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INTERNET BANKING
Internet banking is a Self-service channel through which the customer will be interesting with the branch for Transacting business and seeking information. The channel is an extremely comprehensive product for both retail and corporate customers. It has acquired real-time transaction processing capability and has been supporting the business initiatives of the bank in the area of bill payments, IT application money receipts, railway ticket bookings, credit card payments, insurance premium payments etc.
IMPACT OF E-BANKING ON RURAL ECONOMY
In underdeveloped countries like India, there was a tendency on the part of people to invest their savings in unproductive channels like real estate, gold and silver etc. The socio-economic setup was responsible for this. The reason why people invested in hoarded wealth was that they could be converted into money whenever required. The savings of the land owners or rent earners were directed into unproductive expenditure and conspicuous consumption. This class of people had the power to save but lacked the will to save. The savings of peasants were invested in bullion or in lending money to other peasants. Some of them invested their savings in cattle. But cattle die and become dry. The savings of middleclass people (wage earners and salaried persons) were used for the education of their children, for building residential houses and for meeting unexpected circumstances. The above people were not aware how to utilize their savings for socially useful purposes. To discourage such hoarding and unproductive expenditure, rural branches of banks were opened to mobilize the savings of rural people. First, they were only engaged in their traditional banking of accepting and lending of money. Then only they were diversified their activities into new fields of operations like merchant banking, leasing, housing finance, mutual funds, venture capital etc. They had introduced a number of innovative schemes for mobilizing deposits. In addition to the above, they were providing valuable services to the rural customers by way of collecting cheques, bills, purchasing securities on behalf of customers, issuing drafts, travellers cheques, gift cheques, accepting valuable for safe custody. Now the rural customers are encouraged to move from the current paper based system of notes, cheques, statements and bank-tellers to the complete impersonal electronic banking system.
CONCLUSION
E-banking is a successful strategic weapon for banks to remain profitable in a volatile, and competitive marketplace of today. Clearly, despite the threats posed by non-bank financial intermediaries, there is enormous opportunity for far-sighted banks to reap the rewards available from e-banking. If banks are to retain their competitiveness, they must focus on customer retention and relationship management, upgrade and offer integration and value added services, especially in the consumer-banking sector. Technology has indeed transformed the Indian banking sector, but the technology itself has undergone a sea-change. It has been an arduous yet learning journey for the Indian banking system which has passed the milestones of Automated Ledger Posting Machines, the mainframes, the minicomputers, microcomputers and PCs. In fact, the banking system has mirrored the developments in the computer Industry. Delivery channel developments came next, with the ATM changing banking rules and forming the base for innovative channel developments such as Internet banking and the recent ones to enter the field-call centres and mobile banking. Now, the current and infact lasting trend will be that of centralization through implementation of centralized banking solutions which will integrate all banking applications, processes and delivery channels. This has in turn, led to a surfeit of backend developments such as security tools, networking, data warehousing and CRM. Put simply, a bank has come to rely on technology like never before. In the past, banking was influenced by technology, now it seems technology is influenced by banking.
Article Source:http://www.articlesbase.com/banking-articles/impact-of-electronic-banking-on-rural-economy-1284717.html
The Banks in India Face the problems of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. The NPAs have direct impact on banks profitability, liquidity and equity. The NPAs of Indian Banks are relatively huge by international standard. Therefore the biggest ever challenge that the banking industry now faces is management of NPAs. It is true that banks have to restrict their lending operations to secured advances only with adequate collateral securities.
In this connection banks must aware of the problems and recovery legislations of NPAs Non performing assets means an advance where payment of interest or repayment of installments of principal or both remains for a period of more than 180 days.
The magnitude of NPAs have a direct impact on banks profitability as legally they are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the RBI guidelines. The Indian Banking sector is facing a serious situation in view of the mounting NPAs which are the tune of Rs.56,000 crores in March 2002.NPAs is an important parameter in the analysis of financial performance of banks. The reduction of NPAs is necessary to improve profitability of the banks and comply with capital adequacy norms.
Therefore, to solve the problems of existing NPAs, quality of appraisal supervision and follow up should be improved. The NPAs can be avoided at the initial stage of credit consideration by putting rigorous and appropriate credit appraisal mechanism. This is in order to recover the NPA debt, the judicial systems should revamped and is essential to enforce the SARFAESI Act with more stringent provisions to realize the securities and personal assets of the defaulters.
Article Source:http://www.articlesbase.com/banking-articles/problems-and-recovery-of-npa-at-branch-banks-1284736.html
Once college students arrive on university campuses they might be surprised at how easy it is to obtain a credit card. Advertisements are all over campus, and the offers look so good. It is imperative, however, that students understand credit card usage and how it can hurt them financially.
But it is equally important to direct them on what things credit cards should be used for while they are at college. Here are five things that they should use their cards for while studying to get their degrees.
University Fees
Any fees and charges that are not able to be included on student or other education loans. These include books and other ancillary items that are incurred while attending college and are only available from the college.
Transportation
Whether a student has their own vehicle or uses public transportation (or both), paying for those charges on a credit card is a good idea. Gas, oil and maintenance charges can be paid for on a credit card. Also, should there be a large repair required that can be paid on the card too. Public transportation charges can be paid for via a credit card when purchasing credits or tickets.
Clothing and Living Expenses
Normal living expenses can be paid for with a credit card. These can include any clothing or other items such as toiletries, etc. The challenge is to keep from purchasing items that are not completely necessary, and making the buys from locations that have the best prices. Around many college campuses can be found local merchants that sell used clothes and other items that are worth considering. Most of these take credit cards, but some do not.
Food and Entertainment
Going out for meals and entertainment can get expensive, but it is not something that can be completely cut out from student life. Use of credit cards in this instance is a good alternative instead of carrying cash.
Emergency Medical Needs
Should the need arise for emergency medical attention a credit card can be used if there is no medical insurance card or coverage available. Then, these charges can be submitted later to insurance carriers for reimbursement.
The reason that these charges are good for students to place on their cards is because it helps track those charges. And when working with parents on their expenses, one bill where all charges are brought together is a good thing.
Security enters into the equation here as well. Using a credit card to pay for these things is better than carrying cash. If a card is stolen, it can be disabled right away with a single phone call and financial damage can be kept at a minimum. If cash is stolen (or even a checkbook), once that money is gone there is little change of retrieving it.
Before a student goes to college a discussion needs to take place as to how the charges will be paid. If the student is completely responsible for the charges, then they need to manage their income and make sure they have enough money to make the payments. If the money will come from parents or a majority of the money will come from parents, then guidelines need to be set.
A good plan is to use a combination in which the parents pay for certain items, and then the student is responsible for others. The drawback to this is that it requires the student to have a source of income such as a part-time job which can have an adverse affect on their grades.
Learning how to use credit cards wisely is another key thing for students to learn while they are in college. Avoiding this learning experience can have long-lasting consequences on a person’s financial future.
