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The document discusses the banking system structures in Germany and Brazil. In Germany, banks are typically universal banks that provide commercial and investment services. The German banking system consists of three sectors - the commercial banking sector, savings bank sector, and credit cooperative sector, which together account for 80% of banking activity. The savings bank sector has the largest share. Brazil has a solid banking system with national banks and branches across the country providing modern electronic services.
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Secondary research on the banking structure of Brazil and Germany
The document discusses the banking system structures in Germany and Brazil. In Germany, banks are typically universal banks that provide commercial and investment services. The German banking system consists of three sectors - the commercial banking sector, savings bank sector, and credit cooperative sector, which together account for 80% of banking activity. The savings bank sector has the largest share. Brazil has a solid banking system with national banks and branches across the country providing modern electronic services.
The document discusses the banking system structures in Germany and Brazil. In Germany, banks are typically universal banks that provide commercial and investment services. The German banking system consists of three sectors - the commercial banking sector, savings bank sector, and credit cooperative sector, which together account for 80% of banking activity. The savings bank sector has the largest share. Brazil has a solid banking system with national banks and branches across the country providing modern electronic services.
Brazil and Germany German Banking System Features German banks are typically universal A universal bank provides a complete range of commercial and investment banking services German Banking System
The broad umbrella of universal bank can be divided into three categories on the basis of ownership and legal form. These categories are: commercial banking sector; saving bank sector; and credit co-operative sector These three categories of universal banks together account for roughly 80% of the volume of business in Germany.
The Structure of German Banking German Banking Sector Commercial Saving Credit Co-op Other Big Banks Foreign Banks Private Banks Regional + Other Local Savings State Savings Central Savings Local Co-op Regional Co-op Fed. Clearing Mortgage Banks Banks w/Sp.Functions Commercial Banks in Germany
Commercial banks in Germany as a whole, account for roughly 25% share in the total volume of banking activity. There are four different classes of banks under commercial banks category: The Big Banks Regional and other commercial banks Foreign banks Private banks
The Big Banks
Deutsche Bank, Dresdner Bank, Commerzbank and their Berlin subsidiaries operate nationally through network of local branch offices.
Although these banks are major banks in term of their balance sheet volume, however, their volume is not as significant in terms of their share of the German banking sector.
If their interest in private business (such as mortgages) is included in the volume, then the case may be different. Regional and other Commercial Banks
These banks are all banks other than those big banks. These banks concentrates on providing universal banking services in their particular regions, but some maintain their system of branches which had allowed them to operate on interregional or national basis. Two such banks with an extensive branch network are the Bayerische Vereinsbank and the Hypo-Bank.
Foreign and Private Banks
Foreign banks in the German banking system have not been significant Foreign banks are legally allowed to offer the same services which are allowed to domestic banks.
Private banks consist of limited partnership (sole ownership is not allowed under German banking law) Although private banker can conduct all banking activities, they specialise in export finance, securities trading, industrial finance, property management and housing finance etc. Saving Bank Sector
Savings Bank Sector had the largest share in the domestic volume of banking activity. Saving banks were originally conceived as non- profit making concerns to serve relatively less well-off members of the community; to give credit on favourable terms to public authorities; to finance local investment in the region in which the saving bank was located These banks still follow these obligations but now they have become universal banks which compete with the commercial banks for most forms of banking services. Saving Bank Sector There are three tiers within the saving bank sector. These are: Local savings banks State saving banks Central saving banks
Local Saving Banks
These are municipal or district institutions incorporated under public law as independent legal entities.
Each state had its own Savings Bank Act, which specifies the structure and organisation of the saving banks in that state.
A local saving bank is usually permitted to operate only in its own region and its investment in securities and other assets are subject to restrictions. State Savings Banks (Central Giro Institutions)
Each state saving bank is incorporated under public law and is owned by its respective sate government and state saving bank association Works as clearing houses for their member local savings banks. They are state bankers in their respective states and can conduct their business on interregional and international basis. The largest state saving bank is the Westduetsche Landesbank Girozentrale, which is roughly comparable to Commerzbank in terms of balance sheet assets.
Central Savings Bank Deutsche Girozentrale (DGZ) serves as the central clearing bank for the saving bank system and holds reserves for state saving banks
Is similar to state saving banks in term of business it conducts, but it is smaller in size than many of them. Although, both local saving banks and state savings banks are universal banks, some activities such as securities trading underwriting and international business are more important.
