Finance Project - Research Paper Example

?Introduction Banking is one of the largest sectors in the world virtually controlling all the flow of money and funds across the globe. Besides performing the traditional functions such as deposit taking and lending, banking has now completely transformed itself into a new arena where banks have now become universal in nature. Most of the banks in the world now offer other non traditional services such as investment, insurance as well as other services. Universal banks therefore are now a common reality and most of the countries have implemented regulations in such a manner that they allow the banks to take on major and multiple activities at the same time. Despite such universal nature of the banking, there are still key differences between the banking systems of the world. Banking in Switzerland is considered as one of the most sophisticated and neutral banking systems in the world. Due to the overall protection and security offered to the customers under the Swiss laws, Swiss banks have proved one of the most preferred destinations for the global funds. US banking system on the other hand is regulated both at the State and Federal level and is considered as one of the most transparent and opens banking systems in the world. US banking system are relatively different from the Swiss banking system because of the overall nature of the regulations as well as the essential nature and characteristics of the system. This paper will discuss the similarities and differences between the US and Swiss banking system. Swiss Banking System Swiss Banking system is one of the oldest banking systems in the world and is famous for keeping the secrecy of its clients intact. Thus till now one of the prominent features of banking system in Switzerland is its ability to keep the identity of its customers as secret under the laws. This element of the banking system however, has its roots in the first part of the 20th century when in order to protect the money of German Jews from Nazis. Apart from this, its constitutional requirement that the individual liberty and privacy of the individuals to be kept according to the wishes of the individuals. Thus the overall notion of secrecy within the banking system of the country is exactly according to the laid down constitutional requirements of the country. It is also because of this reason that Swiss Banks issue numbered accounts thus protecting the names of the individuals and as per law all the bankers are required to remain silent about their customers. Thus one of the critical aspects of the Swiss Banking system is the issuance of the numbered accounts to the account holders in order to protect their secrecy and privacy. (Gumbel) Another important feature of Swiss banking is its ability to offer the universal banking services- a concept which was adapted little late by other countries including US. Under the universal banking services, Swiss banks offer almost all the services to their customers besides offering the traditional secrecy and protection to the customers. Universal banking services included services which are not only traditional like deposits as well as lending but also include other services such as investment advice, insurance as well as financial planning services, asset management services as well as other allied services.1 Though the universal banking services have now been adapted by most of the countries however, Swiss banks pioneered in developing the universal banking services in the world. Unlike other countries, Banks in Switzerland are not directly controlled by the central bank of the country. However, most of the banks in the country are regulated and controlled through Swiss Financial Market Supervisory authority which is a separate authority from the central bank of the country. It is also important to note that the Swiss banking system is also famous for its overall lending techniques and the quality of the loans. Swiss banks are considered as soundest banks in the world due to their overall practices and the way they lend to their borrowers. Unlike other banks in other parts of the world specially, US, Swiss banks usually do not make speculative and high risk lending decisions and therefore keep themselves liquid and safe from the changes in the economic environment of the country and the world. This is also mostly due to the fact that the Swiss currency is considered as one of the stable currencies in the world thus offering the banks in Switzerland a relative hedge against the changes in the economy at the global level. US Banking System One of the key differences between the banking systems of both the countries is based on the fact that banking in US is regulated both at the Federal as well as at State level. (NORRIS). The changes in the regulatory structure of both the banking systems therefore provide US banking system an edge in terms of the regulation of the market. Though Swiss banking system is also regulated effectively however, regulations at both the State as well as at the Federal Level put the banking system of US a relatively better regulated than the Swiss banking system. Another important distinction between both the systems is the secrecy wherein the banking system in US is considered as one of the transparent and open systems in terms of the identity of the customers. US banking system therefore do not give much importance to the secrecy of the customers and customers are often required to personally sign the documents and all the accounts are opened in the name of the customers. It is also important to note that the after 9/11, US has introduced many tough regulations in order to ensure that the banking system is not used for the transfer of funds to be involved in the terrorist and other detrimental activities. Swiss Banks are often been criticized due to this secrecy and many believe that they can provide an easy and safe conduit for the illegal money to change hands through the Swiss banking system. Though both the US and Swiss banks offer the universal banking services however, US was little late in this market. This is also due to the fact that capital markets in US are advanced and other firms such as asset management and advisory services such as Goldman Sach, Lehman Brothers as well as other smaller and medium firms are more dominating in the industry. Similarly, the insurance industry in US is also well developed thus leaving very little room for the banks to compete on the universal banking services with other players in the market. It is also important to note that the banking system in US is considered as more speculative in nature because of the overall lending practices. Banks in US are often involved in making high risk loans and the current financial crisis is also considered as the result of the speculative lending practices of the US banks. The high risk lending decisions by the banks therefore allow them to earn high returns by assuming higher risks. This element however, is missing from the Swiss banking system which is mostly stable and avoids taking excessive risks to put it under pressure. One of the critical similarities between the banking system of US and the Switzerland is that both the systems are dominated by big banks. In US, banks having more than $100 billions in assets control almost 56% of the banking sector thus making them giants in the economy. (Nasiripour). Similarly, in Switzerland there are large banking groups such as UBS & Credit Suisse controlling and operating most of the banking activities. Conclusion One of the key differences between the banking systems in both the countries is the relative degree of secrecy which is maintained under the laws. Swiss Banking system has to maintain the privacy and secrecy of the individuals under the constitution of the country and it’s because of this reason that numbered accounts are issued to the customers in place of the named accounts. In US trends are however different because the customer secrecy in terms of the identity is not kept to that level. Further, US banks are more speculative in nature because of their lending techniques therefore the overall quality of their loans is relatively of low level as compared to the lending decisions made by the Swiss banks. There are similarities in the banking systems also specially in terms of offering the universal banking services. Banks in Switzerland has been offering the universal banking services since long – a trend which has now also matured in US where banks are now also offering universal banking services through their different subsidiaries and strategic partners. US banking system is regulated differently as the banks have to comply with the regulations at both the State as well as at the Federal level. US banking system is therefore controlled by different bodies including FED, Office of Comptroller as well as the FDI whereas the Swiss banking system is regulated by single body which is however, not the central bank of the country. Bibliography 1. Gumbel, Peter. "Silence Is Golden." 08 September 2002. Time. 14 March 2011 . 2. Nasiripour, Shahien. "Big Banks Dominate U.S. Banking System: Study." 05 April 2010. The Huffington Post. 14 March 2011 . 3. NORRIS, FLOYD. "The World’s Banks Could Prove Too Big to Fail — or to Rescue ." 10 October 2008. New York Times. 14 March 2011 . Read More