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Case Study

By joise08 Jan 25, 2013 1580 Words
Nueva Ecija University of Science and Technology
College of Arts and Sciences
San Isidro Campus

COMPARISON OF BANKING STRUCTURE IN THE UNITED STATES AND ABROAD

A Case Study Presented to
The Faculty of College and Arts and Sciences

In Partial Fulfillment of the Requirement for the Subject
Finance I (Principles of Money, Banking and Credit)
During the First Semester of A.Y. 2011-2012

Proponents:

Pangilinan, Mark Allan C.
Aligora, Norman
Cabral, Anne-Janette
Dela Cruz, Jennica
Factor, Jaymielyn
Gonzales, Anna Patricia
Guanio, Vhricxz-Vhoi
Liwanag, Heherson
Miranda, Donna Mae
Peralta, Jerome
Reyes, Romnick
Viesca, Nielvin

October 01, 2011
Comparison of Banking Structure in the United States and Abroad

The structure of the commercial banking industry in the United States is radically different from that in other industrialized nations. The United States is the only country that is just now developing a true national banking system in which banks have branches throughout the country. One result is that there many more banks in the United States then in other industrialized country. In contrast to the United States, which has on the order of 8, 100 commercial banks, every other industrialized country has well under 1, 000. Japan. For example, have fewer than 100 commercial banks – a mere fraction of the number the United States, even though its economy and population are half the size of the United States. Another result of the past restriction on branching in the United States is that our banks tend to be much smaller than in other countries.

Introduction

Central Banking System plays a very important role in every country and it is also concern in the growth and development of one country. Let us first discuss the real importance of having central banking system.

The importance of Central Banking system, first is to provide the nation’s money supply, more active duties include controlling the interest rate and acting as a lender last resort to the banking sectors during the times of financial crisis. It may also have supervisory power, intended to prevent banks and other financial institutions from reckless and fraudulent behavior central bank in most developed nation are independent.

Second, central banking system majority function is to implement monetary policy, determining interest rate, controlling the nation’s entire money supply, managing foreign exchange and the Government stock register. And lastly, to regulate and supervising the banking industry.

In this case study, we determine the effectiveness of having central banking system and to know how some industrialized country exists, in terms of banking system.

I. Case Title
“Comparison of Banking Structure in the United States and Abroad”

II. Point of View
Banking System of the Philippines

III. Definition of Terms
1. Central Banking System – in the United States is known as the Federal Reserve System (commonly known as the “FED”) which composed of 12 regions Federal Reserve Bank located in major cities throughout the country. It is a public institution that usually issues the currency, regulates the money supply and controls the interest rates in a country. 2. Money Supply- is the total amount of money available in an economy at a particular point of time. 3. Interest Rules- are methods for estimating an investment doubling time. These are fairly complex and have been subject to numerous changes and modification. 4. Lender of Last Resorts- is an institution willing to extend credit when no one else will. 5. Financial Institution- that provides financial services for its clients or members 6. Stock Register- register maintained by the stores in charge to record all the receipts and issues of the stock items 7. Foreign Exchange- may refer to foreign exchange markets where money in one currency is exchanged for another. 8. Government- refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized. 9. Banking Industry- is a financial institution that serves as a financial intermediary. 10. Bank Failures- occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. 11. Federal Reserve System- (also known as the Federal Reserve, and informally as the FED) is the central banking system of the United States. 12. Federal Reserve Bank- forms a major part of the Federal Reserve System. The 12 Federal Reserve Bank together divide the nation into 12 Federal Reserve Districts. 13. US Congress- is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of the Representatives. 14. Banking Structure – consist of none depository banks and other financial entities (e.g. investment banks, hedge funds, money market funds, and insurers) that grew in size dramatically after a year 2000 and play an increasingly critical role in lending businesses the money necessary to operate. 15. Federal open Market operation Committee- monetary policy is made by the Federal open Market Committee (FOMC), which consist of the members of the board of the Governors of the Federal Reserve System and 5 Reserve Banks President. The FOMC holds 8 regularly schedule meetings during the year, and other meetings as needed. 16. Price Stability Sustainable – is situation in which prices in an economy do not change much over time. Price stability would mean that an economy would not experience inflation or deflation. It is a not common for an economy to have price stability. 17. Risk - is the potential that chosen action for activity (including the choice of inaction) will lead to a loss (an undesirable outcome). Potential losses themselves may also be called risk. 18. Economic Growth – is defined as the increasing capacity of the economy to satisfy the wants of its members. Economic growth is enabled by increases in productivity, which lowers the inputs (labor, capital, material, energy, etc.) for given amount of output. 19. Monetary Policy – is the process by which the monetary authority of a country controls to supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. 20. Board of Governors- The governing body of the Federal Reserve System, which is responsible for U.S. monetary policy. Of the seven members, five are appointed by the President of the United States and confirmed by the Senate to serve a 14 year term, while the Chairman and Vice Chairman are appointed by the President and confirmed by the Senate to serve four year terms.

