2. Sectors-40. Finance-4010. Banking-TVS_A Look at the Vietnamese and US Banking Systems.pdf

2. Sectors-40. Finance-4010. Banking-TVS_A Look at the Vietnamese and US Banking Systems.pdf

Info icon This preview shows pages 1–4. Sign up to view the full content.

A Look at the Vietnamese and US Banking Systems By Alex Sycara-Lewis
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

2 Table of Contents Introduction: Why look at the Banking System? ----------------------------------------------------------- ---3 The Vietnamese Banking System ----------------------------------------------------------------------------- --5 Recent Central Bank reaction to decline in asset prices and threat of inflation ------------------------- --7 The US Banking System ---------------------------------------------------------------------------------------- --9 Recent Central Bank reaction to mortgage crisis ------------------------------------------------------------- 11 Contrast between the US and Vietnamese Banking Systems ----------------------------------------------- 13 Reforms that may strengthen the Vietnamese Banking System -------------------------------------------- 15 Conclusion --------------------------------------------------------------------------------------------------------- 17
Image of page 2
3 Introduction: Why look at the Banking System? Nearly all countries around the world have banking systems, organized around central banks, which carry out basic and fundamental roles in modern economies, such as parsing through macroeconomic data and predicting what direction the economy is headed in, and what policies to implement in order to ensure that economic growth is consistent and smooth, with as few fluctuations as possible. This includes monitoring and keeping an eye on inflation, as well as the current balance of payments, and looking at productivity growth rates and labor force growth to try to ensure that the economy grows at about the rate of potential GDP growth (growth of labor force plus productivity growth). Although all central banks deal with these everyday issues, they have even more important roles to play when financial crises within the banking and financial system breakout, and the collateral damage that ensues needs to be contained. Although the reason for a serious disturbance in the financial system may vary (the Asia Crisis of 1997-98 was sparked by the un-sustainability of Thailand’s current account deficit from the flow of foreign capital into the country, which lead to a stampede out of regional assets, whereas the current mortgage crisis in the US has been caused by falling housing prices triggered by increases in mortgage payments that borrowers can’t pay), all have the effect of putting the financial system at risk, as banks suffer from defaults on their books and have worse balance sheets and falling profits, as well as potentially failing due to runs on banks seen as vulnerable via depositors withdrawing cash until the banks lack sustainable capital. Not only are financial institutions put at risk, but there can be spill over effects into the real economy if the crisis spreads, as banks call in loans to reduce their leverage, and credit is tightened, thereby greatly restricting available credit, which in turn vastly reduces the ability of consumers and businesses to borrow money and spend. This can lead to contractions in consumption and demand, which may enter a vicious spiral downward in the worst case scenario (like the contraction of credit and demand during the great depression in the US). The ability of central banks to deal with these crises when they occur is crucial. If the financial crisis in and of itself can be resolved by the central bank carrying out conventional actions, such as lowering the prime rate (the
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern