The Financial Systems of South Korea and the United States - Essay Example

Running Head: FINANCIAL SYSTEMS The financial systems of South Korea and the United States Name Course Instructor Date The financial system of the United States of America The financial system of the United States of America is made up of the banking institutions, the nonbank economic systems and institutionalised financial markets. The US banking institutions are made up of the Federal Reserve System, the commercial banks, savings establishments and credit organisations. The checks and balances of these systems are usually approved at the federal and state points. In the United State, the different banking institutions are standardized by different institutions, for example; the federal chartered banks are controlled by the Office of the Comptroller of the Currency, the state chartered financial institutions by the Federal Deposit Insurance Corporation, savings establishments by the Office of Thrift Supervision and credit organizations by the National Credit union Administration (Legislative Council Secretariat, 2005). In the US, the Federal Reserve System is the central bank and thus is comprised of twelve other reserve banks. The central bank has a panel of governors, seven of which are selected by the president and then approved by the senate, and one of the governors is selected from any one of the twelve reserve banks. In this regard, the United State’s monetary guidelines are usually carried out by the central bank. Moreover, the central bank also plays the role of overseeing the functioning of the other financial banks. In addition, it ensures that the end user’s credit rights are well taken care of. The major task of the central bank is ensuring that the country’s economic system is kept steady in order to make certain the United States continued economic prosperity. In spite of this, the central bank also shoulders certain financial duties that it performs to the United States government, the general community, the American financial organizations and other oversees approved institutions (Legislative Council Secretariat, 2005). Like the United States central bank, the twelve other reserve banks are tasked with ensuring that the countrywide payment structure is fully operational. In addition, these banks are tasked with the sole duty of ensuring that the country’s coins and notes are well disseminated throughout the country. Their other duty is to ensure that the member banks and other bank owning organizations are kept under check in order to ensure that the central bank’s regulations regarding the country’s financial system are adhered to. Moreover, the reserve banks also carry out their duties as national bankers for the United States treasury. The reserve banks also perform the task of acting as the monetary reservoir in the districts that they are situated (United States System Publication, 2013). The commercial banks perform an essential function in the United States financial system because they oversee a greater part of the financial business operations and other banking operations. On the other hand, the comptroller of the currency puts in place the rules and policies that oversee the bank assets and the lending services thus ensuring that the banks are kept under checks and balances. To ensure that the American economic growth is growing in the correct direction, the comptroller of the currency takes stern actions against the financial institutions, for instance banks, which get involved in undesirable activities. Despite banks, the comptroller of currency also takes punitive actions against individuals who break or attempt to transform the rules and policies of the banking institutions. The United States Federal Deposit Insurance Corporation ensures that all financial institutions stay afloat and thus contributive to the country’s financial system and in the case of a deteriorating financial set up, the FDIC offers solutions to such affected bodies (Board of Governors of the Federal Reserve System, 2012). The United States’ financial markets are one of the most well developed in the entire globe and thus very contributive to the country’s economic standing. The United States financial markets, for instance; shares, debit, money and foreign exchange; apply a huge control on the financial markets and systems of the other world countries. The United States equity market is made up of stock exchanges where shares and other stocks are traded. The New York and the American stock exchange are the most well known above in the American stock history. The reliability of these stock markets is preserved by the Securities and Exchange Commission. Moreover, the Securities and Exchange Commission also looks after the needs and investment of the depositors. The money markets are usually put in place so as to ensure that the investors are supplied with lend money on temporary agreements. The United States financial markets enable the exchange of huge amounts of money and in the process influencing the gains that businesses make and thus either aiding in stabilizing or derailing the economy. Moreover, these markets usually have a resounding effect on the products and services that are produced within an economy, and in this case the United States. In this system, the commercial banks and other financial institutions which are the depositories of money lend out money to investors so that they can invest in the US economy. The United States financial markets are very greatly concerted in the banking industry while when a study of the capital markets and the wholesale credit is carried out, the absorption is modest. According to Cetorelli et al. (2007), a study of the United States financial market over the past few years shows a considerable transformation as a result of several other firms undertaking transactions in this market. Chicago Board of Trade and the Chicago Mercantile Exchange are some of the well known future markets in the United States that are concerned with the trading and buying in the future. The United States operates in both the commodity and financial futures, whereby under the commodity futures, she trades in coffee, cocoa, petroleum products, grains and sugar. The federal Commodity Futures Trading Commission ensures that the US future markets are well synchronized. CFTC also makes certain that the market partakers are well shielded from exploitation, deceit and other business malpractices. The US treasury is tasked with the duty of keeping checks and balances on the foreign exchange markets via the Federal Reserve System. In the US, trading licenses are not required in order to do business in the foreign exchange market for the reason that there is no hold on the exchange market. The nonbank economic institutions in America include the insurance industry, housing finance issuers and pension funders. These institutions are often