so much on a person-to-person basis.
These banks are in charge of giving companies capital injections, in order to help them resurface. This type of entities does not have offices open to the public. Well, just this work is a part of the functions performed by the treasury banks that broadly organize and manage all actions related to cash flow operations or cash flow.
They are characterized for not having clients that are physical persons and lack of offices open to them since they do not have a commercial activity “to use”. Each bank has a treasury department. Particularly in the last five years, these departments have been at the heart of all major financial institutions.
Among the associated tasks are the charges related to business activities, payments to suppliers, relationships and bank management. And other movements related to the entry and exit of money from the company. The reference frame of the treasury is the investment banking business, known by some as wholesale or corporate banking.
These include project financing, syndicated loans, mergers, and acquisitions, among others. In the case of the clients with the lowest investment, they correspond to the commercial bank where they have the advice for the layout. And the handling of products, as well as the support to deal with the risks of their own products.
It should be noted that a bank’s investment banking has as one of its essential components of the market division. After the bankruptcy of the American Home Mortage bank, in 2007, irregularities in the global financial market began. Determinant regulatory processes were initiated in the evolution of the banking sector.
In this regard, we can speak of a before and after, as regulation was established that discourages banks when taking risks on their own. In addition, greater control is required. Also, better management that allows optimizing what is consumed.
The fundamental objectives of a treasury bank are to achieve transparency and protect both customers and shareholders. This has given the bank an economic and social role; from a total financial perspective. Although it came from a model characterized by assuming and controlling proprietary risks.
Now the model is focused on the client and his needs; including more user-friendly electronic and digital channels and their performance. For example, Internet banking and apps. It is worth mentioning the relevance of technology as a way to acquire financial products.
Therefore, the incorporation of the internet is one of the most notorious changes in current bank management. Today’s communications tools have led banking from an era of face-to-face systems to a more efficient era of operations processing, which does not require assistance to the bank office. Management of collections to customers and payments.
The coordination between both aspects is vital, avoiding any peak or weakness in the treasury department. The collection-payment periods are usually fixed, in the middle or end of the month. Each payment must be counted, for strict and adequate control.
Types of banks on the basis of ownership:
A very common classification that is usually made of the different types of banks is that it is made according to the different types of owners of the entity. Attending to this criterion we find:
1. Public Banks:
These are the banks whose capital is contributed by the State of each country, and therefore, it is who controls the shareholding. When it comes to public banks, this type of bank is entirely state-owned. These banks are the best known and usually have all their lives there.
Public banking is banking that operates at the service of the public interest via publicly owned institutions through the governments that represent them. Public banks can exist at all levels, from local to regional or national to international levels. Any government agency that can meet local banking needs can, in theory, create a financial institution.
Public banking differs from private banking in that its actions are motivated for the public interest. Private banks, on the other hand, generally seek short-term benefits for shareholders or to achieve their expansion as their highest priority. Public banks are able to reduce taxes within their jurisdictions because their benefits are returned to the general fund of the public entity.
For socialism, public banking is a key factor in the world economy, the symbol of the State’s investment capacity with private capitalism. On the other hand, liberalism prefers its privatization, its transformation into a private group. As a measure to achieve its better functioning and avoid political interference in banking matters.
In the beginning, public banking tried to establish a priority role in a vital sector for the economy. Such as the banking sector, encouraging investments with a social fund for the creation of employment. And the achievement of large industries in less developed sectors or industrial centers where without public help it would have been impossible to grow.
Thanks to the technification and expansion of the private banking sector, public banking has gone to have a secondary role. However, with the economic and financial crisis of the last decade, its role has been revitalized by being a state tool for the control and support of the sector. Granting funding to those agents of the most vulnerable economy.
Public banking can arise in different ways. Generally through the contribution of public capital or as in recent times during the banking collapse in the financial crisis. Through the rescue and injection of public funds in official entities.
2. Private Banks:
Are those entities that work with their own autonomy, the capital is contributed by private shareholders of national or foreign capital. It is closely related to investment banks but focuses more on the particular management of large assets. They provide exclusive and confidential financial treatment and advice to their clients.
They own investment products from outside the entity to give the customer the best services and offer the best returns. To access it, it is necessary to meet the minimum economic requirements that can reach up to one million euros.
Private banks are banks in which the shareholders of the same are several private entities or even individuals with a large investment. Private banking is defined as an intermediary financial institution between economic agents (individuals, companies and the State) with savings capacity and agents that require investment.
Private banks place resources analyzing the personal circumstances of the client, their life situation, their assets, their preferences, their risk profile and their economic needs. That is, it does not lend according to the viability of a project. Currently, it is argued that it is imperative to incorporate the concept of shared risk into the placement of financial resources.
For as it is the only ones who lose are the users of the system and the borrowers. Currently, this service is offered both by large financial entities, which have an area specialized in large and by banks dedicated exclusively to this segment. Private banking consists of a highly professionalized and global management of a client’s assets.
It is about satisfying the needs of investment, patrimonial, financial and fiscal planning of people or family groups with a high patrimony. Private banking is dedicated to financial and advisory management and trial management. For this, numerous variables are taken into account, for which, it is essential to make a good customer profile release.
For a private banking service as such, it has to produce a bank-client relationship that highlights for offering a personalized service. It is necessary to make a distinction between customers banking and product banking.
