FINANCIAL INSTITUTIONS

Operations and Strategy of Financial Institutions

Operations and Strategy of Financial Institutions

1a. Critically evaluate the theory of the banking firm - answering the question 'why are large commercial banks special?

Introduction

Banking is one of the oldest professions in the world and immediately linked with international arena (foreign exchange, trade finance). It is like any other business, its behavior and strategy can be analyzed with the same analytical tools and frameworks as relevant to any other company. However, the bank is special and the consequences of this specificity are considerable.

Discussion

Banks are an integral part of the modern money economy; their activities are closely linked to the needs of reproduction. They are at the center of economic life and serve the interests of producers, linking cash flow industry and trade, agriculture and population. Throughout the world, banks have considerable power and influence since they command huge money-capital, flocking to them by companies and firms from traders and farmers from the state and private individuals. In essence, the banking system is the heart of the economic organism of any country (Arena, 2006).

In order to understand the nature of any economic phenomenon, it is necessary to know the history of its development, the main stages of its evolution from simple to more complex and diverse structures.

Why are commercial banks Special

Commercial banks are private and state-owned banks that provide a wide range of financial services of which the most important are considered the implementation of lending operations of industrial, commercial and other businesses, the public, and providing cash settlement and depository services (Devinney, 1986).

Activities of Commercial Bank

Today a group of commercial banks in different countries are a number of institutions with different structures and different attitudes property. There are also different interpretations of the concept Commercial Bank. Their main difference from the central bank is the absence of the right to issue banknotes (Hara, 1980). Traditionally, commercial banks are of two types; universal and special. Universal Bank carries out all or nearly all types of banking operations; providing both short and long term loans, transactions in securities, deposits of all types, providing all kinds of services, etc.

Bank, by contrast, focuses on one or a few types of banking. In some countries, the banking law limits or prohibits banks to carry out a wide range of operations. Yet banks' profits from individual special operations can be is so high that the activity in other areas becomes optional. All other things being equal, universal banks are characterized by greater stability. In turn, special banks can compare favorably with the high quality of the services in which they specialize. There are number of services provided by banks, especially foreign ones can be divided into several large groups (Berger, 2002).

Settlement and cash services; services related to the implementation of non-cash payments as well as the reception and delivery of cash. This group includes all the services that a client can get from the bank. Every company, regardless of ownership of the means of production, has the rights of a legal entity ...