It would be great to have a list available of the best auto insurance companies so a wondering consumer wouldn’t have to look very hard to find the top rated insurer. Unfortunately, this top rated list isn’t entirely available. There are actually a few lists of top rated insurers, all ranked according to different aspects of their company. One company may be found to have the lowest prices overall while another company is ranked number one for their customer service abilities. It’s nearly impossible to come up with one list ranking the overall top 10 car insurance companies because every driver has a differing opinion about who reigns supreme in all categories.
How To Choose
Most drivers think, well, if there isn’t just one decided top company in the industry, how will I know who is the best? Drivers can answer this question themselves once they realize what is important to them when it comes to their insurer and what they provide. A few of the more popular things that are taken into consideration by people choosing a provider is the price offered, the insurer’s customer service, and the financial strength of the insurer. An additional factor can include whether or not the insurer is recognized by the state. We’ll discuss these factors in more detail below so drivers have a concrete idea as to how the top 10 insurance companies can be found.
Price – The price that is offered by an insurer plays a huge role in deciding which insurers are among the top 10. The most popular insurers will always offer comparable rates, especially lower rates for the same coverage that is being offered by other companies. Finding the lowest price will take effort on the driver’s part, which will include gathering quotes from a number of companies to see who offers the cheapest price. This gathering can most easily be done by using our quote comparison tool found on our homepage or any of our webpages that has a white box asking for a local zip code. Enter in the local zip code and proceed by answering the questions. When the questions are answered and submitted, the driver will then be given a list of quotes that are from local insurance companies who are willing to provide coverage for that driver. The quotes can be compared for the lowest price, and if the driver chooses they can purchase one of the policies right there online with a credit card.
Knowing which insurers offer the lowest prices for the coverage wanted will help drivers choose their own top 10 insurers.
Customer Service – The type of customer service that is offered by an insurer should also be factored into choosing the top 10 insurance companies. No one likes dealing with impolite representatives or even worse, representatives that don’t know much about the company and can’t answer the customer’s questions. Other factors go into customer service as well, such as the ease of getting in touch with the insurer either through a phone number that is answered quickly, an office nearby, or a website that is easy to read. Filing a claim should be simple to do, and even better if that can be done through the website without having to speak to a representative. Paying the bill electronically should be an option for the convenience of the policyholder. JD Power conducts their own evaluation of insurer’s customer service and then they post their findings for public viewing. Drivers can check out their website to see where their current insurer ranks. Also, speaking with other drivers about their insurer’s customer service can also help the policyholder grasp a better idea about who is customer service oriented and who isn’t.
Financial Strength – The financial strength of an insurance company is not something to be dismissed. If the provider does not have the ability to pay for a filed claim, what is the point of having them as an insurer? These insurers who cannot pay do not broadcast their lack of financial strength, especially if it’s something that is gradually occurring for fear of losing customers and making their downfall happen sooner. Policyholders can check on their insurer’s financial strength by looking into the assessments of companies like AM Best, Standard and Poor’s, and Weiss Ratings, who all look into the financial status of insurance companies. These three companies perform their own appraisals and find out what the financial workings of the insurance company are, and then post them for anyone to see. Motorists should take advantage of these third party evaluators since most companies don’t advertise their finances on a regular basis for their customers to view.
Recognized By The State – Most insurers are recognized by the state, but it’s important to make sure. Only the best companies go to the state and register with them. When an insurer is a state approved carrier, the state will assume partial responsibility for their financial loss if something drastic were to happen to the insurance company. Also, knowing an insurer is registered with the state is another way to know it’s legitimate and not a scamming, false company. Drivers can check with their state’s Department of Insurance for verification.
Motorists can look into the local insurers and find out about these four discussed factors, and how each of these factors plays a role in individual insurance companies. The results can be compared and then they will know the top 10 auto insurance companies in US, or even the ones serving their local area. It should be stressed that when these lists are made, they are formed according to what is important to the individual who is building them and not necessarily other individual drivers. One person made decide that the lowest price is the most important aspect while another driver may feel great customer service is the priority, despite paying a little more for the policy. A company who makes the top 10 list on a national level may not be the right choice for every driver due to differing opinions. Making a list of your own top 10 choices may be the best way to figure out which company would be best to provide insurance on your vehicle.
Parents and teenagers often disagree on a number of issues, but saving money on car insurance is one issue that they should agree on. Many times, it’s the parent that is paying for the premium charges and the teenage driver isn’t too worried about the expense. It’s not until the parent sits down with their child and explains the process of purchasing insurance for them and the vehicle, how coverage is decided, and what it takes to pay for the policy that the teen starts to understand the importance of this insurance. Teenage drivers who can grasp the value of the coverage may decide to care more about how safely they are driving, especially when they realize how much accidents cost and affect an insurance premium.
For The Teenage Driver:
Teenagers are placed in a different category of drivers than their parents. When they are ready to be put on a policy, the insurer automatically assumes them to be a high risk driver due to their lack of experience. Don’t take personal offense because this is decided based on the statistics showing teenage drivers being involved in a high number of accidents. If anything, take responsibility and keep your driving record clean, which means free from accidents and traffic tickets. If you can manage to do this for three years, you will begin to see a decrease in your premium rates.
Something a teen driver can do is offer to help pay for your part of the rates as a secondary driver. It becomes an expensive bill as more drivers are added to a policy and parents might offer more flexibility in their rules if they see you trying to make an adult-like effort and taking financial responsibility for your activities. Taking advantage of the good student discount might help lower your price, but you will need to provide proof to the insurer of receiving a B+ average or better each marking period.
Look for a vehicle that is insurance friendly. It may not be the most popular car in the market, but an automobile that helps you get lower rates will be easier on your wallet. Vehicles that are a few years old, have safety features, and aren’t flashy sports cars will be your best bet. If you’re curious about which specific cars will help you save money, contact the insurance company and ask what rates they would charge for different cars.
For The Parent:
Parents are always looking for ways to save money with their children’s endeavors, and saving on car insurance is nothing different. One way to help save on future premium hikes is to set an understanding with the teenager of what is expected, or rules that need to be followed and the consequences that will be experienced if they cause an accident or receive a traffic violation. Some rules could include the specific hours the teen may drive (sun up to sun down), who is allowed in the vehicle when the teen drives, whether or not the radio or cell phone can be used while driving, or how many miles the teen is permitted to drive per week or month. These rules may only need to be enforced for the first year of driving or they may need to be in effect for longer, depending on the teen. As your child demonstrates an ability to follow your rules and state traffic laws, you can more easily trust their driving skills and lighten up on certain expectations. But, this doing is choice of the parent.
Another idea is to expect the teen to contribute in paying for part or all of the premium charges. Many parents require their teenagers to pay for their portion of the insurance rates before the policy period begins. This is another way to instill responsibility in the teen and help them understand the values of money and good coverage. It is cheaper to keep the teen driver on the parent’s policy and not create a new policy just for the teen, especially when they are listed as a secondary driver because their use of the car is limited by the parent.
