Lesson 2 Deposit-taking and non-deposit-taking institutions

Lesson 2 Deposit-taking and non-deposit-taking institutions...

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Deposit-taking and non- deposit-taking institutions Course: Money & Banking Instructor: Juraj Draxler
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Classification of financial systems
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Bank-based Banks have a central role in corporate lending In Germany, Japan or France banks provide about 20 % of net corporate financing (as opposed to other forms, which may be 3-4 %) In all systems most of financing comes from internal funds Banks tend to have close relations with industry Banks tend to be more of a universal type rather than specialized
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Market-based Corporations rely much more heavily on equity financing, or issuing short (commercial paper) or long-term (bonds) debt Corporate system tends to be much more competitive Links between the financial sector and industry are not very strong
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Issues: In bank-based markets, fewer citizens are shareholders, naturally Political implications? Economic implication? Corporate and household debt: in recent years, the role of household debt grew dramatically (e.g. in the UK, households have been borrowing more from banks than all of the corporate sector)
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Banks vs non-deposit-taking institutions
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Banks: Borrow short, lend long Provide standardized contracts, incl. fixed interest on deposits and loans Why? – Asymmetry of information » instead of trying to find out info about the other party, the depositor will need to know that a bank is licensed and that it has good reputation, while the bank will offer standard terms to everybody – managing risk by informing itself about the market rather than individual clients To realize economies of scale
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Lesson 2 Deposit-taking and non-deposit-taking institutions...

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