Two-tier Banking System Research Articles

New «Old» Institutionalisation of Money Circulation in Post-Soviet Russia

For the study of the institutionalization of money circulation in post-Soviet Russia, an institutional-evolutionary approach was used, based on the ideas of Thorstein B. Veblen and Joseph A. Schumpeter, as well as John R. Commons. The object of the analysis was the institutional structures of money circulation, which are the most significant from the public interest point of view. The paper compares the results of the institutionalisation of money circulation in the USSR and post-Soviet Russia. Particular attention is paid to the analysis of transitional periods. In transitional periods there was a rejection, filtration, and correction of institutional forms of money circulation in terms of their compliance with public goals to develop the country's socio-economic system. The following features of the institutional design of the Soviet model are identified: first, the presence of a single-link, a hierarchical, centralized banking system with the concentration of the entire payment turnover system in the State Bank of the USSR; second, the existence of a "three-circuit system" of money turnover with cash for servicing the turnover of consumer goods, non-cash money for industrial consumption (investment) and convertible rubles for international export-import payments; third, the division of money turnover was supported by the creation of special banking institutions for servicing each of them, controlled by the State Bank of the USSR - the "State Labour Savings Banks", "Stroybank" and "Vneshtorgbank", respectively; fourth, the institutions of money circulation were an internal element of the system of the planned national economy of the USSR and were organically integrated into it. The institutionalisation of money circulation in post-Soviet Russia is characterized by the presence of new (albeit previously represented in the history of our country) institutions and has the following features: first, a two-tier banking system, the upper level of which is represented by the Central Bank of Russia, and the lower level is represented by banks and non-banking credit institutions; second, organizations of various forms of ownership operate in the sphere of money circulation, while state forms of ownership are playing an increasingly significant role; third, there is a stock exchange where stocks, bonds, currencies and other instruments of the money market are traded. The official exchange rate set by the Central Bank of Russia is based on stock quotes; fourth, the Federal Treasury operates to mediate the movement of budgetary funds. An additional element of control over their use is the introduction of "treasury accounts", to which budget funds are transferred and from where they are used for the implementation of state development programs. As a result, one can see that the process of institutional renewal of money circulation in post-Soviet Russia is associated with the return to a number of institutions characteristic of pre-revolutionary and Soviet history. Therefore we can talk about a new "old" institutionalisation of money circulation in post-Soviet Russia. The main vector of changes in recent years is associated with the increasing recognition of the social significance of this sphere, serving the public interest. A forecast has been made that state control over the processes of money circulation in modern Russia is likely to increase.

The dedicated secretary general : Miklós Pulai's activities in the Hungarian Banking Association

Untiring Miklós Pulai, who died last year at the age of 94, will be remembered among the great minds of Hungarian economic and banking history for his outstanding professional achievements. He played a decisive role in the establishment of the two-tier banking system operating under market conditions. Part of his work as a banker was linked to the Hungarian Banking Association as its secretary general right from its foundation in 1989 till 2000, while he helped its activities almost until his death. This paper is to honour Miklós Pulai’s contribution to the activities of the Hungarian Banking Association. To understand it, the importance of his achievements we must give a brief overview of the economic and social context and the processes he was an active formative participant in.

Financial and Monetary Stability Aspects of Global Stablecoins

Abstract Global stablecoins (GSCs) like Facebook’s Libra could prove much more instable than they might appear at first sight. Not only can their exchange rates against individual fiat currencies fluctuate substantially; theoretically, they also have the potential to replace national currencies, constitute “digital currency areas” and become the basis of a two-tier banking system with one and more GSC issuers, on the one hand, and, on the other hand, commercial banks that can create GSC deposit money. Against that background, all steps taken so far by supervisors and central banks can only be the starting point of what is necessary to effectively regulate the new normal of the world of money that is emerging. JEL Classification: E42, F65, G28, K24

