Financial Benefits Of Banks : Some Chilean Lessons

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).

By allowing banks to become “too big to fail”, the failure of one leads to massive repercussions for the entire economy. In a contrasting environment where many small institutions exist, the implosion of one bank will not have this far-reaching, catastrophic impact. In recent years, reforms have taken place that limit a company’s ability to be “too big to fail”. In the aftermath of the financial crisis of 2008, measures to revitalize the financial system included the Dodd-Frank Wall Street Reform and Consumer Protect Act of 2010, named after U.S Senator Christopher J. Dodd and U.S Representative Barney Frank. The Act aimed to increase regulation and transparency in an industry that had so clearly lacked them and minimize future risk in the

The Glass-Steagall Act of 1933 that defined the roles for commercial banks, investments banks and insurance firms was over ridden by the Gramm-Leach-Bliley Act (1999) which repealed the provisions that restricted affiliations in financial institutions. Hence one solution is to overcome the incentive problem and the conflict of interests that arise when financial institutions simultaneously undertake financial activities of varied nature.

The proposal currently has nine Republican signatures and nine Democrat, which means that it has enough to clear both the banking panel and the Senate if all Republicans agree with it. There has been some strong opposition again the legislation as Ohio Senator Sherrod Brown says, “it would do little to help working families”. However, Senator Crapo believes that this is the first proposal with a genuine chance of making it to the president. The authors conclude the article with two statements, the first explains that banks with assets between $50-$100 billion would be immediately exempt, and banks between $100-$250 could be exempt after 18 months. The second statement was from an analyst at Evercore ISI saying that he wasn’t sure if these regulation changes would result in cost savings because banks have been viewing them as sunk costs.

On 4th February 2013 the Financial Services (Banking Reform) Bill (the Bill) was introduced to Parliament. This Bill has sought to implement the ring-fencing proposals of the UK Independent Commission of Banking (ICB), which is also known as the Vickers report. The Bill also represents the UK’s response to wider international calls to structurally reform banks, such as the Liikanen reports’ proposals on reforming the structure of the EU banking sector .

The 2008 US financial crisis triggered global economic shocks, not only profound influence or even change the financial pattern of the world economy, but also a vivid lesson to the global banking industry. After the outbreak of the crisis, the United States Government has put forward the toughest financial reform bill for decades, expanding market intervention, and with economic globalization and financial liberalization, we need to absorb the experience and lessons of American banking system reform in the context of financial crisis. Citigroup is a typical example of the bank that influenced by the financial crisis and restructured.

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

While researching written articles about the effects of global finance crisis 2008-2009 on Brazil’s economy, I found numerous financial researchers that had published documentations in reference to the impact on the Brazil economy. In addition, the banks and government interactions to the global finance crisis 2008-2009, particularly research papers, financial journals, newspapers, pamphlets, and brochures. The Brazil government policies deal with a less openness, and its emerging economy enabled the country finance regulators the ability to initiate moderate banking countering measures to the crisis. These actions taken by the Brazilian government minimized the long term impacts of the global finance crisis 2008-2009 compared to more developed nations. My goals in this paper, is to explore the Brazil banking finance reactions, and government regulation policies that led to mitigating the impact of the global financial crisis of 2008-2009.

The present working paper is referred to the analysis of some “financial benefits” that banking institutions would be receiving as Too Big to Fail (TBTF) banks. The request is whether those institutions are constantly subsided from governments or it is merely a hypothetical idea. For those purposes, it is analyzed the Chilean banking industry to disclose the implicit subsidy in the South American country.

There are various government structures in organizations although they are different from one branch of the government to the other. The structures help the government manage its economy efficiently. In the economy a too big to fail firm (TBTF) exists and it is defined as one that its complexity, size, critical functions, and interconnections are in the sense that in case the firm goes into liquidation unexpectedly, the rest of the economy and financial system will face severe consequences. The government provides support to TBTF companies not because they favor them but because they recognize implications for an advanced economy of allowing a disorderly failure outweighs the cost of avoiding the failure. Helping the TBTF firms enable the economy to realize high revenue. Various activities are to prevent their failure. They include providing credit, facilitating a merger, or injecting the capital of the government. The paper addresses the structures of the administration and the concept of too big to fail in financial and non-financial institutions plus the ethics involved with the theory.

Banking is designed to make it possible for customers to trade, commercialize and invest. It can be regarded as a service to serve the public and prompt the economy (Rosenthal, 2013). There has been much debate concerning whether big banks should be broken up. The collapse of five biggest investment banks in the financial crisis of 2008 has put an increasing number of countries such as Iceland, Ireland and Spain at the edge of bankruptcy (Rosenthal, 2013) and resulted in mass unemployment and a decrease in living standards. It is clear that although large banks perform invaluable functions in economies of scale and scope, providing unique services which are not accessible elsewhere, they also know they are “too big to fail”(hereafter TBTF) for bail-outs provided by governments; therefore, they continue to take excessive risks for higher compensation, which could have a negative influence on the forming of a competitive and stable market. In this essay, I will look at the causes and consequences of the financial crisis and then argue that those reforms proposed are insufficient to reduce the risks of systemic collapse; Thus, these financial sectors should become small enough to be allowed to fail so that they have to consider carefully before taking excessive risks.

One project of the International Monetary Fund was a series of loans given to the country of Argentina in the 1990s through 2001. In the 1990s many investors and brokers looked to Argentina for investments as they rated its economy as one of the world 's strongest (Blustein, 2003, Aug 3). It was at this time that Argentina first started to follow the International Monetary Fund formula for economic stabilization in development including reducing budget in balance of payment deficits, raising interest rates, reducing inflation, privatizing state assets, and reducing trade barriers and regulation on capital flows in and out of the country (Paddock, 2002, p. 158). These policies helped reduce the hyper-inflationary levels that Argentina had reached during the 1980s. This positive outlook may have prevented a needed change in the economic policies when the effects of the Mexican peso crisis in 1995 placed Argentina 's economy in a brief recession. It wasn 't until 1998 that Argentine policymakers discussed the country 's finances with a senior official of the International Monetary Fund who sounded the alarm that the country might be headed for an Asian style melt down. However despite the warning significant economic changes were not made, in part due to the confidence that money could be easily acquired from the International Monetary Fund (Blustein, 2003, Aug 3). In 1999 the financial

Balancing between supervision and regulation over the safety of the financial markets, customer’s protection, and between the development of the markets mentioned, also increase its appeal.

La desregulación financiera y las facilidades dadas por los estados para atraer capitales debilitaron las regulaciones más básicas, además los puso en competencia a quien ofreciera más facilidades y menos impuestos al capital. El déficit fiscal y el endeudamiento público se convirtieron en dos caras de la misma moneda. Un claro ejemplo de esto, es lo ocurrido con Goldman Sachs, señalado a continuación.