The modern credit system is a collection of various credit and financial institutions operating in the loan capital market and carrying out the accumulation and mobilization of money capital. The essence and functions of credit are realized through the credit system.
The processes of concentration in the banking sector, which largely determine the development of the credit system, have a number of important features in the post-war period. Significant changes are also taking place in the operations of banks and, in particular, in the forms of their relations with industry. Characteristic is a combination of universalization tendencies, i.e. expansion and combination of functions, and specialization, i.e. identifying special types of financial institutions with their own specific functions.
The monopoly stage of capitalism led to the emergence of new credit and financial institutions, which began to develop rapidly after the crisis of 1929-1933. There has been a more complete delineation of functions between various financial institutions within the credit system. Insurance companies (mainly life insurance companies), pension funds, investment companies, savings and loan associations, and other specialized institutions quickly grew and took major positions in the capital market. They have become the main source of long-term capital in the money market, displacing commercial banks in this area.
However, the fall in the share of commercial banks does not mean a reduction in their role in the economy. They continue to perform essential functions credit system: settlement operations, deposit check issue, short-term and medium-term financing, as well as a certain part of long-term financing.
Credit and financial institutions carry out their functions in the economy in three main areas:
1) provision of loan capital to industry and the state;
2) accumulation of free monetary capital and monetary savings of the population;
3) ownership of fictitious capital.
A wide network of specialized credit and financial institutions made it possible to collect free cash capital and savings and make them available to commercial and industrial corporations and the state. Thus, the development of the credit system was one of the most important prerequisites for ensuring a relatively high rate of capital accumulation, which contributed to the growth of production and the implementation of the scientific and technological revolution.
The development of a multi-tiered credit system in capitalist countries raises competition to a new level, changing its forms and methods. The competition of banks and other financial institutions should be considered in the close connection of these institutions with groups of financial and non-financial corporations. The struggle between credit and financial institutions is in many cases a struggle between various financial and industrial groups. However, within their framework there is a contradiction between banking monopolies and industrial corporations.
Credit and financial institutions, especially large commercial banks and insurance companies (as monopolists of loan capital), have a broad basis for collusion among themselves. This policy is being carried out to the detriment of small and medium-sized firms, as well as the general population using mortgage and consumer loans.
Large financial institutions actually practice credit discrimination against part of their clientele. New credit institutions grow and develop much later than the banking system. Structural changes in the credit system are intensifying competition not only between “new” and “old” credit institutions, but also in the field of activity of specialized non-bank credit institutions themselves.
Some credit institutions invade the traditional areas of activity of other institutions, and vice versa. There is competition between all financial institutions for areas of attracting savings and investment of capital, as well as a kind of specialization between individual groups of financial institutions. Thus, commercial banks in the field of attracting savings are actively fighting with savings banks, which is expressed in the desire to prevent them from expanding their branch network. Pension funds and life insurance companies face intense competition to attract retirement savings. Pension funds, being independent institutions but managed by banks under a power of attorney, have in recent years supplanted life insurance companies in attracting savings from the population.
Commercial banks and insurance companies compete with each other in the long-term capital market. Commercial banks began to more often provide loans for periods of up to 8-10, and sometimes up to 12 years, thus going beyond the limits of conventional medium-term lending. At the same time, the development and deepening of inflationary trends in the US economy since the early 1970s. prompted insurance companies to reduce loan terms, first to 18-20, and then to 10-15 years. This, on the one hand, led to the convergence of loan capital markets and, consequently, to increased competition between them, and on the other hand, it increased the tendency towards cooperation.
Banks are increasingly inviting insurance companies to participate in loans to corporations. As a result, the loan is divided between banks (the first five years) and insurance companies (the subsequent period) over time. Insurance companies engage commercial banks to participate in industrial loans when the total loan amount exceeds the capabilities of a given insurance company or group of companies.
In contrast to European practice, neither commercial banks nor US insurance companies create syndicates to provide large loans, fearing that antitrust laws may be applied to them. Large loans in the United States are placed in the form of individual participations of banks, insurance companies and other financial institutions without the formal creation of a syndicate or any other association.