IV. Statement of the Problem
❖ which banking structure is applicable and visible to the banking system of the Philippines. ❖ being centralized banking system of Central Banking of the Philippines. ❖ banking failure/closure around the country.

V. Objectives
❖ To know the significance of the central banking system in the country. ❖ To know the role of the Government to the Central Banking System. ❖ To determine if the Central Banking System of the Philippines is enough for conducting monetary policy? Is this system is enough to prevent bank failures? ❖ To understand the banking structure of United States of America ❖ To identify what structure did the Philippines may adapt to have a good banking system.

VI. Areas of Consideration

1. Banking Structure of the United States of the America(Federal Reserve System)
Strengths
❖ Promoting stable economy.
❖ Strong and balance power of the Board.
❖ Controlling money supply
Weaknesses
❖ Countless benefits of Federal Reserves Banks.
❖ The U.S. Congress had the power to change the structure. ❖ The influence of U.S. President to the Federal Reserve System.

Opportunities
❖ Far from political pressures.
❖ The Board is responsible to supervise the member’s bank. ❖ Makes decision about interest rate and the growth of U.S. money supply Threats
❖ The government can influence the Federal Reserve System, in a way of changing or appointing a new Chairman of the Board. ❖ Risk to the attainment of price stability and sustainable economic growth. ❖ Appointed official can abuse his power.

VII. Alternative Courses of Action
1. Application of banking structure of U.S. America in the banking system of the Philippines
Advantages:
❖ Banking system become a highly decentralized system
❖ Limited role of the Government
❖ Organized monetary policy deliberation
❖ Banking system become independence
❖ Implementation of banking failure/closure around the country ❖ Become a popular by the public

Disadvantages:
❖ Banking system can take to the risk
❖ Appointed official can lead to abuse of power
❖ Relationship of banking system to the Government

VIII. Recommendation
Based in our study, we recommend that the banking structure of United States will adapt in the Philippines because of more advantage that this structure have, such as being decentralized system, independence of banking system and most of all, the limited role of the Government, unlike in the banking system of the Philippines, a centralized under government institution, and dependent banking system. Therefore, if we see the performance of America in terms of banking system, it is so effective compare to the banking system of the Philippines, so we conclude that our recommendation is to adapt banking structure of United States.

IX. Action Plan

| |No. of Days |Persons Involved |Activities Intended | |Day 1 |1 |Senate President |Set the meeting | |Day 2 |1-15 |Senate President, Senators, Representatives, Officials of |Distribution of Memorandum | | | |Central Bank of the Philippines | | |Day 3 |1 |Senate President, Senators, Representatives, Officials of |Meeting | | | |Central Bank of the Philippines |Agenda: Discussion and Proposal of | | | | |New Banking System of the Philippines| |Day 4 | |Senate President, Senators, Representatives, Officials of |Approval of New Banking System Law | | | |Central Bank of the Philippines | |

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