More than 30 Years of the Hungarian Banking System

The two-tier banking system was (newly) born in Hungary in 1987. The advent of political changes arrived when the over-indebted country had been left without reserves, and nearly went bankrupt. From such a difficult position a functioning banking system had to be built up after the first free elections held in 1990. During the second term, between 1994 and 1998, most of the Hungarian banks were privatised (after consolidation of the individual banks during the first government with the help of government bonds.) In the third cycle there appeared to be too many banks in the country, and most of them were below the optimum. In the period between 2002 and 2010, banks flourished and created a credit boom based on foreign currency. Following the international financial crisis this led to great troubles. The forint was devaluated against the Swiss franc, and numerous clients became insolvent and lost their homes. The government elected in 2010 made efforts at resolving the situation to help citizens by programmes including several steps. Banks were required to take part in this effort by paying special taxes and for a time this cut back on their profitability. The last three governments since 2010 modified the deconcentrated banking structure and repurchased some of the previously privatised banks. In 2013 the government set the goal of increasing the share of Hungarian-owned banks to above 50%, which was achieved in 2019. The profitability of banks has recovered, and their capital position is now strong. The National Bank of Hungary fulfils the supervisory function. Through its monetary policy, unorthodox measures and credit programmes, it helps the smooth functioning of the sector and thus the financing of Hungarian SME’s.

The Current State of the Monetary Sphere of Kazakhstan, Kyrgyzstan, Tajikistan within the Framework of Changes in the Legislation

The article discusses the current state of the monetary – credit sphere in the former states of the Soviet Union. The authors note that, the collapse of the Soviet Union in 1991, which led to the defragmentation of the monetary system, is an important event in the formation of the financial sector in Central Asia. The single monetary and financial system, which was adapted to the conditions of the planned economy, had started rapidly falling apart. The result was a break of the traditionally existing economic ties.
 It is important to note that the monetary policy has a direct impact on the major macro-economic indicators such as GDP, employment and the level of prices. It is thus important to have a solid legal base. The accelerated formation of national monetary systems in Central Asian states has required the creation of genuinely independent emission center as the Central Banks of Central Asia. Since 1994, Central Asian governments have begun to carry out macroeconomic regulation, mutual settlement in the economy and emission activity.
 The next step was a reform of the banking system in Central Asia. At the beginning of the independence of the Central Asian states a legal framework was created and a transition was made to a two-tier banking system. According to the adopted laws in the countries of Central Asia, a two-tier banking system was formed, where the upper level was represented by the State Bank of the region (with emission rights), and the bottom were - commercial and government specialized. Creating second tier banks was a response to the needs of the Central Asian countries.

FEATURES OF THE FORMATION OF FINANCIAL AND CREDIT SYSTEMS IN A MULTI-FACETED ECONOMY

It is determined that the formation of the financial system of Ukraine took place simultaneously with the development of its statehood. The components of the financial and credit system, which in total are two subsystems: financial and credit, are analyzed. Each of these subsystems is divided into spheres, and those in turn — on the links, subdivisions, etc. Although each element of the financial and credit system has its own organization, mechanism and functioning, they are all closely interconnected and have a great influence on the development of the national economy. It is noted that the banking system in Ukraine is under construction. It is built on the western type. Today in most countries of the world there is a two-tier banking system. In such a system, relations between banks are formed in two planes: vertically and horizontally.As the analysis shows, the market mechanism is not omnipotent. According to the goals of a democratic society, the market can not provide a noble redistribution of profits. In a crisis situation, the market has little effect on the stabilization of the economy and the effective functioning of the credit and financial system. Certain investment funds, insurance companies and credit and financial institutions are engaged in activities that are unusual for them, harming the public: attracting contributions from the population that perform the functions of savings and commercial banks on the principle of a pyramid, thus causing a wave of bankruptcies. It is substantiated that the public purpose of the financial and credit system characterizes the functions and gives a clear idea of its role, that is, the "work" that this system performs in society. The functions of the financial and credit system are an objective and dynamic phenomenon. Each of them is formed and developed with the development of financial and credit relations and the economic environment in which this system operates. It was concluded that financial and credit relations are one of the most important categories of a market economy, which reflects the real relations and interconnections of economic entities in the economic life of society. The financial and credit interaction of banks and enterprises has always been and remains an important lever for stimulating the development of production and reflects the economic relationship with the reverse movement of borrowed value.