For Both:
Working together as a parent and teen team is the best way to save money on insurance for the teenager. Look around to find the best price by comparing what each company will offer. An easy way to do this is by utilizing the Internet for quick results. Start with comparing quotes on our site by entering in the local zip code and then answering the remaining questions that appear on the next webpage. Providing honest, accurate answers will ensure receiving a list of quotes that are great estimates and ones that won’t change at the time of purchase (if you choose to make a purchase). This can even be done for teens who only have their driving permit and have some time before they turn 16 and are eligible for a license. These kids do need insurance and can be added as soon as their permit is qualified.
Go over the list of quotes to see which one is cheapest. Then, look through the companies who are providing the quotes to find out more about them. Show the teen how to properly compare companies beyond the given prices. See which companies have a strong financial status and great customer service rates. Showing them this process might have a lasting effect so when they are old enough to leave home and purchase their own policy, they will know just what to look for. Write a list of the pros and cons of each company, and then make a decision.
It could also be valuable to go through a couple things before the teen is allowed to drive. For instance, explaining what is and is not covered on your policy will help the teen better understand the estimated costs of repairs when damages occur. Also, go through the process of what should be done if the teen is involved in an accident, such as who should be called and what information will need to be given to the officer and other driver.
All drivers, both experienced and new, can always be working on keeping their driving record clean and free from accidents and tickets, which will keep rates lower. Learning to always obey the speed limits and traffic signs will help aid them in keeping a clean record. Newer drivers have the disadvantage of not being able to have already proven their ability to drive safe the way an older driver has. There are 16 year olds on the road who do their best to drive safe and not have distractions in the vehicle with them. This is good practice to help them learn the importance of safety and it will also keep them focused on the road and their surroundings instead of a conversation or changing the radio station. Keeping a driving record clean is about the only thing a 16 year old driver can do to help keep their premium charges low. They can’t necessarily change their age, gender, or address which also affects their premium, but they are in control of their driving record.
A 16 year old is usually ecstatic about getting their license and being able to drive on their own. Parents and guardians should try their best to make sure the teen is safe and well prepared before they go out on their own, and one of the preparations is having the right amount of auto insurance. We can help parents find car insurance for a 16 year old right here on our site.
A credit card is financial oxymoron because the thing that makes them attractive also makes them dangerous. Of course I am referring to the ‘ease of use’ factor. The main case for plastic is that it takes the hassle out of making purchases both large and small, but this has some not so unexpected side effects. The first is that by eliminating cash we also get rid of our spending boundary.
We are now not limited to the money we have in our wallets but by the size of our credit limit; which unfortunately, more often than not, does not correlate. The second is the fact that the cost of this convenience is actually very high. When you add up the interest on your purchase, assuming you are not paying off your balance in full on or before the due date, the risk of late payment fees, overdrawn fees and even identity theft, you have to ask yourself if they are worth it.
You have probably already made the decision to stop using credit cards but you may have been so seduced by the luxury of plastic availability that you are not sure how you are ever going to live without them. Here’s a list of helpful tips below if you want to stop using credit cards:
1.Destroy the ones you have. You may think that you are strong enough to keep your card on you for ‘emergencies only’ but it is better to be safe than sorry. I have seen even the mighty fall beneath the irresistible pull of plastic, so before you start saying things like ‘buying this pair of shoes is an emergency… it will help boost my spirits and carry me through the work week so I can make money to get out of debt.’ These mind tricks are a sure fire sign that you are not as strong as you think and the best bet would be to take a huge pair of scissors to your credit cards now.
2.Stop the influx of new offers. There is simply no point in getting rid of your old cards if new ones keep showing up at your door. One of the easiest ways to kick the credit habit is to put some distance between you and access to credit cards. You can stop receiving unsolicited offers in the mail by sending a letter to the major credit bureaus or calling 1-888-5-OPTOUT. You need to provide your name, mailing address, phone number and social security number to complete the process.
3.Devise a monthly budget. Now that you have cut your ties to credit you are going to have to come up with a spending plan. Many people have no idea how much money they spend each month when they use credit cards. To make a workable budget you should document your income and make allocations for all your major fixed expenses, such as mortgage or rent, childcare, other loans and so on. Your discretionary spending allocations; which would include groceries, transportation, and entertainment, should be realistic. When you have these basic items down you can then estimate an amount to dedicate to savings by subtracting the total of your expenses from your income. If you come up with a negative figure this would most likely represent the amount you were spending on credit to supplement your lifestyle. In other words, you were living beyond your means and you would have to slowly find a way to cut back until you regain control of your spending.
4.Pay bills using an online account. When you quit credit all of a sudden things seem a little inconvenient. You can’t phone in a payment or make recurring charges to your card and you may be tempted to fall back into the trap. You can save yourself by setting up an online account so you can use your own money to pay bills online.
5.Plan before you leave the house. Now that you don’t have credit cards to swipe on a whim, you are going to have to think ahead. This may take some getting used to, but it will definitely help you to schedule your large purchases and put a cap on frivolous spending. Over time this will amount to increased savings and more responsible choices. Not a bad move at all and definitely worth the initial pain of planning in advance.
If you follow this simple five step plan you will be able to kick the credit habit and live within your means. Choosing to do this may mean the difference between building a savings account and watching a mountain of debt pile high. I know which I would prefer… how about you?
Checking out the financial strength of an insurance provider is relatively simple and doesn’t take much of the driver’s time. If you think you will need to contact the insurer to get this information, think again. There are third party companies who go in and evaluate insurance companies to determine how strong they are financially. Each company has their own ranking system and gladly shares their findings with the public. The companies who are providing the rankings are trusted companies who have been performing these evaluations for some time.
There are three known companies we’ll discuss today that will give out their findings of which insurance companies are strong and which ones should be avoided. The first is AM Best. They are adamant about sharing who is “Secure” and who is “Vulnerable” in their finances. This is determined by their giving each company a letter grade, much like in school. Any company receiving a letter grade of B or lower is deemed as vulnerable to financial failure, but this does not indicate that AM Best knows the insurance company is going to fail. It implies that based on the company’s current finances and the way they are handling them they are susceptible to a possible failure. Companies who receive a letter grade of B+ or higher are secure, meaning they are likely to remain financially strong for the next while according to their current finances.
A second company that will evaluate the financial status of car insurance companies is Weiss Ratings. Each quarter, Weiss Ratings evaluates other companies and then will post their findings. Weiss explicitly states they do not accept any money from the companies they evaluate, which makes their findings 100% unbiased. They give out letter grades to the companies they rank, ranging from an A to an E. Receiving an A will indicate the insurer is “Excellent” while an E ranking will deem that company as “Very Weak.”
The third company is Standard and Poor’s. They have been assessing financial strength since 1971 and they also distribute letter grades, beginning with the highest markings of AAA. They offer an interactive guide for their readers to help them understand how to properly read their findings and use them for their benefit.
All ratings from these companies are their opinions based on what they have found in their evaluations. They are not guarantees, only suggestions.
The best auto insurance company is the one that has a strong financial status, great customer service, and low prices. While some companies may only offer two out of the three, make sure you are willing to sacrifice that third factor before you sign on. Occasionally the financial status and customer service may be top notch, but the price is a little higher than other companies. Some drivers may find this to be okay since they’ll be paying a little more for a better quality company, but only they can make that decision. Know what you want before you purchase a policy for better chances of being happy with the company.