US insurance companies prefer to enter into direct relationships with their potential borrowers. Therefore, they are characterized by the so-called direct, or private, placement of loans and investments. In this area, the largest US life insurance companies have the greatest influence, concentrating in their hands the overwhelming mass of insurance assets. In the early 1990s. ten largest companies owned 40% of all assets in American life insurance.
The development of competition between various credit and financial institutions is to a certain extent cyclical in nature: if during the period of depression the competition between them intensifies for the application of loan capital, then during the period of recovery and recovery the competition for attracting savings of enterprises and the population in the form of deposits, insurance and pensions increases contributions.
Both price and non-price competition is fully developing between credit institutions. For commercial banks, the possibility of price competition in the field of attracting deposits is largely limited (the establishment of interest rates on time and savings deposits is regulated by law, and the payment of interest on current accounts is prohibited), therefore non-price competition prevails among commercial banks. At the same time, savings banks have a great advantage over commercial banks, since interest rates are not controlled by law. This makes it possible to pay high interest on deposits, which gives significant advantages to savings banks in attracting savings from the population.
Insurance companies and pension funds also widely use non-price competition methods (for example, favorable contract terms, new types of insurance and security, flexible insurance policy conditions that can satisfy certain client needs). In relation to loans and the provision of credit, competition between financial institutions is of a specific nature. In any group of financial institutions interest rate for loans is established by the so-called “price leadership” method, i.e. determined by a small group of banking monopolies.
Large financial institutions use small and medium-sized firms to compete. If earlier large banks and insurance companies almost did not finance small firms, considering this an undignified matter that undermined their reputation, then by the end of the 1960s. Credit and financial institutions revised their policies and began to expand lending operations for small firms. Thanks to this policy, the largest monopoly in the field of life insurance, Prudancial, sharply increased its operations in financing small businesses and in 1967 its assets overtook Metropolitan, which was considered the leader in the insurance business for many decades. Bank of America used similar methods, which allowed it to become the leader of US commercial banks in the 1960s.
In a number of cases, large financial institutions temporarily incur losses in order to increase their competitiveness. Powerful financial institutions widely use in their competition the achievements of the scientific and technological revolution, in particular electronic computer technology, which allows them to significantly reduce production costs and reduce the cost of mass operations (commercial banks - check circulation, insurance companies - invoice processing, actuarial and tariff calculations).
Money. Credit. Banks: lecture notes Shevchuk Denis Aleksandrovich
48. Credit and financial institutions of the country
Deposit-type credit organizations
Financial intermediaries are depository-type institutions. The main institutions of this group are commercial banks, savings institutions and credit unions. Credit banks offer the widest range of services for raising funds from economic entities. Commercial banks occupy a dominant position in the Russian financial system. Savings institutions – The main source of funds is savings deposits. These institutions borrow funds for short terms using checking and savings accounts and then lending them out long term secured by real estate. Credit unions– mutual lending institutions. They accept deposits from individuals. persons and provide loans to members of the union on terms acceptable to them. Provide funds in the form of short-term consumer loans. Usually created on a professional basis.
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From the book All the best that money can't buy. A world without politics, poverty and wars by Fresco JacquesThe part of the credit system mentioned above, represented by specialized credit, financial and postal savings institutions, is called the parabanking system (see Fig. 13.4.1). Financial organizations of this system are distinguished by their focus on serving certain types of clientele or on providing mainly one or two types of services, most often of a specific nature. Their activities are concentrated for the most part on servicing a small segment of the financial market.
The very name “para-banking system” is rarely used; this peculiar part of the credit system is better known under the name “specialized credit and financial institutions,” which emphasizes special shape activities of these institutions.
Specialized credit and financial institutions are characterized by dual subordination. On the one hand, being associated with the implementation of credit and settlement operations, they are forced to be guided by the relevant requirements of the central bank. On the other hand, specializing in any financial, insurance, investment or other operations, specialized financial institutions are subject to the regulatory influence of the relevant departments. Thus, they can be under double or even triple departmental subordination. It often happens that the regulatory, mandatory requirements of one agency contradict the guidance of another agency, which allows or forces credit institutions to maneuver using more favorable regulatory guidance.