There are several ways to structure a private banking service: American style (they make private banking from investment banking), more focused on the corporate client from wholesale banking. And the suite-Spanish style: most patrimonialist private banking, turned in that of the Event Honey Heritage who seeks about all quality of life.
And control over its heritage, which you want to keep away from taxes, inflation, investment costs, and invests in conservative products. It satisfies the global needs of the client’s assets Equity planning, financial and fiscal. Intergenerational orientation.
Individualized management. The best and more complete range of products and services. Based on a strong interpersonal relationship with the client.
3. Mixed Banks:
They are mixed economy, these entities are constituted with state contributions and private capital. These mixed economy companies are governed by the rules of private law and those of ordinary jurisdiction, except for a legal provision that dictates otherwise.
Mixed banks, as their name suggests, are banks that have private capital and, in turn, have public capital. These types of banks are also well known and those that people use normally. Mixed Banking is a concept that with the due distances that marks the course of time in all kinds of activities, is comparable to the very widely used “of universal banking”.
Which was the name with which they always appointed the Germans to what was here and is known as mixed banking, a term coined by the Italians? It is called mixed banking that operates both in commercial banking or consumption.
And in wholesale or industrial banking and also that which is participated by public and private capital. Up to recent times, the banking was perfectly defined and dedicated to its previously defined sector. However, with the expansion and empowerment of banks, the traditional retail banner began operating with products dedicated to small and medium-sized companies and financing operations of large companies.
While industrial or business banking opened towards the traditional consumer sector as a way to diversify its market and compensate for weight loss of the industrial sector in the whole of the economy. In turn, with the term of Mixed Banking, reference is made to that bank, which is capitalized by public and private resources.
Public banking has always been an instrument of the states to regulate to some extent. And operate with their criteria in the banking market, especially before the deregulation and opening of the 80s and 90s of the 20th century.
Over time, and as the liberalization of the sector has been increasing, public banks have been absorbed by traditional private banking. Except in some cases in which only part of the capital has been sold, either with a majority or minority of the public sector. But where in any case it had space for action and direction.
In this sense, mixed or semi-public banks have been the main supporters of financing lines for entrepreneurs, opting for greater ease of financing. And a greater margin of return, thus demonstrating its initial principles.
Nepal as a member of world bank
What is the world bank?
One of the most relevant institutions on issues such as development and the fight against international poverty is the World Bank. While most people know that this institution is one of the main bastions of the global economy, little is known about its functions and real impact (positive or negative).
This controversial institution, originally designed to rebuild the nations affected by World War II. Today aims to reduce poverty in the world through the financing of projects focused on “development” and “economic growth” in the most disadvantaged countries of the world. Difficult mission, full of nuances and complex verification.
Because of its genesis, the decisive dominance of the nations, the neoliberal recommendations and the difficulties that the nations have to resolve their debts, the World Bank has added detractors of all kinds.
Former officials of this institution, academics, politicians and civic organizations, that they assure that the WB is an ingenious mechanism that makes more dependent and vulnerable to the countries needed. Because the loans offered are accompanied, generally, by a catalog of structural reforms tending to the privatization of services.
And the subsequent opening to transnational corporations in search of natural resources and profit that, in general, ends up enriching the developed countries more. For this reason, it appears, through its loans, to be a relatively generous institution.
When in fact it hides a sophisticated scheme of indebtedness and conditions that end up perpetuating the relationship center-periphery that has been criticized so much by the Theory of Dependence. In the end, the money that is lent to the south will have to return to the north. Nepal has become a member of the world bank on September 6, 1961.
Benefits of the members of the World Bank
Although the reduction of poverty in poor countries continues to be the main objective of the World Bank, it is far from being a charitable institution. On the contrary, it is a Financial Institution that profits from the interests of the loans it makes to underdeveloped nations.
We can not say that the World Bank represents an equal benefit for all members, in principle because its work is aimed at supporting countries that need to combat poverty. For this reason, we can say that the members subdivide into three categories: developed countries, middle-income countries or developing countries and poor countries.
Each group has different benefits. The former benefit from the World Bank through the performance of their shares. And with their majority vote, they can use the World Bank as a negotiation tool in their foreign policy, from which, as we will see, markets can be opened that allows conditions favorable commercial.
The case of developing countries and poor nations is different, although they can also benefit from the performance of their actions. They are the natural beneficiaries of the loans and programs that this institution performs.
- Loans for projects: This type of loans is granted to develop a specific project such as roads, bridges, dams, general infrastructure.
- Sectoral loans, via IBRD and IDA: These loans govern all sectors of a country’s economy, that is, energy, agriculture, mining, etc.
- Institutional Loans: These serve for the reorganization of governmental institutions in order to guide their policies towards free trade and to obtain unrestricted access from transnational corporations to markets and regions.
- Structural adjustment loans: These types of loans were created theoretically to alleviate the external debt crisis. In order to convert national economic resources into production for export and encourage the entry of transnational corporations into restricted economies. The countries of the south have experienced these adjustments and the consequent measures of deausterity.
- Lost Fund Loans: These types of loans were created as a monetary exchange with no return, a lender does not receive a loan from a new lender.
Impact of the world bank on the economy of Nepal
World bank has helped Nepal with its development plans. It has supported economic growth, to mobilize investments from sources outside the traditional financial development program. The bank also has supported the country by attracting funds from additional sources. It has also helped the country in potential investments in tourism, hydropower and the private sector in the country.
Written Ankur Pradhan & Rahul Adhikari
Banking in Nepal: A History of Banking System in Nepal