You might suppose that financial innovation had done enough damage. But bankers, investors and philanthropists believe it can help the world’s poor
MANY nodded when Lord Turner, the City of London’s chief regulator, said recently that the financial industry had grown “beyond its socially useful size”. The idea that devices such as collateralised debt obligations and credit-default swaps have been a blessing, not least by allowing the less well-off to buy houses, is in tatters: lots of those new homeowners have lost their houses as well as their jobs. It is remarkable, then, that the crisis should have given fresh impetus to “social finance”, a movement based on the belief that financial innovation can be used directly to help society’s neediest people.
Two events this month should give believers in social finance a lift. On September 1st nearly 900 people, from institutional investors to social entrepreneurs, gathered in San Francisco for SoCap09, a conference dedicated to building “social capital markets”. The event was abuzz with novel ideas such as a “social stock exchange” and “sustainable hedge funds”. …
Restructuring: concept, goal and contest. Termini restructuring is of Latin origin and means changing-improvement of the structure of some object or system, i.e. its forms and consistence (morphology). It basically means unchanged character of directions of its functioning. They use restructuring from large plan in the economical texts mostly with debts, including foreign ones, payments and taxation (trade) balance, corporation sector of the economy and of separate enterprises, of banking system entirely and separate banks (other credit organizations).
They define “restructuring” in legislation in the following way: restructuring of credit organization is a complex of activities directed towards eradication of financial fluctuations of the organization and recovering its pay abilities or towards realization of liquidity of this organization. This definition doesn’t make needed opinion about the occasion to be discussed, as, in the first place, here they mean only separate credit organizations and not banking system itself, and, second, it has very technical character and mixes the essence and contest of the process of restructuring with the activities, which may (or must) be realized in this process.
Thus, there is not common, widely excepted definition of restructuring, though majority agrees with the idea, that we must consider restructuring to be readjustment of (cure) of banking system and its taking out of the crisis phase, also its returning to the conditions of good labor abilities. They sometimes use termini of “stabilization of banking system”, but we consider it to be comfortable. The fact is, that achieving stability may be provided in various ways, including the one of liquidating whole system. There is another point of view, that they consider restructuring to be the process for overcoming difficulties, appeared during the crisis. This point of view is not quite fluent.
Thinking of the essence of the affair and not its definition, hen we must consider in reconstruction of banking system as a process – totality of decisions and actions. Its basic elements are:
eradication and minimization of negative influence of bad macro-economic, political and other common factors upon situation and perspectives of functioning of banking system; improving systemic organization (structure, kinds, types) of totality of credit organizations, creation of conditions for effective and civil competition among them; improving legislative base for mutual-advantage collaboration and organization-economic mechanisms among credit organizations and their clients; increasing quality of managing entire banking system and its separate elements; financial cure of separate banks and other credit organizations; effective (with minimal social experiences) liquidation of vital credit organizations.
Foreseeing these elements, we can state following definition: restructuring banking system in managed process of its global readjustment (improvement), supported by changing in industrial, cash, taxation, budgetary and information policy, also in the policy of the banks themselves, and which is directed towards formation of banking system adequate to effective, trustful and dynamically developed modern requests.
According to this definition, restructuring effective, stabile and healthy banking system in not needed (though, it is possible to improve or reform it). Thus, restructuring is a cure (curing something that is not healthy), i.e. restructuring may be understood and must be understood to be the process, with the help of which banking system of concrete country transit to the new level of development. It is also evident, that restructuring is curing of such systems, which are in crises and can not get out of it without help. Finally, from the point of restructuring (privately displaying necessity of financial curing) we must discuss absolutely every bank. In this case, restructuring, as a process of readjustment, seems to have its own instrumentation, which will not be bounded only with the instruments of ordinal procedure banking management?
According to the mentioned above, we can make main goal of restructuring process of banking system – its recovery and taking its movement to the relatively new trajectory, at which it already gains earlier lost potential of progressive development and becomes adequate to the real sector of the economy again.
In relation with this, we must pay attention to the following principle requests towards the context of the process to be discussed: activities provided in relation to the restructuring will be profitable only in case, if we foresee not only reasons of banking crisis, but also define those fundamental; defects of economical relations, which make banking system viable at the modern stage; restructuring of banking system, which, in fact, must give rise to its reanimation in the earlier condition, doesn’t solve problems neither of whole system, nor of the country economy; it is necessary to process not only tactical activities before starting the process of restructuring, but also to set strategic objects: to receive such structure of banking, which will be adequate to the goals and functions standing towards the banks at the new stage;
while processing activities of reforming banking system they must clearly define a circle of those problems, which must be solved during the process of reforming with the help of renewed banking system and they must set the price of activities;
effective restructuring requests combined methods of approaches towards the problems. World practice processed principles and methods of approaches of solving banking crisis, approbation of which showed their sufficient effectiveness. It is nonprofessional and not expedient to use some principles and refusing others;
a process of solving crisis may not be fast, simple or cheap.
Th8is common goal, mentioned above, in its turn, may be concreted into the list of those problems, working at which must form real concept of restructuring process according to the conditions in modern Georgia:
eradication of conditions provoking banking crisis, solving problems in relation with banking sphere and real sector; financial curing of those problematic banks, which have kept viability and perspectives of development, also state support of those banks, which have abilities of effective usage of this aid; providing trustful satisfaction of basic current requests on bank services (payments and short-termed crediting) of the industrial subjects; foundation of a new, more complete structure of banks and other credit organizations (according to the forms, measures of the property, regional distribution and so on); Creation of more complete rules and instruments regulating new rules of banking activities and of this activities; Creation of conditions. Mechanisms and stimuli for turning banks to the side of enterprises, for their involving into the process of further production, also overcoming inflexibility of the banks in the process of solving investment problems; Recovering trustfulness among banks; Recovering trustfulness in relation with the banking system, appearing stimuli among population for putting their savings on the accounts; Creation of the stimuli for increasing responsibilities and effectiveness of the bank managers; Civilly closing of not viable banks and fulfillment of the mechanisms of their liquidation.
There is an idea about the fact, that main goal of restructuring banking system is recapitalization of the banks (recovering lost a capital and its further growth), but it is not quite correct: since today the hardest problem is, that a spectra of profitableness and trustfulness of capital investment is very tight.
Some bankers offer such understanding of restructuring and such pragmatic activities of radical reforming of banking system, the essence of which finally has been brought to the regrouping of the almost bankrupted banks according to the principles of specialization (specialized banks working in the country scale, banks oriented towards export or those obligated in the groups of large enterprises, also regional banks). they meant, that new “system forming” groups would obey to the strict control of appropriate governmental structures or groups of enterprises, in exchange of it, it will have right for working on budgetary resources. Suggestions of separate bankers were not related with the problems of recovering whole banking system.
We can form basic problems of restructuring banking system in the following way:
Transiting to the foundation of a healthy market banking system by readjustment of separate problematic banks, providing structural reform of banking system;
Increasing whole capital of banks and filling banking system with long-termed resources;
Creation conditions stimulating growth of the quality of market commercial banks, including those in the regions.