Credit Co-operative Sector
The credit cooperative originated simply as cooperative banks. Provides credit to their members, but now have developed to universal banks. The organisation of the credit cooperative sector is similar to that of the saving bank sector. There are large numbers of local credit cooperatives and a system of larger regional banks headed by a central clearing- house institution. There are three tiers within the credit cooperative sector. These are: Local cooperative banks Regional central cooperative banks Federal clearing house institutions Local and Regional Co-operative Banks
Local cooperative banks The first tier of this sector comprises local banks organised as cooperatives, whose members are local individuals and businesses. Members of the local credit cooperatives contribute capital.
Regional Central cooperative banks The local credit cooperative are headed by a second tier consisting of regional central cooperative banks, which are either stock corporations or registered cooperatives owned by the local credit cooperatives.
Federal Clearing House Institutions
Third tier consists of a federal clearing- house institution, which is a stock corporation owned by the regional credit cooperatives.
Mortgage Banks
Among those banks in Germany, which provides a specialised range of banking services rather than universal services, the most important group consists of the mortgage banks. These banks are owned by public or private sectors. The laws in Germany generally limits mortgage banks to making long term mortgage loans and loans to public authorities. These banks finance through bonds and long term deposits. Most private mortgage banks are usually owned by commercial banks, which are interested to enter into this market. Banks with Specialised Functions
The group of banks offering specialised banking services comprises various public and private institutions Their share in total volume of banking business in Germany has been in the range of 10-12%. These banks provide loans finance such as: export finance; finance of projects in less developed countries; environmental programmes; lending to small/medium sized German firms These banks finance through government funds, bank loans and other sources such as bond issues.
BRAZIL A SOLID BANKING SYSTEM Brazil has a solid banking system and national banks with branches throughout the country A SOLID BANKING SYSTEM All payment orders (funds transfer) are handled electronically and may be settled in real-time with intraday availability. A SOLID BANKING SYSTEM Checks issued anywhere in the country are cleared and settled within 48 hours.
Web-based services have become common and Brazilian banks are leaders in Internet banking. Key Facts Since 2003, more than 8 million jobs have been created in Brazil and the unemployment rate has fallen from 12.1% to 6.5%. This has created a new section of borrowers the lower-middle and working classes.
The total stock of mortgages in Brazil is less than 4% of GDP now, and the country has a housing deficit of 6-8 million units. Both factors are expected to drive growth in the mortgage lending segment of the banking industry.
Total credit in Brazils economy, comprising credit to both individuals and industry, has grown from 35.2% of GDP in 2007 to 46.4% of GDP, as of March 2011.
According to credit rating agency Serasa Experian, in May 2011, loan defaults registered the highest monthly increase since March 2010. Whats more, they indicated a growth of 20.6% in defaults during the first five months of 2011.
Brazil is building a positive credit registry to help banks review the credit histories of all borrowers and not just defaulters.
Key Facts ( Contd.) Key Facts (Contd.) The minimum Basel Ratio of the Brazilian banking system is set at 11 percent, which 3 percent higher than what is suggested in the Basel Accord. Most banks, in reality, operate much higher than this level (at over 17.5 percent) with low leverage ratios (over six times the level of their capital holdings) All banking limits and requirements are applied in consolidated terms which means that so called toxic assets or special investment vehicles are put under heavy scrutiny All investment funds are weighted in line with their corresponding assets. This is undertaken to ensure that leverage levels are reasonable and over-exposure is kept to a minimum Over the Counter (OTC) derivatives need to be registered with the Central Bank (or face legal action) The Brazilian Securities and Exchange Commission (Comisso de Valores Mobilirio) legally obliges all public companies to disclose all information with regards to the financial instruments that are being used. In addition, full sensibility' analyses are undertaken on a regular basis Key Facts (Contd.) - The central bank has control over all non-financial subsidiaries of banking institutions;
- Expected loss provisions are taken into consideration (not just actual losses);
- Liquidity and market risks are monitored intensively by the Central Bank on a daily basis;
- Bank reserves must cover all debt payments past;
- All lending above the value of $BRL 5,000 must be registered with the Central Bank;
- Issue ratings are regularly undertaken;
- Regulatory procedures are applied to all banks and are also regularly updated in line with financial innovations (approved by the Central Bank), international standards and conjuncture changes. Major Players Among the top ten Brazilian banks in terms of total assets, three are government-owned (Banco do Brasil, Caixa Economica Federal or CEF, and the countrys development bank BNDES); five are domestic non-government owned (Bradesco, Itau-Unibanco, Banco Santander Brasil, Safra, and Votorantim); and two are foreign (HSBC and Citibank). The top four publicly listed banks are Banco do Brasil, Itau- Unibanco, Bradesco, and Banco Santander Brasil.