Market structure in the Vietnamese banking system: a non-structural approach

PurposeThis paper aims to examine the market structure of Vietnam’s banking sector during 1999-2009, which is after the introduction of the two-tier banking system, using the non-structural (Panzar–Rosse) model.Design/methodology/approachThe authors consider a more comprehensive range of specifications, in terms of a greater number of environmental covariates and different dependent variables, than in the previous applications of this model. Further, this is the first study that uses lagged input prices (to avoid endogeneity), excludes assets (to avoid specification bias) and includes a lagged dependent variable (to avoid dynamic panel bias) in such a study of the Vietnamese banking system.FindingsThe authors find that the Vietnamese banking system operates in monopoly.Originality/valueThe main contribution of this paper is to determine the market structure in the recent period after the Vietnamese banking system was transformed into a less centralised, two-tier system. This study is the first to uniquely identify the market structure of this developing economy’s banking system (using data only for Vietnam and not observations from other countries) in a post-transition period.

Polityka pieniężna Narodowego Banku Polskiego od roku 1989

The article discusses the activities of National Bank of Poland during the past twenty-five year and more specifically in the years 1989–2013 with particular emphasis on monetary policy. During this time, the Polish central bank has undergone fundamental change, starting from the position of the so-called monobank, i.e. bank without autonomy in activities, characteristic of planned economy. The article describes the process of transformation of the National Bank of Poland to the role of a central bank operating in a market economy. The paper emphasizes all the important events in the transformation, including building of a two-tier banking system, the gradual replacement of the administrative measures by monetary policy instruments, currency denomination, constitutional guarantees of the role and independence of the National Bank of Poland, creation of the Monetary Policy Council – a departure from the single monetary policy-making in favor of collegiality, changing the monetary policy strategy to direct inflation targeting, bank exchange rates policy, open market operations.

The Weaknesses of the Albanian Banking System

Albania has inherited a one-tier centralized banking system from the socialist system. A Central Bank that had under its control two other banks: the National Commercial Bank and the Agricultural Commercial Bank. These banks had subsidiaries and branches throughout Albania. The monetary policies of this system were based on the application of direct monetary instruments such as loan limits, the deposits lower margin interest rates and the loans higher margin interest rate. The foreign currency was a monopoly of the Central Bank. After the ‘90s, the two-tier banking system was established in Albania. The Central Bank of Albania that was established had as its main objective “to achieve and maintain the price stability”. A number of commercial banks of the second-tier were established. The National Commercial Bank and the Savings Bank having entirely state-owned capital were privatized. The free movement of the Euro and the USD was allowed. Second-tier banks were allowed to accept deposits and to grant loans in foreign currency. The free movement of capital was allowed. Direct instruments were eliminated and indirect instruments were applied. The purpose of this study is to analyze the consequences of the change on the banking system, the transition from a centralized system to a two-tier banking system. The impact of the change in the areas of: economic growth, unemployment rate, inflation control, monetary base control, interest rates control in view of the dynamics of deposits and loans in Albanian Lek (“ALL”), exchange rate of the national currency, circulation of the national and foreign currency, role of national currency in the economic growth etc. By analyzing the above mentioned areas, we can determine the weaknesses of the new banking system established after the ‘90s as well as to express our views in relation to the ways and means to overcome this situation. DOI: 10.5901/mjss.2014.v5n4p87

The role of banking reform policy in transition economies: delayed reforms for the case of Serbia

While Serbia had initiated the establishment of the two-tier banking system earlier than most of the South East European (SEE) countries (in 1965), the banking reform actually began later than these countries (after 1999). The main reasons to account for that were: 1) very adverse initial conditions of the country's economy; 2) dramatic economic decline; 3) disguised and mixed transition paths that have been followed, imposition of sanctions, severe regional instability, mismanagement and corruption. However, just six years after the implementation of reform, the overall functioning of the banking sector in Serbia in 2005 has witnessed a substantial improvement.