Main goal of restructuring program must be: creating such layer of technological market commercial banks, which provides marketing policy and makes basic profit from credit-operations. It is interesting, that within the bound of 2-3 years program share of such capital in the banking system may reach up to 30-40%, and credit share in the credit portfolio of banking system – 30%. Share of profit made from crediting in whole income of banking system must not be less, than 6%. Half of such healthy banks must still function in the regions.
The concept of those first steps, which must make foundation to the realization of effective program of restructuring banking system, must be formed in this way:
processing a conception of developing banking system and its taking as a manual 2-3 years earlier; consisting a program on working at the passed liabilities and its realization;We mean that a special state organ working on restructuring purchases from the banks their “bad money;. realizing recapitalization of the banks. we mean, that the same or other state organ enters the capitals of the banks for a little time, increases this capital and credit potential of the banks and then sells its share in the capitals of the banks; passing the law about guaranteeing deposits of the people in the commercial banks on time; creating equal conditions for competition and development of every bank. We must refuse other banks “having social importance”, “forming a system” and somehow “related” with somebody; clear formulating of the role of government and state banks in the banking system; realizing evident support of regional market commercial banks; creating effective mechanisms of developing infrastructure of the banks and their functioning; changing a system of taxation of commercial banks; processing and realization of activities refinancing commercial banks by the central bank; creation and realization of the package of legislative and organization activities developing hypothec crediting; fastening the process of transiting commercial banks to the international standards of accounting
Restructuring: principles and conditions. We can name following to be the obligatory principles (main rules) of the process restructuring banking system:
A principle of solidary obligations. The essence of it is, that in the mentioned process there participate (with out resources) and coordinate the banks themselves (in the first place – the owners), their creditors and the government. It is impossible to restructure banking system without state support. Though, it is evident, that the state will not be able to support every bank, having extremely reduced resources. Accordingly, the banks in the first place must try to solve their problems independently and the managers and creditors of the cured banks must stand on the advantage position.
The principle of minimizing loss and expenses. It says, that while realizing restructuring we must consider those activities, which give the opportunities of overcoming crisis with the less budgetary expenses (financial expenses of the society) and with little loss from the side of banking system and the clients of banks to be more prior.
Liquidation of problematic banks is much losable, but socially more difficult way. It needs especially measured method of approach towards the problems of the depositors the banks to be liquidated. Fast liquidation of not solvent banks may deepen the crisis (an Indonesian example in 1997-1998). According to the estimation of numbers of experts, best way out of it is confluence of the problematic bank with the healthy one, though this is quite doubtful recommendation.
A principle of minimizing liquidation requests to give priorities to the activities of reorganization and support and not bankrupting in the process of restructuring and financial curing.
A principle of just distribution of expenses on restructuring mean, that the stated part of expenses on curing banks must be compensated by those, who receive risks related with these banks, are responsible for their loss and make profit after restructuring (i.e. participants of the banks, its highest administration). Economical obligation of not solvent managers and owners of the banks may be expressed, for example, by adequate reduction of their own banking capital, their participation in the restructuring process in the way of additional entering in the bank capitals. Part of the loss may be covered at the expense of the depositors.
A principle of strategic method of approach means definition of the strategic problem, what kind of banking system is wanted by the society after restructuring (in the condition if it conforms to the new purposes and functions of the banks at the new stage). Only after this they must select advantage and agreed activities, which may be recommended for readjustment of separate banks and its entire system.
A principle of complex method of approach means, that a system defined by the program must be fulfilled completely. It is impossible to bring whole concept of reconstruction process to its separate consisting parts (for example, everything mustn’t be bounded only with solving financial problems displayed in one concrete period of time).
We can name such principles of providing restructuring, as transparency (necessity) of distributing expenses related with it, strengthening management of those banks, which are supported by the state, encouraging independent adaptation of the banks with the changed situation and others.
Following conditions of restructuring are also of great importance:
Success of reconstructing banking system is in close touch with how much clearly and knowing affair they formulate long-termed problems, industrial, structural and financial policy. For example, crediting enterprises, especially of large ones, is possible only in the case, if it is effective, if it leans upon clear state strategy. It is an important condition without which bank restructuring may not be successive. For successiveness of restructuring banking system it is the most necessary to recover and develop such conception, which will conform to the main economical goals. This conception may be oriented towards fulfillment of objects of operative character (recovering a mechanism of payment, solving other problems). It’s not real to try restructuring banking system, apart form reforming and restructuring the surrounding, in which bank functions. This request in the first place touched upon real sector of the economy and its active enterprises. Banking system is a kind of “built” and its successful restructuring is able by knowing what the basis is like, i.e. what kind of economy shall it support. Concrete requests and possibilities of real economy are the main criteria defining, what the banking system must be. Solving problems of real sector requests advantage economical policy of the state. In every case, real sector and banking system also needs concrete orienteer, which themselves appear to be additional stimuli of development. Restructuring of banking system must be outrun by curing of money and credit relations. Here curing of money relations must play leading role (privately avoiding barter and other cash-free “payments” in the economy). This needs providing activities stimulating investments in real sector of the economy, because it is impossible to come out of the economical crisis in other case. Restructuring banking system is impossible without staff revolution. Specialists of short-termed financial speculations must master either modern directions or give the way to those professionals, who can work with the real sector, have knowledge and ability in the part of estimating and managing investment and industrial risks. Restructuring banking system requests important correcting of legislative and normative base.
According to the mentioned above, we can separate some leading questions about restructuring banking system, on which there still is no satisfying answers.
What was the main reason of the situation, in which the banks appear? It’s thoughtful, that we must make choice among situation in real economy and peculiarities of bank activities. We consider it not to be correct to oppose two reasons to each other this way in our concrete conditions. What must turn into the basic concept of restructuring process (important consisting part)? Managers of central banks give different answers to this central question. There are such variants not conforming to each other: 1. financial curing of those problematic banks, which keep viability and perspectives of development; 2. rising the level of capitalization of the banks; 3. curing money relations; 4. recovering not as much of banks, but cash-credit relations; 5. creation functionally new banking system. What must the structure of banking system be, formation of which is purposeful? This is a principal problem. It is necessary to clear everything related with this. The banks must have an “assortment” if there is no other variant to be received. What must a conception of recovering and developing banking system be? Privately, following questions still remains to be doubtful (more in practice, then in theory): must we consider basic direction of curing banks their reorganization and readjustment, which concerns financial and other support and structural reforming?
Foreign experience of restructuring banking system. Bank reconstruction is not a unique problem. Banking crisis has been noticed almost in 70 countries during 20 years. A process of recovering balance has been continuing very difficultly everywhere and the state participated in them (though, scales of this participation were different in the different places and periods. Sometimes reasons of the crisis coincided with each other, sometimes they were specific. But forms of their solving coincided in many cases: stabilizing crediting, filling own capital of the banks, purchasing their assets (including passed debts) and others. As a rule, basic financial heaviness leaned upon the state directly, or in the way of financing specially founded agencies by it.
