You are going to know about the banking issues in the 21st century. Financial systems evolve through time, passing through three phases:
Phase one: This phase is bank oriented where most external finance is raised through the bank loans which in turn is funded through savings. Banks are the most important financial intermediaries in the financial system and interest income is the main source of revenue. The banking issues in the 21st century is the much-talked topic of this century.
Phase two: This phase is market-oriented. Households and institutional investors begin to hold more securities and equity. And non-banking financial institutions offer near bank products such as money market accounts.
Phase three: In this phase trading, underwriting, advising and asset management activities have become more important for banks than the traditional core banking functions.
The position of the banking sector at the beginning of the new century:
- It will be wise, to begin with, the performance of banks measured by banks profitability: It is mentionable that in the 1990s Japanese banks went very profitable, became even more so. But banks’ profit elsewhere either trendless or slipping. The recovery to average levels in I999 was short-lived.
- The growth of bank assets: In the I970s, banks’ assets grew rapidly in nominal terms across the 14 counties. But more restrictive monetary policies and lower inflation contributed to the sharply lower growth of bank assets almost everywhere in the 1980s and 1990s.
- Banks foreign assets: Foreign assets growth rates tended to outpace domestic assets in all three decades. The average ratio of total assets to nominal GDP for most industrial countries rose in 1970. For Switzerland, banking assets had been more than 100% off national income since the I970s & very nearly so for Japan & Germany. In other countries, there had been a steady rise from 40% to 60% of national income in the 1970s to well over 100% by the l970s.
- Employee Cost: While profitability was fairly static, banks were looking for other sources of income by expanding into non-interest income areas.
- Share price performance: The Relative share price performance of banks gives the most important idea of what the market thinks about the future prospects of the bank completed to the other sectors.