involved in long term projects so as to sustain the United States financial development and at the same time ensuring that job opportunities are created for the US population. Impacts of the global economic crises to the US economy The United States was not spared of the global economic meltdown that hit the world in 2008 since it had not been anticipated. The 2007-2009 deep in the world economy was registered as worst that had hit America as compared to the other great recessions of the past because the US went to a near total economic meltdown. The US was caught up in a European debt catastrophe and had no recuperation plan at the ready because her future was doubtful due to the absence of a better fiscal plan. The debt issue led to her weak fiscal position which transformed into a general economic drop. The crisis witnessed her global hegemony greatly threatened because she was not able to fund the international projects as had been the case while she was still enjoying her financial prosperity (Morgan, 2012). As the result of her economic status, the US government had to cut down on her military spending because she could not reasonably manage the several fronts that she had opened. This cutting down made her to endorse NATO’s involvement rather than assume a forefront role in the issue. Moreover, she started cutting down on her obligations to Iraq and Afghanistan, duties she had readily assumed while her financial stars were still shining bright. This cutting down will mean that the United States will have a mountain to climb in attempts to maintain parity with her opponents, for instance Russia and China, who were not as heavily hit as she was. The crisis greatly affected her status on the international scene because the dollar, which had been one of the chief reserve currencies, was drastically waning as compared to the other reserve currencies. This decline meant that the world quarter of the reserve share that the dollar was enjoying was going to be cut down, a scenario which indicated that other reserve currencies were being sought after. With the drop of the dollar, the Euro capitalized on it thus becoming the chief recipient. Overcoming the global crisis Enormous and speedy policy transformations were needed in order to ensure the country’s economy was brought back to her normal fiscal track, and thus making certain that the American economy did not entirely submerge. As a result of her shipping and processing credit ranking, the United States’ capability to get loans from oversee states has not yet completely weakened. With the effect of her declining desire for imports, her reserve currency standing has strengthened; an occurrence that has also been strengthened by her ability to stabilize the country’s economy even though it is still low. In order to overcome the financial crisis, the United States government has embarked on a re-regulation exercise that involves the financial institutions thus ensuring they are effectively involved in the economic revamping process. Initially, as an effect of the neoliberal stance of the government on businesses, these financial institutions were not synchronized, and as a result, numerous business malpractices were carried out and thus the economic crisis was the end product. To completely curb such practices, the United States government is setting up regulations and policies that are to be adhered to by the financial sectors in order to ensure that the country emerges from the meltdown that she underwent. Moreover, the US government is moving towards the realization of a factual economic growth rather than a growing financial segment that has no bearing on the economy. In addition, although the United States government is promoting the globalization of business enterprises, she is at the same time agitating for the setting up of proper international governance that will keep checks and balances in order to ensure that the economic downturn of one state does not affect the entire world economic system (United Nations, 2012). In order to stimulate investment her economy, the United States government has embarked on a stimulus package offers that are aimed at initiating the America’s economic growth. Conclusion As seen from the global economic crisis, it was evident that some states were adversely affected than others and this occurrence was majorly attached to the view that their economies were overtly relying on the exports that they were selling to the other countries, and as a result of the crisis, their products could not be bought and thus they were plunged into the scourge that all taken the world by surprise. In order to avert such occurrences, economic preparedness through the setting up of fiscal plans that are tangible is very essential. The emerging economies, for instance Brazil, Russia, India and China (BRIC) were affected by the economic crisis, but because of their effective back up plans, they were able to pick up themselves and currents it seems as if they never experienced the crisis. As had been expected, after the great depression of the 1930’s, there were lessons to be learnt, but after the 2007-2009 economic meltdown, it was evident that nothing concrete had been learnt, and since history is good at repeating itself, the same scenario was witnessed again. Although the United States was greatly hit by the economic crisis that started on her soil, she is slowly redeeming herself by setting up measures of ensuring that the country’s economy resurrects assumes its normal glow. It is only by ensuring that the main causes of economic crisis are tackled that the world will enjoy an economic boom. References Board of Governors of the Federal Reserve System (2012). Flow of Funds Accounts of the United States. Federal Reserve Statistical Release. Retrieved 2/5/2013 from http://www.federalreserve.gov/releases/z1/current/z1.pdf Cetorelli, N., Hirtle, B., Morgan, D. Et al. (2007). Trends in Financial Market Concentration and their Implementation for Market Stability. FRBNY Economic Policy Review. Retrieved 3/5/2013 from http://www.newyorkfed.org/research/epr/07v13n1/0703hirt.pdf Legislative Council Secretariat (2005). Information Note: Financial System of the United States of America. Research and Library Services Division. Retrieved 2/5/2013 from http://www.legco.gov.hk/yr00-01/english/library/0001in10.pdf Morgan, I. (2012). The American Economy and Americas Global Power. Retrieved 3/4/2013 from http://www2.lse.ac.uk/IDEAS/publications/reports/pdf/SR009/morgan.pdf United Nations (2012). The Financial and Economic Crisis of 2008-2009 and the Developing Countries. United Nations Conference on Trade and Development. Retrieved 3/5/2013 from http://unctad.org/en/Docs/gdsmdp20101_en.pdf United States System Publication (2013). The Federal Reserve System: Purposes and Functions. Library of Congress. Retrieved 2/5/2013 from http://www.federalreserve.gov/pf/pdf/pf_1.pdf Read More