USA was a pioneer in the field of banking restructuring, where a system of guaranteed deposits and a special institute managing these deposits has been founded under the influence of the crisis in 1929-1933. This institution was a federal corporation insuring deposits (FCID).Next stage of restructuring banking sphere is related with the series of banking crisis took place in absolutely different countries during last 20 years.
In 1980-1991 1300 banks and 1400 borrowing-saving associations stopped existence in the USA. According to the different estimations, restructuring banking system cost 300-500 billion dollars (5% of the WIP). In 1995 banking crisis took place in Japan, in 1994-1995 – in France, in 1989-1990 – in Australia, in 1987-1989 – in Norway, in 1991 – in Sweden, in 1991-1993 – in Finland, in 1980-1982, 1900-1991 and 1995 – in Argentina, in 1990, 1994-1995 – in Brazil, in 1981-1982, 1990-1991 and 1995 – in Argentina and Mexico, in 1982-1984 – in Chile, in 1994-1995 – in India, in 1994 – in Indonesia, in 1985-1988 – in Malaysia, in 1981-1987 – in Philippines, in 1991-1995 – in Hungary, in 1990s – in Poland, Bulgaria, Lithuania, Latvia, Estonia and others. In some countries systemic crisis used to be repeated periodically. Some countries were able to avoid systemic basic crisis with the help of having insurance system, in the first place, at the expense of effective banking management and regulation.
Price of restructuring banking system is very different: 5% of WIP in the USA, 10 – in Hungary and Brazil, more, then 40 – in Chile and 55% – in Argentina.Central banks can support problematic banks in the crisis situation, especially in case of spoiling their current liquidity. In Venezuela, eight not solvent banks used special lines of liquidity for compensating money resources. Though, they were not able to cover borrowed sources in the future.
In other cases, crediting is an important step of central banks. They are supported during banking crisis and give them resources and terms for restructuring credit organizations. A long termed support provided by the central bank of Poland is a good example of it, when it purchased low profitable shares and long-termed bonds from the banks. Granting long-termed credits by the central bank sometimes depends on creation of complex plans of improving situation by the banks (list of stated activities and expected results).
Reducing the level of obligatory reserves (or increasing percentage payments on them) is another way of supporting banks, for example, part of obligatory reserves of deposits poste restates were set free for financing purchasing certificates of termed deposits of the institutions, which had been working by the program of restructuring banks.
They use special tax advantages very seldom in the process of bank restructuring. Notwithstanding this, Brazil used tax stimuli for encouraging confluence: “swallowed” bank could exclude then value of not active credits, “the sallower” received credits equaled to the distinction between the purchase and balance prices. Some countries use tax stimuli for shares and bonds issued during the realization of restructuring program.
They somehow make the rules of regulation and management under the conditions of restructuring banking system simple. They compensate this by creation such middle-termed system of regulation and management (in the crisis period), which foresees risks of banking activities more adequately.
To save the banks being in hard position actions provided by the state may support weakening the feeling of responsibility of the banks. In such conditions, the following is of great importance not to give rise to the weakening encouragement of irresponsible behavior of the banks in the future. It is considered, that it is necessary to grant a sum for making large profit and participants of the banks must be responsible for their obligations. They requested from the banks to discard a capital partially a conditions for making support in South Korea; the state obliged itself with bad debts of credit organizations in Mexico only in case if its participants used to make additional income; while bankrupting of credit organizations in Brazil and India, their participants were obliged to enter additional sum equal to the size of their initial entering in the nominal fund.
Herewith, participant of the banks are not always obliged with the responsibilities, for example, in case of the loss received from those credits, which are granted by banks by the state indications, it is necessary to range the size of responsibility, as the participants may not have possibility for solving problems in the credit organization because of the not having transparency and of the organization calculations and other reasons.
They founded specialized institutions in the most part of the countries during restructuring banking system, which have been obliged with the problems of managing this process.
A government and central banks of many countries solved problems with bank crisis and restructured own banking system in different ways. Practice has shown up, that there is neither ideal form of restructuring, nor the universal strategy of normalizing situation in banking sector. Very often this or that action depends on concrete occasion. Notwithstanding this, we may separate total signs of successful programs, which have been realized abroad:
the fastest definition of the scales of problems, its recognition on the state level and readiness of the government for granting important financial resources for solving problems;
passing transparent, activities adequate to the essence of the problem, moving “bad” assets from the problematic banks off;
processing complex, transparent, operative program, its correct and successive development;
fulfillment of the procedures of banking management.
Chile. A complex of activities. Large scaled restructuring of banking system in Chile has started since 1984, when a central bank of the country started granting stabilizing credits for supporting liquidity of the banks and purchasing their not trustful credits or changing not active assets on liquidity. Deregistration of the bank debts took place in the way of turning creditors into the shareholders.
State became a guarantor for foreign debts of the private banks. Size of the debts transited to the central bank of Chile by the end of 1985 overcame whole capital of problematic banks 3 times and consisted 6 billion dollars (25% of WIP). About 60% of expiated credits were changed on its bonds by the central bank.
They involved straight state control in numbers of system forming banks of the country.
Recapitalization of the banks transited under the state control used to be realized in the way of additional issuing of the shares placed among small and middle investors. A state corporation of supporting development (CORFO) worked on this program.
Results. The banks practically fulfilled their obligations in the part of the deposits of physical and juridical persons with the help of the used activities. Though the quantity of national private banks was reduced from 22 to 15, but they were able to keep every large bank and improve their working by 1987. After 1996 every commercial bank of Chile has been considered to be competitionable.
The value. By the end of 80s, expenses provided on restructuring banking system of Chile consisted from 30 to 40% of the country WIP.
Mexico. A complex of activities. Restructuring of banking system in Mexico has been started in 1995 after devaluation of national currency and strengthening of financial situation, which followed devaluation. One of the nominal activities of Mexican bank (main bank of the country) was involving special calculation unit UDI (unidades de inversion), which was indexed with the level of prices. Whole assets of the banks were calculated by it, for avoiding devaluations of credit portfolios of the banks.
Basic organ working on restructuring banks was banking fund of protecting savings (FOBAPROA). During the process of readjustment it expiated securities from the bank and banks provided deposing of received resources in the Mexican bank. They gave five years to the banks for expiating these papers. In other cases they were going to convert them into the shares of these banks and their realization at the market.
For solving problems with foreign debts of national banks central bank granted short-termed currency credits from these banks to them, who passed payment of these obligations. At the same time FOBADROA published doubtful assets of commercial banks. Herewith, the shareholders, in its turn, were obliged to enter sums equal to the half of resources granted by FOBAPROA. Banks were to enter resources received from this operation into the 10 year bonds.
They involved outer management of problematic banks. In some cases they granted their shares to the foreign banks. At the same time they supported bank debtors, provided restructuring of their liabilities.
Results. With the help of restructuring Mexico could avoid destroying of banking system. Deposits of the people practically were not defected. They kept trust of foreign investors in the banks of the country.
The value. Restructuring of banking system of Mexico costs 60-65 billion dollars (about 14.5% of national WIP).
