Now, I am describing the banking system around the world. Previously I described the banking system in Bangladesh. In the prevailing world, commercial bank management systems are more or less similar in principle. Dissimilarities exist in the scope of commercial banking activities in different countries. Communist countries’ commercial banking systems are completely different. Capitalist countries differ with respect to free-market economic banking activities. From this perspective, we can divide the major commercial banking systems in different countries into the following groups:
- Anglo-American Banking System
- German Universal Banking System
- Japanese Main Banking System
- Indian Lead Banking System
Read more about these four types of banking systems:
Anglo-American Banking System:
This system is prevalent in most of the countries in the world along with Bangladesh. It’s the most used banking system around the world. There are differences between the commercial banking system and investment banking system around the world. But commercial banks cannot operate investment banking activities. Separate investment banks or merchant banks are established in these countries for the operation of investment banking activities. Besides, this system does not allow the transactions of shares or securities for different accounts of the clients.
However. this practice is not applicable to Bangladeshi banks. Commercial banks cannot be the owner or director of other corporate houses by purchasing sufficient shares. That is, the relationship between commercial banks and corporate houses will be creditor and client relationship: not the owner relationship.
German Universal Banking System:
This system is prevalent only in Germany. There is no difference between commercial banking and investment banking in this system in the world. Commercial banks can operate any type of business activity. Commercial banks can buy up to 40% of shares of corporate firms and participate in the ownership of the firm. In this system, a commercial bank can monitor any firm in two ways Firstly as creditor and secondly as owner/director. Commercial banks participate in determining financial policy along with investments. So, this type of commercial banking system is called a universal banking system or relationship banking.
Japanese Main Banking System:
This banking system is closely related to relationship banking. In this system, there are differences between investment banking and commercial banking system around the world. But commercial banks have no restriction to participate in the ownership of the corporate firm. This is the hybrid form of the above two systems. That is, banks cannot participate in investment banking activities. The bank can buy 5% share of any companies and participate in the ownership.
In this system, banks can monitor the companies as owners and creditors. Banks can influence the formulation of financial and investment policies of these firms. Banks also can undertake the management responsibility temporarily in the time of the financial crisis of these firms. That is, banks maintain a long-term relationship with client firms. Only one controller bank is present in the main banking system. A company’s main bank is the bank that gives the highest loan (10-20%) to that company and also becomes the principal shareholder (5%) of that company. Besides, this baking system performs all the banking transactions of that company through this bank.
Indian Lead banking system:
This system was developed in India by the end of 1960. Every lead bank performs extra responsibilities with the existing commercial banking system in the world. The purposes of this system are to increase the rate of savings, equitable allocation of financial resources on the basis of some criteria to various sectors of the economy and to increase efficiency in investment and only and production. This system divides the country’s geographical area into different segments and only one lender bank is selected for each area. That area’s each & every commercial bank and other operating financial’s loan activities are transacted according to the advice and guidelines of the lead bank.