A special type of specialized credit and financial institutions are postal savings institutions that form the postal savings system. One of the most important and oldest elements of this system are postal savings banks, which historically arose as government agencies to attract funds from small investors. Postal savings institutions, through post offices, accumulate deposits from the population, receive and issue funds. Recently, in most countries, credit and settlement operations of postal savings institutions, characteristic of banks, have become increasingly widespread, and the lines between the provisions of banking legislation and other areas of financial legislation regarding the subject of activity and types of services provided by various credit institutions are becoming increasingly blurred.
Among the institutions of the parabanking system, credit institutions can also include pawnshops, credit partnerships, societies and unions.
Pawnshops are credit institutions that issue loans secured by movable property. Historically, pawn shops originated as private usury lending businesses. In many countries, there has been a tendency to nationalize pawnshops and give them a “state-owned” character. At the same time, the share and form of state participation in the formation of capital and the activities of pawnshops are different. In most cases, in order to exercise state control over the activities of pawnshops, they are created under some government agency that appoints (for a certain period) a pawnshop manager. Depending on the degree of participation of the state and private capital in the activities of pawnshops, state and municipal, as well as private and mixed types (with the participation of both private and public capital) pawnshops are distinguished.
The specialized function of pawnshops is the provision consumer loan secured in the form of a pledge of movable property, including precious metals and stones (usually with the exception of securities).
Pawnshops in Russia issue mainly short-term (up to 3 months) loans in the amount of 50 to 80% of the value of the pledged property. Pawnshop operations for storing clients' valuables are practiced, as well as the sale of pledged property on a commission basis. This range of operations determines the specifics of the organizational structure of pawnshops: in addition to branches and branches, large pawnshops may have a network of warehouses and stores. A peculiarity of the organization of credit operations is the absence of a loan agreement with the client and a collateral obligation. Most transactions provide for a grace period, after which the pledged property can be sold.
Credit unions are credit cooperatives organized by certain groups of individuals or small credit institutions. They can be of two types: 1) organized by a group individuals on a professional or territorial basis for the purpose of providing a short-term consumer loan; 2) in the form of voluntary associations of a number of independent credit partnerships, for example, savings and loan partnerships, mutual credit societies. The capital of credit unions is formed by paying for shares, periodic contributions of their members, and issuing loans. The main operations of such unions: attracting deposits, issuing loans, providing loans secured by their members, accounting of bills, trade intermediary and commission operations, consulting and auditing services for their members.
Mutual credit societies are a type of credit institutions similar in nature to commercial banks serving small and medium-sized businesses. Participants in societies can be both individuals and legal entities, forming the capital of the company through entrance fees.
Credit partnerships are created for the purpose of credit and settlement services for their members: cooperators, rental enterprises, small and medium-sized businesses, and individuals. Capital of credit partnerships
is acquired by purchasing shares and paying a mandatory entry fee, which is not refundable upon departure. The main passive operations are attracting deposits and placing loans; active - loan, commission, trade and intermediary operations.
A variety of credit partnerships are agricultural credit societies (ACS), the founders of which are branches of central, commercial and specialized banks, government agencies, individuals and legal entities. The main direction of their activity is assistance and credit and settlement services agriculture, lending costs for the purchase of equipment, livestock, seeds, etc. Clients are peasant farms, farmers, and agricultural enterprises. The main operations of partnerships: short- and medium-term loans and acceptance of deposits, intermediary activities. A special feature of USC's activities is its significant tax benefits.
Financial companies are various institutions that provide credit for the sale of goods. The most common form is installment sales finance companies for consumer durables. They issue loans to various trading companies against sold goods in installments, purchasing customer obligations. Other companies engage in trade lending operations, making loans to industrial firms that ship goods on an installment basis. There are companies that provide loans to the population for various purposes.