Argentina. A complex of activities. State governmental organs in Argentina supported more trustful banks for solving problems of banking crisis. They used differenced method of approach. They separated banks into several groups:
I group – Middle and large banks having temporal problems of liquidity because of loosing clients. They granted them credits of central bank of Mexico and Banco de la nacio Argentina;
II group – small banks, which were to confluence with large, relatively healthier banks or were to be swallowed by them;
III group – small banks, which were at the edge of bankrupting. They stopped operations in these banks and they desired to readjust, sell and liquidate them;
IV group – 12-15 state banks owned by the administration of Argentinean provinces, which were to be privatized.
Expiation of “bad” debts was provided not by state agencies, but file largest commercial banks, which founded a special trust-fund in January 1995 together with the central bank. For compensating provided expenses they reduced a normative of reserved requests.
Results. A complex of anti-crisis activities in Argentina provided stabilization of banking system in one year. Though during this period position of foreign banks were significantly strengthened. There share in the total assets of banking system of the country drew up 42%.
The value. Expenses wasted on restructuring banking system of Argentina drew up 2.5-3.5% of the country WIP according to the various estimations.
Scandinavian countries. A complex of activities. notwithstanding distinctions in the reasons provoking crisis in every Scandinavian country, a conception of restructuring banking system leaned upon practically united conditions and principles of state support. They are:
founding a special state organ for overcoming banking crisis and providing state support avoiding mediator agencies; strengthening the role of prudential banking management and separating a special organ for its realization; overcoming deposits in relation with as physical, so juridical persons with the method of joint approach (“nobody looses”); supporting every bank in equal principles and conditions and fluent transparency of information for entire society; total method of estimating situation in banks and displaying need of state support. This support a confluence with usage of “not popular” activities towards owners and managers, which supported them. These are such sanctions, as compensation of material loss at the expense of the property of guilty managers of the bank, devaluation of nominal capital until loosing whole resources (this activity in Norway was obligatory) and so on.
Programs of restructuring banking systems of these countries were being realized by optimal conformity of responsibilities and stimuli at every level including owners, organs of managing separate banks and regulating organs of whole system.
A value. Expenses in Sweden consisted 4.3% of WIP and 9.9% – in Finland.
Hungary. A complex of activities. Restructuring banking system has been continuing in two stages. At the first stage (1992-1995) the state used to transfer important sum of money in problematic and, in the first place, large banks. At the same time clearing of bank assets in the way of changing “bad” credits at state bond took place. They used state guarantees very actively. They tried to use special structure for centralized restructuring – capital investment and development bank of Hungary, but by 1995 the banks appeared again under the critical situation.
At the second stage (1995-1997) method of approach in relation with restructuring has been changed. They used state resources only for supporting those large state banks, which were to be privatized. Restructuring made them attractive for western investors.
Results. State share in the bank capital after first stage has been increased from 41.4% in 1991 till 69% in 1994. The result of second stage was increasing the share of foreign capital in the banking system of the country till 60% by 1997 (in 1996 – 48%, in 199535%, in 1991-1994 – 12-15%) and reduction of the share of state property till 20.66%. Share of “bad” debts in total sum of debts by 1993-1997 has been reduced from 13.2 till 1.2%. There was no occasion of selling deposits or refusing returning money to the debtors.
A value. Expenses provided at restructuring banking system of Hungary consisted from 12 till 18% of its WIP.
Estimating restructuring in Russia. Necessity of restructuring Russian banking system has become evident in the middle of the 90s. They began appropriate practical activities from August in 1998, which at the beginning had an operative anti crisis character. Herewith, they paid special attention in the first variant of restructuring program to the saving of many-profiled (“system forming”), interregional banks, but later they decided to gather middle and small banks.
Operative anti-crisis activities. In 1998-1999 bank of Russia (central bank) together with the government of the country provided operative activities for recovering ability of the bank, to be able to realize basic complex of service.
1.They provided three many-sided interbank clearing, which made it possible to register 30 billion rubles for recovering taxation system. In many regions this gave opportunity to the banks to release from the cargo of nonpayment wholly or partially.
2.They decided to move obligation of numbers of banks towards physical persons to the savings bank of Russia.
3.they used a mechanism of refinancing banks from September 1998 for supporting bank liquidity: they granted Lombard credits to the more, then 80 banks, overnight – to 34, one year credits to 15 on them; they changed normative of obligatory reserves (total 5% normative). They gave banks right of regulating obligatory reserves.
4.Changes took place in the requests towards banks. Central bank postponed usage of activities influencing in case of not consisting minimal normative of own capital of the banks for two years.
5.They involved special norms regulating activities of the selected circle of banks, in which there were: rule of calculating absolute sizes of economical normative, changing of calculating rules of some normative, rule of influencing activities. this gave the banks damaged by the crisis, though having good perspectives opportunity for leaning upon the quantity of their capital owned by the banks till the first of August 1998, or changing currency course of Ruble while taking risks.
6.They reduced limit of open currency positions, strengthened rule of calculating liquidity normative.
7.They reduced 10 times registration of payment and size of the price for opening branch.
8.They changed prohibition for paying entering in the nominal capital by foreign currency.
9.They involved requests towards registration of currency risks formed by balance-free operations and termed agreements. They managed activities of credit organizations working on the consolidated basis. They involved a rule of foreseeing bank risks in the banks.
10. They continued foreseeing licensing of those banks, which abolished law, had not satisfying financial situation, and had no perspectives of development.
At the same time, Bank of Russia and a government processed long-termed activities for solving basic problems of restructuring banking system. We can separate following:
Participating in processing those legislative acts, which are necessary for success of restructuring banking system;
Working of executive government with the local organs for the purpose of defining their possible participation in normalizing banking activities in the regions;
Participation in foundation of the Agency of restructuring banking system (ARBS) and collaboration of central bank with it in the fields of restructuring separate banks;
Creation regime of prior support for restructuring banks.
For the purpose of widening possibilities of postponing own capital by the banks:
They abolished prohibition on paying entering in the nominal capital of the banks and receiving subordination loans by the foreign capital;
They processed a rule of making entering in the nominal capital of the banks, when it takes place at the expense of converting bank obligations in the licenses of participating in the nominal capital;
They changed methods of approach towards requests of minimal size of own capital. These requests are still active for newly founded banks and are abolished for the active ones;
The involved the rule of paying nominal capital of the banks by the state securities.
By the end of 1999 Russian bank announced finishing of the first stage of restructuring banking system, which means, that this system recovered ability of providing basic complex of service, they kept viable kernel of the banks.
According to the Russian bank data, quantity of problematic banks by the first of January 2000 has been reduced from 480 till 199, and by the first of November – till 155. They widened the scales of bank activities, increased their assets. Whole capital of the active banks (except saving banks) has been increased per 2.7, though its size consisted only 46% towards the August of 1998, they reduced the number of those banks, normative of liquidity of which was less, then the obligatory level H3 per 70%.
The affair has been being interrupted by the absence of an evident economical policy of the government. The bank of Russia had no conception of recovering and developing banks, which would be received by the totality of banks and finally state role and the place of central bank, instruments to be used in relation with commercial banks, main goals and directions of working with restructuring. At the way of restructuring lack of resources still remained to be the main problem.