The Hungarian banking system 20 years after modernisation

Introducing the two-tier banking system in 1987 was a pivotal step in modernising the Hungarian economy. For the last two decades the Hungarian banking industry has significantly changed regarding ownership, institutional and market structures. The quality of financial services has considerably improved. Financial deepening has taken place as a result of organic developments as well as government policies. Bank clients have, no doubt, gained a lot in terms of quality and price of services. However, as international comparisons of market efficiency demonstrate, elimination of oligopolistic market structures in retail banking should further enhance consumer welfare.

Current Tendencies of the Russian Banking Sector Development

The reasons of the financial crisis of 1998 in Russia are considered in the article. It is stressed that the monetary authorities missed the chance to establish the banking sector framework in the country closer to tested Western standards. The current state of the Russian banking system is analyzed, its unresolved problems are formulated: lack of an enabling environment, difficulties with choosing the banking model, absence of a level playing field, low trust, deficiencies of regulatory framework and corporate governance. Privatization of state banks and introduction of a two-tier banking system are proposed.

Dilemmas of financial development in Kazakstan

The study reviews the experience of Kazakstan with financial reform. After establishing a two-tier banking system with the National Bank of Kazakstan as the central monetary authority, banks were separated between deposit taking institutions and investment banks. The priorities of the monetary authority have been the introduction of the tenge as the new national currency, the design of the appropriate techniques of monetary control and the pursuit of price stabilization. The problems facing the reform of commercial banks relate to their specialization by sector of economic activity, high concentration, lack of expertise in risk assessment, the incidence of bad loans, the establishment of a clear legal, accounting and regulatory framework, and the development of fully functioning securities markets. © 1998 John Wiley & Sons, Ltd.

Banking reforms in East Central Europe

The first step towards the establishment of a banking sector geared to the market economy, the introduction of a two-tier banking system, has long since been taken by the countries of East Central Europe. A large number of shortcomings are still to be found in their banking systems, however, and the speed of reforms, after a lightning start, has slowed down to a snail’s pace.

Establishing Monetary Control in Financial Systems with Insolvent Institutions

The paper addresses the problem of establishing monetary control in financial systems with insolvent institutions. In particular, it examines the potential adverse selection, moral hazard, and collusion problems that can arise if indirect, auction-based monetary control systems are used in this environment. The analysis also considers the credit risks that can be assumed by the authorities when these market failures occur. The implications of using several alternative monetary control mechanisms, including a narrow banking system, the use of credit ceilings, and a two-tier banking system, are also examined.

Monetary Policy during Transformation

The present paper analyses the monetary policy of the Czech Republic (Czechoslovakia) during the transformation. Dynamic behaviour of monetary aggregates, GDP and CPI along with Granger-causality is studied. The Granger-causality between GDP and monetary variables, taken from advanced market economies, has not been confirmed for the Czech Republic. Having analyzed monthly data we discovered independence between GDP and monetary variables (except GDP Grangercause M2), feedback (bilateral causality) between price level and M2. This reflects the evolving nature of a transmission mechanism between monetary and real variables on the one hand and the accommodative character of monetary policy on the other. The institutional changes in the monetary sphere in first years of transformation from a command to a market type economy indicate that a two-tier banking system has been created and that the Central Bank has at its disposal the whole tool kid of advanced market economies. Having utilised the information contained in both the monetary base and balance sheet of the CNB we calculated ex post multipliers for both narrow and broad money. Money multipliers for 12 months do not exhibit a stable pattern because of different factors reflected in the development of currency-deposit ratio, reserve-deposit ratio and the amount of high-powered money. Both the autonomous factors and monetary policy factors have been mirrored in these figures. The analysis documents the rapidly evolving nature of the monetary sphere in the Czech Republic and the increasing monetization of the Czech economy.

Financial institution structures in a developing two-tier banking system: An empirical perspective from Eastern Europe

An empirical analysis of the structure of Hungarian financial institutions reveals them to be very profitable across all groupings. Although capital and liquidity ratios are, on average, low in comparison to West German standards, the capital adequacy problems appear to be concentrated in the former affiliates of the central bank. The thinness and underdevelopment of the Hungarian securities market may hinder the capacity of the institutions to raise liquidity and capital ratios, as well as inhibit the emergence of competitors seeking high levels of profitability.