Insurance companies (societies) are financial institutions, the peculiarity of which is a unique form of raising funds - the sale of insurance policies. When placing funds, insurance companies compete with other financial institutions. The main item of assets in which they invest are bonds of industrial companies, shares, and government securities. In other words, they provide long-term loans to the state.
Pension funds are credit institutions primarily engaged in the formation of a pension fund and the issuance of pensions. The funds received are invested mainly in shares of industrial companies.
Investment companies place their obligations among small holders and use the proceeds to purchase securities in various industries.
International financial organizations are divided into private and public institutions.
- 1. International private financial institutions consist of banks and non-banking institutions.
- a) Banks. Significant investment potential is concentrated in institutions of the banking system, which, unlike many other intermediary institutions, have exceptional opportunities to use transaction funds and issue credit. By accumulating temporarily released financial resources, banks direct them through the channels of the credit system, primarily to the key, most dynamically developing sectors and industries, thereby contributing to the implementation of structural restructuring of the economy. The banking system is an important source of satisfying investment demand. Despite the relatively high level of self-financing in countries with developed market economies, domestic monetary resources do not cover the total need for investment. This gap becomes especially obvious when major structural changes occur in the economic organism of countries, when the demand for investment increases sharply.
The basic basis of the banking system are universal commercial banks, which are multifunctional institutions operating in various sectors of the financial market. At the same time, the development of a trend towards specialization of banking services has led to the establishment of specialized investment banks. A feature of the activities of investment banks is their focus on mobilizing long-term capital and providing it through the issuance and placement of shares, bonds, other securities, long-term lending, as well as servicing and participating in the issuance and founding activities of financial companies.
In the modern credit system, there are two types of investment banks. Banks of the first type provide services related exclusively to trading and placement of securities, banks of the second type - with the provision of medium-term and long-term loans.
Investment banks of the first type have become widespread in England, Australia, Canada, and the USA. Investment banks of this type, as a rule, are prohibited from accepting deposits from individuals and firms; their resources are formed through their own issuing activities (issuing securities) and attracting loans from other financial and credit institutions. Investment banks act as organizers of primary and secondary circulation of third party securities, guarantors of the issue, intermediaries and lenders in stock transactions, active participants in the mergers and acquisitions market, agents purchasing part of the company's unplaced securities, as well as financial consultants on securities and other aspects of the activities of firms and corporations.
Investment banks of the first type operate mainly in the primary over-the-counter securities market, carrying out intermediary activities in the placement of securities. The main methods of placing securities are underwriting (purchase of the entire issue of securities with subsequent organization of its placement on the market), direct placement (in which banks act only as consultants to sellers and buyers of securities), public placement (when investment banks form a group for placement securities on the market), competitive bidding (where investment banks are auction organizers). When implementing large issues of securities, investment banks create syndicates and consortia. Currently, investment banks of the first type are powerful and dynamically developing financial and credit institutions.
Investment banks of the second type have developed in a number of countries Western Europe(Italy, Spain, the Netherlands, Norway, Portugal, France, Sweden) and developing countries. The main tasks of these banks are medium- and long-term lending to various sectors and industries of the economy, implementation of special targeted projects in the field of advanced technologies, as well as government programs stabilization of the economy and socio-economic development. They are engaged in various operations in the loan capital market, accumulating the savings of individuals and legal entities, providing medium- and long-term loans to companies, investing in government and private securities, and other financial services.
It should be noted that in a number of countries investment banks perform functions that are characteristic of both types of investment banks. In England, Canada, and the USA, investment banks of the second type do not exist; long-term lending is carried out by other types of financial and credit institutions. In some countries (Germany, Finland, Switzerland), the functions of investment banks are performed by commercial banks.
Mortgage banks are a specific investment institution. They carry out credit operations to attract and place funds on a long-term basis against collateral real estate- land and buildings. Along with their main activities, mortgage banks can engage in investing in securities, issuing loans secured by securities, and other financial services. The resources of mortgage banks are largely formed from funds raised from the issuance of mortgage bonds and mortgage notes. These debentures are solid interest-bearing securities and are backed by a pool of mortgages issued by the bank.
b) Non-banking financial and credit institutions. Non-banking financial and credit institutions include pawnshops, credit partnerships, credit unions, mutual credit societies, insurance companies, pension funds, financial companies, etc.