Bank of Russia and ARBS estimated possibilities of forming quite effective instrument, which would give them possibility for organizing, managing and transformation of banking system, also,, their possibilities and readiness in the wealth of the resources of bank refinancing and self-curing.
It is more dangerous, that bank of Russia considers liquidation of the banks to be prior way of working with problematic banks.
Herewith, liquidation of the banks loosing license is processing very slowly and is followed by large expense. To the mind of Bank Association of Russia (BAR), restructuring process is continuing slowly and not progressively. They consider, that bank of Russia has been able to define banks to be supported, discuss the programs of their curing and supporting realization of these programs. They have had enough time for avoiding not viable banks, but they haven’t done that. 40% of credit organizations of banking system have lost their licenses, and only 3/5 of them have been rubbed out of the registration book. Middle term of liquidation procedures is 2-3 years. Herewith, almost half of competition mass is worked for organizing competition management and current expenses. Creditors of the banks in such occasion loose their money forever. It seems that n case of liquidating bank only those of the interested persons win, who provides the procedure of liquidation and bankrupting.
Finally, it must be mentioned, that bank of Russia practically refused providing credit support to the banks for the purpose of providing stabilizing activities. The state refused to support practical programs of restructuring banking system as well. After these, the society suffers more and more loss.
They often call a process of transforming banking system in Russia “slowly progressive restructuring”. Truly, in fact it is brought to the individual and spontaneous “conformity” of the banks to the new request of the time. This makes it dangerous, that this will recover only earlier banking system – with the same weaknesses and defects.
Experience of overcoming banking crisis in the USA. US economy has been influenced by banking problems several times. One of them appeared during the period of large depression of 1929-1933. Thousand of bank deposits were devaluated because of ineffective operations of the banks, also not returning of the granted loans and total degradation of the economy. They closed hundreds of banks and provided confiscation of thousands of objects because of not returning of loans. US congress passed laws about founding federal corporations insuring deposits and also those insuring loans and savings. Except insuring, these corporations were obliged to research a lot of financial institutions for the purpose of finding defects in bank legislation and procedures and regulation of banking operations. This system has been working effectively during many years.
By the end of 1970 and beginning of 1980 banking industry of the USA was fluctuated by another financial catastrophe. To the analytical mind, reason of this was defective practice of granting doubtful credits, also, not transparency of the activities of regulating organs. Such organs that time were department of currency control, corporations mentioned above and institutions of Federal Reserve System. Exactly this time they destroyed reductions on percentage rates set for the banks on the attracted resources. They gave the banks right to pay any percents to the depositors (but higher, then market rates). That’s why rates in the 80s overcame annual 20%. It is evident, that the banks were to grant credits in higher percents (25% and more) for keeping profitableness.
Prices were being grown, especially those of immovable property (mostly because of expensive inner prices on oil). They abolished reductions to the borrower-saving associations on realization financing venture projects related with immovable property and speculative commercial operations (at whole US territory). Then they let the commercial banks grant credits on reconstruction projects and other risky operations related with immovable property (the government stimulated such operations), as in the country, so abroad. Herewith, for guaranteeing such credits, banks attracted deposits with very high percents. By the end of the 80s it was impossible to return such credits because of high percents and side spread of speculative character of the borrowers’ operations. Scales of bankrupting companies and private persons in those years were extreme. Finally, values of oil and immovable property have been significantly cheapened. Because of low level of banking management and under the conditions of deregulation reduced the number of hundreds of borrow-saving associations and financing resources of commercial banks, that they started using deposits attracted by the higher rates for payments on the old deposits and, they continued granting risky credits. By the end of 1988 both mentioned corporations were nearly bankrupted, as they were to give all their resources to the not solvent banks and associations in the way of insurance payment. The US congress was to provide banking reform again.
Under such conditions the congress passed the law about reforming, recovering obligations of financial institutions and compulsory payment (FIRREA). This law signed in 1989 became the most fluent banking law, had ever being passed in the USA. For its realization and according to it they founded Trust Corporation of returning resources (RTC), which has following goals:
Liquidation of a lot of bankrupted borrow-saving association; Provision maximal returning of resources and minimizing loss of the payers; Minimizing results of the crisis for immovable property and financial markets; Providing cheap apartments for the people having low and middle income.
The congress didn’t pass those parts of the legislative act, which foresaw financial support of the shareholders of problematic credit organizations and thus didn’t help massive restructuring of such organizations. Thus, Credit Corporation started playing functions of liquidations department and not those of restructuring agency.
Restructuring separate banks of the USA was realized only in exceptional occasions and even if the share-holders were ready to enter additional important resources into the capital and the creditors agreed to find compromised solution of obligations related with discounting. Herewith, they were to like restructuring plan. During whole history, they provided restructuring only of several banks in the USA.
During the six year of existence, Trust Company managed and liquidated 747 not solvent borrow-saving corporations (40% of such organizations). A corporation, usually, was able to find firm and easily managed bank, which would oblige itself with obligations existed at the deposits of the bankrupted organizations. According to the FIRREA law, corporation used to give such banks cash or liquid assets of same volume. When transition of deposits didn’t take place in such banks, the corporation according to the corporation normative paid the depositor guaranteed part of their deposits (not more, then 100 000 dollars). Middle rest on the depository account in the bankrupted organizations consisted 7500 dollars, total quantity of their depositors overcame 25 million people. Total balance value of the shares of these organizations was 451 billion dollars. By the end of the activities of RTC, in December in 1995, 95% of these assets were sold per price equal to the 87% of balance value, or the corporations was able to return 87 cents on every dollar.
RTC processed and involved special methods of marketing and realization of bank assets, most of which have been used widely in other countries, they are:
Securitization of commercial loans united in pulls (emission of turnover securities by provision); Wholesale of the rights of request on credit to the large market corporations; Concluding open auctions in the regions; Organization of conducting open tenders on the federal level; Conducting auctions and tenders by participation of foreign investors; Realization of immovable property by the scheme of financing agreement; Creation data base of the objects of immovable property managed by RTC (the base became available for the interested buyers allover the world).
RTC administration knew, that mission of this corporation would be hard to be fulfilled, without having correctly planned strategy, strictly processed methodology and procedures, also without strict control. The most difficult problem was conforming conditions of selling assets, covering loans and restructuring, also stating responsibilities and limits of wasting RTV resources.
They found way out by setting limits and wide distributing obligations. The procedures of transiting obligations to the staff workers foresaw preparing statement on every asset.
As a rule, main reason of banking problems is bad management. Inability of the setting good inner control and strict keeping of the procedures finally brought the bank to the strengthening problems and bankrupting. Unprofessional management may give rise to the mistakes in managing risks and liquidity. When these questions are guaranteed by the managers and administration of the banks, this is followed by problematic assets and problematic banks. Exactly this took place in the USA in 1970-80s. There were too many banks and they granted huge credits, and this was absolutely incorrect. Weak organization of selecting borrowers by the banks, entering of payments and controlling financial position of the borrowers and also weak management showed up.
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