Characteristics of the elements of the banking system
The elements of the banking system form a unity, express the specifics of the whole and act as carriers of its properties.
The elements of the banking system are banks, some special financial institutions that perform banking operations, but do not have the status of a bank, as well as some additional institutions that form the banking infrastructure and provide the vital activity of credit institutions.
In practice, there is a variety of banks. Depending on one or another criterion they can be classified as follows.
According to the form of ownership there are state, joint-stock, cooperative, private and mixed banks. The state form of ownership most often refers to central banks. Central banks of such countries as Germany, France, Great Britain, Belgium have a similar situation. The state owns 50 percent of the capital of Japan’s central bank, and the rest is owned by the banks; in Switzerland, 47 percent of the central bank’s capital is owned by the state (the remaining 53 percent is owned by the cantons); in Austria, the government owns 50 percent of the capital of the Austrian National Bank, and the other half is owned by individuals.
Commercial banks in a market economy are most often private (in international terminology, the concept of a private bank refers not only and not even so much to banks owned by individuals as to joint-stock and cooperative banks). In a centralized economy, commercial banks tend to be state-owned.
Under the laws of most countries, foreign banks are allowed to operate in national banking markets. In a number of countries (France, etc.) the activity of foreign banks is not restricted. In Canada and other countries there is a limit on the number of foreign banks that they can operate in.
Banks may be divided into banks of issue, deposit and commercial banks.
All central banks are issuing banks, their classical operation is the release of cash into circulation. They are not engaged in service of individual clients. Deposit banks specialize in the accumulation of people’s savings. The deposit operation (acceptance of deposits) serves as the main operation for these banks. Commercial banks are engaged in all operations allowed by banking law. Commercial banks are the main core of the second tier of the banking system of the market economy.
Banks are divided into universal and specialized according to the nature of their operations. Universal banks can perform the entire range of banking services, serve customers regardless of the focus of their activities, as individuals and legal entities. Specialized banks include banks specializing in foreign economic operations, mortgage banks and others. Unlike universal banks, they specialize in certain types of operations.
The idea of universal banking developed in parallel with the development of specialization of the banking economy. This is the pattern of development of the world banking community. It is generally accepted that specialization allows banks to improve the quality of customer service and reduce the cost of the banking product. The idea of specialization is more typical for the banks of the USA.
Global experience shows that banks can develop both along the lines of universality and specialization. In both cases banks can get a good profit, and only customers can answer the question of which line of development will be more preferable.
According to the sphere of service banks are divided into regional, interregional, national and international. Municipal banks also belong to regional banks which service mostly some local region.
According to the scale of activity small, medium and large banks, banking consortiums and inter-bank associations can be distinguished.
There are small credit institutions in a number of countries. These include savings and loan banks, construction and savings banks, credit cooperatives, etc.