Pawnshops are credit institutions that issue loans secured by movable property. Historically, they originated as private usurious lending enterprises. IN modern conditions In many countries, the state participates in the formation of capital and the functioning of pawnshops. Depending on the degree of participation of the state and private capital in their activities, pawnshops are divided into state and municipal, private and mixed types. Pawnshops specialize in providing consumer loans secured by collateral of movable property. Operations for storing clients' valuables are also practiced, as well as the sale of pledged property on a commission basis. This range of operations determines the specifics of the organizational structure of pawnshops: in addition to branches and branches, large pawnshops may have a network of warehouses and stores.
The peculiarities of credit operations in pawnshops include the absence of a loan agreement with the client and a collateral obligation. When issuing a secured loan, the client receives a security ticket, usually to bearer, which has a registration number in the registration journal, which indicates the details of the borrower and the main terms of the transaction. Most loan transactions provide for a grace period, only after which the pledged property can be sold.
Credit partnerships are created for the purpose of credit and settlement services for their members: cooperatives, rental enterprises, small and medium-sized businesses, and individuals. The capital of credit partnerships is formed by purchasing shares and paying a mandatory entrance fee, which is not returned upon disposal. The main operations of credit partnerships include the provision of loans, commissions and intermediary operations.
Credit unions are credit cooperatives organized by groups of individuals or small credit institutions. They come in two main types. Credit unions of the first type are organized by a group of individuals united on a professional or territorial basis. Credit unions of the second type are created in the form of voluntary associations of a number of independent credit partnerships. The capital of credit unions is formed by paying for shares, periodic contributions of credit union members, and issuing loans. Credit unions carry out such operations as attracting deposits, providing loans secured by members of the union, accounting of bills, trade intermediary and commission operations, consulting and auditing services,
Mutual credit societies are a type of credit institutions that are similar in nature to commercial banks serving small and medium-sized businesses. Participants in mutual credit companies can be individuals and legal entities who form the capital of the company through entrance fees. When admitting a mutual loan to a society, the admission committee evaluates the applicant’s creditworthiness, the guarantees or sureties provided by him, the property security and determines the maximum allowable amount of the loan opened to him.
Upon joining, a member of a mutual credit company contributes a certain percentage of the loan opened to him as payment for the share contribution, and undertakes to bear responsibility for his debts, as well as the operations of the company in the amount of the loan opened to him. When leaving a mutual loan company, its participant repays the amount of the principal debt, his part of the company's debts, after which the entrance fee and the pledged property are returned to him.
Insurance companies, selling insurance policies, accept savings from the population in the form of regular contributions, which are then placed in government and corporate securities, mortgages for residential buildings.
The regular influx of premiums, interest income on bonds and dividends on shares owned by insurance companies ensures the accumulation of stable and large financial reserves.
Insurance companies can be organized in the form of a joint stock company or a mutual company. In the latter case, the owners of the insurance policies are co-owners of the company; The policyholder's accumulated premiums are treated as his share in the mutual company.
Private pension funds are legally independent firms managed by insurance companies or trust departments of commercial banks. Their resources are formed on the basis of regular contributions from workers and contributions from companies that formed the pension fund, as well as income from securities owned by the fund. Pension funds invest in the most profitable types of private securities, government bonds, and real estate. They are the largest institutional owner of shares, and their concentration of shareholder control typically exceeds the concentration of shares of the same firm held by investment and insurance companies. The share of investments in highly liquid assets (current deposits, treasury bills, etc.) is relatively small. Pension funds are distinguished by a stable financial position and a well-thought-out investment strategy.
Finance companies specialize in financing installment sales of consumer goods and issuing consumer loans. The source of financial companies' resources is their own short-term liabilities placed on the market and bank loans.
