Lecture Notes: The International Banking System

Introduction to the Banking System

11th century Italy: a hub for European trading.
Challenges with multiple currencies; example: Pisa with seven types of coins.
"Bank" derived from "banco," Italian for "bench" where currency exchange was done.
Developers of early banking:
- Home brokers offered credit.
- Genevese merchants created cashless payments.
- Networks of banks provided credit to the church and European royalty.

Banks as risk management entities.
Basic Function:
- Depositors receive interest.
- Banks lend at higher interest rates.
- Facilitates economic activities like buying houses and business expansion.
Other income sources:
- Savings deposits, credit card business, currency buying/selling, custodian business, cash management.

Shift from long-term financial solutions to short-term gains and high-risk activities.
Financial crisis of 2008:
- Risky credit practices led to market collapse.
- Global banking crisis ensued.
- Major banks fined; government bailouts.
- Introduction of new regulations and emergency funds.
Banking lobby's influence on legislation.

Investment Banks
- Charge annual fees, not sales commissions.
- Aligns interests between banks and clients.
Credit Unions
- Focus on shared value rather than profit.
- Controlled by members, offering democratic governance.
- Better resilience during financial crises.
Crowdfunding
- Platforms for obtaining loans from small investors.
- Popular in tech startups and creative projects.
Micro Credits
- Small loans aiding poverty alleviation in developing countries.
- Evolved into a billion-dollar industry.